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REGIONAL MANAGEMENT CORP. – 10-K – 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 audited consolidated financial statements and the related notes that appear in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. 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 Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K. The forward-looking information we have provided in this Annual Report on Form 10-K 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 ofDecember 31, 2022 , we operate under the name "Regional Finance" online and in 345 branch locations in 18 states acrossthe United States , serving 517,700 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 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 Loans (?
small installment loans outstanding, representing
finance receivables. This included 151.0 thousand small loan convenience
checks, representing
• Large Loans (>
large installment loans outstanding, representing
finance receivables. This included 40.6 thousand large loan convenience
checks, representing
• Retail Loans - As of
loans outstanding, representing
• Optional Insurance Products - We offer optional payment and collateral
protection insurance to our direct loan customers.
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 inNovember 2022 , to focus on growing our core loan portfolio. We will 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.
For additional information regarding our business operations, see Part I, Item
1, "Business."
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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 theU.S. , may affect our business, liquidity, financial condition, and results of operations. Current inflationary pressures and rising interest rates have created economic uncertainty and diminished consumer confidence. Recent geopolitical events outside of theU.S. have also contributed to volatility inU.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 principally focused on tightening certain higher-risk, higher-rate customer segments that have been particularly adversely impacted by a more challenging economic environment. In early 2022, we eliminated one higher-risk, higher-rate digital affiliate and two higher-risk, higher-rate segments within our direct mail program. Loans originated through the eliminated affiliate and direct mail segments contributed 20 basis points to our contractual delinquency rate as ofDecember 31, 2022 , and 80 basis points to our net credit loss rate in 2022. In the fourth quarter of 2022, we sold$27.1 million of non-performing loans,$17.5 million of which would have likely been written off in early 2023. The non-performing loan sale allowed us to dispose of a distressed portion of our portfolio at an attractive price and enabled us to re-focus our personnel on earlier-stage delinquent accounts as we enter the first quarter tax season, which seasonally is our best quarter for collections. As a result of the loan sale, our net income was negatively impacted by$2.7 million in 2022, but net income will be positively impacted by a similar amount in 2023. The loan sale impact on total revenue was a decrease of$2.2 million from revenue reversals, and the impact on the provision for credit losses was an increase of$1.3 million . The loan sale resulted in additional net credit losses of$13.1 million . Our allowance for credit losses decreased$11.8 million as a result of the loan sale because reserves were released for the sold loans and portfolio composition changes. Our allowance for credit losses was 10.5% of net finance receivables as ofDecember 31, 2022 and included$20.7 million of reserves associated with estimated future macroeconomic impacts on credit losses. Our contractual delinquency as a percentage of net finance receivables was 7.1% as ofDecember 31, 2022 , up from 6.0% as ofDecember 31, 2021 . Going forward, we may experience changes to the macroeconomic assumptions within our forecast and changes to our credit loss performance outlook, both 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 ofDecember 31, 2022 , we had$101.4 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$555.1 million of unused capacity on our revolving credit facilities (subject to the borrowing base) as ofDecember 31, 2022 . We believe our liquidity position provides substantial runway to fund our growth initiatives and to support the fundamental operations of our business. Online operations continue to be an important part of our customer acquisition strategy, including remote loan closings in recent years. On the digital front, we continue to build and expand upon our end-to-end online and mobile origination capabilities for new and existing customers, along with additional digital servicing functionality. Combined with remote loan closings, we believe that these omni-channel sales and servicing capabilities will continue to expand the market reach of our branches, increase our average branch receivables, and improve our revenues and operating efficiencies, while at the same time increasing customer satisfaction.
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$1.5 billion in 2022 and$1.2 billion in 2021. We source our loans through our
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branches, centrally-managed direct mail program, digital partners, and our consumer website. Nearly all 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 that we are able to serve. We grew our state footprint from 13 to 18 states during 2022, expanding our operations toMississippi ,Indiana ,California ,Louisiana , andIdaho . We expect to expand into one additional state in the first quarter of 2023, and we may enter a second new state in the second half of the year, if justified by the economic conditions. 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 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 ofDecember 31, 2022 , representing 88% of total debt. An additional component of our strategy was to purchase interest rate cap contracts, which were all sold during 2022. See Note 10, "Interest Rate Caps" of the Notes to Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information on our interest rate caps.
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 ofDecember 31, 2022 , the restricted reserves
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consisted of
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, fees for extending the due date of a loan, returned check charges, commissions earned from the sale of an auto club product, interest income from restricted cash, 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. Our provision for credit losses fluctuates so that we maintain an adequate credit loss allowance that reflects lifetime expected credit losses for each finance receivable type. Changes in our delinquency and net credit loss ratio (net credit losses divided by average net finance receivables) may result in changes to our 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.
