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

“We had another fantastic quarter, as our strategic initiatives continued to fuel record growth,” said Robert W. Beck, President and Chief Executive Officer of Regional Management Corp. “Our sustained focus on geographic expansion, digital investment, and product and channel development enabled us to reach new consumers and gain market share, driving record sequential portfolio growth of $130.8 million in the quarter. Our portfolio exceeded $1.3 billion at quarter-end, generating record revenue of $111.5 million, up 23% year-over-year. As a result, we posted $22.2 million of net income and very attractive returns of 7.1% ROA and 31.6% ROE.”

“While the successes of our omni-channel model are evident, equally important has been our ability to maintain a superior credit profile as we grow,” added Mr. Beck. “Controlled growth with stable credit has been made possible by our commitment to underwriting to our rigorous pre-pandemic standards and our ongoing investments in our custom scorecards. We have further protected our portfolio with the addition of enhanced verification processes implemented at the outset of the pandemic and the use of alternative data in our risk and response models to adjust for the impact of stimulus and forbearance programs. Across all product lines, FICO scores have increased since early 2020 and our highest-scoring customers make up a larger portion of our overall portfolio.”

“Looking ahead, we remain eager to bring our financial products to millions of new consumers, as we introduce end-to-end digital lending in the next few months and expand to five to seven new states by the end of 2022,” continued Mr. Beck. “We have built a growth company with a focused, omni-channel strategy and proven, consistent execution. At the same time, we have de-risked the business by investing heavily in our custom underwriting models and shifting more than 82% of our portfolio to higher-quality loans at or below 36% APR, enabling us to maintain a stable credit profile as we grow and positioning us to deliver predictable, superior results for our shareholders.”

Third Quarter 2021 Highlights

• Net income for the third quarter of 2021 was $22.2 million and diluted earnings per share was $2.11, compared to net income of $11.2 million and diluted earnings per share of $1.01 in the prior-year period.

• Net finance receivables as of September 30, 2021 hit another all-time high at $1.3 billion, a record increase of $254.7 million, or 24.0%, from the prior-year period.

- Total core small and large loan net finance receivables increased $263.4 million, or 25.4%, compared to the prior-year period.

- Large loan net finance receivables of $882.5 million increased $226.6 million, or 34.5%, from the prior-year period and represented 67.2% of the total loan portfolio. Small loan net finance receivables were $419.6 million, an increase of 9.6% from the prior-year period.

- Record loan originations of $420.7 million in the third quarter of 2021, an increase of $108.1 million, or 34.6%, from the prior-year period.

- Record digitally-sourced originations of $48.1 million in the third quarter of 2021.

• Total revenue for the third quarter of 2021 was a record $111.5 million, an increase of $20.9 million, or 23.1%, from the prior-year period.

- Interest and fee income increased $18.0 million, or 22.2%, primarily due to higher average net finance receivables and improved interest and fee yield.

- Insurance income, net increased $2.6 million, or 37.3%, driven by an increase in premium revenue, partially offset by an increase in expected life and non-file insurance claims.

• Provision for credit losses for the third quarter of 2021 was $26.1 million, an increase of $4.0 million, or 18.1%, from the prior-year period. The provision for credit losses for the third quarter of 2021 included a release in the allowance for credit losses of $2.0 million related to the expected economic impact of the COVID-19 pandemic and a net $12.7 million incremental build in reserves related to portfolio growth.

- Allowance for credit losses was $150.1 million as of September 30, 2021, including a $15.5 million allowance for credit losses associated with COVID-19.

• Annualized net credit losses as a percentage of average net finance receivables for the third quarter of 2021 were 5.0%, the lowest in the company’s history as a public company and a 280 basis point improvement compared to 7.8% in the prior-year period.

• As of September 30, 2021, 30+ day contractual delinquencies totaled $61.3 million, or 4.7% of net finance receivables, consistent with the prior-year period. The 30+ day contractual delinquency is well below the company’s $150.1 million allowance for credit losses as of September 30, 2021.

• The company expanded its operations to the state of Utah in the third quarter. In addition, during the third quarter, the company assessed its legacy branch network and determined to close 31 branches in the fourth 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 estimates total expenses of $1.6 million associated with the branch optimization, of which $0.7 million was incurred in the third quarter and $0.9 million is estimated in the fourth quarter. The branch optimization will generate approximately $2.2 million in annual savings, which the company will reinvest in its expansion into new states.

