Regional Management Q2 Earnings Call Highlights

Regional Management NYSE: RM reported second-quarter net income of $8.2 million, or $0.85 per diluted share, as revenue growth and improved operating efficiency were partly offset by higher credit-loss provisions and slower-than-expected portfolio expansion. Total revenue rose 6.7% year over year to $168 million, driven by growth in average net finance receivables. Ending net finance receivables reached $2.1 billion, up 9.6% from a year earlier, while receivables per branch increased 8% to about $6 million. President and Chief Executive Officer Lakhbir Lamba said the company’s higher-quality auto-secured portfolio grew 32% from the prior year and represented 15% of the overall portfolio at quarter-end. The auto-secured portfolio had a 30-plus-day delinquency rate of 2%, he said. However, portfolio growth fell below the company’s expectations amid a more competitive environment for acquiring new customers and management’s decision to tighten underwriting in selected higher-risk segments. Total originations were $504 million, down 1.3% year over year. Large-loan originations increased more than 10%, while small-loan volumes declined. Regional Management’s 30-plus-day delinquency rate was 7%, improving 20 basis points sequentially but rising 40 basis points from a year earlier. The net credit loss rate was 12.2%, up 30 basis points year over year and modestly above the company’s forecast. Chief Financial and Administrative Officer Harp Rana said that after accounting for an approximately 20-basis-point effect from slower portfolio growth, the net credit loss rate was in line with expectations. The company expects seasonal delinquency increases in the third quarter but anticipates net credit losses will improve in both the third and fourth quarters. Lamba said management has identified and tightened credit in certain geographic, channel-specific and risk segments where returns did not meet its thresholds. The company also strengthened fraud detection and prevention capabilities in its direct-mail and digital-affiliate channels. He said the early results from those controls were promising. During the question-and-answer session, Lamba said lower response rates from direct-mail campaigns and competitive pressure in new-borrower acquisition were the principal factors behind the slower growth. He said the company believes fintech lenders have accounted for a growing share of personal-loan originations, particularly among consumers seeking fully digital application-to-funding experiences. Management said it continues to monitor inflation and elevated gas prices, particularly for customers with lower available cash flow. Still, Lamba said the underwriting tightening was driven less by broad macroeconomic weakness than by concerns about potential fraud, first-party abuse and credit-builder trade lines in certain segments. The company revised its full-year outlook, now forecasting: Diluted earnings-per-share growth of 10% to 13%. Net income growth of 6% to 9%. Portfolio growth of 5% to 7%. Rana said third- and fourth-quarter net income is expected to be meaningfully higher than the second-quarter level, with fourth-quarter income anticipated to exceed third-quarter income. The outlook reflects expected receivables growth, higher revenue in the second half, improving credit losses and growing contributions from strategic initiatives. A key part of Regional Management’s strategy is its bank partnership program with Column. The company has fully implemented the program for branch originations in Texas, its largest market, and expects to add states.