As filed with
the Securities and Exchange Commission on June 22,
2011.
Registration
No. 333-174245
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Regional Management
Corp.
(Exact Name of Registrant as
Specified in its Charter)
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South Carolina (before conversion)
Delaware (after conversion)
(State or other jurisdiction
of
incorporation or organization)
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6141
(Primary Standard
Industrial
Classification Code Number)
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57-0847115
(I.R.S. Employer
Identification No.)
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509 West Butler Road
Greenville, South Carolina 29607
Telephone:
(864) 422-8011
(Address, including
zip code, and telephone number, including area code, of
Registrants principal executive offices)
Thomas F. Fortin
Chief Executive Officer
Regional Management Corp.
509 West Butler Road
Greenville, South Carolina 29607
Telephone:
(864) 422-8011
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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Joshua Ford Bonnie
Lesley Peng
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
Telephone:
(212) 455-2000
Facsimile:
(212) 455-2502
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Colin J. Diamond
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Telephone: (212) 819-8200
Facsimile: (212) 354-8113
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Approximate date of commencement of the proposed sale of the
securities to the public: As soon as practicable after the
Registration Statement is declared effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
CALCULATION OF
REGISTRATION FEE
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PROPOSED MAXIMUM
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TITLE OF EACH CLASS OF
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AGGREGATE OFFERING
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AMOUNT OF
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SECURITIES TO BE REGISTERED
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PRICE(1)(2)
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REGISTRATION FEE
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Common Stock, par value $0.10 per share
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$100,000,000
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$11,610(3)
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(1) |
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Estimated solely for the purpose of
determining the amount of the registration fee in accordance
with Rule 457(o) under the Securities Act of 1933.
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(2) |
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Includes shares of common stock
subject to the underwriters over-allotment option.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information contained in this preliminary prospectus is not
complete and may be changed. We and the selling stockholders may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO
COMPLETION, DATED JUNE 22, 2011
PRELIMINARY PROSPECTUS
Shares
Common Stock
We are
offering shares
of our common stock and the selling stockholders identified in
this prospectus are
offering shares
of our common stock. We will not receive any proceeds from the
sale of shares by the selling stockholders. This is our initial
public offering and no public market currently exists for our
common stock. We expect the initial public offering price to be
between $ and
$ per share. We intend to apply to
list our common stock on the New York Stock Exchange under the
symbol RM.
Investing in our common stock involves a high degree of risk.
Please read Risk Factors beginning on page 11
of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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PER SHARE
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TOTAL
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Public Offering Price
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$
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$
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Underwriting Discounts and Commissions
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$
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$
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Proceeds to Regional Management Corp. before expenses
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$
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$
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Proceeds to the selling stockholders before expenses
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$
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$
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Delivery of the shares of common stock is expected to be made on
or
about
, 2011. The selling stockholders have granted the underwriters
an option for a period of 30 days to purchase an
additional shares
of our common stock solely to cover over-allotments. If the
underwriters exercise the option in full, the total underwriting
discounts and commissions payable by the selling stockholders
will be $ , and the total proceeds
to the selling stockholders, before expenses, will be
$ .
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Jefferies
JMP Securities
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Stephens Inc.
BMO Capital Markets
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Prospectus
dated ,
2011
Table of
Contents
We are responsible for the information contained in this
prospectus and in any free writing prospectus we may authorize
to be delivered to you. Neither we nor any of the selling
stockholders have authorized anyone to provide you with
additional or different information. We and the underwriters are
offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are
permitted. The information in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of shares of our common
stock. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
Unless the context suggests otherwise, references in this
prospectus to Regional, the Company,
we, us and our refer to
Regional Management Corp. and its consolidated subsidiaries.
In this prospectus, we refer to Palladium Equity Partners III,
L.P. and Parallel 2005 Equity Fund, LP, our current majority
owners, as the sponsors, and we refer to the other
owners of Regional Management Corp. as the individual
owners. We refer the sponsors together with the individual
owners as our existing owners. Palladium Equity
Partners III, L.P. is an affiliate of Palladium Equity Partners,
LLC, which we refer to, together with its affiliates, as
Palladium, and Parallel 2005 Equity Fund, LP is an
affiliate of Parallel Investment Partners, LLC, which we refer
to, together with its affiliates, as Parallel.
i
In this prospectus, references to loans (and
corresponding references to lending and
lender) include both direct loans and indirect
loans. Direct loans are loans which are closed and funded
directly by the financing provider. Indirect loans are closed
and funded by a third party, such as an automobile dealer or a
retailer, and subsequently purchased by the financing provider.
This prospectus includes market and industry data and forecasts
that we have derived from publicly available information,
various industry publications, other published industry sources
and our internal data and estimates. Our internal data and
estimates are based upon information obtained from trade and
business organizations and other contacts in the markets in
which we operate and our managements understanding of
industry conditions.
Unless indicated otherwise, the information included in this
prospectus (1) assumes no exercise by the underwriters of
the over-allotment option to purchase up to an
additional shares
of common stock from the selling stockholders, (2) assumes
that the shares of common stock to be sold in this offering are
sold at $ per share of common
stock, which is the midpoint of the price range indicated on the
front cover of this prospectus and (3) reflects the stock
split that we effectuated
on ,
2011 whereby each issued and outstanding share of our common
stock was converted
into shares.
Through and
including ,
2011 (the 25th day after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers
obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
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SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus and does not contain all the
information you should consider before investing in shares of
our common stock. You should read this entire prospectus
carefully, including the section entitled Risk
Factors and the financial statements and the related notes
included elsewhere in this prospectus, before you decide to
invest in shares of our common stock.
Regional
Management Corp.
We are a diversified specialty consumer finance company
providing a broad array of loan products primarily to customers
with limited access to consumer credit from banks, thrifts,
credit card companies and other traditional lenders. We began
operations in 1987 with four branches in South Carolina and have
expanded our branch network to 146 locations with over 137,000
active customer accounts across South Carolina, Texas, North
Carolina, Tennessee and Alabama as of March 31, 2011. Each
of our loan products is secured, structured on a fixed rate,
fixed term basis with fully amortizing equal monthly installment
payments and is repayable at any time without penalty. Our loans
are sourced through our multiple channel platform, including in
our branches, through direct mail campaigns, independent and
franchise automobile dealerships, online credit application
networks, furniture and appliance retailers and our consumer
website. We operate an integrated branch model in which all
loans, regardless of origination channel, are serviced and
collected through our branch network, providing us with frequent
in-person contact with our customers, which we believe improves
our credit performance and customer loyalty. Our goal is to
consistently and soundly grow our finance receivables and manage
our portfolio risk while providing our customers with attractive
and
easy-to-understand
loan products that serve their varied financial needs.
Our diversified product offerings include:
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Small Installment Loans We offer standardized
small installment loans ranging from $300 to $2,500, with terms
of up to 36 months, which are secured by non-essential
household goods. We originate these loans both through our
branches and through mailing live checks to
pre-screened individuals who are able to enter into a loan by
depositing these checks. As of March 31, 2011, we had
approximately 110,000 small installment loans outstanding
representing $99.6 million in finance receivables.
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Large Installment Loans We offer large
installment loans through our branches ranging from $2,500 to
$18,000, with terms of between 18 and 54 months, which are
secured by a vehicle in addition to non-essential household
goods. As of March 31, 2011, we had approximately 11,000
large installment loans outstanding representing
$32.7 million in finance receivables.
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Automobile Purchase Loans We offer automobile
purchase loans of up to $30,000, generally with terms of between
36 and 72 months, which are secured by the purchased
vehicle. Our automobile purchase loans are offered through a
network of dealers in our geographic footprint, including over
1,550 independent and over 540 franchise automobile dealerships
as of March 31, 2011. Our automobile purchase loans include
both direct loans, which are sourced through a dealership and
closed at one of our branches, and indirect loans, which are
originated and closed at a dealership in our network without the
need for the customer to visit one of our branches. As of
March 31, 2011, we had approximately 13,700 automobile
purchase loans outstanding representing $102.2 million in
finance receivables.
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Furniture and Appliance Purchase Loans We
offer indirect furniture and appliance purchase loans of up to
$7,500, with terms of between six and 48 months, which are
secured by the purchased furniture or appliance. These loans are
offered through a network of over 100 furniture and appliance
retailers. Since launching this product in November 2009, our
portfolio has grown to approximately 3,200 furniture and
appliance purchase loans outstanding representing
$3.7 million in finance receivables.
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Insurance Products We offer our customers
optional payment protection insurance relating to many of our
loan products.
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Our revenue has grown from $49.0 million in 2006 to
$86.8 million in 2010, representing a compound annual
growth rate (CAGR) of 15.4%. Our net income from
continuing operations has grown even more rapidly from
$7.0 million in 2006 to $16.4 million in 2010,
representing a CAGR of 23.9%. On a pro forma basis, giving
effect to this offering and the application of the estimated net
proceeds therefrom as described under Use of
Proceeds, our net income would have been
$ million in 2010. For the
three months ended March 31, 2011, our revenues were
$24.7 million and our net income from continuing operations
was $4.9 million. Our aggregate finance
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receivables have grown from $140.6 million as of
December 31, 2006 to $247.2 million as of
December 31, 2010, representing a CAGR of 15.2%. As of
March 31, 2010 and March 31, 2011, our aggregate
finance receivables were $200.0 million and
$238.1 million, respectively.
Our
Industry
We operate in the consumer finance industry serving the large
and growing population of underbanked and other non-prime
consumers who have limited access to credit from banks, thrifts,
credit card companies and other traditional lenders. According
to the FDIC, there were approximately 43 million adults
living in underbanked households in the United States in
2009 and, according to the Fair Isaac Corporation
(FICO), the percentage of the U.S. population
with FICO scores below 600 rose from approximately 15% in 2007
prior to the recession to 26% in April 2010. While the number of
non-prime consumers in the United States has grown, the supply
of consumer credit to this demographic has contracted since
deregulation of the U.S. banking industry in the 1980s.
Tightened credit requirements that began during the recession in
2008 and 2009 further reduced the supply of consumer credit.
According to the Federal Reserve Bank of New York, $1.1 trillion
in consumer credit, including mortgages, home equity lines of
credit, auto loans, credit cards, student loans and other forms
of consumer credit, was removed from the credit markets between
the second half of 2008 and the fourth quarter of 2010. We
believe the large and growing number of potential customers in
our target market, combined with the decline in available
consumer credit through the end of 2010, provides an attractive
market opportunity for our diversified product offerings.
Installment Lending. Installment lending to
underbanked and other non-prime consumers is one of the most
highly fragmented sectors of the consumer finance industry. We
believe that installment loans are provided through
approximately 8,000 to 10,000 individually-licensed finance
company branches in the United States. Providers of installment
loans, such as Regional, generally offer loans with longer terms
and lower interest rates than other alternatives available to
underbanked consumers, such as title, payday and pawn lenders
(alternative financial services providers).
Automobile Purchase Lending. Automobile
finance comprises one of the largest consumer finance markets in
the United States. According to CNW Research, originations by
borrowers within the subprime market averaged $88.5 billion
annually over the past ten years. In recent years, many
providers of automobile financing have substantially curtailed
their lending to subprime borrowers and as a result, subprime
automobile purchase loan approval rates have dropped
significantly from approximately 69% in early 2007 to
approximately 13% in 2010. This contraction in the supply of
financing presents an attractive opportunity to provide a large,
underserved population of borrowers with automobile purchase
financing.
Furniture and Appliance Purchase Lending. The
furniture and appliance industry represents a large consumer
market with limited financing options for non-prime consumers.
According to the U.S. Department of Commerces Bureau
of Economic Analysis, personal consumption expenditures for
household furniture were estimated at approximately
$87.5 billion for 2010. Most furniture retailers do not
provide their own financing, but instead partner with large
banks and credit card companies who generally limit their
lending activities to prime borrowers. As a result, non-prime
customers often do not qualify for financing from these
traditional lenders. Continued demand for furniture and
appliances, combined with constraints on the availability of
credit for non-prime consumers, presents a growth opportunity
for furniture and appliance purchase loans.
Our
Strengths
Integrated Branch Model Offers Advantages Over Traditional
Lenders. Our branch network with 146 locations
across five states serves as the foundation of our multiple
channel platform and the primary point of contact with our over
137,000 active customers. All loans, regardless of origination
channel, are serviced and collected through our branches, which
allows us to maintain frequent, in-person contact with our
customers, which we believe improves our credit performance and
customer loyalty. Additionally, with over 70% of monthly
payments made in-person at our branches, we have frequent
opportunities to assess the borrowing needs of our customers and
offer new loan products as their credit profiles evolve.
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Multiple Channel Platform. We offer a
diversified range of loan products through our multiple channel
platform, which included, as of March 31, 2011:
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146 branches across five states;
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a network of over 1,550 independent and over 540 franchise auto
dealerships, which offer our loans to their customers;
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our pre-screened live check mailings;
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a network of over 100 furniture and appliance retailers, which
offer our loans to their customers; and
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our consumer website through which we facilitate loan
applications.
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We believe that our multiple channel platform provides us with a
competitive advantage by giving us broader access to our
customers and multiple avenues for attracting new customers,
enabling us to grow our finance receivables, revenues and
earnings.
Attractive Products for Customers with Limited Access to
Credit. Our flexible loan products, ranging from
$300 to $30,000 with terms between three and 72 months,
incorporate features designed to meet the varied financial needs
and credit profiles of a broad array of consumers. We believe
that the rates on our products are significantly more attractive
than many other available credit options, such as payday, pawn
or title loans. We also differentiate ourselves from such
alternative financial service providers by reporting our
customers payment performance to credit bureaus, providing
our customers the opportunity to improve their credit score and
ultimately gain access to a wider range of credit options,
including our own.
Demonstrated Organic Growth. Since
December 31, 2006, we have grown our finance receivables by
69.3% from $140.6 million to $238.1 million at
March 31, 2011 by expanding our branch network and
developing new channels and products. From 2006 to 2010, we grew
our branch count from 89 branches to 134 branches, a CAGR of
10.8%, with an average annual same-store revenue growth rate of
13.4% during the same period. We opened 11 new branches in the
first quarter of 2011 with an additional 18 openings expected
before year end. Historically, our branches have rapidly
increased their outstanding finance receivables during the early
years of operations and generally have quickly achieved
profitability. We introduced direct automobile purchase loans in
1998, and have recently expanded our product offerings to
include indirect automobile purchase loans. We opened two
AutoCredit Source branches in early 2011, which focus solely on
originating, underwriting and servicing indirect automobile
purchase loans, and we have already established over 275
indirect dealer relationships through these branches. Loan
originations from our live check program have grown from
$52.5 million in 2008 to $123.0 million in 2010, a
CAGR of 53.1% and totaled $13.1 million and
$17.6 million for the first three months of 2010 and the
first three months of 2011, respectively.
Strong Portfolio Quality. Through over
24 years of experience in the consumer finance industry, we
have established conservative and sound underwriting and lending
practices. Our sound underwriting standards focus on our
customers ability to affordably make payments out of their
discretionary income with the value of pledged collateral
serving as a credit enhancement rather than the primary
underwriting criterion. Portfolio performance is further
strengthened by our regular in-person contact with customers at
our branches which helps us to anticipate repayment problems
before they occur and allows us to proactively work with
customers to develop solutions prior to default, using
repossession only as a last option. Despite the challenges posed
by the sharp economic downturn beginning in 2008, our annual net
charge-offs since January 1, 2006 remained consistent,
ranging from 7.0% to 8.6% of our average finance receivables. In
2010 and the first three months of 2011, our net charge-offs as
a percentage of average finance receivables were 7.9% and 6.4%
(annualized), respectively. We believe that these metrics
demonstrate the resiliency of our business model throughout
economic cycles.
Experienced Management Team. Our executive
and senior operations management teams consist of individuals
highly experienced in installment lending and other consumer
finance services. We believe our executive management
teams experience has allowed us to consistently grow our
business while delivering high-quality service to our customers
and carefully managing our credit risk. The 19 members of our
field management team average more than 18 years of
industry experience.
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Our
Strategies
Grow Our Branch Network. We intend to
continue growing the revenue and profitability of our branch
network by increasing volume at our existing branches, opening
new branches within our existing geographic footprint and
expanding our operations into new states.
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Existing Branches We intend to continue
increasing same-store revenues, which have grown an average of
13.4% per annum for the five years ended December 31, 2010,
by further building relationships in the communities in which we
operate and capitalizing on opportunities to offer our customers
new loan products as their credit profiles evolve. From 2006 to
2010, we opened 44 new branches, and we expect revenues at these
branches will continue to grow faster than our overall
same-store revenue growth rate as these branches mature.
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New Branches We believe there is sufficient
demand for consumer finance services to continue our pattern of
new branch growth in the states where we currently operate,
allowing us to capitalize on our existing infrastructure and
experience in these markets. Opening new branches allows us to
generate both direct lending at the branches, as well as to
create new origination opportunities by establishing
relationships through the branches with automobile dealerships
and furniture and appliance retailers in the community.
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New States We intend to explore opportunities
for growth in several states outside our existing geographic
footprint that enjoy favorable interest rate and regulatory
environments.
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Continue to Expand and Capitalize on Our Diverse Channels
and Products. We intend to continue to reach
new customers and offer our existing customers new loan products
by expanding and capitalizing on our multiple channel platform
and broad array of offerings as follows:
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Automobile Purchase Loans We have identified
over 11,500 additional dealers in our existing geographic
footprint. We have hired dedicated marketing personnel to
develop relationships with these additional dealers to expand
our network. We will also seek to capture a larger percentage of
the financing activity of dealers in our existing network. We
intend to continue expanding the number of franchise dealer
relationships through our AutoCredit Source branches to grow our
loan portfolio through increased penetration.
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Live Check Program We continue to refine our
screening criteria and tracking for direct mail campaigns, which
we believe has enabled us to improve response rates and credit
performance and allowed us to triple the annual number of live
checks that we mailed from 2007 to 2010. We intend to continue
to increase our use of live checks to grow our loan portfolio by
adding new customers and creating opportunities to offer new
loan products to our existing customers.
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Furniture and Appliance Purchase Loans We
have identified over 3,700 additional furniture and appliance
retail locations in our existing geographic footprint which
offers us the opportunity to expand our network.
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Online Sourcing We intend to continue to
develop and expand our online marketing efforts and increase
traffic to our consumer website through the use of tools such as
search engine optimization and paid online advertising.
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Continue to Focus on Sound Underwriting and Credit
Control. We intend to continue to leverage
our core competencies in sound underwriting and credit
management developed through over 24 years of lending
experience as we seek to profitably grow our share of the
consumer finance market. In recent years, we have implemented
several new programs to continue improving our underwriting
standards and loan collection rates, including our branch
scorecard program that systematically monitors a
range of operating, credit quality and performance metrics. We
believe the central oversight provided by our management
information system and the scorecard program, combined with our
branch-level servicing and collections, improves credit
performance. We plan to continue to develop strategies to
further improve our sound underwriting standards and loan
collection rates as we expand.
Risk
Factors
An investment in shares of our common stock involves substantial
risks and uncertainties that may adversely affect our business,
financial condition and results of operations and cash flows
that you should consider before you
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decide to participate in this offering. Some of the more
significant risks relating to an investment in our company
include the following:
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We have grown significantly in recent years and our delinquency
and charge-off rates and overall results of operations may be
adversely affected if we do not manage our growth effectively;
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We face significant risks in implementing our growth strategy
some of which are outside our control;
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We face strong direct and indirect competition;
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Our business products and activities are strictly and
comprehensively regulated at the local, state and federal level;
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Changes in laws and regulations or interpretations of laws and
regulations could negatively impact our business, results of
operations and financial condition;
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The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (the Dodd-Frank Act) authorizes the newly
created Consumer Financial Protection Bureau (the
CFPB) to adopt rules that could potentially have a
serious impact on our ability to offer short-term consumer loans
and have a material adverse effect on our operations and
financial performance;
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A substantial majority of our revenue is generated by our
branches in South Carolina, Texas and North Carolina;
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Our business could suffer if we are unsuccessful in making,
continuing and growing relationships with automobile dealers and
furniture and appliance retailers;
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Regular turnover among our managers and other employees at our
branches makes it more difficult for us to operate our branches
and increases our costs of operations, which could have an
adverse effect on our business, results of operations and
financial condition;
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Our live check direct mail strategy exposes us to certain risks;
and
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We face credit risk in our lending activities.
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Please see Risk Factors for a discussion of these
and other factors you should consider before making an
investment in shares of our common stock.
Our
Sponsors
On March 21, 2007, the majority of our outstanding common
stock was acquired by Palladium Equity Partners III, L.P. and
Parallel 2005 Equity Fund, LP, which we refer to as the
acquisition transaction. Palladium is a middle
market private equity firm with over $1 billion under
management focused primarily on buyout investments. Palladium
principals have been actively involved in the investment of over
$1.3 billion in more than 45 portfolio companies since 1989
and have significant experience in financial services, business
services, food, restaurants, healthcare, industrial and media
businesses, including American Gilsonite Holding Company, Money
Transfer Holdings, L.P., Capital Contractors, Inc. and Castro
Cheese Holding Company. Palladium was founded in 1997 and is
headquartered in New York City. Parallel is a sector-focused,
middle market private equity firm that invests in dynamic,
entrepreneurial growth companies in North America. Since 1992,
the principals of the firm have participated in investing over
$600 million in over 35 companies, with a particular
emphasis on high growth specialty retail brands, including
Dollar Tree, Inc., Hibbett Sports, Inc., Hat World, Inc. and
Teavana Holdings, Inc. Founded in 1999 as an affiliate of middle
market buyout firm Saunders Karp & Megrue, Parallel is
headquartered in Dallas, Texas.
Regional Management Corp. was incorporated in South Carolina on
March 25, 1987. Prior to this offering, Regional Management
Corp. will be converted into a Delaware corporation. Our
principal executive offices are located at 509 West Butler
Road, Greenville, South Carolina 29607 and our telephone number
is
(864) 422-8011.
Our consumer website is located at www.GetRegionalCash.com.
Information on or accessible through our website is not part of
or incorporated by reference in this prospectus.
Throughout this prospectus, we refer to various trademarks,
service marks and trade names that we use in our business. Other
trademarks and service marks appearing in this prospectus are
the property of their respective holders.
5
THE
OFFERING
|
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Common stock offered by us
|
|
shares. |
|
Common stock offered by the selling stockholders
|
|
shares
( shares
if the underwriters exercise their over-allotment option in
full). |
|
Over-allotment option
|
|
The selling stockholders have granted the underwriters a
30-day
option to purchase up
to additional
shares of our common stock at the initial public offering price,
solely to cover over-allotments, if any. |
|
Common stock outstanding after this offering
|
|
shares. |
|
Use of proceeds
|
|
We estimate that the net proceeds to us from this offering,
after deducting the underwriting discount and estimated offering
expenses payable by us, will be approximately
$ million. We intend to use
the net proceeds of this offering as follows: |
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|
n approximately
$ million to repay
outstanding borrowings, plus accrued and unpaid interest, under
our Third Amended and Restated Loan and Security Agreement,
dated as of March 21, 2007 (the senior revolving
credit facility);
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n to
repay $25.8 million outstanding as of March 31, 2011,
plus accrued and unpaid interest, under our Senior Subordinated
Loan and Security Agreement, dated as of August 25, 2010
(the mezzanine debt); and
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n $1.1 million
to make one-time payments to certain of our existing owners in
the aggregate in consideration for the termination of our
advisory and consulting agreements with them in accordance with
their terms upon consummation of this offering as described
under Certain Relationships and Related Person
Transactions Advisory and Consulting Fees.
|
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|
|
Any additional net proceeds will be applied to repay additional
outstanding borrowings under our senior revolving credit
facility. We will not receive any proceeds from the sale of
shares of our common stock by the selling stockholders. See
Use of Proceeds. |
|
Dividend policy
|
|
We have no current plans to pay dividends on our common stock in
the foreseeable future. |
|
Risk factors
|
|
See Risk Factors for a discussion of risks you
should carefully consider before deciding to invest in our
common stock. |
|
Proposed New York Stock Exchange symbol
|
|
RM |
|
Conflict of interest
|
|
We intend to use a portion of the net proceeds from this
offering to repay amounts outstanding under our senior revolving
credit facility. An affiliate of BMO Capital Markets Corp., an
underwriter in this offering, is one of the lenders under our
senior revolving credit facility. Because more than 5% of the
proceeds of this offering, not including underwriting
compensation, will be received by an affiliate of an underwriter
in this |
6
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|
|
offering, this offering is being conducted in compliance with
FINRA Rule 5121, as administered by the Financial Industry
Regulatory Authority, Inc. However, no qualified independent
underwriter is needed for this offering because this offering
meets the conditions set forth in FINRA Rule 5121(a)(1)(A).
See Use of Proceeds and Underwriting
(Conflicts of Interest) Affiliations and Conflicts
of Interest. |
The number of shares of our common stock to be outstanding
following this offering is based on 9,336,727 shares of our
common stock outstanding as of March 31, 2011. In this
prospectus, unless otherwise indicated, the number of shares of
common stock outstanding and the other information based thereon
does not reflect:
|
|
|
|
n
|
589,022 shares of our common stock issuable upon exercise
of options at a weighted average exercise price of $5.4623 per
share outstanding as of March 31, 2011 under the Regional
Management Corp. 2007 Management Incentive Plan (our 2007
Stock Plan) including options granted in 2007 and
2008; and
|
|
|
n
|
shares
of common stock that have been reserved for issuance under the
Regional Management Corp. 2011 Stock Incentive Plan (our
2011 Stock Plan)
including shares issuable
upon the exercise of stock options that we intend to grant to
our executive officers and directors at the time of this
offering with an exercise price equal to the initial public
offering price. See Management Compensation
Discussion and Analysis 2011 Stock Incentive
Plan and Actions Taken in 2011 and
Anticipated Actions in Connection with the Offering.
|
7
SUMMARY
HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING
DATA
The following table sets forth our summary historical and pro
forma consolidated financial and operating data as of the dates
and for the periods indicated, and should be read together with
Unaudited Pro Forma Consolidated Financial
Information, Selected Historical Consolidated
Financial and Operating Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the historical financial statements and
related notes included elsewhere in this prospectus.
We derived the summary historical consolidated statement of
income data for each of the years ended December 31, 2008,
2009 and 2010 and the summary historical consolidated balance
sheet data as of December 31, 2009 and 2010 from our
audited consolidated financial statements, which are included
elsewhere in this prospectus. We have derived the summary
historical consolidated statement of income data for each of the
years ended December 31, 2006 and 2007 and the summary
historical consolidated balance sheet data as of
December 31, 2006, 2007 and 2008 from our audited financial
statements, which are not included in this prospectus.
The condensed consolidated statement of income data for the
three months ended March 31, 2010 and March 31, 2011
have been derived from unaudited condensed consolidated
financial statements included elsewhere in this prospectus. The
unaudited condensed consolidated financial statements have been
prepared on substantially the same basis as the audited
consolidated financial statements and include all adjustments
that we consider necessary for a fair presentation of our
consolidated financial position and results of operations for
all periods presented.
The summary unaudited pro forma consolidated statement of income
for the fiscal year ended December 31, 2010 and the three
months ended March 31, 2011 presents our consolidated
results of operations giving pro forma effect to this offering
and the application of the estimated net proceeds therefrom as
described under Use of Proceeds, as if such
transactions occurred on January 1, 2010. The summary
unaudited pro forma consolidated balance sheet data as of
March 31, 2011 presents our consolidated financial position
giving pro forma effect to this offering and the application of
the estimated net proceeds therefrom as described under
Use of Proceeds, as if such transaction occurred on
March 31, 2011. The pro forma adjustments are based on
available information and upon assumptions that our management
believes are reasonable in order to reflect, on a pro forma
basis, the impact of these transactions on our historical
financial information. The summary unaudited pro forma
consolidated financial information is included for informational
purposes only and does not purport to reflect our results of
operations or financial position that would have occurred had we
operated as a public company during the periods presented. The
unaudited pro forma consolidated financial information should
not be relied upon as being indicative of our results of
operations or financial position had this offering and the
application of the estimated net proceeds therefrom as described
under Use of Proceeds, occurred on the dates
assumed. The unaudited pro forma consolidated financial
information also does not project our results of operations or
financial position for any future period or date.
