Regional Management Corp.

And we've said that as our fixed rate funding, which is currently at 90% at the end of the quarter, but as our fixed rate funding from prior years matures, that you will see cost of funds go up. our pricing in terms of where we are, you know, you'll see seasonal fluctuations of that, but we did make some pricing changes and you're seeing that most of those are fully in the portfolio. What I would take into account, though, is, you know, we talked a lot about our higher margin, higher rate business. So I would take that into account and then you have to balance that with our barbell strategy where we do auto-secured loans, which have lower yields, but of course have lower net credit losses as well.

Yeah, and Kyle, I'll just add, as you think through the rest of the year beyond the second quarter, very much where yields go will depend on any adjustments we want to make to the underwriting side, depending on how macro conditions unfold. So a little hard to predict, you know, at this point in time, where you may tighten or not. So I think that's... that's kind of the best direction we can give you at this point.

Got it. And that's a good segue to my next question. I mean, just asking, I mean, you guys obviously have a broad-based portfolio. Just seeing if you, any signs of consumer behavior changes really since the end of February or mid-late February, whether it's on the demand side or, and or on the payment credit side, recognizing there's a lot of moving parts in the first quarter as well with tax refunds and everything, and so it might be hard to parcel out.

Yeah, it really is hard, but I will tell you that our front book and credit results are tracking as expected, all the months on books performing well, also seeing our roll rates performing as expected. You know, I think the tax season was relatively strong and we saw, you know, higher payment rates, particularly on the pay down of the higher rate small loans, which is pretty typical. The, you know, we're watching the consumer closely. We're looking at all economic metrics we get. And obviously the best indication is how our consumers are performing on us. We take as a positive that there's still 7.5 million open jobs, and that's going to be disproportional to the lower-income cohorts. There's still real wage growth for our customers. I think the inflation picture is where there's uncertainty, and I think part of that depends on where things land on tariffs in the next couple months. Clearly, our customers are, you know, they're not as impacted by discretionary spend. So having, you know, oil prices down is good. I think we'll have to see where, you know, food prices go and the like. But on balance, the customers seem to be holding up well. And as I said, you know, in prepared remarks, I mean, if we do enter a downturn, And I'm not saying this is because you don't know what the severity of that downturn could be, but having tightened our credit box for over two years is certainly different than entering a typical cycle where you're tightening in reaction to macro events. So that should lessen the severity of what may or may not happen. So we're just watching everything closely and We can pivot quickly and tighten the risk, so we're prepared to do so if needed.

Got it. Appreciate it, Kyle. Thanks for taking my questions. Thanks, Kyle.

Thank you. As a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the queue and ask a question. Our next question comes from the line of David Shafe with Citizens Capital. Please proceed with your question.

Hi, good afternoon. Thanks for taking my questions, Robin Harp. I had a couple specific things I wanted to ask about, but before that, just a very, very general question, and it could be just a yes or no response, but Setting aside the policy trade uncertainty that's ensued over the last month, if we just sort of put that to the sidelines for now, Rob, is there anything new on this call versus three months ago that you're aiming to communicate to investors? Or is it pretty much... you know, all the same kind of fundamentals and drivers and cadences that, you know, you provided on your year-end call?

Well, I think there's three things, and you're going to take away my closing comments by this, David, so thank you. It may keep me from having to do those, but, you know, I think first and foremost, you know, credit came in better than our guidance by $1.6 million in the quarter, and, you know, as you heard me just say, you know, we're seeing consistent improvement in loss performance across all our months on books and our roll rates. So, you know, that's encouraging. And as we look ahead to the second quarter, you know, sequentially, you know, we're looking to be down 80 basis points on the NCO rate. Now that's, you know, excluding 40 basis points from the impact of Hurricane Helene, which as Harp said, was fully reserved. So I think You know, on the credit front, to this point in time, we're seeing things continue to improve. I think the second thing that I would highlight is, you know, we opened up 15 branches since September. Now, that's the largest block of branches we've opened in the last two years. And because of the high inflation period warranted us, you know, kind of pausing any meaningful branch expansions. And these branches are performing ahead of our expectations with a tighter risk box than the rest of the network. And we're seeing positive pre-provision net income at month three. So look, we're going to continue to evaluate the performance of these branches in the second quarter. We don't have any branches assumed in the 10% E&R growth that we have given as a minimum for full year. And we'll gauge the performance of these branches for another quarter. We'll look at what's happening on the macro front and the tariff side and then evaluate our future growth plans. But just getting back into growing these branches is really showing the power there. And then lastly, we put in a new slide on the business's ability to generate capital it's a proven model. And if you look back to the beginning of 2020, I think we generated $339 million of capital for shareholders. We've returned a substantial amount to shareholders. And if you look at the average capital generation over the average shareholder equity over that period of time, it's at 21%. So You know, I think that we are positioned well, regardless of what happens going forward. And we have all the opportunities to grow and, you know, achieve greater bottom line results in the coming quarters and years, notwithstanding anything from a macro standpoint that might cause us to alter that strategy to some degree.

