Earnings Call Transcript - RM Q2 2025

Operator, Operator

Ladies and gentlemen, greetings, and welcome to the Regional Management Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Edson from ICR. Please go ahead.

Garrett Edson, Host

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 2 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. A reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement or earnings presentation and posted on our website at regionalmanagement.com. I would now like to introduce Rob Beck, President and CEO of Regional Management Corp.

Robert William Beck, CEO

Thanks, Garrett, and welcome to our second quarter 2025 earnings call. I'm joined today by Harp Rana, our Chief Financial and Administrative Officer. On this call, we'll cover our second-quarter results, provide an update on our portfolio credit performance and growth strategies, and share our expectations for the second half of 2025. We delivered very strong financial and operating results in the second quarter. We generated net income of $10.1 million and diluted earnings per share of $1.03, an improvement of 20% year-over-year. Our results across all line items met or beat our guidance, including net income that was $3 million or 42% better than the midpoint of our guidance. Our quarterly revenue reached a record level of $157 million. Total originations were also at a record high, and our annualized operating expense ratio was an all-time best. I continue to be impressed with our team's execution as we focus on driving growth, improving our operating effectiveness, and delivering strong shareholder returns. Consumers in our target segment remain healthy. This has allowed us to responsibly grow our portfolio while also improving our credit performance. We grew our net receivables by $70 million sequentially in the second quarter on $510 million of originations. Our ending net receivables were up 10.5% year-over-year, in line with our expectations to grow the portfolio by at least 10% in 2025. At quarter end, our 30-day delinquency rate was 6.6%, an improvement of 50 basis points sequentially and 30 basis points better year-over-year. Our net credit loss rate of 11.9% was in line with our expectations for the quarter. The NCL rate improved 50 basis points sequentially and was 80 basis points better than the prior year period. Our credit tightening actions continue to yield positive results. We also managed expenses tightly in the quarter. Our operating expense ratio of 13.2% improved 60 basis points year-over-year despite continued investment in innovation and growth, including new branch openings. We'll continue to invest in initiatives that will drive long-term returns while practicing sound expense discipline. In the second quarter, we had capital generation of $16.9 million, bringing total capital generation year-to-date to $26.8 million. Through the second quarter of this year, we returned an aggregate of $17.6 million in capital to shareholders via stock repurchases of $11.6 million and dividends of $6.1 million. Our book value per share reached $36.43 at quarter end. In sum, we're very pleased with our second quarter results. As I reflect on economic conditions and our team's efforts over the last several years, I believe the second quarter represents one of the strongest periods of execution since 2021 and early 2022, a time when inflation was stable, funding costs were low, and government stimulus was contributing to strong credit outcomes. We have very positive momentum, a growing healthy portfolio, and remain well-positioned to deliver strong results moving forward. Before handing things over to Harp, I'll touch on a few strategic items. We opened 2 branches in the second quarter, bringing total new branch openings to 17 since early September of last year, of which 11 are in new markets in California, Arizona, and Louisiana. These branches are performing well and growing rapidly, and we expect to open another 5 to 10 branches over the next 6 months. We generally observe that new branches begin