ByRichard C. Sloan

May 6, 2022
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, 2021 (which was filed with the SEC on March 4, 2022) and this
Quarterly Report on Form 10-Q. The COVID-19 pandemic may also magnify many of
these risks and uncertainties. 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.


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, 2022,
we operate under the name "Regional Finance" in 354 branch locations in 14
states across the United States, serving 466,100 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 (?$2,500) – Starting the March 31, 2022we had 270.5 thousand babies

current installment loans, representing $438.2 million in net funding

receivables. This included 142,200 convenience checks for small loans,

representing $200.7 million in net financial claims.

• Large loans (>$2,500) – Starting the March 31, 2022we had 189.3 thousand big

current installment loans, representing $997.2 million in net funding

receivables. This included 17,900 large loan convenience checks,

representing $56.5 million in net financial claims.

• Personal Loans – As of March 31, 2022we had 6.3 thousand retail purchases

outstanding loans, representing $10.7 million in net financial claims.

• Optional insurance products: we offer optional payments and guarantees

protection insurance to our direct lending customers.

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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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, the COVID-19 pandemic, impacts from
current geopolitical events outside the U.S., and inflationary pressures, may
affect our business, liquidity, financial condition, and results of operations.
The COVID-19 pandemic has resulted in economic disruption and uncertainty. At
the beginning of the pandemic, during the second quarter of 2020, we experienced
a decrease in demand. Since that time, our loan growth has steadily increased.
Our net finance receivables were $1.4 billion as of March 31, 2022, $340.5
million higher than the prior-year period. However, future consumer demand
remains subject to the uncertainty surrounding the duration and nature of the
pandemic going forward, including the severity of any future waves of COVID-19.
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 (as a
result of variant strains of the virus and waves of outbreak), 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
Recent geopolitical events outside of the U.S. have contributed to volatility in
U.S. markets. Current inflationary pressures have also added to economic
uncertainty. In addition, environmental, social, and governance ("ESG") matters
have become an area of increasing focus for lawmakers, regulators, stockholders,
and other stakeholders. Proposed legislation and rulemaking issued or under
consideration include proposals to require disclosure of climate, cybersecurity,
and other ESG metrics and risks. The potential impact of any of these or other
ESG-related legislation or regulations on our business remains uncertain.
We seek to employ a data-driven approach to managing our risk. We manage risk,
among other ways, through our custom risk and response scorecards, adjustment of
underwriting criteria, 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.
As of March 31, 2022, our allowance for credit losses included $15.9 million of
reserves associated with potential future macroeconomic impacts on credit
losses, inclusive of those associated with the COVID-19 pandemic. Our
contractual delinquency as a percentage of net finance receivables was 5.7% as
of March 31, 2022, up from 4.3% as of March 31, 2021, and down from pre-pandemic
levels of 6.6% and 6.9% as of March 31, 2020 and March 31, 2019, respectively.
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. In the first quarter of 2022, we
successfully closed a $250 million asset-backed securitization that consisted of
the issuance of four classes of fixed-rate asset backed notes with a three-year
revolving period. As of March 31, 2022, we had $214.6 million of available
liquidity, comprised of unrestricted cash on hand and immediate availability to
draw down cash from our revolving credit facilities, representing a $4.9 million
improvement in our liquidity position since December 31, 2021. In addition, we
had $671.1 million of unused capacity on our revolving credit facilities
(subject to the borrowing base) as of March 31, 2022. We believe our liquidity
position provides us substantial runway to fund our growth initiatives and to
support the fundamental operations of our business.
We have increasingly relied on online operations for customer access, 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 have and 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 driven by several factors affecting our revenues, costs and
operating results, 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. 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 borrower assistance
programs and customer access to external economic stimulus measures related to
the COVID-19 pandemic 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 and purchase. Average
net finance receivables were $1.4 billion for the first three months of 2022 and
$1.1 billion for the prior-year period. 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. In February 2022, we opened our first branch in
Mississippi, our fourteenth state. We expect to enter four to five additional
states by the end of 2022, including California. We regularly assess our legacy
branch network for clear opportunities to consolidate operations into larger
branches within close geographic proximity. In the second quarter, we expect to
close approximately twenty branches where there are clear opportunities to
consolidate operations. 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

Asset quality and allowance for credit losses. Our operating results are
highly dependent on the credit quality of our loan portfolio. Credit
the quality of our loan portfolio is the result of our ability to apply sound
underwriting standards, maintaining diligent portfolio servicing 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, the general economic conditions in the
areas in which we conduct business, loan portfolio growth, and the effectiveness
of our 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, we have purchased interest
rate cap contracts.

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 commission income consists mainly of
interest earned on outstanding loans. Accumulation of interest income on financing
Accounts Receivable is suspended when an account is 90 days past due. If the
account is written off, accrued interest income is written off as a reduction
interest and commission 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.

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As a reinsurer, we maintain cash reserves for life insurance claims in the amount
determined by the unaffiliated insurance company. From March 31, 2022the
the allocated cash balance for these cash reserves was $21.1 million. the
unaffiliated insurance company maintains 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 costs form the largest part of our general expenses and
administrative costs and consist mainly of salaries and wages,
overtime, contract labor, relocation costs, incentives, benefits and more
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" and the
filings referenced therein.
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
Income Taxes. Income taxes consist of state and federal income taxes. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The change in deferred tax
assets and liabilities is recognized in the period in which the change occurs,
and the effects of future tax rate changes are recognized in the period in which
the enactment of new rates occurs.

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Operating results

The following table summarizes our results of operations, both in dollars and in
a percentage of average net financial claims (annualised):

                                               1Q 22                              1Q 21
                                                        % of                               % of
                                                    Average Net                        Average Net
                                                      Finance                            Finance
Dollars in thousands                 Amount         Receivables         Amount         Receivables
Interest and fee income            $   107,631               30.0 %   $    87,279               31.1 %
Insurance income, net                   10,544                2.9 %         7,985                2.8 %
Other income                             2,673                0.8 %         2,467                0.9 %
Total revenue                          120,848               33.7 %        97,731               34.8 %
Provision for credit losses             30,858                8.6 %        11,362                4.0 %
Personnel                               35,654                9.9 %        28,851               10.3 %
Occupancy                                5,808                1.6 %         6,020                2.1 %
Marketing                                3,091                0.9 %         2,710                1.0 %
Other                                   10,547                3.0 %         8,262                2.9 %
Total general and administrative        55,100               15.4 %        45,843               16.3 %
Interest expense                           (59 )              0.0 %         7,135                2.6 %
Income before income taxes              34,949                9.7 %        33,391               11.9 %
Income taxes                             8,166                2.2 %         7,869                2.8 %
Net income                         $    26,783                7.5 %   $    25,522                9.1 %

Information explaining changes in our operating results from
from year to year is provided on the following pages.


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The following tables summarize quarterly trends in our financial results: