Regional Management Corp.

Good afternoon, ladies and gentlemen, and welcome to the Regional Management Third Quarter 2025 Earnings Call. All participants will be in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please key in star and then zero on your telephone keypad. Please note that this event is being recorded. I will now hand it over to Garrett Edsons, of 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 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 our future operating results and financial condition. Also, our discussions today may include references to certain non-GAAP measures. A 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 third quarter 2025 earnings call. I'm joined today by Harp Rana, our Chief Financial and Administrative Officer. On this call, we'll cover our third quarter results, provide an update on our portfolio growth strategies and credit performance, and share our expectations for the remainder of the year. As you may have noticed, we also announced my pending retirement today. I'll provide a few words on that towards the end of the call. Building off last quarter's strong numbers and momentum, we again posted excellent financial and operating results in the third quarter. We delivered net income of $14.4 million and diluted earnings per share of $1.42, an improvement of 87% year over year. We grew our portfolio by $93 million sequentially, pushing our ending net receivables past $2 billion in the quarter, a new milestone for regional. Our portfolio generated $165 million of total revenue, a record high. while our operating expense ratio dipped to 12.8%, also an all-time best. The team continues to manage all line items of the income statement and balance sheet very well, as we focus on driving growth, improving our operating effectiveness, and generating capital that we can reinvest in our expansion and return to our shareholders through dividends and stock repurchases. We continue to monitor economic conditions and believe consumers in our target segment remain healthy. Stable consumer health An expanded geographic presence and our improved data analytic capabilities have enabled us to responsibly grow our portfolio while at the same time improving our credit performance. Our total originations in the third quarter reached another record high, up 23% from the prior year period. Year over year, our portfolio grew by $233 million, or 13%, keeping us on track to meet our targeted portfolio growth rate of at least 10% in 2025. Notably, we exceeded our receivable growth expectations by roughly $35 million in the quarter, as we took advantage of strong demand for our auto-secured product and a larger addressable market from new branch growth while maintaining a tight credit box. The additional $35 million of growth required us to recognize incremental provision expense in the quarter of approximately $3.6 million, or $2.7 million after tax. Despite the additional provision expense, our net income was roughly in line with our guidance. thanks to effective management of all our other line items. We also continue to experience improvements in our portfolio credit quality and performance, thanks to our credit tightening actions and returns on our data and analytic investments. At quarter end, our 30 plus day delinquency rate was 7%, an increase of 10 basis points year over year, but a 30 basis point improvement after adjusting to the impact in the prior year of special borrow assistant programs associated with hurricane activity. Our net credit loss rate of 10.2% improved 170 basis points sequentially and 40 basis points year over year due to credit tightening, effective portfolio management, and product mix. We're observing particularly strong credit performance in our newer vintages and in our portfolio loans with an APR of 36% or less, including our auto-secured portfolio. For our portfolio loans with APRs capped at 36%, our 30-plus day delinquency rate was 6.2%, and our NCL rate was 8.9 percent in the third quarter, a 60 basis points improvement year over year, and 130 basis points improvement from the third quarter of 2023. We also continue to closely manage expenses in the quarter. Our operating expense ratio of 12.8 percent improved 110 basis points year over year, despite continued investment in innovation and growth, including 16 new branches opened since the third quarter of last year. Our year-over-year total revenue growth outpaced our G&A expense growth by 12 times. We'll continue to invest in initiatives that will drive long-term returns while practicing sound expense discipline. In the third quarter, we had capital generation of $26 million, bringing total capital generation year-to-date to $53 million. Through the third quarter of this year, we returned an aggregate of $26 million in capital to shareholders via stock repurchases of $17 million and dividends of $9 million. Our book value per share reached $37.94 a quarter end. In sum, we're very pleased with our third quarter results, and I continue to be impressed with our team's execution. We have very positive momentum and a growing healthy portfolio, and we remain well positioned to deliver strong results. Looking ahead, we'll continue to execute on our growth strategies and improving our operating effectiveness. We expect to open five new branches before year end in Louisiana and California, and another five to 10 new branches in the first half of 2026. We also plan to enter one to two new states in 2026. Our new branches are performing well, growing rapidly, and generating positive monthly net income at around month 14, and positive pre-provision net income at around month three. We continue to view new branch openings as excellent investments, and we'll continue to open new branches in new and existing markets with the pace of openings dependent on economic conditions. Our barbell strategy of growth in our higher-quality auto-secured and higher-margin small loan portfolios also continues to be very effective. Growth in our auto-secured portfolio in particular is outpacing the growth of our broader portfolio. Auto-secured loans grew by $80 million, or 41% year-over-year, to 13.4% of the portfolio at quarter-end. Our auto-secured book has very strong margins and the best credit performance of any segment of our portfolio, with a 30-plus day delinquency rate of only 1.8%. Meanwhile, growth of our higher margin small loan portfolios support our returns and customer graduation strategy. On the expense front, we remain good stewards of shareholder capital while investing in ways that will improve our operating efficiency and credit performance. We continue to implement improvements in technology and advanced data and analytics such as our new front-end branch origination platform, customer lifetime value analytic framework for direct mail marketing, and machine learning branch underwriting model. Ultimately, these investments will improve our customer experience and team member efficiency, allow us to make better credit and marketing decisions, enhance our ability to monitor results, and enable us to optimize profitably. We expect that our team's efforts to grow our portfolio, increase our operational efficiency, and improve our credit performance will drive increases in net income and shareholder value over time. For 2025, we're now forecasting full year net income of 43.5 million, the midpoint of our prior guide of 42 million to 45 million. Where we land will be driven by macroeconomic conditions and our fourth quarter portfolio growth, which directly impacts our provisioning for credit losses and bottom line results. Ultimately, our portfolio growth rate in the fourth quarter will depend on the health of the consumers informed by our credit metrics and macroeconomic conditions, including the status of the government shutdown. Finally, our board of directors approved an increase in our stock repurchase program from $30 million to $60 million, of which $36 million remained available as of the end of October. We have a very healthy balance sheet with significant funding for continued execution of our long-term growth strategy and the return of excess capital to shareholders. The larger authorization will enable us to continue to be opportunistic in repurchasing our common stock as we grow our business. I'll now turn the call over to Harp, who will provide more detail on our results.