8
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|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
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|
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|
|
UNAUDITED
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
|
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|
PRO
|
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|
|
|
|
|
|
|
UNAUDITED
|
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|
PRO
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FORMA
|
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|
|
|
|
|
|
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|
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|
|
THREE
|
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|
FORMA
|
|
|
THREE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MONTHS
|
|
|
YEAR
|
|
|
MONTHS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDED
|
|
|
ENDED
|
|
|
ENDED
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
|
2006
|
|
|
2007(1)
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(Dollars in thousands, except for per share amounts)
|
|
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
42,240
|
|
|
$
|
49,478
|
|
|
$
|
58,471
|
|
|
$
|
63,590
|
|
|
$
|
74,218
|
|
|
$
|
18,022
|
|
|
$
|
21,045
|
|
|
$
|
74,218
|
|
|
$
|
21,045
|
|
Insurance income, net, and other income
|
|
|
6,718
|
|
|
|
7,144
|
|
|
|
8,271
|
|
|
|
9,224
|
|
|
|
12,614
|
|
|
|
3,657
|
|
|
|
3,651
|
|
|
|
12,614
|
|
|
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
48,958
|
|
|
|
56,622
|
|
|
|
66,742
|
|
|
|
72,814
|
|
|
|
86,832
|
|
|
|
21,679
|
|
|
|
24,696
|
|
|
|
86,832
|
|
|
|
24,696
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses(2)
|
|
|
9,526
|
|
|
|
13,665
|
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
|
|
3,902
|
|
|
|
3,836
|
|
|
|
16,568
|
|
|
|
3,836
|
|
General and administrative expenses
|
|
|
21,128
|
|
|
|
22,950
|
|
|
|
27,862
|
|
|
|
29,120
|
|
|
|
33,525
|
|
|
|
8,919
|
|
|
|
10,212
|
|
|
|
33,525
|
|
|
|
10,212
|
|
Consulting and advisory fees
|
|
|
|
|
|
|
2,006
|
|
|
|
1,644
|
|
|
|
1,263
|
|
|
|
1,233
|
|
|
|
308
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
7,812
|
|
|
|
8,687
|
|
|
|
7,399
|
|
|
|
4,846
|
|
|
|
5,542
|
|
|
|
1,484
|
|
|
|
1,763
|
|
|
|
|
|
|
|
|
|
Mezzanine debt
|
|
|
|
|
|
|
5,353
|
|
|
|
3,706
|
|
|
|
3,835
|
|
|
|
4,342
|
|
|
|
984
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
7,812
|
|
|
|
14,040
|
|
|
|
11,105
|
|
|
|
8,681
|
|
|
|
9,884
|
|
|
|
2,468
|
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
38,466
|
|
|
|
52,661
|
|
|
|
57,987
|
|
|
|
58,469
|
|
|
|
61,210
|
|
|
|
15,597
|
|
|
|
17,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes and discontinued operations
|
|
|
10,492
|
|
|
|
3,961
|
|
|
|
8,755
|
|
|
|
14,345
|
|
|
|
25,622
|
|
|
|
6,082
|
|
|
|
7,579
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
3,525
|
|
|
|
857
|
|
|
|
2,276
|
|
|
|
4,472
|
|
|
|
9,178
|
|
|
|
2,129
|
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
6,967
|
|
|
$
|
3,104
|
|
|
$
|
6,479
|
|
|
$
|
9,873
|
|
|
$
|
16,444
|
|
|
$
|
3,953
|
|
|
$
|
4,935
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share(3)
|
|
|
|
|
|
|
|
|
|
$
|
0.69
|
|
|
$
|
1.06
|
|
|
$
|
1.76
|
|
|
$
|
0.42
|
|
|
$
|
0.53
|
|
|
$
|
|
|
|
$
|
|
|
Diluted earnings per
share(3)
|
|
|
|
|
|
|
|
|
|
$
|
0.68
|
|
|
$
|
1.03
|
|
|
$
|
1.70
|
|
|
$
|
0.41
|
|
|
$
|
0.51
|
|
|
$
|
|
|
|
$
|
|
|
Weighted average shares used in computing basic earnings per
share(3)
|
|
|
|
|
|
|
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted earnings per
share(3)
|
|
|
|
|
|
|
|
|
|
|
9,482,604
|
|
|
|
9,590,564
|
|
|
|
9,669,618
|
|
|
|
9,606,178
|
|
|
|
9,648,103
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables(4)
|
|
$
|
140,605
|
|
|
$
|
167,535
|
|
|
$
|
192,289
|
|
|
$
|
214,909
|
|
|
$
|
247,246
|
|
|
$
|
200,043
|
|
|
$
|
238,117
|
|
|
$
|
247,246
|
|
|
$
|
238,117
|
|
Allowance for loan
losses(2)
|
|
|
(11,191
|
)
|
|
|
(13,290
|
)
|
|
|
(15,665
|
)
|
|
|
(18,441
|
)
|
|
|
(18,000
|
)
|
|
|
(17,975
|
)
|
|
|
(18,000
|
)
|
|
|
(18,000
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance
receivables(5)
|
|
$
|
129,414
|
|
|
$
|
154,245
|
|
|
$
|
176,624
|
|
|
$
|
196,468
|
|
|
$
|
229,246
|
|
|
$
|
182,068
|
|
|
$
|
220,117
|
|
|
$
|
229,246
|
|
|
$
|
220,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
141,591
|
|
|
|
168,484
|
|
|
|
192,502
|
|
|
|
214,447
|
|
|
|
241,358
|
|
|
|
197,138
|
|
|
|
237,013
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
120,110
|
|
|
|
159,079
|
|
|
|
176,095
|
|
|
|
187,807
|
|
|
|
197,914
|
|
|
|
166,456
|
|
|
|
188,556
|
|
|
|
|
|
|
|
|
|
Temporary
equity(6)
|
|
|
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
21,481
|
|
|
|
(2,595
|
)
|
|
|
4,407
|
|
|
|
14,640
|
|
|
|
31,444
|
|
|
|
18,682
|
|
|
|
36,469
|
|
|
|
|
|
|
|
|
|
Selected Operational Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average finance
receivables(7)
|
|
$
|
123,645
|
|
|
$
|
146,265
|
|
|
$
|
178,159
|
|
|
$
|
192,981
|
|
|
$
|
216,024
|
|
|
$
|
206,858
|
|
|
$
|
240,884
|
|
|
|
|
|
|
|
|
|
Number of branches (at period end)
|
|
|
89
|
|
|
|
96
|
|
|
|
112
|
|
|
|
117
|
|
|
|
134
|
|
|
|
119
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
Cash flow from operations
|
|
$
|
16,129
|
|
|
$
|
17,990
|
|
|
$
|
26,654
|
|
|
$
|
31,232
|
|
|
$
|
41,215
|
|
|
$
|
11,171
|
|
|
$
|
9,985
|
|
|
|
|
|
|
|
|
|
Efficiency
ratio(8)
|
|
|
43.2
|
%
|
|
|
40.5
|
%
|
|
|
41.7
|
%
|
|
|
40.0
|
%
|
|
|
38.6
|
%
|
|
|
41.1
|
%
|
|
|
41.4
|
%
|
|
|
|
|
|
|
|
|
Same-store finance receivables (at period
end)(9)
|
|
$
|
133,535
|
|
|
$
|
163,945
|
|
|
$
|
184,087
|
|
|
$
|
212,804
|
|
|
$
|
236,717
|
|
|
$
|
197,795
|
|
|
$
|
224,684
|
|
|
|
|
|
|
|
|
|
Same-store revenue growth
rate(9)
|
|
|
9.6
|
%
|
|
|
15.3
|
%
|
|
|
15.7
|
%
|
|
|
9.0
|
%
|
|
|
17.4
|
%
|
|
|
24.0
|
%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
Same-store finance receivables growth
rate(9)
|
|
|
11.8
|
%
|
|
|
16.6
|
%
|
|
|
9.9
|
%
|
|
|
10.7
|
%
|
|
|
10.1
|
%
|
|
|
11.6
|
%
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
|
|
|
PRO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
|
|
|
PRO
|
|
|
FORMA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE
|
|
|
FORMA
|
|
|
THREE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MONTHS
|
|
|
YEAR
|
|
|
MONTHS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDED
|
|
|
ENDED
|
|
|
ENDED
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
|
2006
|
|
|
2007(1)
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(Dollars in thousands, except for per share amounts)
|
|
|
Selected Asset Quality Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans (at period end)
|
|
|
84,760
|
|
|
|
99,089
|
|
|
|
110,895
|
|
|
|
128,285
|
|
|
|
148,813
|
|
|
|
119,615
|
|
|
|
137,367
|
|
|
|
|
|
|
|
|
|
Loan loss provision as a percentage of revenue
|
|
|
19.5
|
%
|
|
|
24.1
|
%
|
|
|
26.0
|
%
|
|
|
26.7
|
%
|
|
|
19.1
|
%
|
|
|
18.0
|
%
|
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
Loan loss provision as a percentage of average finance
receivables
|
|
|
7.7
|
%
|
|
|
9.3
|
%
|
|
|
9.8
|
%
|
|
|
10.1
|
%
|
|
|
7.7
|
%
|
|
|
7.5
|
%(10)
|
|
|
6.4
|
%(10)
|
|
|
|
|
|
|
|
|
Net charge-offs as a percentage of average finance receivables
|
|
|
7.0
|
%
|
|
|
7.8
|
%
|
|
|
8.4
|
%
|
|
|
8.6
|
%
|
|
|
7.9
|
%
|
|
|
8.4
|
%(10)
|
|
|
6.4
|
%(10)
|
|
|
|
|
|
|
|
|
Over 90 days contractual delinquency rate
|
|
|
2.8
|
%
|
|
|
2.7
|
%
|
|
|
4.5
|
%
|
|
|
3.9
|
%
|
|
|
2.3
|
%
|
|
|
3.6
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
Over 180 days contractual delinquency rate
|
|
|
0.7
|
%
|
|
|
0.6
|
%
|
|
|
1.3
|
%
|
|
|
1.0
|
%
|
|
|
0.4
|
%
|
|
|
1.2
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On March 21, 2007, Palladium
Equity Partners III, L.P. and Parallel 2005 Equity Fund, LP
acquired the majority of our outstanding common stock. In
connection with the acquisition transaction, we issued
$25.0 million of mezzanine debt at an interest rate of
18.375%, plus related fees, which we refinanced in 2007 and
again in 2010 with Palladium Equity Partners III, L.P. and
certain of our individual owners. Additionally, we pay the
sponsors annual advisory fees of $675,000 in the aggregate, and
pay certain individual owners annual consulting fees of $450,000
in the aggregate, in each case, plus certain expenses. See
Certain Relationships and Related Person
Transactions Advisory and Consulting Fees. We
intend to repay the mezzanine debt with proceeds from this
offering, and we expect to terminate the consulting and advisory
agreements concurrent with this offering.
|
|
(2) |
|
As of January 1, 2010, we
changed our loan loss allowance methodology for small
installment loans to determine the allowance using losses from
the trailing eight months, rather than the trailing nine months,
to more accurately reflect the six-month average life of our
small installment loans. The change from nine to eight months of
average losses reduced the loss allowance for small installment
loans by $1.1 million as of January 1, 2010 and
reduced the provision for loan losses by $451,000 for 2010.
|
|
(3) |
|
Prior to the acquisition
transaction, we had a different capital structure, including a
different number of shares of common stock outstanding.
Accordingly, a comparison of earnings before the acquisition
transaction is not meaningful.
|
|
(4) |
|
Finance receivables equal the total
amount due from the customer, net of unearned finance charges,
insurance premiums and commissions.
|
|
(5) |
|
Net finance receivables equal the
total amount due from the customer, net of unearned finance
charges, insurance premiums and commissions and allowance for
loan losses.
|
|
(6) |
|
The shareholders agreement among
us, Regional Holdings LLC, the sponsors and the individual
owners provides that the individual owners have the right to put
their stock back to us if an initial public offering does not
occur within five years of the date of the acquisition
transaction, March 21, 2007. We valued this put option at
the original purchase price of $12.0 million. The filing of
the registration statement of which this prospectus forms a part
relating to this offering makes it probable that the put option
will not become exercisable.
|
|
|
|
(7) |
|
Average finance receivables are
computed using the most recent thirteen month-end balances for
the annual periods shown and the most recent four month-end
balances for the three-month periods shown.
|
|
|
|
(8) |
|
Our efficiency ratio is calculated
by dividing the sum of general and administrative expenses by
total revenue.
|
|
(9) |
|
All same-store measurements for any
period are calculated based on stores that had been open for at
least one year as of the end of the period.
|
|
|
|
(10) |
|
The loan loss provision and net
charge-offs as a percentage of average finance receivables are
annualized figures.
|
10
RISK
FACTORS
An investment in shares of our common stock involves risks.
You should carefully consider the following information about
these risks, together with the other information contained in
this prospectus, before investing in shares of our common
stock.
Risks Related to
Our Business
We have grown
significantly in recent years and our delinquency and charge-off
rates and overall results of operations may be adversely
affected if we do not manage our growth
effectively.
We have experienced substantial growth in recent years, opening
16 new branches in 2008, six in 2009, 17 in 2010 and 11 in the
first three months of 2011, and we intend to continue our growth
strategy in the future. As we increase the number of branches we
operate, we will be required to find new, or relocate existing,
employees to operate our branches and allocate resources to
train and supervise those employees. The success of a branch
depends significantly on the manager overseeing its operations
and on our ability to enforce our underwriting standards and
implement controls over branch operations. Recruiting suitable
managers for new branches can be challenging, particularly in
remote areas and areas where we face significant competition.
