Regional Management(RM) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the periods ended September 30, 2022 Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Regional Management Corp. and its subsidiaries for the periods ended September 30, 2022, and December 31, 2021, including balance sheets, statements of income, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, financial instruments, and other relevant disclosures Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------------------ | :----------- | :----------- | | Total assets | $1,606,550 | $1,459,662 | | Net finance receivables | $1,607,598 | $1,426,257 | | Allowance for credit losses | $(179,800) | $(159,300) | | Total liabilities | $1,298,097 | $1,176,926 | | Debt | $1,241,039 | $1,107,953 | | Total stockholders' equity | $308,453 | $282,736 | - Total assets increased by $146.89 million (10.06%) from December 31, 2021, to September 30, 2022, primarily driven by an increase in net finance receivables[10] - Total liabilities increased by $121.17 million (10.29%) over the same period, mainly due to an increase in debt[10] Consolidated Statements of Income This section details the company's revenues, expenses, and net income over specific reporting periods Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenue | $131,452 | $111,460 | $375,171 | $308,867 | | Provision for credit losses | $48,071 | $26,096 | $124,329 | $58,007 | | Total general and administrative expenses | $58,164 | $47,750 | $167,385 | $139,982 | | Interest expense | $11,863 | $8,816 | $19,368 | $23,752 | | Net income | $10,068 | $22,221 | $48,833 | $67,909 | | Diluted EPS | $1.06 | $2.11 | $5.01 | $6.29 | - Net income for the three months ended September 30, 2022, decreased by 54.7% year-over-year, primarily due to a significant increase in provision for credit losses and general and administrative expenses, despite higher total revenue[15] - For the nine months ended September 30, 2022, net income decreased by 28.1% year-over-year, driven by a substantial increase in provision for credit losses (114.3%) and general and administrative expenses (19.6%), partially offset by a 21.5% increase in total revenue[15] Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including net income, dividends, and stock repurchases Total Stockholders' Equity (in thousands) | Period | Total Stockholders' Equity | | :----------------------- | :------------------------- | | Sep 30, 2022 | $308,453 | | Dec 31, 2021 | $282,736 | | Sep 30, 2021 | $277,466 | | Dec 31, 2020 | $272,123 | - Total stockholders' equity increased to $308.45 million as of September 30, 2022, from $282.74 million at December 31, 2021, primarily due to retained earnings from net income, partially offset by treasury stock repurchases and cash dividends[18][20] Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $164,263 | $132,325 | | Net cash used in investing activities | $(295,697) | $(226,987) | | Net cash provided by financing activities | $99,250 | $134,931 | | Net change in cash and restricted cash | $(32,184) | $40,269 | | Cash and restricted cash at end of period | $117,005 | $112,145 | - Net cash provided by operating activities increased by $31.9 million (24.1%) for the nine months ended September 30, 2022, compared to the prior-year period[22] - Net cash used in investing activities increased by $68.71 million (30.3%) for the nine months ended September 30, 2022, primarily due to increased originations of finance receivables and purchases of restricted available-for-sale investments[22] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1. Nature of Business This note describes the company's primary operations, loan products, and market presence - Regional Management Corp. is a consumer finance company offering small loans, large loans, retail loans, and related insurance products through 338 branch locations in 17 states as of September 30, 2022[25] - The company's loan volume and delinquency follow seasonal trends, with highest demand in Q2-Q4 and lowest in Q1, and delinquencies rising in the second half of the year. However, macroeconomic factors like inflation and rising interest rates have impacted these typical seasonal trends[27] Note 2. Basis of Presentation and Significant Accounting Policies This note outlines the accounting principles and methods used in preparing the financial statements - The financial statements are prepared in accordance with SEC regulations and U.S. GAAP for interim financial information, including normal recurring adjustments[28] - The company consolidates Variable Interest Entities (VIEs) where it is the primary beneficiary, treating these transactions as secured borrowings, meaning the pooled receivables and related debts remain on the consolidated balance sheet[30][31][33][34] - A revision was made to the September 30, 2021 cash flow statement to reflect gross cash receipts and payments, reclassifying certain items to operating activities, resulting in a $3.7 million decrease in net cash from operating activities for that period[37] - The allowance for credit losses is estimated using a static pool Probability of Default (PD) / Loss Given Default (LGD) model, adjusted for current conditions and reasonable economic forecasts, segmented by product type, FICO score, and delinquency status[39][40][41][42][43][44] - Accrual of interest income is suspended when an account is 90 days delinquent, and Troubled Debt Restructurings (TDRs) are classified when loan terms are modified due to borrower financial difficulties[46][48] - The FASB issued an accounting update in March 2022, effective after December 15, 2022, eliminating TDR accounting for creditors while enhancing disclosure requirements; the company believes it will not have a material financial effect on its consolidated statements[54] Note 3. Finance Receivables, Credit Quality Information, and Allowance for Credit Losses This note details the composition, credit quality, and allowance for potential losses on the company's loan portfolio Net Finance Receivables by Product (in thousands) | Product | Sep 30, 2022 | Dec 31, 2021 | | :---------- | :----------- | :----------- | | Small loans | $480,199 | $445,023 | | Large loans | $1,116,455 | $970,694 | | Retail loans | $10,944 | $10,540 | | Total | $1,607,598 | $1,426,257 | - Net finance receivables increased by $181.34 million (12.7%) from December 31, 2021, to September 30, 2022, with large loans showing the most significant growth[55] Contractual Delinquency as % of Net Finance Receivables | Metric | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------------------ | :----------- | :----------- | | Total contractual delinquency | 7.2% | 6.0% | | Net finance receivables in nonaccrual status | 4.0% | 3.2% | Allowance for Credit Losses Reconciliation (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Beginning balance | $167,500 | $139,400 | $159,300 | $150,000 | | Provision for credit losses | $48,071 | $26,096 | $124,329 | $58,007 | | Credit losses | $(37,376) | $(16,381) | $(108,414) | $(60,959) | | Recoveries | $1,605 | $985 | $4,585 | $3,052 | | Ending balance | $179,800 | $150,100 | $179,800 | $150,100 | | Allowance as % of net finance receivables | 11.2% | 11.4% | 11.2% | 11.4% | - The allowance for credit losses increased by $20.5 million for the nine months ended September 30, 2022, primarily due to portfolio growth ($18.5 million) and macroeconomic model adjustments ($2.0 million)[63] Troubled Debt Restructurings (TDRs) (in thousands) | Metric | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | TDR Net Finance Receivables | $20,422 | $17,017 | | TDR Allowance for Credit Losses | $5,609 | $5,646 | - The number of loans modified and classified as TDRs significantly increased, with 2,168 loans totaling $8.41 million in Q3 2022, compared to 962 loans totaling $3.53 million in Q3 2021[67] Note 4. Restricted Available-for-Sale Investments This note describes the company's restricted investment holdings and their fair value Restricted Available-for-Sale Investments (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Amortized Cost | $20,867 | $0 | | Estimated Fair Value | $20,290 | $0 | | Gross Unrealized Losses | $(577) | $0 | - The company held $20.29 million in restricted available-for-sale investments as of September 30, 2022, which were not present at December 31, 2021. These investments consist of highly rated U.S. federal government-backed securities[70] - Unrealized losses of $0.58 million on these investments are due to recent increases in interest rates by the Federal Reserve, with no allowance for credit losses recorded[70] Note 5. Interest Rate Caps This note explains the company's use and disposition of interest rate hedging instruments - The company no longer maintained interest rate cap protections as of September 30, 2022, having sold all contracts in April and August 2022 for fair values of $14.7 million and $5.0 million, respectively[73] Changes in Fair Value of Interest Rate Caps (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance at beginning of period | $5,081 | $2,027 | $6,586 | $265 | | Sales | $(5,033) | $0 | $(19,720) | $0 | | Fair value adjustment included