Regional Management Corp. Announces Third Quarter 2013 Results

Regional Management Corp. (NYSE:RM), a diversified specialty consumer finance company, today announced results for the third quarter and nine-month period ended September 30, 2013.

Third Quarter 2013 Highlights
  • Total third quarter 2013 revenue was $44.5 million, a 25.3% increase from the prior-year period.
  • GAAP net income for the third quarter of 2013 was $7.6 million, a 9.1% increase from net income of $7.0 million in the prior-year period. Diluted earnings per share were $0.59 based on a diluted share count of 12.9 million. On a pro-forma basis, excluding $0.4 million of pre-tax expenses related to the secondary offering completed in September 2013, net income for the third quarter of 2013 was $7.9 million and diluted earnings per share were $0.61.
  • Finance receivables as of September 30, 2013 were $512.1 million, an increase of 29.0% from the prior-year period. Annualized net charge-offs as a percentage of average finance receivables for the third quarter of 2013 was 6.5%, comparable with the prior-year period.
  • Same-store revenue growth1 for the third quarter of 2013 was 16.1%. Same-store finance receivables growth for the third quarter of 2013 was 16.5%.
  • Opened one de novo branch in the third quarter of 2013; as of September 30, 2013, Regional Management’s branch network consisted of 264 locations.
  • On September 25, 2013, Regional Management announced the closing of a secondary offering of 4,002,000 shares of its common stock, at a price of $27.50 per share, by Palladium Equity Partners III, L.P. and Parallel 2005 Equity Fund, LP, both existing stockholders of Regional Management and affiliates of Palladium Equity Partners and Parallel Investment Partners. Regional Management did not receive any proceeds from the offering, and the total number of shares of its outstanding common stock did not change as a result of the offering.

“Overall, we saw another strong quarter at Regional, led once again by double-digit top-line and same-store sales growth,” said Thomas F. Fortin, Chief Executive Officer of Regional Management Corp. “Bolstered by the considerable success of our back-to-school direct mail campaigns, we grew our loan portfolio by 11.2% on a sequential basis. We also continued to increase our total yield in the third quarter from its low point in April, contributing to an improved efficiency ratio from the prior-year period. While our provision for credit losses was higher than initially anticipated as a result of strong growth in our finance receivables, our annualized net charge-offs as a percentage of average finance receivables continued to remain consistent with prior periods. Our diversified product offering and branch expansion strategy remains intact, and we are optimistic about the opportunities that are present for the future growth of Regional and the creation of long-term shareholder value. Finally, we were pleased that Palladium and Parallel completed a successful secondary offering, which has added to the liquidity of our common shares.”

Long-Term Agreement with GOLDPoint Systems

Regional Management also announced today that it has entered into a ten-year agreement with DHI Computing Service, Inc. d/b/a GOLDPoint Systems pursuant to which GOLDPoint will provide Regional Management with loan management software and related data processing services.

“As we have significantly grown Regional’s account base and footprint in the last few years and expanded our product offerings to automobile and retail loans, the needs for our loan management system have changed considerably,” said Mr. Fortin. “After extensive research, we determined that GOLDPoint’s loan management system is the best match for our current and future objectives. We believe the new system will make Regional even more efficient in terms of processing and servicing our diverse product portfolio and growing loan account base, and we look forward to a long and mutually beneficial relationship with GOLDPoint. At the same time, we want to thank ParaData for its valuable service as our loan management system software provider for the past 15 years.”

The full transition to the new platform is expected to take approximately one year. Regional Management expects that related expenses, which include accelerated amortization of existing ParaData licenses, will be dilutive to earnings by $0.02 per diluted share per quarter, or $0.08 per diluted share over the one-year transition period. Once the transition is completed in the second half of 2014, Regional Management expects costs related to the GOLDPoint loan management system platform to be comparable to expenses for its current system, due in part to increased internal efficiencies created by the integrated GOLDPoint platform.

Director Compensation Arrangement and 2013 Director Equity Awards

In October 2013, Regional Management’s board of directors revised its standard compensation arrangement for its non-employee directors. Pursuant to the revised compensation arrangement, effective for annual service years beginning in 2014, each non-employee director will receive a cash retainer of $30,000 for annual board service, plus $20,000 for service as a non-executive chairman of the board, plus $10,000 for service per board committee, plus $10,000 for service as a chairman of a board committee. Also, effective for annual service years beginning in 2014, Regional Management will award its non-employee directors shares of restricted common stock in an amount equal to the sum of $90,000 for annual board service, plus $20,000 for service as a non-executive chairman of the board, plus $10,000 for service per board committee, plus $10,000 for service as chairman of a board committee, divided by the fair market value per share of common stock on the date of grant. The restricted stock awards will occur five days following Regional Management’s annual meeting of stockholders, with vesting to occur upon the completion of the directors’ annual service to Regional Management. Annual service relates to the approximate 12-month period between annual meetings of Regional Management’s stockholders. As a result, Regional Management expects to incur approximately $1.4 million in director compensation expense for annual service beginning in the second quarter of 2014, inclusive of expenses associated with the March 2012 IPO option awards.

In addition, because Regional Management had not yet acted to award its non-employee directors equity compensation for annual service commencing in 2013, Regional Management awarded each such director 4,484 shares of its common stock, effective October 28, 2013. For the purpose of satisfying income tax obligations, each director was entitled, at his election, to forego up to 40% of the 4,484 shares subject to his award in order to receive a cash payment equivalent to the value of the foregone shares. The awards, which were made pursuant to the terms of Regional Management’s 2011 Stock Incentive Plan, were fully vested at the time of the grant and will cause Regional Management to incur approximately $1.2 million of incremental director compensation expense for the fourth quarter of 2013.

Third Quarter 2013 Results

For the third quarter ended September 30, 2013, Regional Management reported total revenue of $44.5 million, a 25.3% increase from $35.5 million in the prior-year period. Interest and fee income revenue for the third quarter of 2013 was $39.7 million, a 27.7% increase from $31.1 million in the prior-year period, primarily due to a 29.0% year-over-year increase in finance receivables. Insurance and other income for the third quarter of 2013 was $4.8 million, an 8.1% increase from the prior-year period. Same-store revenue growth for the third quarter of 2013 was 16.1%.

Finance receivables outstanding at September 30, 2013 were $512.1 million, a 29.0% increase from $396.9 million in the prior-year period. Finance receivables increased due to the addition of 49 de novo branches and two acquired branches since September 30, 2012, as well as the increase in same-store finance receivables, which grew 16.5% in the third quarter.

Provision for credit losses in the third quarter of 2013 was $11.1 million versus $7.4 million in the prior-year period, primarily due to the increase in loan volume. Annualized net charge-offs as a percentage of average finance receivables for the third quarter of 2013 was 6.5%, comparable with the prior-year period.

General and administrative expenses for the third quarter of 2013 were $17.4 million, an increase of 21.4% from $14.3 million in the prior-year period, primarily due to increased personnel costs from opening and acquiring an additional 51 branches since September 30, 2012 and $0.4 million of expenses related to the secondary offering completed in September 2013. During the third quarter of 2013, Regional Management opened one new branch. Regional Management’s efficiency ratio—the percentage of general and administrative expenses compared to total revenue—in the third quarter of 2013 was 39.1%, a decrease of 120 basis points from 40.3% in the prior-year period; excluding the expenses related to the secondary offering, Regional Management’s efficiency ratio for the third quarter of 2013 would have been 38.1%.

GAAP net income for the third quarter of 2013 was $7.6 million, a 9.1% increase compared to net income of $7.0 million in the prior-year period. Diluted earnings per share for the third quarter of 2013 were $0.59, an increase from $0.55 in the prior-year period. On a pro-forma basis, excluding the expenses related to the secondary offering, net income for the third quarter of 2013 was $7.9 million and diluted earnings per share were $0.61.

Nine Month 2013 Results

For the nine-month period ended September 30, 2013, Regional Management reported total revenue of $122.4 million, a 23.6% increase from $99.0 million in the prior-year period. Interest and fee income revenue for the nine-month period ended September 30, 2013 was $108.7 million, a 25.9% increase from $86.3 million in the prior-year period. Insurance and other income for the nine-month period ended September 30, 2013 was $13.7 million, an 8.1% increase from the prior-year period.

Provision for loan losses in the nine-month period ended September 30, 2013 was $27.6 million versus $18.9 million in the prior-year period, primarily due to the increase in loan volume. Annualized net charge-offs as a percentage of average finance receivables for the nine-month period ended September 30, 2013 was 6.5%, an increase from 6.3% in the prior-year period.

