Regional Management Corp (RM) 2012 Q1 法說會逐字稿

Ladies and gentlemen and welcome to the Regional Management Corp First Quarter Earnings Conference Call. At this time, all participants are in listen only mode. Later we will conduct a question and answer session.

(Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Garrett Edson of ICR. Please proceed.

Thank you, Lisa, and good afternoon. By now everyone should have access to our earnings announcement which was released prior to this call. These documents may also be found on our website at www.regionalmanagement.com.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements which are based on the expectations, estimates, and projections of management as of today.

Forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties, and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in our statements.

These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for more detailed discussion on the risks that could impact the future of various results and financial condition of Regional Management Corp.

We disclaim any intention so our obligations to update or revise any forward-looking statements except to the extent required by applicable law. Also our discussion today may include references to (inaudible), reconciliation of those measures to the most comparable GAAP measure can be found on our website at www.regionalmanagement.com.

I would now like to introduce Tom Fortin, CEO of Regional Management Corp.

Thanks very much, Garrett, and good afternoon, and welcome to our first quarter earnings conference call and our first call as a public company.

I'm here today with our Chief Financial Officer, Bob Barry, who will speak [later on] our first quarter financial results. As a newly public company I think it would be helpful to spend a few minutes to introduce Regional Management to those of you on the call who are new to our story and to our industry.

Regional Management is a specialty consumer finance company and we operate in the installment lending space. The customer that we serve is and under-banked customer, and let me define that further. And under-banked customer is someone who has had a credit challenge or credit derogatory in his or her credit history.

It can be someone with a history of delinquency, previous accounts that have been charged off, or perhaps at someone who has successfully emerged from a personal bankruptcy. The underbanked customer is the core customer of Regional Management and we serve them with our broadest suite of installment lending products.

We are a 25-year-old company and we were formed in 1987 in South Carolina. Bob and I have been with the business for five years and when we came in, we saw a well run and conservative business focused primarily on South Carolina.

What we loved about this platform was all of the untapped potential to grow the Company. In the last five years, we have achieved an extension in our geography, we have expended our product set, and we've broadened the channels through which we originate our loans thus driving considerable growth in the business.

Now is all of you know, the past five years have been extremely challenging for our domestic economy, but here at Regional, we've risen to the challenge. Our asset base has grown during that time at a compounded annual growth rate of more than 15%. Our revenues have grown at a compounded annual growth rate close to 17% and we've grown from 89 branches in 2007 two 194 locations as of March 31, 2012.

Additionally, we've added new products and new business units and we've expanded our state geography. In fiscal 2011, our net income increased approximately 29% over 2010. As you can see, we've achieved quite a bit during a tough economic time. However, what we think is most important is the control we have maintained over our loan portfolio as we have a very sounding conservative underwriting philosophy which has translated into stable and predictable portfolio metrics.

The core and backbone of our business is our branch network. Were currently located in six states and were about ready to enter our seven states when our first branch in New Mexico opens later this month. We've been consistently building our way from the Southeast in our core market in South Carolina in a westward direction for the last 25 years.

In fact, our newest state, Oklahoma, is a focal point for our growth story on a de novo basis in 2012. Were currently building stores throughout the Oklahoma City metro area where we opened in late 2011.

We've also targeted several other states for future expansion including Louisiana, Mississippi, Georgia, Missouri, Virginia, and Kentucky because they represent a combination of the right demographics in an attractive regulatory and interest rate environment.

Now due in large part to our product extensions and the introduction of new loan origination channels, we have been able to impressively drive same store sales growth at an average of 14.7% for each of the last five years.

And when we go out to develop new stores, we have a very well characterized and well understood de novo branch model that shows consistent and predictable branch maturation with the branch typically growing considerably in terms of its finance receivables and contribution to operating income in years two and beyond.

With 88 out of our 194 branches older than five years, and a fully 106 branches younger than five years we have a relatively immature store base that is just now coming through the steep part of the growth curve in terms of average branch receivables and store contribution. We are very much spring-loaded for future earnings generating capacity off of our younger and maturing branches, and were very excited about that.