as an (increase) decrease in interest expense | $(48) | $(284) | $13,134 | $491 | | Balance at end of period | $0 | $1,743 | $0 | $1,743 | Note 6. Debt This note provides a comprehensive overview of the company's various debt instruments and financing arrangements Summary of Debt (in thousands) | Debt Type | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Senior revolving credit facility | $113,448 | $112,065 | | RMR II revolving warehouse credit facility | $20,290 | $52,469 | | RMR IV revolving warehouse credit facility | $37,130 | $20,071 | | RMR V revolving warehouse credit facility | $65,273 | $59,451 | | RMIT 2019-1 securitization | $0 | $109,373 | | 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 | $0 | | Total Debt | $1,241,039 | $1,107,953 | | Unused amount of revolving credit facilities | $565,039 | $556,812 | - Total debt increased by $133.09 million (12.01%) from December 31, 2021, to September 30, 2022, primarily due to the new RMIT 2022-1 securitization of $250.37 million and increases in RMR IV and RMR V facilities, partially offset by the maturity of RMIT 2019-1 and a decrease in RMR II[75] - In September 2022, the company amended its senior revolving credit facility and RMR II and RMR IV warehouse facilities to replace LIBOR with SOFR as the benchmark interest rate, effective October 1, 2022[77][82][85] - The company completed a private offering and sale of $250 million of asset-backed notes for RMIT 2022-1 securitization in February 2022, with a revolving period ending February 2025 and final maturity in March 2032[92] - As of September 30, 2022, the company was in compliance with all debt covenants[94] Note 7. Stockholders' Equity This note details changes in stockholders' equity, including share repurchases and dividends - The company completed three stock repurchase programs totaling $100 million between October 2020 and May 2022, repurchasing 952 thousand, 945 thousand, and 426 thousand shares respectively[95][96][97] Dividends Declared Per Common Share | Period | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Dividends declared per common share | $0.30 | $0.25 | $0.90 | $0.70 | Note 8. Disclosure About Fair Value of Financial Instruments This note presents the fair value measurements for the company's financial assets and liabilities - The fair value of net finance receivables (Level 3) was $1.48 billion as of September 30, 2022, compared to a carrying amount of $1.38 billion, indicating a higher estimated fair value[104] - The fair value of debt (Level 3) was $1.16 billion as of September 30, 2022, compared to a carrying amount of $1.24 billion, indicating a lower estimated fair value[104] - Restricted available-for-sale investments (Level 2) had a carrying amount and estimated fair value of $20.29 million as of September 30, 2022, while interest rate caps (Level 2) were $0, down from $6.59 million at December 31, 2021[105] Note 9. Income Taxes This note provides information on the company's income tax expense and related deferred tax assets and liabilities Total Income Taxes (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total income taxes | $3,286 | $6,577 | $15,256 | $19,217 | - Income taxes decreased by $3.29 million (50.0%) for the three months ended September 30, 2022, and by $3.96 million (20.6%) for the nine months ended September 30, 2022, primarily due to a decrease in income before income taxes[106] Note 10. Earnings Per Share This note details the calculation of basic and diluted earnings per share Earnings Per Share (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $10,068 | $22,221 | $48,833 | $67,909 | | Basic EPS | $1.09 | $2.25 | $5.23 | $6.66 | | Diluted EPS | $1.06 | $2.11 | $5.01 | $6.29 | | Weighted-average common shares outstanding (Diluted) | 9,526 | 10,544 | 9,738 | 10,800 | - Diluted EPS decreased by $1.05 (49.8%) for the three months ended September 30, 2022, and by $1.28 (20.3%) for the nine months ended September 30, 2022, reflecting the decline in net income[107] Note 11. Share-Based Compensation This note describes the company's equity compensation plans and related expenses Share-Based Compensation Expense (in thousands) | Period | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Share-based compensation expense | $3,300 | $1,800 | $8,100 | $5,300 | - Unrecognized share-based compensation expense was approximately $14.4 million as of September 30, 2022, to be recognized over a weighted-average period of 1.7 years[110] - The company no longer issues non-qualified stock options as part of its annual long-term incentive program starting in 