Regional Management(RM) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements and detailed notes on business, accounting policies, and financial instruments Consolidated Balance Sheets | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | | Assets | | | | | Cash | $7,413 | $3,873 | $3,540 | | Net finance receivables | $1,751,009 | $1,699,393 | $51,616 | | Allowance for credit losses | $(184,900) | $(178,800) | $(6,100) | | Total assets | $1,765,340 | $1,724,987 | $40,353 | | Liabilities & Stockholders' Equity | | | | | Debt | $1,372,748 | $1,355,359 | $17,389 | | Total liabilities | $1,434,755 | $1,416,354 | $18,401 | | Total stockholders' equity | $330,585 | $308,633 | $21,952 | - Net finance receivables increased by $51.6 million (3.0%) from December 31, 2022, to September 30, 2023, reaching $1.75 billion[9] - Total stockholders' equity increased by $22.0 million (7.1%) from December 31, 2022, to September 30, 2023, primarily due to an increase in retained earnings[9] Consolidated Statements of Comprehensive Income | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Total revenue | $140,878 | $131,452 | $9,426 | 7.2% | | Provision for credit losses | $50,930 | $48,071 | $2,859 | 5.9% | | Total G&A expenses | $62,104 | $58,164 | $3,940 | 6.8% | | Interest expense | $16,947 | $11,863 | $5,084 | 42.9% | | Net income | $8,820 | $10,068 | $(1,248) | (12.4)% | | Basic EPS | $0.94 | $1.09 | $(0.15) | (13.8)% | | Diluted EPS | $0.91 | $1.06 | $(0.15) | (14.2)% | | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Total revenue | $409,740 | $375,171 | $34,569 | 9.2% | | Provision for credit losses | $151,149 | $124,329 | $26,820 | 21.6% | | Total G&A expenses | $178,323 | $167,385 | $10,938 | 6.5% | | Interest expense | $49,953 | $19,368 | $30,585 | 157.9% | | Net income | $23,532 | $48,833 | $(25,301) | (51.8)% | | Basic EPS | $2.51 | $5.23 | $(2.72) | (52.0)% | | Diluted EPS | $2.45 | $5.01 | $(2.56) | (51.1)% | Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $308.6 million at December 31, 2022, to $330.6 million at September 30, 2023[15] - For the nine months ended September 30, 2023, net income contributed $23.5 million to retained earnings, and share-based compensation added $7.8 million to additional paid-in capital[15] - Cash dividends of $8.9 million were paid during the nine months ended September 30, 2023[15] Consolidated Statements of Cash Flows | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Net cash provided by operating activities | $182,273 | $164,263 | $18,010 | | Net cash used in investing activities | $(194,109) | $(295,697) | $101,588 | | Net cash provided by financing activities | $4,479 | $99,250 | $(94,771) | | Net change in cash and restricted cash | $(7,357) | $(32,184) | $24,827 | - The decrease in net cash used in investing activities was primarily due to decreased originations of finance receivables[215] - The significant decrease in net cash provided by financing activities was mainly due to a $115.5 million decrease in net advances on debt instruments and no common stock repurchases in 2023 compared to $20.6 million in 2022[216] Notes to Consolidated Financial Statements Note 1. Nature of Business - Regional Management Corp. (Regional Finance) operates in 19 states, offering small loans, large loans, and related insurance products[21] - The company ceased accepting applications for retail loan products in November 2022 to focus on core loan portfolio growth[21][137] - Loan demand is typically highest in Q2-Q4 (vacation, back-to-school, holiday spending) and lowest in Q1 (tax refunds). Delinquencies generally rise in the second half of the year. Macroeconomic factors (inflation, rising interest rates, geopolitical conflict) have impacted these seasonal trends[23][142] Note 2. Basis of Presentation and Significant Accounting Policies - Consolidated financial statements include wholly-owned subsidiaries and Variable Interest Entities (VIEs), with the Company as the primary beneficiary[26][30] - The Company adopted ASU 2022-02 on January 1, 2023, eliminating separate accounting for Troubled Debt Restructurings (TDRs), which did not materially impact financial statements[34][35][48] - The allowance for credit losses is estimated using a Probability of Default (PD) / Loss Given Default (LGD) model, considering historical experience, current conditions, and macroeconomic forecasts, segmented by product type, FICO score, and delinquency status[40][41][42] - Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent[49] Note 3. Finance Receivables, Credit Quality Information, and Allowance for Credit Losses | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | | :---------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Small loans | $474,181 | $481,605 | $(7,424) | | Large loans | $1,271,891 | $1,208,185 | $63,706 | | Retail loans | $4,937 | $9,603 | $(4,666) | | Net finance receivables | $1,751,009 | $1,699,393 | $51,616 | - The allowance for credit losses increased to $184.9 million at September 30, 2023, from $178.8 million at December 31, 2022. As a percentage of net finance receivables, it was 10.6% at September 30, 2023, down from 11.2% at September 30, 2022[63][177][197] - Total contractual delinquency as a percentage of net finance receivables increased slightly to 7.3% at September 30, 2023, from 7.2% at September 30, 2022[62][179][199] - Loan modification programs for borrowers experiencing financial difficulty included principal forgiveness, interest rate reductions, and term extensions, totaling $13.95 million in amortized cost basis for the nine months ended September 30, 2023[64][65] Note 4. Restricted Available-for-Sale Investments | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Amortized Cost | $23,014 | $21,158 | | Gross Unrealized Losses | $(504) | $(742) | | Estimated Fair Value | $22,510 | $20,416 | - The investments consist of highly rated U.S. Treasuries, and unrealized losses are attributed to increases in interest rates by the Federal Reserve[70] | Contractual Maturity | Amortized Cost (in thousands) | Estimated Fair Value (in thousands) | | :-------------------------- | :---------------------------- | :-------------------------- | | Due in one year | $20,854 | $20,430 | | Due within one to five years | $2,160 | $2,080 | | Total | $23,014 | $22,510 | Note 5. Interest Rate Caps - The Company no longer maintained interest rate cap protections as of September 30, 2022[73] | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Balance at beginning of period | $0 | $5,081 | | Sales | $0 | $(5,033) | | Fair value adjustment | $0 | $(48) | | Balance at end of period | $0 | $0 | Note 6. Debt | Debt Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Senior revolving credit facility | $131,325 | $147,547 | | RMR IV revolving warehouse credit facility | $3,152 | $18,144 | | RMR V revolving warehouse credit facility | $26,628 | $286 | | RMR VI revolving warehouse credit facility | $18,123 | $0 | | RMR VII revolving warehouse credit facility | $4,327 | $0 | | RMIT 2020-1 securitization | $180,214 | $180,214 | | RMIT 2021-1 securitization | $248,916 | $248,916 | | RMIT 2021-2 securitization | $200,192 | $200,192 | | RMIT 2021-3 securitization | $125,202 | $125,202 | | RMIT 2022-1 securitization | $250,374 | $250,374 | | RMIT 2022-2B securitization | $184,295 | $184,295 | | Total Debt | $1,372,748 | $1,355,359 | - The RMR II Revolving Warehouse Credit Facility was fully repaid and terminated in March 2023[84] - New warehouse facilities (RMR VI and RMR VII) were established in February and April 2023, respectively, each for $75 million[89][90] - As of September 30, 2023, 87% of total debt was held at a fixed rate, managing interest rate risk[148] - The Company was in compliance with all debt covenants as of September 30, 2023[98][239] Note 7. Stockholders' Equity - The company completed a $20.0 million stock repurchase program in May 2022, repurchasing 426 thousand shares. No common stock was repurchased during the three or nine months ended September 30, 2023[100][101] | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Dividends declared per common share | $0.30 | $0.30 | $0.90 | $0.90 | - A quarterly cash dividend of $0.30 per share was declared in November 2023, payable on December 13, 2023[132] Note 8. Disclosure About Fair Value of Financial Instruments - Cash and restricted cash are recorded at cost, approximating fair value (Level 1)[102][104] - Restricted available-for-sale investments (U.S. Treasury securities) are valued using external pricing services and classified as Level 2[103][105][108] - Net finance receivables