Regional Management Corp (RM) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Regional Management Corp.'s first-quarter 2016 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host for today's conference, Mr. Garrett Edson, Senior Vice President of ICR. Sir, you may begin.

Thank you, Bridget, and good afternoon. By now everyone should have access to our earnings announcement and slide presentation, 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 of management 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 position 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 today's announcement and posted on our website at RegionalManagement.com.

I would now like to introduce Michael Dunn, CEO of Regional Management Corp.

Thanks, Garrett. Good afternoon. Welcome to the first-quarter earnings call; and thanks, as always, for your continuing interest in our Company.

I'm here, as usual, with our EVP and CFO, Don Thomas, who will speak later on the call. I'm also here with the members of our financial team.

In the interest of providing additional color to the investment community, we have created a supplemental presentation that Garrett referenced that is available on our website at RegionalManagement.com. The remarks that Don and I will make today will (technical difficulty) the presentation, and we hope the presentation will be helpful in driving additional transparency and a clearer messaging with respect to our business.

Let's turn to slide 3. The first quarter was a solid quarter for us both in terms of the profile of our financials and in terms of the progress we've made on a number of strategically important initiatives. I'll comment at the end of my remarks on the strategic initiatives, but first the financials.

Net income was $5.2 million for the quarter, up $1.1 million from last year's first quarter. Diluted EPS was $0.40, up $0.09 from last year.

Importantly, revenue grew nearly 8% over last year's first quarter, an acceleration from the rate of growth that we experienced in the second half of 2015. Yields continue to flatten out, and the portfolio liquidated at the lowest rate in the last three years.

The credit provision increased $4.1 million versus the first quarter of 2015, due in part to an unusually high reserve release recorded in the first quarter of 2015, which related to the 2014 solicitation issues, as well as a $1.7 million increase in net charge-offs. The absolute amount of charge-offs result from the roll-through of fourth-quarter delinquency profile, and Don will talk more about this in his comments.

The current delinquency profile of the 30-plus loans is 6.2%, and total delinquencies are 16.7%, both among the lowest we've ever publicly reported, and are indicative of the losses to come over the next six months.

Expense levels continue to be a good story, improved from last year's first quarter, including the effects of additional 33 branches opened over the last 12 months. Don will go into additional depth in his remarks.

If you turn to slide 4, as you can see we've had a decline in net income in this quarter from the fourth quarter, which reflects the more normal seasonal net income pattern for our industry. This pattern is driven by the typical drop-off in volumes and lower expense deferrals associated with reduced origination and renewal levels typically experienced in consumer finance companies in every first quarter.

The bottom graph on the slide tracks our ending net receivables. As mentioned, the first quarter is the quarter where we typically see a net liquidation of the portfolio, although we are pleased to report that the liquidation we experienced in this quarter continued to improve from prior years.

You can see it on the right-hand side of the chart, 3% this year versus 4% last year and 8% in 2014. This provides us with a good stepping-off point for the second quarter, which is usually one of our strongest growth quarters.

Next on slide 5, we break down our revenue into its main drivers. The 8% year-over-year revenue growth rate was driven by a significantly stronger average net receivable base, up just over 16% from the prior-year period, partially offset by a 270 basis point yield decline.

While our yield was down on a year-over-year basis, it was down only 20 basis points from the fourth quarter as the yields continue to stabilize. The decline also reflects the continued mix shift to lower-yielding large loans.

These stabilizing yields, combined with an essentially flat average portfolio on a sequential basis, combined to produce flat sequential revenue. But importantly, now that the yields have stabilized over the last three quarters, our future revenue should be driven more by our volume growth, with a reduced impact from the change in yields.

I'll turn the call over to Don now.

Thanks, Mike, and hello to everyone on the call. If you're following us in the presentation, please turn to slide 6, which shows our total loan portfolio and volume change by product category.

At March 31, 2016, our total portfolio was $607 million, which is $81 million greater than the prior-year period. Our core loan products were up $118 million or 33%, while other loan categories were down $36 million, primarily due to the continued liquidation of the automobile loan category, which I'll get back to in a moment.

From a core loan category perspective, we were once again led in the quarter by the performance of our large loan category, which ended the quarter with $162 million in net receivables, an increase of 156% from the prior year, and up 11% from the end of the fourth quarter. Large loans now represent 27% of our total portfolio, and we expect that number will continue to grow in future quarters.

Our core branch small and convenience check loans typically are most affected by seasonal liquidation. Collectively, these categories decreased $27.7 million or 8% from the end of the fourth quarter, but increased $18.8 million or 6% from the prior year. Our core loan categories continue to perform well for us.

As for our automobile loan category, the pace of liquidation slowed in the quarter. As we noted on the prior call, our restructuring of all auto processes is ongoing. We expect we'll have at least one more quarter of liquidation as we complete the restructuring of that business and then expect to grow the portfolio in the second half of 2016.

Moving to slide 7, net charge-offs for the quarter were $15 million, up $1.7 million versus the first quarter of 2015, and up $1.2 million versus the fourth quarter, excluding the bulk loan sale. As Mike said, the first-quarter losses reflect the roll-through of the last three buckets of the fourth-quarter delinquency profile. The provision was $1.2 million less than net charge-offs as the impact of lower ending receivables, combined with a significantly improved delinquency profile, reduced the required reserve level.

Net charge-offs as a percentage of average net receivables was 9.7%, slightly down year-over-year, but up 70 basis points from the fourth quarter, again excluding the bulk loan sale. As we noted in prior calls, we tightened our underwriting criteria in the third quarter of 2015, which, combined with the normal seasonal rise in delinquency, pushed our delinquency results a little higher in 3Q and 4Q.

Turning now to slide 8, however, from an overall credit perspective we are pleased that our total delinquency of accounts one or more days past due was a record low of 16.7%. More importantly, our 30-plus-day delinquency level declined a full percentage point in the first quarter to 6.2%, which is one of the lowest ever reported levels.

While delinquency is typically at a seasonal low at the end of the first quarter, the 30-plus-day delinquency level is consistent with our expectations from making the shift in our underwriting criteria last year. Based on the dollar level of delinquency in the last three buckets of our delinquency schedule at March 31, 2016, our loss rate for the second quarter should be improved from the first-quarter level.

Moving on to slide 9 now, our G&A expense of $29.8 million was down $2.8 million from the prior year, but up $1.3 million sequentially. Excluding the nonoperating items that increased our first-quarter 2015 expense, our G&A expense was still slightly lower in 2016 than the adjusted 2015 amount, despite the opening of 33 additional branches since last year. Versus the fourth quarter, the increase is mainly due to a lower volume of expense deferrals related to fewer originations in the first quarter.

Let me also provide some comments on our press release expense line items. The impact of branch openings -- 33 since last year -- impacts all of our G&A expense line items, with the most visible being the impact on occupancy.

Personnel expense was sequentially down, even though we had $1.2 million less deferral for loan origination costs. This seasonal impact on our personnel expense occurs in the first quarter every year.

We were more efficient in a number of ways to offset the costs of more branches and the seasonal impact of the lower deferrals for loan origination costs. One of the areas we have become more efficient is in our marketing expenses, which were down $1 million from the prior-year period. Overall, we continue to find ways to be more efficient while also investing in initiatives to move the business forward.

And now I'll turn the call back to Mike.

Thanks, Don. Let's go to slide 10. As I mentioned before, I was going to give you some strategic updates. These are the updates that we've been working on, and I've mentioned them in previous calls.

The first update is extremely important. After launching our Virginia de novo branches on a new origination and servicing system platform, in part as a proof-of-concept system, we're very pleased to report that the platform performed up to our expectations, and we have now signed an agreement to convert all of our branches to that platform beginning immediately. The platform is a product of the Nortridge Company of Lake Forest, California, and as I mentioned includes both an origination platform that we currently do not have along with a servicing platform.

Our expectation is that, although the conversion work is already underway, as we incurred $400,000 in conversion costs this past quarter, we expect to convert our branches beginning in early the third quarter of this year and are planning to have all the branches converted by year-end. This system provides us with some capabilities that we've never had before. It will allow us to capture information in the front end, such as application data, purpose of loans, DTI ratios, demographic data, etc.

This system also has a decision engine built into it by our credit team that will provide our customer reps with credit decisions that are more standardized across our entire Company, eliminating much of the underwriting that was historically the responsibility of our branch managers. We will also have the ability to text and email our customers, do imaging and document control, and provide self-service portals, electronic payments, among other very exciting features.

The information that this system will be able to provide will be a great value to both our marketing and credit functions. And the system's functionality will provide us with significant efficiency opportunities. Obviously, this is a huge step forward for our Company and should position us well for the long term.

As we noted on the last call, the focus on completing the implementation of the Nortridge system means that new branch openings will be on hiatus for a time. But we should return to expanding our footprint in the second half of the year and still expect to open between 20 and 25 branches in 2016.

Another important update is on our marketing channels. We recently signed an agreement with LendingTree to test their referral program to South Carolina residents. This is our first experience in dealing with partners who provide referrals to us in our core loan products.

We've also recently signed advertising agreements with search engine optimizers that will also hopefully build recognition and direct more customers to our new website address, RegionalFinance.com.

I'm also happy to update you with respect to the online lending module test in South Carolina that we began early in the first quarter of this year. We were testing end-to-end functionality of this home-grown platform, from application taking to identity authentication to decisioning and, finally, to electronically transferring the loan proceeds to customers' accounts.

The functionality has proven out to our satisfaction, and we are adding marketing support to this in the second quarter. We are also preparing the other eight states for rollout, and our expectation is that we will be in either production or test mode in all states by the end of this year.

Finally, during the quarter we repurchased approximately 572,000 shares of our stock at a weighted average purchase price of $15.49 per share. Combined with additional purchases of our stock we have made thus far in the second quarter, we have repurchased approximately $50 million of our stock as of today, and there remains approximately $10 million available in our $25 million repurchase program. Back to Don.

Turning to slide 11, while we don't give broad guidance, we have historically provided information regarding specific transactions or initiatives. Some of our current financing and investment initiatives are impacting our results of operations, and we've attempted to outline the costs on this slide through the end of 2016.

The largest impact pretax, $1.3 million, will occur in second quarter; after that, the impact lessens through the end of the year. The cost of the auto backed amortizing loan we closed in December is running slightly higher than our normal bank facility interest costs, so we've included that here for run-rate info.

In addition, we are borrowing on the bank facility to fund the repurchase of stock, and that will increase our interest cost as well. The cost we've included here relates only to the purchases through today and could increase if we purchase additional shares of our stock.

The third item is loan system implementation costs for the system change Mike described in his comments. We have existing software costs that are being depreciated on an accelerated basis now, and we will continue to incur implementation expenses at least through the end of this year.

That's all I have on cost initiatives, and I'll turn the call back to Mike.

Thanks, Don. In closing, as I said earlier, this was a very solid quarter for the Company. We conclude the first quarter of 2016 essentially where we expected we would be.

Revenue growth has accelerated. We have a much improved delinquency profile, which suggests an improved loss outlook versus our first-quarter levels, and we'll of course continue to closely manage our expense base.

Having said that, we're also excited about the investments we are making in our future. We're excited about the new capabilities that the new system will provide. We are looking forward to the test results of our marketing channels and are pleased with the results of our Virginia de novo launch.

All of this to say that we remain committed to running the Company for performance on both top line and bottom line, while also managing the Company through a transformation that will set us up for the opportunities we think will be there for us in the future. Thanks for your time and interest, and now I'd like to open up the call for questions.

(Operator Instructions) John Hecht, Jefferies.

Thanks, guys. Don, I'm wondering if you can -- I know, I understand the underwriting changes where you became, it sounds like, a little bit more selective on renewals. Can you maybe give us a little bit more color on that?

Has that changed -- has it entirely worked through the system? Or is there still some residual impacts to it?

Sure, John; thanks for the question. Yes, last year in the third quarter, we did in fact tighten some underwriting standards. Some of that had to do with renewals of loans. I think we mentioned that we had implemented a net tangible benefit.

So what you're seeing is that that has partially contributed to the rise in delinquency at the end of the third quarter and still remains some at the end of the fourth quarter. It's kind of rolled through now, for the most part, although the last three buckets here at the end of March still have a certain dollar amount of delinquencies.

So we believe most of it's gone, and we'll see the rate of loss decline here as we move into the second quarter.

Okay. Then as you guys accurately discussed, the delinquencies were pretty substantially down I think year-over-year and from quarter-to-quarter. But the large loan delinquencies are up year-over-year, if I recall, in the table.

