REGIONAL MANAGEMENT CORP. MANAGEMENT REPORT ON FINANCIAL POSITION AND RESULTS OF OPERATIONS. (Form 10-K)
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 COVID-19 pandemic may also magnify many of these risks and uncertainties. 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, 2021 , we operated under the name "Regional Finance" in 350 branch locations in 13 states acrossthe United States , serving 460,600 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, retailers, 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. 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, large and retail installment loans:
• Small loans (?
outstanding short-term loans, representing
debt financing. This included 137,200 small convenience loans
checks, representative
• Large loans (>
significant installment loans outstanding, representing
debt financing. This included 15,700 high convenience loans
checks, representative
• Personal Loans – As of
outstanding loans, representing
• Optional insurance products: we offer optional payments and guarantees
protection insurance to our direct lending customers.
Small and large installment loans are our core loan products and will be the drivers of our future growth. 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 more information on our business activities, see Part I, point 1, “Activities”.
Impact of the COVID-19 pandemic on the outlook
The COVID-19 pandemic has resulted in economic disruption and uncertainty. At the outset of the pandemic, during the second quarter of 2020, we experienced a decrease in demand. Since that time, our loan growth has steadily increased. As ofDecember 31, 2021 , our net finance receivables were$1.4 billion ,$290.0 million higher than as ofDecember 31, 2020 . Future consumer demand remains subject to the uncertainty around the extent and duration of the pandemic.
Due to the pandemic, we have experienced the temporary closure of some branches in 2021 due to company-initiated quarantine measures. However, all of our branches have been open for the majority of 2021.
Throughout the pandemic, we have employed a data-driven approach to managing our risk, which is essential during periods of market volatility. We manage this risk through our custom risk and response scorecards, analysis of early payment activity, and detailed geographic and customer segmentation to ensure that incremental direct mail loan volume is capable of absorbing credit losses at two to three times our historical levels while still providing positive contribution margin. We proactively adjusted our underwriting criteria at the start of the pandemic in 2020 to adapt to the new environment and continue to originate loans with appropriately enhanced lending criteria. As we progress through the pandemic and acquire additional data, we continue to update and sharpen our underwriting standards, paying close attention to those geographies and industries that have been most affected by the virus and related economic disruption. As ofDecember 31, 2021 , our allowance for loan losses included$14.4 million of reserves related to the expected economic impact of the COVID-19 pandemic. Our contractual delinquency as a percentage of net finance receivables increased to 6.0% as ofDecember 31, 2021 , up from 5.3% as ofDecember 31, 2020 . We believe this increase corresponds to the decrease in pandemic-related government stimulus. 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. During 2021, we (i) successfully closed a$248.7 million asset-backed securitization with a three-year revolving period and weighted-average coupon ("WAC") of 2.08% (replacing a prior transaction with a two-year revolving period and WAC of 4.87%); (ii) enhanced our warehouse facility capacity to$300.0 million by amending and restating our previously existing warehouse facility and closing two new warehouse credit facilities; (iii) successfully closed asset-backed securitizations of$200.0 million , and$125.0 million , respectively, each with five-year revolving periods. As ofDecember 31, 2021 , we had$209.7 million of immediate liquidity, comprised of unrestricted cash on hand and immediate availability to draw down cash from our revolving credit facilities. Our liquidity position has improved$15.3 million sinceDecember 31, 2020 . In addition, we ended 2021 with$556.8 million of unused capacity on our revolving credit facilities (subject to the borrowing base). We believe our liquidity position provides us substantial runway to fund our growth initiatives and to support the fundamental operations of our business. We continue to rely more heavily on online operations for customer access, including remote loan closings. 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 service capabilities will 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. The extent to which the pandemic will ultimately impact our business and financial condition will depend on future events that are difficult to forecast, including, but not limited to, the duration and severity of the pandemic (including as a result of waves of outbreak or variant strains of the virus), the success of actions taken to contain, treat, and prevent the spread of the virus, and the speed at which normal economic and operating conditions return and are sustained.
Factors Affecting Our Results of Operations
Our business is driven 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 small and large 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. The CECL accounting model requires earlier recognition of credit losses compared to the prior incurred loss approach. This 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 compared to prior years. Consequently, we experience seasonal fluctuations in our operating results. However, changes in borrower assistance programs and customer access
external economic stimulus measures related to the COVID-19 pandemic have impacted our typical seasonal trends in 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 and purchase. Average net finance receivables were$1.2 billion in 2021 and$1.1 billion in 2020. We source our loans through our branches, direct mail program, retail partners, digital partners, and our consumer website. Our loans are made almost exclusively in geographic markets served by our network of branches. Increasing the number of loans per branch and growing our state footprint allows us to increase the number of loans that we are able to service. InApril 2021 , we opened our first branch inIllinois , our twelfth state, and inSeptember 2021 , we opened our first branch inUtah , our thirteenth state. InFebruary 2022 , we opened our first branch inMississippi , our fourteenth state. We expect to enter at least an additional five states by the end of 2022. After assessing our legacy branch network for clear opportunities to consolidate operations into larger branches within close geographic proximity, we closed 31 branches during the fourth quarter of 2021. 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. Our allowance for credit losses estimate changed onJanuary 1, 2020 , as we adopted the CECL accounting model. See Note 2, "Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data," for more information on our allowance for credit losses. The primary underlying factors driving the provision for credit losses for each loan type are our underwriting standards, the general economic conditions in the areas in which we conduct business, loan portfolio growth, and the effectiveness of our collection efforts. In addition, the market for repossessed automobiles at auction is another underlying factor that we believe influences the provision for credit losses for loans collateralized by automobiles. 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, we have purchased interest rate cap contracts. As ofDecember 31, 2021 , we held interest rate cap contracts with an aggregate notional principal amount of$550.0 million .
Operating costs. Our financial results are impacted by operating costs and head office functions. These costs are included in general and administrative expenses in our Consolidated Statements of Income.
Components of operating results
Interest and commission income. Our interest and fee income consists primarily of interest earned on outstanding loans. Accumulation of interest income on financial claims is suspended when an account becomes overdue for 90 days. If the account is charged off, accrued interest income is reversed as a reduction to 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 captive insurance company, marketing and selling insurance products, legal and compliance review, or internal audits. As reinsurer, we maintain cash reserves for life insurance claims in an amount determined by the unaffiliated insurance company. As ofDecember 31, 2021 , the restricted cash balance for these cash reserves was$19.9 million . 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, and interest income from restricted cash 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 rates 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 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 salaries and wages, overtime, contract labor, relocation costs, incentives, benefits and related social charges 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 non-employee director compensation, amortization of software licenses and implementation costs, electronic payment processing costs, bank service charges, office supplies, software maintenance and support, and credit bureau charges. 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 costs attributable to the change 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.
Operating results
The following table summarizes our results of operations, in dollars and as a percentage of average net financial claims:
Year Ended December 31,
2021 2020 2019
% 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 $ 382,544 31.5 % $ 335,215 31.2 % $ 321,169 31.8 %
Insurance income, net 35,482 2.9 % 28,349 2.6 % 20,817 2.1 %
Other income 10,325 0.9 % 10,342 1.0 % 13,727 1.4 %
Total revenue 428,351 35.3 % 373,906 34.8 % 355,713 35.3 %
Expenses
Provision for credit losses 89,015 7.3 % 123,810 11.5 % 99,611 9.9 %
Personnel 119,833 9.9 % 109,560 10.2 % 94,000 9.3 %
Occupancy 24,126 2.0 % 22,629 2.1 % 22,576 2.2 %
Marketing 14,405 1.2 % 10,357 1.0 % 8,206 0.8 %
Other 37,150 3.0 % 33,770 3.1 % 32,202 3.3 %
Total general and administrative 195,514 16.1 % 176,316 16.4 % 156,984 15.6 %
Interest expense 31,349 2.6 % 37,852 3.6 % 40,125 4.0 %
Income before income taxes 112,473 9.3 % 35,928 3.3 % 58,993 5.8 %
Income taxes 23,786 2.0 % 9,198 0.8 % 14,261 1.4 %
Net income $ 88,687 7.3 % $ 26,730 2.5 % $ 44,732 4.4 %
Information explaining the variations in our results of operations from one year to the next is provided on the following pages.
