REGIONAL MANAGEMENT CORP. – 10-Q – 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, 2022 (which was filed with the SEC on February 24, 2023) 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, 2023,
we operate under the name "Regional Finance" online and in 344 branch locations
in 19 states across the United States, serving 508,200 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 (?$2,500) - As of March 31, 2023, we had 273.8 thousand small
installment loans outstanding, representing $456.3 million in net finance
receivables. This included 138.4 thousand small loan convenience checks,
representing $199.3 million in net finance receivables.

•

Large Loans (>$2,500) - As of March 31, 2023, we had 230.1 thousand large
installment loans outstanding, representing $1.2 billion in net finance
receivables. This included 46.7 thousand large loan convenience checks,
representing $158.0 million in net finance receivables.

•

Retail Loans - As of March 31, 2023, we had 4.4 thousand retail purchase loans
outstanding, representing $8.1 million in net finance receivables.

•

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 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.

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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 the U.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 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 principally focused on tightening certain higher-risk, higher-rate customer
segments that have been particularly adversely impacted by a more challenging
economic environment.

Our allowance for credit losses was 11.0% of net finance receivables as of March
31, 2023. Our contractual delinquency as a percentage of net finance receivables
was 7.2% as of March 31, 2023, up from 5.7% as of March 31, 2022. 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 of March 31, 2023, we had $182.0 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 $580.7 million of unused capacity on our revolving credit
facilities (subject to the borrowing base) as of March 31, 2023. 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 $1.7 billion for the first three months of 2023 and $1.4
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 that
we are able to serve. We grew our state footprint from 18 to 19 states during
the three months ended March 31, 2023, expanding our operations to Arizona. 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.

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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 of March 31, 2023, representing 89% 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, 2023, the
restricted reserves consisted of $21.9 million of unearned premium reserves,
including $1.2 million of unpaid claims reserve. 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.

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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 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. 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.

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 23                               1Q 22
                                                        % of                                % of
                                                     Average Net                         Average Net
                                                       Finance                             Finance
Dollars in thousands                 Amount          Receivables         Amount          Receivables
Revenue
Interest and fee income            $   120,407                28.5 %   $   107,631                30.0 %
Insurance income, net                   10,959                 2.6 %        10,544                 2.9 %
Other income                             4,012                 0.9 %         2,673                 0.8 %
Total revenue                          135,378                32.0 %       120,848                33.7 %
Expenses
Provision for credit losses             47,668                11.3 %        30,858                 8.6 %

Personnel                               38,597                 9.1 %        35,654                 9.9 %
Occupancy                                6,288                 1.5 %         5,808                 1.6 %
Marketing                                3,379                 0.8 %         3,091                 0.9 %
Other                                   11,059                 2.6 %        10,547                 3.0 %
Total general and administrative        59,323                14.0 %        55,100                15.4 %

Interest expense                        16,782                 4.0 %           (59 )               0.0 %
Income before income taxes              11,605                 2.7 %        34,949                 9.7 %
Income taxes                             2,916                 0.6 %         8,166                 2.2 %
Net income                         $     8,689                 2.1 %   $    26,783                 7.5 %




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Information explaining the changes in our results of operations from
year-to-year is provided in the following pages.

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The following tables summarize the quarterly trends of our financial results: