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Regional Management Corp. Announces Fourth Quarter 2014 Results

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Regional Management Corp. (NYSE:RM) , a diversified specialty consumer finance company, today announced results for the fourth quarter and full year periods ended December 31, 2014.

Fourth Quarter 2014 Highlights and Subsequent Events

  • Total fourth quarter 2014 revenue was $53.8 million, a 10.8% increase from the prior-year period. Same-store1 revenue growth for the fourth quarter of 2014 was 4.8%.
  • Early-stage delinquencies (defined as accounts delinquent fewer than 60 days) as a percentage of total finance receivables as of December 31, 2014 were 18.0%, compared to 20.2% as of December 31, 2013 and 21.7% as of September 30, 2014.
  • Total delinquencies as a percentage of total finance receivables as of December 31, 2014 were 22.6%, compared to 25.1% as of December 31, 2013 and 25.5% as of September 30, 2014.
  • Regional Management’s most important loan categories continue to grow:
  • Branch small loan and convenience check finance receivables, collectively, as of December 31, 2014 increased 2.9% compared to September 30, 2014 and 10.6% compared to December 31, 2013.
  • Large loan finance receivables as of December 31, 2014 increased 9.4% compared to September 30, 2014.
  • Total finance receivables as of December 31, 2014 were $546.2 million, an increase of 0.3% from the prior-year. Same-store finance receivables for the fourth quarter of 2014 declined 6.0%.
  • Net income for the fourth quarter of 2014 was $3.4 million, a 59.7% decrease from the prior-year period. Diluted earnings per share were $0.26 based on a diluted share count of 13.0 million. Excluding one-time separation costs of $1.2 million and one-time loan system implementation costs of $0.3 million in the fourth quarter of 2014, non-GAAP diluted earnings per share for the fourth quarter were $0.33.
  • Annualized net charge-offs as a percentage of average finance receivables for the fourth quarter of 2014 were 13.9%, an increase from 7.8% in the prior-year period. Provision for credit losses for the fourth quarter of 2014 was 29.7% of revenue, an increase from 24.0% in the prior-year period.
  • Regional Management opened four new branches in the fourth quarter of 2014. As of December 31, 2014, Regional Management’s branch network consisted of 300 locations.
  • In January 2015, Regional Management announced the appointment of Daniel J. Taggart as Chief Risk Officer.

“We have made significant progress over the last few months in terms of improving the credit quality of our portfolio – from solicitation and origination through delinquency and collection,” said Michael R. Dunn, Chief Executive Officer of Regional Management Corp. “Our early-stage and overall delinquency levels declined significantly compared to September 30, 2014, as the lower credit quality convenience check loans we originated in the second and third quarters were either charged off or replaced by higher quality loans originated in the fourth quarter. We also strengthened our leadership team in January with the hiring of Dan Taggart as our Chief Risk Officer, and he has already implemented initiatives that will help us to continue to improve the credit quality of our portfolio as we move forward.”

“In terms of our revenue and portfolio growth, we made solid progress in the quarter by growing our small and large loan portfolios, which are our most important loan categories and which we expect to be core drivers of our future strategy,” continued Mr. Dunn. “While we expect some lingering effects from 2014 will continue to impact the first quarter of 2015, we believe we have incorporated the risk of our prior issues into our 2014 financials.”

Fourth Quarter 2014 Results

For the fourth quarter ended December 31, 2014, Regional Management reported total revenue of $53.8 million, a 10.8% increase from $48.5 million in the prior-year period. Interest and fee income for the fourth quarter of 2014 was $49.0 million, a 12.1% increase from $43.7 million in the prior-year period, primarily due to a shift in product mix toward higher-yielding small installment loans. Insurance income for the fourth quarter of 2014 was $2.3 million, a 21.9% decrease from the prior-year period. Same-store revenue growth for the fourth quarter of 2014 was 4.8%.

Finance receivables outstanding at December 31, 2014 were $546.2 million, a 0.3% increase from $544.7 million in the prior-year period. Finance receivables increased primarily due to the addition of 36 de novo branches since December 31, 2013.

Provision for credit losses in the fourth quarter of 2014 was $16.0 million versus $11.6 million in the prior-year period. On a sequential basis, provision for credit losses declined 29.2%, reflecting improvements in credit quality during the fourth quarter of 2014. Annualized net charge-offs as a percentage of average finance receivables for the fourth quarter of 2014 were 13.9%, an increase from 7.8% in the prior-year period. Net charge-offs of $18.7 million in the fourth quarter of 2014 exceeded the provision as the Company utilized a portion of the additional allowance recorded at September 30, 2014.

