Regional Management Q4 2024 Earnings Report

Regional Management EPS Results

• Actual EPS: $0.98
• Consensus EPS: $0.88
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: N/A

Regional Management Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $154.12 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Regional Management Announcement Details

• Quarter: Q4 2024
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 5, 2025
• Conference Call Time: 5:00PM ET

Regional Management (NYSE:RM) is a specialty consumer finance company that provides credit products to customers who may have limited access to traditional bank financing. The company operates primarily through its Regional Finance branch network and focuses on serving non-prime consumers.

Its principal products include small and large installment loans, generally used for personal, household and other consumer purposes. Regional Management may also offer optional credit-related insurance and ancillary products in connection with its loans, subject to applicable laws and regulations.

Founded in 1987 and headquartered in Greer, South Carolina, the company serves customers across a network of branches concentrated in the southeastern and southwestern United States. Regional Management became a publicly traded company in 2012 and conducts its consumer lending operations primarily under the Regional Finance brand.

Regional Management Q4 2024 Earnings Call Transcript

Key Takeaways

• Strong Q4 performance: generated $9.9M net income and $0.98 EPS versus a prior-year loss, with record revenue of $155M and a portfolio at an all-time high of $1.9B.
• Improving credit quality: 30+ day delinquencies of 7.7% and a net credit loss rate of 10.8%, each better on a year-over-year adjusted basis thanks to tighter underwriting and a higher-quality front book.
• Balanced growth mix: grew the portfolio 7% in 2024 by expanding higher-margin small loans (19% of balances) and auto-secured loans (10.9%), driving a revenue yield of 33.4%.
• Disciplined expenses and funding: maintained a 14.0% operating expense ratio while investing in 12 new branches, and secured cost-of-funding near 4% through a AAA-rated securitization.
• 2025 guidance: committed to at least 10% portfolio growth, guiding Q1 net income of ~$7M, with seasonally lower H1 results before expecting meaningful income growth in H2.

Presentation

[Operator]

Greetings and welcome to the Regional Management Fourth Quarter 2024 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Garrett Edson with ICR. Please go ahead, Garrett.

[Garrett Edson, Managing Director at ICR]

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.

[Garrett Edson, Managing Director at ICR]

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, or 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.

[Rob Beck, President and CEO at Regional Management]

Thanks, Garrett, and welcome to our Fourth Quarter 2024 earnings call. I'm joined today by Harp Rana, our Chief Financial and Administrative Officer. On this call, we'll cover our Fourth Quarter financial and operating results, provide an update on our portfolio credit performance and growth, and share our expectations for 2025. We're very pleased with how our team and company performed in the fourth quarter. We generated strong bottom-line results of $9.9 million of net income and $0.98 of diluted earnings per share. These results were better than our guidance and a sharp improvement from the prior year period net loss of $7.6 million. As a reminder, in the fourth quarter of 2023, we incurred restructuring expenses and closed a special delinquent loan sale that had the effect of pulling forward net credit losses and revenue reversals from the first quarter of 2024 to the fourth quarter of 2023.

[Rob Beck, President and CEO at Regional Management]

We didn't experience similar events in the fourth quarter of 2024, so there will be noise in some of our year-over-year comparisons, which we'll highlight for you. Loan demand remained strong in the fourth quarter. We began to ramp up our portfolio growth and increased our investment spend in the quarter, including by opening four new branches. We'll also open another eight new branches in the first quarter to drive future growth. We grew our portfolio by $73 million sequentially in the fourth quarter to nearly $1.9 billion, an all-time high for our company. The portfolio generated record quarterly revenue of $155 million, up 9.3% from the fourth quarter of 2023, or 7.8% when adjusted for the impact of the prior year's loan sale.

[Rob Beck, President and CEO at Regional Management]

Our fourth quarter total revenue yield was 33.4%, up 110 basis points from the prior year period, or 80 basis points after adjusting for the 2023 loan sale. Our total revenue yield in the fourth quarter was the highest it's been in two years. As we've discussed in prior quarters, we've improved our yields from increased pricing, a mixed shift to higher margin loans, and improving credit performance. At the same time, we held G&A expenses in check as we grow while continuing to invest in our strategic initiatives, and we're leveraging our improved scale to increase our returns. Our fourth quarter G&A expenses were roughly flat to the fourth quarter of 2023, and our operating expense ratio was 14%, an 80 basis points improvement from the prior year period, or 30 basis points better when adjusting for the fourth quarter 2023 restructuring.

[Rob Beck, President and CEO at Regional Management]

We also continue to carefully manage our portfolio credit quality and performance in the fourth quarter. Credit performance continues to improve thanks to tighter underwriting in our front book, which represented 89% of our portfolio at year-end. The loans in our front book are performing in line with our expectations and are delivering at lower loss levels than our stressed back book vintages. We ended the fourth quarter with a 30-plus-day delinquency rate of 7.7%, up 80 basis points from the end of 2023, but 10 basis points better year-over-year when adjusting for the fourth quarter 2023 loan sale. Our fourth quarter net credit loss rate was 10.8%, which was 430 basis points better than our prior year period, or 110 basis points better after adjusting for the prior year's loan sale.

