Regional Management Corp (RM) 2025 Q4 法說會逐字稿

Greetings, and welcome to the Regional Management fourth-quarter 2025 earnings call. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Garrett Edson with ICR. Garrett, please go ahead.

Thank you, and good afternoon. By now, everyone should have access to our earnings announcement and supplemental presentation, which were released prior to this call and may be found on our website at regionalmanagement.com. Before we begin our formal remarks, I will direct you to page 2 of our supplemental presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP financial measures.

Part of our discussion today may include forward-looking statements, which are based on management's current expectations, estimates and projections about the company's future financial performance and business prospects. These forward-looking statements speak only as of today and are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and that could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

These statements are not guarantees of future performance, and therefore, you should not place undue reliance upon them. We refer all of you to our press release, presentation and recent filings with the SEC for a more detailed discussion of our forward-looking statements and the risks and uncertainties that could impact our future operating results and financial condition.

Also, our discussion today may include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement or earnings presentation and posted on our website at regionalmanagement.com.

I would now like to introduce Lakhbir Lamba, President and CEO of Regional Management Corp.

Thanks, Garrett, and good afternoon, everyone. I'm pleased to be joining you today on my first earnings call as President and CEO of Regional Management. Over the past few months, I've had the opportunity to spend time in the business, meet many members of the Regional team and deepen my understanding of what makes this company special.

I've also had significant time that I've spent reviewing the economics of the business across various customer, product, risk and market segments with an eye towards opportunities to grow net income and increase risk-adjusted returns. I'm excited about the opportunity ahead and honored to lead an organization with strong culture, a disciplined operating model and a long track record of responsible growth.

Before turning to our results, I want to thank Rob for his leadership in building the strong platform we have today. I've appreciated working closely with him during this transition. Regional enters 2026 from a position of strength, and my focus is on building on that momentum. Joining me on the call today is Harp Rana, our Chief Financial and Administrative Officer.

I'll begin with a summary of our fourth-quarter and full year results, provide an update on our strategic priorities and outlook, and then Harp will walk through the financial details. We delivered strong financial and operating results in the fourth-quarter and finished 2025 with excellent momentum. In the fourth-quarter, we generated net income of $12.9 million or $1.30 of diluted earnings per share, representing an increase of 33% year-over-year.

This result exceeded our guidance despite incurring a larger provision for credit losses driven by stronger-than-expected portfolio growth. Quarterly revenue reached record levels, reflecting continued growth in net receivables and consistent execution across the organization. For the full year, we generated net income of $44.4 million, an increase of 8% compared to 2024, landing towards the upper end of the guidance range we previously provided.

Ending net receivables grew by $248 million or 13% year-over-year, in line with the growth guidance of at least 10% that we provided at the outset of 2025. We closed the year with a loan portfolio of $2.1 billion. Portfolio growth remained a key driver of our performance. In the fourth-quarter, net receivables increased by $87 million, supported by strong origination activity across channels and a healthy customer demand.

Total fourth-quarter originations were $537 million, up meaningfully from the prior year period. We continue to see encouraging trends in our underlying credit performance. Our 30-plus delinquency rate improved 20 basis points year-over-year in the fourth-quarter, supported by our credit tightening actions, improved analytics and credit decisioning and strong performance in most segments of newer vintages.

This trend supports continued improved credit performance throughout the year. On an adjusted basis, our fourth-quarter 2025 annualized net credit loss rate improved by 30 basis points year-over-year and our full year 2025 net credit loss rate improved by 70 basis points compared to the prior year. These improvements reflect disciplined underwriting, enhanced credit risk management and the benefits of investments we've been making in data, analytics and portfolio monitoring.

During the first-quarter, we expect to observe typical seasonality in net credit losses, reflective of our later-stage delinquency levels, which ordinarily drive a sequential net credit loss rate increase of roughly 150 basis points. Where we land in the first-quarter will be sensitive to the denominator impact of payment and credit behavior driven by expected elevated tax refunds.

Looking ahead, we'll continue to improve our net credit loss rate with a portfolio NCL rate risk tolerance level under 10% over the long term. Assuming a stable macroeconomic environment, we would expect to make continuous progress towards this 10% level throughout 2026. Expense discipline remained a key priority throughout the quarter and the year.

Our annualized operating expense ratio was 12.4% in the fourth-quarter, an all-time best and an improvement of 160 basis points compared to the prior year period. This reflected benefits of scale and continued focus on operating efficiency. For the full year, our operating expense ratio was 13.1%, an improvement of 70 basis points year-over-year, even as we continued to invest in the business.

Capital generation remains strong throughout 2025. For the full year, we generated $74 million of capital and returned $36 million to shareholders through dividends and share repurchases. Our balance sheet remains healthy, flexible and well positioned to support continued growth and capital returns. Overall, we are very pleased with how the year finished and with the consistency of execution throughout the company.

As I step into this role, my immediate focus has been on listening, learning and building on Regional trends. That said, there are several areas I see meaningful opportunity to grow shareholder value. First, portfolio growth remains a core priority. And within that, our auto-secured portfolio stands out as a particularly attractive opportunity.

In 2025, our auto-secured portfolio grew by 42% year-over-year and continues to represent a larger portion of our overall portfolio. Credit performance and returns in this segment remain extremely compelling, and we will continue to invest in this asset class in a disciplined and analytical rigorous manner. Second, we continue to expand our physical footprint in attractive markets.

In the fourth-quarter, we opened five new branches in California and Louisiana. Looking ahead, we expect to open additional branches throughout 2026 with the potential for new state expansion as well. We will approach this expansion thoughtfully with a focus on execution, local talent, fraud and credit risk and returns.

Third, I see significant opportunities in continuing to invest in our people, technology, data and analytics and credit risk management. Regional's success has been built on strong operators, a disciplined credit culture and continuous improvement. My initial assessment of our digital capabilities, origination and servicing customer journeys indicates numerous opportunities to improve both the customer and team member experience.

We believe investments in digital and AI will help us grow originations and lower our cost to originate and service our loan book. Importantly, even as we make these investments, we will continue lowering our operating expense ratio over time, supported by scale and productivity improvements. In parallel, we remain focused on improving branch and state level profitability.

As the portfolio and footprint grow, disciplined evaluation of performance in every segment will remain critical to delivering sustainable, profitable growth and maximizing risk-adjusted return on capital. As we look at our business across various markets, and digital affiliate channels, we are paying particular attention to first payment default trends, sales productivity, operating expenses and risk-adjusted yields.

We believe we have opportunities to optimize the yields and operating expenses in certain markets. I also want to touch briefly on an initiative that we've been working on over the past several quarters, developing a bank partnership capability. While still in development, we believe a bank partnership model could provide meaningful strategic benefits over time.

Including faster entry into new markets, greater product and operational uniformity across states, the ability to broaden our product set and optimize risk-adjusted yields. We view this as another potential tool to support responsible growth and enhance our long-term strategic flexibility. We'll share more as this partnership and capability continue to take shape.

Looking ahead, we remain focused on disciplined execution as we enter 2026. For the full year of 2026, we expect another year of ending net receivables growth of at least 10% and net income growth in the 20% to 25% range. For the first-quarter of 2026, we expect net income to reflect our portfolio growth levels, normal first-quarter of credit seasonality and continued investment in the business.

The projected year-over-year increase in tax refunds due to the One Big Beautiful Bill Act will likely reduce balances through debt paydowns and improved collections and delinquencies in the first-quarter. Over the longer term, our objective is clear: to deliver sustainable profitable growth while generating attractive returns for shareholders.

We will improve our return on equity through responsible portfolio growth, improving credit performance, operating leverage and disciplined capital management. Regional enters the next phase of its growth with a strong foundation, a talented team and a clear strategic focus. I'm excited about what lies ahead and confident in our ability to continue creating long-term value for our clients, our communities and our shareholders.

With that, I'll turn the call over to Harp, who will provide more details on our financial results.

Thank you, Lakhbir, and hello, everyone. I'll now take you through our fourth-quarter results in more detail. On page 5 of the supplemental presentation, we provide our fourth-quarter financial highlights, demonstrating another quarter of significant improvement across key financial metrics. Our net income of $12.9 million and diluted EPS of $1.30 were once again supported by solid portfolio and revenue growth, a healthy credit profile, expense discipline and a strong balance sheet.

For 2026, consistent with seasonal trends and our 2025 quarterly results, our net income will be meaningfully higher in the second half of the year than the first half of the year, driven by stronger credit performance, balance sheet growth and continued improvement in operating leverage. Turning to pages 6 and 7. We had a record total originations of $537 million in the fourth-quarter, up 13% year-over-year.

Loan volume was driven by continued strong performance from digital leads, our auto secured product and the 17 de novo branches we've opened over the past 12 months. For the full year, we generated $2 billion in originations, a 19% increase from 2024. Our total portfolio finished at a record $2.1 billion at year-end, while our ending net receivables per branch reached $6.1 million on average.

We continue to believe that key economic markers remain strong and that our customers tend to be resilient and adaptable. These conditions, along with the increase in our addressable market through geographic expansion have allowed us to grow our portfolio while maintaining a tight credit box. Looking ahead, as a reminder, the first-quarter is always our softest origination quarter because of the normal seasonal impact of tax refunds.

Demand may be particularly soft this year due to the expected larger tax refunds for our customers. As a result, we anticipate that our ending net receivables will contract sequentially in the first-quarter and perhaps more than our typical seasonal trend due to the OBBA impact. However, we expect consumer loan demand to remain strong for the balance of the year following tax season. Turning to page 8.

Total revenue grew to a record $170 million in the fourth-quarter, up 10% year-over-year. Our total revenue yield and interest and fee yield declined 60 and 40 basis points sequentially to 32.5% and 29.3%, respectively, due to seasonality and product mix. In the first-quarter, we expect total revenue yield to decrease sequentially due to normal seasonal trends of interest accrual reversals associated with NCLs and the runoff of smaller, higher-yielding loans during tax season.

Moving to page 9. Our portfolio continues to perform well. Our 30-plus day delinquency rate as of quarter end was 7.5%, a 20 basis point improvement year-over-year. Our fourth-quarter annualized net credit loss rate improved by 30 basis points year-over-year after adjusting for the prior year 50 basis point impact from disaster deferrals.

For the full year, our NCL rate improved by 70 basis points compared to 2024 after adjusting for the impact of the 2024 disaster deferrals and the fourth-quarter 2023 loan sale, which materially benefited first-quarter 2024 net credit losses. In the first-quarter, we expect our delinquency rate to improve, consistent with seasonal patterns associated with tax refund benefits, and we anticipate that our net credit losses will increase sequentially, again, due to normal seasonality for NCLs.

Turning to page 10. We increased our allowance for credit losses in the quarter by $8.9 million to support portfolio growth. Consistent with our outlook, our allowance for credit losses rate remained steady at 10.3%, an improvement of 20 basis points from the prior year period. Flipping to page 11. We continue to closely manage our spending while still investing in our growth capabilities and strategic initiatives.

Our annualized operating expense ratio was 12.4% in the fourth-quarter, another all-time best and an improvement of 160 basis points from the prior year period as we modestly reduced expenses year-over-year. Turning to pages 12 and 13. Our interest expense for the fourth-quarter was $22.6 million or 4.3% of average net receivables on an annualized basis.

We remain pleased with the way that we've managed our interest expense over the past few years. Moving forward, we'll continue to maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified and staggered funding sources and a sensible interest rate management strategy. Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital to our dividend and share repurchase program.

Our Board of Directors declared a dividend of $0.30 per common share for the first-quarter. And pursuant to our buyback program, we repurchased approximately 197,000 shares of our common stock in the fourth-quarter at a weighted average price of $38.07 per share. For the full year, we repurchased approximately 702,000 shares at a weighted average price of $34.12 per share.

That concludes my remarks. I'll now turn the call back over to Lakhbir.

