Regional Management Corp. reported its second-quarter results, highlighted by a 32% year-over-year growth in its higher-quality auto-secured portfolio. This portfolio represented 15% of the company's overall portfolio at the end of the quarter.
President and CEO Lakhbir Lamba stated that the auto-secured portfolio maintained a 30-plus-day delinquency rate of 2%.
Total originations for the company were $504 million, representing a 1.3% decrease compared to the previous year. While small-loan volumes declined, large-loan originations increased by more than 10%.
Bank partnership and expansion
The company has fully implemented its bank partnership program with Column for branch originations in Texas, US. Since its launch, originations under this program have exceeded $65 million.
Lamba noted that originations under the bank partnership currently represent roughly 28% of total originations on a run-rate basis. The program is projected to improve pretax margin by at least 200 basis points on like-for-like loans compared to state-licensed operations.
As of the end of the second quarter, loans originated through the bank partnership in March and April showed a one-plus-day delinquency rate 160 basis points better than comparable Texas state-licensed loans from the same period.
Lamba said the bank partnership could enable the company to price loans for certain higher-risk customer segments that are not currently served in some states. Rana added that credit performance is expected to be broadly comparable between the bank partnership model and the state-licensed model.
Regional Management Corp. expanded its presence by entering Florida during the second quarter, which marks its 20th state. Additionally, the company launched an end-to-end digital lending capability in early July.
Financial outlook and operations
The company's annualized operating expense ratio improved 80 basis points year over year to 12.4%. However, Rana said this ratio is expected to increase sequentially in the third quarter due to labor and digital marketing expenses tied to bank-partnership loans being recognized immediately.
Rana expects third- and fourth-quarter net income to be meaningfully higher than the second-quarter level, with fourth-quarter income anticipated to exceed that of the third quarter.
USD in unused capacity at quarter end
The company ended the quarter with $128 million in available liquidity. Regarding debt, fixed-rate debt represented 80% of the total debt, with a weighted average coupon of 4.8%. The company expects its cost of funds to increase to 4.5% in the third quarter.
