Regional Management Corp. Announces Second Quarter 2021 Results

Regional Management Corp. (NYSE: RM), a diversified consumer finance company, today announced results for the second quarter ended June 30, 2021.

“We are proud of our performance during the second quarter, having generated $20.2 million of net income, strong returns of 7.1% ROA and 28.7% ROE, and double-digit year-over-year receivables and revenue growth,” said Robert W. Beck, President and Chief Executive Officer of Regional Management Corp. “We took advantage of the improving economy and robust loan demand to expand our market share, originating a record $373 million of loans in the quarter and driving our ending net receivables to an all-time high of $1.2 billion. The second quarter loan production and growth contributed to record quarterly revenue and is a validation of our recent strategic investments in our omni-channel model, including our digital initiatives, geographic expansion, and new product and channel development.”

“Along with our exceptional top-line results, we continue to maintain a superior credit profile,” added Mr. Beck. “Our 30+ day delinquency rate improved to a historical low of 3.6%, enabling us to maintain our allowance for credit losses at prior levels despite record sequential quarterly portfolio growth. Robust growth, stable credit, well-managed expenses, and low funding costs combined for another quarter of significant, year-over-year earnings growth. Looking to the second half of 2021, we remain focused on executing on our current strategies to grow our portfolio and to maintain our strong credit profile. With ample unused capacity and available liquidity, we remain well-positioned to continue grabbing market share and delivering attractive returns and long-term value to our shareholders.”

Second Quarter 2021 Highlights

• Net income for the second quarter of 2021 was $20.2 million and diluted earnings per share was $1.87, compared to net income of $7.5 million and diluted earnings per share of $0.68 in the prior-year period.

• Net finance receivables as of June 30, 2021 were $1.2 billion, an increase of 15.7%, or $160.8 million, from the prior-year period.
  
  
  • Total core small and large loan net finance receivables increased $172.3 million, or 17.3%, compared to the prior-year period.
    
    
  • Large loan net finance receivables of $789.7 million increased $171.6 million, or 27.8%, from the prior-year period and represented 66.7% of the total loan portfolio. Small loan net finance receivables were $380.8 million, an increase of 0.2% from the prior-year period.
    
    
  • Originated $372.8 million of loans in the second quarter of 2021, an increase of $200.6 million, or 116.5%, from the prior-year period.

• Total revenue for the second quarter of 2021 was $99.7 million, an increase of $9.8 million, or 10.9%, from the prior-year period.
  
  
  • Interest and fee income increased $8.7 million, or 10.9%, primarily due to higher average net finance receivables and improved interest and fee yield.
    
    
  • Insurance income, net increased $1.0 million, or 13.2%, driven by an increase in premium revenue and partially offset by an increase in life insurance claims expense.

• Provision for credit losses for the second quarter of 2021 was $20.5 million, a decrease of $7.0 million, or 25.3%, from the prior-year period. The provision for credit losses for the second quarter of 2021 included a release in the allowance for credit losses of $6.3 million related to the expected economic impact of the COVID-19 pandemic and a net $6.1 million incremental build in reserves related to portfolio growth.
  
  
  • Allowance for credit losses was $139.4 million as of June 30, 2021, including a $17.5 million allowance for credit losses associated with COVID-19. The company’s macroeconomic model assumes an unemployment rate under 8% at the end of 2021.

• Annualized net credit losses as a percentage of average net finance receivables for the second quarter of 2021 were 7.4%, a 320 basis point improvement compared to 10.6% in the prior-year period.

• As of June 30, 2021, 30+ day contractual delinquencies totaled $42.8 million, or 3.6% of net finance receivables, compared to 4.8% in the prior-year period. As of June 30, 2021, approximately 80% of the company’s total portfolio had been originated since April 2020, the vast majority of which was subject to enhanced credit standards deployed following the outset of the pandemic.

• General and administrative expenses for the second quarter of 2021 were $46.4 million, an increase of $4.9 million, or 11.7%, from the prior-year period due to investment in digital and technological capabilities of $1.2 million and increased marketing expenses of $3.3 million, normalized to pre-pandemic levels and to support the company’s growth initiatives.

• The operating expense ratio (annualized general and administrative expenses as a percentage of average net finance receivables) for the second quarter of 2021 was 16.5%, an increase of 70 basis points compared to the prior-year period.

• As of June 30, 2021, the company had total unused capacity on its revolving credit facilities of $647 million, subject to the borrowing base, and available liquidity of $202 million, including unrestricted cash on hand and immediate availability to draw down cash from its revolving credit facilities.

• In the second quarter of 2021, the company repurchased 344,429 shares of its common stock at a weighted-average price of $46.45 per share under the company’s $30 million stock repurchase program announced in May 2021. The company also repurchased an additional 68,437 shares at a weighted-average price of $50.49 per share in July 2021, bringing total repurchases under the stock repurchase program announced in May 2021 to 412,866 shares at a weighted-average price of $47.12 per share through July 2021.

• In July 2021, the company closed its sixth asset-backed securitization, a $200 million note issuance with a weighted-average coupon of 2.30%.

Third Quarter 2021 Dividend and Increase in Stock Repurchase Program Authorization

The company’s Board of Directors has declared a dividend of $0.25 per common share for the third quarter of 2021. The dividend will be paid on September 15, 2021 to shareholders of record as of the close of business on August 25, 2021.

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.

In addition, the company’s Board of Directors has approved a $20 million increase in the amount authorized under the stock repurchase program announced in May 2021, from $30 million to $50 million.

Share repurchases under the stock repurchase program may be made in the open market at prevailing market prices, through privately negotiated transactions, or through other structures in accordance with applicable federal securities laws, at times and in amounts as management deems appropriate. The timing and the amount of any common stock repurchases will be determined by the company’s management based on its evaluation of market conditions, the company’s liquidity needs, legal and contractual requirements and restrictions (including covenants in the company’s credit agreements), share price, and other factors. Repurchases of common stock may be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the company might otherwise be precluded from doing so under insider trading laws. The repurchase program does not obligate the company to repurchase any particular number of shares and may be suspended, modified, or discontinued at any time without prior notice.

Liquidity and Capital Resources

As of June 30, 2021, the company had net finance receivables of $1.2 billion and debt of $853.1 million ($851.3 million of outstanding debt and $1.7 million of interest payable). The debt consisted of:

• $144.5 million on its $640.0 million senior revolving credit facility availability,
• $149.2 million on its three revolving warehouse credit facilities availability, totaling $300.0 million, and
• $559.3 million through its asset-backed securitizations.

The company’s unused capacity on its revolving credit facilities (subject to the borrowing base) was $647 million, or 68.9%, as of June 30, 2021.

The company had a funded debt-to-equity ratio of 3.1 to 1.0 and a stockholders’ equity ratio of 23.4%, each as of June 30, 2021. On a non-GAAP basis, the company had a funded debt-to-tangible equity ratio of 3.2 to 1.0, as of June 30, 2021. Please refer to the reconciliations of non-GAAP measures to comparable GAAP measures included at the end of this press release.

Full Year 2021 Outlook

In light of the unique circumstances presented by the COVID-19 pandemic and credit loss provisioning under the new CECL accounting standard, the company is initiating a full year 2021 outlook for net income. For the full year 2021, the company expects net income to be between $75 million and $80 million. The outlook assumes that:

• Current economic conditions remain steady,
• The full year 2021 net credit loss rate will be approximately 7.0%,
• The company will build its allowance for credit losses in the second half of the year due to net finance receivables growth,
• The allowance for credit losses rate will normalize to pre-pandemic levels of approximately 10.8% by the end of the year, and
• General and administrative expenses will increase in the second half of the year as the company continues to invest in its growth initiatives, including increased marketing expenses associated with digital lending efforts.

Branch Network

As of June 30, 2021, the company’s branch network consisted of 368 locations, and in April 2021, the company opened its first branch in Illinois. The company expects to open 15 to 20 new branches during the full year 2021, subject to the economic environment.

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” in 368 branch locations across 12 states in the Southeastern, Southwestern, Mid-Atlantic, and Midwestern United States, as of June 30, 2021. 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: risks related to Regional Management’s business, including the COVID-19 pandemic and its impact on Regional Management’s operations and financial condition; 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 the implementation of 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 also magnify many of these 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.