Regional Management Corp. Quarterly Report on Form 10-Q Fiscal Quarter Ended March 31, 2025

Overview of the Company’s Financial Performance

Regional Money Lenders (RML) is a leading provider of consumer loans, offering a range of products including large loans, small loans, and retail loans. The company has seen solid growth in its loan portfolio over the past year, with net finance receivables increasing by 8.4% to $1.9 billion as of March 31, 2025.

RML’s revenue increased by 6.0% year-over-year to $153.0 million in the first quarter of 2025, driven by growth in interest and fee income as well as insurance income. However, the company’s net income declined by 53.9% to $7.0 million during the same period, primarily due to a significant increase in the provision for credit losses.

Revenue and Profit Trends

RML’s interest and fee income, which makes up the majority of its revenue, grew by 6.0% year-over-year to $136.6 million in the first quarter of 2025. This was mainly attributable to a 7.4% increase in average net finance receivables, partially offset by a 0.4% decrease in average yield. The decrease in yield was primarily due to the estimated 50 basis point benefit in the prior-year period related to a loan sale.

Insurance income, net, increased by 2.9% to $11.3 million, while other income grew by 13.3% to $5.1 million. The increase in other income was primarily due to higher late charges and increased sales of club membership products.

Despite the growth in revenue, RML’s net income declined by 53.9% to $7.0 million in the first quarter of 2025. This was largely driven by a $11.6 million, or 24.9%, increase in the provision for credit losses, as well as a $5.6 million, or 9.3%, increase in general and administrative expenses. The higher provision for credit losses was due to an $11.7 million, or 25.0%, increase in net credit losses, partially offset by a $0.1 million change in provision expense.

Strengths and Weaknesses

One of RML’s key strengths is its diversified loan portfolio, which includes large loans, small loans, and retail loans. The company has seen strong growth in its higher-margin large loan and small loan portfolios, which grew by 7.6% and 10.8%, respectively, year-over-year. This growth strategy has helped offset the decline in the retail loan portfolio, which the company has been phasing out.

Another strength is RML’s proactive approach to managing its funding and liquidity. The company has diversified its funding sources over the past few years and maintains a strong liquidity profile, with $129.3 million of available liquidity and $640.7 million of unused capacity on its revolving credit facilities as of March 31, 2025. This provides the company with substantial runway to support its business operations and fund future growth.

However, a potential weakness is the company’s exposure to macroeconomic factors, such as inflationary pressures, higher interest rates, and geopolitical events, which may affect its business, liquidity, financial condition, and results of operations. These factors have already impacted RML’s typical seasonal trends for loan volume and delinquency.

Another weakness is the company’s reliance on its allowance for credit losses to manage the risk in its loan portfolio. The allowance for credit losses as a percentage of net finance receivables decreased to 10.5% as of March 31, 2025, from 10.7% a year earlier, due to changes in estimated future macroeconomic impacts on credit losses. This leaves the company vulnerable to potential changes in macroeconomic conditions and credit performance.

Outlook and Future Prospects

Looking ahead, RML plans to continue executing its barbell strategy of growth in its higher-margin loan portfolio while balancing the associated risk with growth in its high-quality, auto-secured loan portfolio. The company believes this approach will help it navigate the current macroeconomic environment and deliver strong results for investors.

However, the company acknowledges that macroeconomic factors, such as inflationary pressures, higher interest rates, and geopolitical events, may affect its business, liquidity, financial condition, and results of operations going forward. These factors could necessitate changes to the macroeconomic assumptions within its forecast and to its credit loss performance outlook, which could lead to further changes in its allowance for credit losses, reserve rate, and provision for credit losses expense.

To mitigate these risks, RML is focused on maintaining a strong liquidity profile, with $129.3 million of available liquidity and $640.7 million of unused capacity on its revolving credit facilities as of March 31, 2025. The company believes this liquidity position provides substantial runway to support the fundamental operations of its business and to fund future growth.

Overall, RML’s financial performance in the first quarter of 2025 was mixed, with revenue growth offset by a significant increase in the provision for credit losses. The company’s diversified loan portfolio, proactive funding and liquidity management, and focus on higher-margin products are strengths, but its exposure to macroeconomic factors and reliance on its allowance for credit losses are potential weaknesses. Going forward, RML’s ability to navigate the current economic environment and manage its credit risk will be crucial to its long-term success.