UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period ended
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
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Trading Symbol
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Name of Each Exchange on Which Registered
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 1, 2024, the registrant had outstanding
Regional Management Corp.
QUARTERLY Report on Form 10-Q
Fiscal Quarter Ended March 31, 2024
Table of Contents
GLOSSARY
Terms and abbreviations used in this report are defined below:
Term or Abbreviation |
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Definition |
2007 Plan |
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2007 Management Incentive Plan |
2011 Plan |
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2011 Stock Incentive Plan |
2015 Plan |
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2015 Long-Term Incentive Plan |
ASU |
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Accounting Standards Update |
Board |
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the Company's Board of Directors |
CFPB |
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Consumer Financial Protection Bureau |
Company |
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Regional Management Corp. |
Consent Agreement |
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Consent Agreement between the CFPB and the Company dated January 4, 2024 |
CSPU |
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cash-settled performance unit |
Efficiency ratio |
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annualized general and administrative expenses as a percentage of total revenue |
Exchange Act |
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the Securities Exchange Act of 1934, as amended |
FASB |
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Financial Accounting Standard Board |
FICO |
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Fair Isaac Corporation |
GAAP |
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U.S. Generally Accepted Accounting Principles |
LGD |
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loss given default |
LTIP |
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long-term incentive program |
Net credit loss ratio |
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annualized net credit losses as a percentage of average net finance receivables |
Notice |
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notice provided by the CFPB to the Company dated March 7, 2023 |
NQSO |
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nonqualified stock option |
Operating expense ratio |
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annualized general and administrative expenses as a percentage of average net finance receivables |
PD |
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probability of default |
PRSU |
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performance restricted stock unit |
RMIT |
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Regional Management Issuance Trust |
RMR |
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Regional Management Receivables |
RMR II |
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Regional Management Receivables II, LLC |
RMR III |
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Regional Management Receivables III, LLC |
RMR IV |
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Regional Management Receivables IV, LLC |
RMR V |
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Regional Management Receivables V, LLC |
RMR VI |
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Regional Management Receivables VI, LLC |
RMR VII |
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Regional Management Receivables VII, LLC |
RSA |
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restricted stock award |
RSU |
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restricted stock unit |
SEC |
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Securities and Exchange Commission |
SOFR |
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secured overnight financing rate |
SPE |
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wholly owned, bankruptcy-remote, special purpose entity |
TDR |
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troubled debt restructuring |
VIE |
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variable interest entity |
3
Part I – financial information
ITEM 1. FINANCIAL STATEMENTS.
Regional Management Corp. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except par value amounts)
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(Unaudited) |
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March 31, 2024 |
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December 31, 2023 |
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Assets |
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Cash |
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$ |
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$ |
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Net finance receivables |
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Unearned insurance premiums |
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Allowance for credit losses |
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Net finance receivables, less unearned insurance premiums and |
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Restricted cash |
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Lease assets |
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Restricted available-for-sale investments |
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Intangible assets |
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Deferred tax assets, net |
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Property and equipment |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Liabilities: |
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Debt |
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$ |
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$ |
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Unamortized debt issuance costs |
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( |
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Net debt |
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Lease liabilities |
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Accounts payable and accrued expenses |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock ($ |
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Common stock ($ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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Treasury stock ( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
4
Regional Management Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands, except per share amounts)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Revenue |
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Interest and fee income |
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$ |
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$ |
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Insurance income, net |
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Other income |
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Total revenue |
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Expenses |
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Provision for credit losses |
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Personnel |
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Occupancy |
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Marketing |
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Other |
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Total general and administrative expenses |
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Interest expense |
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Income before income taxes |
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Income taxes |
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Net income |
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$ |
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$ |
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Net income per common share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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Other comprehensive income, net of tax |
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Unrealized income on restricted available-for-sale investments |
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Other comprehensive income, before tax |
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Income taxes related to items of other comprehensive income |
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Other comprehensive income, net of tax |
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Total comprehensive income |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
5
Regional Management Corp. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands)
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Three Months Ended March 31, 2024 |
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Accumulated |
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Common Stock |
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Additional Paid-In |
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Retained |
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Other Comprehensive |
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Treasury |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income (Loss) |
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Stock |
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Total |
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Balance, December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Cash dividends |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Issuance of restricted stock awards |
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( |
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— |
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— |
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— |
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— |
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Shares withheld related to net share settlement |
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( |
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— |
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— |
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— |
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— |
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( |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Three Months Ended March 31, 2023 |
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Accumulated |
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Common Stock |
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Additional Paid-In |
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Retained |
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Other Comprehensive |
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Treasury |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income (Loss) |
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Stock |
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Total |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Cash dividends |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Issuance of restricted stock awards |
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( |
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— |
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— |
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— |
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— |
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Shares withheld related to net share settlement |
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( |
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— |
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( |
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— |
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— |
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— |
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( |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to consolidated financial statements.
6
Regional Management Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for credit losses |
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Depreciation and amortization |
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Amortization of deferred origination fees and costs |
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( |
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Loss on disposal of intangibles, property, and equipment |
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Share-based compensation |
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Deferred income taxes, net |
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( |
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Changes in operating assets and liabilities: |
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Decrease in unearned insurance premiums |
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( |
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( |
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Decrease in lease assets |
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Decrease in other assets |
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Decrease in accounts payable and accrued expenses |
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( |
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( |
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Increase (decrease) in lease liabilities |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Originations of finance receivables |
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( |
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Repayments of finance receivables |
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Purchases of intangible assets |
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( |
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( |
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Purchases of property and equipment |
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( |
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( |
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Purchase of restricted available-for-sale investments |
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( |
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( |
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Proceeds from maturities of restricted available-for-sale investments |
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— |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Advances on revolving credit facilities |
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Payments on revolving credit facilities |
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( |
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( |
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Payments on securitizations |
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( |
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— |
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Payments for debt issuance costs |
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( |
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( |
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Taxes refunded (paid) related to net share settlement of equity awards |
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( |
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Cash dividends |
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( |
) |
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( |
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Net cash used in financing activities |
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( |
) |
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( |
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Net change in cash and restricted cash |
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( |
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Cash and restricted cash at beginning of period |
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Cash and restricted cash at end of period |
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$ |
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$ |
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Supplemental cash flow information: |
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Interest paid |
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$ |
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$ |
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Income taxes paid (refunded) |
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$ |
( |
) |
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$ |
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Operating leases paid |
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$ |
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$ |
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Non-cash lease assets and liabilities acquired |
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$ |
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$ |
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The following table reconciles cash and restricted cash from the Consolidated Balance Sheets to the statements above:
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March 31, 2024 |
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December 31, 2023 |
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March 31, 2023 |
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Cash |
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$ |
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$ |
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$ |
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Restricted cash |
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Total cash and restricted cash |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
7
Regional Management Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business
The Company was incorporated and began operations in 1987. The Company is engaged in the consumer finance business, offering large loans, small loans, and related payment and collateral protection insurance products. The Company formerly offered retail loans but ceased accepting applications for retail loan products effective November 2022. The Company continues to own and service its existing portfolio of retail loans. As of March 31, 2024, the Company operated under the name “Regional Finance” online and in branch locations in
The Company’s large loan receivables are direct loans to customers, some of which are convenience check receivables and the vast majority of which are secured by non-essential household goods, automobiles, and/or other vehicles. Convenience checks are direct loans originated by mailing checks to customers based on a pre-screening process that includes a review of the prospective customer’s credit profile provided by national credit reporting bureaus or data aggregators. A recipient of a convenience check is able to enter into a loan by endorsing and depositing or cashing the check. The Company’s small loan portfolio is comprised of branch small loan receivables and convenience check receivables. Branch small loan receivables are direct loans to customers and are secured by non-essential household goods and, in some instances, an automobile. Retail loan receivables consist principally of retail installment sales contracts collateralized by the purchased furniture, appliances, and other retail items and are initiated by and purchased from retailers, subject to the Company’s credit approval.
The Company’s loan volume and contractual delinquency follow seasonal trends. Demand for the Company’s loans is typically highest during the second, third, and fourth quarters, which the Company believes is largely due to customers borrowing money for vacation, back-to-school, and holiday spending. Loan demand has generally been the lowest during the first quarter, which the Company believes is largely due to the timing of income tax refunds. Delinquencies generally reach their lowest point in the first half of the year and rise in the second half of the year. Changes in quarterly growth or liquidation could result in larger allowance for credit loss releases in periods of portfolio liquidation and larger provisions for credit losses in periods of portfolio growth. Consequently, the Company experiences seasonal fluctuations in its operating results. However, changes in macroeconomic factors, including inflation, rising interest rates, and geopolitical conflict, have impacted the Company’s typical seasonal trends for loan volume and delinquency.
Note 2. Basis of Presentation and Significant Accounting Policies
Basis of presentation: The consolidated financial statements of the Company have been prepared in accordance with SEC regulations and GAAP for interim financial information and, accordingly, do not include all information and note disclosures required by GAAP for complete financial statements. The interim financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States), but in the opinion of management, the interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows in accordance with GAAP. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC.
Significant accounting policies: The following is a description of significant accounting policies used in preparing the financial statements. The accounting and reporting policies of the Company are in accordance with GAAP.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company operates through a separate wholly owned subsidiary in each state. The Company also consolidates VIEs when it is considered to be the primary beneficiary of the VIE because it has (i) power over the significant activities of the VIE and (ii) the obligation to absorb losses or the right to receive returns that could be significant to the VIE.
Variable interest entities: The Company transfers pools of loans to SPEs to secure debt for general funding purposes. These entities have the limited purpose of acquiring finance receivables, in addition to holding and making payments on the related debts. Assets transferred to each SPE are legally isolated from the Company and its affiliates, as well as the claims of the Company’s and its affiliates’ creditors. Further, the assets of each SPE are owned by such SPE and are not available to satisfy the debts or other obligations of the Company or any of its affiliates. The Company continues to service the finance receivables transferred to the SPEs. The lenders and investors in the debt issued by the SPEs generally only have recourse to the assets of the SPEs and do not have recourse to the general credit of the Company.
8
The SPEs’ debt arrangements are structured to provide credit enhancements to the lenders and investors, which may include overcollateralization, subordination of interests, excess spread, and reserve funds. These enhancements, along with the isolated finance receivables pools, increase the creditworthiness of the SPEs above that of the Company as a whole. This increases the marketability of the Company’s collateral for borrowing purposes, leading to more favorable borrowing terms, improved interest rate risk management, and additional flexibility to grow the business.
The SPEs are considered VIEs under GAAP and are consolidated into the financial statements of their primary beneficiary. The Company is considered to be the primary beneficiary of the SPEs because it has (i) power over the significant activities through its role as servicer of the finance receivables under each debt arrangement, (ii) the obligation to absorb losses that could be significant through note investment, if applicable, and (iii) the obligation to absorb losses or the right to receive returns that could be significant through the Company’s interest in the monthly residual cash flows of the SPEs.
Consolidation of VIEs results in these transactions being accounted for as secured borrowings; therefore, the pooled receivables and the related debts remain on the consolidated balance sheet of the Company. Each debt is secured solely by the assets of the VIEs and not by any other assets of the Company. The assets of the VIEs are the only source of funds for repayment on each debt, and restricted cash held by the VIEs can only be used to support payments on the debt. The Company recognizes revenue and provision for credit losses on the finance receivables of the VIEs and interest expense on the related secured debt.
Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities for the periods indicated in the financial statements. Actual results could differ from those estimates.
Estimates that are susceptible to change relate to the determination of the allowance for credit losses, the valuation of deferred tax assets and liabilities, and the fair value of financial instruments.
Recent accounting pronouncements: In November 2023, the FASB issued ASU 2023-07, improving the disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. These enhanced disclosures require reporting of incremental segment information on an annual and interim basis for all public entities, including public entities with only one reportable segment, to enable investors to develop more decision-useful financial analyses. The amendments in this update are effective for annual periods beginning after December 15, 2023 and interim periods within annual periods beginning after December 15, 2024, and early adoption is permitted. The segment reporting guidance should be applied retrospectively to all prior periods presented in the financial statements, and upon transition, the expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the impact of this update on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, enhancing the transparency and decision usefulness of income tax disclosures. The amendment, among other things, improves transparency of income tax disclosures by requiring more consistent categories and greater disaggregation of information in rate reconciliations, and disaggregation of income taxes paid by jurisdiction. The amendments in this update are effective for annual periods beginning after December 15, 2024, and early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The income tax guidance should be applied on a prospective basis, however, retrospective application is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.
Net finance receivables: Generally, the Company classifies finance receivables as held for investment based on management’s intent at the time of origination. The Company determines classification on a receivable-by-receivable basis. The Company classifies finance receivables as held for investment due to its ability and intent to hold them until their contractual maturities. Net finance receivables consist of the Company’s installment loans. The Company carries net finance receivables at amortized cost, which includes remaining principal balance, accrued interest, and net unamortized deferred origination costs and unamortized fees.
Loan renewals are a significant piece of new volume and are considered a terminal event of the previous loan. The Company may renew delinquent secured or unsecured loan accounts if the customer meets the Company’s underwriting criteria and it does not appear the cause of past delinquency will affect the customer’s ability to repay the renewed loan.
Finance receivable origination fees and costs: Non-refundable fees received and direct costs (personnel and digital loan origination costs) incurred for the origination of finance receivables are deferred and recognized to interest income over their contractual lives using the constant yield method. Unamortized amounts are recognized in interest income at the time that finance receivables are paid in full, renewed, or charged off.
9
Nonaccrual status: Accrual of interest income on finance receivables is suspended when an account becomes
Allowance for credit losses: The allowance for credit losses is based on historical credit experience, current conditions, and reasonable and supportable economic forecasts. The historical loss experience is adjusted for quantitative and qualitative factors that are not fully reflected in the historical data. In determining its estimate of expected credit losses, the Company evaluates information related to credit metrics, changes in its lending strategies and underwriting practices, and the current and forecasted direction of the economic and business environment. These metrics include, but are not limited to, loan portfolio mix and growth, unemployment, credit loss trends, delinquency trends, changes in underwriting, and operational risks.
The Company selected a PD / LGD model to estimate its base allowance for credit losses, in which the estimated loss is equal to the product of PD and LGD. Historical net finance receivables are tracked over the term of the pools to identify the incidences of loss (PDs) and the average severity of losses (LGDs).
To enhance the precision of the allowance for credit loss estimate, the Company evaluates its finance receivable portfolio on a pool basis and segments each pool of finance receivables with similar credit risk characteristics. As part of its evaluation, the Company considers loan portfolio characteristics such as product type, loan size, loan term, internal or external credit scores, delinquency status, geographical location, and vintage. Based on analysis of historical loss experience, the Company selected the following segmentation: product type, FICO score, and delinquency status.
As finance receivables are originated, provisions for credit losses are recorded in amounts sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses over the contractual life of the finance receivables (considering the effect of prepayments). Subsequent changes to the contractual terms that are a result of re-underwriting are not included in the finance receivable’s contractual life (considering the effect of prepayments). The Company uses its segmentation loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. The Company also considers the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.
Reasonable and supportable macroeconomic forecasts are required for the Company’s allowance for credit loss model. The Company engaged a major rating service to assist with compiling a reasonable and supportable forecast. The Company reviews macroeconomic forecasts to use in its allowance for credit losses. The Company adjusts the historical loss experience by relevant qualitative factors for these expectations. The Company does not require reversion adjustments, as the contractual lives of its portfolio are shorter than its available forecast periods.
The Company charges credit losses against the allowance for all products when an account reaches
Restricted cash: Restricted cash includes cash and cash equivalents for which the Company’s ability to withdraw funds is contractually limited. The Company’s restricted cash consists of cash reserves that are maintained as collateral for potential credit life insurance claims and cash restricted for debt servicing of the Company’s revolving warehouse credit facilities and securitizations.
Restricted available-for-sale investments: The Company classifies its investments in debt securities that were purchased with the Company’s restricted cash as restricted available-for-sale investments and carries the investments at fair value. Unrealized gains and losses, net of taxes, are excluded from earnings and reported in other comprehensive income or loss until realized. The unrealized gains and losses, net of taxes, are recorded on the consolidated balance sheet in accumulated other comprehensive income or loss in stockholders’ equity. Realized gains and losses from the sale of available-for-sale investments are specifically identified and reclassified from accumulated other comprehensive income or loss and included within earnings on the consolidated statement of income.
10
Share-based compensation: The Company measures compensation cost for share-based awards at estimated fair value and recognizes compensation expense over the service period for awards expected to vest. The Company uses the closing stock price on the date of grant as the fair value of restricted stock awards and performance-contingent restricted stock units. The fair value of stock options is determined using the Black-Scholes valuation model, and the fair value of performance restricted stock units is determined using the Monte Carlo valuation model. The Black-Scholes and Monte Carlo models require the input of assumptions, including expected volatility, expected dividends, expected term, risk-free interest rate, and a discount associated with post-vest holding restrictions, changes to which can affect the fair value estimate. Expected volatility is based on the Company’s historical stock price volatility. Expected dividends are calculated using the expected dividend yield (annualized dividends divided by the grant date stock price). The expected term is calculated by using the simplified method (average of the vesting and original contractual terms) due to insufficient historical data to estimate the expected term. The risk-free rate is based on the zero-coupon U.S. Treasury bond rate over the expected term of the awards. The estimated discount associated with post-vest holding restrictions is calculated using a blend of the Finnerty and Chaffe models. In addition, the estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.
Note 3. Finance Receivables, Credit Quality Information, and Allowance for Credit Losses
Net finance receivables for the periods indicated consisted of the following:
Dollars in thousands |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Large loans |
|
$ |
|
|
$ |
|
||
Small loans |
|
|
|
|
|
|
||
Retail loans |
|
|
|
|
|
|
||
Net finance receivables |
|
$ |
|
|
$ |
|
||
Net finance receivables included net deferred origination fees and costs of $
The credit quality of the Company’s finance receivable portfolio is dependent on the Company’s ability to enforce sound underwriting standards, maintain diligent servicing of the portfolio, and respond to changing economic conditions as it grows its portfolio. The allowance for credit losses uses FICO scores and delinquency as key data points in estimating the allowance. The Company uses
11
Net finance receivables by product, FICO band at origination, and origination year as of March 31, 2024, as well as credit losses for the three months ended March 31, 2024, are as follows:
|
|
Net Finance Receivables by Origination Year |
|
|||||||||||||||||||||||||
Dollars in thousands |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Total Net Finance Receivables |
|
|||||||
Large Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FICO Band |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total large loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Small Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FICO Band |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total small loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Retail Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FICO Band |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1 |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||
2 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
3 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
4 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
5 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
6 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total retail loans |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Credit losses |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Total Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FICO Band |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
12
Net finance receivables by product, FICO band at origination, and origination year as of December 31, 2023, as well as credit losses for the three months ended March 31, 2023, are as follows:
|
|
Net Finance Receivables by Origination Year |
|
|||||||||||||||||||||||||
Dollars in thousands |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Total Net Finance Receivables |
|
|||||||
Large Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FICO Band |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total large loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Small Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FICO Band |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total small loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Retail Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FICO Band |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
2 |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
3 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
4 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
5 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
6 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total retail loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Credit losses |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FICO Band |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
13
The contractual delinquency of the net finance receivables portfolio by product and aging for the periods indicated are as follows:
|
|
March 31, 2024 |
|
|||||||||||||||||||||||||||||
|
|
Large |
|
|
Small |
|
|
Retail |
|
|
Total |
|
||||||||||||||||||||
Dollars in thousands |
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
||||||||
Current |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
1 to 29 days past due |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Delinquent accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
30 to 59 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
60 to 89 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
90 to 119 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
120 to 149 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
150 to 179 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Total delinquency |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
Total net finance receivables |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
Net finance receivables in nonaccrual status |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
|
|
December 31, 2023 |
|
|||||||||||||||||||||||||||||
|
|
Large |
|
|
Small |
|
|
Retail |
|
|
Total |
|
||||||||||||||||||||
Dollars in thousands |
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
||||||||
Current |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
1 to 29 days past due |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Delinquent accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
30 to 59 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
60 to 89 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
90 to 119 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
120 to 149 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
150 to 179 days |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Total delinquency |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
Total net finance receivables |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
Net finance receivables in nonaccrual status |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
The accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent. If a loan is charged off, the accrued interest is reversed as a reduction of interest and fee income. During the three months ended March 31, 2024 and 2023, the Company reversed $
The following is a reconciliation of the allowance for credit losses by product for the three months ended March 31, 2024 and 2023:
Dollars in thousands |
Large |
|
|
Small |
|
|
Retail |
|
|
Total |
|
||||
Beginning balance at January 1, 2024 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
||||
Credit losses |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
||||
Ending balance at March 31, 2024 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net finance receivables at March 31, 2024 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Allowance as percentage of net finance receivables at March 31, 2024 |
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
14
Dollars in thousands |
Large |
|
|
Small |
|
|
Retail |
|
|
Total |
|
||||
Beginning balance at January 1, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
||||
Credit losses |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
||||
Ending balance at March 31, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net finance receivables at March 31, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Allowance as percentage of net finance receivables at March 31, 2023 |
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
The Company uses certain loan modification programs for borrowers experiencing financial difficulties as a loss mitigation strategy to improve collectability of the loans and assist customers through financial setbacks. The programs consist of offering payment deferrals, refinancing, and, in limited instances, settlements. Customers may also pursue financial assistance through external sources, such as filing for bankruptcy protection. Modification programs available to our customers are described in more detail below:
|
As of and for the Three Months Ended March 31, 2024 |
|
|||||||||||||||||||||||||||||
|
Principal Forgiveness, Interest Rate Reduction, & Term Extension |
|
|
Interest Rate Reduction & Term Extension |
|
|
Term Extension |
|
|
Total |
|
||||||||||||||||||||
Dollars in thousands |
Amortized Cost Basis |
|
|
% of Net Finance Receivables |
|
|
Amortized Cost Basis |
|
|
% of Net Finance Receivables |
|
|
Amortized Cost Basis |
|
|
% of Net Finance Receivables |
|
|
Amortized Cost Basis |
|
|
% of Net Finance Receivables |
|
||||||||
Large loans |
$ |
|
|
|
— |
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|||||||
Small loans |
|
|
|
|
— |
|
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|||||||
Total |
$ |
|
|
|
— |
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|||||||
|
As of and for the Three Months Ended March 31, 2023 |
|
|||||||||||||||||||||||||||||
|
Principal Forgiveness, Interest Rate Reduction, & Term Extension |
|
|
Interest Rate Reduction & Term Extension |
|
|
Term Extension |
|
|
Total |
|
||||||||||||||||||||
Dollars in thousands |
Amortized Cost Basis |
|
|
% of Net Finance Receivables |
|
|
Amortized Cost Basis |
|
|
% of Net Finance Receivables |
|
|
Amortized Cost Basis |
|
|
% of Net Finance Receivables |
|
|
Amortized Cost Basis |
|
|
% of Net Finance Receivables |
|
||||||||
Large loans |
$ |
|
|
|
— |
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
— |
|
|
$ |
|
|
|
% |
||||||
Small loans |
|
|
|
|
— |
|
|
|
|
|
|
% |
|
|
|
|
|
— |
|
|
|
|
|
|
% |
||||||
Total |
$ |
|
|
|
— |
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
|
|
$ |
|
|
|
% |
|||||||
15
The financial effects of the modifications made to borrowers experiencing financial difficulty for the periods indicated are as follows:
|
|
Three Months Ended March 31, 2024 |
||
Loan Modification |
|
Product |
|
Financial Effect |
Principal forgiveness |
|
Large loans |
|
Reduced the amortized cost basis of the loans by $ |
|
|
Small loans |
|
Reduced the amortized cost basis of the loans by $ |
Interest rate reduction |
|
Large loans |
|
Reduced the weighted-average contractual interest rate by |
|
|
Small loans |
|
Reduced the weighted-average contractual interest rate by |
Term extension |
|
Large loans |
|
Added a weighted-average |
|
|
Small loans |
|
Added a weighted-average |
|
|
Three Months Ended March 31, 2023 |
||
Loan Modification |
|
Product |
|
Financial Effect |
Principal forgiveness |
|
Large loans |
|
Reduced the amortized cost basis of the loans by $ |
|
|
Small loans |
|
Reduced the amortized cost basis of the loans by $ |
Interest rate reduction |
|
Large loans |
|
Reduced the weighted-average contractual interest rate by |
|
|
Small loans |
|
Reduced the weighted-average contractual interest rate by |
Term extension |
|
Large loans |
|
Added a weighted-average |
|
|
Small loans |
|
Added a weighted-average |
The following table provides the amortized cost basis for modifications made to borrowers experiencing financial difficulty within the previous twelve months that subsequently defaulted. The Company defines payment default as 90 days past due for this disclosure. The respective amounts for each modification for the period indicated are as follows:
|
|
As of and for the Three Months Ended March 31, 2024 |
|
|||||||||||||
Dollars in thousands |
|
Principal Forgiveness, Interest Rate Reduction, & Term Extension |
|
|
Interest Rate Reduction & Term Extension |
|
|
Term Extension |
|
|
Total |
|
||||
Large loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Small loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company had no amortized cost basis as of March 31, 2023 for modifications made to borrowers experiencing financial difficulty on or after January 1, 2023 that subsequently defaulted during the three months ended March 31, 2023.
The contractual delinquencies of loans that were modified to borrowers experiencing financial difficulty within the previous twelve months for the period indicated are as follows:
|
|
March 31, 2024 |
|
|||||||||||||
Dollars in thousands |
|
Current |
|
|
30 - 89 Days Past Due |
|
|
90+ Days Past Due |
|
|
Total |
|
||||
Large loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Small loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) Excludes modified finance receivables that subsequently charged off of $
The contractual delinquencies of loans that were modified to borrowers experiencing financial difficulty on or after January 1, 2023 for the period indicated are as follows:
|
|
March 31, 2023 |
|
|||||||||||||
Dollars in thousands |
|
Current |
|
|
30 - 89 Days Past Due |
|
|
90+ Days Past Due |
|
|
Total |
|
||||
Large loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Small loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
16
(1) Excludes modified finance receivables that subsequently charged off of $
Note 4. Restricted Available-for-Sale Investments
The following tables reconcile the amortized cost, gross unrealized gains and losses included in accumulated other comprehensive income or loss, and estimated fair value of the Company’s restricted available-for-sale investments as of the periods indicated:
|
|
March 31, 2024 |
|
|||||||||||||
Dollars in thousands |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
Restricted investments |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
December 31, 2023 |
|
|||||||||||||
Dollars in thousands |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
Restricted investments |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The following tables include the gross unrealized losses and estimated fair values of restricted available-for-sale investments that were in a continuous unrealized loss position, for which no allowance for credit loss has been recorded, as of the periods indicated:
|
|
March 31, 2024 |
|
|||||||||||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
Dollars in thousands |
|
Estimated Fair Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
|
Gross Unrealized Losses |
|
||||||
Restricted investments |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
|
|
December 31, 2023 |
|
|||||||||||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
Dollars in thousands |
|
Estimated Fair Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
|
Gross Unrealized Losses |
|
||||||
Restricted investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
The restricted available-for-sale investments consist of U.S. Treasuries which are measured at fair value and include accrued interest receivables of $
The following table includes the amortized cost and estimated fair values of restricted available-for-sale investments by contractual maturity as of the periods indicated:
|
|
March 31, 2024 |
|
|||||
Dollars in thousands |
|
Amortized Cost |
|
|
Estimated Fair Value |
|
||
Due in one year |
|
$ |
|
|
$ |
|
||
Due within one year to five years |
|
|
|
|
|
|
||
Due within five years to ten years |
|
|
— |
|
|
|
— |
|
Due after ten years |
|
|
— |
|
|
|
— |
|
Total restricted available-for-sale investments |
|
$ |
|
|
$ |
|
||
The Company had no proceeds from sold restricted available-for-sale investments during the three months ended March 31, 2024 and 2023, respectively.
17
The Company had
Note 5. Debt
The following is a summary of the Company’s debt as of the periods indicated:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
Dollars in thousands |
|
Debt |
|
|
Unamortized Debt Issuance Costs (1) |
|
|
Net Debt |
|
|
Debt |
|
|
Unamortized Debt Issuance Costs (1) |
|
|
Net Debt |
|
||||||
Senior revolving credit facility |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
RMR IV revolving warehouse credit facility |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
RMR V revolving warehouse credit facility |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
RMR VI revolving warehouse credit facility |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
RMR VII revolving warehouse credit facility |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
RMIT 2020-1 securitization |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
RMIT 2021-1 securitization |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
RMIT 2021-2 securitization |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
RMIT 2021-3 securitization |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
RMIT 2022-1 securitization |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
RMIT 2022-2B securitization |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Unused amount of revolving credit facilities (subject to borrowing base) |
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
||||||
(1) Unamortized debt issuance costs related to the revolving warehouse credit facilities are presented within other assets in the consolidated balance sheets. These credit facilities had $
Senior Revolving Credit Facility: In February 2024, the Company amended its senior revolving credit facility to, among other things, reduce the availability under the facility from $
Borrowings under the facility bear interest, payable monthly, at rates equal to one-month SOFR with a floor of not less than
Variable Interest Entity Debt: As part of its overall funding strategy, the Company has transferred certain finance receivables to affiliated VIEs for asset-backed financing transactions, including securitizations. The following debt arrangements are issued by the Company’s SPEs, which are considered VIEs under GAAP and are consolidated into the financial statements of their primary beneficiary.
These debts are supported by the expected cash flows from the underlying collateralized finance receivables. Collections on these finance receivables are remitted to restricted cash collection accounts, which totaled $
At each sale of receivables from the Company’s affiliates to the SPEs, the Company makes certain representations and warranties about the quality and nature of the collateralized receivables. The debt arrangements require the Company to repurchase the receivables in certain circumstances, including circumstances in which the representations and warranties made by the Company concerning the quality and characteristics of the receivables are inaccurate. Assets transferred to each SPE are legally isolated from
18
the Company and its affiliates, as well as the claims of the Company’s and its affiliates’ creditors. Further, the assets of each SPE are owned by such SPE and are not available to satisfy the debts or other obligations of the Company or any of its affiliates.
The following table presents the assets and liabilities of our consolidated variable interest entities:
Dollars in thousands |
|
(Unaudited) |
|
|
December 31, 2023 |
|
||
Assets |
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Net finance receivables |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Restricted cash |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
||
Net debt |
|
$ |
|
|
$ |
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
RMR IV Revolving Warehouse Credit Facility: In April 2021, the Company and its SPE, RMR IV, entered into a credit agreement that provides for a $
Borrowings under the facility bear interest, payable monthly, at rates equal to one-month SOFR plus a margin of
RMR V Revolving Warehouse Credit Facility: In November 2022, the Company and its SPE, RMR V,
RMR VI Revolving Warehouse Credit Facility: In February 2023, the Company and its SPE, RMR VI, entered into a credit agreement that provides for a $
19
draw down cash under the facility and held $
RMR VII Revolving Warehouse Credit Facility: In April 2023, the Company and its SPE, RMR VII, entered into a credit agreement that provides for a $
RMIT 2020-1 Securitization: In September 2020, the Company, its SPE, RMR III, and the Company’s indirect SPE, RMIT 2020-1, completed a private offering and sale of $
RMIT 2021-1 Securitization: In February 2021, the Company, its SPE, RMR III, and the Company’s indirect SPE, RMIT 2021-1, completed a private offering and sale of $
RMIT 2021-2 Securitization: In July 2021, the Company, its SPE, RMR III, and the Company’s indirect SPE, RMIT 2021-2, completed a private offering and sale of $
RMIT 2021-3 Securitization: In October 2021, the Company, its SPE, RMR III, and the Company’s indirect SPE, RMIT 2021-3, completed a private offering and sale of $
RMIT 2022-1 Securitization: In February 2022, the Company, its SPE, RMR III, and the Company’s indirect SPE, RMIT 2022-1, completed a private offering and sale of $
20
as of March 31, 2024 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2022-1 securitization bear interest, payable monthly, at an effective interest rate of
RMIT 2022-2B Securitization: In October 2022, the Company, its SPE, RMR III, and the Company’s indirect SPE, RMIT 2022-2B, completed a private offering and sale of $
The Company’s debt arrangements are subject to certain covenants, including monthly and annual reporting, maintenance of specified interest coverage and debt ratios, restrictions on distributions, limitations on other indebtedness, and certain other restrictions. As of March 31, 2024, the Company was in compliance with all debt covenants.
Note 6. Stockholders’ Equity
Quarterly cash dividend: The Board may in its discretion declare and pay cash dividends on the Company’s common stock.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Dividends declared per common share |
|
$ |
|
|
$ |
|
||
See Note 12, “Subsequent Events,” for information regarding the Company’s cash dividend following the end of the fiscal quarter.
Note 7. Disclosure About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and restricted cash: Cash and restricted cash is recorded at cost, which approximates fair value due to its highly liquid nature.
Restricted available-for-sale investments: The fair value of U.S. Treasury securities is priced using an external pricing service which the Company corroborates using a secondary external vendor. For additional information on the Company's restricted available-for-sale investments, see Note 4, "Restricted Available-for-Sale Investments."
Net finance receivables: The Company determines the fair value of net finance receivables using a discounted cash flows methodology. The application of this methodology requires the Company to make certain estimates and judgments. These estimates and judgments include, but are not limited to, prepayment rates, default rates, loss severity, and risk-adjusted discount rates.
Debt: The Company estimates the fair value of debt using estimated credit marks based on an index of similar financial instruments (credit facilities) and projected cash flows from the underlying collateralized finance receivables (securitizations), each discounted using a risk-adjusted discount rate.
Certain of the Company’s assets estimated fair value are classified and disclosed in one of the following three categories:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are not corroborated by market data.
21
In determining the appropriate levels, the Company performs an analysis of the assets and liabilities that are estimated at fair value. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.
The following table includes the carrying amounts and estimated fair values of financial assets and liabilities disclosed but not carried at fair value:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
Dollars in thousands |
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net finance receivables, less unearned insurance |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The following table includes the carrying amounts and estimated fair values of amounts the Company measures at fair value on a recurring basis:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
Dollars in thousands |
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of the periods indicated above, there were no financial assets or liabilities measured at fair value on a non-recurring basis.
Note 8. Income Taxes
The Company records interim provisions for income taxes based on an estimated annual effective tax rate. The Company recognizes discrete tax benefits or deficiencies in the income tax line of the consolidated statements of income. Generally, these discrete benefits or deficiencies are primarily the result of exercises or vestings of share-based awards.
The following table summarizes the components of income taxes for the periods indicated:
|
|
Three Months Ended March 31, |
|
|||||
Dollars in thousands |
|
2024 |
|
|
2023 |
|
||
Provision for corporate taxes |
|
$ |
|
|
$ |
|
||
Discrete tax (benefits) deficiencies |
|
|
( |
) |
|
|
|
|
Total income taxes |
|
$ |
|
|
$ |
|
||
22
Note 9. Earnings Per Share
The following schedule reconciles the computation of basic and diluted earnings per share for the periods indicated:
|
|
Three Months Ended March 31, |
|
|||||
Dollars in thousands, except per share amounts |
|
2024 |
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted-average shares outstanding for basic earnings per share |
|
|
|
|
|
|
||
Effect of dilutive securities |
|
|
|
|
|
|
||
Weighted-average shares adjusted for dilutive securities |
|
|
|
|
|
|
||
Earnings per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
The Company excluded outstanding shares of common stock totaling
Note 10. Share-Based Compensation
The Company previously adopted the 2007 Plan and the 2011 Plan. On April 22, 2015, the stockholders of the Company approved the 2015 Plan, and on each of April 27, 2017 and May 20, 2021, the stockholders of the Company re-approved the 2015 Plan, as amended and restated on each respective date.
For the three months ended March 31, 2024 and 2023, the Company recorded share-based compensation expense of $
The Company allows for the settlement of share-based awards on a net share basis. With net share settlement, the employee does not surrender any cash or shares upon the exercise of stock options or the vesting of stock awards or stock units. Rather, the Company withholds the number of shares with a value equivalent to the option exercise price (for stock options) and the statutory tax withholding (for all share-based awards). Net share settlements have the effect of reducing the number of shares that would have otherwise been issued as a result of exercise or vesting.
Long-term incentive program: The Company issues PRSUs and RSAs to certain members of senior management under the Company’s LTIP. Recurring annual grants are made at the discretion of the Board. The annual grants are subject to cliff- and graded-vesting, generally concluding at the end of the third calendar year and subject to continued employment or as otherwise provided in the underlying award agreements. Vested PRSUs are subject to an additional
Prior to 2022, the Company issued NQSOs, performance-contingent RSUs, CSPUs, and RSAs to certain members of senior management under the LTIP. The CSPUs are cash incentive awards, and the associated expense is not based on the market price of the Company’s common stock. The annual grants are subject to cliff- and graded-vesting, generally concluding at the end of the third calendar year and subject to continued employment or as otherwise provided in the underlying award agreements. The actual value
23
of the performance-contingent RSUs and CSPUs that may be earned can range from
Key team member incentive program: The Company also has a key team member incentive program for certain other members of senior management. Recurring annual participation in the program is at the discretion of the Board and executive management.
Inducement and retention program: From time to time, the Company issues stock awards and other long-term incentive awards in conjunction with employment offers to select new employees and retention grants to select existing employees. The Company issues these awards to attract and retain talent and to provide market competitive compensation. The grants have various vesting terms, including fully-vested awards at the grant date, cliff-vesting, and graded-vesting over periods of up to five years (subject to continued employment or as otherwise provided in the underlying award agreements).
Non-employee director compensation program: The Company awards its non-employee directors a cash retainer and shares of restricted common stock. The RSAs are granted on the following the Company’s annual meeting of stockholders and fully vest upon the earlier of the first anniversary of the grant date or the completion of the directors’ annual service to the Company (so long as the period between the date of the annual stockholders’ meeting related to the grant date and the date of the next annual stockholders’ meeting is not less than 50 weeks).
The following are the terms and amounts of the awards issued under the Company’s share-based incentive programs:
Nonqualified stock options: The exercise price of all stock options is equal to the Company’s closing stock price on the date of grant. Stock options are subject to various vesting terms, including graded- and cliff-vesting over periods of up to
The following table summarizes the stock option activity for the three months ended March 31, 2024:
Dollars and shares in thousands, except per share amounts |
|
Number of Shares |
|
|
Weighted-Average Exercise Price |
|
|
Weighted-Average Remaining Contractual |
|
|
Aggregate Intrinsic Value |
|
||||
Options outstanding at January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Options outstanding at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The following table provides additional stock option information for the periods indicated:
|
|
Three Months Ended |
|
|||||
Dollars in thousands, except per share amounts |
|
2024 |
|
|
2023 |
|
||
Weighted-average grant date fair value per share |
|
$ |
— |
|
|
$ |
— |
|
Intrinsic value of options exercised |
|
$ |
— |
|
|
$ |
— |
|
Fair value of stock options that vested |
|
$ |
— |
|
|
$ |
— |
|
24
Performance restricted stock units: Compensation expense for PRSUs is based on the fair value of the award estimated on the grant date using the Monte Carlo valuation model. There were no PRSUs granted during the three months ended March 31, 2024.
The following table summarizes PRSU activity during the three months ended March 31, 2024:
Dollars and units in thousands, except per unit amounts |
|
Units |
|
|
Weighted-Average |
|
||
Non-vested units at January 1, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Achieved performance adjustment |
|
|
|
|
|
|
||
Vested |
|
|
|
|
|
|
||
Forfeited |
|
|
|
|
|
|
||
Non-vested units at March 31, 2024 |
|
|
|
|
$ |
|
||
The following table provides additional PRSU information for the periods indicated:
|
|
Three Months Ended |
|
|||||
Dollars in thousands, except per unit amounts |
|
2024 |
|
|
2023 |
|
||
Weighted-average grant date fair value per unit |
|
$ |
|
|
$ |
|
||
Fair value of PRSUs that vested |
|
$ |
|
|
$ |
|
||
Performance-contingent restricted stock units: Compensation expense for performance-contingent RSUs is based on the Company’s closing stock price on the date of grant and the probability that certain financial goals will be achieved over the performance period. Compensation expense is estimated based on expected performance and is adjusted at each reporting period.
The following table summarizes RSU activity during the three months ended March 31, 2024:
Dollars and units in thousands, except per unit amounts |
|
Units |
|
|
Weighted-Average |
|
||
Non-vested units at January 1, 2024 |
|
|
|
|
$ |
|
||
Granted (target) |
|
|
|
|
|
|
||
Achieved performance adjustment |
|
|
|
|
|
|
||
Vested |
|
|
|
|
|
|
||
Forfeited |
|
|
|
|
|
|
||
Non-vested units at March 31, 2024 |
|
|
|
|
$ |
|
||
The following table provides additional RSU information for the periods indicated:
|
|
Three Months Ended |
|
|||||
Dollars in thousands, except per unit amounts |
|
2024 |
|
|
2023 |
|
||
Weighted-average grant date fair value per unit |
|
$ |
— |
|
|
$ |
— |
|
Fair value of RSUs that vested |
|
$ |
— |
|
|
$ |
— |
|
Restricted stock awards: The fair value and compensation expense of the primary portion of the Company’s RSAs are calculated using the Company’s closing stock price on the date of grant. These RSAs include director awards, inducement awards, and RSAs granted pursuant to the Company’s long-term incentive program.
The fair value and compensation expense of RSAs granted pursuant to the Company’s performance-based key team member incentive program are calculated using the Company’s closing stock price on the date of grant and the probability that certain financial goals will be achieved over the performance period. Compensation expense is estimated based on expected performance and is adjusted at each reporting period.
25
The following table summarizes RSA activity during the three months ended March 31, 2024:
Dollars and shares in thousands, except per share amounts |
|
Shares |
|
|
Weighted-Average |
|
||
Non-vested shares at January 1, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Non-vested shares at March 31, 2024 |
|
|
|
|
$ |
|
||
The following table provides additional RSA information for the periods indicated:
|
|
Three Months Ended |
|
|||||
Dollars in thousands, except per share amounts |
|
2024 |
|
|
2023 |
|
||
Weighted-average grant date fair value per share |
|
$ |
|
|
$ |
|
||
Fair value of RSAs that vested |
|
$ |
|
|
$ |
|
||
Note 11. Commitments and Contingencies
In the normal course of business, the Company has been named as a defendant in legal actions in connection with its activities. Some of the actual or threatened legal actions include claims for compensatory damages or claims for indeterminate amounts of damages. The Company contests liability and the amount of damages, as appropriate, in each pending matter.
Where available information indicates that it is probable that a liability has been incurred and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to net income.
However, in many legal actions, it is inherently difficult to determine whether any loss is probable, or even reasonably possible, or to estimate the amount of loss. This is particularly true for actions that are in their early stages of development or where plaintiffs seek indeterminate damages. In addition, even where a loss is reasonably possible or an exposure to loss exists in excess of the liability already accrued, it is not always possible to reasonably estimate the size of the possible loss or range of loss. Before a loss, additional loss, range of loss, or range of additional loss can be reasonably estimated for any given action, numerous issues may need to be resolved, including through lengthy discovery, following determination of important factual matters, and/or by addressing novel or unsettled legal questions.
For certain other legal actions, the Company can estimate reasonably possible losses, additional losses, ranges of loss, or ranges of additional loss in excess of amounts accrued, but the Company does not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on the consolidated financial statements.
While the Company will continue to identify legal actions where it believes a material loss to be reasonably possible and reasonably estimable, there can be no assurance that material losses will not be incurred from claims that the Company has not yet been notified of or are not yet determined to be probable, or reasonably possible and reasonable to estimate.
Note 12. Subsequent Events
Quarterly cash dividend: In
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. These discussions contain forward-looking statements that reflect our current expectations and that include, but are not limited to, statements concerning our strategies, future operations, future financial position, future revenues, projected costs, expectations regarding demand and acceptance for our financial products, growth opportunities and trends in the market in which we operate, prospects, and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “predicts,” “will,” “would,” “should,” “could,” “potential,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements involve risks and uncertainties that could cause actual results, events, and/or performance to differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements. Such risks and uncertainties include, without limitation, the risks set forth in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (which was filed with the SEC on February 22, 2024) and this Quarterly Report on Form 10-Q. The forward-looking information we have provided in this Quarterly Report on Form 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or revise such statements, except as required by the federal securities laws.
Overview
We are a diversified consumer finance company that provides installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. As of March 31, 2024, we operate under the name “Regional Finance” online and in 343 branch locations in 19 states across the United States, serving 540,600 active accounts. Most of our loan products are secured, and each is structured on a fixed-rate, fixed-term basis with fully amortizing equal monthly installment payments, repayable at any time without penalty. We source our loans through our omni-channel platform, which includes our branches, centrally-managed direct mail campaigns, digital partners, and our consumer website. We operate an integrated branch model in which nearly all loans, regardless of origination channel, are serviced through our branch network with the support of centralized sales, underwriting, service, collections, and administrative teams. This model provides us with frequent contact with our customers, which we believe improves our credit performance and customer loyalty. Our goal is to consistently grow our finance receivables and to soundly manage our portfolio risk, while providing our customers with attractive and easy-to-understand loan products that serve their varied financial needs.
Our products include:
Small and large installment loans are our core products and will be the drivers of future growth. We ceased accepting applications for our retail loan product offering in November 2022, to focus on growing our core loan portfolio. We continue to own and service our existing portfolio of retail loans. Our primary sources of revenue are interest and fee income from our loan products, of which interest and fees relating to small and large installment loans are the largest component. In addition to interest and fee income from loans, we derive revenue from optional insurance products purchased by customers of our direct loan products.
27
Outlook
We continually assess the macroeconomic environment in which we operate in order to appropriately and timely adapt to current market conditions. Macroeconomic factors, including, but not limited to, inflationary pressures, rising interest rates, and impacts from current geopolitical events outside the U.S., may affect our business, liquidity, financial condition, and results of operations.
Ongoing inflationary pressures and interest rate trends have continued to create economic uncertainty. Recent geopolitical events outside of the U.S. have also contributed to volatility in U.S. markets. As inflation accelerated and geopolitical stability began to deteriorate in the fourth quarter of 2021, we began to proactively tighten our credit models. We have maintained a tighter credit box and our advanced underwriting models have performed well. We have focused on higher quality originations and a better credit risk borrower profile as we manage through an uncertain macroeconomic environment.
Our allowance for credit losses was 10.7% of net finance receivables as of March 31, 2024. Our contractual delinquency as a percentage of net finance receivables was 7.1% as of March 31, 2024, down from 7.2% as of March 31, 2023. Going forward, we may experience changes to the macroeconomic assumptions within our forecast and to our credit loss performance outlook, either of which could lead to further changes in our allowance for credit losses, reserve rate, and provision for credit losses expense.
We proactively diversified our funding over the past few years and continue to maintain a strong liquidity profile. As of March 31, 2024, we had $169.4 million of available liquidity, comprised of unrestricted cash on hand and immediate availability to draw down cash from our revolving credit facilities. In addition, we had $478.4 million of unused capacity on our revolving credit facilities (subject to the borrowing base) as of March 31, 2024. We believe our liquidity position provides substantial runway to support the fundamental operations of our business and to fund future growth.
Factors Affecting Our Results of Operations
Our business is impacted by several factors affecting our revenues, costs, and results of operations, including the following:
Quarterly Information and Seasonality. Our loan volume and contractual delinquency follow seasonal trends. Demand for our loans is typically highest during the second, third, and fourth quarters, which we believe is largely due to customers borrowing money for vacation, back-to-school, and holiday spending. Loan demand has generally been the lowest during the first quarter, which we believe is largely due to the timing of income tax refunds. Delinquencies generally reach their lowest point in the first half of the year and rise in the second half of the year. Changes in quarterly growth or liquidation could result in larger allowance for credit loss releases in periods of portfolio liquidation and larger provisions for credit losses in periods of portfolio growth. Consequently, we experience seasonal fluctuations in our operating results. However, changes in macroeconomic factors, including inflation, rising interest rates, and geopolitical conflict, have impacted our typical seasonal trends for loan volume and delinquency.
Growth in Loan Portfolio. The revenue that we derive from interest and fees is largely driven by the balance of loans that we originate. Average net finance receivables were $1.8 billion for the first three months of 2024 and $1.7 billion for the prior-year period. We source our loans through our branches, centrally-managed direct mail program, digital partners, and our consumer website. The majority of our loans, regardless of origination channel, are serviced through our branches. Increasing the number of loans per branch and growing our state footprint allows us to increase the number of customers we are able to serve. We continue to assess our legacy branch network for clear opportunities to consolidate operations into larger branches within close geographic proximity. This branch optimization is consistent with our omni-channel strategy and builds upon our recent successes in entering new states with a lighter branch footprint, while still providing customers with best-in-class service. We plan to add additional branches in new and existing states where it is favorable for us to conduct business.
Product Mix. We are exposed to different credit risks and charge different interest rates and fees with respect to the various types of loans we offer. Our product mix also varies to some extent by state, and we may further diversify our product mix in the future. The interest rates and fees vary from state to state, depending on the competitive environment and relevant laws and regulations.
Asset Quality and Allowance for Credit Losses. Our results of operations are highly dependent upon the credit quality of our loan portfolio. The credit quality of our loan portfolio is the result of our ability to enforce sound underwriting standards, maintain diligent servicing of the portfolio, and respond to changing economic conditions as we grow our loan portfolio.
The primary underlying factors driving the provision for credit losses for each loan type are our underwriting standards, delinquency trends, the general economic conditions in the areas in which we conduct business, loan portfolio growth, and the
28
effectiveness of our servicing and collection efforts. We monitor these factors, and the amount and past due status of all loans, to identify trends that might require us to modify the allowance for credit losses.
Interest Rates. Our costs of funds are affected by changes in interest rates, as the interest rates that we pay on certain of our credit facilities are variable. As a component of our strategy to manage the interest rate risk associated with future interest payments on our variable-rate debt, a majority of our funding was held at a fixed rate as of March 31, 2024, representing 81% of total debt.
Operating Costs. Our financial results are impacted by the costs of operations and head office functions. Those costs are included in general and administrative expenses within our consolidated statements of comprehensive income.
Components of Results of Operations
Interest and Fee Income. Our interest and fee income consists primarily of interest earned on outstanding loans. Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent. If the account is charged off, the accrued interest income is reversed as a reduction of interest and fee income.
Most states allow certain fees in connection with lending activities, such as loan origination fees, acquisition fees, and maintenance fees. Some states allow for higher fees while keeping interest rates lower. Loan fees are additional charges to the customer and generally are included in the annual percentage rate shown in the Truth in Lending disclosure that we make to our customers. The fees may or may not be refundable to the customer in the event of an early payoff, depending on state law. Fees are recognized as income over the life of the loan on the constant yield method.
Insurance Income, Net. Our insurance operations are a material part of our overall business and are integral to our lending activities. Insurance income, net consists primarily of earned premiums, net of certain direct costs, from the sale of various optional payment and collateral protection insurance products offered to customers who obtain loans directly from us. Insurance income, net also includes the earned premiums and direct costs associated with the non-file insurance that we purchase to protect us from credit losses where, following an event of default, we are unable to take possession of personal property collateral because our security interest is not perfected. We do not sell insurance to non-borrowers. Direct costs included in insurance income, net are claims paid, claims reserves, ceding fees, and premium taxes paid. We do not allocate to insurance income, net, any other head office or branch administrative costs associated with management of insurance operations, management of our captive insurance company, marketing and selling insurance products, legal and compliance review, or internal audits.
As reinsurer, we maintain restricted reserves comprised of restricted cash and restricted available-for-sale investments for life insurance claims in an amount determined by the unaffiliated insurance company. As of March 31, 2024, the restricted reserves consisted of $21.6 million of unearned premium reserves and $1.3 million of unpaid claims reserves. The unaffiliated insurance company maintains the reserves for non-life claims.
Other Income. Our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment. In addition, interest income from restricted cash, commissions earned from the sale of an auto club product, and investment income from restricted available-for-sale securities are included in other income.
Provision for Credit Losses. Provisions for credit losses are charged to income in amounts that we estimate as sufficient to maintain an allowance for credit losses at an adequate level to provide for lifetime expected credit losses on the related finance receivable portfolio. Credit loss experience, current conditions, reasonable and supportable economic forecasts, delinquency of finance receivables, loan portfolio growth, the value of underlying collateral, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses. Substantial adjustments to the allowance may be necessary if there are significant changes in forecasted economic conditions or loan portfolio performance.
General and Administrative Expenses. Our financial results are impacted by the costs of operations and head office functions. Those costs are included in general and administrative expenses within our consolidated statements of comprehensive income. Our general and administrative expenses are comprised of four categories: personnel, occupancy, marketing, and other. We measure our general and administrative expenses as a percentage of average net finance receivables, which we refer to as our operating expense ratio.
29
Our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries and wages, overtime, contract labor, relocation costs, incentives, benefits, and related payroll taxes associated with all of our operations and head office employees.
Our occupancy expenses consist primarily of the cost of renting our facilities, all of which are leased, and the utility, depreciation of leasehold improvements and furniture and fixtures, communication services, data processing, and other non-personnel costs associated with operating our business.
Our marketing expenses consist primarily of costs associated with our direct mail campaigns (including postage and costs associated with selecting recipients), digital marketing, maintaining our consumer website, and local marketing by branches. These costs are expensed as incurred.
Other expenses consist primarily of legal, compliance, audit, and consulting costs, as well as software maintenance and support, non-employee director compensation, electronic payment processing costs, bank service charges, office supplies, credit bureau charges, and the amortization of software, software licenses, and implementation costs. We frequently experience fluctuations in other expenses as we grow our loan portfolio and expand our market footprint. For a discussion regarding how risks and uncertainties associated with the current regulatory environment may impact our future expenses, net income, and overall financial condition, see Part II, Item 1A, “Risk Factors.”
Interest Expense. Our interest expense consists primarily of paid and accrued interest for debt, unused line fees, and amortization of debt issuance costs on debt.
Income Taxes. Income taxes consist of state and federal income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The change in deferred tax assets and liabilities is recognized in the period in which the change occurs, and the effects of future tax rate changes are recognized in the period in which the enactment of new rates occurs.
Results of Operations
The following table summarizes our results of operations, both in dollars and as a percentage of average net finance receivables (annualized):
|
|
1Q 24 |
|
|
1Q 23 |
|
||||||||||
Dollars in thousands |
|
Amount |
|
|
% of |
|
|
Amount |
|
|
% of |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and fee income |
|
$ |
128,818 |
|
|
|
29.3 |
% |
|
$ |
120,407 |
|
|
|
28.5 |
% |
Insurance income, net |
|
|
10,974 |
|
|
|
2.5 |
% |
|
|
10,959 |
|
|
|
2.6 |
% |
Other income |
|
|
4,516 |
|
|
|
1.0 |
% |
|
|
4,012 |
|
|
|
0.9 |
% |
Total revenue |
|
|
144,308 |
|
|
|
32.8 |
% |
|
|
135,378 |
|
|
|
32.0 |
% |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Provision for credit losses |
|
|
46,423 |
|
|
|
10.6 |
% |
|
|
47,668 |
|
|
|
11.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Personnel |
|
|
37,820 |
|
|
|
8.6 |
% |
|
|
38,597 |
|
|
|
9.1 |
% |
Occupancy |
|
|
6,375 |
|
|
|
1.4 |
% |
|
|
6,288 |
|
|
|
1.5 |
% |
Marketing |
|
|
4,315 |
|
|
|
1.0 |
% |
|
|
3,379 |
|
|
|
0.8 |
% |
Other |
|
|
11,938 |
|
|
|
2.7 |
% |
|
|
11,059 |
|
|
|
2.6 |
% |
Total general and administrative |
|
|
60,448 |
|
|
|
13.7 |
% |
|
|
59,323 |
|
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
17,504 |
|
|
|
4.0 |
% |
|
|
16,782 |
|
|
|
4.0 |
% |
Income before income taxes |
|
|
19,933 |
|
|
|
4.5 |
% |
|
|
11,605 |
|
|
|
2.7 |
% |
Income taxes |
|
|
4,728 |
|
|
|
1.0 |
% |
|
|
2,916 |
|
|
|
0.6 |
% |
Net income |
|
$ |
15,205 |
|
|
|
3.5 |
% |
|
$ |
8,689 |
|
|
|
2.1 |
% |
Information explaining the changes in our results of operations from year-to-year is provided in the following pages.
30
The following tables summarize the quarterly trends of our financial results:
|
|
Income Statement Quarterly Trend |
|
|||||||||||||||||||||||||
In thousands, except per share amounts |
|
1Q 23 |
|
|
2Q 23 |
|
|
3Q 23 |
|
|
4Q 23 |
|
|
1Q 24 |
|
|
QoQ $ |
|
|
YoY $ |
|
|||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest and fee income |
|
$ |
120,407 |
|
|
$ |
118,083 |
|
|
$ |
125,018 |
|
|
$ |
126,190 |
|
|
$ |
128,818 |
|
|
$ |
2,628 |
|
|
$ |
8,411 |
|
Insurance income, net |
|
|
10,959 |
|
|
|
11,203 |
|
|
|
11,382 |
|
|
|
10,985 |
|
|
|
10,974 |
|
|
|
(11 |
) |
|
|
15 |
|
Other income |
|
|
4,012 |
|
|
|
4,198 |
|
|
|
4,478 |
|
|
|
4,484 |
|
|
|
4,516 |
|
|
|
32 |
|
|
|
504 |
|
Total revenue |
|
|
135,378 |
|
|
|
133,484 |
|
|
|
140,878 |
|
|
|
141,659 |
|
|
|
144,308 |
|
|
|
2,649 |
|
|
|
8,930 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provision for credit losses |
|
|
47,668 |
|
|
|
52,551 |
|
|
|
50,930 |
|
|
|
68,885 |
|
|
|
46,423 |
|
|
|
22,462 |
|
|
|
1,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Personnel |
|
|
38,597 |
|
|
|
36,419 |
|
|
|
39,832 |
|
|
|
42,024 |
|
|
|
37,820 |
|
|
|
4,204 |
|
|
|
777 |
|
Occupancy |
|
|
6,288 |
|
|
|
6,158 |
|
|
|
6,315 |
|
|
|
6,268 |
|
|
|
6,375 |
|
|
|
(107 |
) |
|
|
(87 |
) |
Marketing |
|
|
3,379 |
|
|
|
3,844 |
|
|
|
4,077 |
|
|
|
4,474 |
|
|
|
4,315 |
|
|
|
159 |
|
|
|
(936 |
) |
Other |
|
|
11,059 |
|
|
|
10,475 |
|
|
|
11,880 |
|
|
|
12,030 |
|
|
|
11,938 |
|
|
|
92 |
|
|
|
(879 |
) |
Total general and administrative |
|
|
59,323 |
|
|
|
56,896 |
|
|
|
62,104 |
|
|
|
64,796 |
|
|
|
60,448 |
|
|
|
4,348 |
|
|
|
(1,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest expense |
|
|
16,782 |
|
|
|
16,224 |
|
|
|
16,947 |
|
|
|
17,510 |
|
|
|
17,504 |
|
|
|
6 |
|
|
|
(722 |
) |
Income before income taxes |
|
|
11,605 |
|
|
|
7,813 |
|
|
|
10,897 |
|
|
|
(9,532 |
) |
|
|
19,933 |
|
|
|
29,465 |
|
|
|
8,328 |
|
Income taxes |
|
|
2,916 |
|
|
|
1,790 |
|
|
|
2,077 |
|
|
|
(1,958 |
) |
|
|
4,728 |
|
|
|
(6,686 |
) |
|
|
(1,812 |
) |
Net income |
|
$ |
8,689 |
|
|
$ |
6,023 |
|
|
$ |
8,820 |
|
|
$ |
(7,574 |
) |
|
$ |
15,205 |
|
|
$ |
22,779 |
|
|
$ |
6,516 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Basic |
|
$ |
0.93 |
|
|
$ |
0.64 |
|
|
$ |
0.94 |
|
|
$ |
(0.80 |
) |
|
$ |
1.59 |
|
|
$ |
2.39 |
|
|
$ |
0.66 |
|
Diluted |
|
$ |
0.90 |
|
|
$ |
0.63 |
|
|
$ |
0.91 |
|
|
$ |
(0.80 |
) |
|
$ |
1.56 |
|
|
$ |
2.36 |
|
|
$ |
0.66 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Basic |
|
|
9,325 |
|
|
|
9,399 |
|
|
|
9,429 |
|
|
|
9,437 |
|
|
|
9,569 |
|
|
|
(132 |
) |
|
|
(244 |
) |
Diluted |
|
|
9,622 |
|
|
|
9,566 |
|
|
|
9,650 |
|
|
|
9,437 |
|
|
|
9,746 |
|
|
|
(309 |
) |
|
|
(124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Balance Sheet Quarterly Trend |
|
|||||||||||||||||||||||||
Dollars in thousands |
|
1Q 23 |
|
|
2Q 23 |
|
|
3Q 23 |
|
|
4Q 23 |
|
|
1Q 24 |
|
|
QoQ $ |
|
|
YoY $ |
|
|||||||
Total assets |
|
$ |
1,701,114 |
|
|
$ |
1,723,616 |
|
|
$ |
1,765,340 |
|
|
$ |
1,794,527 |
|
|
$ |
1,756,748 |
|
|
$ |
(37,779 |
) |
|
$ |
55,634 |
|
Net finance receivables |
|
$ |
1,676,230 |
|
|
$ |
1,688,937 |
|
|
$ |
1,751,009 |
|
|
$ |
1,771,410 |
|
|
$ |
1,744,286 |
|
|
$ |
(27,124 |
) |
|
$ |
68,056 |
|
Allowance for credit losses |
|
$ |
183,800 |
|
|
$ |
181,400 |
|
|
$ |
184,900 |
|
|
$ |
187,400 |
|
|
$ |
187,100 |
|
|
$ |
(300 |
) |
|
$ |
3,300 |
|
Debt |
|
$ |
1,329,677 |
|
|
$ |
1,344,855 |
|
|
$ |
1,372,748 |
|
|
$ |
1,399,814 |
|
|
$ |
1,358,795 |
|
|
$ |
(41,019 |
) |
|
$ |
29,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Other Key Metrics Quarterly Trend |
|
|||||||||||||||||||||||||
|
|
1Q 23 |
|
|
2Q 23 |
|
|
3Q 23 |
|
|
4Q 23 |
|
|
1Q 24 |
|
|
QoQ |
|
|
YoY |
|
|||||||
Interest and fee yield (annualized) |
|
|
28.5 |
% |
|
|
28.2 |
% |
|
|
29.0 |
% |
|
|
28.8 |
% |
|
|
29.3 |
% |
|
|
0.5 |
% |
|
|
0.8 |
% |
Efficiency ratio |
|
|
43.8 |
% |
|
|
42.6 |
% |
|
|
44.1 |
% |
|
|
45.7 |
% |
|
|
41.9 |
% |
|
|
(3.8 |
)% |
|
|
(1.9 |
)% |
Operating expense ratio |
|
|
14.0 |
% |
|
|
13.6 |
% |
|
|
14.4 |
% |
|
|
14.8 |
% |
|
|
13.7 |
% |
|
|
(1.1 |
)% |
|
|
(0.3 |
)% |
30+ contractual delinquency |
|
|
7.2 |
% |
|
|
6.9 |
% |
|
|
7.3 |
% |
|
|
6.9 |
% |
|
|
7.1 |
% |
|
|
0.2 |
% |
|
|
(0.1 |
)% |
Net credit loss ratio |
|
|
10.1 |
% |
|
|
13.1 |
% |
|
|
11.0 |
% |
|
|
15.1 |
% |
|
|
10.6 |
% |
|
|
(4.5 |
)% |
|
|
0.5 |
% |
Book value per share |
|
$ |
33.06 |
|
|
$ |
32.71 |
|
|
$ |
33.61 |
|
|
$ |
33.02 |
|
|
$ |
34.10 |
|
|
$ |
1.08 |
|
|
$ |
1.04 |
|
31
Comparison of March 31, 2024, Versus March 31, 2023
The following discussion and table describe the changes in finance receivables by product type:
|
|
Net Finance Receivables by Product |
|
|||||||||||||
Dollars in thousands |
|
1Q 24 |
|
|
1Q 23 |
|
|
YoY $ |
|
|
YoY % |
|
||||
Large loans |
|
$ |
1,250,647 |
|
|
$ |
1,211,836 |
|
|
$ |
38,811 |
|
|
|
3.2 |
% |
Small loans |
|
|
490,830 |
|
|
|
456,313 |
|
|
|
34,517 |
|
|
|
7.6 |
% |
Retail loans |
|
|
2,809 |
|
|
|
8,081 |
|
|
|
(5,272 |
) |
|
|
(65.2 |
)% |
Total net finance receivables |
|
$ |
1,744,286 |
|
|
$ |
1,676,230 |
|
|
$ |
68,056 |
|
|
|
4.1 |
% |
Number of branches at period end |
|
|
343 |
|
|
|
344 |
|
|
|
(1 |
) |
|
|
(0.3 |
)% |
Net finance receivables per branch |
|
$ |
5,085 |
|
|
$ |
4,873 |
|
|
$ |
212 |
|
|
|
4.4 |
% |
Comparison of the Three Months Ended March 31, 2024, Versus the Three Months Ended March 31, 2023
Net Income. Net income increased $6.5 million, or 75.0%, to $15.2 million during the three months ended March 31, 2024, from $8.7 million during the prior-year period. The increase was due to an increase in revenue of $8.9 million and a decrease in provision for credit losses of $1.2 million, partially offset by an increase in income taxes of $1.8 million, an increase in general and administrative expenses of $1.1 million, and an increase in interest expense of $0.7 million.
Revenue. Total revenue increased $8.9 million, or 6.6%, to $144.3 million during the three months ended March 31, 2024, from $135.4 million during the prior-year period. The components of revenue are explained in greater detail below.
Interest and Fee Income. Interest and fee income increased $8.4 million, or 7.0%, to $128.8 million during the three months ended March 31, 2024, from $120.4 million during the prior-year period. The increase was primarily due to a 3.9% increase in average net finance receivables and a 0.8% increase in annualized average yield. The increase in yield was due to price increases and product mix, partially offset by the credit impact from macroeconomic conditions on revenue reversals and non-accrual loans. The three months ended March 31, 2024 and March 31, 2023 included reductions in revenue reversals of an estimated $1.7 million and $1.9 million attributable to the loan sales that occurred during the fourth quarters of 2023 and 2022, respectively.
The following table sets forth the average net finance receivables balance and average yield for our loan products:
|
|
Average Net Finance Receivables for the |
|
|
Average Yields for the |
|
||||||||||||||||||
Dollars in thousands |
|
1Q 24 |
|
|
1Q 23 |
|
|
YoY % |
|
|
1Q 24 |
|
|
1Q 23 |
|
|
YoY % |
|
||||||
Large loans |
|
$ |
1,263,491 |
|
|
$ |
1,215,547 |
|
|
|
3.9 |
% |
|
|
26.0 |
% |
|
|
26.0 |
% |
|
|
— |
|
Small loans |
|
|
491,911 |
|
|
|
467,851 |
|
|
|
5.1 |
% |
|
|
37.8 |
% |
|
|
35.0 |
% |
|
|
2.8 |
% |
Retail loans |
|
|
3,341 |
|
|
|
8,954 |
|
|
|
(62.7 |
)% |
|
|
15.8 |
% |
|
|
18.6 |
% |
|
|
(2.8 |
)% |
Total interest and fee yield |
|
$ |
1,758,743 |
|
|
$ |
1,692,352 |
|
|
|
3.9 |
% |
|
|
29.3 |
% |
|
|
28.5 |
% |
|
|
0.8 |
% |
(1) Annualized interest and fee income as a percentage of average net finance receivables.
32
Total originations increased to $326.4 million during the three months ended March 31, 2024, from $303.2 million during the prior-year period. Quarterly origination volume was higher than the prior-year period primarily due to an increase in small loan convenience checks. The following table represents the principal balance of loans originated and refinanced:
|
|
Loans Originated for the Three Months Ended |
|
|||||||||||||
Dollars in thousands |
|
1Q 24 |
|
|
1Q 23 |
|
|
YoY $ |
|
|
YoY % |
|
||||
Large loans |
|
$ |
185,074 |
|
|
$ |
193,571 |
|
|
$ |
(8,497 |
) |
|
|
(4.4 |
)% |
Small loans |
|
|
141,281 |
|
|
|
109,484 |
|
|
|
31,797 |
|
|
|
29.0 |
% |
Retail loans |
|
|
— |
|
|
|
146 |
|
|
|
(146 |
) |
|
|
(100.0 |
)% |
Total loans originated |
|
$ |
326,355 |
|
|
$ |
303,201 |
|
|
$ |
23,154 |
|
|
|
7.6 |
% |
The following table summarizes the components of the increase in interest and fee income:
|
|
Components of Increase in Interest and Fee Income |
|
|||||||||||||
Dollars in thousands |
|
Volume |
|
|
Rate |
|
|
Volume & |
|
|
Net |
|
||||
Large loans |
|
$ |
3,116 |
|
|
$ |
27 |
|
|
$ |
1 |
|
|
$ |
3,144 |
|
Small loans |
|
|
2,107 |
|
|
|
3,276 |
|
|
|
169 |
|
|
|
5,552 |
|
Retail loans |
|
|
(261 |
) |
|
|
(63 |
) |
|
|
39 |
|
|
|
(285 |
) |
Product mix |
|
|
(238 |
) |
|
|
308 |
|
|
|
(70 |
) |
|
|
— |
|
Total increase in interest and fee income |
|
$ |
4,724 |
|
|
$ |
3,548 |
|
|
$ |
139 |
|
|
$ |
8,411 |
|
Insurance Income, Net. Insurance income, net remained constant at $11.0 million during both the three months ended March 31, 2024, and the prior-year period. During both the three months ended March 31, 2024 and the prior-year period, personal property insurance premiums represented the largest component of aggregate earned insurance premiums, and life insurance claims expense represented the largest component of direct insurance expenses.
The following table summarizes the components of insurance income, net:
|
|
Insurance Premiums and Direct Expenses for the Three Months Ended |
|
|||||||||||||
Dollars in thousands |
|
1Q 24 |
|
|
1Q 23 |
|
|
YoY $ |
|
|
YoY % |
|
||||
Earned premiums |
|
$ |
14,499 |
|
|
$ |
15,416 |
|
|
$ |
(917 |
) |
|
|
(5.9 |
)% |
Claims, reserves, and certain direct expenses |
|
|
(3,525 |
) |
|
|
(4,457 |
) |
|
|
932 |
|
|
|
20.9 |
% |
Insurance income, net |
|
$ |
10,974 |
|
|
$ |
10,959 |
|
|
$ |
15 |
|
|
|
0.1 |
% |
Earned premiums decreased by $0.9 million, and claims, reserves, and certain direct expenses decreased by $0.9 million compared to the prior year period. The decrease in earned premiums was primarily due to fewer active policies. The decrease in claims, reserves, and certain direct expenses was primarily due to a decrease in claims expense.
Other Income. Other income increased $0.5 million, or 12.6%, to $4.5 million during the three months ended March 31, 2024, from $4.0 million during the prior-year period, primarily due to higher late charges of $0.2 million associated with portfolio growth and higher interest income of $0.2 million from cash reserves.
Provision for Credit Losses. Our provision for credit losses decreased $1.2 million, or 2.6%, to $46.4 million during the three months ended March 31, 2024, from $47.7 million during the prior-year period. The decrease was due to a change in provision expense of $5.3 million, partially offset by an increase in net credit losses of $4.1 million, in each case compared to the prior-year period. The decrease in the provision for credit losses is explained in greater detail below.
Allowance for Credit Losses. We evaluate delinquency and losses in each of our loan products in establishing the allowance for credit losses. During the three months ended March 31, 2024, and the prior-year period, the allowance for credit losses included a release of $0.3 million and build of $5.0 million, respectively. The allowance for credit losses as a percentage of finance receivables decreased to 10.7% as of March 31, 2024, from 11.0% as of the prior-year period due to changes in estimated future macroeconomic impacts on credit losses.
Net Credit Losses. Net credit losses increased $4.1 million, or 9.5%, to $46.7 million during the three months ended March 31, 2024, from $42.7 million during the prior-year period. The increase was primarily due to higher average net finance
33
receivables and the macroeconomic environment. Annualized net credit losses as a percentage of average net finance receivables were 10.6% during the three months ended March 31, 2024, compared to 10.1% during the prior-year period. Our net credit loss ratios during the three months ended March 31, 2024 and March 31, 2023 were inclusive of estimated 270 basis point and 280 basis point benefits from accelerated charge-offs in the fourth quarters of 2023 and 2022, respectively, attributable to the loan sales.
Delinquency Performance. Our contractual delinquency as a percentage of net finance receivables improved to 7.1% as of March 31, 2024, from 7.2% in the prior-year period.
The following tables include delinquency balances by aging category and by product:
|
|
Contractual Delinquency by Aging |
|
|||||||||||||
Dollars in thousands |
|
1Q 24 |
|
|
1Q 23 |
|
||||||||||
Current |
|
$ |
1,489,510 |
|
|
|
85.4 |
% |
|
$ |
1,438,354 |
|
|
|
85.8 |
% |
1 to 29 days past due |
|
|
130,578 |
|
|
|
7.5 |
% |
|
|
116,723 |
|
|
|
7.0 |
% |
Delinquent accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
30 to 59 days |
|
|
30,020 |
|
|
|
1.7 |
% |
|
|
27,428 |
|
|
|
1.6 |
% |
60 to 89 days |
|
|
25,409 |
|
|
|
1.5 |
% |
|
|
25,178 |
|
|
|
1.5 |
% |
90 to 119 days |
|
|
23,460 |
|
|
|
1.3 |
% |
|
|
23,148 |
|
|
|
1.4 |
% |
120 to 149 days |
|
|
22,163 |
|
|
|
1.3 |
% |
|
|
22,263 |
|
|
|
1.3 |
% |
150 to 179 days |
|
|
23,146 |
|
|
|
1.3 |
% |
|
|
23,136 |
|
|
|
1.4 |
% |
Total contractual delinquency |
|
$ |
124,198 |
|
|
|
7.1 |
% |
|
$ |
121,153 |
|
|
|
7.2 |
% |
Total net finance receivables |
|
$ |
1,744,286 |
|
|
|
100.0 |
% |
|
$ |
1,676,230 |
|
|
|
100.0 |
% |
|
|
Contractual Delinquency by Product |
|
|||||||||||||
Dollars in thousands |
|
1Q 24 |
|
|
1Q 23 |
|
||||||||||
Large loans |
|
$ |
78,055 |
|
|
|
6.2 |
% |
|
$ |
74,606 |
|
|
|
6.2 |
% |
Small loans |
|
|
45,804 |
|
|
|
9.3 |
% |
|
|
45,600 |
|
|
|
10.0 |
% |
Retail loans |
|
|
339 |
|
|
|
12.1 |
% |
|
|
947 |
|
|
|
11.7 |
% |
Total contractual delinquency |
|
$ |
124,198 |
|
|
|
7.1 |
% |
|
$ |
121,153 |
|
|
|
7.2 |
% |
General and Administrative Expenses. Our general and administrative expenses increased $1.1 million, or 1.9%, to $60.4 million during the three months ended March 31, 2024, from $59.3 million during the prior-year period. The absolute dollar increase in general and administrative expenses is explained in greater detail below.
Personnel. The largest component of general and administrative expenses was personnel expense, which decreased $0.8 million, or 2.0%, to $37.8 million during the three months ended March 31, 2024, from $38.6 million during the prior-year period. The decrease was driven by lower incentive costs of $1.3 million and higher capitalized loan origination costs, which reduce personnel expenses, of $0.4 million. This decrease was partially offset by higher labor expenses of $0.9 million compared to the prior-year period.
Occupancy. Occupancy expenses increased by $0.1 million, or 1.4%, to $6.4 million during the three months ended March 31, 2024, from $6.3 million during the prior-year period. The increase was primarily due to increased rent of $0.2 million.
Marketing. Marketing expenses increased $0.9 million, or 27.7%, to $4.3 million during the three months ended March 31, 2024, from $3.4 million during the prior-year period due to increased activity in our direct mail campaigns of $1.0 million to support growth.
Other Expenses. Other expenses increased $0.9 million, or 7.9%, to $11.9 million during the three months ended March 31, 2024, from $11.1 million during the prior-year period. The increase was due to increases in professional services of $0.5 million and our investment in digital and technological capabilities of $0.3 million compared to the prior-year period.
Operating Expense Ratio. Our annualized operating expense ratio decreased by 0.3% to 13.7% during the three months ended March 31, 2024, from 14.0% during the prior-year period. Our operating expense ratio has improved as we have grown our loan portfolio and controlled expense growth.
Interest Expense. Interest expense increased $0.7 million, or 4.3%, to $17.5 million during the three months ended March 31, 2024, from $16.8 million during the prior-year period. The increase was primarily due to an increase in our average cost of debt as
34
well as an increase in the average balance of our debt facilities. An increase in variable rate funding costs increased our annualized average cost of debt 0.04% to 5.10% during the three months ended March 31, 2024, from 5.06% as of the prior-year period. The average balance of our debt facilities increased to $1.4 billion during the three months ended March 31, 2024, from $1.3 billion during the prior-year period.
Income Taxes. Income taxes increased $1.8 million, or 62.1%, to $4.7 million during the three months ended March 31, 2024, from $2.9 million during the prior-year period. The increase was primarily due to a $8.3 million increase in income before income taxes compared to the prior-year period. Our effective tax rates were 23.7% and 25.1% for the three months ended March 31, 2024 and the prior-year period, respectively. The decrease in the effective tax rate relates primarily to improved state tax mix and an increase in discrete tax benefits related to share-based compensation.
Liquidity and Capital Resources
Our primary cash needs relate to the funding of our lending activities and, to a lesser extent, expenditures relating to improving our technology infrastructure and expanding and maintaining our branch locations. We have historically financed, and plan to continue to finance, our short-term and long-term operating liquidity and capital needs through a combination of cash flows from operations and borrowings under our debt facilities, including our senior revolving credit facility, revolving warehouse credit facilities, and asset-backed securitization transactions, all of which are described below. We continue to seek ways to diversify our funding sources. As of March 31, 2024, we had a funded debt-to-equity ratio (debt divided by total stockholders’ equity) of 4.0 to 1.0 and a stockholders’ equity ratio (total stockholders’ equity as a percentage of total assets) of 19.2%.
Cash and cash equivalents decreased to $4.2 million as of March 31, 2024, from $7.1 million as of the prior year-end. We had immediate availability to draw down cash from our revolving credit facilities of $165.1 million and $108.1 million as of March 31, 2024 and the prior year-end, respectively. Our unused capacity on our revolving credit facilities (subject to the borrowing base) was $478.4 million and $551.5 million as of March 31, 2024, and the prior year-end, respectively. Our total debt was $1.4 billion as of both March 31, 2024, and the prior year-end, respectively.
Based upon anticipated cash flows, we believe that cash flows from operations and our various financing alternatives will provide sufficient financing for debt maturities and operations over the next twelve months, as well as into the future.
From time to time, we have extended the maturity date of and increased the borrowing limits under our senior revolving credit facility. While we have successfully obtained such extensions and increases in the past, there can be no assurance that we will be able to do so if and when needed in the future. In addition, the revolving period maturities of our securitizations and warehouse credit facilities (each as described below within “Financing Arrangements and Restricted Cash Reserve Accounts”) range from October 2024 to September 2026. As of March 31, 2024, we did not exercise our right to redeem the notes of our RMIT 2020-1 and RMIT 2021-1 securitizations, for which the revolving periods ended in September 2023 and February 2024, respectively. There can be no assurance that we will be able to secure an extension of the warehouse credit facilities or close additional securitization transactions if and when needed in the future.
Dividends.
The Board may in its discretion declare and pay cash dividends on our common stock. The following table sets forth the dividends declared and paid for the three months ended March 31, 2024:
Period |
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Dividends Declared Per |
|
|
1Q 24 |
|
February 7, 2024 |
|
February 22, 2024 |
|
March 14, 2024 |
|
$ |
0.30 |
|
Total |
|
|
|
|
|
|
|
$ |
0.30 |
|
35
The Board declared and paid $3.0 million of cash dividends on our common stock during the three months ended March 31, 2024. See Note 12, “Subsequent Events” of the Notes to Consolidated Financial Statements in Part I, Item 1, “Financial Statements,” for information regarding our cash dividend following the end of the quarter.
While we intend to pay our quarterly dividend for the foreseeable future, all subsequent dividends will be reviewed and declared at the discretion of the Board and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that the Board deems relevant. Our dividend payments may change from time to time, and the Board may choose not to continue to declare dividends in the future.
Cash Flow.
Operating Activities. Net cash provided by operating activities during the three months ended March 31, 2024 was $58.5 million, compared to $52.6 million during the prior-year period, a net increase of $5.8 million. The increase was primarily due to the growth of our loan portfolio.
Investing Activities. Investing activities consist of originations and repayments of finance receivables, purchases of intangible assets, and purchases of property and equipment for new and existing branches. Net cash used in investing activities during the three months ended March 31, 2024 was $20.3 million, compared to $20.2 million during the prior-year period, a net increase in cash used of $0.1 million. The increase was primarily driven by increased originations as we grow our loan portfolio, partially offset by increased repayments of finance receivables.
Financing Activities. Financing activities consist of borrowings and payments on our outstanding indebtedness. Net cash used in financing activities during the three months ended March 31, 2024 was $44.4 million, compared to $30.0 million during the prior-year period, a net increase in cash used of $14.4 million. The net increase in cash used was primarily due to an increase in the net payments on debt instruments of $15.4 million.
Financing Arrangements and Restricted Cash Reserve Accounts.
As of March 31, 2024, we had five credit facilities outstanding and, from time to time, engaged in the private offering and sale of asset-backed notes. As part of our overall funding strategy, we have transferred certain finance receivables to affiliated VIEs for asset-backed financing transactions. Our debt arrangements described below, other than our senior revolving credit facility, are issued by each of our RMR and RMIT SPEs, which are considered VIEs under GAAP. These debts are supported by the expected cash flows from the underlying collateralized finance receivables. Collections on these finance receivables are remitted to restricted cash collection accounts, which totaled $103.7 million and $109.9 million as of March 31, 2024 and December 31, 2023, respectively. Our debt arrangements also contain various debt covenants. We were in compliance with all such debt covenants as of March 31, 2024.
Revolving Credit Facilities. The following is a summary of our revolving credit facilities as of March 31, 2024:
Dollars in thousands |
|
Capacity |
|
|
Debt Balance |
|
|
Effective Interest Rate |
|
Facility Cash Reserve Requirement |
|
|
Restricted Cash Collection |
|
|
Maturity Date |
||||
Senior |
|
$ |
355,000 |
|
|
$ |
154,208 |
|
|
8.43% |
|
N/A |
|
|
N/A |
|
|
Sep 2025 |
||
RMR IV warehouse |
|
$ |
125,000 |
|
|
$ |
22,133 |
|
|
8.23% |
|
$ |
284 |
|
|
$ |
2,095 |
|
|
May 2026 |
RMR V warehouse |
|
$ |
100,000 |
|
|
$ |
51,276 |
|
|
8.28% |
|
$ |
638 |
|
|
$ |
4,678 |
|
|
Nov 2025 |
RMR VI warehouse |
|
$ |
75,000 |
|
|
$ |
20,640 |
|
|
7.93% |
|
$ |
274 |
|
|
$ |
1,995 |
|
|
Feb 2026 |
RMR VII warehouse |
|
$ |
75,000 |
|
|
$ |
5,309 |
|
|
8.43% |
|
$ |
66 |
|
|
$ |
479 |
|
|
Oct 2025 |
36
Securitizations. The following is a summary of our securitizations as of March 31, 2024:
Dollars in thousands |
|
Issue Amount |
|
|
Debt Balance |
|
|
Effective Interest Rate |
|
Restricted Cash Reserves |
|
|
Restricted Cash Collection |
|
|
Revolving Period Maturity |
|
Final Maturity Date |
||||
RMIT 2020-1 |
|
$ |
180,000 |
|
|
$ |
113,089 |
|
|
3.15% |
|
$ |
1,875 |
|
|
$ |
9,003 |
|
|
Sep 2023 |
|
Oct 2030 |
RMIT 2021-1 |
|
$ |
248,700 |
|
|
$ |
232,078 |
|
|
2.11% |
|
$ |
2,604 |
|
|
$ |
18,395 |
|
|
Feb 2024 |
|
Mar 2031 |
RMIT 2021-2 |
|
$ |
200,000 |
|
|
$ |
200,191 |
|
|
2.30% |
|
$ |
2,083 |
|
|
$ |
14,773 |
|
|
Jul 2026 |
|
Aug 2033 |
RMIT 2021-3 |
|
$ |
125,000 |
|
|
$ |
125,202 |
|
|
3.88% |
|
$ |
1,471 |
|
|
$ |
16,107 |
|
|
Sep 2026 |
|
Oct 2033 |
RMIT 2022-1 |
|
$ |
250,000 |
|
|
$ |
250,374 |
|
|
3.59% |
|
$ |
2,646 |
|
|
$ |
19,720 |
|
|
Feb 2025 |
|
Mar 2032 |
RMIT 2022-2B (1) |
|
$ |
200,000 |
|
|
$ |
184,295 |
|
|
7.51% |
|
$ |
2,326 |
|
|
$ |
16,422 |
|
|
Oct 2024 |
|
Nov 2031 |
(1) RMR III retained $16.3 million of Class C fixed-rate, asset-backed notes that may be sold in whole or in part on the closing date.
RMC Reinsurance. Our wholly-owned subsidiary, RMC Reinsurance, Ltd., is required to maintain reserves against life insurance policies ceded to it, as determined by the ceding company. These reserves are comprised of restricted cash and restricted available-for-sale investments, which totaled $0.3 million and $22.6 million, respectively, as of March 31, 2024.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP and conform to general practices within the consumer finance industry. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities for the periods indicated in the financial statements. Management bases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Allowance for Credit Losses.
The allowance for credit losses is based on historical credit experience, current conditions, and reasonable and supportable economic forecasts. The historical loss experience is adjusted for quantitative and qualitative factors that are not fully reflected in the historical data. In determining our estimate of expected credit losses, we evaluate information related to credit metrics, changes in our lending strategies and underwriting practices, and the current and forecasted direction of the economic and business environment. These metrics include, but are not limited to, loan portfolio mix and growth, unemployment, credit loss trends, delinquency trends, changes in underwriting, and operational risks.
We selected a PD / LGD model to estimate our base allowance for credit losses, in which the estimated loss is equal to the product of PD and LGD. Historical net finance receivables are tracked over the term of the pools to identify the incidences of loss (PDs) and the average severity of losses (LGDs).
To enhance the precision of the allowance for credit loss estimate, we evaluate our finance receivable portfolio on a pool basis and segment each pool of finance receivables with similar credit risk characteristics. As part of our evaluation, we consider loan portfolio characteristics such as product type, loan size, loan term, internal or external credit scores, delinquency status, geographical location, and vintage. Based on analysis of historical loss experience, we selected the following segmentation: product type, FICO score, and delinquency status.
As finance receivables are originated, provisions for credit losses are recorded in amounts sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses over the contractual life of the finance receivables (considering the effect of prepayments). Subsequent changes to the contractual terms that are a result of re-underwriting are not included in the finance receivable’s contractual life (considering the effect of prepayments). We use our segmentation loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. We also consider the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.
Macroeconomic forecasts are required for our allowance for credit loss model and require significant judgment and estimation uncertainty. We consider key economic factors, most notably unemployment rates, to incorporate into our estimate of the allowance for credit losses. We engaged a major rating service provider to assist with compiling a reasonable and supportable forecast which we use to support the adjustments of our historical loss experience.
37
Due to the judgment and uncertainty in estimating the expected credit losses, we may experience changes to the macroeconomic assumptions within our forecast, as well as changes to our credit loss performance outlook, both of which could lead to further changes in our allowance for credit losses, allowance as a percentage of net finance receivables, and provision for credit losses. Potential macroeconomic changes have created conditions that increase the level of uncertainty associated with our estimate of the amount and timing of future credit losses from our loan portfolio.
Macroeconomic Sensitivity. To demonstrate the sensitivity of forecasting macroeconomic conditions, we stressed our macroeconomic model with 10% increased weighting towards slower near-term growth that would have increased our reserves as of March 31, 2024 by $1.3 million.
The macroeconomic scenarios are highly influenced by timing, severity, and duration of changes in the underlying economic factors. This makes it difficult to estimate how potential changes in economic factors affect the estimated credit losses. Therefore, this hypothetical analysis is not intended to represent our expectation of changes in our estimate of expected credit losses due to a change in the macroeconomic environment, nor does it consider management’s judgment of other quantitative and qualitative information which could increase or decrease the estimate.
Regulatory Developments.
On March 7, 2023, the CFPB provided us with the Notice seeking to establish supervisory authority over us pursuant to section 1024(a)(1)(C) of the Consumer Financial Protection Act of 2010. Under that provision, the CFPB may establish supervisory authority over any non-bank covered person that it has reasonable cause to determine is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. We responded to the Notice by voluntarily consenting to the CFPB’s supervisory authority and entering into the Consent Agreement dated January 4, 2024. Pursuant to the Consent Agreement and related CFPB order, the CFPB will have supervisory authority over us for a period of two years ending January 8, 2026. The Consent Agreement does not constitute an admission by us that we are a nonbank covered person who is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. See “Government Regulation” in Part I, Item 1 “Business” and “Risks Related to Regulation and Legal Proceedings” in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a further discussion of the regulation and regulatory risks to which we are subject.
On March 6, 2024, the SEC adopted a final rule to require registrants to disclose certain climate-related information in their registration statements and annual reports. On April 4, 2024, the SEC issued an order staying the effectiveness of the final rule pending completion of the judicial review of consolidated challenges to the rule by the U.S. Court of Appeals for the Eighth Circuit. We will continue to monitor the outcome of this judicial review.
38
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect our results of operations and financial condition. We originate finance receivables either at prevailing market rates or at statutory limits. Our finance receivables are structured on a fixed-rate, fixed-term basis. Accordingly, subject to statutory limits, our ability to react to changes in prevailing market rates is dependent upon the speed at which our customers pay off or renew loans in our existing loan portfolio, which allows us to originate new loans at prevailing market rates. Because our large loans have longer maturities than our small loans and typically renew at a slower rate than our small loans, our reaction time to changes may be affected as our large loans change as a percentage of our portfolio.
We also are exposed to changes in interest rates as a result of certain borrowing activities. As of March 31, 2024, the interest rates on 81.3% of our debt (the securitizations) were fixed. We maintain liquidity and fund our business operations in part through variable-rate borrowings under a senior revolving credit facility and multiple revolving warehouse credit facilities. As of March 31, 2024, the balances and key terms of the credit facilities were as follows:
Revolving Credit Facility |
|
Balance |
|
|
Interest Payment Frequency |
|
Rate Type |
|
Floor |
|
|
Margin |
|
|
Effective Interest Rate |
|
||||
Senior |
|
$ |
154,208 |
|
|
Monthly |
|
1-month SOFR |
|
|
0.50 |
% |
|
|
3.00 |
% |
|
|
8.43 |
% |
RMR IV Warehouse |
|
|
22,133 |
|
|
Monthly |
|
1-month SOFR |
|
|
— |
|
|
|
2.80 |
% |
|
|
8.23 |
% |
RMR V Warehouse |
|
|
51,276 |
|
|
Monthly |
|
Conduit |
|
|
— |
|
|
|
2.75 |
% |
|
|
8.28 |
% |
RMR VI Warehouse |
|
|
20,640 |
|
|
Monthly |
|
1-month SOFR |
|
|
— |
|
|
|
2.50 |
% |
|
|
7.93 |
% |
RMR VII Warehouse |
|
|
5,309 |
|
|
Monthly |
|
1-month SOFR |
|
|
— |
|
|
|
3.00 |
% |
|
|
8.43 |
% |
Total |
|
$ |
253,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Based on the underlying rates and the outstanding balances as of March 31, 2024, an increase of 100 basis points in the rates of our revolving credit facilities would result in approximately $2.5 million of increased interest expense on an annual basis, in the aggregate, under these borrowings.
The nature and amount of our debt may vary as a result of future business requirements, market conditions, and other factors.
39
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Based on the evaluation of our disclosure controls and procedures as of March 31, 2024, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost–benefit relationship of possible controls and procedures.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
40
Part II – Other information
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings and related actions that have arisen in the ordinary course of its business that have not been fully adjudicated. The Company’s management does not believe that these matters, when ultimately concluded and determined, will have a material adverse effect on its financial condition, liquidity, or results of operations.
ITEM 1A. RISK FACTORS.
There have been no material changes to our risk factors from those included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (which was filed with the SEC on February 22, 2024), which could materially affect our business, financial condition, and/or future operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially and adversely affect the Company’s business, financial condition, and/or operating results.
ITEM 5. OTHER INFORMATION.
During the three months ended March 31, 2024,
41
ITEM 6. EXHIBITS.
|
|
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Exhibit Description |
|
Filed Herewith |
|
Form |
|
File Number |
|
Exhibit |
|
Filing Date |
10.1 |
|
|
|
|
8-K |
|
001-35477 |
|
10.1 |
|
2/7/2024 |
|
10.2 |
|
|
|
|
8-K |
|
001-35477 |
|
10.1 |
|
4/3/2024 |
|
10.3 |
|
|
|
|
8-K |
|
001-35477 |
|
10.2 |
|
4/3/2024 |
|
10.4 |
|
|
|
|
8-K |
|
001-35477 |
|
10.3 |
|
4/3/2024 |
|
10.5 |
|
|
|
|
8-K |
|
001-35477 |
|
10.4 |
|
4/3/2024 |
|
31.1 |
|
Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer |
|
X |
|
|
|
|
|
|
|
|
31.2 |
|
Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer |
|
X |
|
|
|
|
|
|
|
|
32.1 |
|
|
X |
|
|
|
|
|
|
|
|
|
101.INS |
|
XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Exhibit Description |
|
Filed Herewith |
|
Form |
|
File Number |
|
Exhibit |
|
Filing Date |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
|
|
|
|
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File—the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101 |
|
|
|
|
|
|
|
|
|
|
43
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
REGIONAL MANAGEMENT CORP. |
||
|
|
|
|
|
Date: May 3, 2024 |
|
By: |
|
/s/ Harpreet Rana |
|
|
|
|
Harpreet Rana, Executive Vice President and |
|
|
|
|
(Principal Financial Officer and Duly Authorized Officer) |
44