and debt fair values are estimated using discounted cash flow methodologies with unobservable inputs, classifying them as Level 3[103][104][106][108] Note 9. Income Taxes | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total income taxes | $2,077 | $3,286 | $6,783 | $15,256 | - The effective tax rate decreased to 19.1% for Q3 2023 (from 24.6% in Q3 2022) and to 22.4% for YTD 2023 (from 23.8% in YTD 2022), mainly due to discrete tax benefits from re-establishing deferred tax assets for state net operating losses[109][187][207] Note 10. Earnings Per Share | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $0.94 | $1.09 | $2.51 | $5.23 | | Diluted EPS | $0.91 | $1.06 | $2.45 | $5.01 | - Anti-dilutive securities, totaling 0.3 million shares for Q3 2023 and 0.4 million shares for YTD 2023, were excluded from diluted EPS computation[111] Note 11. Share-Based Compensation - Share-based compensation expense was $3.4 million for Q3 2023 (vs. $3.3 million in Q3 2022) and $7.8 million for YTD 2023 (vs. $8.1 million in YTD 2022)[113] - Unrecognized share-based compensation expense was approximately $16.0 million as of September 30, 2023, to be recognized over a weighted-average period of 1.8 years[113] - The company's incentive programs include Performance Restricted Stock Units (PRSUs), Restricted Stock Awards (RSAs), and previously Non-Qualified Stock Options, with PRSUs and RSAs being the primary current long-term incentives[115][117][118] - As of September 30, 2023, 0.3 million shares were available for grant under the 2015 Long-Term Incentive Plan[112] Note 12. Commitments and Contingencies - The Company is a defendant in various legal actions arising in the ordinary course of business[127] - Management accrues estimated losses when probable and reasonably estimable, but many legal actions are difficult to assess due to early stages or indeterminate damages[128][129] - The Company does not believe, based on current knowledge, that such losses will have a material adverse effect on its consolidated financial statements[130] Note 13. Subsequent Events - In November 2023, the Board declared a quarterly cash dividend of $0.30 per share, payable on December 13, 2023[132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, and liquidity, including business overview, outlook, and performance comparisons Overview - Regional Management Corp. operates under "Regional Finance" in 347 branch locations across 19 states, serving 530,400 active accounts[135] - Core products are small (≤$2,500) and large (>$2,500) installment loans, with retail loan applications ceased in November 2022[137] | Loan Type | Net Finance Receivables (Sep 30, 2023) | Number of Loans Outstanding (Sep 30, 2023) | | :---------------- | :------------------------------------- | :----------------------------------------- | | Small Loans | $474.2 million | 282.6 thousand | | Large Loans | $1.3 billion | 244.8 thousand | | Retail Loans | $4.9 million | 3.0 thousand | Outlook - Proactively tightened credit models since Q4 2021, focusing on higher-risk customer segments due to inflationary pressures and rising interest rates[139] - Allowance for credit losses was 10.6% of net finance receivables as of September 30, 2023. Contractual delinquency was 7.3%, up from 7.2% in the prior year[140] - Maintained strong liquidity with $179.2 million available (unrestricted cash + immediate credit facility availability) and $613.1 million in unused revolving credit capacity as of September 30, 2023[141] Factors Affecting Our Results of Operations - Loan volume and contractual delinquency follow seasonal trends, with demand highest in Q2-Q4 and lowest in Q1, and delinquencies rising in the second half of the year. Macroeconomic factors have impacted these trends[142] - Revenue is driven by loan portfolio balance; the company expanded to 19 states (Arizona in March 2023) and optimizes its branch network[143] - Asset quality and allowance for credit losses are critical, influenced by underwriting, servicing, economic conditions, and portfolio growth[145][146] - Costs of funds are affected by variable interest rates on credit facilities, though 87% of funding was fixed-rate as of September 30, 2023[148] Components of Results of Operations - Interest and fee income is primarily from outstanding loans, with fees recognized over the loan life using the constant yield method. Accrual is suspended for loans 90+ days delinquent[150][151] - Insurance income, net, is from optional payment and collateral protection insurance, net of claims, reserves, ceding fees, and premium taxes[152] - Other income includes late charges, loan extension fees, returned check charges, auto club commissions, and interest/investment income from restricted cash/securities[154] - Provision for credit losses is charged to income to maintain an adequate allowance for lifetime expected credit losses, influenced by credit experience, economic forecasts, and portfolio growth[155] - General and administrative expenses comprise personnel (largest component), occupancy, marketing, and other expenses (legal, compliance, tech investment)[156][158][159] Results of Operations | Metric | 3Q 23 (in thousands) | 3Q 22 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------------- | :------------------- | :------------------- | :------------------------ | :------------- | | Total revenue | $140,878 | $131,452 | $9,426 | 7.2% | | Provision for credit losses | $50,930 | $48,071 | $2,859 | 5.9% | | Total G&A expenses | $62,104 | $58,164 | $3,940 | 6.8% | | Interest expense | $16,947 | $11,863 | $5,084 | 42.9% | | Net income | $8,820 | $10,068 | $(1,248) | (12.4)% | | Basic EPS | $0.94 | $1.09 | $(0.15) | (13.8)% | | Diluted EPS | $0.91 | $1.06 | $(0.15) | (14.2)% | | Metric | YTD 23 (in thousands) | YTD 22 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------------- | :------------------- | :------------------- | :------------------------ | :------------- | | Total revenue | $409,740 | $375,171 | $34,569 | 9.2% | | Provision for credit losses | $151,149 | $124,329 | $26,820 | 21.6% | | Total G&A expenses | $178,323 | $167,385 | $10,938 | 6.5% | | Interest expense | $49,953 | $19,368 | $30,585 | 157.9% | | Net income | $23,532 | $48,833 | $(25,301) | (51.8)% | | Basic EPS | $2.51 | $5.23 | $(2.72) | (52.0)% | | Diluted EPS | $2.45 | $5.01 | $(2.56) | (51.1)% | | Key Metric | 3Q 23 | 3Q 22 | YoY Change | | :-------------------------- | :------ | :------ | :--------- | | Interest and fee yield (annualized) | 29.0% | 29.6% | (0.6)% | | Efficiency ratio | 44.1% | 44.2% | (0.1)% | | Operating expense ratio | 14.4% | 14.9% | (0.5)% | | 30+ contractual delinquency | 7.3% | 7.2% | 0.1% | | Net credit loss ratio (annualized) | 11.0% | 9.1% | 1.9% | | Book value per share | $33.61 | $32.18 | $1.43 | Comparison of September 30, 2023, Versus September 30, 2022 (Net Finance Receivables) | Loan Type | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :---------------------- | :-------------------------- | :-------------------------- | :------------------------ | :------------- | | Small loans | $474,181 | $480,199 | $(6,018) | (1.3)% | | Large loans | $1,271,891 | $1,116,455 | $155,436 | 13.9% | | Retail loans | $4,937 | $10,944 | $(6,007) | (54.9)% | | Total net finance receivables | $1,751,009 | $1,607,598 | $143,411 | 8.9% | - The number of branches increased by 9 (2.7%) to 347, and net finance receivables per branch grew by 6.1% to $5,046 thousand[167] Comparison of the Three Months Ended September 30, 2023, Versus the Three Months Ended September 30, 2022 - Net income decreased by $1.2 million (12.4%) to $8.8 million, driven by increased interest expense ($5.1 million), G&A expenses ($3.9 million), and provision for credit losses ($2.9 million), partially offset by revenue growth ($9.4 million) and lower income taxes ($1.2 million)[168] - Total revenue increased by $9.4 million (7.2%) to $140.9 million, with interest and fee income up 7.8% due to a 10.0% increase in average net finance receivables, despite a 0.6% decrease in annualized average yield[169][170] | Metric | 3Q 23 (in thousands) | 3Q 22 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------------- | :------------------- | :------------------- | :------------------------ | :------------- | | Small loans (Avg. NFR) | $459,320 | $466,087 | $(6,767) | (1.5)% | | Large loans (Avg. NFR) | $1,257,168 | $1,089,225 | $167,943 | 15.4% | | Retail loans (Avg. NFR) | $5,647 | $10,935 | $(5,288) | (48.4)% | | Total Avg. Net Finance Receivables | $1,722,135 | $1,566,247 | $155,888 | 10.0% | - Provision for credit losses increased by $2.9 million (5.9%) to $50.9 million, primarily due to an $11.7 million increase in net credit losses, partially offset by a lower allowance build. Annualized net credit losses as a percentage of average net finance receivables rose to 11.0% from 9.1%[175][178] - Interest expense surged by $5.1 million (42.9%) to $16.9 million, driven by a 1.07% increase in the average cost of debt (to 5.00%) and a higher average debt balance[185][186] Comparison of the Nine Months Ended September 30, 2023, Versus the Nine Months Ended September 30, 2022 - Net income decreased by $25.3 million (51.8%) to $23.5 million, mainly due to increased interest expense ($30.6 million), provision for credit losses ($26.8 million), and G&A expenses ($10.9 million), partially offset by revenue growth ($34.6 million) and lower income taxes ($8.5 million)[188] - Total revenue increased by $34.6 million (9.2%) to $409.7 million, with interest and fee income up 9.0% due to a 13.8% increase in average net finance receivables, despite a 1.2% decrease in annualized average yield[189][190] | Metric | YTD 23 (in thousands) | YTD 22 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------------- | :------------------- | :------------------- | :------------------------ | :------------- | | Small loans (Avg. NFR) | $456,893 | $448,175 | $8,718 | 1.9% | | Large loans (Avg. NFR) | $1,232,170 | $1,032,273 | $199,897 | 19.4% | | Retail loans (Avg. NFR) | $7,252 | $10,796 | $(3,544) | (32.8)% | | Total Avg. Net Finance Receivables | $1,696,315 | $1,491,244 | $205,071 | 13.8% | - Provision for credit losses increased by $26.8 million (21.6%) to $151.1 million, driven by a $41.2 million increase in net credit losses, partially offset by a lower allowance build. Annualized net credit losses as a percentage of average net finance receivables rose to 11.4% from 9.3%[196][198] - Interest expense soared by $30.6 million (157.9%) to $50.0 million, due to a 2.73% increase in the average cost of debt (to 4.98%) and a higher average debt balance[206] Liquidity and Capital Resources - Primary cash needs are for lending activities, technology infrastructure, and branch expansion/maintenance[208] - Funding comes from cash flows from operations and debt facilities (senior revolving credit, warehouse credit, securitizations)[208] - As of September 30, 2023, the company had $179.2 million of available liquidity (unrestricted cash + immediate credit facility availability) and $613.1 million of unused capacity on revolving credit facilities[141][209] - Funded debt-to-equity ratio was 4.2 to 1.0, and stockholders' equity ratio was 18.7% as of September 30, 2023[208] Dividends | Period | Dividends Declared Per Common Share | | :----- | :-------------------------------- | | 1Q 23 | $0.30 | | 2Q 23 | $0.30 | | 3Q 23 | $0.30 | | Total | $0.90 | - Total cash dividends paid for the nine months ended September 30, 2023, were $8.9 million[212] Cash Flow - Net cash provided by operating activities increased by $18.0 million to $182.3 million for the nine months ended September 30, 2023, compared to the prior-year period[214] - Net cash used in investing activities decreased by $101.6 million to $194.1 million, primarily due to decreased originations of finance receivables[215] - Net cash provided by financing activities decreased by $94.8 million to $4.5 million, mainly due to a $115.5 million decrease in net advances on debt instruments and no common stock repurchases[216] Financing Arrangements - Senior revolving credit facility: $131.3 million outstanding as of Sep 30, 2023, matures Sep 2024, effective interest rate 8.43%[217][219] - RMR II Revolving Warehouse Credit Facility was fully repaid and terminated in March 2023[226] - New warehouse facilities (RMR VI and RMR VII) were established in February and April 2023, respectively, each for $75 million[230][231] - Securitizations (RMIT series) represent significant fixed-rate debt, with revolving periods ending between Sep 2023 and Oct 2026, and final maturities between Oct 2030 and Nov 2031[232][233][234] - All debt covenants were in compliance as of September 30, 2023[239] Restricted Cash Reserve Accounts - Restricted cash collection accounts for VIE debt totaled $102.6 million as of September 30, 2023[222] - Warehouse credit facilities (RMR IV, V, VI, VII) require 