Turning to the marketplace, we serve a large and growing market in terms of our potential customer base. According to the FDIC, there are some 43 million Americans in the United States who live in an underbanked household. These are customers who do not enjoy full access to mainstream financial institutions and products such as credit cards, home equity lines, bank loans, or loans from captive auto finance companies because of their credit history and the credit derogatories.

As a result, the underbanked customer cannot or will not utilize mainstream financial institutions in full, and this is the customer to whom we provide a full suite of financial products and solutions.

Additionally, some 160 million Americans live in households with less than $75,000 of annual income. This is the core demographic for Regional Management, a demographic which has been particularly impacted by a contracting supply of consumer credit availability.

In fact, since 2008, some $1.4 trillion of consumer credit availability have been removed from the market and between the third and fourth quarter of 2011, an additional $128 billion of consumer credit availability was removed from our economy. So a growing marketplace, combined with a declining supply of available consumer credit equals a fantastic opportunity for Regional Management.

Portfolio wide, we currently serve about 165,000 active accounts meaning that each of our branches typically has an average of about 1000 active accounts at maturity. We are a highly localized business and we want our personnel to know their customers by first name. 1,000 accounts per branch is a comfortable number for our personnel to manage in a very high tech and personal relationship that we maintain with our consumer.

Now turning to our product line, unlike a monoline lender or a single product financial services company, Regional Management has been built with a diverse product set that we feel serves the varying needs of our customers well particularly as their credit needs change and evolve over time.

We offer small installment loans, medium-size installment loans, automobile purchase loans, and furniture and appliance finance loans, and I will discuss each of these products in turn. But what I think is most important about this product diversity is that we can enter into a relationship with a customer through any one of these products that I've mentioned.

As an example, we may start a relationship with a customer with a small $1400 personal loan, and as we watch the customer perform and pay back the loan and develop as a customer, we can better understand them on a personal level and at a local level.

We want to know what are their needs, what are their wants and desires. At some point, they may need a set of furniture or perhaps they're looking to trade in a vehicle. We want Regional Management to be the provider of financial solutions throughout the financial and economic lifecycle of our customers. We think this is a competitive advantage that is very strong for Regional Management.

So let's go into a bit more depth regarding our products, first with our small and medium size installment loans. When you look at some of the alternative financial services providers out there that many of you are familiar with such as PayDay Lenders, Pawn Lenders, and Title Lenders, we think Regional Management as an installment lender compares very favorably on virtually every dimension.

For example, a payday loan is typically a one-size-fits-all loan. Regional Management has loans there range from $300 up to $30,000 that are customize to the individual borrower's needs. Additionally, PayDay and Pawn loans tend to be very short in duration typically with maturities less than 90 days. The maturities on the Regional's loans range up to 72 months.

Most alternative financial service providers have a balloon payment or a large payment at the end of the loan term. Importantly, Regional's products are structured as installment loans so the customer has scheduled equal monthly payments of principal and interest, and this helps the customer budget their household income and their household expenditures.

The customer knows is precisely when to schedule their monthly payment to us to relieve their debt without any mystery to the process.

And importantly, were most PayDay and Pawn loans are triple digit APR loans, Regional has very customer friendly and attractive yields. In fiscal 2011, our portfolio yields on a weighted average basis was 34.6%.

In addition to pulling a full credit report on each application we review, we report to the national credit bureaus every month the performance of our customers on each and every loan. This is essential for the consumer who is looking to rebuild their credit and that simply is the feature that other alternative financial service providers cannot or will not match.

It's important to note that every single loan on the books at Regional Management is secured by collateral. Again, we have equal monthly installments of principal and interest and we are underwriting each of these credit stories to the disposable monthly income of the consumer.

Although we take a security interest in each of our loans, we look to the collateral only as a credit enhancement. When we make a loan, our underwriting process is based on the available income of the consumer not the value of the collateral.

We also offer automobile finance loans to our customers ranging from $5000 to $30,000 and up to 72 months in duration, and these loans consist of approximately 42% of our portfolio asset base.

