Regional Management Corp. Q3 FY2025 earnings call

• Strong third quarter results: Net income of $14.4 million and diluted EPS of $1.42, an 87% year-over-year improvement. Portfolio grew $93 million sequentially to over $2 billion, total revenue $165 million (record), operating expense ratio 12.8% (all-time best).
• Record originations: Third quarter originations up 23% YOY, portfolio grew $233 million YOY (13%), exceeded receivable growth by $35 million with incremental provision expense of $3.6 million.
• Credit performance: 30-plus day delinquency rate 7% (30bps improvement YOY ex-hurricane), net credit loss rate 10.2% (improved 170bps QOQ, 40bps YOY).
• Branch expansion: 16 de novo branches opened in past 12 months, plan to open 5 before year-end and 5-10 in H1 2026, enter 1-2 new states in 2026.
• Technology and analytics: Investments in new branch origination platform, customer lifetime value analytics, machine learning underwriting model.
• Rob Beck announces pending retirement, Lakhbir Lamba to succeed him.

The portfolio grew by $93 million sequentially, pushing ending net receivables past $2 billion, with total revenue reaching a record high of $165 million. The operating expense ratio dipped to 12.8%, an all-time best. The auto-secured product saw strong growth, with auto-secured loans growing $80 million year-over-year to 13.4% of the portfolio, having a 30-plus day delinquency rate of only 1.8%. The higher-margin small loan portfolios support returns and the customer graduation strategy.

• Full-year 2025 net income forecast $43.5M (midpoint of prior guide $42M-$45M).
• Q4 net income projected ~$12M.
• Q4 total revenue yield expected 32.2% (90bps QOQ decline due to seasonality and mix).
• Q4 delinquency rate expected to rise gradually, net credit losses ~$57M.
• Board approved increase in stock repurchase program from $30M to $60M, $36M available as of Oct.

• Macroeconomic conditions impact portfolio growth and provisioning.
• Government shutdown affects marketing and lending to government employees.
• Credit losses dependent on economic conditions and portfolio performance.

Q: First of all, Rob, congratulations and hope to keep in touch and best of luck in your next journey. And Lakhbir, look forward to working with you as well. So my questions are, you had a pretty good acceleration in same-store sales as your digital volume picks up, too. I'm wondering at the store level, maybe can you tell us like 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.

A: Well, thanks, John. I appreciate the nice words. Yes, the same-store sales have really increased nicely. We're -- 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 our live check program. So we're seeing no surprise, we're seeing good demand, and we're able to be choosy on the customers we pick with a tight credit box. So we feel good about where we're at.

Q: Kind of piggybacking on John's questions. Yes, I 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. Any -- you talked about the auto loans kind of driving that, but we've heard a lot about the higher-end consumers doing better than the lower-end consumer. Is any of that kind of flowing through your origination trends?

A: 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 margins. In terms of our auto growth, we are definitely booking loans that meet our credit box and meet our risk return hurdles. So we're feeling pretty good about the growth that we've seen there. So, so far, we haven't seen anything in our data that we can't control for by just making some changes around the margin.

Q: 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?

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

Q: Yes, I was going to say for the fourth quarter guidance versus the third quarter number.

A: For the fourth -- Yes, 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 mix shift to the larger loans. You're going to see yields decline because of that just because the larger loans, although that they have a great risk return margin, you will see lower yields with the larger loans.

Q: 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 credit seems to have been okay, so that wasn't the driver. Just wondering if there was something else like was it less competition or something else because it was just a significant and nice beat. So just wondering what you saw in the quarter that surprised you that drove that outperformance.

A: So Vincent, it's Harp. So when we give guidance, right, we were looking out at the same uncertainty that we're looking out at going 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 we've talked about in the prepared remarks, our risk box continues to be conservative, right, in terms of it’s been tight. It hasn’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 [indiscernible] impact, and it will affect the guidance that we've given for net income in the fourth quarter and therefore, our full year guidance, but that will, of course, 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.

Q: 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 pullback in direct mail to government employees? Or if you can maybe talk about that in more detail.

A: So that really has to do with our new model 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 -- 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.