• General and administrative expenses for the third quarter of 2021 were $47.8 million, an increase of $4.0 million, or 9.1%, from the prior-year period due to ongoing investment in personnel, marketing, and digital capabilities to support the company’s growth strategy. General and administrative expenses for the third quarter of 2021 included $0.7 million of expenses related to branch optimization and a $1.5 million benefit related to the incremental deferrals of digital loan origination costs.

• The operating expense ratio (annualized general and administrative expenses as a percentage of average net finance receivables) for the third quarter of 2021 was 15.4%, a 160 basis point improvement compared to the prior-year period. The operating expense ratio was inclusive of a 30 basis point impact related to branch optimization and a 50 basis point improvement related to the incremental deferrals of digital loan origination costs.

• As of September 30, 2021, the company had total unused capacity on its revolving credit facilities of $722 million to fund future growth, subject to the borrowing base, and available liquidity of $194 million, including unrestricted cash on hand and immediate availability to draw down cash from its revolving credit facilities.

• In the third quarter of 2021, the company increased its stock repurchase program announced in May 2021 from $30 million to $50 million and repurchased 390,112 shares of its common stock at a weighted-average price of $56.32 per share. The company has repurchased 734,541 shares in total under the stock repurchase program at a weighted-average price of $51.69 per share through September 2021.

• In October 2021, the company closed its seventh asset-backed securitization, a $125 million five-year note issuance with a fixed rate of 3.875%. The securitization allows for the funding of multiple loan products, including small, large, and convenience check loans, digitally sourced originations, and loans with APRs greater than 36%. Following the transaction, the company’s fixed-rate debt as a percentage of total debt increased from 78% to 87%, with a weighted-average coupon of 2.7% and an average revolving duration of nearly 3 years.

Fourth Quarter 2021 Dividend

The company’s Board of Directors has declared a dividend of $0.25 per common share for the fourth quarter of 2021. The dividend will be paid on December 15, 2021 to shareholders of record as of the close of business on November 24, 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.

Liquidity and Capital Resources

As of September 30, 2021, the company had net finance receivables of $1.3 billion and debt of $978.8 million ($977.1 million of outstanding debt and $1.7 million of interest payable). The debt consisted of:

• $131.0 million on the company’s $640 million senior revolving credit facility,
• $88.3 million on the company’s aggregate $300 million revolving warehouse
  credit facilities, and
• $759.5 million through the company’s asset-backed securitizations.

The company’s unused capacity to fund future growth on its revolving credit facilities (subject to the borrowing base) was $722 million, or 76.8%, as of September 30, 2021.

As of September 30, 2021, the company also held interest rate caps with an aggregate notional principal amount of $450 million to manage the risk associated with variable rate debt. The interest rate caps are based on the one-month LIBOR and reimburse the company for the difference when the one-month LIBOR exceeds the strike rate. Of the aggregate amount, $350 million of the interest rate caps have strike rates of 25 or 50 basis points and a weighted-average duration of 2.3 years.

The company had a funded debt-to-equity ratio of 3.5 to 1.0 and a stockholders’ equity ratio of 21.1%, each as of September 30, 2021. On a non-GAAP basis, the company had a funded debt-to-tangible equity ratio of 3.6 to 1.0, as of September 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

The company is raising its full year 2021 outlook for net income to between $85 million and $87 million, from its previous outlook of net income 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 less than 7.0%,
• Net finance receivables will be approximately $1.4 billion at the end of 2021,
• The company will further build its allowance for credit losses in the fourth quarter due to net finance receivables growth,
• The allowance for credit losses rate will continue to normalize gradually toward pre-pandemic levels of approximately 10.8% by mid-2022, and
• General and administrative expenses will increase in the fourth quarter as the company continues to invest in its growth initiatives.

Assuming the economic recovery remains on track, the company believes that credit performance will remain strong into next year and that the company’s 2022 net credit loss rate will be at or below 8.5%.

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 more than 340 branch locations in 13 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: 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 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.

(1) Represents the principal balance of loan originations and refinancings.
(2) The company ceased originating automobile purchase loans in November 2017.

(1) Includes COVID-19 pandemic impacts to provision for credit losses of $(2,000), $(6,300), and $(1,500) for 3Q 21, 2Q 21, and 3Q 20, respectively.
(2) Same store sales reflect the change in year-over-year sales for the comparable branch base. The comparable branch base includes those branches open for at least one year.

(1) Includes incremental COVID-19 allowance for credit losses of $15,500, $17,500, and $31,900 in 3Q 21, 2Q 21, and 3Q 20, respectively.