Thanks, Harp. To close, we are very pleased with how we finished 2025 and encouraged by the momentum we are carrying into 2026. We delivered strong results while continuing to invest in the business, improve underlying credit performance and drive operating leverage. Importantly, we did this in a disciplined way that positions us well for sustainable profitable growth.

As we look ahead, our priorities are clear: continue growing the portfolio responsibly, improving credit outcomes, expanding into attractive new markets and investing in our people, technology and analytics to enhance risk-adjusted returns. We believe the opportunities in front of us across products, markets and operating efficiency are compelling, and we are focused on executing against them thoughtfully.

Regional has a strong foundation, a resilient customer base and a talented team, and I'm confident in our ability to continue creating long-term value for our shareholders.

With that, we'll open the call for questions. Operator, could you please open the line?

(Operator Instructions) Vincent Caintic, BTIG.

Lakhbir, looking forward to working with you. Welcome on board. First question, you were very comprehensive already with your kind of strategic vision and the things you're focused on so I really appreciate that. One of the comments you were discussing is bank partnerships. And I was wondering if you could go into more detail about what sort of things we can anticipate Regional Management getting enhanced by with the bank?

And then have you thought about becoming a bank yourselves? It seems like some of the -- some non-banks are now kind of thinking about becoming banks given that it might be an easier path with the new administration. So I just wanted your thoughts on that as well.

Thanks, Vincent. As I shared in my remarks, we've been working on a bank partnership for several quarters. I'm highly focused with the team on getting that initiative executed. We believe it will improve our speed to market. It will expand our digital reach, help us with product uniformity across our footprint. I think as I mentioned, one of the key things is it will help us fill holes we have and are meeting our client needs in certain states just because of the way the regulations work.

Plus, it will help us optimize yields, just make sure we get paid for the risk we take in all various segments of our business. At this point, we don't have detailed time line to your point or any specific state rollouts at this stage, but we'll be sharing that as soon as we're comfortable doing. To your second question, again, too early in the seat for me to come in and change the overall strategy or question the strategy. But to your point, we do see a number of non-banks buying banking institutions.

I think long term, it does obviously help with cost of funds flexibility and strategic options, if you will. In the near term, though, I think our focus is getting this initiative done that the team had been working on for a number of quarters. But we'll continue to evaluate the landscape to your point as it evolves.

Okay. Appreciate that. And then, Harp, so thank you for all the different guidance items for 2026. I was just curious, I think in the past, you've had some other guidance items. So I was just curious if you're willing to give guidance on like credit reserves. And maybe I think you were talking about expenses being a bit higher and then how should we think about yields and interest expense?

Yes. So Vincent, traditionally and historically, we have provided detailed short-term P&L guidance, but we've reassessed our forecasting framework and how we run the business. And short-term precision isn't always the most effective or reliable way to communicate our outlook. Quarterly results can swing meaningfully due to timing-related factors that don't always reflect the true underlying momentum of the business.

So we're shifting to a full year view. We're going to keep the focus where it belongs on the fundamental drivers of long-term value creation. Nothing about our transparency is going to change. We're always going to continue to provide you guys with color on these calls. How I would think about first-quarter and the other quarters is I would take a look at our business is very seasonal. So we've talked a little bit about that.

Yields will be lower in first-quarter as the higher rate small loans pay down due to the impact of tax season. That could be a little bit higher this year as folks are expecting higher tax refunds. We know our delinquencies typically are always lowest in the first half and then they increase. And as a result, our net credit losses are always highest in the first half of the year, and then they are lower in the rest of the year.

In terms of ENR growth, we've talked about, right, the impact of tax season. When you're looking at last year, you'll want to normalize for the de novo growth that we had in the first-quarter, which muted some of that runoff that we normally see just because those de novos came on in fourth-quarter of 2024. So you'll want to adjust for that.

And then the other thing that I would tell you is just adjust for the hurricane noise that we've had in the past year and then also for the loan sale benefit that we had in first-quarter '24. So if you make those adjustments and then you go back to the cyclicality of the business, that should get you there with your model, along with the guidance that we did provide around the at least 10% ENR growth and our net income guidance for the year at that range. You also mentioned expenses.

