Regional Management (RM) 2 Aug 232023 Q2 Earnings call transcript

Thank you for standing by. This is the conference operator. Welcome to the Regional Management Second Quarter 2023 Earnings Call.

As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. instructions] [Operator

like go conference ahead. now Edson, to turn Please ICR. to would over the Garrett I

supplemental released Thank everyone may to and should and be have which you good website access our afternoon. found on earnings @regionalmanagement.com. call to this prior By our now, presentation, and were announcement

our and I measures. Before presentation, business disclosures important about prospects. which remarks, you today financial the of and Page financial will discussion statements non-GAAP use we performance of forward-looking company's the current begin are our two include to Part contains on concerning direct and future based projections formal expectations, statements, of supplemental may forward-looking our and estimates, which management's

and assumptions, to forward-looking risks are statements from uncertainties, factors recent the therefore to guarantees statements could that presentation forward-looking discussion and not release and our differ results them. implied other uncertainties predict in and upon forward-looking the statements. and only today speak and various These and operating difficult could of expressed SEC or press our materially of to reliance and refer of These of as cause undue all impact condition. with a We our more you the statements for and that detailed those future you actual that performance not are future results to risk are filings subject place should financial

posted be certain within on references and regionalmanagement.com. measures. most these include our reconciliation or to GAAP to non-GAAP comparable at announcement website earnings our discussion found may today can Also, the measures our A earnings presentation measure of

Management President I'd and now Beck, introduce like CEO of Regional to Corp. Rob

by expectations the second an of I'm our second earnings of results, share call. provide our Harp initiatives, Financial our the discuss our year. Harp through credit second will take update to for quarter welcome Officer. our quarter on our of portfolio, strategic joined and I and Garrett, and Rana, the performance Thanks, half you Chief XXXX today some

top We're demand lines. and pleased produced exceeded us near-record million We growth the the $X remained and bottom quarter portfolio revenue, Loan on simultaneously both diluted high-quality quarterly maintaining income while in generate a conservative strong second with allowing We quarter, EPS. net our to posture. results. and $X.XX of our credit expectations of

We operating also continued expense closely expenses to our while our XX.X% driving to in annualized manage down in quarter. G&A ratio our the business, investing

of stressed quarter, deliver and Our us portfolio execution macroeconomic our focus a enabled and predictable, on expense even business consistent, in environment. quality, after quarter results to management, has strong core superior

encouraged cautious a wage moderating We've selective economic recent credit indicating box. continue been by data strong and to we real but within loans be our tighten making market, inflation, in labor growth, and

We expectations. in slightly grew $XX higher than the our portfolio quarter, by million

to quarter growth our year-over-year However, to XX% of the second quarter XX% and rate portfolio last we slowed in compared XX% last year.

be prepared of credit the higher-quality justified to but rapid prioritizing back the and over more continue our comfortable We overall when growth to growth, lean by conditions performance into portfolio. economic portfolio we're

continue to up to second and [ph] XX% with period ranks a Similar loans volumes our customers. the XXXX. loan risk originate from to us the of top originations of our best-qualified the second in quarter, Our XX% year demand XX% represented last has conservative proportion combined underwriting greater strong to allowed quarter prior in quarter, two the of to from in

present we've increased share lending. of XXXX, borrower customers since income second quarter, and and fall of has as continue XX% emphasized to our by borrower former in the new The originations average the

borrowers prior XX% represented of only the New from period. second quarter in XX% originations, down year

seasoned, worse extensive on we borrowers present credit on new than borrowers, average calls, prior former have experience. on those which highlighted we've and perform our As initially whom

from up which the end business, continue our of quarter. of has portfolio, also ago. as auto-secured a X.X% grow very of The our auto-secured second rate XX-plus-day year We only attractive to now delinquency X% the is a of portfolio X%

Our vintages portfolio. second continue first some half XXXX strongest vintages XXXX are and to our in the of vintages, outperform half our XXXX our

As of second number vintages, expect XX% of consisted half roughly June increase by a our XX% XXXX XXth, portfolio XXXX year-end. of to to we and that

portfolio's Our elevated, observed later-stage to early-stage continue of the that benefit have from criteria, we quarters several underwriting delinquencies across remained trend industry. delinquencies but tightened a

of from ended basis points a first of XX-plus quarter, day the a but the XX we sequential a with above second XXXX points levels. quarter rate improvement Overall, X.X%, delinquency XX basis quarter

rate XXXX. adversely Sequentially, however our slower XXXX, growth quarter second X% grew quarter X% second compared to our the in effective the the XXXX. portfolio that by second growth in than was in of quarter by portfolio It's of note impacted important to XXXX, delinquency to compared less

elevated normalized delinquencies effective be our only in buckets. basis would day work late-stage we for If growth by XX driven this our the levels, higher year, rate slower delinquency than second XXXX XX-plus quarter points

quarter early-stage outperformed results. our quarter, second last delinquency with Consistent XXXX

quarter Our to one-to-XX XX than points, respectively. rates points XXX and delinquency the day were XXXX better basis of second basis day XX XX and

May than XXX the rate points May in In payment basis fault addition, rate better XXXX. our first was than more

bucket. Our older back to due as macroeconomic book later-stage remains pre-tightening vintages stressed through delinquency roll our conditions

the and roll expect We coming inflation these rates in we continue buckets in manage to these will buckets that moderating credit-tightening months. the closely benefit and

ahead, and tight higher of achieve and a assumption costs. maintain credit additional an on box can focus we originating loans, only hurdles funds future return stress credit Looking under we'll our where

and the expanding market the our over more new years. By eight increasing then three XX% stressful states by past

criteria. improving high of our opportunity portfolio, demand underwriting conservative stronger still half in to ample to borrowers We consumer have remaining while advantage under drive second selective levels of take

to in full-year We the digits XX% in growth XXXX portfolio mid-single compared expect XXXX.

the reached net addition, in light In we rate in our market, loss the believe that second and peak quarter. in labor our continued rate underwriting, conservative of credit declining its the inflation strength

rates credit in the in our the deterioration environment. net second ongoing performance macro an barring credit-tightening in year, loss the our Better half will early-delinquency of any further buckets, improve

anticipate performance revenue. income continue our second to half half net stronger than to first higher We stronger that net and be our due income will also credit

our pleased remain our current stand to gross with and on encouraged economic make on economic and we're by recent results the we're and But environment. credit ready our and We underwriting cautious time. summary, based to strategy In this changes macro growth adjustments we performance at data. our position in

lean With larger economic significant into the a improving ability should capacity ample observe to have liquidity, and market, conditions. borrowing back addressable we growth, we quickly

the additional turn on now to Harp call financial results. the color I'll our over provide

quarter through the you, financial Thank Rob, hello we our second our results more details. On second quarter presentation, and now take provide three you of highlights. in I'll supplemental everyone. page

net of per We income share diluted million generated earnings and $X at $X.XX.

expenses, driven portfolio high costs partially net again were once conditions. careful results credit offset headwinds caused loss quality and by and revenue growth by funding economic increased Our the management by macro of and

and four while of to total underwriting our digital strong, and year. and By by focus the standards collection and five, direct X% Turning remains a and origination X% decline were in down X%. branch were up channel, tighter by origination XX% demand page to led origination from prior mail respectively,

in portfolio. further we enhancing of we've noted, As we've appropriately reduced credit our consistently originations balance the quality with recent as growth quarters deliberately

$XX quarter quarter. six We of the slightly our second million product March Page our of displays guidance. receivables through growth ahead portfolio and just net from the finance with billion, close and under XX mix up $X.X

loan our total second portfolio of of APR XX% end portfolio As XX% below XX%. at of the carried the quarter, and comprised of our large book an or our

standards. as quarter million grow we continue we the the in by approximately monitor expect our $XX current and third ahead, underwriting Looking to ending economic environment net our receivables to maintain

on remain controlled the smart, health. uncertainty consumer's around continued particularly We focused financial given growth,

circumstances in of the could prepared lean back third or net receivables to As underwriting dictate, our quarter. further we're growth, impact into either which tighten

in year-over-year branch second to As actions growth legacy and lighter page new X% branch states shown footprint solid, and quarter. on seven, rate another at contributed our and states strategy the consolidation same-store

Our newer receivables within considerable particularly and the branches growth quarter. efficient remain right near per all-time of more million this branch the more footprint We end in coming opportunities existing at our highs, states. believe in at model, remain $X.X under branch

the page revenue to the total eight, quarter. Turning million X% $XXX in grew second

fee primarily yield year-over-year loans respectively. total quality larger the yield revenue mix impact of towards shift yield from were The higher interest and XX.X% attributable continued reversals declining and Our our credit and macro-economic revenue is to and XX.X% conditions.