Furthermore, the annual turnover in 2010 among our branch
managers was approximately 34%, and turnover rates of managers
in our new branches may be similar or higher. Increasing the
number of branches that we operate may divide the attention of
our senior management or strain our ability to adapt our
infrastructure and systems to accommodate our growth. If we are
unable to promote, relocate or recruit suitable managers and
oversee their activities effectively, our delinquency and
charge-off rates may increase and our overall results of
operations may be adversely impacted.
We face
significant risks in implementing our growth strategy, some of
which are outside our control.
We intend to continue our growth strategy, which is based on
opening and acquiring branches in existing and new markets and
introducing new products and channels. For example, we currently
expect to open at least 29 new branches in 2011. Our ability to
execute this growth strategy is subject to significant risks,
some of which are beyond our control, including:
|
|
|
|
n
|
the prevailing laws and regulatory environment of each state in
which we operate or seek to operate, and, to the extent
applicable, federal laws and regulations, which are subject to
change at any time;
|
|
|
n
|
the degree of competition in new markets and its effect on our
ability to attract new customers;
|
|
|
n
|
our ability to identify attractive locations for new branches;
|
|
|
n
|
our ability to recruit qualified personnel, in particular in
remote areas and areas where we face a great deal of
competition; and
|
|
|
n
|
our ability to obtain adequate financing for our expansion plans.
|
For example, North Carolina requires a needs and
convenience assessment of a new lending license and
location prior to the granting of the license, which adds time
and expense to opening de novo locations. In addition, certain
states into which we may expand, such as Georgia, limit the
number of lending licenses granted. There can be no assurance
that if we apply for a license for a new branch, whether in one
of the states where we currently operate or in a state into
which we would like to expand, we would be granted a license to
operate. We also cannot be certain that any such license, even
if granted, would be obtained in a timely manner or without
burdensome conditions or limitations. In addition, we may not be
able to obtain and maintain any regulatory approvals, government
permits or licenses that may be required.
We face strong
direct and indirect competition.
The consumer finance industry is highly competitive, and the
barriers to entry for new competitors are relatively low in the
markets in which we operate. We compete for customers, locations
and other important aspects of our business with many other
local, regional, national and international financial
institutions, many of whom have greater financial resources than
we do.
Our installment loan operations compete with other installment
lenders as well as with alternative financial services providers
(such as payday and title lenders, check advance companies and
pawnshops), online or
peer-to-peer
lenders, issuers of non-prime credit cards and other
competitors. We believe that future regulatory developments in
the consumer finance industry may cause lenders that currently
focus on alternative financial services to begin to offer
installment loans. In addition, if companies in the installment
loan business attempt to provide more attractive
11
loan terms than is standard across the industry, we may lose
customers to those competitors. In installment loans, we compete
primarily on the basis of price, breadth of loan product
offerings, flexibility of loan terms offered and the quality of
customer service provided.
Our automobile purchase loan operations compete with numerous
financial services providers, including non-prime auto lenders,
dealers that provide financing, captive finance companies owned
by automobile manufacturers and, to a limited extent, credit
unions. Our furniture and appliance purchase loan operations
compete with store and third-party credit cards, prime lending
sources,
rent-to-own
finance providers and other competitors. Although the furniture
and appliance purchase loan market includes few competitors
serving non-prime borrowers, there are numerous competitors
offering non-prime automobile purchase loans. For automobile
purchase loans and furniture and appliance purchase loans, we
compete primarily on the basis of interest rates charged, the
quality of credit accepted, the flexibility of loan terms
offered, the speed of approval and the quality of customer
service provided.
If we fail to compete successfully, we could face lower sales
and may decide or be compelled to materially alter our lending
terms to our customers, which could result in decreased
profitability.
A substantial
majority of our revenue is generated by our branches in South
Carolina, Texas and North Carolina.
Our branches in South Carolina accounted for 54.3% of our
revenue in 2010 and 52.7% of our revenue for the first three
months of 2011. In addition, our branches in Texas and North
Carolina accounted for 19.2% and 15.0%, respectively, of our
revenue in 2010 and 20.6% and 13.3%, respectively, of our
revenue for the first three months of 2011. Furthermore, all of
our operations are in four Southeastern and one Southwestern
state. As a result, we are highly susceptible to adverse
economic conditions in those areas. For example, the
unemployment rate in South Carolina, which was 9.6% as of
April 2011, is among the highest in the country. High
unemployment rates may reduce the number of qualified borrowers
to whom we will extend loans, which would result in reduced loan
originations. Adverse economic conditions may increase
delinquencies and charge-offs and decrease our overall loan
portfolio quality. If any of the adverse regulatory or
legislative events described in this Risk Factors
section were to occur in South Carolina, Texas or North
Carolina, it could materially adversely affect our business,
results of operations and financial condition. For example, if
interest rates in South Carolina, which are currently not
capped, were to be capped, our business, results of operations
and financial condition would be materially and adversely
affected.
Our business
could suffer if we are unsuccessful in making, continuing and
growing relationships with automobile dealers and furniture and
appliance retailers.
Our automobile purchase loans and furniture and appliance
purchase loans are reliant on our relationships with automobile
dealers and furniture and appliance retailers. In particular,
our automobile purchase loan operations depend in large part
upon our ability to establish and maintain relationships with
reputable dealers who direct customers to our branches or
originate loans at the point of sale, which we subsequently
purchase. Although we have relationships with certain automobile
dealers, none of our relationships are exclusive and some of
them are newly established and they may be terminated at any
time. As a result of the recent economic downturn and
contraction of credit to both dealers and their customers, there
has been an increase in dealership closures and our existing
dealer base has experienced decreased sales and loan volume in
the past and may experience decreased sales and loan volume in
the future, which may have an adverse effect on our business,
our results of operations and financial condition.
Our furniture and appliance purchase loan business model is
based on our ability to enter into agreements with individual
furniture and appliance retailers to provide financing to
customers in their stores. Although our relationships with
independent licensees of a major U.S. furniture retailer
are currently a significant source of our furniture and
appliance purchase loans, we do not have a relationship with the
retailer itself or its manufacturing affiliate and instead
depend on non-exclusive relationships with individual licensees
of the retailer, each of which may be terminated at any time. If
a competitor were to offer better service or more attractive
loan products to our furniture and appliance retailer partners,
it is possible that our retail partners would terminate their
relationships with us. If we are unable to continue to grow our
existing relationships and develop new relationships, our
results of operations and financial condition and ability to
continue to expand could be adversely affected.
12
Regular
turnover among our managers and other employees at our branches
makes it more difficult for us to operate our branches and
increases our costs of operations, which could have an adverse
effect on our business, results of operations and financial
condition.
Our workforce is comprised primarily of employees who work on an
hourly basis. In certain areas where we operate, there is
significant competition for employees. In the past, we have lost
employees and candidates to competitors who have been willing to
pay higher compensation than we pay. Our ability to continue to
expand our operations depends on our ability to attract, train
and retain a large and growing number of qualified employees.
The turnover among our all of our branch employees was
approximately 43% in 2010 and 36% for the twelve months ended
March 31, 2011. This turnover increases our cost of
operations and makes it more difficult to operate our branches.
Our customer service representative and assistant manager roles
have historically experienced high turnover. We may not be able
to retain and cultivate personnel at these ranks for future
promotion to branch manager. If our employee turnover rates
increase above historical levels or if unanticipated problems
arise from our high employee turnover and we are unable to
readily replace such employees, our business, results of
operations and financial condition and ability to continue to
expand could be adversely affected.
We are subject
to government regulations concerning our hourly and our other
employees, including minimum wage, overtime and health care
laws.
We are subject to applicable rules and regulations relating to
our relationship with our employees, including minimum wage and
break requirements, health benefits, unemployment and sales
taxes, overtime and working conditions and immigration status.
Legislated increases in the federal minimum wage and increases
in additional labor cost components, such as employee benefit
costs, workers compensation insurance rates, compliance
costs and fines, as well as the cost of litigation in connection
with these regulations, would increase our labor costs.
Unionizing and collective bargaining efforts have received
increased attention nationwide in recent periods. Should our
employees become represented by unions, we would be obligated to
bargain with those unions with respect to wages, hours and other
terms and conditions of employment, which is likely to increase
our labor costs. Moreover, as part of the process of union
organizing and collective bargaining, strikes and other work
stoppages may occur, which would cause disruption to our
business. Similarly, many employers nationally in similar retail
environments have been subject to actions brought by
governmental agencies and private individuals under
wage-hour
laws on a variety of claims, such as improper classification of
workers as exempt from overtime pay requirements and failure to
pay overtime wages properly, with such actions sometimes brought
as class actions and these actions can result in material
liabilities and expenses. Should we be subject to employment
litigation, such as actions involving
wage-hour,
overtime, break and working time, it may distract our management
from business matters and result in increased labor costs. In
addition, we currently sponsor employer-subsidized premiums for
major medical programs for eligible salaried personnel and
mini-medical (limited benefit) programs for eligible
hourly employees who elect health care coverage through our
insurance programs. As a result of regulatory changes, we may
not be able to continue to offer health care coverage to our
employees on affordable terms or at all. If we are unable to
locate, attract, train or retain qualified personnel, or if our
costs of labor increase significantly, our business, results of
operations and financial condition may be adversely affected.
Our live check
direct mail strategy exposes us to certain risks.
A significant portion of our growth in our small installment
loans has been achieved through our direct mail campaigns, which
involve mailing to pre-screened recipients live
checks, which customers can sign and cash or deposit
thereby agreeing to the terms of the loan, which are disclosed
on the front and back of the check. We use live checks to seed
new branch openings and attract new customers and those with
higher credit in our geographic footprint. Loans initiated
through live checks represented approximately one quarter of the
value of our originated loans. We expect that live checks will
represent a greater percentage of our small installment loans in
the future. There are several risks associated with the use of
live checks including the following:
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it is more difficult to maintain sound underwriting standards
with live check customers, and these customers have historically
presented a higher risk of default than customers that originate
loans in our branches, as we do not meet a live check customer
prior to soliciting them and extending a loan to them, and we
may not be able to verify certain elements of their financial
condition, including their current employment status or life
circumstances;
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we rely on a software-based model and credit information from a
third-party credit bureau that is more limited than a full
credit report to pre-screen potential live check recipients,
which may not be as effective or may be inaccurate or outdated;
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we face limitations on the number of potential borrowers who
meet our lending criteria within proximity to our branches;
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we may not be able to continue to access the demographic and
credit file information that we use to generate our mailing
lists due to expanded regulatory or privacy restrictions;
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live checks pose a greater risk of fraud as the live checks may
be fraudulently replicated;
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we depend on one bank to issue and clear our live checks and any
failure by that bank to properly process the live checks could
limit the ability of a recipient to cash the check and enter
into a loan with us;
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we sell clearly disclosed optional credit insurance products as
part of our live check mailing campaigns; however, customers may
subsequently claim that they did not receive sufficient
explanation or notice of the insurance products that they
purchased;
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customers may opt out of direct mail solicitations and
solicitations based on their credit file or may otherwise
prohibit us from soliciting them; and
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postal rates and piece printing rates may continue to rise.
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Our expected increase in the use of live checks will further
increase our exposure to, and the magnitude of, these risks.
A reduction in
demand for our products and failure by us to adapt to such
reduction could adversely affect our business and results of
operations.
The demand for the products we offer may be reduced due to a
variety of factors, such as demographic patterns, changes in
customer preferences or financial conditions, regulatory
restrictions that decrease customer access to particular
products or the availability of competing products. For example,
we are highly dependent upon selecting and maintaining
attractive branch locations. These locations are subject to
local market conditions, including the employment available in
the area, housing costs, traffic patterns, crime and other
demographic influences, any of which may quickly change. Should
we fail to adapt to significant changes in our customers
demand for, or access to, our products, our revenues could
decrease significantly and our operations could be harmed. Even
if we do make changes to existing products or introduce new
products to fulfill customer demand, customers may resist or may
reject such products. Moreover, the effect of any product change
on the results of our business may not be fully ascertainable
until the change has been in effect for some time and by that
time it may be too late to make further modifications to such
product without causing further harm to our business, results of
operations and financial condition.
We may attempt
to pursue acquisitions or strategic alliances, which may be
unsuccessful.
We may attempt to achieve our business objectives through
acquisitions and strategic alliances. We compete with other
companies for these opportunities, including companies with
greater financial resources, and we cannot be certain that we
will be able to effect acquisitions or strategic alliances on
commercially reasonable terms, or at all. Furthermore, the
acquisitions that we have pursued previously have been
significantly smaller than us. We do not have experience with
integrating larger acquisitions. Even if we enter into these
transactions, we may experience, among other things:
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overvaluing potential targets due to limitations on our due
diligence efforts;
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difficulties in integrating any acquired companies, branches or
products into our existing business, including integration of
account data into our information systems;
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inability to realize the benefits we anticipate in a timely
fashion, or at all;
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attrition of key personnel from acquired businesses;
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unexpected losses due to the acquisition of existing loan
portfolios with loans originated using less stringent
underwriting criteria;
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significant costs, charges or writedowns; or
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unforeseen operating difficulties that require significant
financial and managerial resources that would otherwise be
available for the ongoing development and expansion of our
existing operations.
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We are exposed
to credit risk in our lending activities.
