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RM

Regional Management Corp. (RM)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered record revenue ($154.8M) and improved profitability (diluted EPS $0.98) on stronger yields and portfolio growth to $1.89B ENR; credit improved YoY (net credit loss rate 10.8%, -430 bps YoY) and opex discipline continued (operating expense ratio 14.0%) .
  • Mix and pricing tailwinds: total revenue yield rose to 33.4% (+110 bps YoY; +80 bps QoQ) on increased pricing, higher-margin small loans (APR>36% now 18.5% of portfolio), and expanding auto‑secured book (10.9% of portfolio) .
  • Liquidity/funding robust: 79% fixed-rate debt (WAC 4.1%); executed $250M ABS at 5.34% in Nov (85 bps tighter vs prior), supporting growth and moderating rate risk; Board declared $0.30 dividend .
  • 2025 setup: management commits to at least 10% ENR growth and “meaningful” net income improvement (Dec 2 outlook had 10–12% ENR growth); Q1 guide: revenue yield -~90 bps QoQ, NCL ≈$60M (~12.7%), opex $65–$65.5M, interest expense $20–$20.5M, EPS seasonally weaker; no full-year EPS guide due to CECL growth drag .

What Went Well and What Went Wrong

  • What Went Well

    • Yield and revenue momentum: record quarterly revenue ($154.8M) with total revenue yield 33.4% (+110 bps YoY) on pricing, favorable mix, and improved credit; interest & fee yield 29.8% (+100 bps YoY) .
    • Credit progress: NCL rate 10.8% (-430 bps YoY; -110 bps YoY ex special loan sale impact) and front-book continues to outperform back-book; allowance held at 10.5% .
    • Cost discipline with growth: operating expense ratio 14.0% (-80 bps YoY) while opening four new branches; G&A flat YoY ($64.6M) .
    • Funding execution: $250M ABS at 5.34% (AAA class), improving coupons by 85 bps versus prior deal, strengthening liquidity and mix of fixed-rate debt .
    • Management tone: confident in consumer health and macro (lower inflation, real wage growth, low unemployment); leaning into barbell strategy across auto‑secured and higher‑margin small loans .

  • What Went Wrong

    • Seasonal/segment credit pressure: 30+ day delinquency rose to 7.7% (seasonal and mix), small-loan delinquency 10.4% (mix to higher APR loans added ~130 bps), though large-loan delinquency rose only 30 bps YoY .
    • CECL growth drag: ~$7.7M provision tied to $73M sequential growth created ~$6.0M after-tax drag in Q4; similar dynamic expected as growth accelerates in 2025 .
    • Interest expense creep: $19.8M in Q4 (up YoY), with management expecting interest expense of $20–$20.5M in Q1 as low‑coupon fixed ABS roll and variable funding usage increases; cost-of-funds tailwinds limited given already-low fixed base .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Total Revenue ($M)$141.659 $146.338 $154.832
Interest & Fee Income ($M)$126.190 $133.932 $138.246
Insurance Income, net ($M)$10.985 $7.422 $11.792
Other Income ($M)$4.484 $4.984 $4.794
Provision for Credit Losses ($M)$68.885 $54.349 $57.626
G&A ($M)$64.796 $62.468 $64.646
Interest Expense ($M)$17.510 $19.356 $19.805
Net Income ($M)$(7.574) $7.663 $9.914
Diluted EPS ($)$(0.80) $0.76 $0.98
Net Credit Losses ($M)$66.385 $47.649 $50.226
NCL Rate (% of Avg ENR)15.1% 10.6% 10.8%
30+ Day Delinquency (%)6.9% 6.9% 7.7%
OpEx Ratio (% Avg ENR)14.8% 13.9% 14.0%
Total Revenue Yield (%)32.3% 32.6% 33.4%
Interest & Fee Yield (%)28.8% 29.9% 29.8%
ENR/Net Finance Receivables ($M)$1,771.410 $1,819.756 $1,892.535
Consensus Revenue ($M)N/A (S&P Global data unavailable)N/A (S&P Global data unavailable)N/A (S&P Global data unavailable)
Consensus EPS ($)N/A (S&P Global data unavailable)N/A (S&P Global data unavailable)N/A (S&P Global data unavailable)

Segment mix and yields

SegmentQ4 2023 Avg ENR ($M)Q4 2023 Yield (%)Q3 2024 Avg ENR ($M)Q3 2024 Yield (%)Q4 2024 Avg ENR ($M)Q4 2024 Yield (%)
Large Loans$1,273.268 26.0% $1,279.720 26.7% $1,315.375 26.8%
Small Loans$477.615 36.3% $511.294 37.8% $536.163 37.4%
Total Revenue Yield—32.3% —32.6% —33.4%

Selected portfolio KPIs

KPIQ2 2024Q3 2024Q4 2024
ENR/Net Finance Receivables ($M)$1,773.743 $1,819.756 $1,892.535
30+ Day Delinquency (%)6.9% 6.9% 7.7%
NCL Rate (% of Avg ENR)12.7% 10.6% 10.8%
Allowance (% of ENR)10.5% 10.6% 10.5%
Total Revenue Yield (%)32.7% 32.6% 33.4%
Operating Expense Ratio (%)13.8% 13.9% 14.0%
Branch Count (EOP)343 340 344

