Regional Management Corp (RM) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth-quarter Regional Management Corporation earnings conference call. My name is Denise and I will be the operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Garrett Edson, Senior Vice President of ICR. Please proceed.

Thank you, Denise and good afternoon. By now, everyone should have access to our earnings announcement, which was released prior to this call and which may also be found on our website at 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. The forward-looking statements and 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 the forward-looking 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 a more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of Regional Management Corp. We disclaim any intentions or obligations to update or revise any forward-looking statements except to the extent that we are required by applicable law.

Also, our discussion today may include references to certain non-GAAP Measures. Reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement and posted on our website at regionalmanagement.com. I would now like to introduce Tom Fortin, CEO of Regional Management Corp.

Well, thank you very much, Garrett and good afternoon, everyone and welcome to our fourth-quarter 2013 earnings conference call. I am here with our Executive Vice President and Chief Financial Officer, Don Thomas, who will speak shortly about our fourth-quarter financial results and I am also joined by other members of our executive management team.

Our fourth quarter was much like our third quarter with both double-digit top line and same-store sales growth, as well as improved yield to our portfolio. We recorded total revenue of $48.5 million, up 32% from the prior year, net income of $8.4 million and diluted earnings per share of $0.65, which includes the impact of costs related to a one-time catch-up for director compensation, as well as our secondary offering in December. Excluding those costs, diluted earnings per share would have been $0.73. Same-store sales growth continued to thrive in the quarter with a 17% increase in the fourth quarter. Finance receivables as of December 31, 2013 were $544.7 million, up 24% from the prior-year period and up $30.7 million during the fourth quarter alone.

From a customer account perspective, we serviced over 335,000 active accounts as of December 31, an 8% sequential increase from the approximately 309,000 individual accounts we serviced as of September 30. Our focus on originating higher yield loan products continue to bear results as our total yield improved 90 basis points sequentially in the fourth quarter to 36.9%. We are slowly but surely returning our yield to our historical levels and are quite pleased with the progress we made throughout 2013. We are also aided by the recent rate and fee increases in North Carolina and Texas where we starting to see a positive impact on yield.

Now just as importantly, helped once again by our increasing yield, we saw another quarter of solid performance from an efficiency ratio standpoint, including $1.5 million in one-time charges. Our efficiency ratio actually improved 60 basis points in the quarter to 40.1%. Excluding those one-time costs, our efficiency ratio improved to a very robust 37%. Overall, we were quite pleased to see the improvements in both our total yield and efficiency ratio.

Our direct mail campaigns continue to be a major factor in driving revenue and business growth with our holiday campaigns particularly successful in the quarter. Overall, for 2013, we mailed out more than 3 million convenience checks and we were very pleased with the overall response rate from our various campaigns. The direct mail campaigns will continue to be a key element of our growth strategy in 2014 and beyond.

If there was one challenge in the quarter, it was with our fourth-quarter annualized net charge-offs as a percentage of average receivable, which was 7.8%, an increase from 7.1% in the prior-year period. The increase was due in large part to the product mix shifting more towards small installment loans, which are typically the product with the highest charge-offs. While we will keep a close eye on this metric in 2014, our provision for credit loss as a percentage of revenue was comparable to the prior-year quarter at 24%, as Don will discuss shortly.

Looking ahead, we commenced the transition process of our new GOLDPoint loan management system in the back half of the quarter and as of today, implementation is on track according to our plan. And as I mentioned during our last quarterly earnings call, we believe the new system will make us even more efficient in processing and serving our product portfolio and growing our account base and will certainly accommodate substantial growth for the coming decade and beyond.

As part of that growth, we noted today that our 2014 de novo plans are well in process as we've already opened nine new branches to date and we have plans to open 28 new branches prior to the end of the second quarter. This pace is a little lighter than last year, but with a significant amount of our focus on properly installing and implementing our GOLDPoint loan management system this year, we want to ensure that our systems are on track, up and running properly and able to handle the additional branch and account load before committing to additional de novo locations in the second half of 2014. We do not want to make the operational mistake about growing our capabilities or to use one of my favorite football metaphors, outkicking our coverage. With that said, we are, in fact, pleased with our overall progress and believe that we will be positioned to take Regional to a new level of growth by the end of 2014.

Before turning it over to Don, I do want to especially thank our private equity sponsors, Palladium Equity Partners and Parallel Investment Partners, who closed a secondary offering of their shares in December, officially exiting their stake in Regional Management and further enhancing the liquidity of our overall share count. Without their commitment and support over the last seven years, Regional certainly would not be in our current strong position.