Our ability to collect on loans depends on the willingness and
repayment ability of our borrowers. Any material adverse change
in the ability or willingness of a significant portion of our
borrowers to meet their obligations to us, whether due to
changes in economic conditions, the cost of consumer goods,
interest rates, natural disasters, acts of war or terrorism, or
other causes over which we have no control, would have a
material adverse impact on our
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earnings and financial condition. Further, a substantial
majority of our borrowers are non-prime borrowers, who are more
likely to be affected, and more severely affected, by adverse
macroeconomic conditions such as those that have persisted over
the last few years. We generally consider customers with a
Beacon score, a measure of credit provided by Equifax, below 645
to be non-prime borrowers, although we also consider factors
other than Beacon scores in evaluating a potential
customers credit, such as length of employment and
duration of current residence. There is no industry standard
definition of non-prime and, consequently, other lenders may use
different criteria to identify non-prime customers. These
criteria have not changed in the past three years. We cannot be
certain that our credit administration personnel, policies and
procedures will adequately adapt to changes in economic or any
other conditions affecting customers and the quality of the loan
portfolio.
We may be
limited in our ability to collect on our loan portfolio, which
may increase our loan losses.
Legal and practical limitations may limit our ability to collect
on our loan portfolio, resulting in increased loan losses,
decreased revenues and decreased earnings. State and federal
laws and regulations restrict our collection efforts.
All of our loan portfolio is secured. The amounts that we are
able to recover from the repossession and sale of this
collateral typically does not cover the outstanding loan balance
and costs of recovery. In cases where we repossess a vehicle
securing a loan, we sell our repossessed automobile inventory
through public sales conducted by independent automobile auction
organizations after the required post-repossession waiting
period. There is approximately a
30-day
period between the time we repossess a vehicle or other property
and the time it is sold at auction. In certain instances, we may
sell repossessed collateral other than vehicles through our
branches after the required post-repossession waiting period and
appropriate receipt of valid bids. The proceeds we receive from
such sales depend upon various factors, including the supply of,
and demand for, used vehicles and other property at the time of
sale. During periods of economic slowdown or recession, such as
have existed in the United States for much of the past few
years, there may be less demand for used vehicles and other
property.
Further, a significant portion of our loan portfolio is not
secured by perfected security interests, including small
installment loans and furniture and appliance purchase loans.
The lack of perfected security interests is one of several
factors that may make it more difficult for us to collect on our
loan portfolio. During 2010 and the first three months of 2011,
net charge-offs as a percentage of average finance receivables
on our small installment loans, which are secured by unperfected
interests in personal property, were 10.2% and 8.6%
(annualized), respectively, while net charge-offs as a
percentage of average finance receivables for our large
installment loans and automobile purchase loans, which are
secured by perfected interests in an automobile or other
vehicle, for the same periods were 6.0% and 4.5% (annualized),
respectively. Lastly, given the relatively small size of our
loans, the costs of collecting loans may be high relative to the
amount of the loan. As a result, many collection practices that
are legally available, such as litigation, may be financially
impracticable. These factors may increase our loan losses, which
would have a material adverse effect on our results of
operations and financial condition.
Our policies
and procedures for underwriting, processing and servicing loans
are subject to potential failure or circumvention, which may
adversely affect our results of operations.
Most of our underwriting activities and our credit extension
decisions are made at our local branches. We train our employees
individually
on-site in
the branch to make loans that conform to our underwriting
standards. Such training includes critical aspects of state and
federal regulatory compliance, cash handling, account management
and customer relations. Although we have standardized employee
manuals, we primarily rely on our 15 district supervisors, with
oversight by our state vice presidents, branch auditors and
headquarters personnel, to train and supervise our branch
employees, rather than centralized or standardized training
programs. Therefore, the quality of training and supervision may
vary from district to district and branch to branch depending
upon the amount of time apportioned to training and supervision
and individual interpretations of our operations policies and
procedures. We cannot be certain that every loan is made in
accordance with our underwriting standards and rules. We have in
the past experienced some instances of loans extended that
varied from our underwriting standards. Variances in
underwriting standards and lack of supervision could expose us
to greater delinquencies and charge-offs than we have
historically experienced.
If our
estimates of loan losses are not adequate to absorb actual
losses, our provision for loan losses would increase, which
would adversely affect our results of operations.
We maintain an allowance for loan losses for all loans we make.
To estimate the appropriate level of loan loss reserves, we
consider known and relevant internal and external factors that
affect loan collectability, including the total amount of loans
outstanding, historical loan charge-offs, our current collection
patterns and economic trends.
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Our methodology for establishing our reserves for doubtful
accounts is based in large part on our historic loss experience.
If customer behavior changes as a result of economic conditions
and if we are unable to predict how the unemployment rate,
housing foreclosures and general economic uncertainty may affect
our loan loss reserves, our provision may be inadequate. In
2010, and the first three months of 2011, our provision for loan
losses was $16.6 million and $3.8 million,
respectively, and we had a net charge-off for the same periods
of $17.0 million and $3.8 million, respectively,
related to losses on our loans. As of March 31, 2011, our
finance receivables were $238.1 million. Maintaining the
adequacy of our allowance for loan losses may require that we
make significant and unanticipated increases in our provisions
for loan losses, which would materially affect our results of
operations. Our loan loss reserves, however, are estimates, and
if actual loan losses are materially greater than our loan loss
reserves, our financial condition and results of operations
could be adversely affected. Neither state regulators nor
federal regulators regulate our allowance for loan losses.
Additional information regarding our allowance for loan losses
is included in the section captioned Managements
Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies
Loan Losses.
Interest rates
on automobile purchase and furniture and appliance purchase
loans are determined at competitive market interest rates and we
may fail to adequately set interest rates, which may adversely
affect our business.
In recent years, we have expanded our automobile purchase loan
business and our furniture and appliance purchase loan business
and we plan to continue to expand those businesses in the
future. Unlike installment loans, which in certain states are
typically made at or near the maximum interest rates permitted
by law, automobile purchase loans and furniture and appliance
purchase loans are often made at competitive market interest
rates, which are governed by laws for installment sales
contracts. We have limited experience in determining interest
rates in these markets. If we fail to set interest rates at a
level that adequately reflects the credit risks of our
customers, or if we set interest rates at a level too low to
sustain our profitability, our business, results of operations
and financial condition could be adversely affected.
Failure of
third-party service providers upon which we rely could adversely
affect our business.
We rely on certain third-party service providers. In particular,
we currently rely on a single vendor to print and mail our live
checks for our direct mail marketing campaigns. That vendor
provides its services to us from a single facility. If that
facility becomes inoperable, or the vendor is unwilling or
otherwise unable to service us, it would take us a number of
weeks to engage an alternate vendor, during which time we would
be unable to mail live checks, which constitute a material
portion of our quarterly loan originations. Furthermore, our
reliance on third parties such as this can expose us to
additional risks. For example, an error by our previous live
check vendor during 2010 resulted in checks being misdirected,
requiring us in some cases to notify state regulators, refund
certain interest and fee amounts and exposing us to increased
credit risk. If any of our third-party service providers,
including our live check vendor, are unable to provide their
services timely and effectively, or at all, it could have a
material adverse effect on our business, financial condition and
results of operations and cash flows.
We depend to a
substantial extent on borrowings under our senior revolving
credit facility to fund our liquidity needs.
We have a senior revolving credit facility committed through
August 2013 that allows us to borrow up to $225.0 million,
assuming we are in compliance with a number of covenants and
conditions. As of March 31, 2011, as adjusted to give
effect to the offering and the application of the estimated net
proceeds therefrom as described under Use of
Proceeds, the amount outstanding under our senior
revolving credit facility would have been
$ million, and we would have
had $ million of availability
thereunder. During the year ended December 31, 2010 and the
three months ended March 31, 2011, the maximum amount of
borrowings outstanding under the facility at one time was
$163.3 million. We use our senior revolving credit facility
as a source of liquidity, including for working capital and to
fund the loans we make to our customers. If our existing sources
of liquidity become insufficient to satisfy our financial needs
or our access to these sources becomes unexpectedly restricted,
we may need to try to raise additional debt or equity in the
future. If such an event were to occur, we can give no assurance
that such alternate sources of liquidity would be available to
us on favorable terms or at all. In addition, we cannot be
certain that we will be able to replace our senior revolving
credit facility when it matures in August 2013 on favorable
terms or at all. If any of these events occur, our business,
results of operations and financial condition could be adversely
affected.
We are not insulated from the pressures and potentially negative
consequences of the recent financial crisis and similar risks
beyond our control that have and may continue to affect the
capital and credit markets, the broader economy, the financial
services industry or the segment of that industry in which we
operate.
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We are subject
to interest rate risk resulting from general economic conditions
and policies of various governmental and regulatory
agencies.
Interest rates are highly sensitive to many factors that are
beyond our control, including general economic conditions and
policies of various governmental and regulatory agencies and, in
particular, the Federal Reserve Board. Changes in monetary
policy, including changes in interest rates, could influence the
amount of interest we pay on our senior revolving credit
facility or any other floating interest rate obligations we may
incur, which would increase our operating costs and decrease our
operating margins. Interest payable on our senior revolving
credit facility is variable, based on LIBOR with a LIBOR floor
of 1.00% and could increase in the future. Although we have
purchased interest rate caps on a $150.0 million notional
amount to hedge such increases, these caps expire in 2014 and we
may not be able to replace these instruments when they mature on
favorable terms or at all. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
Furthermore, market conditions or regulatory restrictions on
interest rates we charge may prevent us from passing any
increases in interest rates along to our customers.
Our revolving
credit agreement contains restrictions and limitations that
could affect our ability to operate our business.
The credit agreement governing our senior revolving credit
facility contains a number of covenants that could adversely
affect our business and the flexibility to respond to changing
business and economic conditions or opportunities. Among other
things, these covenants limit our ability to:
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incur or guarantee additional indebtedness;
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purchase large loan portfolios in bulk;
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pay dividends or make distributions on our capital stock or make
certain other restricted payments;
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sell assets, including our loan portfolio or the capital stock
of our subsidiaries;
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enter into transactions with our affiliates;
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create or incur liens; and
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consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets.
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In addition, the credit agreement imposes certain obligations on
us relating to our underwriting standards, recordkeeping and
servicing of our loans, and our loss reserves and charge-off
policies. It also requires us to maintain certain financial
ratios, including an interest coverage ratio and a borrowing
base ratio (calculated as the ratio of our unsubordinated debt
to the sum of our adjusted tangible net worth and our
subordinated debt).
If we were to breach any covenants or obligations under the
credit agreement and such breaches were to result in an event of
default, our lenders could cause all amounts outstanding to
become due and payable, subject to applicable grace periods.
This could trigger cross-defaults under any future debt
instruments and materially and adversely affect our financial
condition and ability to continue operating our business as a
going concern. As of March 31, 2011, we were in compliance
with the covenants under our senior revolving credit facility
and our mezzanine debt.
If we lose the
services of any of our key management personnel, our business
could suffer.
Our future success significantly depends on the continued
service and performance of our key management personnel.
Competition for these employees is intense. The loss of the
service of members of our senior management or key team members,
including our state vice presidents, or the inability to attract
additional qualified personnel as needed could materially harm
our business. Our success depends, in part, on the continued
service of our President and Chief Operating Officer, C. Glynn
Quattlebaum, who is 64 years old and our Executive Vice
President and Chief Financial Officer, Robert D. Barry, who is
67. Both of these executive officers are nearing the age of
retirement.
We also depend on our 15 district supervisors to supervise,
train and motivate our branch employees. These supervisors have
significant experience with the company and would be difficult
to replace. If we lose a district supervisor to a competitor, we
could be at risk of losing other employees and customers despite
the confidentiality agreements and non-solicitation agreements
we have entered into with each employee.
We rely on
information technology products developed, owned and supported
by third parties, including our competitors.
We use a software package developed and owned by ParaData
Financial Systems (ParaData), a wholly owned
subsidiary of World Acceptance Corporation, one of our primary
competitors, to record, document and manage our loans. Over the
years we have tailored this software to meet our specific needs.
We depend on the willingness and
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ability of ParaData to continue to provide customized solutions
and support for our evolving products and business model. In the
future, ParaData may not be able to modify the loan management
software to meet our needs, or they could alter the program
without notice to us or cease to adequately support it. ParaData
could also decide in the future to refuse to provide support for
its software to us on commercially reasonable terms, or at all.
If any of these events were to occur, we would be forced to
migrate to an alternative software package, which could
materially affect our business, results of operations and
financial condition.
We rely on DealerTrack, Route One, Teledata Communications Inc.
and other third-party software vendors to provide access to loan
applications
and/or
screen applications. There can be no assurance that these third
party providers will continue to provide us information in
accordance with our lending guidelines or that they will
continue to provide us lending leads at all. If this occurs, our
loan losses, business, results of operations and financial
condition may be adversely affected.
Security
breaches in our branches or in our information systems could
adversely affect our financial conditions and results of
operations.
All of our account payments occur at our branches, either in
person or by mail, and frequently consist of cash payments,
which we deposit at local banks throughout the day. This
business practice exposes us daily to the potential for employee
theft of funds or, alternatively, to theft and burglary due to
the cash we maintain in the branch. Despite controls and
procedures to prevent such losses, we have in the past sustained
losses due to employee fraud and theft. In addition, our
employees field call delinquent accounts by visiting
the home or workplace of a delinquent borrower. Such visits may
subject our employees to a variety of dangers including
violence, vehicle accidents and other perils. A breach in the
security of our branches or in the safety of our employees could
result in employee injury and adverse publicity and could result
in a loss of customer business or expose us to civil litigation
and possible financial liability, any of which could have a
material adverse effect on our financial condition and results
of operations.
We rely heavily on communications and information systems to
conduct our business. Each branch is part of an information
network that is designed to permit us to maintain adequate cash
inventory, reconcile cash balances on a daily basis and report
revenues and expenses to our headquarters. Any failure,
interruption or breach in security of these systems, including
any failure of our
back-up
systems, could result in failures or disruptions in our customer
relationship management, general ledger, loan and other systems
and could result in a loss of customer business, subject us to
additional regulatory scrutiny, or expose us to civil litigation
and possible financial liability, any of which could have a
material adverse effect on our financial condition and results
of operations.
Our
centralized headquarters functions are susceptible to
disruption by catastrophic events, which could have a material
adverse effect on our business, results of operations and
financial condition.
Our headquarters buildings are located in Greenville, South
Carolina. Our information systems and administrative and
management processes are primarily provided to our branches from
this centralized location, and our separate data management
facility is located in the same city, and these processes could
be disrupted if a catastrophic event, such as a tornado, power
outage or act of terror, affected Greenville. Any such
catastrophic event or other unexpected disruption of our
headquarters or data management facility could have a material
adverse effect on our business, results of operations and
financial condition.
Risks Related to
Regulation
Our business
products and activities are strictly and comprehensively
regulated at the local, state and federal level. Changes in
current laws and regulations or in the interpretation of such
laws and regulations could have a material adverse effect on our
business, results of operations and financial
condition.
Our business is subject to numerous local, state and federal
laws and regulations. These regulations impose significant costs
or limitations on the way we conduct or expand our business and
these costs or limitations may increase in the future if such
laws and regulations are changed. These laws and regulations
govern or affect, among other things:
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the interest rates that we may charge customers;
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terms of loans, including fees, maximum amounts and minimum
durations;
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the number of simultaneous or consecutive loans and required
waiting periods between loans;
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disclosure practices, including posting of fees;
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currency and suspicious activity reporting;
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recording and reporting of certain financial transactions;
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privacy of personal customer information;
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the types of products and services that we may offer;
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collection practices;
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approval of licenses; and
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locations of our branches.
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Our primary regulators are the state regulators for the states
in which we operate: South Carolina, Texas, North Carolina,
Tennessee and Alabama. See Business Government
Regulation. We operate each of our branches under licenses
granted to us by these state regulators. State regulators may
enter our branches and conduct audits of our records and
practices at any time, with or without notice. If we fail to
observe, or are not able to comply with, applicable legal
requirements, we may be forced to discontinue certain product
offerings, which could adversely impact our business, results of
operations and financial condition. In addition, violation of
these laws and regulations could result in fines and other civil
and/or
criminal penalties, including the suspension or revocation of
our branch licenses, rendering us unable to operate in one or
more locations. All the states in which we operate have laws
governing the interest rate and fees that we can charge and
required disclosure statements, among other restrictions.
Violation of these laws could involve penalties requiring the
forfeiture of principal
and/or
interest and fees that we have charged. Depending on the nature
and scope of a violation, fines and other penalties for
noncompliance of applicable requirements could be significant
and could have a material adverse effect on our business,
results of operation and financial condition.
Licenses to open new branches are granted in the discretion of
state regulators. Accordingly, licenses may be denied
unexpectedly or for reasons outside our control. This could
hinder our ability to implement our business plan in a timely
manner or at all.
As we enter new markets and develop new products, we may become
subject to additional state and federal regulations. For
example, although we intend to expand into new states, we may
encounter unexpected regulatory or other difficulties in these
new states or markets, which may prevent us from growing in new
states or markets. Similarly, while we intend to grow our
furniture and appliance purchase and indirect automobile
purchase loan operations, we may encounter unexpected regulatory
or other difficulties. As a result, we may not be able to
successfully execute our strategies to grow our revenue and
earnings.
Changes in
laws and regulations or interpretations of laws and regulations
could negatively impact our business, results of operations and
financial condition.
Although many of the laws and regulations applicable to our
business have remained substantially unchanged for many years,
the laws and regulations directly affecting our lending
activities are under review and are subject to change,
especially as a result of current economic conditions, changes
in the
make-up of
the current executive and legislative branches and the political
focus on issues of consumer and borrower protection. In
addition, consumer advocacy groups and various other media
sources continue to advocate for governmental and regulatory
action to prohibit or severely restrict various financial
products, including the loan products we offer.
Any changes in such laws and regulations could force us to
modify, suspend or cease part or, in the worst case, all of our
existing operations. It is also possible that the scope of
federal regulations could change or expand in such a way as to
preempt what has traditionally been state law regulation of our
business activities. The enactment of one or more of such
regulatory changes could materially and adversely affect our
business, results of operations and prospects.
States may also seek to impose new requirements or interpret or
enforce existing requirements in new ways. Changes in current
laws or regulations or the implementation of new laws or
regulations in the future may restrict our ability to continue
our current methods of operation or expand our operations.
Additionally, these laws and regulations could subject us to
liability for prior operating activities or lower or eliminate
the profitability of operations going forward by, among other
things, reducing the amount of interest and fees we charge in
connection with our loans. If these or other factors lead us to
close our branches in a state, in addition to the loss of net
revenues attributable to that closing, we would incur closing
costs such as lease cancellation payments and we would have to
write off assets that we could no longer use. If we were to
suspend rather than permanently cease our operations in a state,
we would also have continuing costs associated with maintaining
our branches and our employees in that state, with little or no
revenues to offset those costs.
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In addition to state and federal laws and regulations, our
business is subject to various local rules and regulations such
as local zoning regulations. Local zoning boards and other local
governing bodies have been increasingly restricting the
permitted locations of other consumer finance companies, such as
payday lenders and pawn shops. Any future actions taken to
require special use permits for, or impose other restrictions
on, our ability to provide products could adversely affect our
ability to expand our operations or force us to attempt to
relocate existing branches. If we were forced to relocate any of
our branches, in addition to the costs associated with the
relocation, we may be required to hire new employees in the new
areas, which may adversely impact the operations of those
branches. Relocation of an existing branch may also hinder our
collection abilities, as our business model relies on the
location of our branches being close to where our customers live
in order to successfully collect on outstanding loans.
Changes in laws or regulations may have a material adverse
effect on all aspects of our business in a particular state and
on our overall business, results of operations and financial
condition.
The Dodd-Frank
Act authorizes the newly created CFPB to adopt rules that could
potentially have a serious impact on our ability to offer
short-term consumer loans and have a material adverse effect on
our operations and financial performance.
Title X of the Dodd-Frank Act establishes the CFPB, which
is scheduled to become operational as of July 21, 2011.
Under the Dodd-Frank Act, the CFPB will have regulatory,
supervisory and enforcement powers over providers of consumer
financial products that we offer, including explicit supervisory
authority to examine and require registration of installment
lenders such as ourselves. Included in the powers afforded to
the CFPB is the authority to adopt rules describing specified
acts and practices as being unfair,
deceptive or abusive, and hence
unlawful. Specifically, the CFPB will have the authority to
declare an act or practice abusive if it, among other things,
materially interferes with the ability of a consumer to
understand a term or condition of a consumer financial product
or service or takes unreasonable advantage of a lack of
understanding on the part of the consumer of the product or
service. Although the Dodd-Frank Act expressly provides that the
CFPB has no authority to establish usury limits, some consumer
advocacy groups have suggested that certain forms of alternative
consumer finance products, such as installment loans, should be
a regulatory priority and it is possible that at some time in
the future the CFPB could propose and adopt rules making such
lending or other products that we may offer materially less
profitable or impractical. Further, the CFPB may target specific
features of loans or loan practices, such as refinancings, by
rulemaking that could cause us to cease offering certain
products or engaging in certain practices. It is possible that
the CFPB will adopt rules that specifically restrict
refinancings of existing loans. Our refinancings of existing
loans are divided into three categories: refinancings of loans
in an amount greater than the original loan amount, renewals of
existing loans that are current and renewals of existing loans
that are delinquent, which represented 19.1%, 32.9% and 1.7%,
respectively, of our loan originations in 2010 and 13.9%, 35.7%
and 1.8%, respectively, of our loan originations in the first
three months of 2011. Any such rules could have a material
adverse effect on our business, results of operation and
financial condition. The CFPB could also adopt rules imposing
new and potentially burdensome requirements and limitations with
respect to any of our current or future lines of business, which
could have a material adverse effect on our operations and
financial performance.
In addition to the Dodd-Frank Acts grant of regulatory
powers to the CFPB, the Dodd-Frank Act gives the CFPB authority
to pursue administrative proceedings or litigation for
violations of federal consumer financial laws. In these
proceedings, the CFPB can obtain cease and desist orders (which
can include orders for restitution or rescission of contracts,
as well as other kinds of affirmative relief) and monetary
penalties ranging from $5,000 per day for minor violations of
federal consumer financial laws (including the CFPBs own
rules) to $25,000 per day for reckless violations and
$1 million per day for knowing violations. If we are
subject to such administrative proceedings, litigation, orders
or monetary penalties in the future, this could have a material
adverse effect on our operations and financial performance.
Also, where a company has violated Title X of the
Dodd-Frank Act or CFPB regulations under Title X, the
Dodd-Frank Act empowers state attorneys general and state
regulators to bring civil actions for the kind of cease and
desist orders available to the CFPB (but not for civil
penalties). If the CFPB or one or more state officials believe
we have violated the foregoing laws, they could exercise their
enforcement powers in ways that would have a material adverse
effect on us.
Our stock
price or results of operations could be adversely affected by
media and public perception of installment loans and of
legislative and regulatory developments affecting activities
within the installment lending sector.
Consumer advocacy groups and various media sources continue to
criticize alternative financial services providers (such as
payday and title lenders, check advance companies and
pawnshops). These critics frequently characterize such
alternative financial services providers as predatory or abusive
toward consumers. If these persons were to
20
criticize the products that we offer, it could result in further
regulation of our business. Furthermore, our industry is highly
regulated, and announcements regarding new or expected
governmental and regulatory action in the alternative financial
services sector may adversely impact our stock price and
perceptions of our business even if such actions are not
targeted at our operations and do not directly impact us.
Risks Related to
this Offering
There may not
be an active trading market for shares of our common stock,
which may cause shares of our common stock to trade at a
discount from the initial offering price and make it difficult
to sell the shares of common stock you purchase.
Prior to this offering, there has not been a public trading
market for shares of our common stock. It is possible that after
this offering an active trading market will not develop or
continue or, if developed, that any market will be sustained
which would make it difficult for you to sell your shares of
common stock at an attractive price or at all. The initial
public offering price per share of common stock will be
determined by agreement among us and the representatives of the
underwriters, and may not be indicative of the price at which
shares of our common stock will trade in the public market after
this offering.
If securities
or industry analysts do not publish research or reports about
our business, or if they downgrade their recommendations
regarding our common stock, our stock price and trading volume
could decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us or our business. If any of the analysts who
covers us downgrades our common stock or publishes inaccurate or
unfavorable research about our business, our common stock price
may decline. If analysts cease coverage of us or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our common stock
price or trading volume to decline and our common stock to be
less liquid.
The market
price of shares of our common stock may be volatile, which could
cause the value of your investment to decline.
Even if a trading market develops, the market price of our
common stock may be highly volatile and could be subject to wide
fluctuations. Securities markets worldwide experience
significant price and volume fluctuations. This market
volatility, as well as general economic, market or political
conditions, could reduce the market price of shares of our
common stock in spite of our operating performance. In addition,
our operating results could be below the expectations of public
market analysts and investors due to a number of potential
factors, including variations in our quarterly operating
results, additions or departures of key management personnel,
failure to meet analysts earnings estimates, publication
of research reports about our industry, litigation and
government investigations, changes or proposed changes in laws
or regulations or differing interpretations or enforcement
thereof affecting our business, adverse market reaction to any
indebtedness we may incur or securities we may issue in the
future, changes in market valuations of similar companies or
speculation in the press or investment community, announcements
by our competitors of significant contracts, acquisitions,
dispositions, strategic partnerships, joint ventures or capital
commitments, adverse publicity about the industries we
participate in or individual scandals, and in response the
market price of shares of our common stock could decrease
significantly. You may be unable to resell your shares of common
stock at or above the initial public offering price.
In the past few years, stock markets have experienced extreme
price and volume fluctuations. In the past, following periods of
volatility in the overall market and the market price of a
companys securities, securities class action litigation
has often been instituted against these companies. This
litigation, if instituted against us, could result in
substantial costs and a diversion of our managements
attention and resources.
Investors in
this offering will suffer immediate and substantial
dilution.
The initial public offering price per share of common stock will
be substantially higher than our pro forma net tangible book
value per share immediately after this offering. As a result,
you will pay a price per share of common stock that
substantially exceeds the per share book value of our tangible
assets after subtracting our liabilities. In addition, you will
pay more for your shares of common stock than the amounts paid
by our existing owners. Assuming an offering price of
$ per share of common stock, which
is the midpoint of the range on the front cover of this
prospectus, you will incur immediate and substantial dilution in
an amount of $ per share of common
stock. See Dilution.
21
Because we
have no current plans to pay cash dividends on our common stock
for the foreseeable future, you may not receive any return on
investment unless you sell your common stock for a price greater
than that which you paid for it.
We intend to retain future earnings, if any, for future
operation, expansion and debt repayment and have no current
plans to pay any cash dividends for the foreseeable future. The
declaration, amount and payment of any future dividends on
shares of common stock will be at the sole discretion of our
board of directors. Our board of directors may take into account
general and economic conditions, our financial condition and
results of operations, our available cash and current and
anticipated cash needs, capital requirements, contractual,
legal, tax and regulatory restrictions and implications on the
payment of dividends by us to our stockholders or by our
subsidiaries to us and such other factors as our board of
directors may deem relevant. In addition, our ability to pay
dividends may be limited by covenants of any existing and future
outstanding indebtedness we or our subsidiaries incur, including
our senior revolving credit facility. As a result, you may not
receive any return on an investment in our common stock unless
you sell our common stock for a price greater than that which
you paid for it.
You may be
diluted by the future issuance of additional common stock in
connection with our incentive plans, acquisitions or
otherwise.
After this offering we will have
approximately shares
of common stock authorized but unissued. Our amended and
restated certificate of incorporation to be adopted in
connection with this offering authorizes us to issue these
shares of common stock and options, rights, warrants and
appreciation rights relating to common stock for the
consideration and on the terms and conditions established by our
board of directors in its sole discretion, whether in connection
with acquisitions or otherwise. We have
reserved shares
for issuance under our 2011 Stock Plan,
including shares
issuable upon the exercise of stock options that we intend to
grant to our executive officers and directors at the time of
this offering. See Management Compensation
Discussion and Analysis 2011 Stock Incentive
Plan and Actions Taken in 2011 and
Anticipated Actions in Connection with the Offering. Any
common stock that we issue, including under our 2011 Stock Plan
or other equity incentive plans that we may adopt in the future,
would dilute the percentage ownership held by the investors who
purchase common stock in this offering.