Great. Now, I appreciate all that color in you actually. kind of one of my specific questions. Just wanted to get clarification on the capital generation kind of calculation that you provided on slide 13. And, you know, in particular, as I read it, it looks like the capital, Jen, in the first quarter was $9.9 million. And if I annualize that, it's notably below pretty much all the prior years except one. Is there something seasonally about Q1 that depresses capital generation usually, or was it just more investment in branches? If you can just provide a little color around that figure.

Yeah, so it was actually a number of things. So our net income is lowest in first quarter. And as we've said in the prepared remarks, we expect that to increase as the year goes on, as you have lower NCLs and you have higher revenue from the loans that we'll generate throughout the year. So it's a component of that. You will see that the allowance is currently at a 10.5% reserve rate. The allowance will increase as we put on more balances. But, you know, I guided to, in second quarter, the reserves will go to 10.3% after the release of the hurricane reserves.

Got it. Helpful. And then maybe last question. You know, regarding just sort of the credit box and... ultimately what things might look like when there's deemed to be less uncertainty. You know, in a prior earnings call, competitor, I'll just say it one main, you know, they sort of defined credit tightening as applying an additional 30% kind of stress for each of the loans they've underwritten over the last three years, meaning they I guess just in order to approve a loan, it had to meet their return requirements with an additional 30% of stress on top of that. I'm wondering if you're able to help provide some context for us on, similar to that, just what tightening means over these last couple of years.

Yeah, so we do the same thing in our underwriting where we put a stress factor to make sure that we're delivering attractive bottom line returns. And so we apply a similar – not the similar number of stress. I'm not going to disclose that because we very much change the stress factor depending on the part of our portfolio. An auto-secured business might have a different stress factor than a small loan business. a small loan business less than 36 or a small loan business that has a greater than 36% APR and vis-a-vis a large loan customer. There's also different risk ranks. So, you know, trying to, you know, apply, you know, one number across the portfolio is just not how we look at things. We manage this business at a very detailed level, individual risk ranks, cohorts, by state, by product type, by distribution channel, whether it's a live check or digital or a branch renewal. So applying one number across the portfolio is just not appropriate. We apply stress factors depending on the underlying risk of the portfolio. Got it.

Great. Thanks very much.

Excellent. Thank you. Thank you. Our next question comes from the line of John Rowan with Danny. Please proceed with your question.

Good afternoon. So I'm going to apologize if you covered this already. I did miss the prepared comments of the call. So I caught the guidance for 2025 is unchanged for meaningful EPS or net income growth. That was one of those, correct? Yeah, that's what we said. Okay. And also the greater than 10% portfolio growth, correct?

Yeah, we set a minimum of 10%. We reaffirmed that.

I'm just kind of having a hard time getting to meaningful EPS or net income growth. I mean, you know, first half of the year, and I guess maybe just guide me to what the right number is to use for 1Q24, whether or not it was, you know, whether or not you're using a number that's impacted from the loan sales. But, you know, EPS just is down 41% year over year. Going into the back half of the year, you're going to have a lot of loan growth to meet that 10% number because you're kind of a decent bit below that through the first, frankly, the first half of the year given the 2Q guide. There's a lot of drag from provisioning tied to growth. So I guess maybe help me triangulate how you get to that meaningful EPS growth given the results that are contemplated in 2Q guide along with 1Q results. You know, and whether or not there's reserve releases or something that softens the impact from the provision tied to growth in the back half of the year.

So we talked a little bit about, you know, where our allowance for credit losses would be in second quarter. John, I'm not going to give you where it's going to be at the end of the year, but we're at 10.5% in first quarter of 25, and that's going to 10.3%. in the second quarter as we release losses associated with hurricanes. So that's where that's going to go in second quarter. We guided to net income of somewhere between $7 to $7.3 million for the second quarter. E&R growth is $55 to $60 million. Revenue yields will increase. The other thing to keep in mind is as your balances grow through the last three quarters of the year, you'll get revenue off of that, of course. Your yield is increasing 20 basis points quarter over quarter next quarter. And then the other thing is your NCLs actually will come down. So we've guided to $57 million or 12% in second quarter, but we know that NCLs will come down in the latter part of the year. And so those are sort of the dynamics of how we get an increase in net income in the second half of the year.

Yeah, and the delta for first quarter of last year was entirely due to the loan sale in the prior year. period impacted by, I guess, the fourth quarter loan sale in the quarter before that.

You know, I get it, but obviously there's still a decline year over year in the second quarter, given the guidance. I guess maybe just to be clear, I just want to make sure. So you're going to growth over $41 million of that income reported in 2024, and you're not making an adjustment to the first quarter number for the loan sale, correct?

So the first quarter number, when you look at that year over year, The reason why it is lower in 1Q25 versus 1Q24 is basically because of the acceleration of the NCLs from first quarter of 24 into 23. So that is the difference primarily that is driving the year-over-year variance when you compare 25 to 24. When you look out at the guidance for 2025 versus for second quarter of 2025 versus second quarter of 2025, that is a function of the reserves. So it's really a function of where the year-over-year impact of the reserves from second quarter of 24 versus second quarter of 25.

Yeah, and John, our base is $41 million. That's what we're guiding off of.

Okay, that's what I needed to know.

Now, I mean, we all know that there's macro uncertainty out there, but that's what we're guiding off of.

Okay. All right. Thank you. Appreciate it, John.

Thank you. Our next question comes from the line of Alexander Villalobos with Jefferies. Please proceed with your question.

Hey, guys. Thank you for taking my question. A lot of the questions that I had have been answered, but did have, if it's any possibility of giving a little bit more guidance on the expense side. I know you guys grew expenses in 24 about 2%. Should we be thinking about around that number or something maybe a little bit higher. And my second question is maybe a little bit more detail on the consumer. Obviously, the consumer is still spending, but if there's anything kind of in your data that can tell you how much of it is pull forward or just the consumer actually within their regular cadence. Thank you.

So I'll take the question on the expenses first. So we're not giving full year guidance on the expenses. I did give second quarter guidance in terms of that being around $65.5 million. You know, you will see expenses increase as our loans increase and the variable expenses associated with that increase as well. But as always, we're quite prudent around our expense control and we'll continue to do that. And help me with the second part of your question.

Yeah, no, just in general, like from the other companies, from everything from the credit card companies to some of the other lenders, there's the question of the consumer spending, how much of it could be just pulled forward based on the tariffs, or if it's just the consumer truly just within their regular cadence. Thank you.

Yeah, we're not seeing in the first quarter, and of course there's tax season there, we're not seeing any kind of increased demand that we would look to say it's accelerated spending for our customer base. You know, that's not something that, you know, our customers tend to have the excess, you know, I got excess spending power to do. unlike maybe a Prime-based customer. So, you know, I think their behaviors are holding pretty steady. They're meeting their obligations, and that's reflected in our credit. So, you know, that would be my reaction on that. And the other thing I'll tell you this, that, you know, look, like we do every year, we assess how we're going along in the year, and then we have the ability to pivot and and put on more investment and growth for the following year. You know, for example, we added these, you know, 15 branches in the very end of last year going into first quarter. And so, you know, we're always looking for opportunities to invest more, to take advantage of good, profitable growth. And those 15 branches that we opened, Actually, I go back to the 17 branches we opened since the beginning of the year. I think we generated in the first quarter 3.6 million, if I got it right, half of revenue on about 1.6 million of expense. 3.6 and 1.9. I'm sorry, 3.6 and 1.9. So, you know, we're getting a good return on those new branches. And so we always, you know, reserve the opportunity to lean into growth as we see opportunities. and we'll communicate that accordingly. I think at this point in time, given, you know, kind of just where things may settle out in the coming months on the tariff side, you know, I think we're just going to evaluate, you know, where things unfold. But we're keeping a very tight lid on expenses that aren't associated with growing the business, be that, you know, variable costs in support of the portfolio growth, or additional marketing, or additional branches. In fact, of the $5.6 million growth in expenses in the first quarter, I mean, we had a timing issue on incentives for 1.7, but the bulk of the rest was the increase from new branches and additional marketing and legacy markets. So we're not spending additional money in areas other than in pursuit of um, improved, uh, growth and bottom line returns.

Awesome. Thank you for the color.

Okay. Thank you. We have reached the end of the question and answer session. I would like to turn the floor back to Robert Beck for closing remarks.

Thank you operator. And thanks everyone from, from joining. Um, you know, look, as I said, in response to David's question, Look, we're happy with the credit performance. I'm not going to go through and reiterate, you know, what I said. You know, it's been great to open up, you know, a cohort of branches and see the performance and, you know, rebuild that muscle memory. You know, it's being done at a tighter risk box. And so even if we tighten the credit box, we have opportunity to continue to grow. So that's exciting for the business. And, you know, look, we continue to manage our balance sheet well, our cost of funds well, we're generating capital. And, you know, I think like everybody, we're just watching, you know, things unfold on the tariff side and other implications, and we can quickly pivot and tighten if that's what we need to do. So, I appreciate everybody joining this evening, and if you've got any other follow-up questions, obviously, we're always available. Thank you.

Thank you, and this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.