to generate positive monthly net income at around month 14 and pre-provision net income at around month 3. We view new branch openings as excellent investments, and we'll continue to open new branches in new and existing markets, with the pace of openings dependent on economic conditions. We also continue to execute on our barbell strategy, which focuses on growth in our high-quality auto secured and high-margin small loan portfolios. Our auto secured loan portfolio grew by $66 million or 37% year-over-year from 10% to 13% of the total portfolio and carries a 30-day delinquency rate of 1.9%. Meanwhile, our portfolio of loans with APRs above 36% grew by $50 million or 16% year-over-year, increasing modestly from 17% to 18% of our total portfolio. These portfolios continue to perform well, have strong margins, and support our customer graduation strategy. On the expense front, we remain good stewards of shareholder capital. As a normal course of our operations, we regularly review branch-level financial and operating metrics and evaluate opportunities to improve network efficiency. In connection with those efforts, we expect to consolidate 8 to 10 branches this year into nearby branches. The G&A expense from these actions will be used to support our new branch openings in new geographies. In addition, earlier this month, we completed a small restructuring in our corporate offices with the general goal of streamlining our business processes to maximize efficiency. While this resulted in a restructuring charge in the third quarter, the G&A expense savings from the action will more than offset the charge within the quarter. Moving forward, we expect annualized G&A expense savings of roughly $2.3 million from this repositioning. These savings will support our ongoing investments in technology and advanced data and analytics, which are already bearing fruit. For example, we developed a new front-end branch origination platform that will improve team member effectiveness, enhance the customer experience, and ultimately benefit our operating efficiency. The new system facilitates a smoother, quicker, and more accurate origination process. We began piloting the system earlier this year, have deployed the system within one of our larger states, and we will be rolling it out throughout our network over the next 18 months. We've also developed a new customer lifetime value analytic framework for direct mail marketing that consists of dozens of machine learning models that allow us to better optimize offer and selection criteria. We began using the new model in the second quarter and will fully deploy it in the third quarter. We expect to see significant benefits as it scales in use. Similarly, we'll be rolling out our new machine learning branch underwriting model starting in the third quarter, and we'll deploy it across our network as we implement our new front-end origination tool. These new models will allow us to improve volume while holding credit risk constant, improve credit risk while holding volume constant, or some combination of the two. Ultimately, the models will improve our mail selection, enhance our ability to monitor results, and enable us to optimize profitability. We expect that our team's efforts to grow our portfolio, increase our operational efficiency, and improve our credit performance will drive increases in net income and shareholder value. For 2025, we're forecasting full-year net income of $42 million to $45 million. Given the strong portfolio growth we experienced in the second quarter, there may be an opportunity for faster growth in the second half of the year. Where we land within the forecasted 2025 net income range will be driven by our portfolio growth, which directly impacts our provisioning for credit losses and bottom-line results. Ultimately, our portfolio growth rate in the second half will depend on the health of our customers, informed by our credit metrics and macroeconomic conditions. I'll now turn the call over to Harp, who will provide more detail on our results.