1% cash reserves based on finance receivables balance, ranging from $0.1 million to $0.6 million as of September 30, 2023[240][241][242] - Securitizations (RMIT series) have restricted cash reserve accounts ranging from $1.5 million to $2.6 million as of September 30, 2023[244][245][246] - RMC Reinsurance maintains $0.3 million in cash reserves for life insurance policies[250] Critical Accounting Policies and Estimates - Preparation of financial statements requires estimates and assumptions, especially for the allowance for credit losses[251][252] - The allowance for credit losses is based on historical credit experience, current conditions, and reasonable and supportable economic forecasts, using a Probability of Default (PD) / Loss Given Default (LGD) model[252][254] - Macroeconomic forecasts, particularly unemployment rates, are critical inputs, and changes in these assumptions or credit loss performance outlook could lead to significant adjustments in the allowance[257][258] - A hypothetical 10% increased weighting towards slower near-term growth would have increased reserves by $1.1 million as of September 30, 2023, demonstrating sensitivity to macroeconomic conditions[259] Regulatory Developments - On March 7, 2023, the CFPB notified the Company of its intent to establish supervisory authority due to potential risks to consumers[261] - The Company disagrees with the CFPB's determination and has submitted a response, awaiting resolution[261] - If the CFPB establishes supervisory authority, the Company would be subject to examinations by the CFPB[261] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk due to its fixed-rate finance receivables and variable-rate borrowings. While 86.6% of its debt is fixed-rate, an increase of 100 basis points in variable rates would increase annual interest expense by approximately $1.8 million - Interest rate risk arises from fixed-rate finance receivables and variable-rate borrowings[262] - As of September 30, 2023, 86.6% of the company's debt (securitizations) was fixed-rate[263] | Revolving Credit Facility | Balance (in thousands) | Effective Interest Rate (Sep 30, 2023) | | :-------------------------- | :--------------------- | :------------------------------------- | | Senior | $131,325 | 8.43% | | RMR IV Warehouse | $3,152 | 8.23% | | RMR V Warehouse | $26,628 | 8.31% | | RMR VI Warehouse | $18,123 | 7.93% | | RMR VII Warehouse | $4,327 | 8.43% | | Total Variable Debt | $183,555 | | - A 100 basis point increase in variable rates would result in approximately $1.8 million of increased annual interest expense[263] Item 4. Controls and Procedures Management confirmed effective disclosure controls and procedures with no material changes in internal control Evaluation of Disclosure Controls and Procedures - Management, including the CEO and CFO, evaluated disclosure controls and procedures as of September 30, 2023[265] - They concluded that the disclosure controls and procedures were effective[266] Changes in Internal Control - No material changes in internal control over financial reporting were identified during the period[267] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, not expected to materially impact financials - The Company is involved in various legal proceedings in the ordinary course of business[269] - Management does not believe these matters will have a material adverse effect on its financial condition, liquidity, or results of operations[269] Item 1A. Risk Factors No material changes to risk factors from the prior fiscal year's Annual Report on Form 10-K - No material changes to risk factors from the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[270] Item 5. Other Information No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by officers or directors - No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[271] Item 6. Exhibits Lists exhibits filed with the Quarterly Report, including certifications and XBRL documents - Includes Rule 13a-14(a) / 15(d)-14(a) Certifications of Principal Executive Officer and Principal Financial Officer[272] - Contains Section 1350 Certifications and various Inline XBRL Taxonomy Extension Documents[272] SIGNATURE - Report signed by Harpreet Rana, Executive Vice President and Chief Financial Officer, on November 3, 2023[276]