Regional Management Corp. announces fourth quarter 2019 results

Net income of $15.7 million and diluted earnings per share of $1.38 

17.0% revenue growth, driven by 17.4% average finance receivables growth 

GREENVILLE, SC – Regional Management Corp. (NYSE: RM), a diversified consumer finance company, announced results for the fourth quarter ended December 31, 2019.

Fourth Quarter 2019 Highlights

• Net income for the fourth quarter of 2019 was $15.7 million, a 45.6% increase from the prior-year period. Diluted earnings per share for the fourth quarter of 2019 was $1.38, compared to $0.90 in the prior-year period.

• Total finance receivables as of December 31, 2019 were $1.1 billion, an increase of 18.5%, or $172.6 million, from the prior-year period.

– 19^th consecutive quarter of year-over-year double-digit finance receivables growth.

– Total core small and large loan finance receivables increased $195.4 million, or 22.3%, compared to the prior-year period.

– Large loan finance receivables of $608.6 million increased $170.6 million, or 39.0%, from the prior-year period and represented 55.1% of the total loan portfolio. Small loan finance receivables as of December 31, 2019 were $462.5 million, an increase of 5.7% over the prior-year period.

• Total revenue for the fourth quarter of 2019 was $98.0 million, a $14.2 million, or 17.0%, increase from the prior-year period.

– 14^th consecutive quarter of year-over-year double-digit revenue growth.

– Interest and fee income increased 17.0%, driven by a 17.4% increase in average finance receivables compared to the prior-year period.

– Insurance income, net increased $0.9 million, driven by an increase in premium revenue and a decrease in non-file insurance claims expense (due to the previously disclosed change in business practice to lower the utilization of non-file insurance).

• Provision for credit losses for the fourth quarter of 2019 was $26.0 million, an increase of $2.3 million, or 9.9%, from the prior-year period. The increase was due to $4.0 million of higher net credit losses, primarily related to growth in finance receivables.

• Annualized net credit losses as a percentage of average finance receivables were 9.2%, a 10 basis point increase from 9.1% in the prior-year period, due to incremental non-file insurance claims shifting from insurance income, net to credit losses as compared to the prior-year period.

• 30+ day contractual delinquencies as of December 31, 2019 were 7.2%, compared to 7.7% as of December 31, 2018. 30+ day contractual delinquencies as of December 31, 2018 included 0.5% related to hurricane-affected branches. Additionally, 90+ day contractual delinquencies were 3.2%, compared to 3.5% in the prior-year-period.
• In October 2019, the company completed a third asset-backed securitization, a $130 million note issuance (senior class rated “AA” by DBRS) with a weighted-average coupon of 3.17%.

Fourth Quarter 2019 Results

Finance receivables outstanding at December 31, 2019 were $1.1 billion, an 18.5% increase from $932.2 million in the prior-year period. The increase was primarily due to continued strong growth in both the core small and large loan portfolios.

For the fourth quarter ended December 31, 2019, the company reported total revenue of $98.0 million, a 17.0% increase from $83.7 million in the prior-year period. Interest and fee income for the fourth quarter of 2019 was $87.8 million, a 17.0% increase from $75.0 million in the prior-year period, related to ongoing growth in the core small and large loan portfolios.

The provision for credit losses in the fourth quarter of 2019 was $26.0 million, a $2.3 million, or 9.9%, increase compared to $23.7 million in the prior-year period. The increase was primarily due to $4.0 million of higher net credit losses, including an additional $0.6 million related to the change in business practice to lower the utilization of non-file insurance. The change in business practice had no impact on net income.

Net credit losses were $24.7 million in the fourth quarter of 2019, an increase of $4.0 million over the prior-year period, primarily related to growth in finance receivables. Annualized net credit losses as a percentage of average finance receivables in the fourth quarter of 2019 were 9.2%, a 10 basis point increase from 9.1% in the prior-year period. This increase was due to incremental non-file insurance claims shifting from insurance income, net to credit losses as compared to the prior-year period.

General and administrative expenses for the fourth quarter of 2019 were $40.9 million, an increase of $4.3 million, or 11.7%, from the prior-year period. The operating expense ratio (annualized general and administrative expenses as a percentage of average finance receivables) was 15.3%, an 80 basis point improvement from the prior-year period. General and administrative expenses for the fourth quarter of 2019 included $0.6 million of incremental costs related to new branches that opened since the prior-year period.

Interest expense was $10.3 million in the fourth quarter of 2019, compared to $9.6 million in the prior-year period. The increase in interest expense was primarily due to larger long-term debt amounts outstanding from the ongoing growth in finance receivables.

Net income for the fourth quarter of 2019 was $15.7 million, an increase from $10.8 million in the prior-year period. Diluted earnings per share for the fourth quarter of 2019 was $1.38, an increase from $0.90 in the prior-year period.

First Quarter 2020 Developments

As previously disclosed, effective January 1, 2020, Regional replaced its previous incurred loss impairment model for estimating credit losses on financial assets with a current expected credit loss (“CECL”) model. As a result, on January 1, 2020, the company incurred an increase in its allowance for credit losses of $60 million and a one-time, cumulative reduction in retained earnings of approximately $46 million (net of $14 million in taxes). Regional’s allowance for credit losses as a percentage of finance receivables increased from 5.6% on December 31, 2019 to 10.8% on January 1, 2020. The adoption of CECL did not cause the company to violate any of its existing debt covenants and will not inhibit the company in funding its growth or returning capital to its shareholders.

In addition, in January 2020, Regional experienced an isolated information technology infrastructure event that caused an extended outage of its loan management system. The company has determined that an inadvertent operational failure in IT allowed a system back-up process to run concurrently and inappropriately with normal nightly processes, resulting in the event. The outage affected the company’s ability to originate branch loans and process certain types of payments. However, during that time, all branches remained open, serviced customers, and accepted payments via cash, personal check, money order, and certain electronic payment methods. The outage did not impact the security of customer information or the integrity of company and customer data. The event also did not involve an external breach or the compromise of data by any third party. Regional, with the assistance of third party experts, addressed and resolved the issue and is confident that it will not occur again. The loan management system has functioned normally since its restoration, and all branches have been fully operational.

While the event did not impact Regional’s fourth quarter 2019 financial results, the company expects that the outage will adversely impact net income by approximately $1.3 million in the first quarter of 2020 and by an additional $0.3 million throughout the remainder of the year. Management is also evaluating the event in relation to its 2019 year-end assessment of internal controls.

2020 De Novo Outlook

As of December 31, 2019, the company’s branch network consisted of 366 locations. The company continues to expect to open a total of between 25 and 30 de novo branches for the full year 2020.

Liquidity and Capital Resources

As of December 31, 2019, the company had finance receivables of $1.1 billion and outstanding long-term debt of $808.2 million ($805.8 million of outstanding debt and $2.4 million of interest payable), consisting of:

• $349.3 million on its $640.0 million senior revolving credit facility,
• $46.4 million on its $125.0 million revolving warehouse credit facility, and
• $410.1 million through its asset-backed securitizations.

The company’s unused capacity on its revolving credit facilities (subject to the borrowing base) was $369.3 million, or 48.3%, as of December 31, 2019.

The company had a funded debt-to-equity ratio of 2.7 to 1.0 and a shareholder equity ratio of 26.1% as of December 31, 2019. On a non-GAAP basis, the company had a funded debt-to-tangible equity ratio of 2.8 to 1.0 as of December 31, 2019. Please refer to the reconciliations of non-GAAP measures to comparable GAAP measures included at the end of this press release.

 

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 366 branch locations across 11 states in the Southeastern, Southwestern, Mid-Atlantic, and Midwestern 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.