RM - Earnings call transcript Q3 2021 | Regional Management Corp.

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Operator

Thank you for standing by. This is the conference operator. Welcome to the Regional Management Corp Third Quarter 2021 Earnings Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Garrett Edson of ICR. ahead. go Please

Garrett Edson

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

should expectations, you and remarks, today our are to to guarantees various of which Page of the press not presentation, difficult are prospects. actual will could direct the today projections and reliance materially of I or and all differ Also, earnings important our regional certain Corp. that estimates posted to non-GAAP Beck, forward-looking are to speak growth initiatives to within third of Corp. Officer. Thanks, may current filings statements, the be uncertainties our to discussion to our net future on financial assumptions, comparable strategic or our a attractive record results use $XX.X recent earnings disclosures concerning and financial business these cause Harp that website call. you Before of would X statements. risks, about and formal which the you our Part Reconciliation and million XXXX predict of uncertainties management announcement and of quarter earnings and Management our found of implied SEC continued discussion I'm based only introduce upon include with discussion include performance, These and like that fuel We future we refer those quarter, on factors company's with CEO the today and for Rob of condition measure very not Financial I to are subject about and begin and could XX.X% results. can In management's welcome impact the measures. forward-looking and and of supplemental returns contains now risks ROA forward-looking $X.XX to statements President the measures. most forward-looking as the measures posted statements more or future statements operating expressed from at performance EPS, regionalmanagement.com. of statements third results income X.X% to presentation today in place and These drive and detailed strong GAAP We non-GAAP undue by presentation Garrett, therefore, financial release, joined diluted Prana, Regional our our them. ROE. of references our other forward-looking Chief may

portfolio proven to with another we've evident. year the in waned, points of third The strategy as X.X%, successes We the million omnichannel delinquency expectations year-over-year quarter, on our par below government the third and predictable sequential XX% investing continue as we more growth our our once quarterly delinquency and XXXX profile loans of but and long-term credit by focused increased superior grow record with revenue, net us shifting XX%, of portfolio our stable for XX-plus and with prior company all-time which finance growth were a and At respectively. are in high net leading and and derisked in initiatives built revenue. a finance We We double-digit market experienced generated our day the the consistent APR, custom time, quarter, a and line to or XX% models results maintain in than at quarter business again basis XXX receivables quarterly rate same our is it's heavily XX% higher-quality strategic to share levels. in up execution. below $XXX receivables In grow to our underwriting shareholders. stimulus deliver growth enabling

Our basis from our XXX point the in improvement company, history net as of quarter a prior a from rate quarter the loss third public lowest basis during a the XXX improvement point XXXX. the X%, year was credit period and

in development, omnichannel new along year XX% up channel originated originated levels. sourced and quarter, geographic million This over improved Our a we've million pre-pandemic initiatives, one loans growth our XXXX expansion was our $XX the continue in $XXX million growth and We digital to credit which digital our third digitally engine initiatives the with in initiatives. and we experience drive these now product investments includes derived marketing record growth. of from but loans our above strategic are from of and proven solid through which substantial XX% quarter, $XXX to with experience, last rolled up XX% performing out in as originated footprint, second the a prequalification quarter. margins. net loans to all The strong Thanks expected credit state third record

new as total XX% volume, loans. represented originated borrower New volumes digital with large of our XX%

will engine to affiliates be lead prequalification our digital ahead. and in roll new states with generators months Our the as integrated new and digital they with out and continue existing

to Aside ACH loan loan customer's product, guaranteed and fulfillment online convenience improved is bank offer into our prequalification from provides account. digital which our an funding product alternative our with check experience, test we continue to new a

on we end-to-end customer we portal online remain improved months, few pace early digital a deliver next app begin XXXX. will our of an also origination part testing the in product, to and and the Within mobile

it Peterson significant transform A to our expand a and strengthen team further our omnichannel of with we can key Data delivering strong we function As digital the model that made and Chief our in will and our Analytics our long-term during enabler strategies. on believe organization, be an the quarter initiatives, data we Officer. continue strides to Chris build as and analytics addition first

in insight quarter, enable as we step we data improve a products continued customer engagement, and quarter, operations and to Near analytics and in end our We decisions risk management are also third western the confident better to transform we ultimately and grow the of Utah footprint. geographic In our operations. core U.S. entered our expanded will our that the change investment and drive services, business the

Illinois in a have the in of of to ability branches branch reminder, the million October, million $X in the $X.X confident state we end our As in quarter and X branches quickly a an expand. to first receivables. X the gain network, as plans states XX a we our of the new receivables our in additional and we months, we X has second have months, across open reached XXXX. strong new exceeded to geographies entered by new and in as end the expect foothold in enter In new to enter and X coming state We're

leverage. into legacy The optimizing broader of fixed will In operations greater consolidate to the on we'll X-year coupon expansion quality. assessed above branches, quarter, states. close diversifies the previously, funding reach. result annual that private expect footprint. $X.X our securitization a X.XXX%, initiatives, we the position. drive transaction reinvest savings, end, optimization we've increases which branches transaction the we at into closed in providing of third a where To thanks continue in digital customers these to In generate be which further to loan October, XX% larger average noted balance states a branch remote quarter, overall As new sheet percentage higher new come in omnichannel branches sources decided including million and approach receivables XX million we and our maintain approximately rapid credit to network our clear by Along APR. fixed while loans our were fund our will into a below which funding to for will and our firm further $XXX to we proximity, opportunities our with branch service strengthens expect. branch our our lean in our enables they've there we a fourth growth, us closing able to in still per fewer best-in-class handle closed in operating and liquidity need This actions geographic capabilities, rate keep with the and These branch our will

and rate fixed of to with a nearly debt X from debt increased as of X.X% years. Following percentage weighted average duration securitization, a the of an total October XX%, coupon average our XX% revolving

maintained in against remain well we rate rates points, XX with we basis $XXX fund caps of to well In strike Following of to rates. the variable the interest rate protected million rising debt growth, also future sum, million funding. we're of transaction, positioned and covering XX $XXX interest our portfolio future and risk

As I credit very profile remains our noted strong. earlier,

to with scorecard. custom our growth our credit controlled standards underwriting investment ongoing have stable We our rigorous and prudent through pre-pandemic in achieved

and adjust alternative at We processes our the models have our further verification risk the forbearance since of of our data enhanced customers portfolio XXXX, and impact Across outset addition have FICO overall the scores of the and of for stimulus response with product portion our to highest and implemented all up of the make programs. in pandemic increased portfolio. growing lines, protected a larger early use

quarter. of by growth, September deployed was XX% the at $XX.X the we since As of vast portfolio the reserve standards credit following credit with for quarter for a third result, loan XX, of our credit XXXX, which of outset portfolio to was subject originated majority April had approximately the pandemic. that been enhanced the we end our in XX.X%. And our losses allowance of allowance million our the losses built rate as Consistent

favorably losses COVID-XX. as to a benefits XX the reserve in associated pace assistance delta continues economic of XX-plus of reserves additional recovery only the the day our of of the million losses we of to of contractual consumer credit compare million conservative credit the health variant, Our for $XX.X monitor COVID-related our a million We quarter as as $XXX.X released impact maintain and $X to and quite continue government of allowance we as delinquency of continue stance to third September the $XX.X million the includes dissipate. the for with

be fourth to absent XXXX environment, we any quarter year below that Looking and ahead, NCL expect significant will full our the rates changes X%. macroeconomic

Our anticipate portfolio allowance that by the roughly reserve of grow, for XX.X% losses in pre-pandemic increase will credit now to fourth we the as the to around levels quarter and return mid-XXXX. rate continues will

below levels. recovery we the continue believe year Assuming on to into performance at normalize delinquencies low next strong as our off or the that that should and track, even X.X% historically credit NCL economic will remains recent XXXX be rate remain

strongest the XXXX, As in position of in remain we we the history. near our end

yield from expectations to at to to $XX the Our take net raising million, we highs, We range million. and between our robust loan investments growth top full as demand our XXXX strong for strategic continue million XX line prior our on economy Based up as portfolio and and $XX record year and look we're forward recovers. to third quarter are returns, receivables solid remains of market results, our net share. income $XX finance

third quarter the XX.X% over strong our period, broader year reflects market. prior core portfolio which outlook outpaced growth revised Our of the

net XXXX assumes as outlook Our of jump-off approximately also the our a demonstrating the we $X.X year-end and model. further will be enter omnichannel power point billion, finance strong providing receivables

As record We're having to year. income circumstances extremely a reminder, full outlook for year providing net only we're and long-term we've the future. for unique our XXXX this due encountered excited a a year, we're

shareholders of quality, excess prioritize now Our over capabilities. color to to to omnichannel to the sheet balance digital and efficiencies, credit customers continue receive broadly lead our while we'll sustainable initiatives to strength call capital and service, to which continue on invest plans solutions are working continue and in our more return financials. well creation. our will to and driving operating ahead, growth, profitable for in that our long-term in Harp us, the financial we value We'll more states additional months bring quite to even provide I'll turn outstanding our ensuring our the growth and our

Harpreet Rana

Thank and everyone. hello, you, Rob,

detail. and expenses, with to income XX.X% significant X net driven you We diluted Let ROE returns provide our through X.X% ROE of million revenue stable share and highlights. year-to-date. and credit X.X% me profile. third and produce continued in growth, by this supplemental ROA business quarter more quarter take quarter On funding costs presentation, healthy operating and $XX.X results low of the portfolio earnings our per ROA financial third we Page $X.XX, XX.X% attractive The of and a generated

strong to returns. continue generate our and to drive demonstrate ability revenue our We to bottom line

digital the year As prior direct quarter, loans of $XXX to originations branch than higher well illustrated the the than million and than in prior higher Page as X% XX% we higher increased than nicely XXXX. the XX% and $XXX were also million, higher above XXXX. prior on originated branch period X, year third Meanwhile, and mail XX% year year-over-year originations

net $XXX significant than from through our and expansion. XX. accelerating million a strategy, closed receivables continue Page million originations and to mix quarter have and finance the million, and XX% originations million were in Notably, from XXXX. marketing execute XX% we our initiatives $X.X September X $XXX up higher trends successfully omnichannel record year the prior third quarter prior from $XXX Our total initiatives with the become year drove a of our period We the growth growth prior period factor growth portfolio $XXX and of quarter new new billion, up efforts. on our as displays

Our XX% portfolio grew basis. loans period million from $XXX XX% XX% to share. or take prior and a grew core XX% loan as and continue small million the we from Large $XXX sequential year market the on loans or prior and quarter

in sourced net finance billion. growth expect quarter, fourth year-end On Page remain to finance we $X.X approximately resulting quarter-over-quarter the receivables strong For to healthy portfolio, receivables in and of demand our generate new continue of borrower of in third were X, strategy. we show to needs omnichannel our we the our our through digitally as meet our XX% the customers originations, volume quarter which

the loans During quarter third XX% digitally were sourced originations. our new of large

Turning year-over-year, and interest fee to increased yield XX revenue our third and portfolio growth Interest improved due basis portfolio, fewer yield million. and credit accrual fee quarter. grew XX yield loan across in X. nonaccrual primarily in points total a status the Total Sequentially, small to the performance Page and each basis interest XX% resulting to and record loans due $XXX.X credit the points and to revenue increased performance in fewer reversals.

of an approximately nonaccrual As XX% had be was quarter, of In our XX%. we total XX, of comprised revenue the XX loans XX% our APR and at portfolio of or shift portfolio below yield third basis large expect to September the fourth lower yield the than points lower mix due as our loans and fee impact towards the and interest credit continued to XX larger points normalize. continues loans of quarter, to basis approximately and to be

X. Page to Moving

points X% was Our quarter, net XXX also delinquency lower a basis losses loss credit the quarter credit basis second improving from year-over-year. conditions our were third rate improvement point for levels. to economic XXX the Net due and down

full be quality Flipping and expected. our normalize expect to the and portfolio net underwriting credit scorecards. X%. rate performance credit X, continue year We to delinquencies criteria have thanks that the our quality adaptability loss below Page of XX-plus custom remains of will as our to our to strong, the of day begun

the September XX-plus below day points was XX basis basis of year Our level June of and XX, an delinquency XXX X.X%, XXXX versus increase as points prior but comparable levels. XXX to

day increased Our quarter levels. third XXXX XXXX XX basis points below XX-plus level and remains delinquency only sequentially and

XXXX, be Absent normalize. continue we as environment, macroeconomic normalized gradually that low anticipate even expect continue X.X%, any forward, Moving significant to strong rate our delinquencies NCL to to more the XXXX the or credit rise to below towards levels. expect into we we delinquencies historically performance will and change at

with quarter of million allowance net of $XXX.X finance ended XX.X% or receivables. We second for Turning XX. the to an losses Page credit

the decreased quarter The allowance $XX.X due economic quarter base net of allowance During to of our as support finance increase reserve a a $XXX.X strong condition. growth support $X portfolio of release in $XX.X improving million and reserve consisted XXXX, the to increased to percentage million but allowance build our to a COVID-related by of million million the growth, of XX.X%. to the portfolio third receivables

related the COVID-XX to continue of maintain We million impact of reserve to a $XX.X pandemic. the economic expected

As we a new build growth. our support additional reserves as grows, to reminder, will portfolio

stronger our macroeconomic the and the continue given We to the economy. duration assumptions severity reduce of

mid-XXXX. will the will levels We comparable approximately current expect that by of year-end pre-pandemic normalize XX.X% to at levels around be reserve and rate to

for $XX.X very to as allowance Our to losses favorably delinquency contractual compare XX-plus of XX million continues September our $XXX.X day credit of million.

our third optimization We appropriately strategy. branches of million investment included confident prior the the Flipping $XX.X omnichannel costs, part invest rose and initiatives, new which to a XX. $X quarter digital expenses related incremental in also consolidation plan origination expenses or related increased the to from are optimization quarter reserved. million G&A million, Fourth million was that quarter. $X.X as approximately XX quarter new G&A our continue and company's expenses $X.X the capabilities, sequential million. will Page of were the million $X expenses longer to by to branch additional $X.X into digital deferral of million branch up of and expansion for we we personnel of On period, growth of a year to remain sustainable the fourth our loan G&A the and million driven expenses XXXX third for personnel X% expect to of we G&A benefit an $X.X the the in the basis, growth states G&A to expenses. be term. Overall, our as for improved geographic leverage estimated quarter include operating drive $XX over expenses

the XX. on $XXX Page million caps X.X a price to a average securitization receivables This lower by was was a point quarter expense as million X-month of We to improved currently and price rates funds of end have basis of the interest weighted average on of Turning debt, LIBOR improved XX $X.X of the the years. $XXX year-over-year. an $X.X against and basis. Interest XX basis of third which caps XX million our protect interest was rising annualized variable transactions. us from totaled or between million our strike rate cost rate finance $XXX X.X% third rate duration at net our costs driven The million. interest points of quarter in recent and environment or improvement

will caps mark-to-market rate value be fluctuate, of interest rates As the accordingly. these value

million, to profile. with expense to increase interest impact interest ahead, the funding in attributable in rate loan is rate XX reminder Page growth in the on a fourth the we excluding strong be mark-to-market expect $XX of our quarter expense portfolio. approximately Looking our caps,

conservative Our funded debt-to-equity at X.X:X. a third quarter ratio remains

very with balance $XXX loss reserves. low leverage sheet and maintain We strong continue to in loan a million

As XX, $XXX unrestricted unused available and draw million had million of of credit facilities cash on September our we credit and availability capacity of $XXX facilities. liquidity, consisting our of to down immediate

has X.XXX%. us As a debt, to revolving transaction both variable million us October, provides private types, period and us enables certainty additional cost multiple allow we coupon securitization, $XXX XX% rate fixed higher closed fixed and securitization seventh and X-year APR. of fund down that to new product a our reminder, above pay with The a in rate below a interest

as the debt fixed increased and Following XX%, of with of a debt average revolving of nearly coupon securitization, rate XX% our a duration from X years. percentage X.X% total weighted to average

Our prior rate to period. the XX% third quarter the effective during compared year tax was in XX%

dividend we expect per tax discrete impacts XX%, business record rate share December of declared Directors quarter, on the XXXX. of XXXX. excluding a fourth $X.XX such equity November items, on to Board paid shareholders tax of for XX, associated common quarter XX, has as the be For will with The approximately the The of of XXXX, close fourth dividend an of of company's compensation. as effective

In a per the quarter, share addition, of $XX.XX million repurchase $XX our during at we program. repurchased price common stock of shares stock our average weighted under XXX,XXX

year, with throughout near and call a our We to I'll and over outstanding turn now extremely back balance to concludes the be prospects Rob. remarks. growth. my the robust That sheet our for continue long-term pleased performance

Robert Beck

exceptional like thank also their their as to And like support. outstanding was to team our Harp. Thanks, In quarter execution. and regional it thank another hard investors work I'd for the I'd regional. continued for summary, always, for

call hope strategy at and are our and excited we strategic company We're credit to and open market initiatives model, operating We'll superior we've again you up omnichannel us set additional to continue as for from apart look execute and our new key with positioning could to shareholders interest. the Operator, high-quality the the provide our about questions. profile us value sustainably omnichannel share expand I'll to our predictable, shareholders. now continue you're future value our create Thank that developed. focused continuing competition. that forward time a grow returns. price, to our open business, for consistent our initiatives, as line? and on we please Our growth a for growth We your you and

Operator

first The comes Hecht Instructions] John from [Operator question Jefferies. with

John Hecht

a -- migration the Quite terms loans of a as you're of in wondering, you're different to with digital in-store with you is of channels. like can there I'm characteristics delinquency anything seasoned loans? in bit or the those seeing growth seeing relative any sizes

Robert Beck

activation around as digital loans add large mix Obviously, the channels, it's aggregators. side, initiatives channels, a large loans. digital XX% small lead those From affiliates we've the of continue percentage through on just of those Yes, a were new it to new digital really loans. growth and and is standpoint,

a a got terms So loans, with of of we've loans. consistent quite large large of good in mix, loans. feeder mix a healthy it's not channel overall the but And mix for our portfolio great small still

As in loans customers and loans see us we us larger to at on in future. to the credit you bring then able their smaller then graduate up know, them a and in higher behavior rate with

all So to what and portfolio continued loan And have we're leading to shift right the growth strong we're small loan quarter. doing large we model on we to it loans, performance while yield. on portfolio grow and our including From expectations our standpoint, the a to credit to that and initiatives, it's credit going our again mix still our are quarter, nice continue net growth performing on this to last small started margin. support digital,

the pleased overall. really with we're So channel digital

John Hecht

into what Okay. continue about kind affects of go And -- as in -- about we initiatives. those of total investments about and we investments are in talk you digital like make of kind of that how think 'XX? expenses continued guys versus branches talk then offsetting talked savings do branch. well, about kind Maybe optimize you Maybe branch to

Robert Beck

continue I specifically Yes. you that although on growth We're lean into guidance initiatives. giving tell we'll 'XX investments, not really will to our

million our initiatives. million, originations these roughly growth paid in they've quarter, we see, of handsomely As $XXX came generated you XX% $XXX off can from the

X states assessed, way total the we're XX the branch larger So way close at we that is, XX. We've we've optimize of in existing we in new the model. we look And combine the XX leaning create to in look closed earlier probably The This to our year. I close side. run branches. year, at closed our we looked our optimization past, a X network a are performance. closed and if the year. not which at you the about into we'll branches larger think the omnichannel proximity, is that think to more branches branch performance and performance were smaller of where them, efficient could a branch, Take lose anything on We

our of terms going to require forward, continue capital core talked all areas it's and to which going going new In and to and investment geographic innovation, deploy products of year. we're channels, leaning into, next how invest expansion which I've investment into about, digital we're our the is in or will

John Hecht

Okay. And just question. final then

go new or in just me, that And as I you just remind topic, are able into internally going on guess to to with same branches of require well? kind do digitally? geographies Utah branch there a you be you're Just or digitally

Robert Beck

that's No, question. a great

in So branch yes, to Utah, we're start. one with

X have in Illinois. We

years million is is mature X after which the in $X.X noted, balances largest a of already have they Illinois, So months, and X after I branch which $X.X X million. the $X million, is

footprint our well. approach really doing states into is So light new

we That once be will us which be you, we'll go-forward in But digital our off and may I start will the enter not states out product soon, and states. lower tell very branches. best we as a end-to-end testing the originations are most the some states, that in does way. wide those look look skim efficient roll add for the able model more So be margins quarter, opportunity digitally we'll particularly first new as into Utah, give of certainly relatively where our in to certain rates customers to to

opportunity but get exists once we want We to we where done haven't our it yet, investments digital the be.

Operator

next with The Instructions] comes Sakhrani KBW. Sanjay question [Operator from

Steven Kwok

for in Steven This Kwok is actually Sanjay.

around had particularly I just credit, was rate. first The around delinquency one

towards And look can Just term, what are we perhaps Or intermediate out the mix off we it new the wanted to newer the levels? seeing -- get that you to a be you do a of the health receivables we think think like of given and little consumer? do XXXX -- charge near delinquency from bit you your of different? over could sense as back get do

Robert Beck

we're guiding We what we're to, looking starting what rise, and out Look, is question. this strong delinquencies seeing. air said great delinquencies of look, that still very the to look, uncertainty will the know to and that's start last credit. normalize. normalized there's into customer balance We all post But sheet. there. We're that. Steven, stimulus kind Yes. would quarter that what seeing come has XX anticipate we're exactly next see the months And I over with

may not I maybe be think NCLs, which XX year, fully normalize out. next months until we said should at or X.X% below

below should the XX% quality is to big scorecards, we custom hard terms we say what to point I out, portfolio grow our of continue I of would is I portfolio. last of years predict. loan enhance portfolio. shift little a the over as quality continue it's the XX%. our and But mean, That's portfolio as large in a improve our several So our of our

give So I'm but were not to that we get you think skis, my can't far we lower going where now. I much past. normalization right too in than the over I How may that see

Steven Kwok

about million about you the and just it. each the it at Can like Because guided the came to is lot that Got expenses had going side. just And about getting? you there Got $XX around seems you've as well. quarter, on in better expenses. you're the forward? $XX it. talk follow-up know been on a where expense you I million, more this savings doing for then how much And runway a quarter

Harpreet Rana

Harp. It's

take question. I'll that So

$XX quarter, was So of of the then which million at in where million the the $XX was that roughly guided largest came we driver to last we and costs. deferral marketing digital

So that talked million the about prepared remarks. that in $X I

million quarter. $X.X within $X.X decreased Of first the quarter. quarter third second And in other and our quarter. that was million So the that the the accumulation of was expenses then

million. So $X.X the $X the was of total incremental for million quarter to

$XX in we've So $XX million that quarter, the reduced down expenses that third the in the guidance. given to million versus

For fourth $XX investment be that which guiding to million, has with we optimization are $X.X in and quarter, as branch quarter our capabilities. in well up continued fourth million costs, to the of do as will

Operator

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

Robert Beck

thanks, ending revenue, performed Thank breaking low and everyone and quarterly quarter, joining. the quarterly NCLs. receivables portfolio business stepping this well you, back, on operator, for digital growth, records originations, and Look, exceedingly total

As we and losses the expected we over said last XX to delinquencies so. months or quarter, normalize next

have prudent with We well We're at alternative through income since the underwriting. growth employment enhanced of our to underwriting using decisioning. stable enhanced pandemic pre-pandemic as and our data levels impact start our verification scorecards the credit and using rigorous process controlled as

an launch are secured has prices in look, the prices early underwriting, auto And new Our car as inflated. date of because our the very fantastic. we that. everybody -- example, used inflated has sure performance else product car not done to I'm we adjusted believe for are been used

currently auto the So of new secured our well how first are an stage. example X initiatives loans, delinquency a performing, in X,XXX only are

growth prepared a execution. built company the focused So consistent I we remarks, a in strategy net-net, as proven omnichannel and with said have

models innovation, -- All or joining and investing business digital our a XX% XX%, same enabling Thanks time, loans on to at new to to focused credit shareholders. of shifting stable us best. this profile deliver in by as underwriting below portfolio for evening. grow maintain have our we are predictable customer derisked the for the and custom our again We results drive superior and products the channels heavily At more expansion growth. than we the geographic and higher-quality

Operator

concludes call. conference This today's

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

Regional Management (RM) 3 Nov 212021 Q3 Earnings call transcript