Thank you, Rob, and hello, everyone. I'll now take you through our third quarter results in more detail and provide you with an outlook for the fourth quarter. On page four of the supplemental presentation, we provide our third quarter financial highlights, demonstrating significant improvements across key financial metrics. Our net income of $14.4 million and diluted EPS of $1.42 were once again supported by solid portfolio and revenue growth, a healthy credit profile, expense discipline, and a strong balance sheet. For the fourth quarter, we're projecting net income of roughly $12 million. Turning to pages five and six, we had record originations of $522 million in the third quarter, up 23% year over year. Loan volume was driven by continued strong performance from our digital channel, auto-secured products, and the 16 de novo branches we've opened over the past 12 months. Our total portfolio crossed the $2 billion milestone in the quarter and stood at a record $2.1 billion at the end of the third quarter, while our ending net receivables per branch reached $5.9 million on average. We continue to believe that economic markers remain solid and that our customers tend to be resilient and adaptable. These conditions, along with the increases in our addressable market through geographic expansion, have allowed us to grow our portfolio while maintaining a tight credit box. Looking ahead to the fourth quarter, we anticipate that our ending net receivables will increase by roughly $60 million to $70 million sequentially, and that our average net receivables will be up by roughly $80 million sequentially. Turning to page seven, total revenue grew to a record $165 million in the third quarter. up 13% year over year. Our total revenue yield and interest and fee yield moved up 20 and 30 basis points sequentially to 33.1% and 29.7% respectively, in line with seasonal patterns. In the fourth quarter, we expect total revenue yield of 32.2%, a 90 basis point sequential decrease due to seasonality and product mix. Moving to page eight, our portfolio continues to perform well. Our 30-plus day delinquency rate as of quarter end was 7%, a 30 basis point improvement year over year after adjusting for the prior year hurricane impact. Our third quarter net credit loss rate of 10.2% improved 170 basis points sequentially and 40 basis points year over year due to credit tightening, effective portfolio management, and product mix. In the fourth quarter, we expect our delinquency rate to rise gradually, consistent with seasonal patterns. We anticipate that our net credit losses will be approximately $57 million in the fourth quarter. The NCL rate will be sequentially higher due to seasonality, and it will be roughly in line to the fourth quarter of last year. Turning to page nine, we increased our allowance for credit losses in the quarter by $9.2 million to support portfolio growth. Consistent with our outlook, our allowance for credit losses rate remained steady at 10.3%. Looking to the fourth quarter, subject to economic conditions and portfolio performance, we expect our reserve rate to remain at 10.3%. Flipping to page 10, we continue to closely manage our spending while still investing in our growth, capabilities, and strategic initiatives. Our annualized operating expense ratio was 12.8% in the third quarter. another all-time best and an improvement of 110 basis points from the prior year period. In the third quarter, our revenue growth outpaced our G&A expense growth by 12 times. In the fourth quarter, we expect G&A expenses to be roughly $65 million. Turning to pages 11 and 12, our interest expense for the third quarter was $22 million, or 4.4% of average net receivables on an annualized basis. Our cost of funds increased year over year, as lower fixed rate debt has matured and we funded our growth with higher fixed and variable rate debt. Even with the increased cost of funds, we're pleased with the way that we've managed our interest expense over the past few years. As of the end of the third quarter, 76% of our debt was fixed rate with a weighted average coupon of 4.6%. In October, we closed a $253 million asset-backed securitization transaction at a weighted average coupon of 4.8%, a 50 basis point improvement from our deal earlier this year. This transaction once again demonstrates the strength of our ABS platform. Following the closing of the October securitization, fixed rate debt represented 89% of total debt, with a weighted average coupon of 4.7% and a weighted average revolving duration of 1.2 years. In the fourth quarter, we expect interest expense to be approximately $23 million, or 4.4% of average net receivables. Moving forward, we'll continue to maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified and staggered funding sources, and a sensible interest rate management strategy. Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital to our dividend and share repurchase programs. Our Board of Directors declared a dividend of $0.30 per common share for the fourth quarter, and pursuant to our buyback program, we repurchased approximately 154,000 shares of our common stock in the third quarter at a weighted average price of $32.56 per share. Finally, I'll note that we provide a summary of our fourth quarter 2025 guidance on page 14 of our earnings supplement. That concludes my remarks. I'll now turn the call back over to Rob.

