Regional Management Corp.

Thank you for standing by. This is the conference operator. Welcome to the Regional Management Corp Second Quarter 2021 Earnings 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 0. I would now like to turn the conference over to Mr. Garrett Edson, ICER. Please go ahead, sir.

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. 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 finals with the FCC 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 Court. Also, our discussion today may include references to certain non-GAAP measures. The 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 Court.

Thanks, Garrett, and welcome to our second quarter 2021 earnings call. I'm joined today by Harp Rana, our Chief Financial Officer. Our business continued to fire on all cylinders in the second quarter. We posted an impressive $20.2 million of net income, or $1.87 of diluted EPS, with strong returns of 7.1% ROA and 28.7% ROE. We experienced a return to double-digit year-over-year growth in our ending net receivables and quarterly revenue. which were up 15.7% and 10.9% respectively. Record high sequential portfolio growth of $78 million in the quarter drove our ending and average net receivables to all-time highs, which in turn generated record quarterly revenue. We continue to capture market share as our growth once again outpaced the broader near-prime market. At the same time, our quarter-end 30-plus-day delinquency rate fell to a historical low of 3.6%. and our net credit loss rate during the quarter dropped to 7.4%, a 320 basis point improvement from the prior year period. These results validate the efficacy of our long-term strategy and the strength of our team's execution. Our recent strategic investments and growth, including digital initiatives, geographic expansion, and product and channel development, continue to bear considerable fruit. Our core portfolio grew $80 million, or 7%, sequentially in the second quarter, with more than half of the growth occurring in June. We originated a record 373 million of loans, of which 87 million was derived from our new growth initiatives. The second quarter volume was more than double last year's pandemic impacted quarter and up 7% compared to the second quarter of 2019. We continue to roll out our improved digital pre-qualification experience last quarter, and it's already driving increased digital booking rates. We had record digitally sourced originations of 35 million in the second quarter, more than double first quarter levels, and up dramatically from last year. New digital volumes represented 28.5% of our total new borrower volume. The average FICO on our digital volumes originated last quarter with 613, with 65% originated as large loans. We will complete the deployment of the new pre-qualification experience to all of our states this quarter. and we will continue to integrate the new functionality with our existing and new digital affiliates and lead generators in the months ahead. In addition, we have begun testing our new guaranteed loan offer product, which is an alternative to our convenience check loan product and offers online fulfillment with ACH funding into a customer's bank account. Later this year, we will begin testing our end-to-end digital origination product for new and existing customers. and we remain on pace to roll out an improved online customer portal and a mobile app in the early part of 2022. Our new larger auto-secured loan product has also begun to gain traction, as we've now rolled out the product to all of our states as of yesterday. In addition, in late July, we expanded our retail point-of-sale lending relationship with a large Ashley Home Store franchisee. With this expansion, we are tripling the number of locations we serve for this franchisee to 73 stores across five states, allowing us to better fulfill their need for near-prime and sub-prime installment financing options, all while fully underwriting borrowers via automation and maintaining industry best service levels. We believe there is a substantial opportunity and a renewed focus on our retail loan product, including cross-sell opportunities to our other loan products. Beyond our digital product and channel investments, we continue to make important strides in expanding and optimizing our geographic footprint. During the quarter, we entered Illinois, and in just three months, our first branch has surpassed 1.5 million in receivables, which is impressive when you consider that our historical average time to reach 1.5 million in receivables in a new branch is 22 months. The next two branches exceeded 500,000 in receivables after an average of only four and a half weeks. These results demonstrate the tremendous opportunities that await us as we rapidly expand to new states and grab market share. As a reminder, we plan to open roughly 20 new branches in 2021 across our network. We also expect to enter one to two additional states by the end of the year and an additional four to six new states in 2022. Thanks to our new digital initiatives, the branches in these states will be able to maintain a broader geographic reach, resulting in higher average receivables per branch and the need for fewer branches, which we expect will drive greater operating leverage. With the best first half in our company's history behind us, we entered the third quarter with considerable momentum. We began the second half with nearly $1.2 billion of net finance receivables. Loan demand has remained strong throughout July, even as child tax credit payments began to hit bank accounts. We expect that demand for our loan products will increase in the coming months as the economy continues to recover driving strong portfolio and top line growth for the balance of the year and in 2022. We are well positioned to continue to gain market share as our strategic investments yield strong returns. During this time of robust growth in our business, we remain focused on protecting our balance sheet and maintaining the credit quality of our loan portfolio. In July, we further strengthened our liquidity position by closing on another securitization transaction. This latest ABS deal is our first with a five-year term and has a weighted average coupon of 2.3%. As of the end of July, we had over $813 million of unused capacity and available liquidity of over $229 million. Of our $887 million in outstanding debt at the end of July, $759 million carries a fixed interest rate with a weighted average coupons ranging from 2.1% to 3.2%. We also maintain $350 million of interest rate caps with strike rates of 25 to 50 basis points, covering $127 million in variable rate debt. In sum, we're well positioned to fund our future growth, and we're well protected should interest rates rise. We also continue to maintain a superior credit profile. Though we had expected a modest uptick in second quarter delinquencies, we ended the quarter with another historically low 30-plus day delinquency rate. This, in turn, contributed to a further improvement in our net credit loss rate and enabled us to reduce our allowance for credit losses by $200,000 in the quarter, despite record portfolio growth. As a result, our allowance for credit losses reserve rate at the end of the quarter was 11.8%, down from 12.6% last quarter. Our $139 million allowance for credit losses as of June 30th continues to compare quite favorably to our 30-plus day contractual delinquency of $43 million, and includes an $18 million reserve for additional credit losses associated with COVID-19. As of June 30th, approximately 80% of our total portfolio had been originated since April 2020, the vast majority of which was subject to enhanced credit standards that we deployed following the onset of the pandemic. Looking ahead, credit performance should remain strong throughout 2021 and into 2022. In light of our current historically low delinquencies, we now expect our full year 2021 NCL rate to be roughly 7%. We anticipate that our delinquency rate will gradually normalize over the next 12 months and that our NCL rate in 2022 will be between 8% and 8.5%, absent any significant changes to the macroeconomic environment. As we progress throughout the year, we expect that our allowance for credit losses will increase as the portfolio continues to grow, though we anticipate that the reserve rate will normalize to pre-pandemic levels of around 10.8% by the end of the year. In light of the unique circumstances presented by the pandemic and credit loss provisioning under the new CECL accounting standard, we have elected for this year only to provide a full-year 2021 net income outlook. Having earned $46 million in the first half of the year, We expect to generate full-year 2021 net income of between $75 and $80 million, assuming no material change to current economic conditions. This outlook reflects an expectation that we will build our allowance for credit losses in the second half of the year due to robust receivable growth, even as our reserve rate normalizes to pre-pandemic levels of roughly 10.8%. We also expect to increase our SD&A expenses in the second half as we continue to invest in our growth initiatives, including increased marketing expenses as we continue to expand our digital lending. Based on our confidence in the earnings power and value of our business, our board has approved a $20 million increase in the amount authorized under our current stock repurchase program from $30 million to $50 million. As we move forward, we remain firmly on the strategic course we've charted. We'll continue to invest in our omni-channel growth initiatives, digital innovation, geographic expansion, and new products and channels. We will continue to grow our portfolio and market share by providing a best-in-class experience to our customers, and we'll maintain a sharp focus on credit quality and a healthy balance sheet, which will allow us to fund our growth and return excess capital to our shareholders. We remain fully committed to our customers and our path forward. and we continue to be in a prime position to create sustainable, long-term value for our shareholders. I want to thank our entire regional team for their continued efforts. I couldn't be prouder of the team and the results they produced. I'll now turn the call over to HARP to provide additional color on our financials.