Regional Management Corp.

Thank you for standing by. This is the conference operator. Welcome to Regional Management Corporation's first quarter 2020 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Garrett Edson with ICR. Please go ahead.

Thank you and good afternoon. By now, everyone should have access to our earnings announcement and supplemental presentation, which was released prior to this call and which may also be found on our website at regionalmanagement.com. Before we begin our formal remarks, I will remind everyone that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates, and projections of management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties, and other factors that are difficult to predict, and that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our press release, presentation, and recent filings with the SEC for a more detailed discussion of our forward-looking statements and the risks and uncertainties that could impact the future operating results and financial condition of Regional Management Corp. We disclaim any intentions or obligations to update or revise any forward-looking statements except to the extent required by applicable law. also our discussion today may include references to certain non-GAAP measures. Reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement or earnings presentation and posted on our website at regionalmanagement.com. I would now like to introduce Rob Beck, President and CEO of Regional Management Corp.

Thanks, Garrett, and welcome to our first quarter 2020 earnings call. On behalf of everyone at Regional Management, I hope that you and your families are safe and healthy. These are difficult times for our customers, the communities we serve, and for all of us and our families as the nation struggles to navigate the COVID-19 pandemic. I'd like to take a moment to thank the healthcare professionals, first responders, and other essential workers who admirably perform their jobs each day to keep our nation safe. I also want to thank the entire regional management team. Our team's response to this crisis has been incredible, both in planning and execution by home office personnel, and in the efforts of our brand staff who continue to work on the front lines to provide outstanding service to our customers. I'm joined by Mike Dimski, our Interim Chief Financial Officer, who will discuss our first quarter financial results. Mike has been with Regional for nearly seven years and has over 25 years of accounting and financial services experience, including as our Chief Accounting Officer. He's been a stalwart member of the Regional team and I look forward to working with him in his new role. Our focus since mid-March has been on serving and supporting our customers during these unprecedented times. While I'll briefly touch upon our first quarter performance, my comments will first focus on a response to the COVID-19 pandemic, including what we're doing to help our customers and how we're positioned to manage through the crisis. As you know, we provide our customers with access to responsible and affordable credit solutions, and as a result, our operations are considered essential services under nearly all state mandates. At this time, 98% of our branches remain open to service the needs of our customers while adhering closely to the CDC guidelines for social distancing. Thanks to a successful implementation of our business continuity plans in March, we've been able to operate our branch network largely without interruption. Our headquarters personnel, including our centralized collectors, have also continued their work from home, following a seamless migration of our centralized operations to remote work technologies. We're in frequent communication with our customers by phone, email, and text message, and our customers also have easy access to their account information and electronic payment options through our online portal. Through these communications, we're able to provide our customers with information about our special borrower assistant programs and to remind them about our convenient electronic payment options, which reduce the need for in-person contact with our branches. We've leveraged our past experience in managing pre-natural disasters to design and implement programs that have been effective in supporting our customers throughout this crisis. These borrower assistant programs include relaxed criteria for deferrals, fee waivers, and special options for our borrowers to make reduced payments and renew their loans. Our special renewal programs allow customers facing hardship to lower their interest rates and extend loan terms in order to lower their monthly payments. In addition, To support our customers, we've enhanced our system capabilities to process these programs electronically, over the phone, in the branches by appointment, and through our centralized teams. More recently, to make our customers feel more comfortable in interacting with us, we've launched curbside service, which allows our customers to close loans, make cash check and electronic payments, and execute payment deferral agreements without having to enter the branch. and later this month, we plan to roll out a new program that will allow customers to close their loans remotely. We're also supporting our team members throughout the crisis, including by providing continued pay to those team members directly impacted by the virus and by expanding our paid time off policy, allowing team members the necessary flexibility to take care of their families and other personal needs during these difficult times. Our proven operating model, New Custom Credit Scorecards, experience managing through natural disasters, and support of our customers and employees contributed to solid credit performance through the end of April. Building on a stable 30-plus day delinquency position of 6.6% as of March 31st, we lowered our delinquency by 120 basis points in April, ending the month with a 30-plus day delinquency rate of 5.4%. We attribute the April delinquency reduction to our borrower assistant programs, as well as the government stimulus programs that have taken effect. While it's difficult to calculate the precise impacts attributable to these programs, we believe they are acting as an important bridge for our customers. Approximately 5.6% of the loans in our portfolio at the end of April had been renewed or deferred during the month under our borrower assistant programs. up from an average of approximately 2.2% over the prior 12 