Is that just a functioning of that portfolio just ceasing? You've grown it, and it's coming into its own natural trends; or is there something else we should be looking at there?

No, there's nothing else we're aware of that you should be looking at or thinking about, John.

I think, John, if you look at the fourth quarter versus first quarter, it's pretty flat. It is what you said. Last year, with the explosive growth that we had from the fourth quarter of 2014 and the first quarter of 2015 and on, it was really what is commonly referred to as the denominator effect, which means the balances were growing and hadn't yet aged through.

So a lot of what you saw last year was that. I think it's starting to level off as the portfolio has reached the size that it is right now.

Okay. Final question. You mentioned yield stabilization. I know that there was -- the mix shift was causing a yield contraction. So if you're describing yield stabilization, are you getting to a mix between small and large installment loans that shouldn't vary much going forward, or how should we think about that?

There's a good table in the press release which really, I think, dramatically shows the change in yields from the first to the fourth. It shows, for example, that on small loans in the first of last year we were at 46, and in the fourth quarter we were at 43; and then if you carry that fourth quarter into the first, we're still at 43.

So it's by product. When we talked about yields flattening or stabilizing, we meant by product for the most part.

Okay.

But also, when you get there you'll notice that the large loan yields have actually increased. So it's a combination of things.

I think what we're saying also is going forward from here, with each product category remaining relatively stable, the change that we'll see going forward will reflect more of the mix to the large loan rather than changes in the individual yields or the individual product components.

Okay; that's very helpful. Thanks very much, guys.

Sanjay Sakhrani, KBW.

Hi, this is actually Steven Kwok filling in for Sanjay. Thanks for taking my questions. I guess the first one I have was around the charge-off rate. Can you talk about the seasonal trends that we should expect from a charge-off rate perspective?

I think, yes, first, well I'll just say this, the first quarter of every year is typically -- and I'll just talk about in terms of delinquency profile, then I'll get to seasonal trends -- is typically your best in this industry, is your best profile of delinquencies.

We've talked about this before. People get tax refunds, year-end bonuses, those kind of things, and we see payoffs. That's why our portfolio actually liquidates.

The third quarter is a -- second and third quarter are high-growth quarters for us. As we move through the year, the delinquencies generally start to rise, followed -- again, because of the way the 180-day write-off rule works -- typically by higher dollar levels of loss. It depends upon how high the portfolio grows, which would determine the rate.

Having said that, I think just to be clear, and it was -- John asked the question on the last call. As Don mentioned, we had -- we made some changes in the third quarter of last year, specifically relating to the renewals and what we did with some of the poorer-performing customers. It was just a change that we made, and a lot of those rolled through.

So what you're seeing in the first quarter in terms of the absolute level of losses really relates more to that. But that I think is -- the first quarter that we had this year in terms of loss rate was high because of the roll-forward of those changes -- higher than normal.

Got it. Then as we look out into the rest of the year, should we expect that to come down because you are working through that bucket? Just wanted to see if you can provide some more color on that.

Yes, as we said, if you think about it, the last three buckets of our delinquency profile, typically the last three buckets typically relate to the next quarter's loss rate and -- losses, rather. As Don said, our profile right now is at a record low; and because we're low particularly also in those last three buckets, we're expecting improved loss rates in the second and third quarter.

Got it. Then how should we think about from a provision perspective? Should we look at it as a percentage of the total receivables?

I think a number of people do. I think you have to keep in mind, certainly, the loss rates that we just discussed and what's in the delinquency buckets at the back end of the delinquency table.

I know there are a number of people who love to model the allowance as a percentage of total receivables. You can see the statistics that we have with the release, and our Q when we file; but I believe we are consistently the last two quarters around 6% of total receivables. And that is something we've heard other people use to model.

Great. Thanks for taking my questions.

John Rowan, Janney.

Good evening, guys. Not to harp on the charge-off thing, but I just wanted to understand. So not from a delinquency standpoint but from a charge-off standpoint, shouldn't the first quarter be the lowest of the year, and then work your way up a little bit, and peak out in December, and then back down?

It's been a long time since we've seen really a clean charge-off number for a full year for you guys, just given what happened in 2014 and 2015. So I just want to understand how you're looking at that seasonal charge-off -- not the delinquency.

Yes, the first-quarter losses, which obviously relates to the loss rate, include, I think as we tried to say, two things in particular. When we were talking in the third quarter and the fourth quarter, starting in the third quarter, we mentioned seasonally high delinquency profile.

That's true in the auto business, the auto portfolio. If you take a look back, it's also true in the other core products.

So that, obviously, will roll through from the third quarter and be basically your first-quarter losses, or part of your first-quarter losses. That continues into the fourth quarter. So seasonality as it builds from a delinquency standpoint in the third and fourth generally relates to higher levels of losses in the first quarter.

The other part that Don mentioned when he talked about net tangible benefit and some credit underwriting changes related to renewals. As we took, with our credit guys, looking at analytics of how groups of customers perform, we tightened down our renewal policy on those customers that we would otherwise have renewed, which resulted in having those customers, instead of being renewed and going back into the current bucket, they went instead towards loss.

I think in this quarter, probably something like 16%, 17%, 18% of our losses really related to that change. The rest of the losses related to just the roll-forward of what we would call more normalized delinquency levels.

So it was a change that had the effect of increasing our losses in this quarter by about 16%, 17% of the total. Just to go back -- I think John Hecht asked the question -- we're probably about 90%, 95% through that change. In April we expect it'll be pretty much finished, and the May and June numbers will be unaffected by that credit policy change we made last year.

Okay. Are you seeing any deterioration in the auto book? We've seen a bunch of companies report pretty weak credit from subprime auto, just given the falling recovery rates on vehicles. Is that included in that number at all?

Well, it's included in the loss number. We actually have also seen -- just as everybody else, as you mentioned -- that the amount, the recovery we make on repo-ed vehicles in terms of the resale value has gone down over the last eight or nine months, for sure. And that's affecting our losses in the auto.

Our auto business, as Don mentioned, is being restructured in a number of ways, and so we have a lot of noise in our numbers. But it's starting to settle out, as Don said.

We've probably -- we slowed down the pace of liquidation in the first quarter. We expect to see some growth, and we expect to see improved performance on the credit side as well.

So it's improving for us. I think we're a little different because we're in a restructuring phase. Probably a little bit different than the rest of the industry.

Okay, last question for me. The loan conversion system costs that you're citing here, that's $900,000 for the second quarter? I just want to make sure I understand this table you have on page 11 of the deck.

Yes, let's go to slide 11.

No, no. That's -- you're referring to the loan system conversion?

Yes, for the second quarter of 2016. I just want to understand if this is per share, or I'm not entirely sure what these numbers -- how to read them.

Yes, I'll try. What we're trying to say here is that in the -- and I'll just use the second quarter since you're asking about that. What we're trying to say here is, compared to our normalized run rate of 2015 -- for the last couple of quarters of 2015, anyway -- we have three items that we're calling out, so to speak, that are affecting our run rate when you compare it to what it was.

One is the increased interest cost on our automobile securitization that we did in the fourth quarter, which is costing us about $200,000 pretax per quarter. That's in the second quarter.

The stock repurchase program that we talked about as well, buying back our shares cost us about $200,000. We're funding that with drawing down our debt.

And as I mentioned we're announcing a conversion to a new operating system, loan origination and servicing system. As we announced the conversion, we're going to be finished with it by the end of the year. And we're going to have an accelerated depreciation write-offs in the next couple of quarters, and that number is $900,000 in the second quarter.

The deferral fees that we talked about relate to our renewal volumes, our origination volumes, which are typically lower in the first quarter; and Don mentioned that. But that's not on the schedule. These are all items that are different from our run rate.

So that's $900,000 in the second quarter for, again, just a write-off of your old system (multiple speakers)?

Yes, accelerated depreciation of the existing software. Correct.

A combination of that and the implementation costs for the (multiple speakers)

Some implementation costs; correct, right. Correct.

Okay. Thank you. I just wanted to make sure I understood that correctly. Thank you.

(Operator Instructions) Bill Dezellem, Tieton Capital Management.

Thank you; I've got two questions. First of all, as you think about the convenience check originations, what's the right level? It has been falling, and ultimately we're going to come into a balance. So would you talk to that point, please?

Yes. The convenience checks as a category is a combination of newly originated convenience checks, and customers who come in and renew themselves into essentially the same loan that they originally had. Now, the convenience checks as well as the small loans are also feeder businesses into our large loans.

So when you take a look at the originations, if somebody comes from the convenience check category into a large loan, it doesn't show up as an origination or renewal in convenience checks. It shows up as a renewal or origination in large loans. So the numbers that you see there aren't consistent apples-to-apples.

In the first quarter of last year, the originations for convenience checks were about $60 million, and this year they are $55 million. But as we mentioned before, two-thirds of our large loan originations come from our convenience checks and small loans.

So the large loans, which have $48 million in originations this year from $29 million last year, two-thirds of that $48 million -- about $30 million -- are coming from the convenience checks and small loans. So it's not exactly a direct comparison.

But convenience checks, as I mentioned before, provides us with new-to-company customers of about 100,000 new customers per year. So it's a great customer acquisition channel for us.

You're really hitting on the point that I was trying to grasp, which -- if originations were to continue to fall, then ultimately that new customer pipeline goes away. Clearly that's not what you're trying to accomplish.

So I'm not sure how to ask the question correctly, but I am trying to understand: At what level do you think the convenience check originations stabilize, and that will provide basically the feeder pipeline that you're looking for?

Well, we look at it a different way. One of the ways we look at it is: How many new loans are we originating through the convenience check channel every month? That's been a very consistent number and actually increasing over the past 15 months. We probably get, as I said, 100,000 customers -- we get about 8,000 accounts every month, 7,000 to 8,000 accounts every month from this channel.

Then in this particular chart that we have on page 8 in the press release, this is not only newly originated loans but these are also loans that were originated or renewed. So the decline you're seeing is more that they renewed out of this category into large loans. The amount of the new-to-company originations from new customers is slightly up from a year-over-year basis.

You're not going to be able to get that picture from this chart, because what you don't see is the mix change coming out of convenience checks and small, and going to large.

Right. Okay; thank you, Mike. Then second question is, relative to your charge-offs, first quarter was at 9.7% versus the fourth quarter at 9.4% -- pardon me, at 9.0%. So that increase, is that the seasonality? Or is that -- is there something to do with credit back there behind-the-scenes, that's that tail from the Q3 change?

Yes, there was some -- at the end of the fourth quarter, if you looked at the last three buckets of our delinquency profile, we had about almost $20 million of loans sitting in those last three buckets. And with the 180-day write-off rule those three buckets become your January, February, and March losses. From that $19 million -- almost $20 million -- $15 million rolled through and became our losses for this quarter.

As Don mentioned, there are two factors that created that delinquency profile at the end of the fourth quarter. One is seasonality. You always get some seasonally high delinquencies in a third and fourth quarter.

And two, we made a credit underwriting change, particularly on renewals, back in the third quarter, which caused an increase -- a cohort, if you will -- of accounts that we were no longer going to renew. And instead of paying us off, the customers started to roll to loss.

As I just mentioned in the previous call, when you look at our $15 million number in this quarter on write-offs, approximately, I would say, 14% or so -- 15%, close to 15% -- of this quarter's write-off are related to that underwriting change. The balance of the write-offs are related to more normalized seasonal patterns of the delinquency profile just rolling to loss.

So I would say that, again, with linear relationships I would say that our 9.7% was affected by the underwriting change by about 120 basis points or something like that, 100 to 120 basis points, and that is a one-time event in this quarter. We're 90% of the way through it; the second quarter, just a very small minor impact; and then from that point forward, it being more normalized, more comparable set of period-to-period comparisons.

But I also would quickly add that in the first quarter we have a much lower level of delinquencies, which proves my point. So as we've said in our comments, the second- and third-quarter loss in absolute terms and in rate terms should be much improved from the first quarter because of those reasons.

Thanks for tying all that together. Appreciate it.

J.R. Bizzell, Stephens Incorporated.

Good afternoon, guys. Thanks for taking my questions. Most of mine have been asked, but really congrats on getting the platform -- large platform out -- the loan management platform out and about. Wondering, as you've implemented it in your test market, and then with your expectations as you're rolling it out for the remainder of the year, I'm just wondering if you expect a collection delay, an origination volume delay. It could be as minor as a couple days in the stores.

I'm just wondering how long the process is to put in this new system, and if you expect any hindrance on production within those stores.

Yes, as you might remember, we had a system conversion scheduled, I think for early part of 2015, which we abandoned. That was a big bang, the whole Company at once, and we were actually contemplating that we might have to close the stores, the branches, for a day or two.

This is different. This is a sequential state-by-state roll-out, and it will happen over the course of a weekend with no impact to our branch opening hours, if you will.

We haven't converted any yet. Obviously we brought Virginia up on this new platform. We haven't converted any yet; we're starting in the third quarter to be completed by the fourth quarter is our expectation.

So I can't talk from experience, but I can talk from our planning. Our planning is that we're expecting no impact on the running of the business post-conversion.

In fact, what we do -- I think I mentioned in my comments -- we're getting a tremendous amount of information from this new origination system because, as I mentioned, we've never had one before. So we're getting things like purpose of loan that we now can look at centrally that we've never had before; it was resident to the branches. We're looking at how -- it's a decision engine that we've built more standardized underwriting across the Company.

And reasons for declines: if we're declining loan from a credit perspective, our credit guys are able to understand better. So we actually think we'll get an uptick in business because we'll be able to more quickly adjust different things, whether it's our marketing or whether it's our credit standards, to take advantage of this information that we'll have now that we've never had before.

So I don't think there will be any delay. I think we're also going to get significant operating efficiencies, especially when you have things like texting, emailing, electronic payments.

Because as we've mentioned before, 99% of all the payments that our customers make every month are done in branch. I have no -- we have expectations that as we roll out the electronic payments that more and more customers will take advantage of it. I don't know how long it will take them to take advantage of it, but I expect it will be pretty quick.

So we'll have a lot more information. We'll have a lot better efficiencies. I don't expect any drop-off in business, and I actually expect an increase.

Building on that -- and you kind of answered my next question -- but thinking about centralized collection process for you guys and with this new system, the data you're going to receive, the efficiency you're going to receive in the store, and thinking about those later-stage delinquency buckets, will this provides you a better opportunity to maybe enhance the centralized collection process on the later-stage delinquencies, if you wanted to go that route?

Yes, the other thing that this system provides is better work queues. So we can help direct the focus of collection efforts, if you will, from Greenville. For example, if a particular region, branch, area, whatever, is experiencing higher than standard levels of delinquencies, the credit folks here can direct that branch to either work those things, or work those things differently with different loss mitigation tools. That's the answer to part of your question.

The other answer is we're actually doing a co-collection test over the past few months or so, in advance of moving late-stage collections to central. That test is only -- I think we did 18 branches. We're adding another 32 branches to the test; so that would be 50 of our 339.

But our expectation is probably by year-end we will start moving the -- and maybe we'll do it in some sort of sequence -- but we'll start moving the late-stage delinquencies to a centralized location.

Perfect. Then one last one for me if you don't mind. When you're thinking about the share repurchase program, you've been successful in taking advantage of that. I wonder, once you utilize that $25 million program, is there any reason to believe that the Board and the management team has a change of heart around expectation for future share repurchase?

You know, it's -- we've been talking to the Board about share repurchase actually when I was on the Board, before I became CEO. And when the stock price was at a different level, the conversation was different. Then when the stock price dropped over the course of the last half of 2015, then we had a different conversation with the Board.

We talked to them about the size of the program. We talked to them about our objectives in terms of supporting the stock price, and the economics involved in buying back stock at different price points. So I would imagine that if the stock price were to do something precipitously -- precipitous in terms of falling or whatever, then I would have a different conversation with the Board.

But our expectation is that, as I mentioned, we built a nice foundation in the first quarter. We absorbed a higher level of credit losses due to some of the changes we made last year that needed to be made in the credit underwriting; but that's mostly through. We've also made changes on the origination side so that we don't deal with those kinds of customers anymore.

So we think we have a nice solid foundation for the beginning of 2016. Our expectation is that we'll have solid quarters going forward, and that will obviate the need to go back to the Board and ask for any increase in the program.

Thanks for the detail.

I'm not showing any further questions, so I'll now turn the call back over to Mr. Dunn for closing remarks.

Okay. Well, thanks as always. We're very excited, as I mentioned probably more than once on the call, about our prospects for business in the second quarter, our prospects for all the changes that we're going through as a Company, and very excited about the balance of the year and the future. So thanks, everybody, for your interest and we'll see you next quarter. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.