Thanks, Harp. In summary, we're proud of our third quarter results. Our team executed very well, delivering strong net income, a new milestone in ending net receivables, and an all-time best on our originations, revenue, and operating expense ratio lines. We continue to grow the company responsibly while increasing shareholder value. Before I close things out, I'll say a few words about my retirement. After careful consideration, I decided now is the right time to retire and spend more time with my family. Following a diligent search, our board of directors identified Lockbeer Lomba to succeed me as president and chief executive officer of Regional. Lockbeer brings to Regional nearly 30 years of leadership experience in consumer lending and financial services with extensive expertise on consumer credit, digital and technology platform development, brand sales and service, analytics, and product management. We're excited to welcome Lockbeard to Regional, as we believe he is the ideal fit to continue our current growth strategy and lead regional management forward. It's been my distinct pleasure to lead such an outstanding team over the past five and a half years. I want to thank everyone at Regional for their unwavering commitment and efforts. I'm proud of what we've accomplished as we've navigated through some of the most challenging environments we've experienced in decades, while nearly doubling our net finance receivables and expanding our footprint across the country to eight new states. Over the same time period, we invested heavily to transform our technology platforms and data analytic capabilities, positioning the business for future growth. With regional well-positioned for its next stage of expansion and my confidence that Lockbeer will lead the team to even greater success, I look forward to beginning my next chapter. I'll now open up the call for questions. Operator, could you please open the line?

Thank you, sir. Ladies and gentlemen, we will now be conducting the question and answer session. Please note that for participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If you'd like to ask a question, please key in star and then 1 on your telephone keypad. A confirmation turn will indicate that a line is in the question queue. You may key in star and then 2 to leave the question queue. Our first question comes from John Hect of Jefferies. Please go ahead.

Afternoon, guys. First of all, Rob, congratulations. And hope to keep in touch and best of luck in your next journey. And luckier, look forward to working with you as well. So my questions are, you know, you had a pretty good acceleration in same-store sale that year. As your digital volume picks up too, I'm wondering at the store level, maybe can you tell us what's going on? Is it increased new customer count? Is it graduating borrowers to larger loans that's driving that?