With those preliminary comments, I would now like turn the call over to Don who will discuss our fourth-quarter financial and operating results and then I will finish up with some closing remarks.

Thank you, Tom. Good afternoon, everyone and thank you for being on the call with us. Let's start with some top-line discussion. Interest and fee income for the fourth quarter of 2013 was up 33% from the prior-year period, primarily due to a 24% increase in finance receivables and an increase in product yields. As of December 31, 2013, about 58% of our branches are less than five years old and are in the steepest part of the growth curve. For the fourth quarter of 2013, our same-store revenue growth, same-store receivable growth was 17% and 11.5% respectively. We define same stores as stores open for at least 13 months. And just a quick reminder that backfilled de novos where we split accounts out of one branch to start another one are a deflating factor for this calculation.

In addition to same-store growth, we opened 41 de novo branches and acquired two others during the year. And at the same time, we were able to increase the average receivables per branch from $1.989 million to $2.063 million at the end of 2013. So the de novo branches also contributed to the increase in the interest and fee income.

As Tom noted, our yield continues to improve due to rate and fee increases in North Carolina and Texas, as well as changes in our mix of loans. In Q4 2013, our interest and fee income improved approximately $250,000 due to the rate change that occurred last year in North Carolina and $400,000 due to the fee change that occurred in Texas. We have also seen some change in our product mix that contributed to higher yield. As of December 31, small installment loans made up 53% of our portfolio, large installment loans made up 8% of our portfolio, automobile purchase loans were 33% and retail purchase loans were 6%.

The majority of our growth during the fourth quarter was in the small loan category, which increased from 50% of the mix to 53% of our portfolio and was primarily driven by our direct mail campaigns. The provision for credit losses in the fourth quarter of 2013 was 32% higher than the prior year due primarily to growth in the portfolio. Accounts over 30 days contractually delinquent were 8%, up from a rate of 6.7% as of December 31, 2012.

As Tom noted, annualized net charge-offs were 7.8% of average finance receivables for the fourth quarter versus 7.1% in the prior-year period. The 7.8% rate is slightly above the middle of our five-year historical range of 6.3% to 8.6% with some small loan charge-offs increasing more than other loan categories.

Geographically, we had the largest increase in net charge-offs in the state of Texas, although all states except Alabama had increases. Our growth outpaced our hiring during Q4 2013 and we saw our accounts per employee move up, which was the primary reason for the increase in delinquencies. We have not found any delinquency issues that stem from our underwriting and are working hard to reduce our accounts per employee and expect delinquencies to come down as that happens.

The increase in delinquent accounts and charge-offs was somewhat offset by changes in the effective lives of our portfolios of loans. An evaluation process in Q4 2013 led to a change in the effective lives of some of our portfolios with small loans moving from eight months to six months, large loans moving from 12 months to 10 months and retail loans moving from 12 months to 11 months. As a result, our Q4 2013 provision for credit losses was 24% of revenues, which was comparable with Q4 2012 results.

Personnel costs for the fourth quarter of 2013 were $10.1 million, an increase of 17% from $8.6 million in the prior-year period. As noted earlier, accounts per employee were higher in Q4 2013 than in Q4 2012, which kept the personnel costs from moving to a higher level. We expect that our efforts to reduce our accounts per employee in 2014, coupled with our de novo openings and growth, will result in higher personnel costs in 2014. Of note, in the first quarter, we will record a one-time non-cash reversal of at least $1.1 million of vacation pay liability following a modernization of our vacation policy in February 2014 and employee elections to transition to this new policy.

Occupancy expense for the fourth quarter of 2013 was $3.3 million, an increase of 37% from $2.4 million in the prior-year period primarily due to our recently opened branches, some phone system replacements and upgrades of some communication lines to improve customer service and system uptime. Marketing costs for the fourth quarter of 2013 were $1.1 million, an increase of 26% from $0.9 million in the prior-year period. The increased costs are due to increases in our direct mail volume, which was consistent with our 2013 plan.

Other expenses for the fourth quarter of 2013 were $5 million, a 62% increase from $3.1 million in the prior-year period. The increase was driven by the one-time, $1.2 million expense related to director compensation and $0.3 million in one-time costs related to the secondary offering. As a reminder, in October, our Board of Directors revised its compensation arrangement for Board members. Beginning in the second quarter of 2014, we expect to incur approximately $1.4 million in director compensation expense for annual service inclusive of expenses associated with the March 2012 IPO option awards. We expect the ongoing expense to be spread evenly over each quarter.

