Regional Management Corp (RM) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Second Quarter 2014 Regional Management Corporation Earnings Conference Call.

My name is Glenn, and I'll be your operator for today. At this time, all participants are in listen-only mode and later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Garett Edson, Senior Vice President with ICR. Please proceed, Mr. Edson.

Thank you, Glenn and good afternoon. By now, everyone should have accessed 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 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 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 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.

Thank you, Garrett. Good afternoon and welcome to our Second Quarter 2014 Earnings Conference Call. I'm here with our Executive Vice President and Chief Financial Officer, Don Thomas, who will speak later about our second quarter financial results. And I'm also joined by other members of our executive management team.

As we noted on our prior quarterly call and had expected would occur, our second quarter results were affected by a significantly increased provision for credit losses caused by elevated delinquency levels and associated high net charge-offs.

We noted back in April that we had -- I had identified the cause of the delinquency problem as an accounts per employee or APE level well above 300. As a result, we considerably reduced our APE level in the first quarter and made it our top priority in the second quarter to further reduce our APE level to the range of 285 to 300, which is a range where we have historically had success in running the business.

Due to our efforts, we have cut the APE level from well over 300 at the beginning of the year to 287 at the end of June. In connection with the APE reduction. We have successfully reduced our contractually delinquent accounts from 8.0% as of December 31, 2013 to 6.6% as of June 30, significantly more aligned with our historical delinquency levels. While we believe we now have a firm handle on our APE levels, we recognize fully that we must continue to properly train our new employees and remain ever vigilant of our delinquency levels. With that said, we should see an improvement in our annualized net charge-off levels in the second half of 2014 relative to where they stood in the first half of the year.

Overall for the second quarter 2014, we recorded total revenue of $47.4 million, up 21% from the prior year; net income of $4.4 million and diluted earnings per share of $0.34. Same-store sales growth remained solid with an 11.6% increase in the second quarter. Our total revenue yield for the quarter was 37.4%, an increase of 230 basis points from the prior-year period, but down 30 basis points sequentially. We continued to see benefits from the rate and fee increases previously installed in North Carolina and Texas.

Shifting to regulatory matters. There's nothing material to report on either the federal or state levels during the quarter. Absent any specific guidance from the Consumer Financial Protection Bureau or CFPB, we continue to invest in our own internal compliance programs and infrastructure as well as improved every aspect of our compliance efforts, so we can ensure our customers are provided safe and transparent products.

Regarding litigation activity in the second quarter, in May, the securities class action lawsuit was filed against Regional and certain of its current and former directors, executive officers and shareholders. We believe that the claims in this matter are without merit and we intend to vigorously defend our interest. This litigation is currently in preliminary stages. So other than these brief remarks, today we'll have no further comment on the matter at this time.

In the second quarter, we opened 12 de novo branches, bringing us to 29 de novo openings for the first half of the year, one unit more than our initial expectations. Today, we have a total of 293 branches at the end of June 30, 2014. During the quarter, eight of our branch openings were backfill de novos where we strip accounts out of one branch to start another branch. As mentioned on the prior call, before we commit to additional branch openings in the latter half of the year, we want to ensure that our new GOLDPoint loan management system is performing properly and is able to handle the additional workload. We continue to believe that the GOLDPoint system will be up and running by October and it ultimately should make us even more efficient in processing and servicing our product portfolio, as well as enabling us to accommodate substantial future growth for Regional.

Finance receivables as of June 30, 2014 were $518 million, up 12% from the prior-year period. Now from a customer account perspective, we serviced approximately 321,000 active accounts as of June 30, a 2% sequential increase from the approximately 314,000 accounts we serviced as of March 31. Same store receivables growth was 2.5% in the second quarter. 17 of our 29 branch openings year-to-date were backfill de novos, which have a deflating impact on the same store calculations for both revenues and receivables growth.

Finally, at the beginning of the month, we significantly strengthened our Board with the additions of Steven Freiberg, Michael Dunn, and Glynn Quattlebaum. Now as you know, Glynn has been with Regional since its founding in 1987 and will continue to play a major strategic role in our long-term future as Vice Chairman. While he remains in his current position of President and Chief Operating Officer, Glynn will eventually transition full time in his new position of Vice Chairman, and we are currently in the early stages of a national search for a new Chief Operating Officer. Steve and Mike's addition to our Board provide us with significant added financial and public company expertise that our Board can and will tap into on a regular basis. I personally would say, I'm very excited and pleased to have a significantly stronger Board that will help drive our strategy in the future.

With those preliminary comments, I'll turn the call over to Don and then will return to make some closing comments. Don?

Thank you, Tom. Good afternoon, everyone and thank you for being on the call with us.

I'll start with discussion of our revenues. Interest and fee income for the second quarter of 2014 was $43 million, a 23% increase from $34.9 million in the prior-year period, primarily due to a 12% increase in finance receivables, coupled with increases in product yields. As Tom noted, our interest and fee income yield continues to benefit from rate and fee increases in certain states. In the second quarter, we estimate an additional $500,000 in interest and fee income was generated via the rate increase in North Carolina and an additional $1.4 million was generated via the fee change in Texas. While a smaller impact, interest and fee income was also negatively affected by approximately $500,000 due to increased interest reversals from the higher level of net charge-off activity.

Insurance income net for the second quarter of 2014 was $2.5 million, a 10.5% decrease from $2.8 million in the prior-year period. As mentioned on previous calls, we don't get the opportunity to sell insurance or retail loans, indirect auto loans and for loans originated from convenience checks in most of the states in which we mail them. As our product mix has shifted over the last several years, our insurance income has declined as a percentage of total revenues. In addition, during the second quarter of 2014, we had about $170,000 of increased life insurance claims.

Other income for the second quarter of 2014 was $2 million, a 34% increase from $1.5 million in the prior-year period. The increase is primarily due to the implementation of a late fee as part of the modernization of North Carolina's consumer finance law. As a reminder, about 15% of our accounts are in the state of North Carolina.

Our provision for credit losses in the second quarter of 2014 was $13.6 million, a 62% increase from the prior-year period due to an increase in net charge-offs and the growth in finance receivables. Accounts over 30 days contractually delinquent as of June 30, 2014 were 6.6%, up from 6.2% as of June 30, 2013, but down from 7.3% at the end of the first quarter of 2014. We provided detail of all of the delinquency categories attached to the press release.

Annualized net charge-offs were 10.5% of average finance receivables for the second quarter of 2014, well above 6.6% in the prior-year period and ahead of the 9.7% rate for the first quarter of 2014. The net charge-off rate increased from the first quarter of 2014 for two reasons. One, the amount of net charge-off during the second quarter was $700,000 higher than the first quarter and two, the average receivable amount during the second quarter was $19 million lower than the first quarter. Geographically, the largest increase in net-charge offs occurred in the states of Texas, South Carolina and Alabama.

The allowance for credit losses as a percentage of finance receivables was 6.7% at the end of the second quarter of 2014, which is slightly down from 6.8% at the end of the first quarter of 2014. We're comfortable with the allowance at this level of finance receivables until such time as we demonstrated a quarterly history of relatively consistent credit metrics.

Moving on to personnel costs. For the second quarter of 2014, personnel costs were $13.1 million, an increase of 32% from $9.9 million in the prior-year period, due primarily to additional branch and corporate employees necessitated by adding branch openings and a specific APE goal. By achieving and maintaining an APE in the range of 285-300, we're adding about $600,000 per quarter of personal expense. Group insurance cost also increased approximately $600,000 in Q2 of 2014 versus Q2 of 2013, due to the increased headcount and an increase in the cost of the coverage to meet requirements of the Affordable Care Act. We also incurred approximately $290,000 of increased overtime as part of our collection effort in Q2 2014.