[Rob Beck, President and CEO at Regional Management]

Our growth and our higher margin portfolio increased both our delinquency and net credit loss rates by 20 basis points in the fourth quarter. Also, as a reminder, our slower pace of portfolio growth in 2024 negatively impacted our delinquency rate and NCL rate as the denominator of both ratios has grown more slowly than in prior years. On a growth-adjusted basis, we are very pleased with the improvement in our delinquency and NCL rates. By managing credit tightly and growing our high-quality auto-secured book, we're experiencing better credit performance despite having leaned into growth in our higher-margin, greater-than-36% APR loan portfolio, which grew from 16% of our portfolio to 19% of our portfolio year-over-year. As we've discussed in the past, our net credit loss rates peaked in 2023, and we've experienced gradual improvement since then.

[Rob Beck, President and CEO at Regional Management]

We expect continued improvement in portfolio quality and credit loss performance in 2025, assuming inflation continues to moderate and economic conditions remain stable, including low unemployment and continued real wage growth. The fourth quarter capped a strong 2024 in which we improved our results from the prior year on nearly all lines. We grew our loan portfolio by $120 million in 2024, and that in turn drove our revenue higher. Our 2024 revenue was up 7% compared to 2023, and our total revenue yields improved by 70 basis points year-over-year from increased pricing, portfolio mix shift, and improved credit performance. Our net credit loss rate improved by 120 basis points in 2024, and our operating expense ratio improved by 40 basis points year-over-year. Importantly, our net income more than doubled from 2023, and our return on assets improved to 2.3% in 2024 from just under 1% in 2023.

[Rob Beck, President and CEO at Regional Management]

While economic conditions prevented our bottom-line results and returns from fully normalizing in 2024, we're pleased with how we navigated the inflationary environment over the past couple of years. We're also encouraged by the signs of strength that we're observing in the subprime consumer and the economy, and that strength is reflected in our improving credit performance. Over the long term, we expect that our returns will continue to normalize with the benefits of a stable macroeconomic environment, further scale through disciplined portfolio growth, a well-balanced product mix, and prudent expense management. During our past couple of earnings calls, I spoke with you about our portfolio mix, our higher-margin loan business, our auto-secured book, and how we think about constructing our portfolio as we grow.

[Rob Beck, President and CEO at Regional Management]

This quarter, as we enter a period with a more constructive economic environment and an expectation of stronger portfolio growth, I want to spend a few minutes discussing the impact of growth on our bottom line and how we think strategically about the balance between portfolio growth and net income in the short and long term. Portfolio growth, of course, impacts all lines of our income statement. It's the fuel that generates our revenue growth. It increases our provision for loan losses and net credit losses, no matter the quality of new loans added. It requires us to increase our G&A investment, and it creates the denominator effect on both our operating expense ratio and net credit loss rate. It drives up our interest expense, including our average interest rate, as we use more costly funding to grow the portfolio.

[Rob Beck, President and CEO at Regional Management]

Some of these growth impacts are beneficial to our income statement and performance metrics, while others are detrimental, and the severity of the impacts varies across lines and time periods. As we develop our short and long-term plans, we balance these dynamics to optimize short and long-term returns to our investors. Looking back to the five years prior to 2020, we grew our portfolio at an average of more than 15% per year and over 19% in 2019 prior to the pandemic. After holding our portfolio flat in 2020 due to COVID, we grew our portfolio at an average of roughly 22% per year in 2021 and 2022, while at the same time benefiting from a highly constructive credit environment supported by government stimulus.

[Rob Beck, President and CEO at Regional Management]

However, over the past two years, we substantially slowed our portfolio growth to 4% in 2023 and 7% in 2024 due to inflationary economic conditions and the corresponding impacts on credit performance. Now, for the first time since we adopted the CECL reserve model in 2020, we've entered a year where we expect to accelerate our growth in a more normalized credit environment. As you know, under the CECL model, we're required to reserve for expected lifetime losses at the origination of each loan, while the revenue benefits are recognized over the life of the loan. For example, in the fourth quarter, we grew our portfolio by $73 million sequentially, requiring a $7.7 million provision for credit losses that created an after-tax drag of $6 million on our fourth quarter net income.

[Rob Beck, President and CEO at Regional Management]

Our returns attached to growth in 2025 will likewise create an immediate drag on 2025 net income due to the associated expenses of provisioning for lifetime credit losses at origination, but it will create benefits over the long term as loan growth drives increased revenue and bottom-line returns. As we determine our growth rate, we not only consider the health of the consumer, the strength of the economy, and the credit performance of our portfolio, we also balance our need to continue to deliver short-term results for our investors while also generating the portfolio growth that will fuel our success and normalization of returns over the long term. The faster we grow in 2025, the more provision we must incur and the larger the drag on our 2025 net income, but that portfolio growth will be beneficial to the bottom line and our returns in 2026 and beyond.

[Rob Beck, President and CEO at Regional Management]

As a result of these dynamics, we internally measure success by our growth in both net income and in pre-provision net income, which we define as net income excluding the tax-affected impact of the provision for credit losses, but including the impact of recognized net credit losses. Assuming no change in our expectations for the economy, we're committed both to a minimum of 10% portfolio growth and a meaningful improvement to our net income results in 2025. We're increasing our pace of growth due to our confidence in our credit performance, improving consumer health, and strengthening macroeconomic conditions, including lower inflation, real wage growth, low unemployment, and a large number of open jobs, particularly for our customer set.