In fee on performance newer due quarter to revenue and the up interest XX by impact yield pricing yield second credit basis points we of and total third in loans. quarter, expect be increases and the the to the to compared improvement

rolled for that an improving quarters, further drive pricing and also particularly recent our over benefits time. yields through in anticipate credit will the portfolio increased pricing as We future actions environment

loss credit XX.X%. delinquency day end nine, quarter our Moving quarter rate rate second net and as to plus were at in page X.X% is our the XX

the from gradually contributed Our the quarter net loss prior quarter, peaked profile tightened our while underwriting in as credit second to expected. delinquency improved is

quarter, third expect third improving credit the to quarter, to only increase quarter delinquency increase slightly In we the mitigated in rate by seasonal typical is the second performance. as compared largely delinquencies our

the approximately our we high. anticipate leaves rate credit tightening. the second perform million quarter, addition, credit expected, credit losses book comes In in particularly quarter that at as that net $XX.X portfolio in third as be net This off will loss to and continue front and the credit

optimistic $X.X the quarter modeling, second a peak the rate of incorporating second the of view and landing million reserve higher year a credit including X.X% a slightly macro end reserves into page allowance more lower unemployment in to unemployment a to our released XX, our year. rate soft for X.X% Turning losses likelihood with slightly declined of lower We in next of after of environment a quarter.

of March $XXX allowance of As net into The was XX% contractual compare a receivable million, down allowance finance favorably end, to as a the finance XX net day plus a from delinquency $XXX XX.X% million. receivable, of continues or XX. quarter

conditions. third XX.X% end quarter subject expect macro We rate reserve a to XX.X% the economic and with to between

further Assuming improve, expect our decline we credit reserve to would rate by to end. year continues

credit in that that as will the and quality range our underwriting. of improvement current our Over the low mix shift as long-term, to normal to on drop reserve rate loss could to loans. attributable with economic be to our expect under we we environment, rate the higher based product our net continue X% believe And X.X% to XX% a

results. maximizes Flipping initiatives. spend while and As strategic still line however, the done in to we page contribution closely we've continue capabilities a direct that margin manage our bottom our manage always XX, investing way to and business we'll in

coming G&A quarter our better expenses in than second guide, million. were $XX at for prior the

expense Our ratio from the quarter, prior year operating annualized was improvement a point the second XXX basis in period. XX.X%

projects expect that to and the growth residuals analytics technology, be of several to We'll closely continue In we evolution spending G&A continue invest to the to important our are approximately moving forward. support and omnichannel third to million manage in to our expenses and critical business. data quarter, digital, modernization $XX.X and

long believe greater the Over performance, drive we addition, operating improved term, investments will leverage. and sustainable that credit growth, these

page XX of on XX quarter Turning for an million, the second receivables or are average interest expense net and X.X% to basis. of annualized $XX

million As $X the and interest last rate year, a in our mark-to-market of second income a benefits we from interest to reminder, count. experienced quarter pre-tax expense

the receivables, to net average In increase $XX be interest third primarily of expense approximately expense expect million of XXXX, portfolio to growth. in quarter with our we expected the attributable or X%

our of June We a of is revolving coupon with as weighted XXth, rate, average fixed duration of as average continue aggressively years. and exposure debt manage weighted to our interest to a X.X% of rising rate X.X XX%

the XX benchmark in the expect interest months, of increase year. to receivables, strategies that increase sharp we rates a over average management the rate despite we've continue percentage net last of experienced balance as modest to the in our a benefit a result, interest expense a of throughout comparatively enjoy As

We to against also strong average, rates. sheet ample a continue interest fund to our and maintain reserves, rising substantial with liquidity low growth balance very healthy protection

$XXX draw the credit capacity cash revolving of As had credit of down million unused on end of on our hand our liquidity, of immediate $XXX we million consisting availability on facilities the second and as to unrestricted facilities. available and quarter,

quarter-end a stretching between demonstrating has staggered and disruptions our $XXX revolving million, capacity borrowing unused in credit protect the XXXX, we've since to debt to duration of XXXX, Our against roughly short-term and $XXX ourselves million maintained market. out ability

to X.X Our second conservative quarter's a funded debt-to-equity ratio remained X.

have restricted. to fund business ample if to were further capacity the market to even our We become scrutinization access

tax effective for XX% the quarter. rate incurred We second an of

of equity tax For XX% to any such quarter, effective discrete prior the of expect an as approximately impact we items, third tax rate compensation.