Concerning our new loan management system, we have previously noted that the transition would be dilutive to earnings by $0.02 per diluted share per quarter or $0.08 per diluted share over the one-year transition period. The full $0.08 impact has not changed, but because we began the transition in November 2013, the impact on fourth-quarter results was lighter than initially anticipated. As a result, we expect to record greater costs with respect to the transition during the second quarter of 2014 when most of the training will occur while we expect costs during the first and third quarters of 2014 to be fairly in line with our initial expectations.

GAAP net income for the fourth quarter of 2013 was $8.4 million, a 30% increase compared to net income of $6.5 million in the prior-year period. Diluted earnings per share for the fourth quarter of 2013 were $0.65 based on a diluted share count of $13 million, up from $0.51 in the prior-year period. Excluding the one-time cost for directors' compensation expense and the secondary offering, diluted earnings per share would have been $0.73.

In the fourth quarter of 2013, we also completed our SOX implementation and we will certify in our 10-K that as of December 31, 2013 we maintained effective internal control over financial reporting. In connection with our internal control implementation work, we are making immaterial corrections to prior-period financial statements when we file our 10-K. As a result, our financial statements for the three months and full year ended December 31, 2012 included in today's press release have been revised from the amounts previously reported and a list of those immaterial corrections is attached to the press release.

I will finish with a note about funding the business. Our ability to fund our growth remained strong. As of December 31, 2013, Regional Management had finance receivables of $544.7 million and outstanding debt of $362.8 million on our $500 million senior revolving credit facility, which has an expansion feature to grow to $600 million and matures in May 2016. We continue to work toward the completion of an auto loan securitization that will provide fixed rate, term matched funding. This will diversify our funding sources and provide additional capacity to grow. We now expect to complete the securitization transaction in the second half of 2014. Now I will turn the call back to Tom for closing remarks.

Thank you, Don. So to sum up, our fourth quarter continued to demonstrate solid growth from a finance receivables, revenue and same-store perspective and we are quite pleased by our overall performance for the year 2013. I would say in general that 2014 is shaping up to be a year of growth and investment as we work hard to get our new loan management system up and running, which we believe will help take Regional to the next level of performance with improved and more efficient processing and servicing of our diverse product portfolio and this will help assist with our growth in our account base.

We are very satisfied that our yield continues to improve from its low point in April of last year, but we will continue to watch our credit quality closely. I'd like to say I'm very proud of the entire Regional team for stepping up to the challenge of 2013 and I'm very excited about the potential opportunities for 2014 and beyond. Thank you for your time today and Denise, we will open it up to Q&A please.

(Operator Instructions). David Scharf, JMP Securities.

Good afternoon. Wondering if you can talk a little bit about maybe your best guess as to some of the factors driving maybe the fourth-quarter loss rates, besides the product mix. Any sense that the credit performance of the convenience check segment is running a little differently than maybe it historically has?

I will take that one. The convenience checks actually run slightly better than the rest of our small loans. We are screening those opportunities to a higher level because we don't see the customer and their data in front of us. And the end result is that they just perform better. What we have seen though is we have seen a certain amount of additional auto loan charge-offs in connection with our canned loans that have increased our overall charge-off in the quarter. Does that help?

Yes, yes, that does. And Don, can you maybe bring us up to date on maybe how much of recent origination activity has come from the convenience checks? I know a year, 18 months ago, it was about a third. I think some recent discussions, it may have been as much as 50%. Where did you end the year in terms of Q4 or new originations that came from mailings?

We don't track that closely to be honest. It is in the small installment loans and you probably saw in the release that we had $267 million of loan originations in the quarter. And small was $215 million of it. So I don't know, probably half of that comes from --.

Yes, I would guess half of that volume comes from convenience checks, David.

Okay. And based on kind of the success of introducing more frequent mailings last year, would you anticipate that number being considerably north of 50% this year, Tom?

Not considerably, no. It will continue to be a strong element of our growth story, but, David, we are trying to more or less keep originations in 2014 in balance with those from 2013. Don't want to become overly reliant on direct mail.

Got it, got it. With respect to kind of the rebalancing of yield, Tom, I guess a question about loan balances in the fourth quarter. Three of your four product categories were flat sequentially in terms of kind of large auto and furniture. And just curious how much of that was demand-related competitive factors or how much of that was deliberate in an effort to kind of keep this rebalancing trend on track.

Well, the real driver there, David, has been the deliberate decisions we have made to emphasize the small installment loan category. We have seen no stinting in the demand for either auto or retail. We have said consistently, as you know and as we have disclosed in many earnings releases, auto is very competitive, it remains so today. We have expressed in the past our desire to maintain discipline in terms of yields. We still see some irrationality in deal pricing out in the automobile market, especially in the indirect side. So we have made a very deliberate and conscious decision to maintain yields and keep our volumes deliberately in check with respect to auto.

As you know, the retail component is our lowest yielding group as well and while it is a small piece of the overall asset allocation for receivables, we have also tempered growth in that area as we have attempted to rebuild our yield. So there is no question that, as Don had indicated, we have made strides in terms of making small installment loans that are our highest yielding product a larger portion of the overall pie. But I would not characterize any of the sequential flatness in categories other than small installment loans to equate with some diminished demand on the part of consumers. Quite the contrary. We see a robust uptake of our products.

Got it, got it. And lastly for Don, just kind of wondering if you can give us a little bit of a roadmap in how to think about maybe forecasting for modeling provisioning this year. It looks like loss rates have kind of been ticking up throughout 2013, yet the ending provision at 5.5% of AR has kind of been ticking down. Does that have to do with average duration of the loans or should we be playing a little catchup this year from 5.5%?

Yes, the 5.5% obviously covers the portfolios for the effective lives that they have. And with small loans being a larger percentage of the total and the fact that they do have slightly higher charge-offs, there is probably some slight ticking up that will happen there.

Got it. Thank you. Great, I will get back in queue.

Bob Ramsey, FBR.

Hey, good afternoon, guys. I think you have been asked about it quite a few different ways. I'm curious if you would talk about delinquencies. They seem to be up in the different age buckets all year over year and I'm curious if you have got or sort of what you are seeing by loan portfolio. Do you have handy 90-day delinquencies by portfolio bucket?

Yes, we do. You are probably wanting to know exactly what they look like.

That is what I would love to hear.

So we have got -- delinquencies for small is 8.9%. We have delinquency for large loans at 6.9%. We have delinquency for auto loan category at 7.2% and we have the retail loan category at 7%.

All right. Great. And I guess those are 30-day delinquencies. I was curious about 90, although 30 is fine. I guess that probably gives it to me.

Yes, that is 30 and over.

Okay, okay. And I don't have the 30-day delinquencies in front of me from a year ago, but by portfolio does that 8.9% of the small loan portfolio, how does that compare to the year-ago number?

It is up. I think each category is up some. Small loan category is up from 7.3% to 8.9%. The large loan category up from 7.8% to -- I'm sorry, it's down. That is the one category that is down is large, 7.8% in Q4 of 2012 down to 6.9% this year. And auto is up from 6% last year to 7.2% this year. We had retail at 5.7% last year and 7.0% this year.

Okay. And to what extent -- is that seasoning of the portfolios or are there other factors? Did weather in the fourth quarter at all affect performance in these portfolios? Or just sort of what do you attribute the year-over-year increases in delinquencies to?

The weather didn't pose a problem for us in the fourth quarter. It has been more difficult in January and February, but the fourth quarter was not a weather issue. The vast majority of what we have seen from the delinquency analysis we have done is that we stretched ourselves a little thin. Our accounts per employee got a little too high. We have not found anything that tells us we have an issue with our underwriting loans. What we found is that we are having difficulty servicing them in the branch and so we have been about hiring employees and trying to reduce that account per employee statistic.

Okay. And then on the weather, you did mention that January and February had been more of an issue. I am just sort of curious if you could elaborate on what you are seeing and whether you think it is something that is temporary or maybe some branches are closed and so you have some delinquencies because people are not coming in or whether you think that there are sort of bigger issues such as higher heating cost means that the borrower is just tighter on funding.

No, I don't think I would blame any of the issues on the weather. I mean temporarily you lose contact because you closed an office, but I think it is a very temporary situation. As we went through February, even with the storm in the southeast and only 28 days and a drop in accounts, we still did very well in improving our delinquency. So I don't think we can put too much on the weather.

Okay, great. Last question and I will hop out. Just any comments around same-store receivable growth, which certainly seemed to decelerate this quarter? Kind of what is the big change on the same-store finance receivable growth change?

Bob, this is Tom. I will take that one. If you reflect back to Q3 and our earnings results that we reported, we discussed at length a banner campaign with the all-important back-to-school season primarily in the first half of August. We had a limited budget for marketing and for direct mail for all of 2013 as you can imagine. And frankly with the success of the back-to-school campaigns in August, we made some conscious decisions to mail slightly lower volumes for the holiday season. I think that you are seeing the pickup in Q4 in revenues receivables that were put on the books resulting from back-to-school and slightly lower volume of mailing for the holiday.

Okay. That makes sense. Do you have the number of checks that were mailed in the fourth quarter this year versus last year or the convenience check origination number in fourth quarter this year versus fourth quarter last handy?

Yes, we sent approximately 840,000 pieces in the fourth quarter.

Do you know what it was a year ago? I don't.

Yes, it was just a little under 700,000.

Okay, all right. Thank you, guys.

Sanjay Sakhrani, KBW.

Hi, thank you. So I guess when I look at the delinquency trajectory, it suggests that we might see a little bit more pressure on charge-offs over the short term. Is that a safe assumption to make?

I think as you see the delinquencies move forward through the different buckets, yes, there is a certain amount of that. As the delinquencies do move forward, you will see more charge-offs and then delinquencies will come down.

Okay. And I guess you mentioned that part of the pressure is being caused by the fact that you guys feel like you were a little bit stressed at the branch level. Is there something that you guys are doing to kind of beef up the infrastructure so that you can collect more? Is that what it is? Is it recoveries coming down because you are not collecting as much or what exactly is that?

Sanjay, this is Tom. We have historically followed a formulaic approach for staffing branches based on the number of accounts and as we attempt to gain more labor productivity, we have been pushing our branches in our various geographies higher on accounts per employee. That is not limitless. It doesn't go to infinity and beyond and I think what we have seen is there is a natural flattening to gains in labor productivity. It actually varies quite a bit by state just depending upon product mix. So the concrete actions that we are taking is we have gone through each and every branch, done a very granular analysis as to the adequacy of staffing, particular market conditions that are going on and as Don had indicated in the prepared remarks, we have been and we continue to add to our labor force. And we expect to incur higher personnel costs associated with that additional hiring, but we have shown a very concrete correlation between collection performance and what we call APE, accounts per employee. So it stands to reason that with additional staffing, we will begin to get our arms around those collection issues.

Is there any guidance you guys could provide us in terms of where you think the charge-off rate might migrate to over the course of 2014? Or maybe because you are saying some of this is related to mix and the higher mix toward small installment probably helps the yield, maybe a risk-adjusted yield. Is there some kind of thought into giving us a number like that?

Well, Sanjay, I wouldn't want to give a specific projection as to charge-off for the year, but let's step back a little bit and keep it in its perspective. As you know, over the last several years, five years, we have had our 27 year high and our 27 year low in terms of net charge-off as a percentage of average receivables. The figures we posted on an annualized basis for Q4 2013 are just slightly above the 27 year historical average for the Company. So I don't view this as cause for alarm. We are focused on collecting. We always want to have as low a charge-off ratio as possible, but that is not going to happen every quarter.

I would say that we as a team feel very comfortable with our underwriting. We see no contributing factor to charge-offs that result from underwriting. We really view this as a back-end type process. So I think if you think about our charge-offs from that historical perspective, it is and it has been a very tightly banded range. I do not envision charge-offs going outside of that range to the high or the low.

Okay, that's fair. Second question, I mean I guess it's on a separate topic, you guys talked about lower branch openings in 2014. Could you just talk about how that ties into your expectations for receivables growth in 2014?

Yes, we actually referenced a lighter pace of openings for the first two quarters of 2014 relative to 2013. And let me be specific as to why we made that conscious decision. Again, we are anticipating the launch and implementation of our loan management system, GOLDPoint, in the middle third of the year. That is a critical launch. We do not want to overstress the infrastructure and our capability for existing and new branches to successfully implement the system. So we're taking a pause of sorts in the middle portion of the year. We announced the intent to have 28 branches open by the end of Q2, June 30. We will certainly reassess the pace of openings in the latter half of the year.

I won't give you a specific number, Sanjay. I can tell you that virtually all of those 28 locations are either signed leases or in the finals stages of negotiations. So we have a high degree of visibility on the first half of the year. With that said, we have teams out developing and scouting locations for the latter half of the year. How that trickles through and relates to our year-over-year growth in receivables, as you can perhaps appreciate, we are trying to steer growth for 2014 into the historical range that we have posted over the last several years, which is let's just say the mid-teen area.

Okay. I guess final question. When we think about the fact that the pace of branch openings is a little bit lighter, should that benefit expenses? I guess in the press release, you guys talk about an efficiency ratio on an adjusted basis, X one time or is it 37% in the fourth quarter? How should we think about 2014's efficiency ratio in relation to that?

For the year, Sanjay, it is really not going to impact the efficiency ratio that much. With the openings in the first half of the year, those branches are usually at a level where they are offsetting their costs at the end of the year. So I think that if we open branches late in the year that is really where there is a bit of cost that we pick up and don't have a chance to build the branch receivables. So might tick up a little bit for second-half growth.

Okay. So we should think about an efficiency ratio in the high 30s for next year then, roughly?

Yes, I think directionally that is accurate and certainly squares with historical experience.

Okay. All right, great. Thank you very much.

Kyle Joseph, Stephens.

Good afternoon, guys and thanks for taking my questions. We talked about weather a little bit in the first quarter. I was hoping to talk a little bit about tax refunds. When did you guys start to see those hit and did you have a period of good lending activity before they hit in the quarter?

Kyle, as you may appreciate, the IRS actually this year announced that there would be a two to three-week lag in tax returns. Many of our customers heard that news; they planned and anticipated for it. If you recall, the year prior, there was a similar two to three-week lag, but no preannouncement so to speak from the IRS. Obviously Q1 is a great driver for us in terms of auto lending. We do see a traditional shrinkage of our receivables that are really the result of people paying down or paying off their loans. I didn't see anything this year that was aberrant or out of pattern with prior years. And I would say it was rather unremarkable from a tax return perspective.

Okay, thanks. And then in terms of -- I think you mentioned historical yields at one point. Can you go back through where yields were years ago? I am just gauging to see if yields are approaching a plateau or if there is still a lot of room to run there.

If you go back to the year 2011, Kyle, there is a yield of around 40%. And that was at a point when a higher percentage of our accounts gave us the opportunity to market the credit insurance products. With the product mix diversifying the way that it has, we don't have as much of an opportunity for that anymore. So I don't see us getting back to that 40% yield level, but certainly a little higher than where we are today.

Okay, thanks. And just in terms of your store expansion plans, what are the target markets or what are the target states I should say and are those mostly backfills or are they primarily new markets?

From the state perspective, we do not have plans to open any new states in fiscal 2014. We are in eight states currently. Most of our growth will be in the Southwest, Texas, Oklahoma and New Mexico. You might recall last year, Kyle, we did -- of the 41 de novo locations, eight were so-called backfilled de novos. Because we haven't given a full-year guidance for fiscal 2014 de novos, I won't tell you precisely how many backfills we plan to do, but the percentage of backfills as an overall function of de novos will increase considerably in 2014 relative to 2013.

All right, thanks. And then, Tom, can you just give us a little bit of -- sometimes you run through a regulatory update on your conference call. Just any new developments there on the state front or federal front?

We were somewhat silent on the call, in fact, completely silent really because of the lack of news, Kyle, from the regulatory perspective. At the state level, the only news that we had was we began to incorporate in the latter part of Q3 that both the Texas and North Carolina rate and fee changes. Those were somewhat more fully expressed in Q4. Recall that in North Carolina, we are primarily a large loan lender in that state. So consequently, we have longer maturities and we're not seeing as much turnover in the North Carolina portfolio so to speak. So the uptake of increased fees and rates in that state will take a lot longer to really fully absorb into the revenue stream. Beyond that, there really is not a lot of news at the state level.

At the CFPB level, no new rulemaking. We have been reading what you have been reading about focus on debt collectors per se. It would appear that even first-person lenders such as Regional and other installment lenders will have to be compliant with overall debt collection rules. The good news is we are now and have been for some time fully compliant with the Fair Debt Collection Practices Act. So we are monitoring the language and rulemaking coming out of the CFPB, but we feel very comfortable with how our platform is positioned.

I would say the other piece of news that we are really waiting for is some further guidance from the CFPB with respect to indirect auto lending. In particular, any more flavor or detail that the bureau can provide us and other indirect auto lenders on the important topic of disparate impact. As we've discussed on previous calls, we are to a degree an indirect auto lender. We do provide auto dealers an opportunity to participate in interest rate upselling to the end consumer. And as such, Regional, like most other indirect auto lenders, is probably going to be looked at by the bureau from a disparate impact perspective. The bureau has made no mention and has no commentary as to the mechanics of how they're going to assess various auto lending portfolios. And as I understand it, and within the last couple of weeks, a congressional committee has requested of the bureau more details on their methodology for assessing indirect auto lending platforms.

