Regional Management Corp. Announces Third Quarter 2018 Results

Staff Report From Greenville CEO

Friday, November 9th, 2018

Regional Management Corp., a diversified consumer finance company, announced results for the third quarter ended September 30, 2018.

Third Quarter 2018 Highlights

  • Net income for the third quarter of 2018 was $7.4 million, an increase of 40.3% from the prior-year period, while non-GAAP net income was $10.3 million, an increase of 50.8% from the prior-year period. Non-GAAP net income for the third quarter of 2018 excludes an estimated $2.9 million of impact related to Hurricane Florence, while non-GAAP net income for the prior-year period excludes an estimated $2.2 million of impact related to the 2017 hurricanes and $0.6 million of proceeds related to the bulk sale of the Company’s previously charged-off bankrupt accounts (“bulk sale”). Diluted earnings per share for the third quarter of 2018 was $0.61, while non-GAAP diluted earnings per share for the third quarter of 2018 was $0.85.

  • Total finance receivables as of September 30, 2018 were $888.1 million, an increase of 14.6%, or $113.2 million, from the prior-year period.

    • Fourteenth consecutive quarter of year-over-year double-digit finance receivables growth.

    • Total core small and large loan finance receivables increased $153.3 million, or 22.8%, compared to the prior-year period.

    • Large loan finance receivables of $410.8 million increased $102.2 million, or 33.1%, from the prior-year period and represented 46.3% of the total loan portfolio. Small loan finance receivables as of September 30, 2018 were $414.4 million, an increase of 14.1% over the prior-year period.

  • Total revenue for the third quarter of 2018 was $77.9 million, an $8.7 million, or 12.6%, increase from the prior-year period.

    • Ninth consecutive quarter of year-over-year double-digit revenue growth.

    • Interest and fee income increased 13.4%, driven by a 14.6% increase in finance receivables compared to the prior-year period.

  • Provision for credit losses for the third quarter of 2018 was $23.6 million, an increase of 17.3% from the prior-year period. The provision for credit losses for the third quarter of 2018 included $3.9 million of incremental hurricane allowance, while the provision for credit losses for the third quarter of 2017 included $3.0 million of incremental hurricane allowance and a $1.0 million benefit resulting from the bulk sale.

  • Annualized net credit losses as a percentage of finance receivables were 7.7%, a 10 basis point improvement from 7.8% in the prior-year period.

  • 30+ day contractual delinquencies as of September 30, 2018 were 7.1%, compared to 6.3% as of June 30, 2018 and 6.8% as of September 30, 2017.

  • Expanded operations into Missouri, the Company’s tenth U.S. state, during the quarter.

“We had a very strong third quarter and our performance drivers continue to be robust,” said Peter R. Knitzer, President and Chief Executive Officer of Regional Management. “We generated another quarter of year-over-year double-digit growth on our top and bottom lines as well as in our finance receivables. Credit performance remains stable, with the slight uptick in September 30 delinquencies on a year-over-year basis returning to year-ago levels as of the end of October.”

“In addition to another quarter of strong growth and stable credit, we continued to keep a firm control on our overall expenses, which should lead to additional margin expansion over time,” continued Mr. Knitzer. “We also began implementing custom scorecards in our branches, which we believe will further improve our credit profile in the mid- to long-term. Moving forward, we remain squarely focused on our hybrid growth strategy of increasing our receivables per branch within our existing network, coupled with de novo expansion in the Midwest. Overall, we remain well-positioned to generate long-term shareholder value.”

Third Quarter 2018 Results

Finance receivables outstanding at September 30, 2018 were $888.1 million, a 14.6% increase from $774.9 million in the prior year. Finance receivables increased from continued strong growth in both the core small and large loan portfolios.

For the third quarter ended September 30, 2018, the Company reported total revenue of $77.9 million, a 12.6% increase from $69.2 million in the prior-year period. Interest and fee income for the third quarter of 2018 was $72.1 million, a 13.4% increase from $63.6 million in the prior-year period, primarily due to increases in the small and large loan portfolios compared to the prior-year period.

The provision for credit losses in the third quarter of 2018 was $23.6 million, a 17.3% increase compared to $20.2 million in the prior-year period. The provision for credit losses for the third quarter of 2018 included $3.9 million of incremental hurricane allowance, while the provision for credit losses for the third quarter of 2017 included $3.0 million of incremental hurricane allowance and a $1.0 million benefit resulting from the bulk sale.

Net credit losses were $16.8 million in the third quarter of 2018, an increase of $2.0 million over the prior-year period. The increase over the prior-year period was primarily due to portfolio growth. Annualized net credit losses as a percentage of average finance receivables in the third quarter of 2018 were 7.7%, a 10 basis point improvement from 7.8% in the prior-year period.

General and administrative expenses for the third quarter of 2018 were $35.9 million, an increase of $2.0 million, or 6.0%, from the prior-year period. Annualized general and administrative expenses as a percentage of average finance receivables improved 150 basis points from the prior-year period to 16.5% for the third quarter of 2018. General and administrative expenses for the third quarter of 2018 included higher personnel costs related to staffing increases in information technology, centralized collections, and branches to support ongoing loan portfolio growth.

Interest expense was $8.7 million in the third quarter of 2018, compared to $6.7 million in the prior-year period. The increase in interest expense was due to larger long-term debt amounts outstanding from growth in finance receivables, federal funds rate increases, larger unused lines of credit, incremental debt issuance costs associated with upsizing the senior revolving credit facility and entering into the warehouse credit facility, and the Company’s recently completed asset-based securitization. The Company’s diversified sources of funding continue to position it for long-term growth.

Net income for the third quarter of 2018 was $7.4 million, an increase from $5.3 million in the prior-year period. Excluding the aforementioned non-operating items, non-GAAP net income for the third quarter of 2018 was $10.3 million, up from non-GAAP net income of $6.9 million for the prior-year period. Diluted earnings per share for the third quarter of 2018 was $0.61, an increase from $0.45 in the prior-year period. Non-GAAP diluted earnings per share for the third quarter of 2018 was $0.85, an increase from $0.58 in the prior-year period. For a reconciliation of non-GAAP financial measures to the comparable GAAP financial measure, please refer to the reconciliation table accompanying this release.

2018 De Novo Outlook

As of September 30, 2018, the Company’s branch network consisted of 346 locations. The Company opened six branches during the third quarter of 2018. For the fourth quarter 2018, the Company now plans to open an additional 15 to 18 de novo branches. Therefore, total branch openings in 2018 are now expected to be between 22 and 25, with the timing of the remaining branches that were initially expected to open in the fourth quarter now shifted to the first quarter of 2019.

Liquidity and Capital Resources

As of September 30, 2018, the Company had finance receivables of $888.1 million and outstanding long-term debt of $611.6 million (consisting of $352.7 million of long-term debt on its $638.0 million senior revolving credit facility, $82.0 million of long-term debt on its $125.0 million revolving warehouse credit facility, $26.7 million of long-term debt on its amortizing loan, and $150.2 million through its asset-backed securitization). The Company had a debt-to-equity ratio of 2.3 to 1.0 and a shareholder equity ratio of 29.9% as of September 30, 2018.