Regional Management Corp.

Thank you for standing by. This is the conference operator. Welcome to the Regional Management Corporation third 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 one 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 of 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 may be found on our website at regionalmanagement.com. Before we begin our formal remarks, I will direct you to page two of our supplemental presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP financial measures. Part of our discussion today may include forward-looking statements, which are based on management's current expectations, estimates, and projections about the company's future financial performance and business prospects. These forward-looking statements speak only as of today and 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 you should not place undue reliance 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. 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 third quarter 2020 earnings call. I'm joined today by Mike Dimski, our interim chief financial officer. Simply put, we had an outstanding third quarter, particularly when considering the challenging economic and operating environment. I couldn't be happier with our results and our team's effort. We generated $11.2 million of net income, or $1.01 of diluted EPS, as a result of quality growth in our loan portfolio, a strong credit profile, disciplined expense management, and low funding costs. Thanks to both rebounding consumer demand and our new growth initiatives, we sequentially grew our total portfolio by $37 million, led by $41 million of growth in our core small and large loan portfolio. Our core loan portfolio also grew by $10 million year over year. At the same time, the credit quality of our portfolio remains stable, with a net credit loss rate of 7.8% in the third quarter compared to a 10.6% rate in the second quarter and 8.1% in the prior year period. We ended the third quarter with 30 plus day delinquency rate of 4.7%, near historical lows and down from 4.8% as of June 30th and 6.5% as of the prior year, even as our borrower assistance program usage held steady at pre-pandemic levels throughout the quarter. Our $144 million allowance for credit losses as of September 30th compares favorably to our 30 plus day contractual delinquency of $49.9 million. The allowance includes a $31.9 million reserve for credit losses associated with COVID-19. Though we expect delinquencies to begin to normalize off these historic lows, we're confident that we have ample coverage to absorb the associated credit losses. Of course, Any additional government stimulus would help us to keep delinquencies low for a longer period of time. As an annualized percentage of average receivables, interest expense in the third quarter improved by 50 basis points to 3.5%, compared to 4% in the prior year period. In late September, we completed our largest securitization transaction to date at a weighted average coupon of 2.85%. further reducing our cost of capital and improving our already ample liquidity and borrowing capacity. We're now a well-established issuer in the ABS market and expect to access the market regularly moving forward. As of October 23rd, we had $516 million of unused capacity on our credit facilities and $208 million of liquidity, consisting of a combination of unrestricted cash on hand and immediate availability to draw down cash from our credit facility. In sum, we executed well on all facets of our business, and we continue to position the company to expand market share and profitability in the coming quarters and years. As we've consistently noted, our management team and board of directors regularly assess our capital allocation priorities. On the heels of our outstanding third quarter performance and based on our strong capital position, robust liquidity, and confidence in our long-term strategy and ability to generate excess capital to return to shareholders on a regular basis, our Board of Directors approved a quarterly dividend of 20 cents per share and authorized a $30 million share repurchase program. The quarterly dividend and the repurchase program enable us to return significant value to our shareholders, while at the same time allowing us to maintain a strong balance sheet and the necessary capital to invest in our long-term growth strategies. Looking ahead, we're excited about our growth prospects. We continue to invest heavily in our omni-channel digital and marketing initiatives as we see considerable opportunities to generate significant growth and expand our market share moving forward. We entered the fourth quarter with $1.1 billion of net finance receivables, and thus far in October, we have continued to experience a steady uptick in the number of loan applications and originations, further evidence of rebounding consumer demand, and the early effectiveness of our growth strategy. As I noted on our prior call, we completed the rollout of our remote loan closing capabilities across our network in July. Our remote loan closing process enables our customers to extend and expand their borrowing relationship with us from the comfort of their home, while still allowing us to maintain the exact same underwriting standard that we would apply if the customers were meeting with us in our branches. After only three months with the new capabilities fully deployed, we completed 16% of September branch originations through the loan closing process, a demonstration of our ability to adapt successfully to the new operating environment while continuing to provide our customers with the best-in-class service and experience that they've come to expect from us. Over the next 18 months, we expect to test and implement a number of exciting digital and growth initiatives. For example, In the third quarter, we experienced early positive results from a test of our larger loan offers to our highest credit quality customers and a test of direct mail offers to expanded segments of our risk response model, which we believe will generate attractive risk-adjusted returns. By early 2021, we expect to complete the migration of IT infrastructure to the cloud. And in the first half of 2021, we plan to roll out an improved digital pre-qualification experience for our customers, including expanded integrations with existing and new digital affiliates and lead generators. Early next year, we also plan to enter a new state as we continue our footprint expansion, and we intend to pilot a guaranteed loan offer program, which will be an alternative to our convenience check loan product, and may be fulfilled online with ACH funding into a customer's bank account. In the second half of 2021 and early 2022, we expect to test a digital origination product and channel for new and existing customers. In parallel, we plan to improve our customer experience through the introduction of a mobile app and the enhancement of our customer portal. Being available at the customer's convenience is imperative, now more than ever, and having modern capabilities that further enrich the customer experience will only aid in our ability to retain our current customers and win new customers. We believe that our omni-channel and digital investments will allow us to extend the geographic reach of our existing branches, enter new markets more quickly and with lower branch density, enable new growth and higher average receivables per branch, and ultimately further expand our revenue and operating efficiencies, leading to a stronger bottom-line growth. As we grow and introduce new channels, products, and service features, we remain keenly focused on maintaining the credit quality of our portfolio. We're proud of the job we've done in preserving a strong and stable credit profile. Our ongoing credit performance is a testament to the quality of our pre-pandemic underwriting criteria, our custom scorecards, the bridge provided by borrow assistance programs and government stimulus, and our ability to quickly adapt our underwriting criteria as the operating and macroeconomic environment evolves. Our investment in our credit infrastructure over the past several years has paid dividends in 2020. and has positioned us well to pursue our growth initiatives over the long term. Looking ahead, we plan to continue investing in further improving our underwriting, including through alternative data and advanced machine learning tools and models that will expand the use of trended credit attributes. Maintaining sharp focus on our credit quality will help to ensure that top-line expansion translates into sustainable bottom-line growth. To aid in the execution of our ongoing initiatives We announced last month that Harp Rana will be joining us in November as our new Chief Financial Officer. Along with her significant financial and credit expertise, Harp has extensive experience in steering digital initiatives and innovation at Citi, making her an ideal fit for the role. We look forward to having her as a key member of the team, and I would be remiss if I didn't thank Mike for doing an outstanding job in the interim CFO positions. I look forward to continuing to work with him in his ongoing role as our Chief Accounting Officer. In summary, I want to thank our team members who continue to perform admirably for an outstanding third quarter performance in all respects. We remain confident in the sustainability of our operating model, the resilience of our customers, and our team's ability to execute in a challenging environment. We're very pleased with our results and with our ability to return capital to our shareholders and we're excited about what the future holds. I'll now turn the call over to Mike to provide additional color on our financials.