General and administrative expenses for the nine-month period ended September 30, 2013 were $51.0 million, an increase of 26.3% from $40.4 million in the prior-year period, primarily due to increased personnel costs from opening and acquiring an additional 51 branches since September 30, 2012. During the nine months ended September 30, 2013, Regional Management opened and acquired 43 new branches. Regional Management’s efficiency ratio in the nine-month period ended September 30, 2013 was 41.6%, an increase of 90 basis points from 40.7% in the prior-year period. Excluding the expenses related to the secondary offering, Regional Management’s efficiency ratio for the nine-month period ended September 30, 2013 would have been 41.3%.

GAAP net income for the nine-month period ended September 30, 2013 was $21.2 million, a 13.2% increase compared to GAAP net income of $18.7 million in the prior-year period, and diluted earnings per share for the nine-month period ended September 30, 2013 were $1.65 compared to $1.60 in the prior-year period. On a pro forma basis, excluding secondary offering expenses in 2013 and one-time expenses related to Regional Management’s IPO in 2012, net income for the nine-month period ended September 30, 2013 was $21.5 million and diluted earnings per share were $1.67, versus net income of $20.4 million and diluted earnings per share of $1.60 (based on a diluted share count of 12.8 million) for the prior-year period.

Liquidity and Capital Resources

As of September 30, 2013, Regional Management had finance receivables of $512.1 million and outstanding debt of $347.7 million on its $500.0 million senior revolving credit facility and on its $1.5 million cash management line of credit.

Conference Call Information

Regional Management Corp. will host a conference call and webcast today at 5:30 PM Eastern. Both the call and webcast are open to the general public.

The dial-in number for the conference call is (866) 515-2913, passcode 53161906 – 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 two hours following the end of the call through midnight Eastern on Wednesday, November 6 at www.RegionalManagement.com and by telephone at (888) 286-8010, passcode 34143265.

Forward-Looking Statements

This press release may contain various “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1934, as amended, which represent Regional Management Corp.’s expectations or beliefs concerning future events. 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). Such factors 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, furniture and appliance 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

September 30,
  Nine Months Ended

September 30,
2013   2012 2013   2012
Revenue
Interest and fee income $ 39,708 $ 31,089 $ 108,674 $ 86,333
Insurance income, net 3,000 2,841 8,906 8,157
Other income   1,758   1,560   4,838   4,556
 
Total revenue   44,466   35,490   122,418   99,046
 
Expenses
Provision for credit losses 11,078 7,384 27,554 18,918
General and administrative expenses
Personnel 9,589 8,561 29,409 24,831
Occupancy 3,167 2,301 8,380 6,281
Marketing 983 632 2,836 1,857
Other 3,633 2,810 10,338 7,386
Consulting and advisory fees 1,451
Interest expense
Senior revolving credit facility and other debt 3,913 2,705 10,236 7,557
Mezzanine debt-related parties         1,030
 
Total interest expense   3,913   2,705   10,236   8,587
 
Total expenses   32,363   24,393   88,753   69,311
 
Income before income taxes 12,103 11,097 33,665 29,735
Income taxes   4,478   4,109   12,456   11,005
 
Net income $ 7,625 $ 6,988 $ 21,209 $ 18,730
 
Net income per common share:
Basic $ 0.61 $ 0.56 $ 1.69 $ 1.64
 
Diluted $ 0.59 $ 0.55 $ 1.65 $ 1.60
 
Weighted average common shares outstanding:
Basic   12,586,268   12,486,727   12,558,170   11,429,063
 
Diluted   12,927,776   12,774,488   12,863,441   11,712,565

Regional Management Corp. and Subsidiaries

Consolidated Balance Sheets

($ in thousands, except per share amounts)

(Unaudited)
 
September 30, 2013   December 31, 2012
Assets
Cash $ 7,929 $ 3,298
Gross finance receivables 615,900 529,583
Less unearned finance charges, insurance premiums, and commissions   (103,828 )   (92,024 )
 
Finance receivables 512,072 437,559
Allowance for credit losses   (28,682 )   (23,616 )
 
Net finance receivables 483,390 413,943
Property and equipment, net of accumulated depreciation 7,088 5,111
Repossessed assets at net realizable value 923 711
Goodwill 716 363
Intangible assets, net 1,462 1,815
Other assets   11,545     9,750  
 
