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Regional Management Corp. Announces Second Quarter 2022 Results

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·15 min read
In this article:
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- Net income of $12.0 million and diluted earnings per share of $1.24 -

- 28.9% year-over-year net finance receivables growth and 23.3% year-over-year revenue growth -

- 30+ day contractual delinquencies of 6.2% as of June 30, 2022, or 10 basis points better than June 30, 2019 pre-pandemic levels -

- Multi-year low operating expense ratio of 14.7% -

GREENVILLE, S.C., August 03, 2022--(BUSINESS WIRE)--Regional Management Corp. (NYSE: RM), a diversified consumer finance company, today announced results for the second quarter ended June 30, 2022.

"We continued to execute well on our strategic plans and delivered strong results in the second quarter, including disciplined, controlled growth of our portfolio," said Robert W. Beck, President and Chief Executive Officer of Regional Management Corp. "We expanded operations to the state of Indiana in June, and just last week, we opened our first branch in California. We grew our loan portfolio to an all-time high of $1.53 billion, increased our active accounts by 19% over the prior year, produced record quarterly revenue of $123 million, tightly managed our expenses to a multi-year low 14.7% operating expense ratio, and finished the quarter with $12 million of net income and $1.24 of diluted EPS. We have consistently demonstrated our ability to grow our account base and portfolio in a controlled and profitable manner."

"Looking ahead, we are keenly focused on preserving the credit quality of our loan portfolio while controlling our expenses," added Mr. Beck. "Despite the strong labor market, inflation began to impact our customers more significantly in the second quarter, particularly those customers in higher-rate, higher-risk segments. By quarter-end, delinquency and net credit loss rates had nearly normalized to 2019 pre-pandemic levels. In recognition of a more uncertain economic environment ahead, we have been proactively tightening our credit models since the fourth quarter, and we have taken a prudent approach of maintaining our allowance for credit losses at 11% of net finance receivables, including $15 million of macro-related reserves."

"While the economic environment is difficult, our investments in improved credit models, years-long shift to large and sub-36% loans, and recent credit tightening actions have contributed to an overall higher-quality portfolio compared to pre-pandemic periods," continued Mr. Beck. "The labor market remains strong, our customers are resilient, and our dynamic and adaptable underwriting capabilities enable us to respond quickly to market conditions. As we have done in the past, we will manage our expenses tightly while continuing to invest in the things that will generate the greatest returns in the form of controlled, disciplined portfolio growth, improved credit performance, and greater operating leverage. Ultimately, these efforts will position us to sustainably grow our business, expand our market share, and create additional value for our shareholders."

Second Quarter 2022 Highlights

  • Net income for the second quarter of 2022 was $12.0 million and diluted earnings per share was $1.24, decreases of 40.6% and 33.7%, respectively, compared to the prior-year period.

  • Net finance receivables as of June 30, 2022 hit an all-time high of $1.53 billion, a record increase of $342.3 million, or 28.9%, from the prior-year period.

    • Large loan net finance receivables of $1.1 billion increased $267.5 million, or 33.8%, from the prior-year period and represented 69.4% of the total loan portfolio. Small loan net finance receivables were $455.3 million, an increase of 19.6% from the prior-year period.

    • Branch, digitally sourced, direct mail, and total loan originations were all at record levels for a second quarter.

    • Total loan originations of $426.3 million in the second quarter of 2022, an increase of $48.6 million, or 12.9%, from the prior-year period.

    • Digitally sourced loan originations of $53.5 million in the second quarter of 2022, an increase of $17.5 million, or 48.6%, from the prior-year period.

  • Total revenue for the second quarter of 2022 was a record $122.9 million, an increase of $23.2 million, or 23.3%, from the prior-year period.

    • Interest and fee income increased $21.0 million, or 23.6%, primarily due to higher average net finance receivables, partially offset by ongoing credit normalization and the continued mix shift towards large loans.

    • Insurance income, net increased $1.6 million, or 18.1%, driven by an increase in premium revenue associated with portfolio growth.

  • Provision for credit losses for the second quarter of 2022 was $45.4 million, an increase of $24.9 million, or 120.9%, from the prior-year period. The provision for credit losses for the second quarter of 2022 included an incremental reserve of $8.7 million primarily for the $79.6 million in sequential portfolio growth.

    • Allowance for credit losses was $167.5 million as of June 30, 2022, including a $14.9 million allowance for credit losses reserve associated with estimated future macroeconomic impacts on credit losses.

  • Annualized net credit losses as a percentage of average net finance receivables for the second quarter of 2022 were 10.0%, a 260 basis point increase compared to 7.4% in the prior-year period but a 40 basis point improvement compared to pre-pandemic levels of 10.4% in the second quarter of 2019.

  • As of June 30, 2022, 30+ day contractual delinquencies totaled $94.7 million, or 6.2% of net finance receivables, an increase of 50 basis points compared to March 31, 2022, but a 10 basis point improvement from pre-pandemic levels as of June 30, 2019. The 30+ day contractual delinquency remains well below the company’s $167.5 million allowance for credit losses as of June 30, 2022.

  • The company expanded its operations to the state of Indiana in the second quarter and to the state of California in July. The company closed 21 branches in the second quarter where clear opportunities existed to consolidate operations into a larger branch in close proximity. This branch optimization is consistent with the company’s omni-channel strategy and builds upon the company’s recent successes in entering new states with a lighter branch footprint, while still providing customers with best-in-class service. The company incurred $0.6 million of branch optimization expenses in the second quarter. The branch optimization will generate approximately $1.8 million in general and administrative expense annual savings, which the company will reinvest in its expansion into new states.