Really beyond that, we have seen -- it has been a relatively quiet period from a regulatory perspective. Nevertheless, we continue to invest here internally in our own compliance and regulatory infrastructure and are continuing to build up that staff internally.

Okay, thanks. And then just one last question. In terms of the auto securitization, can you remind us what size you are thinking there? I know your auto portfolio is $126 million, but what size issuance you are looking at there?

Well, just a slight correction, Kyle. The auto portfolio today is more in the $190 million, $195 million range.

Okay, I was looking at the wrong number; I apologize.

That's okay. Nominally, the transaction for a first securitization on auto would be $100 million. If we were to do -- when we do follow-on offerings, it is probably going to be in $50 million increments. But $100 million would be the first transaction.

Great, thanks so much for answering my questions, guys.

John Rowan, Sidoti.

Good afternoon, guys. Tom, you mentioned the mid-teen growth rate. I just want to make sure I understood it. That was store unit growth, correct? Not loan growth?

Store unit growth.

Okay, I just wanted to make sure. And not to beat a dead horse here, but as far as the net charge-offs go, do you think there is any impact there -- obviously, you mentioned Texas -- from the higher fee structure in Texas?

What was the question again, John?

Sorry, my phone is breaking up. Do you think there was any impact on your net charge-offs in Texas from the new fee structure in Texas?

No, we do not.

Okay. And then just one last question. Are you going to adjust the first through the third quarter earnings-per-share figures as you release earnings or are you going to do it in the 10-K?

It will be in the 10-K, John.

Okay, thank you very much.

Daniel Furtado, Jefferies.

Thank you for taking my questions. The first question is just a little bit of clarity. Earlier in the prepared remarks, you had talked about I believe extending the average length of the loans. Is that correct or could you just kind of rehash that for me briefly?

No, I think, Dan, you might be referring to the effective life of our loans. I am not sure, but we did not make any commentary around extending lives of loans.

What we said, Dan, was, during the fourth quarter, we did an extensive analysis and realized that in fact the effective lives of three out of our four loan product categories have in fact shortened. The one category that did not is our auto portfolio.

Got you. What are the practical implications on the GAAP financial statements from that?

The practical implications are you need less allowance for those particular loan categories. So for retail, for example, you need one month less or for large loans, you need two months less. So that is the practical implications from a GAAP perspective.

Got you. Okay, okay. That makes sense because more of the charge-offs will be recognized during the period itself so you don't have to carry as much of an allowance into the future period.

That is correct.

Okay. And then earlier you mentioned about a 27 year band. Would you mind giving us what those -- each end of that tail are?

Sure, so over 27 years, Dan, the net charge-off as a percentage of average receivable has had a low of 6.3% and a high of 8.6%.

Okay, perfect. And then, finally, I don't believe this was touched on, but just from a competitive standpoint, are you noticing anything really that different in the fourth quarter and here into the first in terms of what the competitive landscape looks like or as it kind of just a steady as she goes situation?

I think it is the latter, steady as she goes. It is and always has been a very competitive industry. We have been reading with interest industry reports about what appears to be a strategic pivot, so to speak, by short-term payday lenders into what they deem to be installment loans. I am not sure that I agree with that definition, but we have been asked before, do we see overlap or encroachment into our traditional installment lending business and market from payday and pawn. And we don't see that currently, notwithstanding this apparent move by some of the payday players into what they call installment lending. Relabeling a payday loan as an installment loan in our view doesn't make it competitive with the traditional product that we offer. So Dan, I would say in general the competitive landscape has been very stable and robust.

Understood. Perfect. That makes perfect sense. And then just finally on the effective life, was that -- did that impact the 4Q allowance or will that be impacting starting in 1Q?

It is fourth quarter.

Okay, great. Thanks for the clarity, everybody. Take care.

Bill Dezellem, Tieton Capital Management.

Thank you. A couple questions. First of all, would you please discuss a little bit further your plans for increasing the number of employees per account or decreasing the accounts per employee? And how long you anticipate it to be until we see the benefits flow through?

Sure, Bill, this is Tom. And as I indicated, we have done a very deep dive into that topic branch by branch, market by market. We have already made adjustments and continue to make adjustments. That doesn't happen overnight in terms of onboarding new employees. I would anticipate that those effects, those positive effects on collections will be absorbed through certainly the first quarter into the second quarter. But it is -- you don't turn the process that quickly.

