Regional Management Corp.

Thank you for standing by. This is the conference operator. Welcome to the Regional Management Third Quarter 2023 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 then 0. 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 were 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 and 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 findings with the SEC for a more detailed discussion of our forward-looking statements and the risks and uncertainties that could impact our future operating results and financial condition. 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 2023 earnings call. I'm joined today by Harp Rana, our Chief Financial Officer. Harp and I will take you through our third quarter results, discuss the current operating environment and loan portfolio performance, and share our expectations for the fourth quarter. We continue our focus on portfolio quality, expense management, and strong execution of our core business in the third quarter. We generated $8.8 million of net income and $0.91 of diluted EPS. Strong loan demand and our conservative underwriting criteria led to a high-quality portfolio growth of $62 million, record revenue of $141 million, and a sequential increase in revenue yields of 80 basis points, all of which exceeded our expectations for the quarter. We also continued to closely manage our G&A expenses while investing in our business, driving a 50 basis points improvement in our operating expense ratio from the prior year. We're pleased with our team's ability to deliver consistent, predictable, and superior results for our shareholders quarter after quarter. As you would expect, we're keeping a close eye on the economic environment and its impact on our consumer base. Recent data indicates a strong labor market, moderating inflation, and real wage growth. However, we continue to observe stress in certain segments of our portfolio caused by inflationary pressures. We also remain mindful that the resumption of student loan repayments will impact many consumers' budgets, and we're monitoring whether recent geopolitical events may cause energy prices to increase further. As a result, we remain selective in making loans within our tightened credit box. While we achieved strong, high-quality portfolio growth in the third quarter, we slowed our year-over-year growth rate to 9%, down from 22% in the third quarter of last year. We're prepared to lean back into growth when the economic conditions are right, but until then, we'll maintain a conservative credit posture. Our third quarter originations again reflected our selective underwriting. We originated 60% of our buying to our top two risk ranks. We continue to emphasize present and former borrower lending over new borrower lending, and we further grew our auto-secured portfolio to 8.3% of our total portfolio, up from 6% a year ago. We're also seeing the benefit of the machine learning-driven credit and marketing models that we've implemented in recent quarters, and we see additional opportunity for improvement as we develop our next-generation models. We ended the third quarter with a 30-plus-day delinquency rate of 7.3%, up 40 basis points from the second quarter, but consistent with normal seasonal trends. Our higher-quality originations from credit tightening have kept our first payment default and early-stage delinquency rates below 2019 levels. Our July 1st payment default rate was 50 basis points better than July 2019 rate, and our third quarter 1-59 day delinquency rate was 110 basis points better than the third quarter of 2019. Notably, we're seeing solid performance in fourth quarter 2022 and 2023 vintages. As of September 30th, these vintages represent nearly 70% of our portfolio, a number that we expect to increase to nearly 80% by year end. Macroeconomic conditions, however, have continued to stress mid- and late-stage delinquencies in roll rates, something that we've observed across our industry, particularly for loan ventures originated prior to late 2022. This is causing our delinquency levels and credit losses to be higher than we'd like. We anticipate that this stress will linger into at least the early part of 2024, but we continue to expect that credit tightening actions, strong collections execution, and moderating inflation will gradually bring delinquencies and credit losses back down to more normalized levels over time, subject to the macroeconomic environment. Looking ahead, in the near to midterm, we'll navigate this challenging economic environment in much the same way that we have over the past year. We'll focus on strong execution of our core business, including by maintaining a tight credit box and originating loans only which have high levels of consumer demand to drive strong portfolio growth, while still remaining selective in approving borrowers under our conservative underwriting criteria. Where appropriate, we'll also continue to pursue opportunities to increase pricing and expand our margins, a strategy that has been effective in recent quarters in improving our revenue yield. At the same time, we'll keep a firm handle on expenses while continuing to make key investments in technology, digital initiatives, and data and analytics, including artificial intelligence. These investments are critical to achieving our strategic objectives and will create additional sustainable growth, improved credit performance, and greater operating efficiency and leverage over the long term. In summary, we're pleased with our results, and we're proud of our team's execution. We're well positioned to operate effectively in the current economic cycle, and with ample liquidity, significant borrowing capacity, and a large addressable market, we stand ready to lean back into growth when justified by the economic conditions. I'll now turn the call over to HARP to provide additional color on our financial results.