We currently market to more than 2,700 individual new and used automobile dealers in the geographic footprints that we serve. This is important because those dealers are motivated to bring their consumers to Regional to finance the vehicle.

For this product line we spend virtually nothing in marketing. Instead, we have dedicated marketing personnel who market to automobile dealers every day of the week and drive customers through Regional's door.

In addition, we've identified more than 11,000 automobile dealers in our current geographic footprint with whom we have yet to do business, which is an enormous opportunity to further penetrate the available market and to continue to drive business to our stores.

With approval rates with subprime and near prime auto loans having dropped considerably since 2008, that's a significant opportunity for Regional Management to gain further market share in the automobile lending market.

Our newest business is currently a small but growing business unit and we believe a very attractive part of Regional Management, and that's our furniture and appliance financing business, or what we call RMC Retail. Through RMC Retail, we partner directly with retailers to provide customer financing at the point of sales and I'll briefly explain the process.

What typically happens at a furniture or appliance retailer is they will have a source of prime financing perhaps a credit card issuer or a bank. Now when the customer comes to buy the furniture or refrigerator, if they are turned down by the prime financing source there is typically no alternative to satisfy the customer's needs. In fact, it's a lose/lose situation; bad for the retailer in that they tend to lose the sale, and bad for the consumer because they leave the store disappointed.

Regional steps into this void and provides a source of secondary financing at the point-of-sale. We take the application that has been turned down by the prime financing source and within 10 minutes, while the customer is waiting on the showroom floor, we will analyze the application and render a decision on the loan.

This is a business that we currently underwrite on a structural basis, and we have a merchant servicing center located in Charlotte North Carolina that works seven days a week during the hours that the retailer is open underwriting loans.

Importantly, this is done at the convenience of both the retailer and the consumer. RMC Retail has become a great new source of business for us and really supports our cross-selling efforts among products. For example, if we enter into a loan with a consumer for furniture or appliance, that gives us another opportunity down the road to perhaps offer the same consumer and automobile finance loan, or perhaps a small personal loan depending on their needs.

So as is evident from our automobile and furniture relationships, we're not just relying on our branch network to generate loans. We also have a very broad and well-characterized direct-mail program that we call our Live Check program.

A live check is a negotiable instrument that we send to a consumer on a prescreened basis by purchasing perspective customer names from the three national credit bureaus. When the customer receives the offer, they can endorse the check, cash it at a bank or check cashing establishment and instantly enter into a loan relationship with Regional. This is a highly scalable and successful element of our marketing program that we've conducted since 1999.

However, branches are our bread and butter where everything happens with our Regional personnel and where we routinely interact with our customers.The branch manager has full responsibility for that individual branch and is responsible for the entire relationship with the customer from local marketing and underwriting and origination loans to disbursements of the loan proceeds and servicing, and ultimately to back-end collecting. It's a very hands on and labor-intensive model, but we think it keeps us extremely close to our consumer.

A particular note, some 70% of our payments each month are brought into our branches by the customer. And while that seems both counterintuitive and somewhat inefficient, it's a tremendous opportunity for us to see, access, and touch our customer on a regular basis. Additionally, it offers us a tremendous opportunity for in person cross-selling. That ultimately has yielded a very attractive portfolio performance that's driven outstanding financial results for us.

We oversee these branches with a very strong bench of field managers and District supervisors. On average, a branch manager for Regional has been in that position with us for four years, and a manager reports directly to a district supervisor who oversees 6 to 10 branches and is in the branches every week teaching, coaching, and observing.

Our district supervisors on average have been with us for five years and average more than 24 years of experience in the industry. Each of those supervisors in turn reports to a state business unit vice president. Our four business unit vice president's average 17 years of tenure with Regional Management, and more than 23 years in the industry. Clearly, we have a very strong and deep bench.

So as you can see, we have a diverse product offering and a solid bench and employee framework in place, but without proper underwriting, none of our success is possible. To that end we have sound and consistent underwriting methodology. When a customer comes into our store to apply for a loan, we pull a full credit report and obtain a full application verifying all of the information on the application.