Total assets $ 513,053   $ 434,991  
 
Liabilities and Stockholders’ Equity
Liabilities:
Deferred tax liability, net $ 6,800 $ 5,947
Accounts payable and accrued expenses 5,224 6,096
Senior revolving credit facility   347,736     292,379  
 
Total liabilities 359,760 304,422
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, $0.10 par value, 100,000,000 shares authorized, no shares issued and outstanding at September 30, 2013 and December 31, 2012
Common stock, $0.10 par value, 1,000,000,000 shares authorized, 12,586,942 shares issued and outstanding at September 30, 2013; 1,000,000,000 shares authorized, 12,486,727 shares issued and outstanding at December 31, 2012 1,259 1,249
Additional paid-in-capital 81,663 80,158
Retained earnings   70,371     49,162  
 
Total stockholders’ equity   153,293     130,569  
 
Total liabilities and stockholders’ equity $ 513,053   $ 434,991  

Regional Management Corp. and Subsidiaries

Selected Financial Data

(Unaudited)

($ in thousands)
 
Components of Increase in Interest and Fee IncomeThree Months Ended September 30, 2013Compared to Three Months Ended September 30, 2012Increase (Decrease)
Volume   Rate   Net
Small installment loans $ 10,583 $ (1,851 ) $ 8,732
Large installment loans (717 ) (361 ) (1,078 )
Automobile purchase loans 1,314 (473 ) 841
Retail purchase loans   348     (224 )   124  
 
Total increase in interest income $ 11,528   $ (2,909 ) $ 8,619  
 
Three Months Ended September 30,
  2013   2012  
Total yield 36.3 % 38.1 %
Average net finance receivables $ 490,430 $ 372,738
 
Loans Originated (1)

Three Months Ended September 30,
  2013   2012
Small installment loans $ 206,347 $ 135,840
Large installment loans 15,924 22,246
Automobile purchase loans 32,312 35,394
Retail purchase loans   8,465   9,788
 
Total finance receivables $ 263,048 $ 203,268

(1) Represents gross balance of loan originations, including unearned finance charges
       
Three Months Ended September 30,
2013   2012  
Amount Percentage ofAverage FinanceReceivables (Annualized) Amount Percentage ofAverage FinanceReceivables (Annualized)
Net charge-offs as a percentage of average finance receivables $ 8,015 6.5 % $ 6,032 6.5 %
 
Amount Percentage ofTotal Revenue Amount Percentage ofTotal Revenue
Provision for credit losses $ 11,078 24.9 % $ 7,384 20.8 %
General and administrative expenses $ 17,372 39.1 % $ 14,304 40.3 %

 
Amount Growth Rate Amount Growth Rate
Same store finance receivables at period-end/growth rate $ 450,437 16.5 % $ 342,272 25.7 %
Same store revenue growth rate 16.1 % 17.2 %
Number of branches in calculation 206 163
   
Components of Increase in Interest and Fee IncomeNine Months Ended September 30, 2013Compared to Nine Months Ended September 30, 2012Increase (Decrease)
Volume Rate Net
Small installment loans $ 26,845 $ (5,976 ) $ 20,869
Large installment loans (1,587 ) (1,465 ) (3,052 )
Automobile purchase loans 4,841 (1,791 ) 3,050
Retail purchase loans   1,727     (253 )   1,474  
 
Total increase in interest income $ 31,826   $ (9,485 ) $ 22,341  
 
Loans Originated (1)

Nine Months Ended September 30,
  2013   2012
Small installment loans $ 468,348 $ 291,576
Large installment loans 45,277 54,862
Automobile purchase loans 99,894 101,261
Retail purchase loans   25,590   26,692
 
Total finance receivables $ 639,109 $ 474,391

(1) Represents gross balance of loan originations, including unearned finance charges
       
Nine Months Ended September 30,
2013   2012  
Amount Percentage ofAverage FinanceReceivables (Annualized) Amount Percentage ofAverage FinanceReceivables (Annualized)
Net charge-offs as a percentage of average finance receivables $ 22,488 6.5 % $ 16,086 6.3 %
 
Amount Percentage ofTotal Revenue Amount Percentage ofTotal Revenue
Provision for credit losses $ 27,554 22.5 % $ 18,918 19.1 %
General and administrative expenses $ 50,963 41.6 % $ 40,355 40.7 %
   
Finance Receivables

As of September 30,
  2013   2012
Small installment loans $ 256,370 $ 158,292
Large installment loans 43,127 52,288
Automobile purchase loans 181,601 160,121
Retail purchase loans   30,974   26,219
 
Total finance receivables $ 512,072 $ 396,920
 
 
Number of branches at period end 264 213
Average finance receivables per branch $ 1,940 $ 1,863
       
As of September 30,
2013 2012
Amount Percentage ofTotal FinanceReceivables Amount Percentage ofTotal FinanceReceivables
Allowance for credit losses $ 28,682 5.6   % $   22,132 5.6   %
Over 30 days contractually delinquent $ 37,292 7.3 % $ 25,581 6.4 %
Over 90 days contractually delinquent $ 13,300 2.6 % $ 8,309 2.1 %
Over 180 days contractually delinquent $ 2,939 0.6 % $ 1,732 0.4 %

Regional Management Corp. and Subsidiaries

Unaudited Pro Forma Consolidated Statements of Income

For the Nine Months Ended September 30, 2012

($ in thousands, except per share amounts)
 
Actual   Pro FormaAdjustments   Pro Forma
Revenue
Interest and fee income $ 86,333 $ $ 86,333
Insurance income, net 8,157 8,157
Other income   4,556       4,556
 
Total revenue   99,046       99,046
 
Expenses
Provision for credit losses 18,918 18,918
General and administrative expenses
Personnel 24,831

140(1)

 
24,971
Occupancy 6,281 6,281
Marketing 1,857 1,857
Other 7,386 7,386
Consulting and advisory fees 1,451 (1,451 )(2)
Interest expense
Senior revolving credit facility and other debt 7,557 (247 )(3) 7,310
Mezzanine debt-related parties   1,030   (1,030 )(4)  
 
Total interest expense   8,587   (1,277 )   7,310
 
Total expenses   69,311   (2,588 )   66,723
 
Income before income taxes 29,735 2,588 32,323
Income taxes   11,005  

942(5)

 
  11,947
 
Net income $ 18,730 $ 1,646   $ 20,376
 
Net income per common share:
Basic $ 1.64 $ 1.63
 
Diluted $ 1.60 $ 1.60
 
Weighted average shares outstanding:
Basic   11,429,063   12,486,727
 
Diluted   11,712,565   12,770,229

(1) Represents additional compensation expense associated with the grant of options upon consummation of the initial public offering.

(2) Represents a termination fee of $1,125, combined with the $326 we paid our former majority stockholders and sponsors for the three months ended March 31, 2012. The agreements with the former majority stockholders and sponsors terminated with the completion of the initial public offering.

(3) Reflects reduction in interest expense as a result of payment of $13,229 in aggregate principal amount of our senior revolving credit facility, offset in part by an unused line fee of 0.50%. Also reflects a reduction in the interest rate under our senior revolving credit facility from one month LIBOR (with a LIBOR floor of 1.00%) plus 3.25% to one month LIBOR (with a LIBOR floor of 1.00%) plus 3.00%.

(4) Reflects reduction in interest expense as a result of the repayment of the $25,814 in aggregate principal amount of our mezzanine debt, which accrued interest at a rate of 15.25% per annum.

(5) Reflects an increase in income taxes as a result of the increase in income before taxes.

Regional Management Corp. and Subsidiaries

Unaudited Pro Forma Selected Financial Data

For the Three and Nine Months Ended September 30, 2013

($ in thousands, except per share amounts)
 
Three Months Ended September 30, 2013
Actual   Pro FormaAdjustments   Pro Forma
General and administrative expenses $ 17,372 $

(440
)(1) $

16,932
 
Income taxes $ 4,478 $

(163
)(2) $

4,315
 
Net income $ 7,625 $

277
$

7,902
 
Diluted net income per common share $ 0.59 $ 0.61
Diluted weighted average common shares outstanding 12,927,776 12,927,776
 
Efficiency ratio 39.1 %

38.1
%
   
Nine Months Ended September 30, 2013
Actual Pro FormaAdjustments Pro Forma
General and administrative expenses $ 50,963 $ (456 )(1) $ 50,507
 
Income taxes $ 12,456 $ (169 )(2) $ 12,287
 
Net income $ 21,209 $ 287 $ 21,496
 
Diluted net income per common share $ 1.65 $ 1.67
Diluted weighted average common shares outstanding 12,863,441 12,863,441
 
Efficiency ratio 41.6 % 41.3 %

(1) Expenses related to the secondary offering completed in September 2013

(2) Tax effect of secondary offering expenses

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX