Regional Management(US:RM)2022-05-06 20:16PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's Q1 2022 financial statements reflect asset growth, higher net income, and an increased provision for credit losses Consolidated Balance Sheets Total assets grew to nearly $1.5 billion, driven by an increase in net finance receivables and funded by higher debt Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,497,671 | $1,459,662 | | Net finance receivables | $1,240,196 | $1,219,120 | | Total Liabilities | $1,198,929 | $1,176,926 | | Net debt | $1,122,376 | $1,096,943 | | Total Stockholders' Equity | $298,742 | $282,736 | Consolidated Statements of Income Revenue grew 23.7% YoY, but a significant increase in the provision for credit losses moderated net income growth Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total Revenue | $120,848 | $97,731 | | Provision for credit losses | $30,858 | $11,362 | | Total general and administrative expenses | $55,100 | $45,843 | | Net Income | $26,783 | $25,522 | | Diluted EPS | $2.67 | $2.31 | Consolidated Statements of Cash Flows Operating cash flow increased, while investing activities used more cash due to higher loan originations Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,787 | $35,012 | | Net cash provided by (used in) investing activities | ($49,355) | $14,851 | | Net cash provided by (used in) financing activities | $10,933 | ($35,501) | | Net change in cash and restricted cash | $7,365 | $14,362 | Notes to Consolidated Financial Statements Notes detail the composition of the $1.45 billion loan portfolio, credit loss allowance, debt structure, and capital return activities - The company offers small, large, and retail installment loans, with operations in 354 branches across 14 states as of March 31, 202220 Net Finance Receivables by Type (in thousands) | Loan Type | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Small loans | $438,153 | $445,023 | | Large loans | $997,226 | $970,694 | | Retail loans | $10,692 | $10,540 | | Total | $1,446,071 | $1,426,257 | Allowance for Credit Losses Reconciliation - Q1 2022 (in thousands) | Description | Amount | | :--- | :--- | | Beginning balance (Jan 1, 2022) | $159,300 | | Provision for credit losses | $30,858 | | Credit losses | ($32,780) | | Recoveries | $1,422 | | Ending balance (Mar 31, 2022) | $158,800 | - In February 2022, the company completed a $250 million asset-backed securitization (RMIT 2022-1) and terminated the RMIT 2019-1 securitization6773 - Subsequent to the quarter end, in April 2022, the company sold interest rate cap contracts with a fair value of $6.7 million and a notional amount of $300.0 million111 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong portfolio growth, rising credit loss provisions, and the company's solid liquidity position Outlook Management acknowledges macroeconomic uncertainties while highlighting the company's strong liquidity and risk management approach - The company's net finance receivables grew by $340.5 million compared to the prior-year period, reaching $1.4 billion as of March 31, 2022118 - As of March 31, 2022, the allowance for credit losses included $15.9 million in reserves for potential future macroeconomic impacts121 - The company had $214.6 million of available liquidity as of March 31, 2022, comprising unrestricted cash and immediate borrowing capacity122 Results of Operations Q1 2022 net income rose slightly as revenue growth was largely offset by a 171.6% increase in credit loss provisions Net Finance Receivables Growth (YoY) | Loan Type | 1Q 22 (in thousands) | 1Q 21 (in thousands) | YoY % Inc (Dec) | | :--- | :--- | :--- | :--- | | Small loans | $438,153 | $371,188 | 18.0% | | Large loans | $997,226 | $722,474 | 38.0% | | Total | $1,446,071 | $1,105,603 | 30.8% | - Interest and fee income increased 23.3% YoY to $107.6 million, driven by a 27.7% increase in average net finance receivables153 - The provision for credit losses increased by $19.5 million (171.6%) YoY, due to a $9.6 million increase in net credit losses and a smaller reserve release160 - Contractual delinquency (30+ days past due) increased to 5.7% as of March 31, 2022, compared to 4.3% in the prior-year period, indicating credit normalization163 - Interest expense decreased by $7.2 million YoY, primarily due to a significant increase in the fair value of the company's interest rate caps170 Liquidity and Capital Resources The company maintains a strong liquidity position and continues its capital return program through share repurchases and dividends - The company's funded debt-to-equity ratio was 3.8 to 1.0, and its stockholders' equity ratio was 19.9% as of March 31, 2022172 - In February 2022, the Board authorized a new $20.0 million stock repurchase program, extending through February 2024, with $8.4 million used as of March 31, 2022179 - A quarterly cash dividend of $0.30 per share was declared and paid during Q1 2022, totaling $3.0 million180 - In February 2022, the company completed a $250 million asset-backed securitization (RMIT 2022-1) with a revolving period ending in February 2025199 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which is managed through fixed-rate debt and interest rate caps - As of March 31, 2022, 88.6% of the company's debt carried a fixed interest rate226 Variable-Rate Debt Summary (as of March 31, 2022) | Facility | Balance (in thousands) | Rate Type | | :--- | :--- | :--- | | Senior | $44,919 | 1-mo LIBOR | | RMR II Warehouse | $33,536 | 3-mo LIBOR | | RMR IV Warehouse | $31,618 | 1-mo LIBOR | | RMR V Warehouse | $19,406 | Conduit | | Total | $129,479 | | - The company utilizes interest rate cap contracts with an aggregate notional amount of $550.0 million to manage interest rate risk on its LIBOR-based borrowings226 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022229 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls230 PART II. OTHER INFORMATION Item 1. Legal Proceedings Ongoing legal proceedings are not expected to have a material adverse effect on the company's financial condition - The company is involved in various legal proceedings from the ordinary course of business, which are not expected to have a material adverse effect on its financial condition232 Item 1A. Risk Factors No material changes were reported to the risk factors previously disclosed in the company's Form 10-K - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021233 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 184,169 shares during the quarter under a new $20.0 million stock repurchase program Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Weighted-Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | 11,393 | $52.67 | | Feb 2022 | 39,006 | $52.12 | | Mar 2022 | 133,770 | $47.79 | | Total | 184,169 | $49.00 | - On February 9, 2022, the Board authorized a new $20.0 million stock repurchase program, effective immediately and extending through February 23, 2024235 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including agreements, plan amendments, and officer certifications