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
ENR GrowthFY 202510%–12% (Dec 2, 2024) Minimum 10% (call) Range framed as ≥10% vs 10–12%
Net IncomeFY 2025—“Meaningful improvement” vs 2024; could be 30%+ if slower growth, but balancing CECL growth drag New qualitative commitment
Revenue YieldQ1 2025—~90 bps sequential decline (seasonal) New
Net Credit LossesQ1 2025—≈$60M (~12.7% rate); delinquency to improve seasonally New
Operating ExpensesQ1 2025—$65.0–$65.5M New
Interest ExpenseQ1 2025—$20.0–$20.5M New
Effective Tax RateQ1 2025—~24.5% (pre-discretes) New
Allowance RateQ1 2025—Flat at 10.5% EOP New
DividendQ1 2025—$0.30 per share declared New

Earnings Call Themes & Trends

TopicQ2 2024 (prior)Q3 2024 (prior)Q4 2024 (current)Trend
Barbell strategy (auto-secured + small loans)Leaning into higher-margin small loans; auto-secured expansion planned Auto-secured up 35% YoY; small loan yields +120 bps; graduation path emphasized Maintain barbell; small loan APR>36% now ~19% of portfolio; auto-secured 10.9% with best credit metrics Continues, scaled up
Credit performanceNCL -40 bps YoY; 30+ DPD 6.9% NCL 10.6% (-40 bps YoY); hurricane reserves booked; front-book reserve 10.2% NCL 10.8% (-430 bps YoY); front-book outperforming back-book; ACL 10.5% Improving YoY
CECL growth effectReiterated CECL Day-1 reserves dampen near-term earnings $4.6M pretax CECL tied to $46M sequential growth $7.7M provision ($6M after-tax drag) tied to $73M sequential growth Larger with re-acceleration
Funding/cost of funds88% fixed; WAC 4.2% 82% fixed; WAC 4.3% 79% fixed; WAC 4.1%; $250M ABS at 5.34% (85 bps better) Solid execution; modest mix shift
Macro/consumer healthExpect credit improvement 2H24 Inflation and hurricanes impacted, but trends positive Confident in consumer (wages, low unemployment); plan ≥10% growth More constructive
Capital return—Declared $0.30 dividend Dividend $0.30; buyback program authorized at $30M (Dec 2) Enhanced

Management Commentary

  • Strategy and growth vs. CECL trade-off: “We’re committed both to a minimum of 10% portfolio growth and a meaningful improvement to our net income results in 2025… The faster we grow in 2025, the more provision we must incur… but that portfolio growth will be beneficial… in 2026 and beyond.” .
  • Mix and margin: “We’ve improved our yields from increased pricing, a mix shift to higher‑margin loans and improving credit performance.” . “Auto‑secured… had a 30‑plus day delinquency rate of 2.6% and the lowest credit losses of all products.” .
  • Consumer/macro: “We expect continued improvement in portfolio quality and credit loss performance in 2025, assuming inflation continues to moderate and economic conditions remain stable, including low unemployment and continued real wage growth.” .
  • Funding: “Closed a $250 million asset‑backed securitization… at a weighted‑average coupon of 5.34%, an 85 basis point improvement over our prior ABS deal… significant demand across all classes.” .

Q&A Highlights

  • Product mix: Will continue barbell strategy; leaning into auto‑secured while maintaining higher‑APR small loan growth to fuel margins and customer graduation .
  • Front vs. back book: New originations performing in line; front‑book delinquency 7.2% vs. 11.9% back‑book; front/back reserve 10.2%/14.1% .
  • Rates/funding sensitivity: Company analyzed 25 bp scenarios; legacy fixed ABS at low coupons limit cost‑of‑funds tailwinds even if rates fall; as older 3% ABS mature, resets are higher .
  • Competition: Not seeing material competitive pressure in higher‑APR small loans; able to be selective; private credit‑backed fintechs not a current threat .
  • Expense trajectory: Q1 G&A guided to $65–$65.5M as RM opens 8 new branches and services more accounts .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q4 2024 EPS and revenue was unavailable at the time of analysis due to data access limits. As a result, we cannot quantify beats/misses vs. consensus for Q4. Where estimates would be cited, S&P Global data was unavailable to retrieve.

Key Takeaways for Investors

  • RM is re-accelerating growth with improving credit: record ENR and revenue, falling NCLs YoY, and a front‑book that continues to outperform back‑book vintages .
  • Yield expansion should sustain margins even amid higher funding costs: mix shift to higher‑APR small loans and expanding auto‑secured provide a balanced risk/return engine; total revenue yield up 110 bps YoY .
  • Near-term earnings will reflect CECL growth drag: elevated Day‑1 provisions when ENR grows (e.g., ~$7.7M provision tied to $73M sequential growth in Q4) depress near‑term EPS but build revenue/earnings power into 2026 .
  • Funding platform is a competitive advantage: tighter ABS spreads (5.34% in Nov), high fixed-rate mix (79%), and diversified facilities support growth while moderating rate risk .
  • 2025 roadmap: management targets ≥10% ENR growth and meaningful net income improvement, but Q1 will be seasonally soft (yield -~90 bps QoQ; NCL ~12.7%; opex ~$65M) before improvement in 2H as portfolio scales and NCLs seasonally decline .
  • Capital returns enhance the setup: dividend maintained ($0.30/sh) and a $30M buyback program provide downside support and optionality amid growth .
  • Watchlist: trajectory of 30+ delinquency post-tax season; pace of auto-secured growth; ABS market spreads and fixed/variable mix; and any regulatory developments affecting >36% APR segments .