Regional Management Corp. Q4 FY2024 earnings call

• Fourth quarter net income was $9.9 million with diluted earnings per share of $0.98, surpassing guidance and improving from the prior year's net loss. • Loan demand was strong, with the portfolio growing to a record high. Quarterly revenue saw a 9.3% increase from Q4 2023. • G&A expenses were roughly flat year-over-year, and the operating expense ratio improved by 80 basis points. • Credit performance improved, with the front book (89% of the portfolio) performing well, and the delinquency rate was 7.7% but 10 basis points better year-over-year after adjusting for the prior year's loan sale. • In 2024, the loan portfolio grew by $120 million, revenue increased 7%, the net credit loss rate improved by 120 basis points, and return on assets rose to 2.3%.

In the fourth quarter, Regional Management's loan portfolio grew sequentially by $73 million to nearly $1.9 billion, an all-time high. Quarterly revenue reached a record $155 million, up 9.3% from the fourth quarter of 2023. The auto-secured portfolio grew 34% in 2024 and accounted for 10.9% of the total portfolio, up from 8.7% at the end of 2023. The small loan portfolio increased 12% year-over-year, and loans with an APR greater than 36% rose from 16% to 19% of the portfolio. The total revenue yield in the fourth quarter was 33.4%, up 110 basis points from the prior year period.

• Committed to a minimum of 10% portfolio growth in 2025 and a meaningful improvement in net income. • First quarter 2025 is expected to have net income of roughly $7 million. • G&A expenses in the first quarter are projected to be $65 million to $65.5 million. • Interest expense in the first quarter is expected to be $20 million to $20.5 million. • Net income is anticipated to be lower in the first half of 2025 compared to the second half due to seasonality and provisioning for loan growth.

• Economic conditions and inflation changes could impact credit performance and loan demand. • Fluctuations in interest rates, including changes in fixed and variable rate debt, may affect interest expense. • Credit risk associated with portfolio growth, particularly in higher margin loan segments, could lead to higher net credit losses.

Q: John Hecht asked about product mix shift, including the auto-secured product.

A: Rob Beck stated that the company will continue to lean into the auto-secured business, with the barbell strategy balancing growth in the auto-secured and higher rate small loan business.

Q: John Hecht inquired about the performance of 2024 vs 2023 vintages.

A: Rob Beck mentioned that newer originations are performing in line with expectations, with the front book having a 7.2% delinquency rate compared to the back book's 11.9%, and reserve levels indicating portfolio performance.

Q: David Scharf asked about consumer health indicators.

A: Rob Beck cited low unemployment, real wage growth, and immigration impacts as indicators of improving consumer health.

Q: David Scharf asked about the competitive environment in the small loan category.

A: Rob Beck said no significant pressure is seen in the space where the company operates, as competitors have different rate caps.

Q: John Rowan asked about net income guidance and G&A expenses.

A: Harp Rana said the company is committed to meaningful net income growth in 2025, and G&A expenses for the first quarter are expected to be $65 million to $65.5 million.

Q: Vincent Caintic asked about the credit reserve rate and net income seasonality.

A: Rob Beck said the first quarter is impactful for the industry due to tax season, and net income is lower in the first half as reserves and seasonality affect it, with higher net income in the second half as the portfolio grows and reserves normalize.