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 some 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 I, 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. Interest expense also includes changes in the fair value of interest rate caps. 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.
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Results of Operations
The following table summarizes our results of operations, both in dollars and as
a percentage of average net finance receivables:
Year Ended December 31,
2022 2021 2020
% of % of % of
Average Net Average Net Average Net
Finance Finance Finance
Dollars in thousands Amount Receivables Amount Receivables Amount Receivables
Revenue
Interest and fee income $ 450,854 29.5 % $ 382,544 31.5 % $ 335,215 31.2 %
Insurance income, net 43,502 2.8 % 35,482 2.9 % 28,349 2.6 %
Other income 12,831 0.8 % 10,325 0.9 % 10,342 1.0 %
Total revenue 507,187 33.1 % 428,351 35.3 % 373,906 34.8 %
Expenses
Provision for credit losses 185,115 12.1 % 89,015 7.3 % 123,810 11.5 %
Personnel 141,243 9.2 % 119,833 9.9 % 109,560 10.2 %
Occupancy 23,809 1.6 % 24,126 2.0 % 22,629 2.1 %
Marketing 15,378 1.0 % 14,405 1.2 % 10,357 1.0 %
Other 42,098 2.7 % 37,150 3.0 % 33,770 3.1 %
Total general and administrative 222,528 14.5 % 195,514 16.1 % 176,316 16.4 %
Interest expense 34,223 2.2 % 31,349 2.6 % 37,852 3.6 %
Income before income taxes 65,321 4.3 % 112,473 9.3 % 35,928 3.3 %
Income taxes 14,097 1.0 % 23,786 2.0 % 9,198 0.8 %
Net income $ 51,224 3.3 % $ 88,687 7.3 % $ 26,730 2.5 %
Information explaining the changes in our results of operations from
year-to-year is provided in the following pages.
Comparison of
The following discussion and table describe the changes in finance receivables
by product type:
• Small Loans (?
or 8.2%, to
and increased marketing, partially offset by credit tightening for
disciplined growth.
• Large Loans (>
million, or 24.5%, to$1.2 billion atDecember 31, 2022 , from$970.7 million atDecember 31, 2021 . The increase was due to new growth initiatives, increased marketing, and the transition of small loan customers to large loans, partially offset by credit tightening for disciplined growth.
• Retail Loans - Retail loans outstanding decreased
We ceased accepting applications for our retail loan product offering as of
November 2022 to focus on growing our core loan portfolio.
Net Finance Receivables by Product
YoY $ YoY %
Dollars in thousands December 31, 2022 December 31, 2021 Inc (Dec) Inc (Dec)
Small loans $ 481,605 $ 445,023 $ 36,582 8.2 %
Large loans 1,208,185 970,694 237,491 24.5 %
Retail loans 9,603 10,540 (937 ) (8.9 )%
Total net finance receivables $ 1,699,393 $ 1,426,257 $ 273,136 19.2 %
Number of branches at period end 345 350 (5 ) (1.4 )%
Net finance receivables per branch $ 4,926 $ 4,075 $ 851 20.9 %
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Comparison of the Year Ended
Net Income. Net income decreased$37.5 million , or 42.2%, to$51.2 million in 2022, from$88.7 million in 2021. The decrease was due to an increase in provision for credit losses of$96.1 million , an increase in general and administrative expenses of$27.0 million , and an increase in interest expense of$2.9 million , partially offset by an increase in revenue of$78.8 million and a decrease in income taxes of$9.7 million . Revenue. Total revenue increased$78.8 million , or 18.4%, to$507.2 million in 2022, from$428.4 million in 2021. The components of revenue are explained in greater detail below. Interest and Fee Income. Interest and fee income increased$68.3 million , or 17.9%, to$450.9 million in 2022, from$382.5 million in 2021. The increase was primarily due to a 26.1% increase in average net finance receivables, offset by a 2.0% decrease in average yield. Interest accrual reversal of charged-off loans from the loan sale decreased interest and fee income by$1.9 million , which contributed 10 basis points to the decrease in average yield.
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
Year Ended Year Ended
YoY % YoY %
Dollars in thousands December 31, 2022 December 31, 2021 Inc (Dec) December 31, 2022 December 31, 2021 Inc (Dec)
Small loans $ 456,141 $ 394,394 15.7 % 35.2 % 38.2 % (3.0 )%
Large loans 1,063,365 808,230 31.6 % 27.1 % 28.4 % (1.3 )%
Retail loans 10,737 11,259 (4.6 )% 17.9 % 18.3 % (0.4 )%
Total interest and
fee yield $ 1,530,243 $ 1,213,883 26.1 % 29.5 % 31.5 % (2.0 )%
Small and large loan yields decreased 3.0% and 1.3%, respectively, in 2022
compared to 2021 primarily due to normalization of credit performance across the
portfolio, the economic environment, credit tightening on higher-rate loans, and
our portfolio composition shift toward larger, higher-credit quality customers
with lower interest rates. As a result of the rising interest rate environment
and normalizing credit, we began to re-price parts of our portfolio in the
second half of 2022.