And so in the first quarter, you will immediately get the -- or absorb the costs, but you are also feeling that the first quarter, you may achieve some of the benefit also?

I think that is fair.

And then second question is when we look at your non-GAAP EPS and exclude those couple of one-time items, you had really fantastic earnings leverage. Is that an indication, maybe not the exact numbers, but directionally an indication where you are headed? Or because you are going to be increasing the number of employees or decreasing the accounts per employee, that you will mitigate much of that leverage?

We will lose a little bit of it, Bill, as we add to our headcount. But, directionally, over a period of the next two to three years, we'd hope to find a way to regain it.

And so directionally the leverage that you experienced this quarter is, not to overstress it, but the beginning of a trend?

Well, I think that you have got to keep in mind too that we have had some quarterly seasonality that we've mentioned before. The first and second quarter when we tend to open stores, more branches, we tend to have a little higher efficiency ratio. And in the last couple of quarters, it is a little lower. So there is a little seasonality to it, but we are continuing to work on it.

Thank you.

[David Henley], [BOH Capital].

Hi, Tom, either for you or Don, I am just curious. Having heard the comments that you made about your revolver and your ability to expand the size of the revolver, could you just give us some sense as to whether or not you see the need for any additional equity looking out over the next 12 to 18 months?

Hi, David, this is Tom. I will answer that one. A strong no. We do not see a need to raise primary equity and there is no more secondary to sell. So from a perspective of how we fund our growth and sustain that growth, we feel very strongly that the revolver has a lot of dry powder in it. We have $500 million committed. Don mentioned the accordion feature up to $600 million. And when you think about that in the context of a nominally $100 million automobile securitization which would, [in fact], come out of the revolver, it really sets up the Company very well for growth over the coming years. So no, sir, we do not see a need for issuing equity.

Okay, great. Thank you.

[Brian Dines], [Dreamhouse Capital].

Hi, guys, is there any way to quantify what those personnel costs may be? If 2013 got you to the right number of accounts per employees, per employee, I should say, how much additional absolute dollars would've been added on to personnel costs? Or going forward, is there any way to quantify?

Well, I think in the broadest sense, Brian, ex the one-time items we referenced in the prepared comments, an efficiency ratio of 37%, that is very low for our model. Don, in one our previous questions, had talked about being in the high 30%s, probably closer to 40%. So I'm going to have to be purposefully opaque and not answer your question in any degree of specificity. But I think in the midpoint between 37% and 40%, the efficiency ratio is probably more normalized.

Okay. And then I just wanted to check. In January and February, I guess I think you mentioned that February was still quite good, but then you kind of said -- I'm just trying to get a feel for have the trends turned at all in delinquency in January and February?

Well, they have turned some. I mean with the paydown in accounts, if you even hold steady, then you've actually improved because you have a reverse denominator effect. So with the paydown in accounts, we have made some improvement over the first 60 days.

And I think combined with the short month of February, which was shortened, that was the one month where we did have weather impact, even in the Southeast and Southwest footprint that we occupy. I would say we are very pleased with our February results with respect to managing delinquencies.

And when you say improved, is that just sequential quarters or does that mean on a year-over-year basis from 1Q of 2013, it should look better? Or is it just kind of quarter to quarter?

Looking at it sequentially.

Okay. So year over year, it would still be up from 1Q of 2013, the delinquency trends?

That is correct.

All right, okay. And then have you seen -- is there any feel for the change in unemployment benefits or the cessation of unemployment benefits? You guys could have a pretty interesting look because I know South Carolina cut them off much earlier than the rest of the country. Do you see any effect from that?

We really haven't and when you think about the fact that South Carolina, our core market that dates back to 1987 still is the largest dollar asset allocation. Brian, I would say that that affect, the runoff of unemployment benefits in our bellwether state, that has kind of been baked into the model for some period of time. It is interesting. In my view, for what it's worth, I think the more important driver that we look at is actually the price of gasoline and really across our footprint, we have noticed on average about an $0.08 to $0.10 per gallon uptick in the last month. And that does impact negatively our consumers. So I would say I am less concerned about unemployment benefits and more focused on gasoline.

Okay, thanks, guys.

We have no further questions. I would now like to turn the call over to management for closing remarks. Please proceed.

All right, Denise. Well, thank you very much and for those of you on the line, we do appreciate your time today and your support for Regional. I look forward to talking with you next quarter. Thank you.

This concludes today's conference. You may now disconnect. Have a great day.