Regional Management Corp.

Greetings and welcome to the Regional Management First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Edson. 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 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 on recent filings 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 measures 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 2024 earnings call. I'm joined today by Harp Rana, our Chief Financial Officer. On this call, we'll cover our first quarter financial and operating results, discuss the credit performance of our portfolio, and share our expectations for the second quarter and the balance of the year. We had a very strong start to 2024 as we outperformed our outlook on both the top and bottom lines. For the quarter, we generated net income of $15.2 million and diluted earnings per share of $1.56. Our portfolio liquidated by $27 million in the quarter, in line with our expectations and consistent with normal seasonal trends. The increased pricing that we've implemented over the past several quarters and the growth in our higher margin small loan portfolio drove total revenue yield to 32.8%, which was 80 basis points better than prior year and contributed to record quarterly revenue of $144 million. We've also continued to aggressively manage our expense base while still investing in our growth and strategic initiatives, resulting in a sequential improvement in our operating expense ratio of 110 basis points. In sum, we're very pleased with our first quarter results, and I continue to be very proud of the way that our team members are navigating through the current environment. We remain cautiously optimistic about the direction of the economy and the credit performance of our portfolio. We continue to maintain tighter underwriting guidelines and thoughtfully grow our high-margin small loan portfolio, which has grown by nearly $50 million, or 10%, since the middle of last year. We expect to continue to grow our small loan book in a measured way, as the returns are very strong and more than make up for the higher loss rates on this portfolio. Overall, we're seeing the benefits of our prudent underwriting and our credit metrics, despite the growth of those loans with higher risk-adjusted margins. We again originated roughly 60% of our loans to our top two risk ranks in the first quarter. We ended the first quarter with a 30-plus day delinquency rate of 7.1%. a 10 basis points improvement from the first quarter of last year. Our auto-secured portfolio has also continued to grow, ending the quarter at 9.2% of our total portfolio, up from 2.1% three years ago. The credit performance of these loans has been very strong, with a 30-plus day delinquency rate of 2.1% as of the end of the quarter. In addition, our front book continues to perform in line with our expectations despite macroeconomic stress. The front book represented 78% of the portfolio at the end of the first quarter and had a 30-plus day delinquency rate of 6.5%, compared to 9.8% in our back book. The back book accounted for 25% of our 30-plus day delinquent accounts, despite representing only 18% of the portfolio at quarter end. By the end of 2024, we expect the back book to represent only 8% to 10% of the total portfolios. Compared to the back book, the front book continues to season at lower levels of loss, which should benefit our 2025 results. Our net credit losses also came in better than outlook. Despite indicators of improving credit performance within our portfolio, we marginally increased our loan loss reserve rate to 10.7 in the quarter in light of more recent mixed economic indicators, including inflation rates that remain elevated. We believe this approach is appropriate during this time of relative economic uncertainty. While inflation and interest rates remain higher than expected, we are maintaining our full-year guidance. The strong start to the year provides us with protection on the bottom line should macro conditions, namely inflation and interest rates, remain elevated for longer. In addition, our outperformance on G&A expenses in the first quarter, part of which is due to timing, gives us flexibility to invest more in marketing in the back half of the year to benefit 2025 results. assuming the economic conditions are conducive to faster growth. Against the current economic backdrop, we will continue to operate based on the guiding principles that I've laid out previously. First, we're committed to our core business of small and large loan installment lending. We have a long history and runway of controlled profitable growth with these products. We'll continue to originate loans where we have a high degree of confidence in meeting our return hurdles. We're always keeping a close eye on economic data and its impact on our consumer base. Recent reports indicate a strong labor market and real wage growth. However, we continue to observe stress in certain segments of our portfolio caused by continued inflationary pressures. Given the economic uncertainty, at this time we remain comfortable prioritizing credit quality over loan growth. As a result, we expect to remain highly selective in making loans within our tight credit box, at least in the near term. By expanding to eight new states and increasing our addressable market by more than 80% since 2020, we have ample opportunity to take advantage of high levels of consumer demand to drive quality portfolio growth while remaining selective in approving borrowers under our more conservative underwriting criteria. Where appropriate, we'll also continue to pursue opportunities to increase pricing and expand our margins, including through growth in our small loan portfolios. a strategy that has been effective in recent quarters in improving our revenue yield. As we've always done, we'll manage the business with a goal of maximizing direct contribution margin and bottom line results. Second, we'll continue to meticulously manage expenses while also investing in our core business in a way that improves our operating efficiency over time and ensures our long-term success and profitability. We continue to allocate capital to improve our capabilities and pursue our strategic initiatives. including several important technology, digital, and data and analytics projects that are key to the modernization and evolution of our platform and omnichannel business. These investments are critical to achieving our strategic objectives and will create additional sustainable growth, improve credit performance, and greater productivity, operating efficiency, and leverage over the long term. Finally, we'll maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified and staggered funding sources, and a sensible interest rate management strategy. As of the end of the first quarter, we had $478 million of unused capacity on our credit facilities, and 81% of our debt was at a fixed rate with a weighted average coupon of 3.7% and a weighted average revolving duration of one year. Later this year, we expect to access the securitization market. However, given our significant existing liquidity and borrowing capacity, We have the flexibility to go to market when conditions are most advantageous. In summary, we'll continue to stay focused on making fundamentally sound business decisions in line with these key principles. We're well positioned to operate effectively through the current economic cycle. Though we remain measured on growth at this time, we stand ready to make adjustments to our underwriting and growth strategy based on changes in our credit performance and the macroeconomic environment. With ample liquidity, significant borrowing capacity, and a large addressable market, we have the ability 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 first quarter results as well as second quarter guidance.