Comparison of
The following discussion and table describe the changes in financial claims by product type:
• Small loans (?
i.e. 10.4%, at
improved demand for customer credit and increased marketing, partially offset by
the general transition of customers from small loans to large loans.
• Large loans (>
million, or 35.5%, to
million atDecember 31, 2020 . The increase was due to new growth initiatives, improved customer loan demand, increased marketing, and the transition of small loan customers to large loans.
• Car loans – Outstanding car loans decreased by
i.e. 65.5%, at
to focus on growing our core loan portfolio.
• Retail Loans – Outstanding retail loans decreased
to $10.5 million at December 31, 2021 , from $14.1 million at December 31,
2020 .
Net Finance Receivables by Product
YoY $ YoY %
Dollars in thousands December 31, 2021 December 31, 2020 Inc (Dec) Inc (Dec)
Small loans $ 445,023 $ 403,062 $ 41,961 10.4 %
Large loans 969,351 715,210 254,141 35.5 %
Total core loans 1,414,374 1,118,272 296,102 26.5 %
Automobile loans 1,343 3,889 (2,546 ) (65.5 )%
Retail loans 10,540 14,098 (3,558 ) (25.2 )%
Total net finance receivables $ 1,426,257 $ 1,136,259 $ 289,998 25.5 %
Number of branches at period end 350 365 (15 ) (4.1 )%
Net finance receivables per branch $ 4,075 $ 3,113 $ 962 30.9 %
Comparison of the year ended
Net Income. Net income increased$62.0 million , or 231.8%, to$88.7 million in 2021, from$26.7 million in 2020. The increase was primarily due to an increase in revenue of$54.4 million , a decrease in provision for credit losses of$34.8 million , and a decrease in interest expense of$6.5 million , offset by an increase in general and administrative expenses of$19.2 million and an increase in income taxes of$14.6 million . Revenue. Total revenue increased$54.4 million , or 14.6%, to$428.4 million in 2021, from$373.9 million in 2020. The components of revenue are explained in greater detail below. Interest and Fee Income. Interest and fee income increased$47.3 million , or 14.1%, to$382.5 million in 2021, from$335.2 million in 2020. The increase was primarily due to a 13.0% increase in average net finance receivables and a 0.3% increase in average yield.
The following table presents the average net balance of financial receivables and the average yield of our loan products:
Average Net Finance Receivables for the Year Ended Average Yields for the Year Ended
YoY % YoY %
Dollars in thousands December 31, 2021 December 31, 2020 Inc (Dec) December 31, 2021 December 31, 2020 Inc (Dec)
Small loans $ 394,394 $ 406,675 (3.0 )% 38.2 % 37.3 % 0.9 %
Large loans 805,808 642,085 25.5 % 28.5 % 27.9 % 0.6 %
Automobile loans 2,422 6,315 (61.6 )% 13.0 % 14.0 % (1.0 )%
Retail loans 11,259 18,791 (40.1 )% 18.3 % 18.2 % 0.1 %
Total interest and
fee yield $ 1,213,883 $ 1,073,866 13.0 % 31.5 % 31.2 % 0.3 %
Small and large loan yields increased by 0.9% and 0.6%, respectively, in 2021 compared to 2020, primarily due to improved credit performance across the portfolio due to the underwriting crunch during the pandemic and our overall shift in mix towards higher credit quality customers, resulting in fewer loans in non-accumulation and fewer write-offs of accrued interest.
As a result of our focus on large loan growth over the last several years, the large loan portfolio has grown faster than the rest of our loan products, and we expect that this trend will continue in the future. Over time, large loan growth will change our product mix, which will reduce our total interest and fee yield percentage.
We continue to originate new loans with enhanced lending criteria. Demand for our loan products has continued to recover as total originations increased to$1.5 billion in 2021, from$1.1 billion in 2020. The following table represents the principal balance of loans originated and refinanced: Loans
Created for the fiscal year ended
YoY $ YoY % Dollars in thousands December 31, 2021 December 31, 2020 Inc (Dec) Inc (Dec) Small loans $ 602,613 $ 516,124$ 86,489 16.8 % Large loans 856,699 557,952 298,747 53.5 % Retail loans 8,275 9,201 (926 ) (10.1 )% Total loans originated $ 1,467,587 $ 1,083,277$ 384,310 35.5 %
The following table summarizes the components of the increase in interest and commission income:
Components of
Increase in interest and commission income
Year Ended December 31, 2021
Compared to the year ended
Increase (Decrease)
Volume &
Dollars in thousands Volume Rate Rate Net
Small loans $ (4,576 ) $ 3,781 $ (114 ) $ (909 )
Large loans 45,737 3,530 900 50,167
Automobile loans (546 ) (64 ) 40 (570 )
Retail loans (1,373 ) 23 (9 ) (1,359 )
Product mix 4,465 (4,066 ) (399 ) -
Total increase in interest and commission income
$ 418$ 47,329 The$47.3 million increase in interest and fee income in 2021 compared to 2020 was primarily driven by growth of our average net finance receivables and improved credit performance across the portfolio, which resulted in fewer loans in non-accrual status and fewer interest accrual reversals. These benefits were partially offset by the intended product mix shift toward large loans and the portfolio composition shift toward higher credit quality customers with lower interest rates due to the use of enhanced credit standards during the pandemic. Insurance Income, Net. Insurance income, net increased$7.1 million , or 25.2%, to$35.5 million in 2021, from$28.3 million in 2020. In both 2021 and 2020, 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 expenditures for the year ended
YoY $ YoY % Dollars in thousands December 31, 2021 December 31, 2020 B(W) B(W) Earned premiums $ 53,218 $ 42,816$ 10,402 24.3 % Claims, reserves, and certain direct expenses (17,736 ) (14,467 ) (3,269 ) (22.6 )% Insurance income, net $ 35,482 $ 28,349$ 7,133 25.2 % Fiscal 2021 earned premiums increased by$10.4 million and claims, reserves, and certain direct expenses increased by$3.3 million , in each case compared to 2020. The increase in earned premiums was primarily due to loan growth and adjusted pricing. The increase in claims, reserves, and certain direct expenses compared to 2020 was primarily due to increases in insurance claims expense and ceding fees of$2.8 million and$0.6 million , respectively, offset by a$0.3 million decrease in reserves for expected insurance claims during 2021.
Other income. Other income from
Provision for Credit Losses. Our provision for credit losses decreased$34.8 million , or 28.1%, to$89.0 million in 2021, from$123.8 million in 2020. The decrease was due to a decrease in the allowance for credit losses of$18.4 million primarily due to the release of COVID-19 reserves in 2021 and a decrease in net credit losses of$16.4 million compared to the prior-year period.
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
December 31, December 31,
Dollars in thousands 2021 2020
Beginning balance $ 150,000 $ 62,200
Impact of CECL adoption - 60,100
COVID-19 reserve build (release) (16,000 ) 30,400
General reserve build (release) due to portfolio
change 25,300 (2,700 )
Ending balance $ 159,300 $ 150,000
Allowance for credit losses as a percentage of
net finance receivables 11.2 % 13.2 %
As of December 31, 2021 , our allowance for credit losses included $14.4 million
of reserves related to the expected economic impact of the COVID-19 pandemic.
The allowance for credit losses included a net build of $25.3 million related to
portfolio growth and a base reserve release of $2.7 million during 2021 and
2020, respectively. We ran several macroeconomic stress scenarios, and our final
forecast assumes a resumption of normal unemployment rates at the end of 2022.
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 decreased $16.4 million , or 17.1%, to $79.7
million in 2021, from $96.1 million in 2020. The decrease was primarily due to
historically low delinquency levels. Net credit losses as a percentage of
average net finance receivables were 6.6% in 2021, compared to 8.9% in 2020. We
expect future increases to net credit losses as a percentage of average net
finance receivables as our delinquency rates rise toward more normalized levels.
Delinquency Performance. Our contractual delinquency as a percentage of net
finance receivables increased to 6.0% as of December 31, 2021 , from 5.3% as of
December 31, 2020 as delinquency levels continued to normalize. Our credit
performance remains strong due to the quality and adaptability of our
underwriting criteria and the performance of our custom scorecards. We expect
contractual delinquency as a percentage of net finance receivables to continue
to rise towards more normalized levels in future periods.
The following tables include delinquency balances by aging category and by
product:
Contractual Delinquency by Aging
Dollars in thousands December 31, 2021 December 31, 2020
Current $ 1,237,165 86.7 % $ 990,467 87.2 %
1 to 29 days past due 104,201 7.3 % 85,342 7.5 %
Delinquent accounts:
30 to 59 days 25,283 1.9 % 18,381 1.6 %
60 to 89 days 20,395 1.4 % 14,955 1.3 %
90 to 119 days 15,962 1.0 % 10,496 0.9 %
120 to 149 days 12,466 0.9 % 9,085 0.8 %
150 to 179 days 10,785 0.8 % 7,533 0.7 %
Total contractual delinquency $ 84,891 6.0 % $ 60,450 5.3 %
Total net finance receivables $ 1,426,257 100.0 % $ 1,136,259 100.0 %
Contractual Delinquency by Product
Dollars in thousands December 31, 2021 December 31, 2020
Small loans $ 39,794 8.9 % $ 27,703 6.9 %
Large loans 44,264 4.6 % 31,259 4.4 %
Automobile loans 84 6.3 % 296 7.6 %
Retail loans 749 7.1 % 1,192 8.5 %
Total contractual delinquency $ 84,891 6.0 % $ 60,450 5.3 %
General and Administrative Expenses. Our general and administrative expenses increased$19.2 million , or 10.9%, to$195.5 million in 2021 from$176.3 million in 2020. 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$10.3 million , or 9.4%, to$119.8 million in 2021, from$109.6 million in 2020. We had several offsetting increases and decreases in personnel expenses during 2021. Labor expense and incentive costs increased$7.8 million and$7.4 million , respectively, compared to 2020. Additionally, 2021 included branch optimization costs of$0.3 million . Capitalized loan origination costs, which reduced personnel expenses, increased by$1.8 million compared to the 2020 due to an increase in loans originated. Additionally, 2020 included executive transition costs of$3.0 million and severance expense related to workforce actions of$0.8 million . Occupancy. Occupancy expenses increased$1.5 million , or 6.6%, to$24.1 million in 2021, from$22.6 million in 2020. The increase was primarily due to costs related to our branch optimization initiative of$1.1 million and an increase in COVID-19 enhanced sanitation efforts of$0.2 million . Marketing. Marketing expenses increased$4.0 million , or 39.1%, to$14.4 million in 2021, from$10.4 million in 2020. The increase was primarily due to increased activity in our direct mail campaigns and digital marketing to support growth and abnormally low marketing spend in the second quarter of 2020. At the outset of the pandemic during the second quarter of 2020, we temporarily paused direct mail and digital marketing aimed at customer acquisition, before gradually restarting our marketing campaigns inMay 2020 . Other Expenses. Other expenses increased$3.4 million , or 10.0%, to$37.2 million in 2021, from$33.8 million in 2020, primarily due to increased investment in digital and technological capabilities of$3.0 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 0.3% to 16.1% during 2021 from 16.4% during 2020. Fiscal 2021 included a ratio increase of 0.1% related to branch optimization expenses of$1.6 million . Fiscal 2020 included non-operating expenses of$3.1 million of executive transition costs, severance expense related to workforce actions of$0.8 million , and system outage costs of$0.7 million which increased our operating expense ratio by 0.4% in 2020. Interest Expense. Interest expense on debt decreased$6.5 million , or 17.2%, to$31.3 million in 2021, from$37.9 million in 2020. The decrease was primarily due to favorable mark-to-market adjustments on interest rate caps of$2.7 million in 2021 compared to unfavorable mark-to-market adjustments on interest rate caps of$0.3 million in 2020 and a decrease in our average cost of debt, offset by an increase in the average balance of our debt facilities. The average cost of our total debt decreased 1.60% to 3.59% in 2021, from 5.19% in 2020, primarily reflecting the lower rate environment. Income Taxes. Income taxes increased$14.6 million , or 158.6%, to$23.8 million in 2021, from$9.2 million in 2020. The increase was primarily due to a$76.5 million increase in income before taxes compared to 2020. Our effective tax rate decreased to 21.1% in 2021, compared to 25.6% in 2020. Fiscal 2021 was impacted by tax benefits from the exercise and vesting of share-based awards and amended state tax returns. The effective tax rate for 2020 was impacted by the margin tax inTexas that was based on gross income, rather than net income, and non-deductible executive compensation (including executive transition costs) under Internal Revenue Code Section 162(m) that was not correlated to income before taxes.
Comparison of the year ended
For a comparison of our results of operations for the years endedDecember 31, 2020 andDecember 31, 2019 , 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, 2020 (which was filed with theSEC onFebruary 25, 2021 ), which comparison is incorporated by reference herein.
Cash 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- 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, 2021 , we had a funded debt-to-equity ratio (debt divided by total stockholders' equity) of 3.9 to 1.0 and a stockholders' equity ratio (total stockholders' equity as a percentage of total assets) of 19.4%. Cash and cash equivalents increased to$10.5 million as ofDecember 31, 2021 , from$8.1 million as ofDecember 31, 2020 . As ofDecember 31, 2021 andDecember 31, 2020 we had$199.2 million and$186.3 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$556.8 million and$438.1 million as ofDecember 31, 2021 and 2020, respectively. Our total debt increased to$1.1 billion as ofDecember 31, 2021 , from$768.9 million as ofDecember 31, 2020 .
A summary of material future financial obligations requiring repayments to the
Future Material Financial Obligations by Period
Next Twelve Beyond Twelve
Dollars in thousands Months Months Total
Principal payments on debt securities
Interest payments on debt securities
28,635 60,710 89,345 Operating lease obligations 7,248 28,068 35,316 Total$ 110,586 $ 1,122,028 $ 1,232,614
Based on projected cash flows, management believes that operating cash flows and our various financing alternatives will provide sufficient funding for debt maturities and operations over the next twelve months, as well as in 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 fromOctober 2022 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.
Redemption of shares and dividends.
InOctober 2020 , we announced that our Board had authorized a stock repurchase program allowing for the repurchase of up to$30.0 million of our outstanding shares of common stock in open market purchases, privately negotiated transactions, or through other structures in accordance with applicable federal securities laws. The authorization was effective immediately and extended throughOctober 22, 2022 . InMay 2021 , we completed this stock repurchase program, repurchasing a total of 1.0 million shares pursuant to the program. InMay 2021 , we announced that our Board had authorized a stock repurchase program, allowing for the repurchase of up to$30.0 million of our outstanding shares of common stock. Share repurchases under the stock repurchase program may be made in the open market at prevailing market prices or through privately negotiated transactions in accordance with applicable federal securities laws. The authorization was effective immediately and extended throughApril 29, 2023 . 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 . The authorization was effective immediately and extended throughJuly 29, 2023 . As ofDecember 31, 2021 , we had repurchased 0.9 million shares of common stock at a total cost of$49.4 million under this stock repurchase program. Under these programs, we repurchased an aggregate of 1.5 million shares of common stock at a total cost of$67.4 million in 2021. See Note 20, "Subsequent Events" of the Notes to the Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data," for more information regarding the completion of the 2021 repurchase program following the end of the year and a new repurchase program announced onFebruary 9, 2022 .
The board may, at its discretion, declare and pay cash dividends on our common shares. The following table shows the dividends declared and paid for 2021:
Dividends Declared Per
Three Months Ended Declaration Date Record Date Payment Date Common Share
March 31, 2021 February 10, 2021 February 23, 2021 March 12, 2021 $ 0.20
June 30, 2021 May 4, 2021 May 26, 2021 June 15, 2021 $ 0.25
September 30, 2021 August 3, 2021 August 25, 2021 September 15, 2021 $ 0.25
December 31, 2021 November 2, 2021 November 24, 2021 December 15, 2021 $ 0.25
Total $ 0.95
The Board declared and paid $9.5 million of cash dividends on our common stock
during 2021. The declaration, amount, and payment of any future cash dividends
on shares of our common stock will be at the discretion of the Board. See Note
20, "Subsequent Events" of the Notes to Consolidated Financial Statements in
Part II, Item 8, "Financial Statements and Supplementary Data," for more
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 2021 was
$189.0 million , compared to $165.0 million provided by operating activities in
2020, a net increase of $24.0 million . The increase was primarily due to the
growth in our average net finance receivables.
Investing Activities. Investing activities consist of originations 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 2021 was $355.1 million , compared to $91.7 million in 2020, a net increase in
cash used of $263.4 million . The increase in cash used was primarily due to
increased net originations of finance receivables.
Financing Activities. Financing activities consist of borrowings and payments on
our outstanding indebtedness. In 2021, net cash provided by financing activities
was $243.4 million , compared to net cash used in financing activities of $57.8
million in 2020, a net increase of $301.2 million . The net increase in cash
provided was the result of a $377.9 million net increase in advances on debt
instruments, partially offset by an increase in the repurchase of common stock
of $55.4 million , an increase in cash dividends of $7.3 million , an increase in
taxes paid of $8.3 million , and an increase in payments for debt issuance costs
of $5.7 million .
Financing Arrangements.
Senior Revolving Credit Facility. In December 2021 , we amended and restated our
senior revolving credit facility to, among other things, decrease the
availability under the facility from $640 million to $500 million and extend the
maturity of the facility from September 2022 to September 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 (83% of eligible secured finance receivables as of December
31, 2021 ). As of December 31, 2021 , we had $199.2 million of available liquidity
under the facility and held $10.5 million in unrestricted cash. Borrowings under
the facility bear interest, payable monthly, at rates equal to one-month LIBOR,
with a LIBOR floor of 0.50%, plus a 3.00% margin. The effective interest rate
was 3.50% at December 31, 2021 . The amended and restated facility provides for a
process to transition from LIBOR to a new benchmark in certain circumstances. We
pay a flat unused line fee of 0.50%.
Our debt under the senior revolving credit facility was $112.1 million as of
December 31, 2021 . In advance of its September 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 following debt arrangements 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. We are considered to be the primary beneficiary because we have (i) power over the significant activities through our role as servicer of the finance receivables under each debt arrangement and (ii) the obligation to absorb losses or the right to receive returns that could be significant through our interest in the monthly residual cash flows of the SPEs. 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$107.7 million and$46.6 million as ofDecember 31, 2021 and 2020, 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. 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 bear interest, payable monthly, at a blended rate equal to three-month LIBOR, with a LIBOR floor of 0.25%, plus a 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. The effective interest rate was 2.60% atDecember 31, 2021 . RMR II pays an unused commitment fee between 0.35% and 0.85% based upon the average daily utilization of the facility. The RMR II revolving warehouse credit facility provides for a process to transition from LIBOR to a new benchmark in certain circumstances. As ofDecember 31, 2021 , our debt under the credit facility was$52.5 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. Borrowings under the facility bear interest, payable monthly, at a rate equal to one-month LIBOR, plus a margin of 2.35%. The effective interest rate was 2.45% atDecember 31, 2021 . RMR IV pays an unused commitment fee between 0.35% and 0.70% based upon the average daily utilization of the facility. The RMR IV revolving warehouse credit facility provides for a process to transition from LIBOR to a new benchmark in certain circumstances. As ofDecember 31, 2021 , our debt under the credit facility was$20.1 million . 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. The facility converts to an amortizing loan inOctober 2022 and terminates inOctober 2023 . 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 2.20%. The effective interest rate was 2.41% atDecember 31, 2021 . RMR V pays an unused commitment fee between 0.45% and 0.75% based upon the average daily utilization of the facility. As ofDecember 31, 2021 , our debt under the credit facility was$59.5 million .RMIT 2019-1 Securitization. InOctober 2019 , we, our wholly-owned SPE,Regional Management Receivables III, LLC ("RMR III"), and our indirect wholly-owned SPE,Regional Management Issuance Trust 2019-1 ("RMIT 2019-1"), completed a private offering and sale of$130 million of asset-backed notes. The transaction consisted of the issuance of three classes of fixed-rate asset-backed notes byRMIT 2019-1. 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 2019-1. The notes had a revolving period ending in October
2021, with a final maturity date inNovember 2028 . Borrowings under theRMIT 2019-1 securitization bear interest, payable monthly, at an effective interest rate of 3.19% as ofDecember 31, 2021 . Prior to maturity inNovember 2028 , we may redeem the notes in full, but not in part, at our option on any note payment date on or after the payment date occurring inNovember 2021 . During 2021, we made principal payments of$20.8 million after the completion of the revolving period. As ofDecember 31, 2021 , our debt under the securitization was$109.4 million . See Note 20, "Subsequent Events" of the Notes to Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information regarding this securitization.RMIT 2020-1 Securitization. InSeptember 2020 , we, our wholly-owned SPE, 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, 2021 . 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, 2021 , 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, 2021 . 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, 2021 , 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, 2021 . 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, 2021 , 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, 2021 . 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, 2021 , our debt under the securitization was$125.2 million .RMIT 2022-1 Securitization. See Note 20, "Subsequent Events" of the Notes to Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data," for information regarding the completion of a private offering and sale of$250.0 million of asset-backed notes following the end of the 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, 2021 , we were in compliance with all debt covenants. We expect that the LIBOR reference rate will be phased out byJune 2023 . Our senior revolving credit facility, RMR II revolving warehouse credit facility, and RMR IV revolving warehouse credit facility each use LIBOR as a benchmark in determining
the cost of funds borrowed. These credit facilities provide for a process to transition from LIBOR to a new benchmark, if necessary. We plan to continue to work with our banking partners to modify our credit agreements to contemplate the cessation of the LIBOR reference rate. We will also continue to work to identify a replacement rate to LIBOR and look to adjust the pricing structure of our facilities as needed.
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, 2021 , the warehouse facility cash reserve requirement totaled$0.6 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$5.1 million as ofDecember 31, 2021 . 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, 2021 , 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$2.1 million as ofDecember 31, 2021 . 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, 2021 , the warehouse facility cash reserve requirement totaled$0.7 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$5.1 million as ofDecember 31, 2021 .RMIT 2019-1 Securitization. As required under the transaction documents governing theRMIT 2019-1 securitization, we deposited$1.4 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$11.8 million as ofDecember 31, 2021 .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$16.4 million as ofDecember 31, 2021 .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$26.6 million as ofDecember 31, 2021 .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$21.0 million as ofDecember 31, 2021 .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$19.6 million as ofDecember 31, 2021 . RMC Reinsurance. Our wholly-owned subsidiary,RMC Reinsurance, Ltd. , is required to maintain cash reserves against life insurance policies ceded to it, as determined by the ceding company. As ofDecember 31, 2021 , cash reserves for reinsurance were$19.9 million .
Impact of inflation
Our results of operations and financial condition are presented based on historical cost, except for interest rate caps, which are carried at fair value. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the
estimates required, we believe that the effects of inflation, if any, on our results of operations and financial condition to date have been immaterial.
Significant 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.
Provision 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.
We account for certain finance receivables that have been modified by bankruptcy
proceedings or company loss mitigation policies using a discounted cash flows
approach to properly reserve for customer concessions (rate reductions and term
extensions).
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 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. We do not
require reversion adjustments, as the contractual lives of our loan portfolio
(considering the effect of prepayments) are shorter than our available forecast
periods.
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.
During 2020, management captured the potential impact of the COVID-19 pandemic
in its macroeconomic forecast, we had reserved $33.4 million as of June 30,
2020 . Overall improvements in the pandemic led us to release that reserve
gradually. As of December 31, 2021 , we had $14.4 million in reserves. COVID-19
has 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 an increase of 100 bps to unemployment that would have increased our reserves as ofDecember 31, 2021 by$1.8 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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