And then we interview the customer. What is the customer's discretionary income? Do they have sufficient income in their household to pay the debt that they are applying for in addition to the other debts they have? What is the stability of the applicant at their job and that the residents? Who are the references?

With Regional, a low credit score is not an automatic reason to decline a loan. Instead, we try and understand the reason why the customer has had problems, what they are doing to rectify them, and why they need this money, and frankly, what has happened to them in the prior credit situation.

This detailed approach contrasts with credit score driven models that are used by a number of credit card companies, banks, and mortgage originators. Pure credit score driven decision models can promote false positives where the customer may have a very high credit score but ultimately is unable to afford the loan.

For example, somebody may have a very high credit score and be approved for a car loan, but has just recently lost their jobs. Now due to a lag in reporting to the credit bureaus, the credit score itself may not reflect the recent loss of income, and a bad loan would have been made in that situation.

Conversely, a customer can have a false negative where a customer will be denied credit because they had an old credit incident such as a bankruptcy affecting their credit score, whereas at Regional Management, a customer who has recently emerged from bankruptcy has a job, and is current on recent payments is a very good potential customer and one that we would look at favorably.

The success of our underwriting methodology as well as our inroads into automobile and furniture loans is clearly present in our results, and we recorded met charge-offs as a percentage of average finance net receivables of 6.3% in fiscal 2011; a five-year low for Regional Management.

Before I turn it over to Bob, I'll conclude by discussing a topic of great interest to many investors and analysts, namely the regulatory environment in which we operate. From Regional's perspective, we believe we operate in a very stable, very well-characterized regulatory environment.

On the state level, we are licensed individually by state regulators and each and every one of our branches holds an individual state license. Each of those branches is subject to an annual audit review and state license renewal exam by the state regulator. The state regulatory environment is one of very little change at the legislative or stage rulemaking level. We believe we have great visibility on the future as it relates to state regulation of our industry, and it is positive on balance.

On the federal level, as a result of the Dodd-Frank Act and the establishment of the Consumer Financial Protection Bureau in July 2011, we and all other financial service providers are subject to CFPB oversight. I can tell you after having visited the CFPB three times in the last year that the focus of the Bureau is on less attractive, less customer friendly products than installment lending such as payday loans, student loans, credit cards, and mortgage originators.

As an industry, installment lenders have been reaching out to and educating the CFPB on why installment loans are a much more attractive and safer product for consumers, whether it's from an interest rate perspective, disclosure of our terms, the fairness of those terms, the soundness and safety of installment loans, or the clarity of our disclosures.

So we think we have good visibility on the CFPB. We're working very closely with the Bureau and educating them about our business. We do not believe that installment lending is going to be a focal point for the Bureau in the near term.

I hope that this gives you a good overview of the Regional story. And now, I'd like to turn the call over to our chief financial officer, Bob Barry, who will discuss our first quarter results, and then I'll return to provide closing remarks concerning recent events in our overall growth strategy. Bob?

Thanks, Tom. Good afternoon, everyone. Let's go right into our first quarter results. For the first quarter of 2012, we've reported total revenue of $31.5 million a 28% increase from $24.7 million in the prior year period.

Interesting fee revenue for the first quarter of 2012, $26.9 million also a 28% increase than the $21 million in the prior year period, primarily due to a 32% increase in average finance receivables. Insurance and other income was $4.7 million, a 28% increase from the prior year period. Same-store revenue growth, which we defined as growth for stores open for more than one year for the first quarter of 2012, was 11.2%.

Finance receivables outstanding at March 31 were $317 million, a 33% increase from the $238 million in the prior year period. Finance receivables were increased primarily to the addition of 48 stores since March of 2011, including the 19 net new branches acquired in January 2012 in Alabama. Same-store loans for store open at least one year grew 13%.

We have 194 branches in 6 states open as of March 31. During the first quarter of 2012 Regional opened and acquired a net 24 new branches. As of March 31 small installment loans made up 35% of our portfolio, large installments were 19%, automobile purchase loans for 42% and the remaining 4% were furniture and appliance purchase loans.

Provisions for loan losses in the first quarter 2012 or $5.6 million versus $3.8 million in the prior year period, primarily due to an increase in finance receivables. The accounts that were 90 days contractual the delinquent were 2.3%, the same as in the prior year first quarter. Net charge-offs as a percentage of average finance receivables on an annualized basis for the first quarter of 2012 were 6.4% again the same as the prior year period.

Over the past five years, charge-offs have ranged from a low 6.3% to a high of [8.6%] that occurred during the financial crisis in 2009, so we are in a very good spot in terms of net charge-offs.

The general administrative expenses for the first quarter of 2012 were $12.8 million an increase of 25% from $10.2 million in the prior year period, primarily due to an increase personnel cost for opening and acquiring an additional 48 branches since March 2011.

Regional's efficiency ratio which is a percentage of general and administrative expenses compared to total revenue in the first quarter of 2012 was 40.6% an improvement of 80 basis points from the prior year period.

Debt net income for the first quarter of 2012 was $5.1 million, a 3.8% increase compared to net income of $4.9 million in the prior year period, and diluted earnings per share for the first quarter of 2012 was $0.53 based on a diluted share count of $9.6 million.

However, on a pro forma basis excluding one-time IPO expenses and applying the proceeds from the IPO to reduce outstanding debts, net income for the first quarter of 2012 was $6.8 million, an increase of 37.1% from the prior year period, and diluted earnings per share were also $0.53; however, based on a diluted share count, it was $12.7 million. As of March 31, 2012, Regional had finance receivables of $317 million and outstanding debt of $236 million.

During the first quarter, we increased our senior revolving credit facility to $255 million and extend the maturity date to January 2015. In addition, the rate in our senior revolving facility declined by 25 basis points upon completion of the IPO. Subsequent to March 31, 2012, we paid down $39 million of the principal on our debt including our entire mezzanine facility.

At this point, I'd like to turn the call back to Tom for his closing remarks.

Thanks, Bob. So we're very proud of our first quarter performance at Regional, and I just wanted to touch on a few additional points regarding our growth strategy and then we'll open it up to your questions.

We have consistently been in the small acquisition market adding incrementally to our portfolio by acquiring branches and accounts in a series of small transactions; however, in January of this year, as you know, we successfully completed the strategic medium size acquisition of two consumer finance companies located in Alabama picking up a $28 million portfolio and 23 branch locations.

We proceeded to close and consolidate four of those branches so we added a net 19 branches, and now have 33 total branches in Alabama as of today. Now with this transaction, we've more than tripled our receivables base in Alabama. We've overlaid the Regional automobile lending platform and the furniture appliance purchase program to our new branches there, and were starting to pepper in new Alabama markets with our direct mail live check programs.

We think there's a lot of growth potential in this new Alabama portfolio. We're very excited about the potential for this transaction.

The Alabama acquisition actually covered extremely attractive markets for us that were already on our development pipeline in that state, as we consistently move our way from the northern to the southern part of Alabama. In 2012, we'll begin to build out the lower third of the state of Alabama, and we're very excited about that opportunity.

In terms of de novo branch growth, I mentioned previously that we've been consistently building our de novo branches from East to the West. In addition, we currently have a database of more than 800 local markets that meet our development criteria, 450 of which are in the six states where we currently operate. This is incredibly exciting for us because we think on a de novo cases there are years and years of potential organic growth and earnings potential available for Regional.

Furthermore, we are consistently in the channel marketplace marketing to and doing business with automobile dealers as well as furniture and appliance retailers. We're also proud of our direct mail program which has grown originations from direct mail at close to a 40% compound annual growth rate over the last three years. So, that's been a huge element of our growth.

Our growth story at Regional is very basic. We continue to perform at existing branches and drive growth by introducing additional products, services, and further penetrating the market in our existing stores.

We work in a known regulatory framework where we've proven that our business unit model is effective, productive, and possible. And, finally, we've identified several new states that are attractive for us to enter both from a demographic and a regulatory framework, and we believe there are at least 350 additional local markets on our horizon in those new states to complement the 450 potential in six states where we currently operate.

So to wrap up, we're very energized about the future of Regional Management, and I think it's important to understand that were embracing as a company a very large and growing marketplace to the underbanked consumer. We believe that Regional is second to none in the industry in terms of the diversity and breadth of our loan products that we offer that serve the evolving and changing financial needs of customers throughout their economic lifecycle.

We augment our branch network by reaching out into marketing channels and the local community whether it's automobile or furniture retailers, and over the last 25 years we've had a consistent and conservative underwriting model that has provided a very clear portfolio performance and quality. This drives attractive resulting financial performance. We're very excited about our growth story and the future of Regional Management.

Thank you for your time and interest today. And, operator, now will open up the call for questions.

(Operator Instructions)

And your first question comes from the line of Daniel Furtado of Jefferies. Please proceed.

Good afternoon, Tom, Bob. Thank you for the time and the update on the business. Great quarter. Tell me this, I know you went to some detail here about your expectations for de novo growth, but do you have something in mines in terms of new store builds for the remainder of '12?

Yes, we have a very concrete plan for that, Dan. We've not made any specific disclosures publicly. What I can tell you is that in fiscal 2011, we built 33 de novo stores. We actually purchased three for a total of 36 incremental stores last year.

I would say the looking at 2012 we've got the 19 net stores from the Alabama acquisition ,and combined with what's currently on the books on the drawing boards for de novo development will certainly be in excess of 36 units incremental in 2012. But I think, without giving specifics, it it'll be in excess of 2011.

Great. Thanks, Tom. And then you spent some time on the Alabama acquisition -- and I think you meant this, but I just want to be absolutely clear that so far the integration of Superior is going at or above plan.

It is. In March 00 at the end of March, we closed the integration of both the general ledger and the loan management system. We are doing some final purchase price accounting adjustments which will come through in the second quarter, but I think most importantly from a business model and from a cultural perspective, Dan, the integration is complete.

We have layered onto all of the new branches that we picked up in Alabama, our automobile lending platform. We've also extended RMC Retail which is our furniture and appliance, so we feel very confident that the transition has gone well and seems to be performing at or above expectations.

Great, thank you. And one last, if I may. And that's just an update on the Auto Credit Source and kind of what you are seeing in that channel over the last 90 days or so. Thank you.

Sure. So, as you know, Auto Credit Source is a dedicated brand that we launched in 2011 with a specific focus on marketing to when serving the needs of franchised or new-car dealers.

Our two first branches for Auto Credit Source opened in early 2011 in Dallas, Texas and Charlotte, North Carolina. Both of those branches are doing extremely well in terms of their growth trajectory, their performance, their competitive posture in those metro markets.

This year, in January of 2012, we opened the two Auto Credit Source locations that we've planned for in Houston and in San Antonio. Those have just been launched within the last 80 to 90 days. It's early days in terms of looking at how they are performing, but were seeing similar traits and characteristics for Houston and San Antonio that we saw in the prior year in Charlotte and in Dallas.

So I guess I would say in broad terms, we're very pleased with the launch of Auto Credit Source. We're taking a very measured approach to that business. It's a new brand, and frankly, a new market segment for us serving exclusively the franchise auto dealer market. So, you're probably see us continue to roll out audit Auto Credit Sources on more or less the same pace in years coming that we have in 2011 and 2012.

Now to your question on what we are seeing in the automobile market place of late, I can tell you that it's as competitive as we've ever seen it. And I would note that we've seen that particular competition coming back into the market from certainly credit unions and really more importantly, from larger banks that tend to be buying down deeper into the credit score spectrum.

I think that's a tribute to the dynamics of the automobile finance market. Used car prices have been very strong. Consumer demand which had been pent-up seems to be equally strong. I was just looking at some statistics showing that used car purchases in the last couple of months are at all-time highs.

So, this is an enormous market. It's very deep. No competitor has more than 8% market share and look, Regional and Auto Credit Source compete on every deal every day pretty fiercely. So we feel were up to the challenge.

Great. Thanks for the clarity, and congratulations, on a successful launch and nice quarter.

Thanks a lot, Dan.

(Operator Instructions)

Your next question comes from the line of [John Hett with Stephens]. Please proceed.

Good afternoon. Thank you for taking my questions and congratulations. First, if I recall you guys opened about 29 stores in the first half of last year. Can you remind me where those are in terms of drag versus profitability, and what happens once they hit profitability from year one to year two in terms of the vintage growth?

Yes, just generally, John. What we've seen historically and certainly what we're seeing with the 2011 vintage is on average a new store will have about $900,000 to $1 million of receivables on the books by the 12th month of operations.

That, of course, depends on the stage we're operating in, but when we look in the aggregate in any vintage, that's typically the case. I think, more importantly, we see breakeven at the store level operating income line between months eight and 12; again, depending on the state that we're opening and operating in.

This is certainly been the case with the vintage from 2011. We've seen that class perform very much in line with historical norms so what happens after that and particularly years two through five is when you get significant receivables ramp, but more importantly store level operating income ramp. And let me just throw some statistics that you.

At the end of fiscal 2011, we had on average stores that had been open for five years or more with $2.3 million of receivables per branch, and those same stores that had been opened five years or more had $518,000 of store level operating income.

So, this is a de novo that's very well characterized. We've got a tremendous amount of visibility and predictability into what the unit model looks like, and I would just say that the 2011 vintage certainly seems to be following those historical trends.

It's early in the 2012 development cycle. As you know, in the first quarter we opened five de novo stores in addition to the 19 net branches that we picked up on the Alabama transaction. So, those five stores have really been open for just a little bit more than 80 days on average.

It's a little tough to draw conclusions on this particular vintage, but we have a number in the pipeline that will be opening up during the month of May.

Okay. And with respect to the Alabama acquisition, can you just remind me what portion of the quarter did you get revenue or expense contribution.

Yes, John, let me have Bob Barry answer that one. Bob?

Hi, John. John, without Alabama, excluding that, our receivables grew 22% over the prior year and they had the same increase in revenue, 22% excluding Alabama.

Okay. [Then I should] be able to back-end the numbers. Thanks. The auto segment, can you tell us the balance of the direct versus indirect? And then, Tom you mentioned some competitive forces there, what do you think that does to yields in that category?

Yes, John. Your first question I'll give you a very rough estimate direct versus indirect -- it approximately 85% of our asset base for auto is direct versus 15% indirect.

And in terms of yields -- it's interesting. I'm just looking at some statistics now for Auto Credit Source on a trailing 12 month basis. It's kind of an interesting phenomenon. Our yields have actually increased by about 170 basis points.

So that strikes me as a little bit odd with more supply of auto financing coming into the market. I think what I would look to their, John, what I infer from that is were covering a pretty narrow portion of the credit spectrum in terms of our automobile financing.

Typically, we are in the 560 FICO score range on the low-end to about 620. So, some of these competitors are certainly serving higher credit score consumers. We know there are plenty of credit providers below our lowest range.

Again, I think it's a tribute to the depth of that market that we're not seeing a huge amount of price competition. We're just seeing a lot of volume and credit availability flowing into the market.

Okay, that's very helpful. And the last question is your charge off rates and the credit statistics seem very consistent with the year-ago results, is anything changing at the product level where one's getting worse and ones getting better or has it all been pretty consistent at that level as well?

I'll answer that and then turn it over to Bob for some specifics, John. But you know, we have had a very slight shift in our product mix with growth in our automobile portfolio. We know from historical experience that we're typically seeing relative to other product lines a low historical charge-off in the automobile category.

So I think that the slight shift in product mix to auto has been helpful from a charge off perspective, but, Bob, do you want to may be drilled down a little deeper into products?

Okay, John. In the first quarter of 2012, our small loan charge-offs were 10.5% and that's up from 8.6% in the prior year. Conversely, large loans were down from 6.8% to 3.3%. Automobile losses were up from 3.7% to 4.3% and furniture was down from 4.2% to 2.2%.

