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Regional Management Corp. Announces Third Quarter 2014 Results

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Regional Management Corp. (NYSE:RM) , a diversified specialty consumer finance company, today announced results for the third quarter and nine-month period ended September 30, 2014.

Third Quarter 2014 Highlights

  • Total third quarter 2014 revenue was $53.9 million, a 21.7% increase from the prior-year period. Same-store1 revenue growth for the third quarter of 2014 was 14.7%.
  • Finance receivables as of September 30, 2014 were $543.4 million, an increase of 5.7% from the prior-year period. Same-store finance receivables growth for the third quarter of 2014 was 0.2%.
  • Net income for the third quarter of 2014 was $1.4 million, an 80.7% decrease from the prior-year period. Diluted earnings per share were $0.11 based on a diluted share count of 12.9 million.
  • GAAP annualized net charge-offs as a percentage of average finance receivables for the third quarter of 2014 were 10.3%, an increase from 6.5% in the prior-year period. During the quarter, the Company changed its charge-off policy and incurred $2.1 million of charge-offs for accounts that were 180 or more days past due. Excluding the $2.1 million of one-time charge-offs caused by the Company’s charge-off policy change, non-GAAP annualized net charge-offs as a percentage of finance receivables for the third quarter of 2014 were 8.7%. Provision for credit losses for the third quarter of 2014 was 41.8% of revenue, an increase from 25.0% in the prior-year period. For a reconciliation of non-GAAP to GAAP measures, please review the disclosures and the table included with this release.
  • Regional Management opened three new branches in the third quarter of 2014; as of September 30, 2014, Regional Management’s branch network consisted of 296 locations.

1 Defined as stores open for at least 13 months.

Chief Executive Officer Transition

Regional Management also announced today the resignation of Thomas F. Fortin as the Company’s Chief Executive Officer and from the Company’s Board of Directors. Director Michael R. Dunn was appointed as interim CEO, effective immediately. The Company’s Board of Directors will be conducting a search process among internal and external candidates for a permanent CEO.

Mr. Dunn was appointed a director of Regional Management in July 2014. From 2007 through 2013, Mr. Dunn was a partner at the private equity firm of Brysam Global Partners, a specialized firm focused on investing in international banking and consumer lending companies. Mr. Dunn served as a board or alternate board member for all of Brysam’s portfolio companies. Prior to that, Mr. Dunn was with Citigroup for over 30 years, where he was the Chief Financial Officer of the Global Consumer Group from 1996 through 2007, adding the title of Chief Operating Officer of the Group in 2005. Citigroup’s Global Consumer Finance group included consumer finance businesses around the world. He was also a member of the Citigroup Operating and Management Committees. He holds a Bachelor of Science degree from New York University, attended the University of Michigan Executive Program and is a Certified Public Accountant in New York State.

“On behalf of the Board, I want to thank Tom for his valuable contributions to Regional Management’s growth and our emergence as a publicly traded company over the past seven years and wish him the best in his future endeavors,” said Alvaro G. de Molina, Chairman of the Board of Directors.

Third Quarter 2014 Commentary

“Regional has a terrific installment lending platform and a great customer base that we plan to further leverage, and, along with selected expansion, will be the engine for future growth. My short-term priorities will be to work closely with the management team and our employees and focus on delivering future growth,” said Mr. Dunn. “Our third quarter results were impacted by a charge of $6.5 million to augment our provision for credit losses, necessitated by a higher than normal proportion of lower credit quality loans originated in our summer direct mail campaigns. These lower credit quality loans typically experience higher delinquencies and we have already seen our direct mail delinquency significantly increase. This higher delinquency rolls into higher subsequent charge-offs and GAAP requires us to reserve for that today. Delinquencies for all other loan categories, including branch-based small installment loans, declined or were stable from the second quarter of 2014.”