[Rob Beck, President and CEO at Regional Management]

While we feel we're capable of growing our bottom line by 30% or more in 2025, we believe that doing so would require slower portfolio growth that doesn't appropriately balance near-term results with our long-term aspirations. While we've clearly established our internal targets for 2025 portfolio growth and net income based on our short and long-term strategic priorities, where we ultimately land on portfolio growth and net income in 2025 will depend on our continued assessment of the health of the customer, the economy, and credit performance over short and long terms. For now, beyond our expectation of minimum portfolio growth at 10% in 2025, we won't be sharing full-year 2025 guidance, but we wanted to provide you with this overview of how we think strategically about growth and how we will manage the business this year and beyond.

[Rob Beck, President and CEO at Regional Management]

As always, I'd like to thank the regional team for its hard work and dedication. The team skillfully managed through a difficult economic environment in 2023 and 2024, providing valuable financial products and services to our customers while anticipating, preparing for, and reacting to conditions that have been particularly challenging for our consumer base. The team's talent, commitment, and superior execution have positioned us well to return to faster growth in 2025, something we're very much looking forward to. I'll now turn the call over to Harp, who will provide more detail on our fourth quarter results and guidance for the first quarter.

[Harp Rana, EVP and CFO at Regional Management]

Thank you, Rob, and hello, everyone. I'll now take you through our fourth quarter results in more detail and provide you with an outlook for the first quarter of 2025. On page five of the supplemental presentation, we provide our fourth quarter financial highlights.

[Harp Rana, EVP and CFO at Regional Management]

As Rob noted, we posted net income of $9.9 million and diluted earnings per share of $0.98, once again exceeding our expectations and our fourth quarter 2023 results. These results were supported by our solid portfolio and revenue growth, healthy credit profile, expense discipline, and a strong balance sheet. Turning to page six, we continue to grow our portfolio during the quarter, with origination focused on our higher-margin auto-secured segments. From a risk standpoint, we continue to originate roughly 60% of our loans to applicants in our top two risk ranges. Total originations reached record levels and were up 17% year-over-year. Branch, digital, and direct mail originations were up 15%, 35%, and 15%, respectively, from the prior year period. As we move through 2025, we'll be accelerating our pace of growth due to our confidence in our credit performance, improving consumer health, and a stronger macro environment.

[Harp Rana, EVP and CFO at Regional Management]

Page seven displays our portfolio growth and product mix through the fourth quarter. We closed the quarter with record net finance receivables of $1.9 billion, up $73 million sequentially. Our auto-secured portfolio grew 34% in 2024 and now represents 10.9% of our total portfolio, up from 8.7% at the end of 2023. Our small loan portfolio increased 12% year-over-year, and at the end of the quarter, approximately 19% of our portfolio carried an APR greater than 36%, up from 16% a year ago, reflecting a 26% balance increase in 2024. As Rob has consistently noted, we've purposefully leaned into growth of higher-margin small loans in recent quarters, and we expect to continue growing our small loan book in a measured way in future quarters.

[Harp Rana, EVP and CFO at Regional Management]

This portfolio drives higher revenue yields, which offset moderately higher funding costs, and the returns exceed our hurdles despite higher expected net credit losses on the segment. As previously indicated, we continue to mitigate the impact of the segment on our overall credit performance by growing our auto-secured book, which remains the best-performing segment in our portfolio. At the end of the year, the auto-secured portfolio had a 30-plus day delinquency rate of 2.6% and the lowest credit losses of all of our products. Looking ahead to the first quarter, while we expect to originate higher loan volumes than in the prior year, the first quarter is always our softest originations quarter because of the seasonal impact of tax refunds.

[Harp Rana, EVP and CFO at Regional Management]

We anticipate our ending net receivables to be roughly flat to down $5 million sequentially in the first quarter, compared to a $27 million sequential run-off in the first quarter of 2024, with the exact level of ending receivables dependent on the strength of the 2025 tax season. This is an improvement from our normal first-quarter liquidation levels, thanks to growth in newly opened branches and our efforts to lean back into growth across our network. We expect our average net receivables to be up roughly $35 million sequentially. In the balance of the year, we will take further advantage of high levels of consumer demand to drive quality portfolio growth, particularly in our auto-secured and higher-margin portfolios, a continuation of our barbell strategy.

[Harp Rana, EVP and CFO at Regional Management]

However, we'll remain selective in approving borrowers while continuing to monitor the economy, and as always, we'll focus on originating loans that maximize our margins and bottom-line results. Turning to page eight, total revenues grew to a record $155 million in the fourth quarter, up 9% from the prior year period. Our total revenue yield and interest and fee yield were 33.4% and 29.8%, respectively, up 110 basis points and 100 basis points year-over-year, respectively. The increase in yields is due to a mix of pricing changes, growth in our higher-margin small loan business, improved credit performance, the impact of the special loan sale in the prior year period, and the release of credit insurance reserves in the fourth quarter. In the first quarter, we expect total revenue yield to decline by roughly 90 basis points sequentially, consistent with seasonal patterns. Moving to page nine, our portfolio continues to perform well.

