Regional Management(RM) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net income of $7 million and diluted EPS of $0.70 for Q1 2025, consistent with guidance but lower than Q1 2024 due to a prior year loan sale benefit [5][21] - Ending net receivables increased by 8% year over year, marking the fastest growth rate since 2023 [6] - Total revenue reached $153 million in Q1 2025, up 6% from the prior year, or 7.4% when adjusted for loan sale revenue benefits [25][26] Business Line Data and Key Metrics Changes - The auto secured loan portfolio grew by $59 million or 37% year over year, now representing 12% of the total portfolio [8][23] - The small loan portfolio increased by 11% year over year, with 18% of the portfolio carrying an APR greater than 36%, up from 16% a year ago [23][24] - Total originations reached record levels for Q1, up 20% year over year, with branch, direct mail, and digital originations increasing by 17%, 18%, and 46% respectively [22] Market Data and Key Metrics Changes - The thirty plus day delinquency rate was 7.1% at the end of Q1, flat year over year but improved by 60 basis points sequentially [26] - Net credit losses were $58.4 million, better than guidance by $1.6 million, with an annualized net credit loss rate of 12.4%, which is 90 basis points better year over year [26][27] Company Strategy and Development Direction - The company is focused on maintaining a tight credit box while pursuing growth through branch expansion, having opened 15 new branches in September 2024 [6][14] - The barbell strategy emphasizes growth in high-quality auto secured and higher margin small loan portfolios, which are expected to support customer graduation strategies [8][24] - The company aims for a minimum of 10% portfolio growth in 2025 despite economic uncertainties [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating economic uncertainties due to a strong credit box and capital reserves [15][19] - The company is closely monitoring macroeconomic conditions, including wage growth and inflation, which are favorable for its customer base [15][45] - Management anticipates a gradual improvement in delinquency rates and net credit losses in the upcoming quarters [27][28] Other Important Information - The company has consented to CFPB supervision for a two-year period ending in January 2026, with no adverse findings reported from recent examinations [19] - The effective tax rate for Q1 was 23.5%, with an expected increase to approximately 24.5% for Q2 [32] Q&A Session Summary Question: Long-term outlook on NIM - Management indicated that as fixed-rate funding matures, the cost of funds will increase, but higher margin business will help balance this [40][42] Question: Signs of consumer behavior changes - Management noted that consumer behavior remains stable, with no significant pull forward in spending observed [44][45] Question: Clarification on capital generation - Management explained that Q1 typically sees lower net income, but expects capital generation to increase as the year progresses [60] Question: Credit tightening context - Management applies different stress factors based on portfolio segments, indicating a nuanced approach to underwriting [64] Question: Guidance on expenses - Management provided Q2 expense guidance of approximately $65.5 million, with a focus on prudent expense control [86]