Harpreet Rana, CFO

Thank you, Rob, and hello, everyone. I'll now take you through our second quarter results in more detail and provide you with an outlook for the second half of the year. On Page 4 of the supplemental presentation, we provide our second-quarter financial highlights. Our net income of $10.1 million and diluted EPS of $1.03 were supported by a solid portfolio and revenue growth, a healthy credit profile, expense discipline, and a strong balance sheet. For the third quarter, we're projecting net income of roughly $14.5 million. Turning to Pages 5 and 6. We had record total originations of $510 million in the second quarter, up 20% year-over-year. Loan volume was driven by strong performance from our digital channel, auto secured product, and the 17 de novo branches we've opened over the past 12 months, the latter of which generated 24% of our year-over-year growth. Our total portfolio reached record levels at the end of the second quarter and is expected to cross $2 billion in the third quarter, while our ending net receivables per branch reached $5.6 million on average. We continue to believe that key economic markers, including wage growth, the number of open jobs, the unemployment rate, and the direction of inflation, are favoring our customers and that our customers tend to be resilient and adaptable. These conditions have allowed us to grow our portfolio while maintaining a tight credit box. Looking ahead to the third quarter, we anticipate that our ending net receivables will increase roughly $55 million to $60 million sequentially and that our average net receivables will be up roughly $75 million sequentially. Turning to Page 7. Total revenue grew to a record $157 million in the second quarter, up 10% year-over-year. Our total revenue yield and interest and fee yield each moved up 50 basis points sequentially to 32.9% and 29.4%, consistent with seasonal patterns. Total revenue yield improved 20 basis points year-over-year from the improved credit performance and ancillary product revenue. In the third quarter, we expect total revenue yield of 32.8%, a 10 basis point sequential decrease due to portfolio mix. And for the fourth quarter, we anticipate a further decline in revenue yield due to seasonality. Moving to Page 8. Our portfolio continues to perform well. Our 30-plus day delinquency rate as of quarter end was 6.6%, 50 basis points better sequentially and a 30 basis point improvement year-over-year. Our net credit losses in the second quarter were better than our forecast, and our net credit loss rate of 11.9% improved 50 basis points sequentially and 80 basis points year-over-year due to credit tightening and effective portfolio management. Our second quarter net credit losses include a $2.1 million or 40 basis point impact from prior year hurricane activity. In the third quarter, we expect our delinquency rate to rise gradually, consistent with seasonal patterns. We anticipate that our net credit losses will be approximately $51 million in the third quarter or a net credit loss rate of approximately 10.3%, a 30 basis point improvement from the third quarter of last year. The expected sequential improvement in our net credit losses in the third quarter is consistent with seasonal patterns, and the expected year-over-year improvement in our net credit loss rate in the third quarter is reflective of the overall improved credit quality and performance of our portfolio. For the fourth quarter, we expect a sequential seasonal increase in our NCL rate. Turning to Page 9. We increased our allowance for credit losses in the quarter by $3.7 million to support portfolio growth. Consistent with our outlook, our allowance for credit losses rate declined to 10.3% due to the release of the remaining hurricane reserve against the associated net credit losses in the second quarter. Looking to the third quarter, subject to economic conditions and portfolio performance, we expect our reserve rate to remain steady at 10.3% at the end of the quarter. Flipping to Page 10. We continue to closely manage our spending while still investing in our growth capabilities and strategic initiatives. Our annualized operating expense ratio was 13.2% in the second quarter, an all-time best and an improvement of 60 basis points from the prior year period. In the second quarter, our revenue growth outpaced our G&A expense growth by more than 5x. In the third quarter, we expect G&A expenses to be roughly $65 million to $66 million. Turning to Pages 11 and 12. Our interest expenses for the second quarter was $20.4 million or 4.2% of average net receivables on an annualized basis, better than our outlook on lower average debt and lower fees. Our cost of funds increased year-over-year as lower fixed-rate debt has matured, and we funded our growth with higher fixed and variable-rate debt. Even with the increased cost of funds, we're pleased with the way we've managed our interest expense over the past few years. As of the end of the second quarter, 84% of our debt was fixed-rate with a weighted average coupon of 4.5%. In the third quarter, we expect interest expense to be approximately $22 million or 4.4% of average net receivables. And for the fourth quarter, we expect the cost of funds rate to increase further to 4.5%. Moving forward, we'll continue to maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified and staggered funding sources, and a sensible interest rate management strategy. Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital to our dividend and $30 million share repurchase program. Our Board of Directors declared a dividend of $0.30 per common share for the third quarter. Pursuant to our buyback program, we repurchased approximately 165,000 shares of our common stock in the second quarter at a weighted average price of $30.36 per share. Finally, I'll note that we provide a summary of our third quarter 2025 guidance on Page 14 of our earnings supplement. That concludes my remarks. I'll now turn the call back over to Rob.

Robert William Beck, CEO

Thanks, Harp. Before we wrap up, I want to take a moment to thank the entire Regional team for their dedication and outstanding execution during the second quarter. Your hard work continues to drive our success and positions us for long-term growth. We're extremely proud of our results this quarter: record revenue, strong net income, responsible portfolio growth, disciplined expense management, and improved credit performance. These achievements reflect the strength of our strategy, the quality of our execution, and the resilience of our business model. Looking ahead, we remain focused on accelerating growth, investing in strategic initiatives like branch expansion, advanced analytics, and technology enhancements, and further strengthening our credit performance. These actions will enable us to deliver sustainable, profitable growth and long-term value for our shareholders. Thank you again for your continued support and confidence in Regional Management. We're excited about the opportunities ahead and look forward to updating you on our progress in the quarters to come. I'll now open up the call for questions. Operator, could you please open the line?

Operator, Operator

The first question comes from the line of David Scharf from Citizens Capital Markets.