[Harp Rana, EVP and CFO at Regional Management]

Our 30-plus-day delinquency rate as the quarter ends at 7.7%, up 80 basis points year-over-year, but 10 basis points better than the prior year period when adjusting for the special loan sale in the fourth quarter of 2023. Our net credit losses of $50.2 million were better than our outlook, and our annualized net credit loss rate of 10.8% was 430 basis points better than last year, in large part due to the loan sale in the fourth quarter of 2023. Adjusting for the loan sale, our net credit loss rate was 110 basis points better year-over-year, as the credit performance of our portfolio has improved materially. We also estimate that the growth in our portfolio of loans, having greater than 36% APRs, negatively impacted both our delinquency rate and our net credit loss rate by 20 basis points year-over-year.

[Harp Rana, EVP and CFO at Regional Management]

However, the higher yields on this portfolio more than make up for the credit drag, resulting in overall improved margins. Page 10 provides additional information on the performance of our front book and back book portfolios. The front book ended the quarter at 89% of our total book, compared to 86% at the end of the third quarter. The front book carries a 7.2% delinquency rate compared to 11.9% on the back book. The back book accounted for 14% of our 30-plus day delinquency and contributed 40 basis points to our total portfolio delinquency rate, despite representing only 9% of the portfolio at quarter end. The back book contributed 60 basis points to our total portfolio net credit loss rate, and our front book and back book reserve rates are 10.2% and 14.1%, respectively. We continue to be pleased with the way that our front book is performing.

[Harp Rana, EVP and CFO at Regional Management]

Compared to the back book, the front book continues to season at a lower level of loss, despite the growth in our higher-rate small loan business, which will benefit our 2025 results. Overall, we continue to see the benefits of our prudent underwriting in our credit metrics. In the first quarter, we expect our delinquency rate to improve due to the seasonal benefit of payments generated by tax refunds. Depending upon the strength of the tax season, we anticipate that our net credit losses will be approximately $60 million in the first quarter, or a net credit loss rate of approximately 12.7%. As a reminder, our net credit loss rate in the first quarter of 2024 included 270 basis points of benefit from the fourth quarter 2023 loan sale, but we will not experience a similar benefit in the first quarter of this year.

[Harp Rana, EVP and CFO at Regional Management]

Adjusted for the loan sale benefit in the first quarter of 2024, we expect that our net credit loss rate in the first quarter of this year will be 60 basis points better year-over-year. Turning to page 11, our fourth quarter allowance for credit losses reserve rate decreased slightly to 10.5%. Our strong receivables growth required us to increase our reserves by $7.4 million in the quarter, as we reserve for our lifetime losses upon origination. At the quarter end, the allowance was $199.5 million and assumed a 2025 year-end unemployment rate of 5.1%. Within the quarter-end allowance, we maintained a reserve of $1.8 million for 10 basis points for losses associated with Hurricane Helene that should roll through in the second quarter of 2025.

[Harp Rana, EVP and CFO at Regional Management]

Looking to the first quarter, subject to economic conditions and portfolio performance, we expect our loan loss reserve rate to remain flat at 10.5% at the end of the quarter. Flipping to page 12, we continue to closely manage our spending while still investing in our growth capabilities and strategic initiatives. Our G&A expenses of $64.6 million in the fourth quarter were down modestly year-over-year and were better than our outlook due in part to continued aggressive management of our personnel expenses. Our annualized operating expense ratio was 14% in the fourth quarter, 80 basis points better than the prior year period, or 30 basis points better when adjusting for the fourth quarter 2023 restructuring. On a normalized basis, revenue growth outpaced G&A expense growth by 5.8x. In the first quarter, we expect G&A expenses to increase to roughly $65 million-$65.5 million.

[Harp Rana, EVP and CFO at Regional Management]

The increase in G&A expenses is attributable to further investments in growth and our strategic initiatives, including the opening of an additional eight branches in the first quarter and increased expenses from servicing a larger number of accounts. We also continue to invest in technology and data initiatives to benefit future performance. Moving forward, we'll continue to meticulously manage expenses while also investing in our core business in ways that will improve our operating efficiency over time and ensure our long-term success and profitability. Turning to pages 13 and 14, our interest expense for the fourth quarter was $19.8 million, or 4.2% of average net receivables on an annualized basis, better than our outlook on lower average debt and lower rates. In November, we closed a $250 million asset-backed securitization transaction at a weighted average coupon of 5.34%, an 85 basis points improvement over our prior ABS deal.

[Harp Rana, EVP and CFO at Regional Management]

The Class A notes of the securitization received a top rating of AAA from Standard & Poor's and Morningstar DBRS, and we experienced significant demand across all classes of notes, including from new investors, again demonstrating the strength of our ABS platform. As of December 31st, 79% of our debt is fixed rate with a weighted average coupon of 4.1% and a weighted average revolving duration of 1.3 years. In the first quarter, we expect interest expense to be approximately $20 million-$20.5 million, or 4.2%-4.3% of our average net receivables. As our lower fixed-rate funding matures and we continue to grow using variable-rate debt, our interest expense will increase as a percentage of average net receivables. In addition, our balance sheet remains strong, and we continue to maintain ample liquidity to fund our growth.

[Harp Rana, EVP and CFO at Regional Management]

We have nearly $200 million of lifetime loan loss reserves, as well as $357 million of stockholders' equity, or approximately $35.67 in book value per share. We will 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. In terms of income taxes, we incurred an effective tax rate of 22.3% in the fourth quarter, and for the first quarter of 2025, we expect an effective tax rate of roughly 24.5% prior to discrete items. On the bottom line, we expect that our first quarter net income will be roughly $7 million. As a reminder, last year's first quarter net income benefited by $2.6 million from the fourth quarter 2023 special loan sale, or $3.4 million on a pre-tax basis.

[Harp Rana, EVP and CFO at Regional Management]

Of the $3.4 million pre-tax benefit, $1.5 million was attributable to lower credit costs, and $1.9 million was attributable to higher revenue from lower revenue reversals. As we've discussed, we won't experience a similar benefit in the first quarter of this year because we didn't close a similar special loan sale in the fourth quarter of 2024. In addition, this year's first quarter net income will reflect our efforts to lean back into growth. Consistent with the first quarter guidance that I provided earlier, we expect first quarter 2025 revenue to be up year-over-year on higher average net receivables, despite the loan sale benefit in the prior year period. While our credit performance has improved and our adjusted net credit loss rate will be better year-over-year, our net credit losses will be up from the prior year because of the prior year loan sale benefit.

[Harp Rana, EVP and CFO at Regional Management]

Our investment in growth will also increase our provisioning expense in the first quarter of this year, as we expect to largely maintain our portfolio size in the quarter rather than benefit from a reserve release from a large liquidation of our portfolio, like we had in the first quarter of last year. We'll also incur incrementally higher G&A expenses to support the larger portfolio and our newly added branches, and interest expense will be higher due to our larger portfolio size and the increase in prevailing interest rates. As Rob noted, we aren't yet providing full-year net income guidance, but we're committed to increasing our net income meaningfully in 2025.

[Harp Rana, EVP and CFO at Regional Management]

I will, however, provide a reminder that consistent with typical seasonal patterns, we expect that our net income will be lower in the first half of the year than the second half of the year as we begin to provision for loan growth and due to seasonally higher net credit losses, particularly as our remaining back book portfolio rolls to loss. Net income will then increase materially in the second half of the year as we benefit on the revenue line from a larger portfolio size and on the credit and revenue lines from seasonally lower net credit losses. Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital to our dividend and $30 million share repurchase programs. Our board of directors declared a dividend of $0.30 per common share for the first quarter.

[Harp Rana, EVP and CFO at Regional Management]

The dividend will be paid on March 13, 2025, to shareholders of record as of the close of business on February 20, 2025. Pursuant to our buyback program, we repurchased a little over 100,000 shares of our common stock in the fourth quarter at a weighted average price of $33.83 per share. Finally, I'll note that we provide a summary of our first quarter 2025 guidance on page 15 of our earnings supplement. That concludes my remarks, and I'll now turn the call back over to Rob.

[Rob Beck, President and CEO at Regional Management]

Thanks, Harp. Once again, I'd like to thank the regional team for its excellent work in 2024. We're proud of how we performed and of the results we delivered for our shareholders. In the fourth quarter, we generated strong portfolio and revenue growth, continued to improve our yields, operating efficiency, and portfolio credit performance, and posted solid bottom-line results.

[Rob Beck, President and CEO at Regional Management]

The quarter capped an impressive year in 2024, where we materially improved our operating and financial metrics on nearly all lines. Looking ahead to 2025, we're excited that our portfolio credit quality and strengthening macroeconomic conditions are conducive to a return towards more normalized growth. We'll pursue a minimum of 10% portfolio growth in 2025 while continuing to invest in our strategic initiatives. These efforts will enable us to improve our net income and returns in the near and long term. Thank you again for your time and interest. I'll now open up the call for questions. Operator, could you please open the line?

[Operator]

Certainly. We'll now be conducting a question-and-answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. One moment, please. While we poll for questions, our first question is coming from John Hecht from Jefferies. Your line is now live.

[John Hecht, Managing Director at Jefferies]

Afternoon, guys. Thanks for taking my questions. It just, your product mix between the large and small installment loans has been pretty consistent for a while. As you go, as we go into 2025, is there anything we could think, should think about in terms of mix shift in products, you know, including the auto-secured product?

[Rob Beck, President and CEO at Regional Management]

Hey, John, thanks for the question. Yeah, we're gonna continue to lean into the auto-secured business. You know, our barbell strategy is working very well. You know, that growth in the auto-secured business is balancing out, you know, the growth and the higher-rate small loan business, which, as you know, is kind of the fuel for our business to, you know, graduate those customers into large loans. So, you know, our strategy, you know, going into 2025 is going to be, you know, consistent with what we did in 2024.

[John Hecht, Managing Director at Jefferies]

Okay. And then, you know, I know the front book is getting better, too, relative to the back book, but maybe anything you can, you know, any details you can share with us on maybe the 2024 vintage versus the 2023 vintages or any early looks to the relative performance of that?

[Rob Beck, President and CEO at Regional Management]

Yeah, I mean, I would tell you that, you know, the newer originations that we're putting on are performing, you know, right in line with our expectations, which is good, and I think you can kind of see that, you know, again, you know, on the front book, back book split that we provide in the supplement. I mean, the delinquencies on the front book, and again, delinquencies are still seasoning on the front book is 7.2%, and on the back book, it's 11.9%, and even the reserve levels is indicative, you know, we're at 10.2% on the front book and 14.1% on the back book, and of course, you know, we reserve for lifetime losses, so that's kind of indicative of how the portfolio is performing.

[Rob Beck, President and CEO at Regional Management]

So, yeah, we're happy about the progress and tightening of the book and how that's flowing through the numbers. I mean, naturally, when we you know move up into the higher rate business, that is putting additional pressure you know on the small loans delinquencies and you know and losses, but we're getting paid for it because of the higher yield.

[John Hecht, Managing Director at Jefferies]

Okay. And then any comments on you know how interest rate you know if we get one versus more than one rate cut this year, how that might impact you guys on a marginal perspective?

[Harp Rana, EVP and CFO at Regional Management]

So we've obviously calculated that, John, it's not something that we're gonna disclose, but, you know, we've looked at 25 basis points, plus or minus, on both our variable and our fixed-rate debt if we were to enter the market for new fixed-rate debt in 2025, which we plan on doing.

[John Hecht, Managing Director at Jefferies]

Okay. Wonderful, guys. Thanks very much.

[Rob Beck, President and CEO at Regional Management]

Great. Thanks, John. Have a good evening.

[Operator]

Thank you. As a reminder, that star one's been placed in the question queue. Our next question is coming from David Scharf from Citizens JMP. Is that live?

[David Scharf, Managing Director and Equity Research Analyst at Citizens JMP]

Hi, good afternoon. Thanks for taking my questions as well. Hey, Rob, wondering if we can just get a little clarification on or really specifics on what indicators you're seeing out there, that you know give you conviction about consumer health improving.

[David Scharf, Managing Director and Equity Research Analyst at Citizens JMP]

And I primarily ask because we've had a number of lenders in the last week or so, you know, still express some caution. And I think in the words of one of them, a big competitor of yours, they said, you know, we're not necessarily seeing an improving consumer. We just have better consumers on our books after two years of credit tightening. And I think they were very clear to draw a distinction between those two, but you seem to be expressing a fair amount of confidence that it's more than just your credit tightening, that, you know, credit quality on the ground is improving. Are there any, you know, green flags you can highlight for us? Like what specifically you're seeing in the consumer? Is it either savings rates, payment rates, anything to help us out?

[Rob Beck, President and CEO at Regional Management]

So, David, great question. I think it's both, right? And, you know, it's a little hard to determine, you know, how much of one versus the other is coming through your, your portfolio, but, but certainly tightening means that we put better credit on. And so that's, that's consistent with whatever the other competitor said. I think when we look out going forward and, and we kind of look at, you know, kind of the progression of what's happened this year, I mean, you know, if you look at unemployment still low, you look at real wage growth, you know, I think the open jobs have come down a little bit to the $6 million-$7 million range. But, again, you know, for our customer set, it's over-indexed that way.

[Rob Beck, President and CEO at Regional Management]

You know, I've heard a thesis out there and look, I'm not gonna put a lot of weight on this one, but you know, if immigration is slowed and there's less, you know, workers coming in for, you know, lower-paying jobs, that's gonna put more pressure upward on wages for our customer set. So I think that there's a lot of things in the backdrop. You know, we're being balanced in our growth, you know, with a 10% growth, I think, given the environment and the macro environment is pretty good. But of course, you know, we're very mindful of, you know, other things that could happen, whether impacts of tariffs and other things.

[Rob Beck, President and CEO at Regional Management]

We would, you know, we have the ability to adjust very quickly if we see anything kind of start to cause pressure on our portfolio. So, you know, by and large, I think the customer is healing. They certainly haven't completely gotten through the hangover effects of the high inflationary period, and there's still pockets of inflation. You know, as you know, inflation's not back down to the 2%. So we're watching it all, but I think, from where we're at, we're feeling good about putting on a minimum of 10% in our growth. You know, but, you know, we have the ability to grow much faster, but, you know, I think we temper that with all the things I've just said.

[David Scharf, Managing Director and Equity Research Analyst at Citizens JMP]

Got it. Got it. No, it all sounds very constructive. And, maybe follow-up on the competitive front, you know, we obviously seen a lot more private credit funds invest in the personal loan space in the last sort of 18 months. I'm curious, in your small loan category, you know, that higher yielding paper, are you seeing any additional sources of funding come into that kind of asset class, or is that a more benign area to be competing in right now?

[Rob Beck, President and CEO at Regional Management]

Well, it's hard for us to, I mean, on the funding side, what funding is coming in to support competitors. But when we look at what's happening competitively in that space, I mean, you know, a lot of the folks in the installment loan space have capped themselves at 36%. Obviously, there's players that are, you know, triple digits.

[Rob Beck, President and CEO at Regional Management]

But in the space that we play in, which is, you know, I would call it marginally above the 36% rate, which we have, which we believe is, you know, appropriate for our customers to give them access to credit and help them improve their, you know, their credit profile and graduate them to a lower rate loan. We're not really seeing any change in the competitive dynamics there in terms of pressure. I think we could grow that space, you know, as fast as we wanted to, but we're being smart about it.

[David Scharf, Managing Director and Equity Research Analyst at Citizens JMP]

Got it. Got it. And maybe just one last one, sort of following up on that thought, that this is not meant to be a loaded question, but you know, you did a good job of highlighting the trade-off between, you know, growing faster and some of the accounting realities around CECL provisioning. But you know, if you kind of set aside the accounting, you know, what are some of the, ignoring the accounting and volatility, what are some of the factors that sort of drive your decision about, maybe not striking while the iron is hot as much as you could?

