Regional Management Q2 Earnings Call Highlights

Regional Management NYSE: RM reported second-quarter net income of $8.2 million, or $0.85 per diluted share, as revenue growth and improved operating efficiency were partly offset by higher credit-loss provisions and slower-than-expected portfolio expansion.

Total revenue rose 6.7% year over year to $168 million, driven by growth in average net finance receivables. Ending net finance receivables reached $2.1 billion, up 9.6% from a year earlier, while receivables per branch increased 8% to about $6 million.

President and Chief Executive Officer Lakhbir Lamba said the company’s higher-quality auto-secured portfolio grew 32% from the prior year and represented 15% of the overall portfolio at quarter-end. The auto-secured portfolio had a 30-plus-day delinquency rate of 2%, he said.

However, portfolio growth fell below the company’s expectations amid a more competitive environment for acquiring new customers and management’s decision to tighten underwriting in selected higher-risk segments. Total originations were $504 million, down 1.3% year over year. Large-loan originations increased more than 10%, while small-loan volumes declined.

Credit performance and revised outlook

Regional Management’s 30-plus-day delinquency rate was 7%, improving 20 basis points sequentially but rising 40 basis points from a year earlier. The net credit loss rate was 12.2%, up 30 basis points year over year and modestly above the company’s forecast.

Chief Financial and Administrative Officer Harp Rana said that after accounting for an approximately 20-basis-point effect from slower portfolio growth, the net credit loss rate was in line with expectations. The company expects seasonal delinquency increases in the third quarter but anticipates net credit losses will improve in both the third and fourth quarters.

Lamba said management has identified and tightened credit in certain geographic, channel-specific and risk segments where returns did not meet its thresholds. The company also strengthened fraud detection and prevention capabilities in its direct-mail and digital-affiliate channels. He said the early results from those controls were promising.

During the question-and-answer session, Lamba said lower response rates from direct-mail campaigns and competitive pressure in new-borrower acquisition were the principal factors behind the slower growth. He said the company believes fintech lenders have accounted for a growing share of personal-loan originations, particularly among consumers seeking fully digital application-to-funding experiences.

Management said it continues to monitor inflation and elevated gas prices, particularly for customers with lower available cash flow. Still, Lamba said the underwriting tightening was driven less by broad macroeconomic weakness than by concerns about potential fraud, first-party abuse and credit-builder trade lines in certain segments.

The company revised its full-year outlook, now forecasting:

• Diluted earnings-per-share growth of 10% to 13%.
• Net income growth of 6% to 9%.
• Portfolio growth of 5% to 7%.

Rana said third- and fourth-quarter net income is expected to be meaningfully higher than the second-quarter level, with fourth-quarter income anticipated to exceed third-quarter income. The outlook reflects expected receivables growth, higher revenue in the second half, improving credit losses and growing contributions from strategic initiatives.

Bank partnership expansion

A key part of Regional Management’s strategy is its bank partnership program with Column. The company has fully implemented the program for branch originations in Texas, its largest market, and expects to add states beginning later this year.

Originations under the program have exceeded $65 million since launch and currently represent roughly 28% of total originations on a run-rate basis, according to Lamba. Management expects that share to increase materially as more products and states are transitioned over the remainder of 2026 and in 2027.

The company projects that the program can improve pretax margin by at least 200 basis points on like-for-like loans compared with state-licensed operations. Management attributed the expected margin improvement to marketing and servicing fees paid by the bank and higher interest and fee income, partly offset by bank program costs and lower insurance revenue due to the elimination of certain insurance products.

As of the end of the second quarter, loans originated through the partnership in March and April had a one-plus-day delinquency rate 160 basis points better than comparable Texas state-licensed loans originated during the same period. Rana said the company expects credit performance to be broadly comparable between the two models and is monitoring the early results as the program expands.

Lamba said the partnership could allow Regional Management to price loans for certain higher-risk customer segments that it currently does not serve in some states, potentially expanding small-loan originations and creating a pipeline of customers who could later qualify for larger loans. The company expects nearly all states in its network to operate under the bank partnership model by the end of 2027.

Digital, technology and capital returns

In early July, Regional Management launched an end-to-end digital lending capability that allows customers to apply, be underwritten and receive funding online. Previously, the company’s digitally sourced customers generally completed underwriting and closing through branches.

Lamba said the branch network remains central to the company’s operating model, while the new digital channel is intended to complement branches and improve its ability to compete with fintech lenders. The company plans to scale the channel deliberately using fraud authentication and machine-learning-based underwriting.

Regional Management is also accelerating deployment of a new branch loan-origination platform, an enhanced machine-learning credit model and artificial intelligence tools for collections and customer service. It entered Florida during the second quarter, marking its 20th state.

The company’s annualized operating expense ratio improved 80 basis points year over year to 12.4%. Rana said the ratio is expected to increase sequentially in the third quarter because certain labor and digital marketing expenses tied to bank-partnership loans will be recognized immediately rather than deferred over the life of the loan.

Regional Management ended the quarter with $442 million in unused capacity and $128 million in available liquidity. Fixed-rate debt represented 80% of total debt at a weighted average coupon of 4.8%. The company expects its cost of funds to increase to 4.5% in the third quarter as lower-cost fixed-rate funding matures and is refinanced at current market rates.

During the quarter, the company repurchased about 136,000 shares at a weighted average price of $36.68 per share. Its board also declared a third-quarter dividend of $0.30 per share.

About Regional Management (NYSE:RM)

Regional Management Corp., headquartered in Wilmington, North Carolina, is a consumer finance company specializing in installment loan products for underbanked individuals. Since its founding in 1977, the company has developed a network of field-based branches alongside a digital platform to offer credit solutions in rural and small-town markets across the United States.

The company's core offerings include consumer installment loans for everyday purchases, auto refinancing and lease buyouts, as well as ancillary services such as insurance referrals.

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