I think these are quarterly numbers. It's a little hard to -- I think six months into the year we can get a better feel for it, but we monitor the trends in these. Obviously, the small loans is something that I think we're not -- we're looking at that so we'll be following that throughout the year.

Automobile continues to be pro forma on a static pool basis and on lost development curves -- very favorably, furniture is just amazing at 2.2%.

Great. I appreciate that color. That's very helpful. Thanks for a much.

You bet.

And your next question comes from the line of David Chiaverini with BMO Capital Markets. Please proceed.

Hi, guys. Good afternoon.

Hi, Dave.

A couple questions for you. First, on the efficiency ratio, so it's improved nicely over the past few years. Is that due to new branches maturing or an increased use of technology or what's behind that?

Well, I think, Dave, we've made a very concerted push for top-line productivity. We're certainly getting the benefits of operating leverage just as a result of our scale and our growth, but really from a cost structure perspective, we've also been simultaneously pushing a lot of efficiency and yes, much of that does relate to technology that we have introduced; systems and infrastructure to try and make our branches make our centralized efforts a lot more efficient.

Some of our efficiency ratio gains have been and will continue to be muted as a result of our new status as a public company. All of those public company costs are dialed into the figures that we report in the first quarter, but, yes, I would say the combination of top-line productivity, cost structure efficiency. We're continuing to look for innovative ways to drive the business as we build the scale.

Okay, and do you expect similar growth across all loan categories or faster growth within auto going forward?

Been interesting to see the pickup in auto certainly. I think that's certainly a combination of our focus on that market particularly after the '08, '09 shock to the financial system when we really tightened considerably our automobile lending.

So some of the growth and some of the push you see from us in the auto segments again is a very focused effort to rebuild dealer relationships and rebuild that important component of our portfolio.

I would say this, we're looking to push on every category. The furniture is obviously kind of an eye-popping year over year growth story just given that we started that a couple of years ago. It's a relatively small base. I think you're going to see going forward considerable continued growth to RMC Retail on the furniture business particularly as we add new retailers and new retail chains to our network.

So, expect to see growth there. The small loan growth, the small loan product is really our core product, somewhat more mature, particularly in mature markets such as the state of South Carolina. We tend to see that in the high single digit year-over-year growth range.

But that's a nice continual growth product for us. It's really driven by our Live Check campaigns and it's certainly one of the ways we stimulate the small loan categories by continuing to innovate and grow our direct mail marketing efforts.

I can't point to any one area in particular that's not going to continue growing for us in an impressively. We've got a lot of variability and a lot of latitude in terms of how we market through these channels. So I hope that it's your question.

So, if auto were to grow faster, is there a particular level at which Regional would kind of pullback and originate less in the auto channel so the others could kind of catch up to keep the balance?

I guess the way to look at that, Dave, would be again, we've historically had auto over the last couple of years in the 38%, 42% of our asset base range. My sense is that that's going to continue to grow by a few percentage points as the percentage of our overall asset base. So I guess your question is, is auto going to crowd or essentially choke off growth in other areas?

No, we're certainly not going to let that happen. A few minutes earlier, I think I mentioned that were taking a very measured approach in rolling out Auto Credit Source and I think it's really -- it gets to the heart of your question.

You know, when you're making an $18,000 auto loan that can chew up some of your availability on your credit line quickly, we won't allow the business to do that. So I guess I would say were keeping an eye on the growth in auto. We don't want to let it become disproportionate relative to the other product lines. And, absolutely, were going to control the growth in that product line so that it's consistent with historical norms.

That's helpful. Thank you.

Sure.

(Operator Instructions)

And at this time, there are no further questions in queue.

Okay, Operator. Well, thank you very much. And for those of you on the line, we very much appreciate the extended time you've put on this call. This is a unique opportunity for us to introduce you to the Regional Management story. Future quarterly calls will be much more efficient and routine. We thank you for your support of the Company.

Thank you very much, Operator.

You are very welcome. And, ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.