Maybe just a little bit of a breakdown there.

Well, thanks, John.

Appreciate the nice words. Yeah, the same store sales have really increased nicely. We underwrite our digital loans through the branches, and we're seeing really strong momentum coming through digital, as well as, look, our traditional renewal customers come through existing customers as well as, you know, our live check program. So, you know, we're seeing no surprise. We're seeing good demand and we're able to, you know, be choosy on the customers we pick with a tight credit box. So, you know, we feel good about where we're at.

And just to add to that, John, so, you know, we've had exceptional growth in terms of the auto-secured the branches are really sort of tracking to auto-secured. Digital volumes are also up, and as you know, those are booked through the branches. So between those two items, you're seeing strong performance in our branches year over year.

Okay. And then I guess anything to think about as we transition toward 26 in terms of focusing on a product mix? Is it, you know, are we thinking similar mix this year to next year? Or is there something that, you know, would be guiding a change?

So, John, how I would think about it is, you know, in terms of our mix, we're always very, very nimble given the economic environment that we face. We talked about our growth in auto-secured. That is a nascent product for us. So I would expect to see that continue to grow. You can take a look at our mix in terms of our large loans and our small loans. And, you know, we will continue to grow the large loans, particularly driven by auto-secured, but we always remain nimble in terms of our state expansion, new borrowers, and growing small loans in those new states.

Okay, very helpful. Yeah, I guess those are my primary questions. I'll get back in the queue.

Right. Thanks, John.

Ladies and gentlemen, just a further reminder, if you'd like to ask a question, please key in star and then one to place yourself in the question queue. Our next question comes from Carl Joseph of Stevens. Please go ahead.

Yeah, good evening. Thanks for taking my questions. Kind of piggybacking on John's questions. Yeah, just want to get some color for, obviously, you had really good growth on the large loan side and loan growth slowed on the smaller loans. You know, any, you talked about the auto loans kind of driving that, but, you know, we've heard a lot about, you know, the higher end consumers doing better than the lower end consumers. Any of that kind of flowing through your origination trends?

So we're not seeing anything in our data just yet, Kyle, but we always continue to look at our data and make adjustments around the margin. In terms of our auto growth, we are definitely booking loans that meet our credit box and meet our risk return hurdle. So we're feeling pretty good about the growth that we've seen there. So, so far, you know, we haven't seen anything in our data, but we remain mindful. about the uncertainty that folks are feeling. We know that there's still over 7 million jobs open to customers in our segment. We also know that although inflation is high, it is where it was expected to be. And we know that our customers are resilient. So we continue to look at the uncertainty and make sure that we're making decisions based upon that. But right now, we're not seeing anything in our data that we can't control for by just making some changes around the margin.

Got it. And then I think you mentioned this, but in terms of the yield decline, just a function of seasonality and loan mix shift, is that right?

That is right. And when you're looking at, sorry, go ahead.

Yeah, I was going to say for the fourth quarter guidance versus the third quarter number.

For the fourth quarter, so you're going to see a seasonal decline. You have to remember that in third quarter last year that we did have the hurricane impact, so you've got to normalize for that. But other than that, it is a seasonal decline, and then also with the mixed shift to the larger loans. You're going to see yields decline because of that, just because the larger loans, although they have a great risk-return margin, you will see lower yields with the larger loads.

Got it. Very helpful.

Thanks for taking my questions. You're welcome, Kyle.

Our next question comes from Vincent Cantick of BTIG. Please go ahead.

Hey, good afternoon. Thanks for taking my questions. And Rob, it's been a pleasure working with you all this time, so congratulations. Well deserved. So first question on the so actually wanting to touch back again on the level of growth and the outperformance versus your third quarter guidance. So I guess, you know, credit seems to have been OK. So that wasn't the driver. I'm just wondering if there was something else like was it less competition or something else? It was just a significant and nice beat. So just wondering what you saw in the quarter that surprised you. that drove that outperformance. Thank you.

So, Vincent, it's hard. So when we give guidance, right, we were looking out at, you know, the same uncertainty that we're looking out at going into, you know, into the fourth quarter. So we guided based upon what we thought we were going to see. What we found was demand continued to be strong. And then we had to match that demand against our risk box. And as, you know, we've talked about in the prepared remarks, our risk box continues to be conservative, right, in terms of it's been tight, haven't really loosened. So we were able to actually meet that demand with our current risk box. We always put on good quality loans, and we had an opportunity to do that in the third quarter. So that's what we did. Looking out into fourth quarter in terms of our guidance, again, we're looking at the uncertainty. We want to make sure that we're putting on good loans. And if there is an opportunity to grow faster because we're able to meet demand within our risk box and our return hurdles, we will do so. Keep in mind that if we do grow faster than what we've guided to, that, of course, will have a ceaseless impact and it will affect, you know, the guidance that we've given customers. for net income in the fourth quarter and therefore our full year guidance, but that will of course, you know, impact net income to the positive in 2026, so that if we're able to put on good growth in the fourth quarter, we will take that opportunity to do so.

Yeah, and Vincent, great working with you as well. The only thing I would add to Mark's commentary is obviously the government shutdown is still going underway. we've taken steps to reduce our direct mail in geographies that have concentration of government employees. We've also got a tighter risk box around those government employees in terms of verification of income and the like and how much we will renew with them until we get a better lens on when the shutdown might end. And so, you know, I think we're being appropriately cautious going into the fourth quarter, given, you know, what's happening in D.C.

Okay, great. Thank you. And that actually sort of touches on my next question, which is that marketing expense was pretty efficient this quarter, even with you beating your loan outlook expenses, marketing expenses were down $800,000 quarter over quarter. So I'm just wondering if that's a sustainable efficiency with your marketing, or I guess was that pulled back in direct mail to government employees, or if you can maybe talk about that in more detail. Thank you.

So that really has to do with our new models that we've spoken about in the past, Vincent. So our new models are very efficient, and we're able to make use of them, and we can do a number of things with them, right? We could either mail more with less marketing dollars, or we could remain at the same marketing dollars and have higher volumes. And we're also able to adjust for risk. So what we did in the quarter, given where demand was, we were able to spend money and be more efficient while choosing the right customers to meet our risk box. So that's really what you see there in terms of the marketing spend. You know, you, again, given our growth in the fourth quarter, you will hopefully see the same in the fourth quarter in terms of those models working for us. So we're hoping that that is sustainable in the future with those new models.

Yeah, and Vince, we talked about this. The direct mail customer lifetime value gives us the ability to see the profitability curves across all line items projected out for a couple years for the lifetime. each mailing, and we can actually turn on and off risk segments, states, whatever, to optimize our spend or to optimize revenue or to optimize growth or to optimize losses or to optimize profitability 12 months out. So the power of these models, again, they get refreshed for the current environment. The power of these models is something that a lot of investment went into, and it's starting to pay off.

Okay, great. Very helpful. Thank you.

Ladies and gentlemen, with no further questions in the question queue, I will now hand back over to Rob Beck for closing remarks.

Yes, thanks, Operator, and thanks, everyone, for joining. I want to first thank our investors who have supported the team and I over the last five and a half years. We're proud of what we have been able to accomplish in transforming the business during, you know, as I said, a very difficult time with COVID and the period of high inflation. You know, since I started in my role, we've had total shareholder return of over 230%. We returned $178 million of capital to shareholders in the form of dividends and buybacks. And we increased our Tantra book value by more than $13 per share. and most importantly, remain profitable through the cycle. Now I've gotten to know Lockbeer and I am confident that he will continue to build upon our momentum to grow our franchise. And of course I will be available to assist with the transition through June of next year. I also wanna thank the board for their support over the last five and a half years. And last but not least, I wanna thank the entire regional team. We've been together from the start of my time at regional and they are an incredible group and I think the best in the industry. Everything that has been accomplished is due to their unwavering dedication and hard work in support of our customers, and I will miss them greatly. Access to capital is essential for every person to build a productive life, and regional provides this to subprime customers that need it the most, something of which we are all very proud of. And lastly, Any CEO that has operated since COVID will tell you it has been a demanding journey, but also a rewarding one. As my family knows and heart, I put everything I had in the regional 24 by 7. And it's now time to focus on my family, my health, and the next chapter of my life.

And I wish you all the very best.

Thank you, sir. Ladies and gentlemen, that concludes this event. Thank you for attending. Anywhere now to connect your lines.