If we or our
existing investors sell additional shares of our common stock
after this offering, the market price of our common stock could
decline.
The sale of substantial amounts of shares of our common stock in
the public market, or the perception that such sales could
occur, could harm the prevailing market price of shares of our
common stock. These sales, or the possibility that these sales
may occur, also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we
deem appropriate. Upon consummation of this offering we will
have a total
of shares
of our common stock outstanding. Of the outstanding shares,
the shares
sold in this offering
(or shares
if the underwriters exercise their over-allotment option in
full) will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the
Securities Act), except that any shares held by our
affiliates, as that term is defined under Rule 144 of the
Securities Act, may be sold only in compliance with the
limitations described in Shares Eligible for Future
Sale.
The
remaining shares,
representing % of our total
outstanding shares of our common stock following this offering,
will be subject to certain restrictions on resale following the
consummation of this offering. We, our officers, directors and
holders of all of our outstanding shares of common stock
immediately prior to this offering have signed
lock-up
agreements with the underwriters that will, subject to certain
exceptions, restrict the sale of the shares of our common stock
held by them for 180 days following the date of this
prospectus, subject to extension in the case of an earnings
release or material news or a material event relating to us.
Jefferies & Company, Inc. may, in its sole discretion
and without notice, release all or any portion of the shares of
common stock subject to
lock-up
agreements. See Underwriting (Conflicts of Interest)
for a description of these
lock-up
agreements.
In
addition, shares
of common stock will be eligible for sale upon exercise of
vested options subject to the agreements described above.
Following this offering, we intend to file one or more
registration statements on
Form S-8
under the Securities Act to register shares of common stock or
securities convertible into or exchangeable for shares of common
stock issued under or covered by our 2011 Stock Plan. Any such
Form S-8
registration statements will automatically become effective upon
filing. We expect that the initial registration statement on
Form S-8
will
cover shares
of common stock. Once these shares are registered, they can be
sold in the public market upon issuance, subject to restrictions
under the securities laws applicable to resales by affiliates.
22
Upon the expiration of the
lock-up
agreements described above, the
remaining shares
will be eligible for resale, of
which
would be subject to volume, manner of sale and other limitations
under Rule 144. In addition, commencing 180 days
following this offering, the holders of these shares of common
stock will have the right, subject to certain exceptions and
conditions, to require us to register their shares of common
stock under the Securities Act, and they will have the right to
participate in future registrations of securities by us.
Registration of any of these outstanding shares of common stock
would result in such shares becoming freely tradable without
compliance with Rule 144 upon effectiveness of the
registration statement. See Shares Eligible for
Future Sale.
As restrictions on resale end, the market price of our shares of
common stock could drop significantly if the holders of these
restricted shares sell them or are perceived by the market as
intending to sell them. These factors could also make it more
difficult for us to raise additional funds through future
offerings of our shares of common stock or other securities.
We are
controlled by our existing owners and our existing owners will
exert significant influence over us after the completion of this
offering, and their interests may not coincide with
yours.
Immediately following this offering and the application of net
proceeds from this offering, our existing owners will control
approximately % of our common stock
(or % if the underwriters exercise
in full their over-allotment option). Accordingly, our existing
owners will have substantial influence over election of the
members of our board of directors, and thereby have substantial
influence over our management and affairs. In addition, they
will have substantial influence over the outcome of all matters
requiring stockholder approval, including mergers and other
material transactions, and may be able to cause or prevent a
change in the composition of our board of directors or a change
in control of our company that could deprive our stockholders of
an opportunity to receive a premium for their common stock as
part of a sale of our company and might ultimately affect the
market price of our common stock. We and our existing owners
will also be party to an amended and restated shareholders
agreement, as described below in Certain Relationships and
Related Person Transactions Shareholders
Agreement.
We expect that
we will be a controlled company within the meaning
of the New York Stock Exchange rules. If so, we will qualify for
and may rely on exemptions from certain corporate governance
requirements.
We expect that our existing owners will continue to control a
majority of the combined voting power of all classes of our
voting stock upon completion of the offering of our common stock
and that we will be a controlled company within the
meaning of the New York Stock Exchange corporate governance
standards. Under these rules, a company of which more than 50%
of the voting power is held by an individual, a group or another
company is a controlled company and may elect not to
comply with certain corporate governance requirements of the New
York Stock Exchange, including (1) the requirement that a
majority of the board of directors consist of independent
directors, (2) the requirement that we have a
nominating/corporate governance committee that is composed
entirely of independent directors with a written charter
addressing the committees purpose and responsibilities and
(3) the requirement that we have a compensation committee
that is composed entirely of independent directors with a
written charter addressing the committees purpose and
responsibilities. We intend to elect to rely on these
exemptions. As a result, we may not have a majority of
independent directors and our compensation and nominating and
corporate governance committees may not consist entirely of
independent directors. Accordingly, you would not have the same
protections afforded to stockholders of companies that are
subject to all of the corporate governance requirements of the
New York Stock Exchange.
Our amended
and restated certificate of incorporation will contain a
provision renouncing our interest and expectancy in certain
corporate opportunities identified by the
sponsors.
Our sponsors and their affiliates are in the business of
providing buyout capital and growth capital to developing
companies, and may acquire interests in businesses that directly
or indirectly compete with certain portions of our business. Our
amended and restated certificate of incorporation will provide
for the allocation of certain corporate opportunities between
us, on the one hand, and the sponsors, on the other hand. As set
forth in our amended and restated certificate of incorporation,
neither the sponsors, nor any director, officer, stockholder,
member, manager or employee of the sponsors will have any duty
to refrain from engaging, directly or indirectly, in the same
business activities or similar business activities or lines of
business in which we operate. Therefore, a director or officer
of our company who also serves as a director, officer, member,
manager or employee of the sponsors may pursue certain
acquisition opportunities that may be complementary to our
business and, as a result, such acquisition opportunities may
not be available to us. These potential conflicts of interest
could have a material adverse effect on our business, financial
condition, results of operations or prospects if attractive
corporate opportunities are allocated by the sponsors
23
to themselves or their other affiliates instead of to us. The
terms of our amended and restated certificate of incorporation
are more fully described in Description of Capital
Stock Corporate Opportunity.
The
requirements of being a public company may strain our resources
and distract our management.
As a public company, we will be subject to the reporting
requirements of the Securities and Exchange Act of 1934, as
amended (the Exchange Act), and requirements of the
Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act).
These requirements may place a strain on our systems and
resources. The Exchange Act requires that we file annual,
quarterly and current reports with respect to our business and
financial condition. The Sarbanes-Oxley Act requires that we
maintain effective disclosure controls and procedures and
internal controls over financial reporting. To maintain and
improve the effectiveness of our disclosure controls and
procedures, we will need to commit significant resources, hire
additional staff and provide additional management oversight. We
will be implementing additional procedures and processes for the
purpose of addressing the standards and requirements applicable
to public companies. In addition, sustaining our growth also
will require us to commit additional management, operational and
financial resources to identify new professionals to join our
firm and to maintain appropriate operational and financial
systems to adequately support expansion. These activities may
divert managements attention from other business concerns,
which could have a material adverse effect on our business,
financial condition, results of operations and cash flows. We
expect to incur significant additional annual expenses related
to these steps and, among other things, additional directors and
officers liability insurance, director fees, reporting
requirements, transfer agent fees, hiring additional accounting,
legal and administrative personnel, increased auditing and legal
fees and similar expenses.
We have not
completed an assessment of internal controls over financial
reporting as contemplated by Section 404 of the
Sarbanes-Oxley Act, and failure to achieve and maintain
effective internal controls over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act could
have a material adverse effect on our business and common stock
price.
Because currently we do not have comprehensive documentation of
our internal controls and have not yet tested our internal
controls in accordance with Section 404, we cannot conclude
in accordance with Section 404 that we do not have a
material weakness in our internal controls or a combination of
significant deficiencies that could result in the conclusion
that we have a material weakness in our internal controls. If we
are not able to complete our initial assessment of our internal
controls and otherwise implement the requirements of
Section 404 in a timely manner or with adequate compliance,
our independent registered public accounting firm may not be
able to certify as to the adequacy of our internal controls over
financial reporting. We have contracted with a third party to
assist us in performing a risk assessment of our internal
controls over financial reporting, documenting key controls,
determining entity level controls and developing a program for
monitoring, testing and remediating internal control
deficiencies over financial reporting and coordinating with our
external auditors.
Matters impacting our internal controls may cause us to be
unable to report our financial information on a timely basis and
thereby subject us to adverse regulatory consequences, including
sanctions by the SEC or violations of applicable stock exchange
listing rules, and result in a breach of the covenants under our
financing arrangements. There also could be a negative reaction
in the financial markets due to a loss of investor confidence in
us and the reliability of our financial statements. Confidence
in the reliability of our financial statements also could suffer
if we or our independent registered public accounting firm were
to report a material weakness in our internal controls over
financial reporting. This could materially adversely affect us
and lead to a decline in the price of our common stock.
Anti-takeover
provisions in our charter documents and applicable state law
might discourage or delay acquisition attempts for us that you
might consider favorable.
Our amended and restated certificate of incorporation and
amended and restated bylaws to be adopted in connection with
this offering will contain provisions that may make the
acquisition of our company more difficult without the approval
of our board of directors. Among other things, these provisions:
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authorize the issuance of undesignated preferred stock, the
terms of which may be established and the shares of which may be
issued without stockholder approval, and which may include super
voting, special approval, dividend, or other rights or
preferences superior to the rights of the holders of common
stock;
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prohibit stockholder action by written consent, which requires
all stockholder actions to be taken at a meeting of our
stockholders;
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provide that the board of directors is expressly authorized to
make, alter, or repeal our bylaws and that our stockholders may
only amend our bylaws with the approval of 80% or more of all of
the outstanding shares of our capital stock entitled to
vote; and
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establish advance notice requirements for nominations for
elections to our board or for proposing matters that can be
acted upon by stockholders at stockholder meetings.
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In addition, a Texas regulation requires the approval of the
Texas Consumer Credit Commissioner for the acquisition, directly
or indirectly, of 10% or more of the voting or common stock of a
consumer finance company. The overall effect of this law, and
similar laws in other states, is to make it more difficult to
acquire a consumer finance company than it might be to acquire
control of a nonregulated corporation.
Further, as a Delaware corporation, we are also subject to
provisions of Delaware law, which may impair a takeover attempt
that our stockholders may find beneficial. These anti-takeover
provisions and other provisions under Delaware law could
discourage, delay or prevent a transaction involving a change in
control of our company, including actions that our stockholders
may deem advantageous, or negatively affect the trading price of
our common stock. These provisions could also discourage proxy
contests and make it more difficult for you and other
stockholders to elect directors of your choosing and to cause us
to take other corporate actions you desire.
25
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements, which
reflect our current views with respect to, among other things,
our operations and financial performance. You can identify these
forward-looking statements by the use of words such as
outlook, believes, expects,
potential, continues, may,
will, should, seeks,
approximately, predicts,
intends, plans, estimates,
anticipates or the negative version of these words
or other comparable words. These statements include, but are not
limited to, statements about:
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our intention to expand our automobile and furniture purchase
loan portfolios, expand our live check campaigns and continue to
develop our online marketing;
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our intention to increase volume at our existing branches, open
new branches and enter new markets in the future;
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our plans to develop new products in the future;
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our intention to increase the number of customers we serve
through expanding our channels and products;
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our ability to maintain the quality of our asset portfolio and
our plans to develop new underwriting and credit control
strategies;
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our belief that our capital expenditure requirements and
liquidity needs will be met; and
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our expectations about future dividends and our plans to retain
any future earnings.
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Such forward-looking statements are subject to various risks and
uncertainties. Accordingly, there are or will be important
factors that could cause actual outcomes or results to differ
materially from those indicated in these statements. We believe
these factors include but are not limited to those described
under Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of
Operations Factors Affecting Our Results of
Operations. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future events, results, actions, levels of
activity, performance or achievements. These factors should not
be construed as exhaustive and should be read in conjunction
with the other cautionary statements that are included in this
prospectus. We undertake no obligation to publicly update or
review any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as
required by law.
26
USE OF
PROCEEDS
We estimate that the net proceeds we will receive from this
offering, after deducting the underwriting discount and
estimated offering expenses payable by us, will be approximately
$ million.
We intend to use the net proceeds from this offering as follows:
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approximately $ million to
repay outstanding borrowings, plus accrued and unpaid interest,
under our senior revolving credit facility;
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to repay $25.8 million outstanding as of March 31,
2011, plus accrued and unpaid interest, under our mezzanine
debt, which is currently held by certain of our existing
owners; and
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$1.1 million to make one-time payments to certain of our
existing owners in the aggregate in consideration for the
termination of our advisory and consulting agreements with them
in accordance with their terms upon consummation of this
offering as described under Certain Relationships and
Related Person Transactions Advisory and Consulting
Fees.
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Any additional net proceeds will be applied to repay additional
outstanding borrowings under our senior revolving credit
facility.
A $1.00 increase in the assumed initial public offering price
per share would increase the net proceeds we will receive from
this offering by $ million,
and an increase of 1.0 million shares in the number of
shares offered by us would increase the net proceeds we will
receive from this offering by
$ million, assuming in each
case that all else is constant and after deducting the
underwriting discount and estimated offering expenses payable by
us. A $1.00 decrease in the assumed initial public offering
price per share or a decrease of 1.0 million shares in the
number of shares offered by us would result in equal changes in
the opposite direction.