2022[118] - The company uses various share-based incentive programs including Performance Restricted Stock Units (PRSUs), Restricted Stock Awards (RSAs), and previously, non-qualified stock options and performance-contingent restricted stock units (RSUs), with different vesting and performance criteria[112][113][114][115][116][117] Note 12. Commitments and Contingencies This note discloses the company's legal and contractual obligations and potential liabilities - The company is involved in various legal proceedings in the normal course of business but does not believe these matters will have a material adverse effect on its financial condition, liquidity, or results of operations[125][128] Note 13. Subsequent Events This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - In November 2022, the Board declared a quarterly cash dividend of $0.30 per share, payable on December 14, 2022[130] - In October 2022, the company completed a private offering and sale of $200 million of asset-backed notes for RMIT 2022-2B securitization, with a weighted-average interest rate of 7.51%[131] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, macroeconomic impacts, and strategic initiatives. It details revenue and expense trends, asset quality, liquidity, and critical accounting policies for the three and nine months ended September 30, 2022, compared to the prior year Overview This section covers overview - Regional Management Corp. is a diversified consumer finance company operating 338 branch locations in 17 states, serving 505,700 active accounts as of September 30, 2022[133] - The company decided to discontinue its retail loan product offering as of November 2022 to focus on growing its core small and large loan portfolios[134] Loan Products Outstanding (as of Sep 30, 2022) | Product | Number of Loans Outstanding | Net Finance Receivables | | :---------------- | :-------------------------- | :---------------------- | | Small Loans (≤$2,500) | 292.0 thousand | $480.2 million | | Large Loans (>$2,500) | 207.9 thousand | $1.1 billion | | Retail Loans | 5.8 thousand | $10.9 million | Outlook This section covers outlook - Macroeconomic factors such as inflation, rising interest rates, geopolitical events, and the COVID-19 pandemic continue to create economic uncertainty and impact consumer confidence[136][138] - The company proactively tightened credit models in Q4 2021, eliminating certain higher-risk customer segments, which contributed 30 basis points to contractual delinquency and 60 basis points to net credit loss rate in Q3 2022, despite representing only 1.9% of the total portfolio[138] - The allowance for credit losses was 11.2% of net finance receivables as of September 30, 2022, including $19.0 million for future macroeconomic impacts. Contractual delinquency increased to 7.2% from 4.7% YoY[140] - The company maintains a strong liquidity profile with $181.2 million of available liquidity and $565.0 million of unused capacity on revolving credit facilities as of September 30, 2022[141] - Online operations and omni-channel sales/servicing capabilities are being expanded to increase market reach, average branch receivables, and operating efficiencies[142] Factors Affecting Our Results of Operations This section covers factors affecting our results of operations - Loan volume and contractual delinquency are seasonal, with demand highest in Q2-Q4 and delinquencies rising in the second half of the year, though macroeconomic factors are currently impacting these trends[143][144] - Average net finance receivables grew to $1.5 billion for the first nine months of 2022 (from $1.2 billion prior year), driven by new growth initiatives, increased marketing, and expansion into 4 new states (Mississippi, Indiana, California, Louisiana)[145] - Results are highly dependent on the credit quality of the loan portfolio, influenced by underwriting standards, diligent servicing, and economic conditions[147] - Costs of funds are affected by changes in interest rates on variable-rate debt, which the company previously managed with interest rate caps[149] Components of Results of Operations This section covers components of results of operations - Interest and fee income is the primary revenue source, derived from outstanding loans and recognized over the loan's life using the constant yield method[151][152] - Insurance income, net, comes from optional payment and collateral protection insurance products, with earned premiums net of direct costs like claims and premium taxes[153] - Other income includes late charges, loan extension fees, returned check charges, auto club commissions, and interest/investment income from restricted cash[156] - 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[157] - General and administrative expenses, measured as an operating expense ratio, include personnel (largest component), occupancy, marketing, and other expenses (legal, compliance, tech investment)[158][159][160][161][162] Results of Operations This section covers results of operations Comparison of September 30, 2022, Versus September 30, 2021 (Finance Receivables) This section compares the company's finance receivables and branch network performance year-over-year Net Finance Receivables by Product (in thousands) | Product | Sep 30, 2022 | Sep 30, 2021 | YoY $ Inc (Dec) | YoY % Inc (Dec) | | :---------- | :----------- | :----------- | :-------------- | :-------------- | | Small loans | $480,199 | $419,602 | $60,597 | 14.4% | | Large loans | $1,116,455 | $884,271 | $232,184 | 26.3% | | Retail loans | $10,944 | $10,360 | $584 | 5.6% | | Total | $1,607,598 | $1,314,233 | $293,365 | 22.3% | | Number of branches | 338 | 372 | (34) | (9.1)% | | Net finance receivables per branch | $4,756 | $3,533 | $1,223 | 34.6% | - Total net finance receivables increased by $293.37 million (22.3%) year-over-year, driven primarily by large loan growth (26.3%) and small loan growth (14.4%)[170] - Despite a 9.1% decrease in the number of branches, net finance receivables per branch increased by 34.6%, indicating improved efficiency and larger portfolio per location[170] Comparison of the Three Months Ended September 30, 2022, Versus the Three Months Ended September 30, 2021 This section analyzes the company's financial performance for the three-month period compared to the prior year - Net income decreased by $12.2 million (54.7%) to $10.1 million, primarily due to a $22.0 million increase in provision for credit losses and a $10.4 million increase in general and administrative expenses, partially offset by a $20.0 million increase in revenue[171] - Total revenue increased by $20.0 million (17.9%) to $131.5 million, driven by a 26.1% increase in average net finance receivables, despite a 2.4% decrease in annualized average yield[172][173] - Provision for credit losses increased by $22.0 million (84.2%) to $48.1 million, mainly due to higher net credit losses and an increase in the allowance for credit losses, impacted by inflation and higher-risk customer segments[180] - Contractual delinquency as a percentage of net finance receivables increased to 7.2% from 4.7% year-over-year, with a 0.3% impact from higher-risk digital affiliate and direct mail segments[184] - General and administrative expenses increased by $10.4 million (21.8%) to $58.2 million, with personnel expenses rising $7.7 million (26.2%) due to increased labor and incentive costs[186][187] - Interest expense increased by $3.0 million (34.6%) to $11.9 million, driven by an increase in the average balance of debt facilities to $1.2 billion[192] Comparison of the Nine Months Ended September 30, 2022, Versus the Nine Months Ended September 30, 2021 This section analyzes the company's financial performance for the nine-month period compared to the prior year - Net income decreased by $19.1 million (28.1%) to $48.8 million, primarily due to a $66.3 million increase in provision for credit losses and a $27.4 million increase in general and administrative expenses, partially offset by a $66.3 million increase in revenue[194] - Total revenue increased by $66.3 million (21.5%) to $375.2 million, driven by a 28.2% increase in average net finance receivables, partially offset by a 1.8% decrease in annualized average yield[195][196][197] - Provision for credit losses increased by $66.3 million (114.3%) to $124.3 million, reflecting higher net credit losses and an increase in the allowance for credit losses, influenced by inflation and higher-risk customer segments[203] - General and administrative expenses increased by $27.4 million (19.6%) to $167.4 million, with personnel expenses rising $20.1 million (23.2%) due to increased labor and incentive costs[207][208] - Interest expense decreased by $4.4 million (18.5%) to $19.4 million, primarily due to a 1.63% decrease in the annualized average cost of debt, partially offset by an increase in the average balance of debt facilities[214] Liquidity and Capital Resources This section outlines the company's sources and uses of cash, including funding for lending activities, technology infrastructure, and branch expansion. It details debt facilities, stock repurchase programs, dividend policies, and cash flow activities, emphasizing the company's strong liquidity position and compliance with debt covenants - The company's funded debt-to-equity ratio was 4.0 to 1.0, and the stockholders' equity ratio was 19.2% as of September 30, 2022[216] - As of September 30, 2022, the company had $181.2 million of available liquidity (unrestricted cash + immediate availability from credit facilities) and $565.0 million of unused capacity on revolving credit facilities[141][217] - Net cash provided by operating activities increased by $31.9 million to $164.3 million for the nine months ended September 30, 2022[224] - Net cash used in investing activities increased by $68.7 million to $295.7 million, primarily due to higher originations of finance receivables and purchases of restricted available-for-sale investments[225] - Net cash provided by financing activities decreased by $35.7 million to $99.3 million, mainly due to lower net advances on debt instruments, partially offset by reduced stock repurchases and debt issuance costs[226] - The company's debt arrangements, including senior revolving credit facility, revolving warehouse credit facilities, and asset-backed securitizations, are subject to covenants, all of which were in compliance as of September 30, 2022[245] Share Repurchases and Dividends This section covers share repurchases and dividends - The company completed three stock repurchase programs totaling $100 million between October 2020 and May 2022[220][221] Quarterly Cash Dividends Declared (per common share) | Period | Dividends Declared Per Common Share | | :----- | :---------------------------------- | | 1Q 22 | $0.30 | | 2Q 22 | $0.30 | | 3Q 22 | $0.30 | | Total | $0.90 | - The Board declared and paid $8.9 million in cash dividends during the nine months ended September 30, 2022[222] Cash Flow This section covers cash flow - Net cash provided by operating activities increased by $31.9 million to $164.3 million for the nine months ended September 30, 2022, driven by business growth and increased net income before provision for credit losses[224] - Net cash used in investing activities increased by $68.7 million to $295.7 million, primarily due to higher originations of finance receivables and purchases of restricted available-for-sale investments[225] - Net cash provided by financing activities decreased by $35.7 million to $99.3 million, mainly due to lower net advances on debt instruments, partially offset by reduced stock repurchases and debt issuance costs[226] Financing Arrangements This section covers financing arrangements - The senior revolving credit facility was amended in December 2021 to decrease availability to $500 million and extend maturity to September 2024, and further amended in September 2022 to replace LIBOR with SOFR[227][228] - The company utilizes asset-backed financing transactions through Variable Interest Entities (VIEs) and Special Purpose Entities (SPEs) for securitizations and revolving warehouse credit facilities (RMR II, RMR IV, RMR V), which are consolidated[230] - Securitization facilities include RMIT 2020-1 ($180 million), RMIT 2021-1 ($249 million), RMIT 2021-2 ($200 million), RMIT 2021-3 ($125 million), and RMIT 2022-1 ($250 million), all with fixed-rate asset-backed notes and varying revolving and maturity periods[238][239][240][241][243] - Warehouse credit facilities (RMR II, RMR IV, RMR V) have varying limits, conversion dates, and interest rates, with RMR II and RMR IV transitioning from LIBOR to SOFR in October 2022[233][234][235][236][237] Restricted Cash Reserve Accounts This section covers restricted cash reserve accounts - The company maintains various restricted cash reserve accounts for its warehouse credit facilities (RMR II: $0.6 million, RMR IV: $0.5 million, RMR V: $0.8 million) and securitizations (RMIT 2020-1: $1.9 million, RMIT 2021-1: $2.6 million, RMIT 2021-2: $2.1 million, RMIT 2021-3: $1.5 million, RMIT 2022-1: $2.6 million) as of September 30, 2022[246][247][248][249][250][251][252][253] - RMC Reinsurance, a wholly-owned subsidiary, is required to maintain $21.6 million in reserves against life insurance policies as of September 30, 2022[254] Critical Accounting Policies and Estimates This section details the critical accounting policies and estimates, particularly focusing on the allowance for credit losses, which involves significant judgment and estimation uncertainty due to reliance on historical experience, current conditions, and macroeconomic forecasts - The allowance for credit losses is a critical estimate based on historical credit experience, current