We our also capital to to return continue shareholders.

on controlled as a Directors August of the The XXrd, long-term prospects dividend Our of Board to sheet common growth. be of of for on strong closed business are the and share third and of second pleased September $X.XX balance record for dividend near with per declared shareholders quarter. results XXth, XXXX. will our XXXX paid the with sustainable quarter We're

concludes That I'll my call over the turn back Rob. now to remarks.

Harp. Thanks,

our call to the excellent second members turn quarter. outstanding like questions, results I'd I the over hardworking service their Before and they delivered customer to team for the thank in

said we environment, managing in within strong execution including maintaining the we've remain past, closely expenses As this focused and quality of our business, loans credit box, a consistent high tighten originating economic on in challenging balance sheet. core our

pleased to We're performance to payment delinquency levels. over vintages actions that with loan outperform our in the have XXXX recent early quarters strong and several our credit-tightening see more default last first driven continuing

our growing well-positioned take to part years. advantage Thanks consumer of credit to box. over past within few by in in expansion our We're robust demand quarter geographic conservative third the

rip in our tight operating forward, and that will and create and objectives the leverage initiatives strategic on moving improve over data greater digital growth, credit performance keep a key We'll technology, expenses while further long-term. sustainable additional investments and making analytics also

course, are growth. of when our and And into future, credit further we'll liquidity to the substantial the balance leverage strength, capacity box sheet economic borrowing reopen right and in our lean conditions

you interest. you now questions. to Thank up could open call line? the I'll time your open for and a Operator, again please

now [Operator go Sanjay comes Sakhrani question session. the We'll Instructions] first begin and The from from answer Please ahead. KBW. Certainly. question

we for the going if going questions. should taking I out Thanks. expect should have just Hi, this about the Sanjay. you first us But we around benefit that the Thanks Kwok is move from the can break think doing How forward yield is Steven help for to one repricing. how in my forward?

great joining. Yes, Steven, thanks. Thanks for The question.

as scope repricing a presentation As takes that It the a basis Harp expect well while repricing mentioned about we book. in mixture to the normalizing the as credit yields That's points have her both we actions of of in third XX portion your quarter. taken.

year. And of is be and credit is worth the But repricing is, would in our benefits XXX so, to but going next until you a I before, this by the of It's full a you which time bit little of through stated have longer. really don't similar say see amount, terms about that what to frame we points basis repricing. normalization comes

us longer then should we as Got it. versus the over then around out Can versus you follow-up break product? And is it small to my rate term. X.X% retail? by about the like question X% and Thanks. How help loss large think

Yes.

retail well, winding down. is So, just

about So, box it it just credit and the X.X% based that to current X% tightened range today today. was I the we have want to be as as clear on is

range some You risk back that higher growth some credit the and you a in and expect APRs, higher get we would returning as loosen and you lean would -- increase. higher expect that will up assets

originations kind our put would we we on guidance the future mix how guidance environment on gave box update today. just shifts that the of macro depending forward So, improves. what on the depending as in was based We credit going that on

questions. Got Thanks for taking it. my

Thanks.

from next Tieton Bill question go comes Dezellem Please ahead. from Instructions] Capital. [Operator The

Thank you. couple of questions. A

relative all, that? follow-up. to you additional new states, you're And of walk how thinking would into us do First a entry have through about I your

Yes.

some on We're of we've And we're is you putting going we I as well. credit. if eight states states lot particularly we've those four the of year. been entered where are a from very since So, of Those states. states legacy more June all think new tightened will, growth have new new seeing had last states stable coming the,

new depending But states growth rebound growth states is, demand start well. as There's have legacy in macro what I we'll it's those and of mean, very you addressable and the move performed continue states. think expect see all a new in lot forward, to out on we I those a environment, a would market. there.

being just relative growth risk are smart there. might so, the rate we're the be macro to of And that about out what

inflection your lean point for? would back that you could you into are What What you. data that it Thank and your environment to to is mindset? And that the could or an you the are in growth macro lead up. points relative looking tighten

Yes.

the growth, about a we're grown you over which So environment, I think is, employment seeing the stable of inflation, it's real which last our for year which starts which as cooling, wage set X%. customer know, with macro continuation environment, has

The And And so, a growing. those there increased are we're all is seems that optimism have to economy positive. to be soft landing. going

I to place. think seem falling into So, the macro elements be

and the as the performing that of sure of I year, but ones. recent within vintages performance the the expected And the our looking we on is put other current they're even think make portfolio since of side most middle at environment. last

change stressed. There that And path. than up But ticked a -- don't prices a once back much I think on have in growth And comfortable little Customers see still we think, good, the outlook. which more of any high performance look the our leaning continue economic material are that we more indeed Gas inflation. I aggressively. see we'll really still into softer vintages, be are bit. we landing

