Regional Management(RM) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net income of $9.9 million and diluted earnings per share of$ 0.98, a significant improvement from a net loss of $7.6 million in the prior year [7][17] - Total revenue for 2024 increased by 7% compared to 2023, with total revenue yields improving by 70 basis points year-over-year [16][17] - The net credit loss rate improved by 120 basis points in 2024, and the operating expense ratio improved by 40 basis points year-over-year [16] Business Line Data and Key Metrics Changes - The loan portfolio grew by$ 120 million in 2024, with record quarterly revenue of $155 million in Q4, up 9% from the prior year [9][36] - The auto-secured portfolio grew by 34% in 2024, now representing 10.9% of the total portfolio, while the small loan portfolio increased by 12% year-over-year [32] - Approximately 19% of the portfolio carried an APR greater than 36%, up from 16% a year ago, reflecting a 26% balance increase in 2024 [32] Market Data and Key Metrics Changes - The company experienced strong loan demand in Q4, with total originations up 17% year-over-year [30] - The 30-plus-day delinquency rate was 7.7%, up 80 basis points year-over-year, but 10 basis points better than the prior year when adjusted for a special loan sale [13][37] - The company expects to originate higher loan volumes in the first quarter, although it is typically the softest quarter due to seasonal impacts [34] Company Strategy and Development Direction - The company plans to pursue a minimum of 10% portfolio growth in 2025 while continuing to invest in strategic initiatives [57] - The barbell strategy of balancing low-risk auto-secured loans with higher-rate small loans is expected to drive returns [62][121] - The company is focused on maintaining expense discipline while investing in growth capabilities and technology [45][121] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in improving consumer health, citing low unemployment and real wage growth as positive indicators [72][76] - The company anticipates continued improvement in portfolio quality and credit loss performance in 2025, assuming stable economic conditions [15][17] - Management acknowledged the challenges posed by inflation but remains optimistic about the potential for growth in 2025 [76] Other Important Information - The company declared a dividend of$ 0.30 per common share for the first quarter, to be paid on March 13, 2025 [54] - The company repurchased over 100,000 shares of common stock in Q4 at a weighted average price of $33.83 per share [55] - The effective tax rate for Q4 was 22.3%, with an expected rate of approximately 24.5% for the first quarter of 2025 [50] Q&A Session Summary Question: Product mix between large and smaller installment loans - Management will continue to lean into the auto-secured business while balancing growth in higher-rate small loans [62] Question: Performance of the 2024 vintage versus the 2023 vintage - Newer originations are performing in line with expectations, with delinquencies on the front book at 7.2% compared to 11.9% on the back book [64] Question: Impact of potential interest rate cuts - Management has calculated the potential impact of rate cuts but will not disclose specifics [67] Question: Indicators of improving consumer health - Management cited low unemployment, real wage growth, and a strong job market as indicators of improving consumer health [72][76] Question: Competitive dynamics in the small loan category - Management does not see significant changes in competitive dynamics and believes they can grow in this space as needed [78] Question: Clarification on net income guidance - Management confirmed that net income is expected to be higher than the$ 41 million reported in 2024 [88][96] Question: G&A expenses guidance - Management provided guidance of $65 million to$ 65.5 million for the first quarter [100] Question: Cost of funds outlook - Management indicated that while some older securitizations will reset at higher rates, variable rates may decrease if interest rate cuts occur [104][106] Question: Credit reserve rate expectations - Management expects the credit reserve rate to remain flat in the first quarter, with potential improvements as the year progresses [110] Question: Tax refunds impact - Management stated it is too early to determine the impact of tax refunds for the current year [117]