Regional Management Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports fourth-quarter results. Regional is a consumer finance company serving primarily non-prime borrowers through installment loans and optional insurance products.
Business context and performance
At year-end, the company operated 350 branches in 13 states and served 460,600 active accounts. Net finance receivables were $1.426 billion, up 25.5% from $1.136 billion a year earlier. Large loans drove growth: receivables rose 35.5% to $969.4 million; small loans rose 10.4% to $445.0 million. The company closed 31 branches in Q4 as part of branch optimization.
Financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $428.4 million | $373.9 million | +14.6% |
| Interest and fee income | $382.5 million | $335.2 million | +14.1% |
| Insurance income, net | $35.5 million | $28.3 million | +25.2% |
| Provision for credit losses | $89.0 million | $123.8 million | −28.1% |
| General and administrative expenses | $195.5 million | $176.3 million | +10.9% |
| Interest expense | $31.3 million | $37.9 million | −17.2% |
| Net income | $88.7 million | $26.7 million | +231.8% |
| Diluted EPS | $8.33 | $2.40 | Increased |
FY2021 income before taxes was $112.5 million; net income was 7.3% of average net finance receivables, versus 2.5% in 2020. The operating expense ratio improved to 16.1% from 16.4%. Average cost of debt fell to 3.59% from 5.19%.
Q4: Revenue was $119.5 million versus $97.4 million in Q4 2020; net income was $20.8 million versus $14.3 million. Q4 provision for credit losses was $31.0 million, compared with $24.7 million a year earlier.
Credit quality, cash flow, debt and liquidity
- Net credit losses declined to $79.7 million from $96.1 million; the loss rate fell to 6.6% of average net receivables from 8.9%. Contractual delinquency nevertheless increased to 6.0% from 5.3%, including 8.9% for small loans and 4.6% for large loans.
- The allowance for credit losses was $159.3 million, or 11.2% of net finance receivables, versus $150.0 million, or 13.2%, at year-end 2020. It included $14.4 million of COVID-19-related reserves, down from $30.4 million.
- Operating cash flow was $189.0 million; investing cash outflow was $355.1 million, primarily reflecting loan originations; financing cash inflow was $243.4 million.
- Total debt was $1.108 billion, up from $768.9 million; funded debt-to-equity was 3.9:1 and stockholders’ equity was $282.7 million. Cash was $10.5 million. Unused revolving-facility capacity, subject to borrowing-base limits, was $556.8 million; management reported $209.7 million of immediate liquidity.
- The senior revolver was amended in December 2021: capacity fell from $640 million to $500 million and maturity extended to September 2024. The company reported compliance with debt covenants. About 78% of debt was fixed-rate; $550 million of interest-rate caps covered variable-rate exposure.
Outlook, commentary and material risks
- Management expects delinquencies and net credit losses to rise toward more normalized levels as pandemic-related stimulus wanes. Its CECL forecast assumed normal unemployment rates would resume at the end of 2022; the allowance remains sensitive to economic assumptions.
- Growth priorities include expanding geographically, growing large-loan and digital originations, and improving underwriting and collections. The company planned to enter at least five additional states by the end of 2022; it opened in Mississippi in February 2022. No formal earnings or revenue guidance is provided.
- Funding and capital actions included 2021 securitizations and new warehouse facilities. Subsequent to year-end, the company completed a $250 million securitization, repaid the RMIT 2019-1 securitization, and authorized a new $20 million share repurchase program. The quarterly dividend was increased to $0.30 per share in February 2022.
- Key exposures include non-prime borrower credit and economic sensitivity, state and federal regulation of consumer lending and insurance, geographic concentration, interest-rate and LIBOR-transition risk, reliance on securitization and warehouse funding, and collateral that may not be perfected. Other risks include employee turnover, third-party and technology dependence, cyber incidents, and COVID-19 disruptions.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal controls; the allowance for credit losses was identified as a critical audit matter because of forecast and qualitative-factor judgments.
Important facts for investors to verify
- Whether rising delinquency translates into higher charge-offs and additional credit-loss provisions, particularly for small loans.
- The assumptions behind the $159.3 million CECL allowance, including the remaining COVID-19 reserve and sensitivity to unemployment forecasts.
- Debt maturities, covenant headroom, borrowing-base availability, and continued access to securitization and warehouse funding.
- Execution of planned state expansion and digital-channel initiatives, including their effect on costs, credit quality, and branch productivity.
- The sustainability of dividends and share repurchases given increased debt, growth funding needs, and contractual restrictions.