David Michael Scharf, Analyst

Terrific results. And I'm wondering, Rob, you've discussed an awful lot of different initiatives, whether it's geographic expansion, some of the store-based origination, marketing channel technology developments. As we look beyond just kind of the near-term 90-, 180-day guidance, is there kind of a ranking of where you see the most opportunity you can provide us, whether it's geographic, channel related or product-related? Or should we just think of this as always fine-tuning among all the different aspects of growth?

Robert William Beck, CEO

Thanks for the question, Dan, and for being here. In response, I'd like to share what we've achieved this quarter. Firstly, we have numerous growth opportunities that stem from our investments in various initiatives over the years, especially during the challenging high inflation period. This has positioned us well to adjust our strategies based on customer health and macroeconomic conditions. Our growth has come from a mix of state expansions and new branches, many of which are located in those new states. Our auto secured lending has also benefited from our shift towards digital underwriting, which showed significant strength this quarter, alongside the advanced analytics we've utilized to enhance our underwriting and marketing strategies, enabling us to fuel growth or manage losses as needed. To illustrate, we achieved $187 million in year-on-year growth in our ENR segment, with $147 million, or 79%, coming from our lower-risk large loans, which significantly outpaced the increase in our small loans. Auto secured loans contributed $66 million, accounting for 35% of our overall growth and making up 13% of our portfolio. Delinquency rates remain low at 1.9%, indicating a robust low-risk portfolio. The 17 new branches we opened since September generated $45 million in growth, contributing 25% overall, while new states led to $97 million in growth, roughly 52% of total growth, primarily at rates below 36%. Importantly, we have achieved this growth without relaxing our credit standards. Our high-margin loans above 36% only slightly increased from 17% to 18% of our portfolio. Looking ahead, we are well-positioned with various options to pursue growth. Using our advanced analytical tools, we can strategically decide where to focus on growth based on market conditions. We're optimistic about the second half of the year, with a credit performance aligning with our initial expectations. We foresee an opportunity for faster growth if we choose to in the latter half, and we will let credit performance and macro developments guide our growth trajectory for the year.

David Michael Scharf, Analyst

Got it. That's helpful. There are certainly many factors at play. Regarding your comments on credit, it seems that every lender we've covered, including regional ones, likely ended the first quarter in an over-reserve position, which makes sense after the announcements on April 2. Given your positive remarks about the stability of your borrower base, should we interpret the flat allowance or reserve rate guidance you're providing as an indication of a normalized level? Or are there other factors you're monitoring that could potentially cause that reserve rate to drop below 10%?

Harpreet Rana, CFO

So David, it's Harp. I'll answer that. We assess our CECL allowance rate based on our portfolio mix and growth, considering product types, FICO scores, and delinquency rates. We analyze internal credit and delinquency trends and then factor in macroeconomic conditions. This quarter, you noticed the decrease from 10.5% to 10.3%. We had indicated we would release the remaining hurricane reserves, which contributed to that shift. The improvement in macro conditions is another reason for the drop. This suggests that current macro improvements are reflected in the calculated allowance for the quarter. We review macro conditions each quarter, and if there’s a chance for the reserve to decrease based on macro factors and our trends, we evaluate that regularly. Right now, based on our guidance, we feel comfortable with the 10.3% for the third quarter.

Robert William Beck, CEO

Yes. I wanted to share some insights on the health of our customers. Generally, our customers are doing well and making thoughtful decisions. They have a good track record of navigating challenging social situations. With low unemployment and recent economic growth, we are witnessing real wage increases among our customer base. There are still 7.5 million job openings, many of which align with our customer demographics. I believe that immigration restrictions could potentially enhance wage growth and job opportunities for them. Regarding the O BBB or OBB bill, it appears to have a positive impact on our customers, although it is still early to fully assess. Currently, the only source of uncertainty remains tariffs. While the situation is somewhat clearer than before, inflation remains slightly elevated. However, most market perspectives suggest that any tariff impacts on inflation will be more of a temporary shock rather than a cause of sustained inflation increases. We continue to monitor our customers' performance and adjust credit accordingly. As I have mentioned before, we are consistently fine-tuning our strategies to address any pressures. At this moment, I believe consumers are maintaining a stable position.