So expenses, you will see our OpEx come down over time as we gain scale, but there is seasonality, of course, in our expenses, particularly year-over-year just as the full year impact of some of the investments that we made last year sort of comes fully online in the first-quarter. So that's how I would think about the model, but we're happy to delve deeper with you guys on the analyst calls later.

Zach Oster, Citizens Capital Markets.

This is Zach Oster on for David. Congrats on the strong operational quarter. I wanted to dig in a little bit on the same-store results. So obviously, there's good acceleration throughout the year in terms of same-store receivable growth. And speaking towards the guide for kind of expansion going into the new year, I wanted to get some more detail or color on how much room there is basically to continue growing those balances on the same-store basis versus just kind of expanding the store count.

Paul, can you just repeat that last part of that question for me again, please?

No worries. Yes, I just wanted to get some more color on where the growth trajectory is and kind of what pace we could be seeing for growth on a per store basis for receivables versus more kind of organic store expansion growth?

So I think we've talked a lot about sort of our market expansion, our geographic expansion, Kyle, in terms of right, that still is a lever for us. I think if you look at the supplemental presentation, you will see that we've become more efficient in terms of the loan balances that we have per branch. So we are becoming more efficient with those branches.

So I would really marry those two things together as you're sort of thinking about the impact that, that is going to have on our overall ENR balances. And then we provided you, obviously, with the ENR growth forecast for this year. And I would just, again, look at that in terms of seasonality in terms of when we put that on, as we know, right, in first-quarter, you have the tax refund.

We go back to growing those balances in second, third and fourth-quarter, and we would expect without any exogenous variables that, that would be the same pattern that we would follow this year.

Got it. And then if we can just get one follow-up. I wanted to get a little bit more detail also on the graduation program. I think that small balance loans came in a little bit lower than we were expecting, while larger loans came in higher. So I wanted to see if we can get more color on how that's progressing and if there was kind of more of a funnel over to the larger loans and graduation in the quarter than expected.

Yes. So Kyle, how I would think about that is very much we meet the demand where the demand is as long as it fits within our credit box. So that is very much what we've been doing. Our auto secured product is more of a newer product for us. So you are seeing that grow in terms of it's growing quite rapidly just because you're coming off of that smaller base.

And then, of course, it has the larger ticket size. But we remain committed to our balanced approach to growth. We will continue to bring in smaller, higher-yielding loans that fit our credit box and our return hurdles, we will continue to graduate them up to larger small loans and also larger large loans with the other end of that continuum being the auto-secured business.

Lakhbir talked a little bit about the auto secured business in his prepared remarks. We think that is a very stable portfolio, but we also understand what small loans bring to our balanced approach. And so we will continue with that graduation strategy. You will see sometimes some oscillation in that, but that is really because of where the demand is and our credit box at that time. We'll always continue to put on good loans that meet our return hurdles.

Kyle Joseph, Stephens.

Just wanted to step back and get your perspective on macro. I appreciate what you guys said in terms of tax refunds, and we understand the seasonality there. But from a high level, obviously, there's some uncertainty out there, but we've seen, call it, almost two-years now or more of kind of a good mix of strong loan demand balanced with stable credit. So on the heels of the higher tax refunds, how you're expecting kind of the remainder of '26 to look and how that factors into your outlook?

Kyle, it's Lakhbir. I appreciate the question. The macro picture, I'd just restate what the FOMC statement was last week. The economy has been growing at a solid pace. We do see the consumer to be healthy, saw in the early-stage delinquency levels for fourth-quarter. And as I said, we've been studying kind of various segments of the book, slicing dicing various segments and markets.

And I think overall, the consumer, to your point, is fairly healthy even in the part of the K-shaped economy that we serve. In terms of first-quarter, as we mentioned, we believe the OBBA impact really sort of has three sort of runs to it. One, I think the real increase in purchasing power, we believe consumers are going to use to pay down past due debt. So it should help in collections.

Two, consumers might use that increase in purchase power to pay down debt in general, that's high interest rate or what have you. And so that's the big question mark and how much impact it does to balances. And then three, I think some of this refund increase, which folks estimate could be 20% year-over-year increase, will also help increase discretionary spending, which frankly gives us an opportunity to grow loans.

And so we are looking at this from all three perspectives, post OBBA impact, which by kind of end May kind of time frame. We believe consumer demand is going to -- loan demand is going to stay healthy as it has been. And so that's kind of what's reflected in our 10% receivables growth year-over-year sort of guidance for '26.

Yes. And Kyle, just some of the other things that I would add to that, some of the metrics that we tend to follow. We'll continue to look at the employment rate and then the unemployment rate for the folks for our current customers and for those folks that could be potential customers. We know that open jobs still remain at 7 million. So open jobs, ample open jobs for our folks even if they do tend to lose their jobs.

We've been watching inflation, which is moderating. And then we look at wage growth in sort of the lowest quartiles and there is wage growth has moderated, but it still continues to be real wage growth. And then we always look at the gas per gallon, right? And the gas per gallon has come down from where it was last year. It's come down from where it was in September.

And we always look at the health of our customer in terms of their ability to pay. So we'll continue to do that. But we do believe that even if there is an outsized sort of tax impact because people get higher refunds, we believe that all indications are demand will continue to be there. And if they do pay down their loans that you should see that in terms of collections and then, of course, on NCLs later in the year.

Got it. Very helpful. And then just kind of honing in on customer acquisition costs. Obviously, marketing isn't a huge part of your P&L. But just kind of want to get your sense for how marketing should trend kind of weighing what you talked about in terms of broader G&A trends.

Yes. I mean if you take a look at our marketing quarter-over-quarter and year-over-year, we've improved it. We talked a little bit about it during the last call. We've become much more efficient around our mail. Now what we will do is we will probably reinvest some of that, right, in terms of growth. So right now, you saw in the quarter that we actually had sample growth in the quarter.

It's a little bit higher than the guidance that I gave, but we were better on our marketing expenses, and that's really due to the efficiency. But if demand is strong and those folks meet our risk box, we will probably redeploy some of those expenses in order to grow the business.

(Operator Instructions) Alexander Villalobos, Jefferies.

A lot of the questions I had have been answered. I did want to ask a question about pricing, though. Obviously, rates have come down a decent amount last year. Are you guys able to keep pricing kind of where it is given the segment of the consumer that you guys serve, not being that maybe that elastic. But I was just curious if pricing might come down a little bit as rates go down? Or should we think about pricing yields of the book kind of like staying where they are?

So just a couple of things on that, Alex. So when we think about pricing, we really look at pricing in context of where the market is at. And so you always want to price within a range to the market because you don't want adverse selection if you're too high. You don't want to be too low because then you just don't want to be too low, you're leaving some opportunity there on the table.

So we always measure those things as we look at pricing. But again, I'll go back to, right, we also look at, obviously, the consumer's ability to pay, and this consumer is often more focused on the payment dollars that they have to pay every month. So as long as you do that first part where you're in line with what the market will bear in terms of competition, the consumer in this segment is usually most concerned about their monthly payment. So we put all of that together when we think about pricing.

And some other different firms have been extending duration. Have you guys kind of kept duration where it has been historically? Or to get to that like payment that you're talking about, some other companies have extended duration. I was just curious if that has happened as well.

So we haven't done that in terms of how you're asking about it in terms of programmatically. I mean we have put on our auto secured product, which just comes with -- it's a longer loan. So that definitely is a variable. And then, of course, as we work through our programs with customers who are having difficulty making payments, we'll look at a number of curing tools in order.

And that's on a loan-by-loan basis in order to ensure that the customer has the ability to pay us and therefore, will pay us. So we do look at it from that lens. But no, there is no programmatic extension of duration.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you. Just to close and maybe repeat myself, we're very pleased with how we finished 2025. We're really encouraged by the momentum we are carrying into 2026. I want to thank all my colleagues at Regional, the team have done a tremendous job building the platform and the momentum we have today. And I really thank them and wish them luck as we work together in building an amazing 2026. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.