[Rob Beck, President and CEO at Regional Management]

Yeah, I get it. Yeah.

[David Scharf, Managing Director and Equity Research Analyst at Citizens JMP]

You know what.

[Rob Beck, President and CEO at Regional Management]

Yeah, no, I get it. I mean, look, obviously, there is the, you know, the optics of, you know, the timing from an accounting standpoint, which I'm not convinced the market has ever really looked through and expanded, you know, the P/E's and, in the installment loan space for the CECL effect. I think it's, you know, you're not naturally a higher risk business in subprime or near subprime, but you're reserving everything day one. And I don't think P/E expansion has gone along with the accounting change. But putting that aside, I mean, look, it's always a question of, you know, having capital to grow, which we do. And Harp's talked about the ample room on the balance sheet, you know, to grow the business. So we're not constrained there, which is good.

[Rob Beck, President and CEO at Regional Management]

And then it's really about, you know, execution in terms of how much investment dollars we put to work relative to, you know, the timing of the return back on those investment dollars. And I think we, we do a good job of, of balancing that out. But we also know that we, we can flex up when we feel the time is right to flex up. I mean, I'll give you a perfect example. In the fourth quarter, you know, we flexed up and added more branches, put that in, you know, additional branches into the first quarter. And, you know, those branches on average, you know, in a couple of years are gonna be worth, you know, have $7 million of balances.

[Rob Beck, President and CEO at Regional Management]

So, you know, we're just being smart about how we invest and make sure we get the returns to, you know, in a timely way for those investments. And, you know, I think it bodes well for the future.

[David Scharf, Managing Director and Equity Research Analyst at Citizens JMP]

Understood. Great. Thank you very much.

[Rob Beck, President and CEO at Regional Management]

Thanks, David. Have a good night.

[Operator]

Thank you. Next question today is coming from John Rowan from Janney. Your line is now live.

[John Rowan, Director and Equity Research Analyst at Janney]

Hey, good afternoon. Just so I'm clear, you are guiding for net income to be above $41 million that you reported in 2024. Is that correct?

[Harp Rana, EVP and CFO at Regional Management]

We've only guided to first quarter income, John, and we've given a specific number on that this quarter, which we've not done previously. The only thing I can say right now is that we are committed that, you know, net income, if, you know, all of the factors that are currently at play currently work out the way that we think they are, that we would be higher in net income meaningfully, as we said in the prepared remarks.

[Rob Beck, President and CEO at Regional Management]

Yeah. I mean, I think we said, John, look, we, we could grow the net income, you know, up to 30%, but we're, we're being mindful of, you know, the growth effect of the on that as well. And so that's, that's why we kind of laid it out the way we did. Oh, I thought you said that we were gonna grow net income in 2025. Did I, I didn't hear that correctly?

[John Rowan, Director and Equity Research Analyst at Janney]

Yeah.

[Harp Rana, EVP and CFO at Regional Management]

No, we did. We said we would.

[Harp Rana, EVP and CFO at Regional Management]

We would grow. Yeah. But we also said that, you know, this business could grow as much as 30%, but we pointed out the growth effect from CECL on that, so.

[John Rowan, Director and Equity Research Analyst at Janney]

No, I get it. I just you had $41 million of net income in 2024. And if you're growing, that means you would have to be somewhere north of that for 2025.

[Rob Beck, President and CEO at Regional Management]

Correct.

[Harp Rana, EVP and CFO at Regional Management]

That is correct.

[John Rowan, Director and Equity Research Analyst at Janney]

Okay. That's what I wanted to clarify. Okay. And then as far as G&A expenses, I mean, is $65 million, give or take a little bit, kind of the right run rate to use going forward?

[Harp Rana, EVP and CFO at Regional Management]

Yep. $65 million-$65.5 million is the guidance that we just gave for first quarter. For first quarter, right.

[John Rowan, Director and Equity Research Analyst at Janney]

Okay. And then, you know, is there any, you know, one of your peers guided to kind of just a natural drift down in the cost of funds, you know, even, even if rates stay the same, as, you know, some of the prior, you know, fixed cost stuff rolls off? Is that, is there any type of, you know, benefit that you guys have from a funding profile, just static, if, you know, forget the differences in funding one product versus the other, just static if, you know, if rates stay the same?

[Harp Rana, EVP and CFO at Regional Management]

So I think what we have to think about for us is our securitization that we have put on in the past that would be maturing. And those would reset, John, at a higher rate than what we put them on.

[Harp Rana, EVP and CFO at Regional Management]

If you look at our cost of funds, we've done a really good job of keeping them around 4% for several quarters. We are now doing, you know, new securitizations, and we had a really good print on our last securitization. But as old securitizations that are around 3% mature, you will be putting them on at a higher rate. However, the other thing to remember is, you know, variable rates should come down depending upon how many rate cuts you believe are gonna happen in 2025. So you will see our fixed cost, our securitizations at the fixed rates resetting at higher rates than what they've been at historically. But you should see variable rate debt come down if the interest rate curves, you know, reflect any cuts.

[Rob Beck, President and CEO at Regional Management]

Yeah. And I, John, the other thing I'd say is we've done such a good job of holding our cost of funds and locking in funding early that we never went up like some competitors. And so the coming down is not in our book, because we're fixed at a low rate. So there'll be a natural creep up in cost of funds, of course, mitigated depending on what the Fed does over the course of the year.