General and administrative expenses for the fourth quarter of 2014 were $28.4 million, an increase of 45.8% from $19.5 million in the prior-year period, primarily related to increased personnel costs from opening an additional 36 branches since December 31, 2013. Regional Management’s efficiency ratio – the percentage of general and administrative expenses compared to total revenue – was 52.8% in the fourth quarter of 2014, an increase from 40.1% in the prior-year period. Excluding one-time CEO separation costs of $1.2 million and one-time loan system implementation costs of $0.3 million in the fourth quarter of 2014, Regional Management’s efficiency ratio would have been 50.0%.

Net income for the fourth quarter of 2014 was $3.4 million, a 59.7% decrease compared to net income of $8.4 million in the prior-year period. Diluted earnings per share for the fourth quarter of 2014 were $0.26, a decrease from $0.65 in the prior-year period. Excluding the aforementioned one-time expenses, non-GAAP diluted earnings per share for the fourth quarter were $0.33. For a reconciliation of non-GAAP financial measures to the nearest comparable GAAP financial measure, please refer to the reconciliation table accompanying this release.

Full Year 2014 Results

For the full year ended December 31, 2014, Regional Management reported total revenue of $204.7 million, a 20.0% increase from $170.6 million in the prior year. Interest and fee income for the full year ended December 31, 2014 was $184.8 million, a 21.3% increase from $152.3 million in the prior year, primarily due to a shift in product mix toward higher-yielding small installment loans and an increase in average finance receivables. Insurance income for the full year ended December 31, 2014 was $10.7 million, a 6.9% decrease from the prior year.

Provision for credit losses in the full year ended December 31, 2014 was $69.1 million versus $39.2 million in the prior year, primarily due to branch personnel issues in the first half of 2014 combined with issues related to the Company’s summer convenience check campaigns. GAAP net charge-offs as a percentage of average finance receivables for the full year ended December 31, 2014 was 11.1%, an increase from 6.9% in the prior year. Excluding $2.1 million of one-time charge-offs for the full year ended December 31, 2014 caused by a change in the Company’s charge-off policy for 180 day and over delinquent loans, non-GAAP net charge-offs as a percentage of finance receivables for the full year ended December 31, 2014 was 10.7%.

General and administrative expenses for the full year ended December 31, 2014 were $96.8 million, an increase of 36.2% from $71.0 million in the prior year, primarily due to increased personnel costs associated with the 36 de novo branches opened during 2014. Regional Management’s efficiency ratio for the full year ended December 31, 2014 was 47.3%, an increase from 41.6% in the prior-year period. Excluding a net $1.5 million of one-time expenses, Regional Management’s efficiency ratio for the full year ended December 31, 2014 was 46.5%.

GAAP net income for the full year ended December 31, 2014 was $14.8 million, a 48.6% decrease compared to GAAP net income of $28.8 million in the prior year, and diluted earnings per share for the full year ended December 31, 2014 were $1.14 compared to $2.23 in the prior year. Excluding net one-time expenses, non-GAAP net income for the full year ended December 31, 2014 totaled $15.8 million and non-GAAP diluted earnings per share totaled $1.22.

2015 De Novo Outlook

As of December 31, 2014, Regional Management’s branch network consisted of 300 locations. Regional Management has opened one de novo branch quarter to date in 2015 and, for the full year 2015, plans to open between 25 and 30 de novo branches.

Liquidity and Capital Resources

As of December 31, 2014, Regional Management had finance receivables of $546.2 million and outstanding debt of $341.4 million on its $500.0 million senior revolving credit facility.

Conference Call Information

Regional Management Corp. will host a conference call and webcast today at 4:30 PM ET to discuss these results.

The dial-in number for the conference call is (877) 474-9503 (toll free) or (857) 244-7556 (direct), passcode 94963836. 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 through Monday, March 16th at www.RegionalManagement.com and by phone at (888) 286-8010 (toll free) or (617) 801-6888 (direct), passcode 22319608.

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.