months. We've specifically tailored our borrower assistance programs to help our customers manage their debt obligations and maintain their creditworthiness during the health crisis. At the same time, in order to qualify for our borrower assistance programs, we also require that our customers remain engaged and active in repaying their loans, including, for example, by requiring at least one loan payment in the prior two months to qualify for a deferral. The credit quality of our portfolio is clearly our paramount focus during these challenging times, and we are constantly monitoring the changing economic environment. While we've continued to originate new loans, we've done so with appropriately tightened lending criteria. We proactively tightened underwriting standards to reduce our exposure to high-risk lending segments as the COVID-19 crisis developed. We are using our experience and leveraging proprietary data to serve our customers while maintaining an appropriately conservative portfolio risk management program. In terms of new lending, we experienced a clear slowdown in demand in the branches from mid-March into April as customers stayed home. However, branch originations have begun to stabilize, and we are beginning to see slight improvements off the lows in some states. As indicated in the business update that we published in late March, we paused our direct mail and digital programs in the wake of rising unemployment claims and uncertainty around the level of government stimulus. We've since begun to test back into these channels at the higher end of our credit scorecard models where we have significant room to absorb incremental losses and still deliver acceptable risk-adjusted returns. Despite efforts by states to begin to reopen their economies, We expect our finance receivables to further liquidate in the second quarter. Our financial position entering the crisis was never better. We have a strong balance sheet, we continue to operate with a conservative leverage ratio, and we have substantial capacity to absorb losses while still maintaining positive stockholders' equity. As of March 31st, our funded debt-to-equity and funded debt-to-tangible equity ratios were 3.09 and 3.21 to 1, respectively. Combining our stockholders' equity of $251.4 million and our allowance for credit losses of $142.4 million provides us with $393.8 million of capacity to absorb losses on our portfolio. This equates to 36% of our portfolio as of March 31st. In addition, our business model generates additional margin to absorb further losses. Over the past 12 months, our margin, which we define as total revenue plus general and administrative expenses and interest expense, totaled $164.4 million, or roughly 15% of our outstanding portfolio as of March 31st. This compares to a trailing 12-month NCL rate of 9.5%, providing us additional loss protection. Additionally, we proactively diversified our funding over the past few years in anticipation of a credit cycle shift and continue to maintain a strong liquidity profile. As of May 4th, we had $110 million of immediate liquidity, including $50 million of cash on hand and $60 million of immediate availability to draw down cash from our revolving credit facilities. We believe we have enough liquidity to get us through all of 2021 without needing to access the securitization market. In addition, as of quarter end, we had approximately 400 million of unused capacity on our various credit facilities, subject to the borrowing base, allowing a substantial runway to fund future growth. In sum, we believe we have more than adequate capacity to support the fundamental operations of our business throughout the COVID-19 pandemic. Turning back to the first quarter, the fundamentals of our business remain strong. both receivables and revenue increased by double digits compared to the first quarter of 2019. Net finance receivables grew by 18.4% year-over-year, while revenues grew by 17.5% from the prior year period. Credit performance remained relatively benign in the first quarter, with an annualized net credit loss rate of 10.5% compared to 10.7% in the first quarter of 2019. Our 30-plus day delinquency rate was a stable 6.6% as of March 31st, compared to 6.9% at the end of the first quarter last year. Offsetting the solid top line was $23.9 million in additional provision for credit losses related to COVID-19, as well as $1.3 million of additional unemployment insurance reserves, the latter of which is reflected in our revenues. We based our COVID-19 reserve provision on our own customized stress scenario that assumes unemployment will peak at 20% and a 34% drop in GDP from peak to trough in the second quarter, with an economic recovery beginning sometime in the second half of the year. The scenario also assumes that unemployment gradually improves, dropping to 7% by mid-2021. Our reserves also assume modest benefits from our borrower assistance programs and from the impact of the government stimulus programs. The degree of offset from the latter remains to be seen, but given the level of direct stimulus and expanded unemployment benefits, we believe most individuals who are receiving unemployment will on average earn the annualized equivalent of $35,000 per year over 39 weeks of unemployment. For many of our borrowers, we expect the expanded unemployment benefits that they will receive will be as much as or more than the wages they earned while working. We believe the stimulus is an important bridge for our clients and for regional, as a meaningful portion of our customers earn less than $35,000 a year. Given our strong balance sheet and liquidity position, as well as our enhanced infrastructure, including custom scorecards and centralized collections, We remain confident in our overall business and we believe that we are well equipped to navigate through these challenging times. Looking ahead, while we know that there will be some near-term impacts to our business and the entire U.S. economy as a result of COVID-19, we continue to believe we have a bright future. Once the pandemic has passed and we return to a semblance of normalcy, we expect to be well positioned to take advantage of the longer-term opportunities that we continue to see. mainly to further enhance our customer experience while continuing to grow our top and bottom lines. In the meantime, we are keenly focused on credit and supporting our customers through this unprecedented challenge. With that, I'll now turn the call over to Mike to provide additional color on our financials.