Occupancy expense for the second quarter of 2014 was $3.7 million, an increase of 38% from $2.7 million in the prior-year period, primarily due to our recently opened branches and telecommunications upgrades. Marketing costs for the second quarter of 2014 were $1.8 million, an increase of 30% from $1.3 million in the prior-year period. The increased costs are due to the increased volume of our direct mail programs. Other expenses for the second quarter of 2014 were $4.7 million, a 37% increase from $3.4 million in the prior-year period primarily due to approximately $0.4 million of expenses related to implementation of the GOLDPoint loan management system and collectively across all the income statement captions, the one-time GOLDPoint costs were $0.6 million in Q2. In addition, we incurred additional compliance, legal, succession planning and compensation consulting expense during the quarter. We expect GOLDPoint loan management system's one-time cost in the third quarter to be dilutive to earnings by $0.03 to $0.04 per diluted share and expect the system to be up and running by the end of October.

I'll end my remarks with this, our ability to fund our growth strategy remains very strong. As of June 30, 2014, Regional Management had finance receivables of $518 million and outstanding debt of $324.6 million on our $500 million senior revolving credit facility, which has an expansion feature to grow to $600 million and matures in May 2016.

Now, I'll turn the call back to Tom for closing remarks.

Thank you, Don.

In summary, our second quarter performance was clearly affected by the increased level of net charge-offs similar to our previous quarter. Knowing this would occur, we focused throughout the quarter to further reduce our accounts per employee to get our delinquencies under control. The end result was a successful reduction of contractually delinquent accounts to more normalized levels, and we expect the annualized net charge-offs will improve in the back half of the year.

As noted previously, 2014 is very much a year of growth and investment at Regional. In the first half of the year, we strengthened our bench and our Board, we reduced our accounts per employee to normal levels, we opened 29 de novo branches and are getting very close to fully implementing our new loan management system. As we start to return to more historical charge-offs levels, we'll be able to focus more on the second part of that equation namely growth. I'd say overall we're pleased that our collection issues appear to be improving and our branch growth trajectory and overall long-term strategy remain unchanged.

With those comments, I thank you for your time and interest today. And now Glenn, we'll open it up for Q&A please.

(Operator Instructions) David Scharf, JMP.

Hi, good afternoon. Tom, I wonder if you could comment a little bit on the competitive environment for lending in your markets. Obviously, accounts they came in later than we were looking for and you commented that you're focused on some operational matters before you kind of start cranking up the origination growth. But are there any nuances or changes in serving this consumer that you're noticing from some competitors big or small?

I would say no, David. As we talked about many times before, this is very much of a fragmented industry and it's always been extremely competitive. I think when you frame up Regional's book of business with some 321,000 open accounts relative to the broader national opportunity [17 million, 18 million] underbank households, as one of the leaders in the industry and one of the largest players in the industry, we're barely scratching the surface and I think that's true of a handful of our larger competitors.

So, what I would say from a competitive perspective is, we're really no more nor any less competitive on market today than we've been over the broad history of our Company. We're obviously aware that some of the payday lenders are attempting to pivot into the installment lending space or at least that's how they've labeled it. We don't pay a lot of attention to that, we don't see a lot of that in our markets. I don't believe it's had any material impact or a dent on our business or our business prospects.

With that said, we remain very vigilant and focused on competition in the auto segment. Clearly, if you've read our press release, you can see that our originations from auto are again down and that's for good cause. As you know, we've been very mindful of some of the competitive nature in that space. There is nothing new during the second quarter with respect to automobile lending that we haven't been speaking to for the last 18 months. The automobile lending space continues to be very, very frothy and competitive.

Got it. That's helpful. And actually a point of clarification, Don, I thought you made a comment regarding anticipated receivable levels in the second half, did I hear that correctly?

I think on the Q1 call, David, we had talked about growth for the year but I don't remember anything about where we thought we would be at the end of Q2?

No, no, I meant for the second half. I thought I heard something to be effective current levels you would be holding a steady at for the remainder of the year or did I mishear that?

No, I don't think that was part of this.

No, we didn't speak to that point, David. What I would say generally is we are now currently in very much of a growth phase. As you know, the seasonality of our business is especially pronounced in the third and fourth quarters. I can tell you that our all important back-to-school campaign in six of the seven states where we're allowed to -- where we actually send checks for a tax-free shopping weekend, six of the seven states have hit the household mailboxes, the state of Texas is usually delayed by a couple of weeks. Their tax-free shopping weekend is the third week of August.

North Carolina this year for the first time eliminated its back-to-school tax-free shopping weekend. So we haven't focused on mailing to that state. But in very broad terms, we're seeing very attractive uptake of and response on our back-to-school campaign. And I think that sets us up in the latter half of the year for a typical, very attractive growth pattern that really culminates in the holiday period.

Got it, got it. And I'm just curious if you didn't have the impact of the backfill de novos, would same-store revenue and receivables growth be more comparable to what we saw in the first quarter? Can you give us a sense for how much of an impact that might have had?

Again, we don't know. I mean it's impossible to sort of reverse the effect of those transfers of accounts and an estimate it. But certainly would be higher than what we're sharing today.

Got it, got it. And one last question, then I'll get back in queue. Did you -- with respect to convenience check mailings, both during the quarter as well as back-to-school and beyond, are you being more selective in the zip codes the regions you send these checks out to based on the collection performance of the individual stores and should we potentially see some increased mailing volume towards the back half of the year as you get those APEs more in line?

David, throughout the second quarter, that's precisely what we did with regards to our direct mail campaigns and that is we've rebalanced and refocused the geography of our mailing, so as to not overwhelm already busy branches. With that said, we haven't pulled back in terms of -- we did not pull back in terms of Q2 mail volumes and as we look at the set up for the second half of the year, now having mailed out substantially all of our back-to-school campaign. We're right on plan in terms of the volumes that we had planned on sending out. But yes, it's an evolving model. Every mailing that we send we're learning something about responses and downstream results and that certainly allows us to be more precise and shall we say more surgical with not only where we send those checks, but the terms and conditions of those checks, so that we can maximize or optimize rather the response.

Sanjay Sakhrani, KBW.

Thank you. I guess, Tom, you talked about the delinquency rates getting back to normal or closer to averages. I guess how soon do you think you'd see the same follow through on the charge-off rate?

Well Sanjay, as we alluded to in our last quarterly call, we're very clear having identified or diagnosed the problem namely lack of sufficient staffing in certain branches, we knew and we signaled to the market that we would sustain higher than normal absolute dollar charge-offs in this quarter, the second quarter. I would say generally that we are very pleased with the directionality of our delinquencies, obviously a big leading indicator of charge-offs to come and I'll actually let Don get into more specifics, but as we stated on the first quarter call, we've re-emphasized here, we very much expect to see charge-offs decline overall in the second half of the year. Would you agree Don?

I do agree. The delinquency is a leading indicator, would suggest that. However, since we are still in fact training personnel, we don't expect that they're going to go to the absolute lowest level we've ever seen either. So Sanjay, I think we would continue to see maybe some slight elevation through the rest of the year from what a normal would be, but clearly down from the peak that we've hit in Q2.

Okay. And then, you guys have talked about the fact that [you speed up] collections. Now that we have a few quarters of this phenomenon as history, I mean you're pretty confident that it was just collections activity, it's not anything in the underwriting, correct?

We are confident and just to clarify, Sanjay, I just want to emphasize our second quarter is one quarter where we've seen positive trend lines and patterns from a delinquency perspective. We want to remain -- we will remain very much vigilant on staffing ratios on a go-forward basis. So I just want to put a note of caution in there that we remain on guard.

But to answer your question directly, yes, we've continued to test throughout the quarter the adequacy of all of our underwriting programs and we remain very confident that it was not a degradation in our credit granting activities that are rather directly linked to staffing.

Okay, great. I've got one last one on expenses. I guess it's two parts. Obviously, the advertising expenses pretty elevated relative to historical periods. I mean, should we expect that level of expenses to moderate going forward? And then just more broadly speaking, when we think about kind of the collections, staffing increases, and kind of how you think about the efficiency ratio going forward, are we thinking that there is a new level of efficiency ratio that's optimal for this business going forward? Thanks.

Yes, Sanjay, the expense level is something that certainly for different periods of time for the Company can increase or decrease. As we look at the second half of the year, we certainly know that a higher level of originations will bring down our comp cost and our efficiency ratio in Q3 and Q4, whether they bring it down enough to pan out to a number as low as 40% or not, it sounds like a far number to reach for. I think we would look at something a little higher than 40% for the year 2014.