  • General and administrative expenses for the second quarter of 2022 were $54.1 million, an increase of $7.7 million, or 16.7%, from the prior-year period due to ongoing investment in personnel, marketing, and digital capabilities to support the company’s growth strategies. General and administrative expenses have declined sequentially for two consecutive quarters. For the second quarter of 2022, general and administrative expenses included $0.6 million of expenses related to branch optimization.

  • The operating expense ratio (annualized general and administrative expenses as a percentage of average net finance receivables) for the second quarter of 2022 was a multi-year low of 14.7%, a 180 basis point improvement compared to the prior-year period. The operating expense ratio was inclusive of a 10 basis point impact related to branch optimization.

  • In the second quarter of 2022, the company completed its $20 million stock repurchase program, repurchasing 253,148 shares of its common stock during the quarter at a weighted-average price of $45.72 per share. The company repurchased 425,924 shares in total under the program at a weighted-average price of $46.96 per share.

Third Quarter 2022 Dividend

The company’s Board of Directors has declared a dividend of $0.30 per common share for the third quarter of 2022. The dividend will be paid on September 15, 2022 to shareholders of record as of the close of business on August 24, 2022. 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 June 30, 2022, the company had net finance receivables of $1.5 billion and debt of $1.2 billion. The debt consisted of:

  • $78.3 million on the company’s $500 million senior revolving credit facility,

  • $111.4 million on the company’s aggregate $300 million revolving warehouse credit facilities, and

  • $1.0 billion through the company’s asset-backed securitizations.

As of June 30, 2022, the company’s unused capacity to fund future growth on its revolving credit facilities (subject to the borrowing base) was $611 million, or 76.4%, and the company had available liquidity of $195.0 million, including unrestricted cash on hand and immediate availability to draw down cash from its senior revolving credit facility. As of June 30, 2022, the company’s fixed-rate debt as a percentage of total debt was 84%, with a weighted-average coupon of 2.9% and an average revolving duration of 2.6 years.

During the second quarter, the company held interest rate caps to manage the risk associated with variable rate debt. The interest rate caps are based on one-month LIBOR and reimburse the company for the difference when one-month LIBOR exceeds the strike rate. The company sold $450 million of interest rate caps in the second quarter, realizing $12.8 million in lifetime market value gains on the rate caps. During the second quarter, increases in the market value of the rate caps benefited interest expense by $3.0 million. As of June 30, 2022, the company maintained $100 million in interest rate cap protection, with one-month LIBOR strike rates of 50 basis points and maturity dates in February 2026. These rate caps provide longer duration protection against the potential for continued increases in interest rates.

The company had a funded debt-to-equity ratio of 4.0 to 1.0 and a stockholders’ equity ratio of 19.3%, each as of June 30, 2022. On a non-GAAP basis, the company had a funded debt-to-tangible equity ratio of 4.1 to 1.0, as of June 30, 2022. 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 16 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, retailers, 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 new underwriting models and processes, including as to the effectiveness of new 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; 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, including those associated with CECL accounting; the impact of changes in tax laws, guidance, and interpretations, 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 COVID-19 pandemic may impact Regional Management’s operations and financial condition and may also magnify many of the existing risks and uncertainties.

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.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(dollars in thousands, except per share amounts)

Better (Worse)

Better (Worse)

2Q 22

2Q 21

$

%

YTD 22

YTD 21

$

%

Revenue

Interest and fee income

$

109,771

$

88,793

$

20,978

23.6

%

$

217,402

$

176,072

$

41,330

23.5

%

Insurance income, net

10,220

8,656

1,564

18.1

%

20,764

16,641

4,123

24.8

%

Other income

2,880

2,227

653

29.3

%

5,553

4,694

859

18.3

%

Total revenue

122,871

99,676

23,195

23.3

%

243,719

197,407

46,312

23.5

%

Expenses

Provision for credit losses

45,400

20,549

(24,851

)

(120.9

)%

76,258

31,911

(44,347

)

(139.0

)%

Personnel

33,941

28,370

(5,571

)

(19.6

)%

69,595

57,221

(12,374

)

(21.6

)%

Occupancy

6,156

5,568

(588

)

(10.6

)%

11,964

11,588

(376

)

(3.2

)%

Marketing

4,108

4,776

668

14.0

%

7,199

7,486

287

3.8

%

Other

9,916

7,675

(2,241

)

(29.2

)%

20,463

15,937

(4,526

)

(28.4

)%

Total general and administrative

54,121

46,389

(7,732

)

(16.7

)%

109,221

92,232

(16,989

)

(18.4

)%

Interest expense

7,564

7,801

237

3.0

%

7,505

14,936

7,431

49.8

%

Income before income taxes

15,786

24,937

(9,151

)

(36.7

)%

50,735

58,328

(7,593

)

(13.0

)%

Income taxes

3,804

4,771

967

20.3

%

11,970

12,640

670

5.3

%

Net income

$

11,982

$

20,166

$

(8,184

)

(40.6

)%

$

38,765

$

45,688

$

(6,923

)

(15.2

)%

Net income per common share:

Basic

$

1.29

$

1.98

$

(0.69

)

(34.8

)%

$

4.13

$

4.41

$

(0.28

)

(6.3

)%

Diluted

$

1.24

$

1.87

$

(0.63

)

(33.7

)%

$

3.94

$

4.18

$

(0.24

)

(5.7

)%

Weighted-average common shares outstanding:

Basic

9,261

10,200

939

9.2

%

9,396

10,371

975

9.4

%

Diluted

9,669

10,797

1,128

10.4

%

9,845

10,931

1,086

9.9

%

Return on average assets (annualized)

3.2

%

7.1

%

5.2

%

8.2

%

Return on average equity (annualized)

16.0

%

28.7

%

26.3

%

32.7

%

Regional Management Corp. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(dollars in thousands, except par value amounts)