Regional Management Corp. Q1 FY2025 earnings call

• Delivered $7 million net income and $0.70 of diluted EPS in Q1, in line with guidance.
• Experienced relatively low seasonal liquidation of $2 million, compared to $27 million in Q1 last year.
• Opened 15 new branches in September 2024, 10 in new markets performing well with an average portfolio balance of $2.2 million for new market branches open ~2 months.
• Auto-secured and higher-margin small loan portfolios growing; auto-secured up to 12% of total portfolio, higher-margin small loans up to 18% of portfolio.
• Credit performance strong: 30-plus-day delinquency rate 7.1%, net credit losses $1.6 million better than guidance.
• Regulatory update: CFPB examination closed with no adverse findings.

In the first quarter, the auto-secured loan portfolio grew by $59 million or 37% year-over-year to 12% of the total portfolio. The small loan portfolio with APRs above 36% grew by $59 million or 21% year-over-year to 18% of the portfolio. The loan portfolio generated $153 million of revenue in the quarter, a record for the first quarter and up 7% from the prior year period after adjusting for the impact of the fourth quarter 2023 loan sale.

• Expect at least 10% portfolio growth in 2025 despite economic uncertainty.
• Second quarter ending net receivables expected to be up ~$55 million to $60 million sequentially.
• Q2 net income guidance: $7 million to $7.3 million.
• Total revenue yield expected to rise ~20 basis points sequentially in Q2.

• Economic uncertainty and potential impact of trade policies on portfolio credit performance.
• Monitoring macroeconomic events and being prepared to adjust underwriting if needed.

Q: Hey. Good afternoon, guys. Thanks for taking my questions. Just want to get a sense for kind of the longer-term outlook on NIM. Appreciate the guidance you gave for the second quarter, but talk about some of the kind of puts and takes to both the cost of funds and the yield size for us, if you don’t mind?

A: So, on the cost of funds, it’s hard. So, on the cost of funds, we’ve said that as our fixed rate funding, which is currently at 90% at the end of the quarter, but as our fixed rate funding from prior years matures, that you will see cost of funds go up. Our pricing, in terms of where we are, you’ll see seasonal fluctuations of that, but we did make some pricing changes and you’re seeing that most of those are fully in the portfolio. What I would take into account, though is, we talked a lot about our higher margin, higher rate business. So, I would take that into account and then you have to balance that with our barbell strategy, where we do auto-secured loans, which have lower yields, but of course, have lower net credit losses as well.

Q: Hi. Good afternoon. Thanks for taking my questions, Rob and Harp. I had a couple specific things I wanted to ask about, but before that, just a very, very general question, and if it’s a, it could be just a yes or no response, but setting aside the policy trade uncertainty that’s ensued over the last month, if we just sort of put that to the sidelines for now, Rob, is there anything new on this call versus three months ago that you’re aiming to communicate to investors or is it pretty much all the same kind of fundamentals and drivers and cadences that you provided on your year-end call?

A: Well, I think, there’s three things, and you’re going to take away my closing comments by this, David, so thank you. It may keep me from having to do those. But I think first and foremost, credit came in better than our guidance by $1.6 million in the quarter, and as you heard me just say, we’re seeing consistent improvement and loss performance across all our months on books and our roll rate, so that’s encouraging. And as we look ahead to the second quarter, sequentially, we’re looking to be down 80 basis points on the NCL rate. Now that’s excluding 40 basis points from the impact of Hurricane Helene, which, as Harp said, was fully reserved. So I think, on the credit front to this point in time, we’re seeing things continue to improve. I think the second thing that I would highlight is, we opened up 15 branches since September. Now, that’s the largest block of branches we’ve opened in the last two years, and because of the high inflation period warranted us kind of pausing any meaningful branch expansion, and these branches are performing ahead of our expectations with a tighter risk box than the rest of the network and we’re seeing positive pre-provision net income at month three. So, look, we’re going to continue to evaluate the performance of these branches in the second quarter. We don’t have any branches assumed in the 10% ENR growth that we have given as a minimum for full year and gauge -- we’ll gauge the performance of these branches for another quarter. We’ll look at what’s happening on the macro front and the tariff side, and then evaluate our future growth plans. But just getting back into growing these branches is really showing the power there. And then lastly, we put in a new slide on the business’s ability to generate capital. It’s a proven model and if you look back to the beginning of 2020, I think, we’ve generated $339 million of capital for shareholders. We’ve returned a substantial amount to shareholders. And if you look at the average capital generation over the average shareholder equity over that period of time, it’s at 21%. So, I think that we are positioned well, regardless of what happens going forward and we have all the opportunities to grow and achieve greater bottomline results in the coming quarters and years, notwithstanding anything from a macro standpoint that might cause us to alter that strategy to some degree.

Q: Yeah. Good afternoon. So I’m going to apologize… if you covered this already. I did miss the prepared comments of the call. But so I caught the guidance for 2025 is unchanged for meaningful EPS or net income growth. It was one of those, correct?

A: Yeah. That’s what we said.

Q: Hey, guys. Thank you for taking my question. A lot of the questions that I had have been answered, but did have, if it’s any possibility of giving a little bit more guidance on the expense side, I know you guys grew expenses in 2024 about 2%. Should we be thinking about around that number or something maybe a little bit higher? And my second question is maybe a little bit more detail on the consumer. Obviously, the consumer is still spending, but if there’s anything kind of in your data that can tell you how much of it is pull-forward or just the consumer actually within their regular cadence? Thank you.

A: So I’ll take the question on the expenses first. So we’re not giving full year guidance on the expenses. I did give second quarter guidance in terms of that being around $65.5 million. You will see expenses increase as our loans increase and the variable expenses associated with that increase as well. But as always, we’re quite prudent around our expense control and we’ll continue to do that. And help me with the second part of your question.

Q: Yeah. No. Just in general, like from the other companies, from everything from the credit card companies to some of the other lenders, there’s the question of the consumer spending, how much of it could be just pull-forward based on the tariffs or if it’s just the consumer truly just within their regular cadence? Thank you.

A: Yeah. I don’t -- we’re not seeing in the first quarter, and of course, there’s tax season there. We’re not seeing any kind of increased demand that we would look to say it’s accelerated spending for our customer base. That’s not something that, our customers tend to have the excess, look, I got excess spending power to do on like maybe a prime based customer. So, I think their behaviors are holding pretty steady. They’re meeting their obligations and that’s reflected in our credit. So that would be my reaction on that. And the other thing… I’ll tell you this that, look, like we do every year, we assess how we’re going along in the year and then we have the ability to pivot and put on more investment and growth for the following year. For example, we added these 15 branches in the very end of last year going into first quarter. And so, we’re always looking for opportunities to invest more, to take advantage of good profitable growth. And those 15 branches that we opened, actually, I go back to the 17 branches we opened since the beginning of the year, I think, we’ve created in the first quarter $3.6 million, if I got it right, half of revenue on about $1.6 million of expense.