conditions, and reasonable and supportable economic forecasts, adjusted for quantitative and qualitative factors[256] - The company uses a static pool Probability of Default (PD) / Loss Given Default (LGD) model, segmenting the portfolio by product type, FICO score, and delinquency status to estimate expected credit losses[257][258] - Macroeconomic forecasts, notably unemployment rates, are incorporated into the model, with assistance from a major rating service provider, and require significant judgment and estimation uncertainty[261] - As of September 30, 2022, $19.0 million in macroeconomic reserves were held for estimated future macroeconomic impacts on credit losses, including remaining effects of COVID-119[263] - A hypothetical 10% increased weighting towards slower near-term growth in the macroeconomic model would have increased reserves by $0.9 million as of September 30, 2022[264] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk, arising from its fixed-rate finance receivables and variable-rate debt. It details the impact of interest rate changes on its financial condition and the strategies used to manage this risk - The company is exposed to interest rate risk because its finance receivables are fixed-rate, while a portion of its debt (19.0% as of Sep 30, 2022) is variable-rate[267][268] Variable-Rate Revolving Credit Facilities (as of Sep 30, 2022, in thousands) | Revolving Credit Facility | Balance | Interest Payment Frequency | Rate Type | Floor | Margin | Effective Interest Rate | | :------------------------ | :------ | :------------------------- | :-------- | :---- | :----- | :---------------------- | | Senior | $113,448 | Monthly | 1-mo LIBOR | 0.50% | 3.00% | 6.14% | | RMR II Warehouse | $20,290 | Monthly | 3-mo LIBOR | 0.25% | 2.35% | 6.10% | | RMR IV Warehouse | $37,130 | Monthly | 1-mo LIBOR | — | 2.35% | 5.49% | | RMR V Warehouse | $65,273 | Monthly | Conduit | — | 2.20% | 5.28% | | Total | $236,141 | | | | | | - An increase of 100 basis points in the rates of its revolving credit facilities would result in approximately $2.4 million of increased annual interest expense[270] - The company previously used interest rate caps to manage LIBOR-based borrowing risk but sold all remaining contracts by August 2022 and no longer maintains this protection[269] Item 4. Controls and Procedures This section confirms that management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2022, concluding they were effective. It also states that there were no material changes in internal control over financial reporting during the period - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[273] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the period[274] PART II. OTHER INFORMATION This section provides additional disclosures not included in the financial statements, such as legal proceedings and risk factors Item 1. Legal Proceedings This section states that the company is involved in various legal proceedings in the ordinary course of business but does not believe these matters will have a material adverse effect on its financial condition, liquidity, or results of operations - The company is involved in various legal proceedings but management does not believe they will have a material adverse effect on its financial condition, liquidity, or results of operations[276] Item 1A. Risk Factors This section refers readers to the company's Annual Report on Form 10-K for a comprehensive discussion of risk factors, stating that there have been no material changes to these risks since the last filing - no material changes to the company's risk factors from those included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021[277] Item 6. Exhibits This section lists all exhibits filed with the 10-Q report, including amendments to loan and security agreements, credit agreements, certifications of principal executive and financial officers, and XBRL taxonomy documents - Key exhibits include amendments to the Fifth Amendment to Seventh Amended and Restated Loan and Security Agreement, Third Amendment to the Second Amended and Restated Credit Agreement, and Amendment No. 3 to the Credit Agreement, all dated September 7, 2022[278] - Certifications from the Principal Executive Officer and Principal Financial Officer (Rule 13a-14(a) / 15(d)-14(a) and Section 1350 Certifications) are included[278] SIGNATURE This section formally attests to the accuracy and completeness of the financial report - The report was signed on November 4, 2022, by Harpreet Rana, Executive Vice President and Chief Financial Officer[282]