Q3 Earnings Beat by Regional Management

Regional Management Corp. (RM) reported net income of 61 cents for the third quarter of 2013, a penny above the Zacks Consensus Estimate of 60 cents. Results also improved 3.4% year over year.

Including $0.4 million of pre-tax expenses related to the secondary offering completed in Sep 2013, net income increased 7.3% year over year to 59 cents.

Quarter in Details

Regional Management generated $44.5 million in total revenues in the third quarter, up 25.3% year over year. The improvement stemmed from higher interest and fee income, insurance income and other income. Results were in-line with the Zacks Consensus Estimate.

Same-store revenues increased 16.1% year over year, while same-store finance receivables rose 16.5% from the year-ago quarter.

In the quarter under review, Regional Management opened 1 de novo branch, taking the tally to 264 locations as of Sep 30, 2013.

General and administrative expenses totaled $17.4 million, up 21.4% year over year. The increase was attributable to higher personnel costs related to new stores and higher advertising costs.

Total expenses of Regional Management escalated nearly 33% over the prior-year quarter to $32.4 million.

Financial Update

Regional Management ended the quarter with cash balance of $7.9 million, up from $3.3 million at 2012-end.

As of Sep 30, 2013, finance receivables totaled $512 million, up 29% year over year. The increase was attributable to new branch additions over the year, as well as increase in same-store finance receivables.

Annualized net charge-offs as a percentage of average finance receivables were 6.5% in the reported quarter.

On Sep 25, 2013, Regional Management announced the closing of a secondary offering of about 4 million common shares. The shares were offered by Palladium Equity Partners III, L.P. and Parallel 2005 Equity Fund, LP, at $27.50 per share.

Senior revolving credit facility was $347.7 million as of Sep 30, 2013, up from $292.4 million as of Dec 31, 2013.

Business Update

Regional Management entered into an agreement with DHI Computing Service, Inc. d/b/a GOLDPoint Systems. Per the ten-year agreement, GOLDPoint will provide Regional Management with loan management software and related data processing services.

Regional Management hopes the transition to the new platform will be completed in approximately one year’s time. It estimates that expenses, which include accelerated amortization of existing ParaData licenses, will be dilutive to earnings by 2 cents per share per quarter or 8 cents per share over the one-year transition period. The transition is expected to be completed in the second half of 2014.

Performance of other consumer loan providers

Capital One Financial Corp.’s (COF) third-quarter 2013 earnings per share of $1.86 surpassed the Zacks Consensus Estimate of $1.77. However, this was 7.5% below $2.01 earned in the prior-year quarter.

Discover Financial Services (DFS) reported third-quarter 2013 earnings per share of $1.20, in line with the Zacks Consensus Estimate. However, results declined 3.2% from the year-ago quarter earnings of $1.24 per share.

SLM Corporation (SLM) – commonly known as Sallie Mae – reported third-quarter 2013 core earnings of 60 cents per share, beating the Zacks Consensus Estimate by a penny. Results also compared favorably with 58 cents earned in the year-ago quarter.

Zacks Rank

Regional Management presently carries a Zacks Rank #3 (Hold).

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