[John Rowan, Director and Equity Research Analyst at Janney]

Okay. All right. Fair enough. Thank you.

[Rob Beck, President and CEO at Regional Management]

Thanks, John. Have a good evening.

[Operator]

Thank you. Next question is coming from Vincent Caintic from BTIG. Your line is now live.

[Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG]

Hey, good afternoon. Thanks for taking my questions. Going back to, hey, thanks for taking my questions. Going back to credit, so, I mean, you sound more positive about the new originations that you're getting in all the different categories of your originations. Just wondering if you could talk about, sort of, the credit reserve rate that you're expecting on these new originations. And I'm guessing we should be expecting both credit improvement as well as, maybe, the credit reserves coming down over the course of 2025. So just wanted to get your views on that.

[Rob Beck, President and CEO at Regional Management]

Yeah. What I would tell you is, I mean, we guided in the first quarter, I think, to stay flat to the fourth quarter. You know, what I would tell you is this is first quarter, is the most impactful quarter for the industry because of tax season.

[Rob Beck, President and CEO at Regional Management]

You know, I think that, you know, that plus, you know, obviously, you know, just getting another quarter's worth of understanding what's happening from a macro standpoint as well as what's happening from a policy standpoint in D.C., I think will help us give you kind of, kind of better guidance on that. Now, you know, I think if you look at the reserve levels that we have on the front book at 10.2%, you know, you kind of see, and that's a lifetime, you know, reserve. You can kind of see that's, you know, kind of where you start evolving to once the back book comes off, you know. So I, that's kind of what I would, would say to you.

[Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG]

Okay. Great. Thank you. and then I guess relatedly, so you provided the commentary that the first half, or I should say the second half, net income is higher than the first half net income, part of the seasonality. But I guess should we be thinking that the growth rate, on your originations, you would hit the, I guess the expected level of growth rate. So that's where we're seeing that level of, I guess net income starting to come in where the reserves aren't overpowering it yet at that point?

[Rob Beck, President and CEO at Regional Management]

Well, I guess where I would put it is, you know, so the first quarter, you know, we guided to, you know, some runoff in the portfolio, which is a lot less runoff than prior years. And part of that is 'cause of the new branches we built and building up the portfolio.

[Rob Beck, President and CEO at Regional Management]

And so I think you got a few things, you know, going through the dynamics of the profitability. One is, you know, just the lower runoff that we, you know, have in the first quarter. But then when you, on top of that, the rest of the growth will be in the last three quarters of the year. But, you know, if you look from a credit standpoint, you know, as the seasonal increase in the first quarter for NCLs moves back down post-tax season, and you see back book continue to run off, you're gonna see the benefit on the bottom line in the second half of the year from the portfolio as well as the better credit performance.

[Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG]

Okay. Perfect. That makes sense. And then last one for me, since you mentioned a couple of times about the impact of the tax refunds in the first quarter, if we could get what your, what your views are for this year, if there's anything unusual or anything incremental from that? Thank you.

[Rob Beck, President and CEO at Regional Management]

You know, really too early to tell. I, I would say we're only just starting to hear, you know, on some of our calls about tax refunds. So we're, we're a few weeks away from starting to get any kind of indication on that. So, you know, stay tuned on that.

[Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG]

Okay. Sounds good. Thank you very much. All right. Thanks, Vincent. Have a good one.

[Operator]

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

[Rob Beck, President and CEO at Regional Management]

Yeah. Thank you, Operator. And thanks everyone for joining.

[Rob Beck, President and CEO at Regional Management]

You know, I think in the takeaway here is from my perspective, Harp's perspective, you know, fourth quarter results is very much indicative of where we are as a business going in 2025. You know, we had solid bottom line growth in 2024. We increased our book value by 8% to $35.70, paid out a $1.20 dividend per share, announced the $30 million buyback, and, you know, purchased about 3.5 million of that in the fourth quarter. You know, we had record ENR and revenues. As I said, we expect a minimum 10% ENR growth this coming year. And of course, we talked about the growth effect of CECL. Our credit front book is performing as expected. You know, our barbell strategy is working well 'cause we balance out the low-risk auto-secured with the higher-rate small loan business to drive returns. Continued expense discipline while investing in growth.

[Rob Beck, President and CEO at Regional Management]

And look, being down, you know, we're down in, you know, expenses versus prior year. Even without the restructuring, we held expenses pretty modest growth year on year. And then, of course, strong balance sheet management. And you know, as Harp said, cost of funds has been hovering around 4% for a lot of quarters. It's actually down 10 basis points versus third quarter, and only up 20 basis points versus last year. So all those drivers are putting us in a great position, and we're well, well placed, I think, to continue our momentum into 2025. So thanks again for joining, and have a good evening.

[Operator]

Thank you. That does conclude today's teleconference and webcast, and we disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Participants

Executives

• Rob Beck, President and CEO
• Harp Rana, EVP and CFO

Analysts

• Garrett Edson, Managing Director at ICR
• John Hecht, Managing Director at Jefferies
• David Scharf, Managing Director and Equity Research Analyst at Citizens JMP
• John Rowan, Director and Equity Research Analyst at Janney
• Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG