Regional Management Corp. Announces First Quarter 2023 Results

-   Net income of $8.7 million and diluted earnings per share of $0.90   -

-   30+ day contractual delinquencies of 7.2% as of March 31, 2023   -

-   Continued early indications of improved credit performance in the first quarter   -

Regional Management Corp. (NYSE: RM), a diversified consumer finance company, today announced results for the first quarter ended March 31, 2023.

“We had a strong start to 2023, as our team skillfully navigated a challenging economic environment,” said Robert W. Beck, President and Chief Executive Officer of Regional Management Corp. “We earned $8.7 million of net income and $0.90 of diluted EPS in the first quarter by maintaining our focus on portfolio quality, expense management, and strong execution of our core business. Due to our conservative underwriting and first quarter seasonality, we liquidated our portfolio by $23 million in the quarter, intentionally slowing our year-over-year portfolio growth rate to 16%. In this macroeconomic environment, we continue to be comfortable trading loan growth for credit quality, but we are well-positioned to lean back into growth when warranted by the economic conditions and overall performance of our portfolio.”

“Our tightening actions over the past several quarters have improved our credit profile, which has benefited early-stage delinquencies,” added Mr. Beck. “We continued to see significant improvements in first payment default rates in the first quarter compared to the same period in 2019. In addition, the delinquency rate of accounts 1 to 59 days past due was 8.6% at the end of the first quarter, a 230 basis point improvement from year-end and 270 basis points better than the first quarter of 2019. Our 30+ day delinquency rate at the end of the first quarter was 7.2%, up 10 basis points from the end of the year and only 30 basis points, or 4%, higher than the first quarter of 2019. After adjusting for our fourth quarter non-performing loan sale, our first quarter 30+ day delinquency rate was 80 basis points better compared to year-end. We are encouraged by the green shoots that we are observing in our early delinquency buckets and the performance of our more recent loan vintages.”

“Looking ahead, we are optimistic that tightened underwriting, a declining inflation rate, and continued strength in the labor market, particularly for our customer base, will drive further credit improvement in our portfolio,” continued Mr. Beck. “We remain focused on strong execution of our core business, including originating high-quality loans within our tightened credit box, closely managing expenses, and maintaining a strong balance sheet. This straightforward approach allows us to concentrate our efforts on the key drivers of our results. At the same time, we are continuing to advance our long-term strategies of geographic expansion and key investments in technology, digital initiatives, and data and analytics. We expect to emerge from this economic cycle as a stronger company with a larger, higher-quality portfolio and improved operating efficiencies, well-positioned to deliver attractive returns to our shareholders.”

Adjusted 30+ day delinquency is a non-GAAP measure. Please refer to the reconciliations of non-GAAP measures to comparable GAAP measures included at the end of this press release.

First Quarter 2023 Highlights

• Net income for the first quarter of 2023 was $8.7 million and diluted earnings per share was $0.90.
• Net finance receivables as of March 31, 2023 were $1.7 billion, an increase of $230.2 million, or 15.9%, from the prior-year period.
  • Large loan net finance receivables of $1.2 billion increased $214.6 million, or 21.5%, from the prior-year period and represented 72.3% of the total loan portfolio, compared to 69.0% in the prior-year period.
  • Small loan net finance receivables were $456.3 million, an increase of 4.1% from the prior-year period.
  • Total loan originations were $303.2 million in the first quarter of 2023, a decrease of $22.8 million, or 7.0%, from the prior-year period.

• Total revenue for the first quarter of 2023 was $135.4 million, an increase of $14.5 million, or 12.0%, from the prior-year period.
  • Interest and fee income increased $12.8 million, or 11.9%, primarily due to higher average net finance receivables.
  • Insurance income, net increased $0.4 million, or 3.9%, driven by portfolio growth.

• Provision for credit losses for the first quarter of 2023 was $47.7 million, an increase of $16.8 million, or 54.5%, from the prior-year period.
  • Annualized net credit losses as a percentage of average net finance receivables for the first quarter of 2023 were 10.1%, compared to 8.7% in the prior-year period.
  • The provision for credit losses for the first quarter of 2023 included incremental reserves of $5.0 million primarily related to the composition of the portfolio as compared to the fourth quarter of 2022, which included our non-performing loan sale, partially offset by portfolio liquidation.
  • Allowance for credit losses was $183.8 million as of March 31, 2023.

• As of March 31, 2023, 30+ day contractual delinquencies totaled $121.2 million, or 7.2% of net finance receivables, an increase of 10 basis points compared to December 31, 2022. On a non-GAAP basis, adjusting for the fourth quarter non-performing loan sale, the first quarter 30+ day contractual delinquency rate improved 80 basis points from December 31, 2022. The 30+ day contractual delinquency compares favorably to the company’s $183.8 million allowance for credit losses as of March 31, 2023.

• General and administrative expenses for the first quarter of 2023 were $59.3 million, an increase of $4.2 million, or 7.7%, from the prior-year period.

• The operating expense ratio (annualized general and administrative expenses as a percentage of average net finance receivables) for the first quarter of 2023 was 14.0%, a 140 basis point improvement compared to the prior-year period.

• Interest expense for the first quarter of 2023 was $16.8 million, an increase of $16.8 million from the prior-year period, primarily due to a $10.2 million mark-to-market benefit to interest expense from interest rate caps in the prior-year period.

• The company expanded its operations to the state of Arizona in March.

Second Quarter 2023 Dividend

The company’s Board of Directors has declared a dividend of $0.30 per common share for the second quarter of 2023. The dividend will be paid on June 14, 2023 to shareholders of record as of the close of business on May 24, 2023. The declaration and payment of any future dividend is subject to the discretion of the Board of Directors and will depend on a variety of factors, including the company’s financial condition and results of operations.

Liquidity and Capital Resources

As of March 31, 2023, the company had net finance receivables of $1.7 billion and debt of $1.3 billion. The debt consisted of:

• $105.3 million on the company’s $420 million senior revolving credit facility,
• $35.2 million on the company’s aggregate $300 million revolving warehouse
  
  credit facilities, and
• $1.2 billion through the company’s asset-backed securitizations.

As of March 31, 2023, the company’s unused capacity to fund future growth on its revolving credit facilities (subject to the borrowing base) was $581 million, or 80.6%, and the company had available liquidity of $182.0 million, including unrestricted cash on hand and immediate availability to draw down cash from its revolving credit facilities. As of March 31, 2023, the company’s fixed-rate debt as a percentage of total debt was 89%, with a weighted-average coupon of 3.6% and a weighted-average revolving duration of 1.8 years.

The company had a funded debt-to-equity ratio of 4.2 to 1.0 and a stockholders’ equity ratio of 18.6%, each as of March 31, 2023. On a non-GAAP basis, the company had a funded debt-to-tangible equity ratio of 4.4 to 1.0, as of March 31, 2023. Please refer to the reconciliations of non-GAAP measures to comparable GAAP measures included at the end of this press release.

Conference Call Information

Regional Management Corp. will host a conference call and webcast today at 5:00 PM ET to discuss these results.

The dial-in number for the conference call is (855) 327-6837 (toll-free) or (631) 891-4304 (direct). Please dial the number 10 minutes prior to the scheduled start time.

*** A supplemental slide presentation will be made available on Regional’s website prior to the earnings call at www.RegionalManagement.com. ***

In addition, a live webcast of the conference call will be available on Regional’s website at www.RegionalManagement.com.

A webcast replay of the call will be available at www.RegionalManagement.com for one year following the call.

About Regional Management Corp.

Regional Management Corp. (NYSE: RM) is a diversified consumer finance company that provides attractive, easy-to-understand installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. Regional Management operates under the name “Regional Finance” online and in branch locations in 19 states across the United States. Most of its loan products are secured, and each is structured on a fixed-rate, fixed-term basis with fully amortizing equal monthly installment payments, repayable at any time without penalty. Regional Management sources loans through its multiple channel platform, which includes branches, centrally managed direct mail campaigns, digital partners, and its consumer website. For more information, please visit www.RegionalManagement.com.

Forward-Looking Statements

This press release may contain various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead represent Regional Management Corp.’s expectations or beliefs concerning future events. Forward-looking statements include, without limitation, statements concerning financial outlooks or future plans, objectives, goals, projections, strategies, events, or performance, and underlying assumptions and other statements related thereto. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “outlook,” and similar expressions may be used to identify these forward-looking statements. Such forward-looking statements speak only as of the date on which they were made and are about matters that are inherently subject to risks and uncertainties, many of which are outside of the control of Regional Management. As a result, actual performance and results may differ materially from those contemplated by these forward-looking statements. Therefore, investors should not place undue reliance on forward-looking statements.

Factors that could cause actual results or performance to differ from the expectations expressed or implied in forward-looking statements include, but are not limited to, the following: managing growth effectively, implementing Regional Management’s growth strategy, and opening new branches as planned; Regional Management’s convenience check strategy; Regional Management’s policies and procedures for underwriting, processing, and servicing loans; Regional Management’s ability to collect on its loan portfolio; Regional Management’s insurance operations; exposure to credit risk and repayment risk, which risks may increase in light of adverse or recessionary economic conditions; the implementation of evolving underwriting models and processes, including as to the effectiveness of Regional Management's custom scorecards; changes in the competitive environment in which Regional Management operates or a decrease in the demand for its products; the geographic concentration of Regional Management’s loan portfolio; the failure of third-party service providers, including those providing information technology products; changes in economic conditions in the markets Regional Management serves, including levels of unemployment and bankruptcies; the ability to achieve successful acquisitions and strategic alliances; the ability to make technological improvements as quickly as competitors; security breaches, cyber-attacks, failures in information systems, or fraudulent activity; the ability to originate loans; reliance on information technology resources and providers, including the risk of prolonged system outages; changes in current revenue and expense trends, including trends affecting delinquencies and credit losses; any future public health crises (including the resurgence of COVID-19), including the impact of such crisis on our operations and financial condition; changes in operating and administrative expenses; the departure, transition, or replacement of key personnel; the ability to timely and effectively implement, transition to, and maintain the necessary information technology systems, infrastructure, processes, and controls to support Regional Management’s operations and initiatives; changes in interest rates; existing sources of liquidity may become insufficient or access to these sources may become unexpectedly restricted; exposure to financial risk due to asset-backed securitization transactions; risks related to regulation and legal proceedings, including changes in laws or regulations or in the interpretation or enforcement of laws or regulations; changes in accounting standards, rules, and interpretations and the failure of related assumptions and estimates; the impact of changes in tax laws and guidance, including the timing and amount of revenues that may be recognized; risks related to the ownership of Regional Management’s common stock, including volatility in the market price of shares of Regional Management’s common stock; the timing and amount of future cash dividend payments; and anti-takeover provisions in Regional Management’s charter documents and applicable state law.

The foregoing factors and others are discussed in greater detail in Regional Management’s filings with the Securities and Exchange Commission. Regional Management will not update or revise forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events or the non-occurrence of anticipated events, whether as a result of new information, future developments, or otherwise, except as required by law. Regional Management is not responsible for changes made to this document by wire services or Internet services.

NM - Not Meaningful

(1) Annualized interest and fee income as a percentage of average net finance receivables.

(1)   Represents the principal balance of loan originations and refinancings.

(1)   Same store sales reflect the change in year-over-year sales for the comparable branch base. The comparable branch base includes those branches open for at least one year. 

(1)   General and administrative expenses as a percentage of total revenue.

(2)   Annualized general and administrative expenses as a percentage of average net finance receivables.

(3)   Annualized net credit losses as a percentage of average net finance receivables.

Non-GAAP Financial Measures

In addition to financial measures presented in accordance with generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures. The company’s management utilizes non-GAAP measures as additional metrics to aid in, and enhance, its understanding of the company’s financial results. Tangible equity and the funded debt-to-tangible equity ratio are non-GAAP measures that adjust GAAP measures to exclude intangible assets. Management uses these equity measures to evaluate and manage the company’s capital and leverage position. The company also believes that these equity measures are commonly used in the financial services industry and provide useful information to users of the company’s financial statements in the evaluation of its capital and leverage position. Adjusted delinquency and adjusted delinquency rate are non-GAAP measures that adjust GAAP measures to exclude the impacts of the non-performing loan sale. Management uses these adjusted measures to evaluate and manage the company's performance by excluding certain material items that may not be representative of the company's financial results. As a result, the company also believes that these adjusted measures will aid users of its financial statements in the evaluation of its operating performance.

This non-GAAP financial information should be considered in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. In addition, the company’s non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies. The following tables provide a reconciliation of GAAP measures to non-GAAP measures.

(1) 30+ day contractual delinquency adjustments (in dollars and percentage) include delinquencies pertaining to the non-performing loan sale.

(2) Net finance receivables adjustments include delinquent receivables pertaining to the non-performing loan sale.

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