Total originations increased to $1.6 billion in 2022, from $1.5 billion in 2021,
despite credit-tightening actions and the re-allocation of labor to collections,
both of which impacted origination levels in 2022. The following table
represents the principal balance of loans originated and refinanced:
Loans
Originated for the Year Ended
YoY $ YoY % Dollars in thousands December 31, 2022 December 31, 2021 Inc (Dec) Inc (Dec) Small loans $ 653,155 $ 602,613$ 50,542 8.4 % Large loans 979,557 856,699 122,858 14.3 % Retail loans 8,596 8,275 321 3.9 % Total loans originated $ 1,641,308 $ 1,467,587$ 173,721 11.8 %
The following table summarizes the components of the increase in interest and
fee income:
Components of
Increase in Interest and Fee Income
Year Ended December 31, 2022
Compared to Year Ended
Increase (Decrease)
Volume &
Dollars in thousands Volume Rate Rate Net
Small loans $ 23,582 $ (11,923 ) $ (1,866 ) $ 9,793
Large loans 72,558 (10,560 ) (3,334 ) 58,664
Retail loans (96 ) (54 ) 3 (147 )
Product mix 3,654 (2,362 ) (1,292 ) -
Total increase in interest and fee income
The
was primarily driven by growth of our average net finance receivables. This
benefit was partially offset by credit tightening on higher-rate loans, the
intended product mix
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shift toward large loans, the economic environment, and the portfolio
composition shift toward higher-credit quality customers with lower interest
rates.
Insurance Income, Net. Insurance income, net increased$8.0 million , or 22.6%, to$43.5 million in 2022, from$35.5 million in 2021. The increase was inclusive of revenue reversals of$0.3 million resulting from the loan sale. In both 2022 and 2021, 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 Year Ended
YoY $ YoY % Dollars in thousands December 31, 2022 December 31, 2021 B(W) B(W) Earned premiums $ 60,190 $ 53,218$ 6,972 13.1 % Claims, reserves, and certain direct expenses (16,688 ) (17,736 ) 1,048 5.9 % Insurance income, net $ 43,502 $ 35,482$ 8,020 22.6 % Earned premiums during 2022 increased by$7.0 million , and claims, reserves, and certain direct expenses decreased by$1.0 million compared to 2021. The increase in earned premiums was primarily due to portfolio growth. The decrease in claims, reserves, and certain direct expenses compared to 2021 was primarily due to decreases in life insurance claims. Other Income. Other income increased$2.5 million , or 24.3%, to$12.8 million in 2022, from$10.3 million during 2021, primarily due to an increase in interest income from cash reserves of$1.7 million and an increase in late charges of$1.5 million from portfolio growth, partially offset by a decrease in sales of our auto club product of$0.8 million . Provision for Credit Losses. Our provision for credit losses increased$96.1 million , or 108.0%, to$185.1 million in 2022, from$89.0 million in 2021. The increase was due to an increase in net credit losses of$85.9 million and an increase in the allowance for credit losses of$10.2 million compared to the prior-year period. Certain segments of our higher-risk, higher-rate customers were particularly adversely impacted by inflation in 2022. Earlier in 2022, we eliminated one higher-risk, higher-rate digital affiliate and two higher-risk, higher-rate segments within our direct mail program. Loans originated through the eliminated affiliate and direct mail segments contributed 20 basis points to our contractual delinquency rate as ofDecember 31, 2022 , and 80 basis points to our net credit loss ratio in 2022. The increase 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. The following table sets forth our allowance for credit losses compared to the related finance receivables as of the end of the periods indicated: Allowance for Credit Losses for the Year Ended Dollars in thousands December 31, 2022 December 31, 2021 Beginning balance $ 159,300 $ 150,000 Macroeconomic reserve build (release) 3,700 (16,000 ) General reserve build due to portfolio change 15,800 25,300 Ending balance $ 178,800
$ 159,300
Allowance for credit losses as a percentage of net
finance receivables
10.5 % 11.2 % As ofDecember 31, 2022 , our allowance for credit losses included$20.7 million of reserves associated with estimated future macroeconomic impacts on credit losses. The allowance for credit losses included a build of$15.8 million associated with portfolio growth (inclusive of an$11.8 million release associated with the loan sale during 2022) compared to a build of$25.3 million associated with portfolio growth in 2021. The allowance for credit losses as a percentage of finance receivables decreased to 10.5% as ofDecember 31, 2022 , from 11.2% as of the prior-year period. See Note 4, "Finance Receivables, Credit Quality Information, and Allowance for Credit Losses" of the Notes to Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information regarding our allowance for credit losses. Net Credit Losses. Net credit losses increased$85.9 million , or 107.8%, to$165.6 million in 2022, from$79.7 million in 2021. The increase was primarily due to higher average net finance receivables, credit normalization, the impact of inflation on our customers, and the net credit losses attributable to the loan sale. Net credit losses as a percentage of average net finance receivables were 10.8% in 2022, compared to 6.6% in 2021. Loans originated through the eliminated affiliate and direct mail
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segments contributed 80 basis points to our net credit loss ratio in 2022. The
loan sale also increased our net credit loss ratio by 80 basis points in 2022.
