• Net Income: $7.7 million.
• Diluted EPS: $0.76.
• Revenue: $146 million, a record high despite a $3.5 million charge due to hurricane-related insurance claims.
• Net Credit Loss Rate: 10.6%, a 40 basis point improvement year-over-year.
• Interest and Fee Yield: 29.9%, up 90 basis points year-over-year.
• Operating Expense Ratio: Improved by 50 basis points to 13.9%.
• Portfolio Growth: Increased by $46 million sequentially to $1.82 billion.
• Small Loan Portfolio Growth: Increased by 11% year-over-year.
• Auto-Secured Portfolio Growth: Increased by 35% year-over-year.
• 30-plus Day Delinquency Rate: 6.9%, unchanged sequentially and improved by 40 basis points year-over-year.
• Allowance for Credit Losses Reserve Rate: 10.6%.
• G&A Expenses: $62.5 million, up 0.6% year-over-year.
• Interest Expense: $19.4 million, or 4.3% of average net receivables.
• Book Value Per Share: Approximately $34.72.
• Dividend Declared: $0.30 per common share for the fourth quarter.

• Warning! GuruFocus has detected 4 Warning Sign with RM.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Regional Management Corp (NYSE:RM) reported a 40-basis-point decline in net credit loss rate year-over-year, indicating improved credit performance.
• The company achieved a record high quarterly revenue of $146 million, driven by quality portfolio growth.
• Interest and fee yield increased by 90 basis points year-over-year to 29.9%, the highest in over two years.
• The auto-secured segment grew by 35% from the prior year, contributing to a balanced risk profile.
• RM maintained a tight grip on G&A expenses, which increased by less than 1% year-over-year, improving the operating expense ratio by 50 basis points.

Negative Points

• Hurricanes Helene and Beryl impacted operations, resulting in a $5.6 million pretax impact on net income.
• The company reserved $2.1 million for incremental net credit losses and $3.5 million for estimated personal property insurance claims due to hurricane impacts.
• The loan loss reserve rate increased to 10.6%, higher than the guidance of 10.4% to 10.5%, due to hurricane-related reserves.
• Higher receivables growth requires higher provisioning for loan losses, creating a near-term drag on earnings.
• The growth in higher-margin small loans, while beneficial for revenue, comes with higher expected net credit losses.

Q & A Highlights

Q: How much of the provision tied to hurricane activities is a one-off, and how much could be a pull forward of losses that would have occurred in later quarters? A: Harpreet Rana, CFO, explained that the $2.1 million incremental reserve is specifically due to the hurricane activity and will cover losses expected over the next several months. Robert Beck, CEO, added that the $3.5 million pretax impact from personal property insurance claims is anticipated, with a significant portion expected in Western North Carolina.

Q: Can you continue to increase pricing, and how do lower benchmark rates impact this opportunity? A: Robert Beck, CEO, noted that recent pricing changes have been implemented, but future increases will largely result from a mix shift to higher-rate business. The company is selective in customer acquisition, balancing higher yields with lower-risk auto-secured loans.

Q: Is there a long-term target mix between large and small loans? A: Robert Beck, CEO, indicated that the company will continue its barbell strategy, focusing on both small, higher-rate loans and auto-secured loans. This approach has improved yields and managed net credit losses effectively.

Q: Are there any other impacts from the hurricanes expected in the fourth quarter? A: Robert Beck, CEO, stated that the reserves are based on the best available information and historical experience. The timing of losses will extend into early next year, but no additional impacts beyond what has been disclosed are expected for the fourth quarter.

Q: How does the competitive environment, particularly from fintech companies, affect your business? A: Robert Beck, CEO, mentioned that the company is not seeing significant competitive pressure from fintechs. The growth constraint is self-imposed, focusing on macroeconomic conditions rather than external competition.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.