1 Defined as stores open for at least 13 months.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Income

(in thousands, except per share amounts)

(Unaudited)

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2014 2013 2014 2013
Revenue
Interest and fee income $ 48,960 $ 43,668 $ 184,786 $ 152,343
Insurance income, net 2,261 2,895 10,673 11,470
Other income 2,571 1,979 9,260 6,816
Total revenue 53,792 48,542 204,719 170,629
Expenses
Provision for credit losses 15,950 11,638 69,057 39,192
General and administrative expenses
Personnel 17,099 10,082 55,383 39,868
Occupancy 4,115 3,261 15,427 11,640
Marketing 1,842 1,144 6,330 3,980
Other 5,340 4,993 19,636 15,551
Interest expense 3,780 3,909 14,947 14,144
Total expenses 48,126 35,027 180,780 124,375
Income before income taxes 5,666 13,515 23,939 46,254
Income taxes 2,285 5,130 9,137 17,460
Net income $ 3,381 $ 8,385 $ 14,802 $ 28,794
Net income per common share:
Basic $ 0.27 $ 0.66 $ 1.17 $ 2.29
Diluted $ 0.26 $ 0.65 $ 1.14 $ 2.23
Weighted average common shares outstanding:
Basic 12,743,534 12,614,503 12,701,083 12,572,298
Diluted 12,954,887 12,984,270 12,951,441 12,893,693

Regional Management Corp. and Subsidiaries

Consolidated Balance Sheets

December 31, 2014 and 2013

(in thousands, except per share amounts)

(Unaudited)

2014 2013
Assets
Cash $ 4,012 $ 4,121
Gross finance receivables 663,432 658,176
Less unearned finance charges, insurance premiums, and commissions (117,240 ) (113,492 )
Finance receivables 546,192 544,684
Allowance for credit losses (40,511 ) (30,089 )
Net finance receivables 505,681 514,595
Property and equipment, net of accumulated depreciation 8,905 7,100
Deferred tax asset, net 1,870
Repossessed assets at net realizable value 556 548
Goodwill 716 716
Intangible assets, net 847 1,386
Other assets 7,683 5,422
Total assets $ 530,270 $ 533,888
Liabilities and Stockholders’ Equity
Liabilities:
Senior revolving credit facility 341,419 362,750
Accounts payable and accrued expenses 10,528 7,312
Deferred tax liability, net $ $ 2,653
Total liabilities 351,947 372,715
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, $0.10 par value, 100,000,000 shares authorized, no shares issued or outstanding
Common stock, $0.10 par value, 1,000,000,000 shares authorized, 12,747,767 and 12,652,197 shares issued and outstanding at December 31, 2014 and 2013, respectively 1,275 1,265
Additional paid-in-capital 85,655 83,317
Retained earnings 91,393 76,591
Total stockholders’ equity 178,323 161,173
Total liabilities and stockholders’ equity $ 530,270 $ 533,888

Regional Management Corp. and Subsidiaries

Selected Financial Data

(Unaudited)

(in thousands)

Three Months Ended December 31,
2014 2013
Average Finance
Receivables
Average Yield

(Annualized)

Average Finance
Receivables
Average Yield

(Annualized)

Branch small loans $ 119,097 48.4 % $ 103,184 48.3 %
Convenience checks 192,951 46.8 % 166,251 42.8 %
Large loans 43,464 27.1 % 43,093 27.0 %
Automobile loans 159,047 19.5 % 182,317 19.9 %
Retail loans 26,493 18.6 % 31,407 18.4 %
Total interest and fee yield $ 541,052 36.2 % $ 526,252 33.2 %
Total revenue yield $ 541,052 39.8 % $ 526,252 36.9 %
Components of Increase in Interest and Fee Income
Three Months Ended December 31, 2014
Compared to Three Months Ended December 31, 2013
Increase (Decrease)
Volume Rate Net
Branch small loans $ 1,927 $ 33 $ 1,960
Convenience checks 3,026 1,796 4,822
Large loans 25 14 39
Automobile loans (1,179 ) (139 ) (1,318 )
Retail loans (223 ) 12 (211 )
Total increase in interest and fee income $ 3,576 $ 1,716 $ 5,292
Net Loans Originated (1)

Three Months Ended December 31,

2014 2013
Branch small loans $ 80,171 $ 65,347
Convenience checks 95,330 95,225
Large loans 17,737 13,418
Automobile loans 13,516 20,330
Retail loans 7,634 8,694
Total net loans originated $ 214,388 $ 203,014

(1) Represents the balance of loan origination and refinancing net of unearned finance charges

Three Months Ended December 31,
2014 2013
Amount Percentage of
Average Finance
Receivables

(Annualized)

Amount Percentage of
Average Finance
Receivables

(Annualized)

Net charge-offs $ 18,740 13.9 % $ 10,231 7.8 %
Provision for credit losses $ 15,950 11.8 % $ 11,638 8.8 %
Amount Percentage of
Total Revenue
Amount Percentage of
Total Revenue
Provision for credit losses $ 15,950 29.7 % $ 11,638 24.0 %
General and administrative expenses $ 28,396 52.8 % $ 19,480 40.1 %
Amount Growth Rate Amount Growth Rate
Same store finance receivables at period-end/growth rate $ 504,697 -6.0 % $ 478,969 11.5 %
Same store revenue during period/growth rate $ 50,875 4.8 % $ 43,305 17.0 %
Number of branches in calculation 264 213
Twelve Months Ended December 31,
2014 2013
Average Finance
Receivables
Average Yield Average Finance
Receivables
Average Yield
Branch small loans $ 110,531 48.0 % $ 88,979 48.9 %
Convenience checks 178,181 45.8 % 133,723 40.7 %
Large loans 42,887 26.9 % 45,374 27.6 %
Automobile loans 169,607 19.7 % 178,247 20.3 %
Retail loans 28,295 18.3 % 31,031 18.1 %
Total interest and fee yield $ 529,501 34.9 % $ 477,354 31.9 %
Total revenue yield $ 529,501 38.7 % $ 477,354 35.7 %
Components of Increase in Interest and Fee Income
Twelve Months Ended December 31, 2014
Compared to Twelve Months Ended December 31, 2013
Increase (Decrease)
Volume Rate Net
Branch small loans $ 10,361 $ (830 ) $ 9,531
Convenience checks 19,753 7,453 27,206
Large loans (700 ) (311 ) (1,011 )
Automobile loans (1,789 ) (1,064 ) (2,853 )
Retail loans (490 ) 60 (430 )
Total increase in interest and fee income $ 27,135 $ 5,308 $ 32,443

Net Loans Originated (1)

Twelve Months Ended December 31,

2014 2013
Branch small loans $ 240,465 $ 216,677
Convenience checks 334,115 297,259
Large loans 50,731 48,454
Automobile loans 64,842 100,622
Retail loans 29,984 34,228
Total net loans originated $ 720,137 $ 697,240

(1) Represents the balance of loan origination and refinancing net of unearned finance charges

Twelve Months Ended December 31,
2014 2013
Amount Percentage of
Average Finance
Receivables
Amount Percentage of
Average Finance
Receivables
Net charge-offs $ 56,529 10.7 % $ 32,719 6.9 %
Net charge-offs (180+ policy change) 2,106 0.4 % 0.0 %
Total net charge-offs $ 58,635 11.1 % $ 32,719 6.9 %
Provision for credit losses $ 69,057 13.0 % $ 39,192 8.2 %
Amount Percentage of
Total Revenue
Amount Percentage of
Total Revenue
Provision for credit losses $ 69,057 33.7 % $ 39,192 23.0 %
General and administrative expenses $ 96,776 47.3 % $ 71,039 41.6 %
Finance Receivables As of December 31,
2014 2013 2012
Finance
Receivables
Percentage of

Total

Finance
Receivables
Percentage of

Total

Finance
Receivables
Percentage of

Total

Branch small loans $ 128,217 23.5 % $ 109,776 20.1 % $ 78,366 17.8 %
Convenience checks 191,316 35.0 % 179,203 32.9 % 110,196 25.1 %
Large loans 46,147 8.4 % 43,311 8.0 % 52,001 11.8 %
Automobile loans 154,382 28.3 % 181,126 33.3 % 168,604 38.4 %
Retail loans 26,130 4.8 % 31,268 5.7 % 30,307 6.9 %
Total finance receivables $ 546,192 100.0 % $ 544,684 100.0 % $ 439,474 100.0 %
Number of branches at period end 300 264 221
Average finance receivables per branch $ 1,821 $ 2,063 $ 1,989
Contractual Delinquency As of
December 31, 2014 September 30, 2014 December 31, 2013
Amount Percentage of
Total Finance
Receivables
Amount Percentage of
Total Finance
Receivables
Amount Percentage of
Total Finance
Receivables
Allowance for credit losses $ 40,511 7.4 % $ 43,301 8.0 % $ 30,089 5.5 %
Current 422,342 77.4 % 404,756 74.5 % 407,571 74.9 %
1 to 29 days delinquent 82,714 15.1 % 98,304 18.1 % 93,303 17.1 %
Delinquent accounts:
30 to 59 days 15,951 2.9 % 19,274 3.6 % 17,088 3.1 %
60 to 89 days 9,624 1.8 % 9,406 1.7 % 9,267 1.7 %
90 to 119 days 6,899 1.2 % 5,508 1.0 % 6,843 1.3 %
120 to 149 days 4,988 0.9 % 4,284 0.8 % 5,108 0.9 %
150 to 179 days 3,674 0.7 % 1,821 0.3 % 3,409 0.6 %
180 days and over 0.0 % 0.0 % 2,095 0.4 %
Total contractual delinquency $ 41,136 7.5 % $ 40,293 7.4 % $ 43,810 8.0 %
Total finance receivables $ 546,192 100.0 % $ 543,353 100.0 % $ 544,684 100.0 %
1 day and over delinquent $ 123,850 22.6 % $ 138,597 25.5 % $ 137,113 25.1 %
Contractual Delinquency by Product
December 31, 2014 September 30, 2014 December 31, 2013
Amount Percentage of
Total Finance
Receivables
Amount Percentage of
Total Finance
Receivables
Amount Percentage of
Total Finance
Receivables
Branch small loans $ 10,247 8.0 % 17,151 8.7 % $ 10,211 9.3 %
Convenience checks 17,165 9.0 % 9,209 8.0 % 15,427 8.6 %
Large loans 2,106 4.6 % 2,114 5.0 % 3,010 6.9 %
Automobile loans 10,302 6.7 % 10,588 6.5 % 12,972 7.2 %
Retail loans 1,316 5.0 % 1,231 4.6 % 2,190 7.0 %
Total contractual delinquency 41,136 7.5 % $ 40,293 7.4 % 43,810 8.0 %
Subset of Convenience Checks

December 31, 2014 (1)

Current $ 20,717
1 to 29 days contractually delinquent 4,965
30 days and over contractually delinquent 7,534
Total finance receivables $ 33,216
Allowance for credit losses $ 9,337
Allowance as a % of 30 days and over contractually delinquent 124 %
Allowance as a % of 1 day and over contractually delinquent 75 %

(1) Remaining balance of convenience checks originated in April, June, July, August, and September 2014 that contained a higher percentage of lower credit quality customers

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 December 31, 2014
Actual Adjustments Non-GAAP
General and administrative expenses $ 28,396 $ (1,489 )(1)(2) $ 26,907
Income taxes $ 2,285 $ 568((4 )) $ 2,853
Net income $ 3,381 $ 921 $ 4,302
Diluted net income per common share $ 0.26 $ 0.07 $ 0.33
Efficiency ratio 52.8 % -2.8 % 50.0 %
Twelve Months Ended December 31, 2014
Actual Adjustments Non-GAAP
General and administrative expenses $ 96,776 $ (1,538 )(1)(2)(3) $ 95,238
Income taxes $ 9,137 $ 587((4 )) $ 9,724
Net income $ 14,802 $ 951 $ 15,753
Diluted net income per common share $ 1.14 $ 0.08 $ 1.22
Efficiency ratio 47.3 % -0.8 % 46.5 %

(1) Exclude one-time CEO separation costs of $1,154

(2) Exclude one-time loan system conversion costs of $335 and $1,772 for the three and twelve months ended December 31, 2014

(3) Benefit related to the reversal of vacation pay liability of $1,388

(4) Tax effect of the adjustments

Three Months Ended December 31, 2013
Actual Adjustments Non-GAAP
General and administrative expenses $ 19,480 $ (1,503 )(5)(6) $ 17,977
Income taxes $ 5,130 $ 450((7 )) $ 5,580
Net income $ 8,385 $ 1,053 $ 9,438
Diluted net income per common share $ 0.65 $ 0.08 $ 0.73
Efficiency ratio 40.1 % -3.1 % 37.0 %
Twelve Months Ended December 31, 2013
Actual Adjustments Non-GAAP
General and administrative expenses $ 71,039 $ (1,959 )(5)(6) $ 69,080
Income taxes $ 17,460 $ 450((7 )) $ 17,910
Net income $ 28,794 $ 1,509 $ 30,303
Diluted net income per common share $ 2.23 $ 0.12 $ 2.35
Efficiency ratio 41.6 % -1.1 % 40.5 %

(5) Exclude director compensation of $1,210

(6) Exclude one-time secondary offering costs of $293 and $749 for the three and twelve months ended December 31, 2013

(7) Tax effect of the adjustments (secondary offering expense is non-deductible for tax purposes)

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