Now, I this grew And $XX think I we originally guided receivables the at you we're million will by tell that, quarter. five.

probably third the $XX million are that somewhere we Now, year, in receivable third think range. now For we growth or I quarter, last XX XX, quarter, were saying

in put on the it more And a competitive but on doing to we're are strong demand strong we growth, very customer because assets be putting and on. position so, they're we we're selective

low growth, that have guided growth I for we And the year so, we single-digit this bodes mid And to single-digit versus well that think expect, future. mid

we quarter. which said last is what

in at hinting for taking outlook way. a in we're but the better it second we're half growth, a So, measured

graduates? percentage student the of to What question your the relative repayment. the then, Rob, that's helpful. are question. customer college of is debt And spirit additional And one base

customer potential to have your might impact that that base? happen, Assuming the that on does start

want have -- don't percentage in our give probably I the think I of latest provide portfolio number I looking college is you're for the graduate it me. I'll and loans. student And of past number Yes, in we've But the to shared the that have front now. don't the that

whether or So, balances customers loans. it's XX% our of base, have student

And begin penalty. think, and various as our without customers I payment the is so, government long starting year as programs as repayments the in you of October. to there is expectation all know, are on-ramping for supposed But

more payments payments. And other make of to There's also XX,XXX not below, and size it's to the subject have loan income make may your thresholds customers family to think where you that, I if you make have obligations. than your

think we've of our see XX% XX% we make payments considered So to start if number. payments that data on XX%. do always student we be in see begin. to roughly additional to in we'll And October as too versus here loan start underwriting, to Hard precise further and might customers any then in our our looking probably that be would we as tightening underwriting to there's payments the

government it's on-ramp long the from So, standpoint. a

we're think well as and monitor as industry the I positioned it. we'll anybody continue in to

you and great thank much, very quarter. Rob, Great.

Thanks. it. appreciate No,

question The Alexander from Please, from go Jefferies. ahead. next comes Villalobos

question. Hey, my question taking again. originations really guys. the on My for is Thank you

have the more we're Thank forecasted of lot So, growth lighter of confirm you. just year-over-year. the of But make just like really just it sure a front kind wanted loading is And to that a -- kind of a mid-single. high-single XQ. Is lot yes, digits to we kind it is like into correctly? want the compared XQ

fairly always as Yes. week. from south, strong a tends July Back-to-school, which August. next be and to in a have the the standpoint, early understand particularly we I as business right, nuance. Look,

and And does August, we up December. and a And October. we July September usually have pick November so, as then off in tails strong

the based in last million based maybe But, understand make Hopefully think and I take $XXX I rate $XX at look what year quarter. can kind then, look of if on the million, third quarter, to that's provided a how think, we we kind you what at in on a we're make helpful. can of growth an relative third doing did get we did year, in fourth the a the calendarization last you estimate tough. quarter, So, I little of

Yes. No, its super helpful.

Thanks guidance. guys. good really a give guys You

No problem.

I turn over closing concludes to the like answer to Back question conference would This any for back Mr. and session. the remarks.

happy Thanks operator, quarter. joining We're really the executing front. this We're A on evening. and again thanks delivering credit very everyone the with for well.

see improved Bill's from softer seeing very and in about As buckets. tightening, we talked question, early as I FPDs are optimism talked vintages the increasing about to in fund response and the our a the recent credit the well the you macro landing. about performing

to selective growth. put strong, time. we're a it on we'll that. position be position leave and growth. a customer good strong be competitive And on in this strong the a got at importantly, point want do at to in We've So but is to demand more that's more I in balance sheet to liquidity reinforce

lean in to I a And prepared pretty was the those about are. watching are we're think what clear indicators growth I We back indicators. and

pattern. noting, follow controls. both So, tight comfort we'll to worth then around We'll our follow expense And and the growth exercise lastly, it's our performance our conditions. we macro and portfolio continue

the in So and data capabilities up second digital investment XXXX. other ramp half of business benefit and to the analytics year. Spending we on will

out It's year. do. to following always in and And to the best important for we're year put working the what position yourself that's your close

in this Look talking forward thanks So for evening. the you again, everybody's to quarter. with next that, time

conference call. concludes today's This

your a day. pleasant lines. disconnect you and may Thank You have participating for