Operator, Operator

The next question comes from the line of Alexander Villalobos from Jefferies.

Alexander Villalobos-Morsink, Analyst

This is Alex here instead of John Hecht. I wanted to ask you a little bit about how we should think about yields going forward. Potentially, there might be a rate cut later this year, but definitely a year from now, we should be expecting lower rates. So just kind of what is the playbook with yields? Should we expect to kind of maintain higher pricing as interest expense goes down? Just kind of how we should think about that?

Harpreet Rana, CFO

So Alex, it's Harp. When you say yields, are you referencing fund's interest expense?

Alexander Villalobos-Morsink, Analyst

Yields. Interest income, yield.

Harpreet Rana, CFO

Yes. So revenue yield. Okay. So revenue yields, Alex. So I think we've guided in terms of where revenue yields will be in the third quarter. In terms of how we price, we price in terms of competition. So you'll always price in terms of the right product or at the right price for the right customer. So that's how we price, and we'll take a look at how our competitive pricing is to make sure that we don't have adverse selection. So we'll continue to monitor that. And if there's opportunity to look at pricing, we will definitely do that.

Alexander Villalobos-Morsink, Analyst

And then on the interest expense side, in the future, is there any ability to kind of switch to a better cost of fund source of funds versus mezzanine debt?

Harpreet Rana, CFO

We manage our cost of funds effectively. Over the past several quarters, we have maintained our cost of funds within the range of 4% to 4.3%. This has been a strong performance throughout the cycle. A significant factor contributing to this is that 84% of our portfolio is fixed. When considering future cost of funds, even if interest rates decrease due to Fed cuts, we need to remember that we have securitizations on our books at very low rates, which will eventually reset to market rates. As a result, we anticipate an increase in our cost of funds, particularly as we have guided for higher costs in the third quarter and even higher at 4.5% in the fourth quarter. This gives us a baseline as we project into next year. When evaluating next year, it is important to consider the weighted average cost of the securitizations we engage in. Looking at our most recent securitization will provide a clear indication of how our cost of funds will change and increase moving forward.

Operator, Operator

The next question comes from the line of Kyle Joseph from Stephens Inc.

Kyle Joseph, Analyst

Let me echo congratulations on a strong quarter. I just want to talk about the originations mix in the quarter, it looks like small decelerated a little bit, large accelerated. Just wondering, is that a function of demand, a function of competition? Or is it really just one quarter is not enough to really call it a trend?

Robert William Beck, CEO

Yes, I'll take that. Harp, you can jump in. As I said, our large loans grew nicely year-on-year. I think a big part of that is driven by the increase in our secured business. I think in our digital originations, bigger concentration in the larger loans, better quality, and that's done with intention. I think even in the new states that we enter, particularly we're renewing smaller loans and the larger loans, that's a generalized theme that we're growing our larger loan book faster than our small loan book. And I'll say this, and look, I'm not going to give you a definitive view of where the greater than 36% business will be over time. But I do think it's going to decline as a percentage of the portfolio because of the levers I just mentioned, the growth in new states, the digital larger loans, the auto secured, all of which helps improve the quality of our portfolio, and I think are all originated at attractive returns. Harp, did you add anything?

Harpreet Rana, CFO

No, I think that's it.

Kyle Joseph, Analyst

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

Robert William Beck, CEO

Yes. I mean if we lean into faster growth in the second half of the year, we have guided to a minimum ER growth of 10%. Now in the second quarter, we grew at about 10.5%, which was about $15 million higher than our guidance on ENR. And so pretty healthy beat on growth in the second quarter. So as we look at the second half of the year, there is an opportunity potentially to grow faster. Again, we'll have to see what the macro conditions hold and support. But at the end of the day, there could be opportunity and there could be additional expenditure to go along with that. Naturally, we want to take advantage of that. But look, as I think everybody knows, higher growth does impact short-term net income due to CECL, as you take the lifetime losses upfront. And so that's part of the reason, or is the reason for the range of the full year. But faster growth is just going to propel higher earnings for next year. And so I think that we're sitting in a good position where we see the opportunity to grow and potentially take advantage of it if market conditions warrant.