And Sanjay, with respect to your question on advertising, I should point out that this quarter, we began to ramp up two other types of direct mail programs known as invitations to apply and pre-qualified offerings. And while we had experimented in a very small way with those types of direct mail offerings in prior quarters, we really started to ramp those programs up in the second quarter and just in order to define those terms an invitation to apply or a pre-screened offering unlike a convenience check, it's not a guaranteed offer of credit, we're reaching the customer, the prospective customer through direct mail.

We've done some screening on them, more demographic than credit file related. We're encouraging or inviting the customer to come down to the branch and while it's certainly less convenient to drive the customer through the door to give us a full application, at least relative to the convenience of one of our direct mail checks or guaranteed offers, it's a very cost-effective way of reaching -- broadening the universe of customers that we can reach. So it's been a successful program. As we ramped it up in the second quarter, much of the incremental marketing costs that we incurred are related to those programs and I think you can expect us to see -- you can expect to see us use more of those programs on a going forward basis to diversify our marketing.

John Rowan, Sidoti.

So just to be clear on the net charge-offs guidance, are you saying the net charge-offs in the back half of the year are going to be -- or the increase in the charge-offs year-over-year is going to be less in the back half of the year or is the aggregate number, just the charge-offs are going to be less in the back half of the year versus the first half of the year?

Yes. Hi John, this is Don. The net charge-offs that we expect in the second half of the year certainly will be less than what we had in the first half of the year. That's our expectation, because we have lower delinquency sufficiently to see some benefit from it. You have to keep in mind that during the second half, we're also taking a lot of labor hours in training people around our new GOLDPoint loan management system, so there is some distraction in the operation during the second half. But definitely we expect to see some benefit from our work already in the second half of the year.

Okay. And then as far as the convenience checks plan for 2014, I don't -- did you say the number of checks you expect to mail out this year? I mean, if not can you provide that?

We have not given guidance, John, on the level of direct mail checks.

Okay. And then the location openings for this year, I assume you're basically done for the year that kind of gets us to the 30 that you had guided for on last conference call?

Well, no, we're not done for the year. What we've signaled is that we're taking a pause here in the middle portion of the year and for a single reason of we don't want to overload our branches and our personnel as we make the transition to the GOLDPoint loan management system. But consistent with what we said on our first quarter call, we'll look at the potential for opening up new branches in the latter half of the year. Once we have a good feel for how the GOLDPoint rollout is going -- having said that, we have a number of markets and specific properties that we've already lined up and frankly could put into play in the latter half of the year. So we've done all of the development work on a number of markets. In fact, we're starting to look at our rollout and development schedule for fiscal 2015. So if we decide that we want to add de novo branches in the latter half -- latter third of this year, I feel very confident that we've got strong potential to do so, but I don't want to give any guidance at this point.

Bob Ramsey, FBR Capital Markets.

I just want to follow-up a little bit on the same-store loan growth. I think you guys gave us the percent of de novos this quarter that were backfill out of total, but I missed that, what was that percentage and maybe how does that compare to last quarter or the quarter before?

We had eight of 12 de novo openings in the second quarter that were backfills and 17 of the 29 we've opened year-to-date are backfills.

Okay. Because I'm just trying to sort of get a sense of maybe what else is pulling down the same-store loan growth and the backfills have been I guess a part of your de novo strategy for some time and have had some impact. [I think], this is still a lot slower pace of loan growth than we've seen in recent periods, any thoughts?

Well, certainly when you look at the fact that we had significantly more charge-offs during the quarter, it created certainly a bit of a headwind to grow the ledger. So that's definitely a piece of it for sure.

Okay. With fewer, I guess, fewer de novo openings in the back half of the year, I mean, fewer backfills, would it be your expectation that that pace of same-store loan growth sort of starts to bounce back as we go through the next couple of quarters?

Yes, it certainly could.

Okay. I guess -- I know it could, is it your expectation that it will or is it tough to say?

Without giving guidance that Tom mentioned Q3 and Q4 are the periods where we historically grow very well. So an end result of that I think would be some increase in the same-store sales percent or same-store receivable percent.

John Hecht, Jefferies.

You gave the consolidated delinquency rate, do you have it for the small loans off hand?

Yes, we do. The small loan delinquency rate is 7.2%, John.

Okay, thanks. And then the -- I guess the second question is more about the timing of hiring during the quarter. You went from the [11, 11.2 to 13.1 million at] personnel. Was that -- is this a good run rate or did you hire some throughout the quarter, so we should expect just a little bit of increase in terms of run rate relative to where we came out of this quarter?

I think it's a pretty good run rate, John. We were able to begin hiring actually in March and had the accounts per employee down to 305 at the end of March. And so, while we've continued to hire, some of that hiring has been around growth as opposed to getting it down further. We were down to 287 at June 30. So I think you've got a pretty decent run rate in Q2 to work from.

Okay, great. And you mentioned I think $0.03 to $0.04 of additional dilution from GOLDPoint this quarter. Is that on top of when you guys kind of initially gave some guidance for the expense of that or is that consistent with what you'd already thought the expense will be for this quarter?

Yes, let me walk you through that, John. I think about the end of October in our Q3 call from last year, we said we signed a contract and felt like there would be $0.08 impact on diluted EPS across a one-year time period and initially estimated $0.02 per quarter. In reality, we've seen $0.01 in the fourth quarter of 2013, $0.01 in the first quarter of this year and then it jumped to $0.03 as we've gone [full bore into] training mode in Q2 and we'll wrap up with another $0.03 to $0.04 here in the third quarter of 2014. So the total is still going to be $0.08 to $0.09, but the spread across the year is a little different.

Okay, so it should be cleared up by the end of Q3, nothing in Q4 then?

That's pretty close. Yes sir.

Okay. Final question is, can you remind us of the store count, how many are less than three or four years old? And then kind of have you seen any change in the vintage analysis, I mean obviously increased charge-offs may have pushed back some growth curves at some of the stores? But has there been any material shift or do you think once we've got charge-offs back to normal levels, you'll see your store EBITDA expansion from years one to three normalize, is there anything we should think that's changed there in the long-term?

No. I think we absolutely believe that we are continuing on track with the branch maturation process and John, about 62% of our branches were less than five years old at June 30. Just as a percent for you, 62% of 293 branches were less than five years old. So yes, we do expect a lot of growth from those branches that are less than five years old and absolutely believe that that's where some of the growth is going to come from in Q3 and Q4.

Bill Dezellem, Tieton Capital Management.

Thank you. A group of questions. The first couple I'd like to follow-up on prior questioners. You have mentioned that the charge-offs will be decreasing in the second half of the year versus the first half. I'd like to see if you will dial it in a little tighter for us. Are you anticipating that the third quarter will be lower than the second quarter?

Yes. Yes, Bill. We do.

And then, would it be fair to say that that trend continues where likely the Q4 will be less than the Q3?

Well, that's a good question, because we do expect to be building our ledgers and moving through the rest of the year and if you look at our normal seasonal delinquency statistics, we do increase delinquencies slight amount as we move through the second half of the year. So we may or may not [do] on that one.

So the numbers could be reasonably similar that it'd be in Q3 and Q4?

Possible.

Next question. Again another follow-up on a prior questioner, relative to the live checks, are you anticipating more live checks to go out in the mail this year than you did last year?

Yes.

And then completely a different path here. Did you restrain your volume growth in the second quarter at all whether due to collection issues that you're having or otherwise?

In the automobile sector, certainly yes Bill, and that really relates back to what I referenced earlier and what we see is continued -- shall we say frothy competitive environment and to a degree, some rational pricing in terms on deals. So there is no question we have restrained automobile originations by design. The retail business has been relatively flat for us. As you know, that's the lowest yielding sector of our portfolio by far. We're in that business as ultimately a relationship and lead generator for cross-selling purposes not for an 18% or 19% yielding product. So I would say we've constrained that element of our business to a degree.

And how about the installment loans, did you constrain those at all?

No we did not. As you can clearly see in the press release, we've considerably increased our originations at least for small installment loans.

The part of where I'm going with the question is that your average loans in the second quarter were less than the first quarter average. However, the Q2 ending loan balance was higher. So I guess I'm trying to understand what are the implications of that?

Well, Bill, when you look at the patchwork of the eight states in which we operate, the definition of or the rate associated with what we define as a small installment loan, it can vary to a wide range of potential rates. On any given month in any given quarter, we're looking to balance the geography of our book and on any given month or quarter, we might be emphasizing growth in North Carolina, which is a 36% interest rate cap state. So that could certainly drive volume but drag down yields. And conversely, in some of our higher yielding states on another month or quarter, we may be emphasizing growth there. So, I don't read much into that phenomenon other than the continual balancing act that we do across our geographies.

Yes, Bill, I would add just one other piece of information to what Tom had to say and that is that certainly our June campaign went out mid-month and we've seen the expected nice growth from that particular campaign and certainly that growth at the end of the quarter is probably the reason you're seeing the end-of-period look higher than the average.

Eugene Fox, Cardinal Capital Management.

Hello, gentlemen. Two questions. Tom anything that you would highlight in terms of the markets that you're serving or the customers that you're serving in the products that has changed in any meaningful way, if you can talk about?

We're very mindful of some of the recent survey data that come out -- that's come out that certainly seems to indicate better consumer sentiment out there. We don't really put a lot of emphasis in macro measures like that. I would say Gene that probably the big driver of that is most impactful for our customer in our markets is what appears to be pretty sharp improvements or lowering in the price of a gallon of gasoline. In past calls, I've talked about the opposite effect which is increasing gas prices and the profound impact that's had on our customer. A $0.10 per gallon increase in gas can mean a big difference in the wallet or purse of our customer. We've seen across the board, across all of the states in which we operate, sharp declines in the price of a gallon of gas and that's a positive to our consumer.

Beyond that I think we continue to see that our customer base, our demographic has maintained good discipline in their household. I think they're making good decisions in how they borrow and how they spend. The mainstay of our business is small installment loan in the auto categories, origination volumes have been very strong for us. So, I think our customers are in a pretty good place right now and things are looking up for them.

Okay. Tom, second question, as it relates to -- it's sort of two part, as it relates to the credit side, obviously delinquencies have improved, has it been noteworthy in any particular product versus other products. And in terms of the changes that you're making, I know you express vigilance, which I applaud you on, are you pretty much there in terms of the staffing that you need to do; are there other changes or incremental improvements to your -- to working with the customer that you would highlight?

Well, I'll take the labor side, Gene and Don can take the specifics on the delinquency. In the quarter, the second quarter, we added some 140 additional employees or incremental employees. We're now up over I believe it's 1,340 employees company-wide. And as Don had alluded to earlier, we were hiring during Q2 and our hiring needs were really driven by two factors. One is the overall factor of just pushing down our accounts per employee that -- the need to do that was clear. But we're also starting to pick up some hiring for growth and I would say, to your question, we're not done by any means hiring, particularly given that we're in the most robust period seasonally for growth. I checked just the other day, we have some 120 job postings nationwide and in order to really tackle strong job growth, we've actually now hired an internal recruitment leader who is developing a talent development function within our Company and we anticipate having geographic recruiters throughout our footprint added throughout the year.

So we continue to be a growth company in terms of our hiring needs. I suspect that will not abate any time soon. But I would also add that I'm very pleased with the progress we've made on that front in the hiring infrastructure, if you will, we've put in place.

Don, you want to get into specifics on product driven delinquencies?

Yes and Gene we had of course some delinquency peak for all the different product categories, somewhere less severe than others; small was probably the largest. And as I mentioned earlier, it's down to 7.2% at the end of June. Our large installment loans down to 5.6% delinquency at the end of June. Auto is at 6.4% and retail is at 4.5%. So all the categories had their respective individual peaks and all are down to new lows again.

At this time, we have no further questions. I will now turn the call over to Tom Fortin for closing remarks.

Well, thank you Glenn for facilitating the call. Ladies and gentlemen, we appreciate your participation in this quarterly call and we also appreciate your ongoing support for Regional Management. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.