“The direct mail campaigns for the fourth quarter have been adjusted to prevent the same issue from occurring,” continued Mr. Dunn. “We have returned to what has worked in the past, which should substantially reduce the ongoing volatility of our direct mail delinquency rates, but as a result, we expect to see an elevated net charge-off rate for the next several months.”

“In addition, we decided to postpone the implementation of our GOLDPoint loan management system platform until the first quarter of 2015. The postponement shifts the loan management system implementation out of the busy holiday season – when we are focused on growing our business – into a time period where seasonality is lower and gives us an opportunity to fully concentrate on it. We have completed extensive training for employees in all of our branches as well as a series of successful test cutovers from our current loan management system to GOLDPoint, and thus expect minimal additional expense related to the postponement. Our overall long-term growth strategy remains intact and these adjustments and changes do not affect our de novo growth plans for 2015,” concluded Mr. Dunn.

Third Quarter 2014 Results

For the third quarter ended September 30, 2014, Regional Management reported total revenue of $53.9 million, a 21.7% increase from $44.3 million in the prior-year period. Interest and fee income for the third quarter of 2014 was $48.8 million, a 22.9% increase from $39.7 million in the prior-year period, primarily due to a shift in product mix toward higher-yielding small installment loans and a 5.7% year-over-year increase in finance receivables. Insurance income for the third quarter of 2014 was $2.6 million, a 7.2% decrease from the prior-year period. Same-store revenue growth for the third quarter of 2014 was 14.7%.

Finance receivables outstanding at September 30, 2014 were $543.4 million, a 5.7% increase from $514.0 million in the prior-year period. Finance receivables increased primarily due to the addition of 32 de novo branches since September 30, 2013.

Provision for credit losses in the third quarter of 2014 was $22.5 million versus $11.1 million in the prior-year period, primarily due to an elevated level of delinquencies. Annualized net charge-offs as a percentage of average finance receivables for the third quarter of 2014 were 10.3%, an increase from 6.5% in the prior-year period. Excluding $2.1 million of one-time charge-offs caused by the Company’s charge-off policy change, non-GAAP annualized net charge-offs as a percentage of finance receivables for the third quarter of 2014 were 8.7%.

General and administrative expenses for the third quarter of 2014 were $25.3 million, an increase of 44.2% from $17.5 million in the prior-year period, primarily related to increased personnel costs from opening an additional 32 branches since September 30, 2013 and costs related to the implementation of the GOLDPoint loan management system platform. The Company also incurred higher home office expenses to build out its infrastructure for improved execution and to support future growth. Regional Management’s efficiency ratio – the percentage of general and administrative expenses compared to total revenue – was 46.9% in the third quarter of 2014, an increase of 730 basis points from 39.6% in the prior-year period. Excluding one-time GOLDPoint system costs of $0.6 million in the third quarter of 2014, Regional Management’s efficiency ratio would have been 45.8%.

Net income for the third quarter of 2014 was $1.4 million, an 80.7% decrease compared to net income of $7.2 million in the prior-year period. Diluted earnings per share for the third quarter of 2014 were $0.11, a decrease from $0.56 in the prior-year period.

Nine Month 2014 Results

For the nine-month period ended September 30, 2014, Regional Management reported total revenue of $150.9 million, a 23.6% increase from $122.1 million in the prior-year period. Interest and fee income for the nine-month period ended September 30, 2014 was $135.8 million, a 25.0% increase from $108.7 million in the prior-year period, primarily due to a shift in product mix toward higher-yielding small installment loans and an increase in finance receivables. Insurance income for the nine-month period ended September 30, 2014 was $8.4 million, a 1.9% decrease from the prior-year period.

Provision for loan losses in the nine-month period ended September 30, 2014 was $53.1 million versus $27.6 million in the prior-year period, primarily due to increased net charge-offs combined with elevated delinquency levels for the Company’s direct mail loans. GAAP annualized net charge-offs as a percentage of average finance receivables for the nine-month period ended September 30, 2014 was 10.1%, an increase from 6.5% in the prior-year period. Excluding $2.1 million of one-time charge-offs in the nine months ended September 30, 2014 caused by the Company’s charge-off policy change, non-GAAP annualized net charge-offs as a percentage of finance receivables for the nine-month period ended September 30, 2014 was 9.6%.

General and administrative expenses for the nine-month period ended September 30, 2014 were $68.4 million, an increase of 32.6% from $51.6 million in the prior-year period, primarily due to increased personnel costs from opening an additional 32 branches since September 30, 2013. Regional Management’s efficiency ratio in the nine-month period ended September 30, 2014 was 45.3%, an increase of 310 basis points from 42.2% in the prior-year period. Excluding a $1.4 million pre-tax benefit related to a one-time reversal of vacation pay liability and one-time GOLDPoint system costs of $1.4 million, Regional Management’s efficiency ratio for the nine-month period ended September 30, 2014 would have remained 45.3%.

GAAP net income for the nine-month period ended September 30, 2014 was $11.4 million, a 44.0% decrease compared to GAAP net income of $20.4 million in the prior-year period, and diluted earnings per share for the nine-month period ended September 30, 2014 were $0.88 compared to $1.59 in the prior-year period. Excluding $1.4 million of pre-tax benefit related to a one-time reversal of vacation pay liability and one-time GOLDPoint system costs of $1.4 million, non-GAAP net income for the nine-month period ended September 30, 2014 remained $11.4 million and non-GAAP diluted earnings per share remained $0.88.

Liquidity and Capital Resources

As of September 30, 2014, Regional Management had finance receivables of $543.4 million and outstanding debt of $339.3 million on its $500.0 million senior revolving credit facility and on its $1.5 million cash management line of credit.

Conference Call Information

Regional Management Corp. will host a conference call and webcast today at 5:00 PM Eastern. Both the call and webcast are open to the general public.

The dial-in number for the conference call is (866) 270-6057, passcode 99196971 – please dial the number 10 minutes prior to the scheduled start time. A live webcast of the conference call will also be available on Regional Management’s website at www.RegionalManagement.com.

A replay of the call will be available two hours following the end of the call through midnight Eastern on Thursday, November 6 at www.RegionalManagement.com and by telephone at (888) 286-8010, passcode 34890276.

Forward-Looking Statements

This press release may contain various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which represent Regional Management Corp.’s expectations or beliefs concerning future events. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “outlook” and similar expressions may be used to identify these forward-looking statements. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties, many of which are outside of the control of Regional Management. Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, the following: the continuation or worsening of adverse conditions in the global and domestic credit markets and uncertainties regarding, or the impact of, governmental responses to those conditions; changes in interest rates; risks related to acquisitions and new branches; risks inherent in making loans, including repayment risks and value of collateral, which risks may increase in light of adverse or recessionary economic conditions; recently-enacted or proposed legislation; the timing and amount of revenues that may be recognized by Regional Management; changes in current revenue and expense trends (including trends affecting delinquencies and charge-offs); changes in Regional Management’s markets and general changes in the economy (particularly in the markets served by Regional Management); and the departure, transition or replacement of key personnel. Such factors and others are discussed in greater detail in Regional Management’s filings with the Securities and Exchange Commission. Regional Management will not and is not responsible for updating the information contained in this press release beyond the publication date, or for changes made to this document by wire services or Internet services.

About Regional Management Corp.

Regional Management Corp. (NYSE:RM) is a diversified specialty consumer finance company providing a broad array of loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies and other traditional lenders. Regional Management began operations in 1987 with four branches in South Carolina and has since expanded its branch network across South Carolina, Texas, North Carolina, Tennessee, Alabama, Oklahoma, New Mexico and Georgia. Each of its loan products is structured on a fixed rate, fixed term basis with fully amortizing equal monthly installment payments and is repayable at any time without penalty. Regional Management’s loans are sourced through its multiple channel platform, including in its branches, through direct mail campaigns, independent and franchise automobile dealerships, online credit application networks, retailers and its consumer website. For more information, please visit http://www.RegionalManagement.com.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Income

(in thousands, except per share amounts)

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2014 2013 2014 2013
Revenue
Interest and fee income $ 48,789 $ 39,708 $ 135,826 $ 108,674
Insurance income, net 2,636 2,839 8,412 8,575
Other income 2,484 1,758 6,689 4,838
Total revenue 53,909 44,305 150,927 122,087
Expenses
Provision for credit losses 22,542 11,078 53,106 27,554
General and administrative expenses
Personnel 14,042 9,681 38,284 29,786
Occupancy 4,179 3,167 11,312 8,380
Marketing 1,756 983 4,488 2,836
Other 5,307 3,703 14,297 10,556
Interest expense 3,848 3,913 11,167 10,236
Total expenses 51,674 32,525 132,654 89,348
Income before income taxes 2,235 11,780 18,273 32,739
Income taxes 838 4,539 6,852 12,330
Net income $ 1,397 $ 7,241 $ 11,421 $ 20,409
Net income per common share:
Basic $ 0.11 $ 0.58 $ 0.90 $ 1.63
Diluted $ 0.11 $ 0.56 $ 0.88 $ 1.59
Weighted average common shares outstanding:
Basic 12,713,532 12,585,985 12,686,777 12,558,075
Diluted 12,934,015 12,927,493 12,950,137 12,863,346

Regional Management Corp. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share amounts)

(Unaudited)

September 30, 2014 December 31, 2013
Assets
Cash $ 3,831 $ 4,121
Gross finance receivables 656,079 658,176
Less unearned finance charges, insurance premiums, and commissions (112,726 ) (113,492 )
Finance receivables 543,353 544,684
Allowance for credit losses (43,301 ) (30,089 )
Net finance receivables 500,052 514,595
Property and equipment, net of accumulated depreciation 8,553 7,100
Deferred tax asset, net 2,915
Repossessed assets at net realizable value 733 548
Goodwill 716 716
Intangible assets, net 978 1,386
Other assets 5,042 5,422
Total assets $ 522,820 $ 533,888
Liabilities and Stockholders’ Equity
Liabilities:
Deferred tax liability, net $ $ 2,653
Accounts payable and accrued expenses 9,864 7,312
Senior revolving credit facility 339,323 362,750
Total liabilities 349,187 372,715
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, $0.10 par value, 100,000,000 shares authorized, no shares issued and outstanding at September 30, 2014 and December 31, 2013
Common stock, $0.10 par value, 1,000,000,000 shares authorized, 12,715,573 and 12,652,197 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively 1,272 1,265
Additional paid-in-capital 84,349 83,317
Retained earnings 88,012 76,591
Total stockholders’ equity 173,633 161,173
Total liabilities and stockholders’ equity $ 522,820 $ 533,888

Regional Management Corp. and Subsidiaries

Selected Financial Data

(Unaudited)

(in thousands)

Three Months Ended September 30,
2014 2013

Average Finance
Receivables

Average Yield
(Annualized)

Average Finance
Receivables

Average Yield
(Annualized)

Small installment loans $ 299,558 48.6 % $ 235,533 44.4 %
Large installment loans 42,691 26.6 % 43,867 26.8 %
Automobile purchase loans 168,226 19.6 % 181,761 20.3 %
Retail purchase loans 27,271 18.6 % 31,197 18.1 %
Total interest and fee yield $ 537,746 36.3 % $ 492,358 32.3 %
Total revenue yield $ 537,746 40.1 % $ 492,358 36.0 %
Components of Increase in Interest and Fee Income
Three Months Ended September 30, 2014
Compared to Three Months Ended September 30, 2013
Increase (Decrease)
Volume Rate Net
Small installment loans $ 7,608 $ 2,690 $ 10,298
Large installment loans (80 ) (13 ) (93 )
Automobile purchase loans (703 ) (280 ) (983 )
Retail purchase loans (174 ) 33 (141 )
Total increase in interest and fee income $ 6,651 $ 2,430 $ 9,081
Net Loans Originated (1)
Three Months Ended September 30,
2014 2013
Small installment loans $ 174,325 $ 155,294
Large installment loans 11,301 12,266
Automobile purchase loans 16,222 25,474
Retail purchase loans 7,725 8,436
Total finance receivables $ 209,573 $ 201,470
(1) Represents balance of loan originations net of unearned finance charges
Three Months Ended September 30,
2014 2013
Percentage of Percentage of
Average Finance Average Finance
Receivables Receivables
Amount (Annualized) Amount (Annualized)
Net charge-offs as a percentage of average finance receivables $ 13,825 10.3 % $ 8,015 6.5 %
Percentage of Percentage of
Amount Total Revenue Amount Total Revenue
Provision for credit losses $ 22,542 41.8 % $ 11,078 25.0 %
General and administrative expenses $ 25,284 46.9 % $ 17,534 39.6 %
Amount Growth Rate Amount Growth Rate
Same store finance receivables at period-end/growth rate $ 505,660 0.2 % $ 450,437 16.5 %
Same store revenue during period/growth rate $ 50,497 14.7 % $ 39,748 16.1 %
Number of branches in calculation 263 206

Nine Months Ended September 30,

2014 2013
Average Finance Average Yield Average Finance Average Yield
Receivables (Annualized) Receivables (Annualized)
Small installment loans $ 281,550 46.3 % $ 207,408 43.6 %
Large installment loans 42,585 26.8 % 46,069 27.9 %
Automobile purchase loans 173,252 19.7 % 177,071 20.4 %
Retail purchase loans 28,879 18.3 % 30,914 18.0 %
Total interest and fee yield $ 526,266 34.4 % $ 461,462 31.4 %
Total revenue yield $ 526,266 38.2 % $ 461,462 35.3 %
Components of Increase in Interest and Fee Income
Nine Months Ended September 30, 2014
Compared to Nine Months Ended September 30, 2013
Increase (Decrease)
Volume Rate Net
Small installment loans $ 25,505 $ 4,450 $ 29,955
Large installment loans (746 ) (304 ) (1,050 )
Automobile purchase loans (593 ) (942 ) (1,535 )
Retail purchase loans (272 ) 54 (218 )
Total increase in interest and fee income $ 23,894 $ 3,258 $ 27,152

Net Loans Originated (1)
Nine Months Ended September 30,
2014 2013
Small installment loans $ 399,078 $ 353,364
Large installment loans 32,995 35,036
Automobile purchase loans 51,326 80,292
Retail purchase loans 22,350 25,534
Total finance receivables $ 505,749 $ 494,226
(1) Represents balance of loan originations net of unearned finance charges
Nine Months Ended September 30,
2014 2013
Percentage of Percentage of
Average Finance Average Finance
Receivables Receivables
Amount (Annualized) Amount (Annualized)
Net charge-offs as a percentage of average finance receivables $ 39,894 10.1 % $ 22,488 6.5 %
Percentage of Percentage of
Amount Total Revenue Amount Total Revenue
Provision for credit losses $ 53,106 35.2 % $ 27,554 22.6 %
General and administrative expenses $ 68,381 45.3 % $ 51,558 42.2 %
As of September 30,
2014 2013 2012
Finance Percentage of Finance Percentage of Finance Percentage of
Receivables Total Receivables Total Receivables Total
Small installment loans $ 310,424 57.1 % $ 256,698 49.9 % $ 158,530 39.8 %
Large installment loans 42,177 7.8 % 43,200 8.4 % 52,565 13.2 %
Automobile purchase loans 163,825 30.1 % 182,763 35.6 % 160,979 40.4 %
Retail purchase loans 26,927 5.0 % 31,364 6.1 % 26,505 6.6 %
Total finance receivables $ 543,353 100.0 % $ 514,025 100.0 % $ 398,579 100.0 %
Number of branches at period end 296 264 213
Average finance receivables per branch $ 1,836 $ 1,947 $ 1,871
September 30, 2014 December 31, 2013 September 30, 2013
Percentage of Percentage of Percentage of
Total Finance Total Finance Total Finance
Amount Receivables Amount Receivables Amount Receivables
Allowance for credit losses $ 43,301 8.0 % $ 30,089 5.5 % $ 28,682 5.6 %
Current 404,756 74.5 % 407,571 74.9 % 386,770 75.2 %
1 to 29 days delinquent 98,304 18.1 % 93,303 17.1 % 89,964 17.5 %
Delinquent accounts:
30 to 59 days 19,274 3.6 % 17,088 3.1 % 16,423 3.2 %
60 to 89 days 9,406 1.7 % 9,267 1.7 % 7,569 1.5 %
90 to 119 days 5,508 1.0 % 6,842 1.3 % 5,315 1.0 %
120 to 149 days 4,284 0.8 % 5,108 0.9 % 3,149 0.6 %
150 to 179 days 1,821 0.3 % 3,409 0.6 % 1,896 0.4 %
180 days and over (1) 0.0 % 2,096 0.4 % 2,939 0.6 %
Total contractual delinquency (1) $ 40,293 7.4 % $ 43,810 8.0 % $ 37,291 7.3 %
Total finance receivables $ 543,353 100.0 % $ 544,684 100.0 % $ 514,025 100.0 %

(1)

The charge-off of 180 days and over delinquent accounts in September 2014 due to a change in the Company’s charge-off policy reduced total contractual delinquency at September 30, 2014 by 0.5%. Contractual delinquency at September 30, 2014 would have been 7.9% had this change in policy not occurred.

Regional Management Corp. and Subsidiaries

Unaudited Non-GAAP Reconciliation of Selected Financial Data

(in thousands, except per share amounts)

Because it adjusts for certain non-recurring and non-cash items, the Company believes that these non-GAAP measures are useful to investors as supplemental financial measures that, when viewed with its GAAP financial information, provide information regarding trends in the Company’s results of operations and credit metrics, which is intended to help investors meaningfully evaluate and compare the Company’s results of operations and credit metrics between periods.

Three Months Ended September 30, 2014
Actual Adjustments Non-GAAP
General and administrative expenses $ 25,284 $ (615 )(1) $ 24,669
Efficiency ratio 46.9 % 45.8 %
Nine Months Ended September 30, 2014
Actual Adjustments Non-GAAP
General and administrative expenses $ 68,381 $ (20 )(2)(3) $ 68,361
Income taxes $ 6,852 $

8

(4)

$ 6,860
Net income $ 11,421 $ 12 $ 11,433
Diluted net income per common share $ 0.88 $ 0.88
Diluted weighted average common shares outstanding 12,950,137 12,950,137
Efficiency ratio 45.3 % 45.3 %
Three Months Ended September 30, 2014
Actual Adjustments Non-GAAP
Net charge-offs $ 13,825 $ (2,106

)(5)

$ 11,719
Net charge-offs as a percentage of average receivables 10.3 % 8.7 %
Nine Months Ended September 30, 2014
Actual Adjustments Non-GAAP
Net charge-offs $ 39,894 $ (2,106

)(5)

$ 37,788
Net charge-offs as a percentage of average receivables 10.1 % 9.6 %
(1) Exclude one-time loan system conversion costs of $615
(2) Benefit related to the reversal of vacation pay liability of $1,388
(3) Exclude one-time loan system conversion costs of $1,408
(4) Tax effect of (2) and (3)
(5) One-time charge-off of 180+ delinquent accounts due to policy change

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