Delinquency Performance. Our contractual delinquency as a percentage of net finance receivables increased to 7.1% as ofDecember 31, 2022 , from 6.0% as ofDecember 31, 2021 , due to the macroeconomic environment, partially offset by the loan sale benefit of 90 basis points. Contractual delinquencies as a percentage of net finance receivables as ofDecember 31, 2022 , included a 20 basis point impact from one higher-risk, higher-rate digital affiliate and two higher-risk, higher-rate segments within our direct mail program that were particularly adversely impacted by inflation. The following tables include delinquency balances by aging category and by product: Contractual Delinquency by Aging Dollars in thousands December 31, 2022 December 31, 2021 Current$ 1,431,502 84.2 %$ 1,237,165 86.7 % 1 to 29 days past due 148,048 8.7 % 104,201 7.3 % Delinquent accounts: 30 to 59 days 36,208 2.2 % 25,283 1.9 % 60 to 89 days 31,352 1.8 % 20,395 1.4 % 90 to 119 days 24,293 1.4 % 15,962 1.0 % 120 to 149 days 16,257 1.0 % 12,466 0.9 % 150 to 179 days 11,733 0.7 % 10,785 0.8 % Total contractual delinquency$ 119,843 7.1 %$ 84,891 6.0 % Total net finance receivables$ 1,699,393 100.0 %$ 1,426,257 100.0 % Contractual Delinquency by Product Dollars in thousands December 31, 2022 December 31, 2021 Small loans$ 43,703 9.1 %$ 39,794 8.9 % Large loans 75,349 6.2 % 44,348 4.6 % Retail loans 791 8.2 % 749 7.1 % Total contractual delinquency$ 119,843 7.1 %$ 84,891 6.0 % General and Administrative Expenses. Our general and administrative expenses increased$27.0 million , or 13.8%, to$222.5 million in 2022 from$195.5 million in 2021. The absolute dollar increase in general and administrative expenses is explained in greater detail below. Personnel. The largest component of general and administrative expenses is personnel expense, which increased$21.4 million , or 17.9%, to$141.2 million in 2022, from$119.8 million in 2021. We had several offsetting increases and decreases in personnel expenses during 2022. Labor expenses and incentive costs increased$24.8 million and$0.6 million , respectively, compared to 2021. Capitalized loan origination costs, which reduce personnel expenses, increased by$2.6 million compared to 2021 due to an increase in loans originated. Occupancy. Occupancy expenses decreased$0.3 million , or 1.3%, to$23.8 million in 2022, from$24.1 million in 2021. The decrease was primarily due to lower branch optimization costs of$0.2 million . Marketing. Marketing expenses increased$1.0 million , or 6.8%, to$15.4 million in 2022, from$14.4 million in 2021. The increase was primarily due to higher digital marketing costs of$0.9 million and increased activity in our direct mail campaigns of$0.2 million to support growth. Other Expenses. Other expenses increased$4.9 million , or 13.3%, to$42.1 million in 2022, from$37.2 million in 2021, primarily due to increased investment in digital and technological capabilities of$2.4 million and increased travel expenses of$0.9 million . Additionally, we often experience increases in other expenses including legal and settlement expenses, external fraud, collections expense, bank fees, and certain professional expenses as we grow our loan portfolio and expand our market footprint. Operating Expense Ratio. Our operating expense ratio decreased by 1.6% to 14.5% during 2022, from 16.1% during 2021. Our operating expense ratio has declined as we have grown our loan portfolio and controlled expense growth.
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Interest Expense. Interest expense on debt increased$2.9 million , or 9.2%, to$34.2 million in 2022, from$31.3 million in 2021. The increase was primarily due to an increase in the average balance of our debt facilities, partially offset by a decrease in our average cost of debt. The average cost of debt decreased 0.70% to 2.89% in 2022, from 3.59% in 2021, primarily driven by a$10.4 million increase in the fair value of our interest rate caps and partially offset by increased variable rate funding costs. The average balance of our debt facilities increased to$1.2 billion during 2022, from$873.2 million during 2021. Income Taxes. Income taxes decreased$9.7 million , or 40.7%, to$14.1 million in 2022, from$23.8 million in 2021. The decrease was primarily due to a$47.2 million decrease in income before taxes compared to 2021. Our effective tax rate increased to 21.6% in 2022, compared to 21.1% in 2021. Fiscal 2022 was impacted by tax benefits from the exercise and vesting of share-based awards and a research and development tax credit. The effective tax rate for 2021 was impacted by the tax benefits from the exercise and vesting of share-based awards and amended state tax returns.
Comparison of the Year Ended
For a comparison of our results of operations for the years endedDecember 31, 2021 andDecember 31, 2020 , see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 (which was filed with theSecurities and Exchange Commission onMarch 4, 2022 ), which is incorporated by reference herein.
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 ofDecember 31, 2022 , we had a funded debt-to-equity ratio (debt divided by total stockholders' equity) of 4.4 to 1.0 and a stockholders' equity ratio (total stockholders' equity as a percentage of total assets) of 17.9%. Cash and cash equivalents decreased to$3.9 million as ofDecember 31, 2022 , from$10.5 million as ofDecember 31, 2021 . As ofDecember 31, 2022 andDecember 31, 2021 we had$97.6 million and$199.2 million , respectively, of immediate availability to draw down cash from our revolving credit facilities. Our unused capacity on our revolving credit facilities (subject to the borrowing base) was$555.1 million and$556.8 million as ofDecember 31, 2022 and 2021, respectively. Our total debt increased to$1.4 billion as ofDecember 31, 2022 , from$1.1 billion as ofDecember 31, 2021 .
A summary of the future material financial obligations requiring repayments as
of
Future Material Financial Obligations by Period
Next Twelve Beyond Twelve
Dollars in thousands Months Months Total
Principal payments on debt obligations
Interest payments on debt obligations
59,092 97,328 156,420 Operating lease obligations 8,525 35,055 43,580 Total$ 99,791 $ 1,452,512 $ 1,552,303 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") range fromMarch 2023 toSeptember 2026 . 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.
Share Repurchases and Dividends.
In
stock repurchase program. In
program.
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InMay 2021 , we announced that our Board had authorized a$30.0 million stock repurchase program. InAugust 2021 , we announced that our Board had approved a$20.0 million increase in the amount authorized under the stock repurchase program, from$30.0 million to$50.0 million . InJanuary 2022 , we completed this stock repurchase program.
In
stock repurchase program. In
program.
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 2022:
Dividends Declared Per
Period Declaration Date Record Date Payment Date
Common Share 1Q 22 February 9, 2022 February 23, 2022 March 16, 2022 $ 0.30 2Q 22 May 4, 2022 May 25, 2022 June 15, 2022 $ 0.30 3Q 22 August 3, 2022 August 24, 2022 September 15, 2022 $ 0.30 4Q 22 November 1, 2022 November 23, 2022 December 14, 2022 $ 0.30 Total $ 1.20 The Board declared and paid$11.8 million of cash dividends on our common stock during 2022. See Note 19, "Subsequent Events" of the Notes to Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data," for information regarding our quarterly cash dividend following the end of the year. 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 in 2022 was$224.3 million , compared to$189.0 million provided by operating activities in 2021, an increase of$35.3 million . The increase was primarily due to the growth in our business described above, which produced an increase in net income, before provision for credit losses. 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 in 2022 was$447.3 million , compared to$355.1 million in 2021, an increase in cash used of$92.2 million . The increase in cash used was primarily due to increased originations of finance receivables and the purchase of restricted available-for-sale investments. Financing Activities. Financing activities consist of borrowings and payments on our outstanding indebtedness. In 2022, net cash provided by financing activities was$205.6 million , compared to net cash provided by financing activities of$243.4 million in 2021, a decrease of$37.8 million . The decrease in cash provided was the result of a$92.9 million net decrease in advances on debt instruments and an increase in cash dividends of$1.8 million , partially offset by a decrease in the repurchase of common stock of$46.8 million , a decrease in taxes paid of$7.0 million , and a decrease in payments for debt issuance costs of$3.3 million . Financing Arrangements. Senior Revolving Credit Facility. InNovember 2022 , we amended and restated our senior revolving credit facility to, among other things, decrease the availability under the facility from$500 million to$420 million . Our debt under the senior revolving credit facility was$147.5 million as ofDecember 31, 2022 , and the facility matures inSeptember 2024 . Excluding the receivables held by our variable interest entities (each, a "VIE"), the senior revolving credit facility is secured by substantially all of our finance receivables and equity interests of the majority of our subsidiaries. Advances on the senior revolving credit facility are capped at 83% of eligible secured finance receivables. InSeptember 2022 , the Company amended and restated its senior revolving credit facility to replace LIBOR as the benchmark rate for the calculation of interest with a forward-looking term rate based on SOFR or, in certain limited circumstances, another alternative benchmark rate. The one-month LIBOR was replaced onOctober 1, 2022 by one-month SOFR with a floor of not less than 0.50%. Borrowings under the facility bear interest, payable monthly, at rates equal to one-month SOFR, with a SOFR floor of not less than 0.50%, plus a 3.00% margin and a benchmark adjustment. The effective interest rate was 7.22% atDecember 31, 2022 . We pay an unused line fee between 0.50% and 1.00% based on the outstanding balance. As ofDecember 31, 2022 , we had$49.2 million of immediate availability to draw down cash under the facility and held$3.9 million in unrestricted cash.
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In advance of itsSeptember 2024 maturity date, we intend to extend the maturity date of the amended and restated senior revolving credit facility or take other appropriate action to address repayment upon maturity. See Part I, Item 1A, "Risk Factors" and the filings referenced therein for a discussion of risks related to our amended and restated senior revolving credit facility, including refinancing risk. Variable Interest Entity Debt. As part of our overall funding strategy, we have transferred certain finance receivables to affiliated VIEs for asset-backed financing transactions, including securitizations. The debt arrangements described below are issued by our wholly-owned, bankruptcy-remote, 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$112.2 million and$107.7 million as ofDecember 31, 2022 and 2021, respectively. Cash inflows from the finance receivables are distributed to the lenders/investors, the service providers, and/or the residual interest that we own in accordance with a monthly contractual priority of payments. The SPEs pay a servicing fee to us, which is eliminated in consolidation. Distribution from the SPEs to the Company are permitted under the debt arrangements. At each sale of receivables from our affiliates to the SPEs, we make certain representations and warranties about the quality and nature of the collateralized receivables. The debt arrangements require us to repurchase the receivables in certain circumstances, including circumstances in which the representations and warranties made by us concerning the quality and characteristics of the receivables are inaccurate. Assets transferred to SPEs are legally isolated from us and our affiliates, and the claims of our and our 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 us or any of our affiliates. See Part I, Item 1A, "Risk Factors" and the filings referenced therein for a discussion of risks related to our variable interest entity debt. RMR II Revolving Warehouse Credit Facility. InApril 2021 , we and our wholly-owned SPE,Regional Management Receivables II, LLC ("RMR II"), amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR II to, among other things, extend the date at which the facility converts to an amortizing loan and the termination date toMarch 2023 andMarch 2024 , respectively, decrease the total facility from$125 million to$75 million , increase the cap on facility advances from 80% to 83% of eligible finance receivables, and increase the rate at which borrowings under the facility bore interest, payable monthly, at a rate equal to three-month LIBOR, with a LIBOR floor of 0.25%, plus a blended margin of 2.35% (2.15% prior to theApril 2021 amendment). The debt is secured by finance receivables and other related assets that we purchased from our affiliates, which we then sold and transferred to RMR II. InSeptember 2022 , the Company and its wholly-owned SPE, RMR II, amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR II to replace LIBOR as the benchmark rate for calculation of interest rate with a forward-looking term rate based on SOFR or, in certain limited circumstances, another alternative benchmark rate. The three-month LIBOR was replaced onOctober 1, 2022 by three-month SOFR with a floor of 0.25%, plus a 2.35% margin and a benchmark adjustment. The effective interest rate was 7.00% atDecember 31, 2022 . RMR II pays an unused commitment fee between 0.35% and 0.85% based upon the average daily utilization of the facility. RMR II had$20.2 million of immediate availability to draw down cash under the facility. As ofDecember 31, 2022 , our debt under the credit facility was$0.2 million . RMR IV Revolving Warehouse Credit Facility. InApril 2021 , we and our wholly-owned SPE,Regional Management Receivables IV, LLC ("RMR IV"), entered into a credit agreement that provides for a$125 million revolving warehouse credit facility to RMR IV. The facility converts to an amortizing loan inApril 2023 and terminates inApril 2024 . The debt is secured by finance receivables and other related assets that we purchased from our affiliates, which we then sold and transferred to RMR IV. Advances on the facility are capped at 81% of eligible finance receivables. InSeptember 2022 , the Company and its wholly-owned SPE, RMR IV, amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR IV to replace LIBOR as the benchmark rate for calculation of interest rate with a forward-looking term rate based on SOFR or, in certain limited circumstances, another alternative benchmark rate. The one-month LIBOR was replaced onOctober 1, 2022 by one-month SOFR with a margin of 2.35% and a benchmark adjustment. The effective interest rate was 6.57% atDecember 31, 2022 . RMR IV pays an unused commitment fee between 0.35% and 0.70% based upon the average daily utilization of the facility. As ofDecember 31, 2022 , our debt under the credit facility was$18.1 million .
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RMR V Revolving Warehouse Credit Facility. InApril 2021 , we and our wholly-owned SPE,Regional Management Receivables V, LLC ("RMR V"), entered into a credit agreement that provides for a$100 million revolving warehouse credit facility to RMR V. InSeptember 2022 , we and our wholly owned SPE, RMR V, amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR V to, among other things, extend the dates at which the facility converts to an amortizing loan and the termination date toNovember 2022 andNovember 2023 , respectively (October 2022 andOctober 2023 prior to theSeptember 2022 amendment). Following a subsequent amendment inNovember 2022 , the amortizing loan conversion date and termination date were extended toNovember 2024 andNovember 2025 , respectively. The debt is secured by finance receivables and other related assets that we purchased from our affiliates, which we then sold and transferred to RMR V. Advances on the facility are capped at 80% of eligible finance receivables. Borrowings under the facility bear interest, payable monthly, at a per annum rate, which in the case of a conduit lender is the commercial paper rate, plus a margin of 2.75% (2.20% prior to theNovember 2022 amendment). The effective interest rate was 7.62% atDecember 31, 2022 . RMR V pays an unused commitment fee between 0.45% and 0.75% based upon the average daily utilization of the facility. RMR V had$28.1 million of immediate availability to draw down cash under the facility. As ofDecember 31, 2022 , our debt under the credit facility was$0.3 million .RMIT 2020-1 Securitization. InSeptember 2020 , we, our wholly-owned SPE,Regional Management Receivables III, LLC ("RMR III"), and our indirect wholly-owned SPE,Regional Management Issuance Trust 2020-1 ("RMIT 2020-1"), completed a private offering and sale of$180 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes byRMIT 2020-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred toRMIT 2020-1. The notes have a revolving period ending inSeptember 2023 , with a final maturity date inOctober 2030 . Borrowings under theRMIT 2020-1 securitization bear interest, payable monthly, at an effective interest rate of 2.85% as ofDecember 31, 2022 . Prior to maturity inOctober 2030 , we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring inOctober 2023 . No payments of principal of the notes will be made during the revolving period. As ofDecember 31, 2022 , our debt under the securitization was$180.2 million .RMIT 2021-1 Securitization. InFebruary 2021 , we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE,Regional Management Issuance Trust 2021-1 ("RMIT 2021-1"), completed a private offering and sale of$249 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes byRMIT 2021-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred toRMIT 2021-1. The notes have a revolving period ending inFebruary 2024 , with a final maturity date inMarch 2031 . Borrowings under theRMIT 2021-1 securitization bear interest, payable monthly, at an effective interest rate of 2.08% as ofDecember 31, 2022 . Prior to maturity inMarch 2031 , we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring inMarch 2024 . No payments of principal of the notes will be made during the revolving period. As ofDecember 31, 2022 , our debt under the securitization was$248.9 million .RMIT 2021-2 Securitization. InJuly 2021 , we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE,Regional Management Issuance Trust 2021-2 ("RMIT 2021-2"), completed a private offering and sale of$200 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes byRMIT 2021-2. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred toRMIT 2021-2. The notes have a revolving period ending inJuly 2026 , with a final maturity date inAugust 2033 . Borrowings under theRMIT 2021-2 securitization bear interest, payable monthly, at an effective interest rate of 2.30% as ofDecember 31, 2022 . Prior to maturity inAugust 2033 , we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring inAugust 2026 . No payments of principal of the notes will be made during the revolving period. As ofDecember 31, 2022 , our debt under the securitization was$200.2 million .RMIT 2021-3 Securitization. InOctober 2021 , we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE,Regional Management Issuance Trust 2021-3 ("RMIT 2021-3"), completed a private offering and sale of$125 million of asset-backed notes. The transaction consisted of the issuance of fixed-rate asset-backed notes byRMIT 2021-3. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred toRMIT 2021-3. The notes have a revolving period ending inSeptember 2026 , with a final maturity date inOctober 2033 . Borrowings under theRMIT 2021-3 securitization bear interest, payable monthly, at an effective interest rate of 3.88% as ofDecember 31, 2022 . Prior to maturity inOctober 2033 , we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring inOctober 2024 . No payments of principal of the notes will be made during the revolving period. As ofDecember 31, 2022 , our debt under the securitization was$125.2 million .RMIT 2022-1 Securitization. InFebruary 2022 , we, our wholly-owned SPE, RMR III, and our indirectly wholly-owned SPE,Regional Management Issuance Trust 2022-1 ("RMIT 2022-1"), completed a private offering and sale of$250 million of asset-backed
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notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes byRMIT 2022-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred toRMIT 2022-1. The notes have a revolving period ending inFebruary 2025 , with a final maturity date inMarch 2032 . Borrowings under theRMIT 2022-1 securitization bear interest, payable monthly, at an effective interest rate of 3.59% as ofDecember 31, 2022 . Prior to maturity inMarch 2032 , we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring inMarch 2025 . No payments of principal of the notes will be made during the revolving period. As ofDecember 31, 2022 , our debt under the securitization was$250.4 million .RMIT 2022-2B Securitization. InOctober 2022 , we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE,Regional Management Issuance Trust 2022-2B ("RMIT 2022-2B"), completed a private offering and sale of$200 million of asset-backed notes. The transaction consisted of the issuance of three classes of fixed-rate, asset-backed notes byRMIT 2022-2B. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred toRMIT 2022-2B. The notes have a revolving period ending inOctober 2024 , with a final maturity date inNovember 2031 . RMR III sold two classes of the asset-backed notes and transferred them toRMIT 2022-2B. The$16.3 million class of the fixed-rate, asset-backed notes was retained by RMR III on the closing date but may be sold in whole or in part. Borrowings under the sold notes bear interest, payable monthly, at an effective interest rate of 7.51% as ofDecember 31, 2022 . Prior to maturity inNovember 2031 , we may redeem the sold notes in full, but not in part, at our option on any business day on or after the payment date occurring inNovember 2024 . No payments of principal of the notes will be made during the revolving period. As ofDecember 31, 2022 , our debt under the securitization was$184.3 million . See Note 19, "Subsequent Events" of the Notes to Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data," for information regarding the addition of a revolving credit facility following the end of the fiscal year. Our 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. AtDecember 31, 2022 , we were in compliance with all debt covenants.
Restricted Cash Reserve Accounts.
RMR II Revolving Warehouse Credit Facility. The credit agreement governing the RMR II revolving warehouse credit facility requires that we maintain a 1% cash reserve based upon the ending finance receivables balance of the facility. As ofDecember 31, 2022 , the warehouse facility cash reserve requirement totaled$0.2 million . The warehouse facility is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$1.2 million as ofDecember 31, 2022 . RMR IV Revolving Warehouse Credit Facility. The credit agreement governing the RMR IV revolving warehouse credit facility requires that we maintain a 1% cash reserve based upon the ending finance receivables balance of the facility. As ofDecember 31, 2022 , the warehouse facility cash reserve requirement totaled$0.2 million . The warehouse facility is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$1.1 million as ofDecember 31, 2022 . RMR V Revolving Warehouse Credit Facility. The credit agreement governing the RMR V revolving warehouse credit facility requires that we maintain a 1% cash reserve based upon the ending finance receivables balance of the facility. As ofDecember 31, 2022 , the warehouse facility cash reserve requirement totaled$0.4 million . The warehouse facility is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$2.3 million as ofDecember 31, 2022 .RMIT 2020-1 Securitization. As required under the transaction documents governing theRMIT 2020-1 securitization, we deposited$1.9 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$13.7 million as ofDecember 31, 2022 .RMIT 2021-1 Securitization. As required under the transaction documents governing theRMIT 2021-1 securitization, we deposited$2.6 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$22.2 million as ofDecember 31, 2022 .
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RMIT 2021-2 Securitization. As required under the transaction documents governing theRMIT 2021-2 securitization, we deposited$2.1 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$16.5 million as ofDecember 31, 2022 .RMIT 2021-3 Securitization. As required under the transaction documents governing theRMIT 2021-3 securitization, we deposited$1.5 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$16.6 million as ofDecember 31, 2022 .RMIT 2022-1 Securitization. As required under the transaction documents governing theRMIT 2022-1 securitization, we deposited$2.6 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$21.4 million as ofDecember 31, 2022 .RMIT 2022-2B Securitization. As required under the transaction documents governing theRMIT 2022-2B securitization, we deposited$2.3 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled$17.2 million as ofDecember 31, 2022 . 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. As ofDecember 31, 2022 , cash reserves for reinsurance were$1.9 million .
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 static pool Probability of Default ("PD") / Loss Given Default
("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 static pools of
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, Fair Isaac
Corporation 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
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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. 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. As ofDecember 31, 2022 andDecember 31, 2021 , we had$20.7 million and$17.0 million in macroeconomic reserves, respectively. 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 moderate recession that would have increased our reserves as ofDecember 31, 2022 by$0.9 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.
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Reports from University of Economics Ho Chi Minh City Highlight Recent Research in Risk Management (Firm Risk and Tax Avoidance in Vietnam: Do Good Board Characteristics Interfere Effectively?): Insurance – Risk Management
COREBRIDGE FINANCIAL, INC. – 10-K – | Management's Discussion and Analysis of Financial Condition and Results of Operations
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