Operator, Operator

The next question comes from the line of Vincent Caintic from BTIG.

Vincent Albert Caintic, Analyst

I did want to follow up on the guidance. So I wanted to ask about your philosophy around guidance and how much conservatism is baked into it. When I look at your good second-quarter results versus your guidance, you handily beat it. Loan growth was, what, 22% higher than guidance. Revenue yield was 30 basis points higher than your guidance, and the expenses were lower. So your net income was 40% above your own second-quarter guidance. So I wanted to ask, first, maybe what changed in your performance versus what you were expecting when you gave the guidance? And then when I look at the third quarter, third quarter guidance calls for lower loan growth than what we saw in the second quarter, and the revenue yield declining quarter-over-quarter. So I just wanted to ask how much conservatism is baked into all of that.

Robert William Beck, CEO

No, Vincent, that's a good question. I would tell you that when we were giving guidance for second quarter, we were coming off the first quarter where volume growth wasn't where we had hoped it would be, and that's part because of a strong tax season and some weather. And of course, the biggest backdrop was just all the uncertainty about tariffs and the potential for a hard landing. So I think as we started to see things evolve a little bit and saw customer demand be there for the segments where we get a good return, we were able to lean into the growth faster, and that's what we should do. But as I noted in the document, we also, obviously, having a mind towards the future if things were going to slow down, we took actions on expenses, and we ran the place to be as efficient as possible. We took some restructuring actions. And some of these things, you just can't give guidance on because we're working the numbers and the results each and every month of the quarter. So as we look ahead, in terms of conservatism or not, I don't think there's 100% clarity on where tariffs are going to go. And so part of the reason why we're giving a range on full-year net income is it's very much dependent on how much growth we choose to do.

Vincent Albert Caintic, Analyst

That's very helpful on how you're thinking about guidance. I really appreciate that. Separate question. I noticed in one of the slides, a very helpful detail on all the slides. One of the slides that you were talking about your store growth. The receivables per store is actually higher for the 1- to 3-year-old stores than for stores older than 3 years. And I thought that was interesting. I was wondering if maybe you can describe like what's driving that and if there's any learnings is on Slide, I think, 6 of the presentation deck. I just thought that was very fascinating that there's so much growth there. So I'm wondering about the opportunities for the rest of the stores.

Robert William Beck, CEO

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

Operator, Operator

The next question comes from the line of John Rowan from Janney Montgomery Scott.

John J. Rowan, Analyst

Just a quick question. You mentioned there was a restructuring charge in the third quarter, correct? You did come in below your G&A guidance for the quarter, but that restructuring expense was recognized in the second quarter, right?

Harpreet Rana, CFO

Yes, there was a restructuring charge in the third quarter, and the associated savings will be realized in the second half of the year.

Robert William Beck, CEO

Yes. It's neutral, if not positive in the third quarter.

John J. Rowan, Analyst

Okay. I have a straightforward question. Looking at guidance and considering the net income forecast, if we focus on the midpoint of the net income guidance for the year, it suggests a slight decrease in net income from the third to the fourth quarter. It has been some time since we experienced a clean latter half of the year, especially with all the loan sales in previous years. Given that, and acknowledging that circumstances can shift as we pursue small loan growth, should we anticipate this as the usual seasonality moving forward?

Robert William Beck, CEO

I believe your question is whether we typically experience faster growth in the second half of the year. Generally, that is the case. The key factor here is how we grow based on the environment, which will also position us to benefit next year.

Harpreet Rana, CFO

Net income will obviously be the amount that we have to take for the incremental growth.

Operator, Operator

The next question comes from the line of Bill Dezellem from Tieton Capital Management.

William Joseph Dezellem, Analyst

Fantastic quarter. A couple of questions here to start with, the digital originations stepped up meaningfully from the prior quarters. Would you please discuss the dynamics behind that, please?

Harpreet Rana, CFO

In terms of digital originations, we saw good loan bookings through our affiliates. Our branches became more efficient in booking those leads, and we were also able to secure larger loans through the affiliates, which is reflected in our results.

William Joseph Dezellem, Analyst

And as a result of what you just said, that sounds like that is a repeatable and sustainable going forward as opposed to a one-off phenomenon?

Robert William Beck, CEO

Yes. The digital partners have contributed significantly to our growth. We regularly evaluate these partners and their performance. Consequently, there will be fluctuations in the level of digital originations compared to other opportunities, as our goal is to optimize overall returns. There may be times when we slightly reduce digital originations to accelerate growth in other segments of the portfolio. We are consistently assessing what is the best approach from a risk-return perspective.

William Joseph Dezellem, Analyst

Great. And then as you pointed out, your revenues grew 5x faster than expenses. Is that somewhat normal now going forward for a few quarters? Or was there something special that came together to make that happen this quarter?

Robert William Beck, CEO

Well, look, the investment dollars are always a little bit episodic. We have invested a fairly significant amount of money in our technology platform and our advanced analytics, adding additional branches. And so one of the things that could change that dynamic is if we open up a significant number of branches. Now we're guiding to 5 to 10 more branches in the next 6 months, kind of what we did in the second half of last year going into the first quarter. But what I would say is it's all about growth. And we had record originations, $510 million, which was up almost 20% this year. That drove the record ENR in the quarter, which is up $70 million or 10.5%, which drove record revenue of $157 million, up 10%. And so that top line growth is critical to create scale in this business, and so over time, and we've done this now consistently for 5 years, we're looking to continue to drive down our operating expense ratio. Now I will add to that, and we don't have a way to quantify this, but the new front-end platform that we're rolling out in our branches, and we have that now in one state, I mean, that is dramatically improving the decisioning time for each and every loan for customer origination. And that's going to lead to productivity improvements where for the same level of expense we hopefully can generate more volume or more time on collections. And so where that's going to play out over the next 18 months as we roll that out across the network, we'll start to see. But we're very much investing not only for top-line growth, but we're investing to be a more efficient organization.

William Joseph Dezellem, Analyst

Excellent. I have one more question since I didn’t have enough time to prepare. Your guidance for the third quarter suggests you expect 9.8 million shares and earnings between $1.45 and $1.50, which is significantly higher than what you just reported. What are the main factors contributing to this substantial increase in earnings for Q3 compared to Q2?

Robert William Beck, CEO

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

Harpreet Rana, CFO

Right. So all of those things. ANR is growing. So that is going to help. NPLs usually come down in third quarter, and we've guided 51. So based off of where we are, you can see that that's contributing. Interest expense is going to take up just very, very slightly, but relatively flat compared to other things. But those are all things that are going to drive 145.

William Joseph Dezellem, Analyst

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

Operator, Operator

Ladies and gentlemen, as there are no further questions, I would now hand the conference over to Rob Beck for his closing comments.

Robert William Beck, CEO

Well, thanks again, everyone, for joining today. Look, as we said, we're extremely pleased with our quarterly results, which really were strong across all our key metrics. It's clear to me that the capabilities that we developed over the recent years positions us to continue to deliver strong growth and long-term shareholder value. Look, as I said, I'll reiterate our investments over the recent years in new states and branches, our unsecured business, our digital capabilities, and our advanced credit models and analytics really support our growth while also keeping credit risk in check. Second half, we'll see how the customer health is doing if it stays the way it is, and we'll inform our growth in the second half of the year by our credit metrics and macroeconomic conditions. So again, thanks, everybody, for joining this evening, and enjoy the rest of your time.

Operator, Operator

Thank you. Ladies and gentlemen, the conference of Regional Management has now concluded. Thank you for your participation, and you may now disconnect your lines.