As of March 31, 2011, we had $25.8 million aggregate
principal amount of mezzanine debt outstanding, which matures on
October 25, 2013 and accrues interest at a rate of 15.25%
per annum. The mezzanine debt was refinanced in August 2010,
with the proceeds used to retire our previously existing
mezzanine debt. As of March 31, 2011, we had
$151.3 million aggregate principal amount outstanding under
our senior revolving credit facility, which matures
August 25, 2013. Borrowings under the senior revolving
credit facility bear interest at a rate equal to one-month LIBOR
(with a LIBOR floor of 1.00%) plus 3.25% as of March 31,
2011. For additional information regarding our liquidity and
outstanding indebtedness, see Managements Discussion
and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
We will not receive any proceeds from the sale of shares of our
common stock by the selling stockholders.
27
DIVIDEND
POLICY
Following completion of the offering, we have no current plans
to pay any dividends on our common stock for the foreseeable
future and instead currently intend to retain earnings, if any,
for future operations and expansion and debt repayment.
The declaration, amount and payment of any future dividends on
shares of common stock will be at the sole discretion of our
board of directors. Our board of directors may take into account
general and economic conditions, our financial condition and
results of operations, our available cash and current and
anticipated cash needs, capital requirements, contractual,
legal, tax and regulatory restrictions and implications on the
payment of dividends by us to our stockholders or by our
subsidiaries to us and such other factors as our board of
directors may deem relevant. In addition, our senior revolving
credit facility includes a restricted payment covenant, which
restricts our ability to pay dividends on our common stock.
We did not declare or pay any dividends on our common stock in
2009, 2010 or the first three months of 2011.
28
CAPITALIZATION
The following table sets forth our capitalization as of
March 31, 2011:
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on a historical basis; and
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on an as adjusted basis to give effect to the offering and the
application of the estimated net proceeds therefrom as described
under Use of Proceeds, as if each had occurred on
March 31, 2011.
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You should read this table together with the information
contained in this prospectus, including Use of
Proceeds, Unaudited Pro Forma Consolidated Financial
Information, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the historical consolidated financial statements and related
notes included elsewhere in this prospectus.
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AS OF MARCH 31, 2011
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ACTUAL
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AS
ADJUSTED(1)
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(Dollars in thousands)
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Long-term debt:
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Mezzanine debt
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$
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25,814
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$
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Senior revolving credit
facility(2)
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151,347
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Total long-term debt
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177,161
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Temporary
equity(3):
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12,000
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Stockholders equity:
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Common stock, par value $0.10 per share; 25,000,000 shares
authorized and 9,336,727 shares issued and outstanding,
actual; 1,000,000,000 shares authorized
and shares
issues and outstanding, as adjusted
|
|
|
934
|
|
|
|
|
|
Additional paid-in capital
|
|
|
28,048
|
|
|
|
|
|
Retained earnings
|
|
|
7,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
36,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
225,630
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A $1.00 increase in the assumed
initial public offering price per share would decrease total
long-term debt by $ million,
would increase additional paid-in capital by
$ million and would increase
total stockholders equity by
$ million and increase total
capitalization by $ million,
assuming the number of shares offered by us remains the same and
after deducting the underwriting discount and the estimated
offering expenses payable by us. An increase of 1.0 million
shares in the number of shares offered by us would decrease
total long-term debt by
$ million, would increase
additional paid-in capital by
$ million, and would increase
total stockholders equity by
$ million and increase total
capitalization by approximately
$ million, assuming the
initial public offering price remains the same and after
deducting the underwriting discount and estimated offering
expenses payable by us. A $1.00 decrease in the assumed initial
public offering price per share or a decrease of
1.0 million shares in the number of shares offered by us
would result in equal changes in the opposite direction.
|
|
(2) |
|
Our senior revolving credit
facility is a $225.0 million facility, as described under
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Financing Arrangements
Senior Revolving Credit Facility. We intend to repay a
portion of the borrowings under our senior revolving credit
facility with a portion of the net proceeds from this offering.
|
|
(3) |
|
The shareholders agreement among
us, Regional Holdings LLC, the sponsors and the individual
owners provides that the individual owners have the right to put
their stock back to us if an initial public offering does not
occur within five years of the date of the acquisition
transaction, March 21, 2007. We valued this put option at
the original purchase price of $12.0 million. The filing of
the registration statement of which this prospectus forms a part
relating to this offering makes it probable that the put option
will not become exercisable.
|
29
DILUTION
If you invest in shares of our common stock, your interest will
be immediately diluted to the extent of the difference between
the initial public offering price per share of common stock and
the pro forma net tangible book value per share of common stock
after this offering. Dilution results from the fact that the per
share offering price of the shares of common stock is
substantially in excess of the pro forma net tangible book value
per share attributable to our existing owners.
Our pro forma net tangible book value as of March 31, 2011
was approximately $ , or
$ per share of common stock. Pro
forma net tangible book value represents the amount of total
tangible assets less total liabilities, and pro forma net
tangible book value per share of common stock represents pro
forma net tangible book value divided by the number of shares of
common stock outstanding.
After giving effect to this offering and the application of the
proceeds therefrom as described in Use of Proceeds,
our pro forma net tangible book value as of March 31, 2011
would have been $ , or
$ per share of common stock. This
represents an immediate increase in net tangible book value of
$ per share of common stock to our
existing owners and an immediate dilution in net tangible book
value of $ per share of common
stock to investors in this offering.
The following table illustrates this dilution on a per share of
common stock basis:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share of common stock
|
|
|
|
|
|
$
|
|
|
Pro forma net tangible book value per share of common stock as
of March 31, 2011
|
|
$
|
|
|
|
|
|
|
Increase in pro forma net tangible book value per share of
common stock attributable to investors in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share of common stock
after the offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution in pro forma net tangible book value per share of
common stock to investors in this offering
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase in the assumed initial public offering price of
$ per share of our common stock
would increase our net tangible book value after giving to the
offering by $ million, or by
$ per share of our common stock,
assuming the number of shares offered by us remains the same and
after deducting the underwriting discount and the estimated
offering expenses payable by us. A $1.00 decrease in the assumed
initial public offering price per share would result in equal
changes in the opposite direction.
The following table summarizes, on the same pro forma basis as
of March 31, 2011, the total number of shares of common
stock purchased from us, the total cash consideration paid to us
and the average price per share of common stock paid by our
existing owners and by new investors purchasing shares of common
stock in this offering, assuming the underwriters do not
exercise their over-allotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRICE PER
|
|
|
|
SHARES OF COMMON
|
|
|
TOTAL
|
|
|
SHARE OF
|
|
|
|
STOCK PURCHASED
|
|
|
CONSIDERATION
|
|
|
COMMON
|
|
|
|
NUMBER
|
|
|
PERCENTAGE
|
|
|
AMOUNT
|
|
|
PERCENTAGE
|
|
|
STOCK
|
|
|
|
(In thousands)
|
|
|
Existing owners
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
Investors in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Each $1.00 increase in the assumed offering price of
$ per share would increase total
consideration paid by investors in this offering and total
consideration paid by all stockholders by
$ million, assuming the
number of shares offered by us remains the same and after
deducting the underwriting discount and the estimated offering
expenses payable by us. A $1.00 decrease in the assumed initial
public offering price per share would result in equal changes in
the opposite direction.
The pro forma dilution information above is for illustration
purposes only. Our net tangible book value following the
consummation of this offering is subject to adjustment based on
the actual initial public offering price of our shares and other
terms of this offering determined at pricing.
31
UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated statement of income for the
fiscal year ended December 31, 2010 and for the three
months ended March 31, 2011 presents our consolidated
results of operations giving pro forma effect to this offering
and the application of the estimated net proceeds therefrom as
described under Use of Proceeds, as if such
transactions occurred at January 1, 2010. The unaudited pro
forma consolidated balance sheet as of March 31, 2011
presents our consolidated financial position giving pro forma
effect to this offering and the application of the estimated net
proceeds therefrom as described under Use of
Proceeds, as if such transactions occurred on
March 31, 2011. The pro forma adjustments are based on
available information and upon assumptions that our management
believes are reasonable in order to reflect, on a pro forma
basis, the impact of these transactions on our historical
financial information.
The unaudited pro forma consolidated financial information
should be read together with Managements Discussion
and Analysis of Financial Condition and Results of
Operations and the historical financial statements and
related notes included elsewhere in this prospectus.
The unaudited pro forma consolidated financial information is
included for informational purposes only and does not purport to
reflect our results of operations or financial position had we
operated as a public company during the periods presented. The
unaudited pro forma consolidated financial information should
not be relied upon as being indicative of our results of
operations or financial position had this offering and the
application of the estimated net proceeds therefrom as described
under Use of Proceeds occurred on the dates assumed.
The unaudited pro forma consolidated financial information also
does not project our results of operations or financial position
for any future period or date.
The pro forma adjustments give effect to:
|
|
|
|
n
|
the application of the proceeds from this offering as described
under Use of Proceeds including:
|
|
|
|
|
|
the repayment of a portion of our outstanding indebtedness and
the associated reduction in interest expense; and
|
|
|
the termination of our advisory agreement with the sponsors and
consulting agreements with certain of the individual owners and
the associated termination of consulting and advisory fees, each
in accordance with its terms upon the consummation of this
offering as described under Certain Relationships and
Related Person Transactions, which termination does not
result in any adjustment to our pro forma consolidated balance
sheet; and
|
|
|
|
|
n
|
the termination of the right of the individual owners to sell
their stock back to us, which pursuant to the terms of the
shareholders agreement among us, Regional Holdings LLC, the
sponsors and the individual owners terminates upon the
consummation of this offering.
|
32
REGIONAL
MANAGEMENT CORP.
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR
ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA
|
|
|
|
|
|
|
ACTUAL
|
|
|
ADJUSTMENTS
|
|
|
PRO FORMA
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
74,218
|
|
|
$
|
|
|
|
$
|
74,218
|
|
Insurance income, net
|
|
|
8,252
|
|
|
|
|
|
|
|
8,252
|
|
Other income
|
|
|
4,362
|
|
|
|
|
|
|
|
4,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
86,832
|
|
|
|
|
|
|
|
86,832
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
16,568
|
|
|
|
|
|
|
|
16,568
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
20,630
|
|
|
|
|
|
|
|
20,630
|
|
Occupancy
|
|
|
5,165
|
|
|
|
|
|
|
|
5,165
|
|
Advertising
|
|
|
2,027
|
|
|
|
|
|
|
|
2,027
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and advisory fees
|
|
|
1,233
|
|
|
|
(1,233
|
)(1)
|
|
|
|
|
Other
|
|
|
5,703
|
|
|
|
|
|
|
|
5,703
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
5,542
|
|
|
|
|
(2)
|
|
|
|
|
Mezzanine debt
|
|
|
4,342
|
|
|
|
(4,342
|
)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
9,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
61,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
25,622
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
9,178
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,444
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
9,669,618
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average basic shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average diluted shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the termination of the
advisory agreement we entered into with each of the sponsors and
the consulting agreements we entered into with certain of the
individual owners, pursuant to which we paid the sponsors and
the individual owners an aggregate of $1.2 million for the
year ended December 31, 2010. These agreements will be
terminated upon the consummation of this offering in accordance
with their terms upon payment of one-time aggregate termination
fees of $1.1 million.
|
|
(2) |
|
Reflects reduction in interest
expense of $ million as a
result of repayment of
$ million in aggregate
principal amount of our senior revolving credit facility, offset
in part by an unused line fee associated with our senior
revolving credit facility of 0.50%. Our senior revolving credit
facility bears interest a rate equal to one-month LIBOR (with a
LIBOR floor of 1.00%) plus 3.25% as of December 31, 2010.
|
|
(3) |
|
Reflects reduction in interest
expense of $4.3 million as a result of repayment of the
$25.8 million in aggregate principal amount of our
mezzanine debt. Our mezzanine debt accrues interest at a rate of
15.25% per annum.
|
|
(4) |
|
Reflects an increase in income
taxes of $ million as a
result of the increase in income before taxes.
|
33
REGIONAL
MANAGEMENT CORP.
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE
MONTHS ENDED MARCH 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA
|
|
|
|
|
|
|
ACTUAL
|
|
|
ADJUSTMENTS
|
|
|
PRO FORMA
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
21,045
|
|
|
$
|
|
|
|
$
|
21,045
|
|
Insurance income, net
|
|
|
2,194
|
|
|
|
|
|
|
|
2,194
|
|
Other income
|
|
|
1,457
|
|
|
|
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
24,696
|
|
|
|
|
|
|
|
24,696
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
3,836
|
|
|
|
|
|
|
|
3,836
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
6,540
|
|
|
|
|
|
|
|
6,540
|
|
Occupancy
|
|
|
1,471
|
|
|
|
|
|
|
|
1,471
|
|
Advertising
|
|
|
647
|
|
|
|
|
|
|
|
647
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and advisory fees
|
|
|
310
|
|
|
|
(310
|
)(1)
|
|
|
|
|
Other
|
|
|
1,554
|
|
|
|
|
|
|
|
1,554
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
1,763
|
|
|
|
|
(2)
|
|
|
|
|
Mezzanine debt
|
|
|
996
|
|
|
|
(996
|
)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
17,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
7,579
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
2,644
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,935
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
9,648,103
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average basic shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average diluted shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the termination of the
advisory agreement we entered into with each of the sponsors and
the consulting agreements we entered into with certain of the
individual owners, pursuant to which we paid the sponsors and
the individual owners an aggregate of $0.3 million for the
three months ended March 31, 2011. These agreements will be
terminated upon the consummation of this offering in accordance
with their terms upon payment of a one-time aggregate
termination fee of $1.1 million.
|
|
|
|
(2) |
|
Reflects reduction in interest
expense of $ million as a
result of repayment of
$ million in aggregate
principal amount of our senior revolving credit facility, offset
in part by an unused line fee associated with our senior
revolving credit facility of 0.50%. Our senior revolving credit
facility bears interest a rate equal to one-month LIBOR (with a
LIBOR floor of 1.00%) plus 3.25% as of March 31, 2011.
|
|
|
|
(3) |
|
Reflects reduction in interest
expense of $1.0 million as a result of repayment of the
$25.8 million in aggregate principal amount of our
mezzanine debt. Our mezzanine debt accrues interest at a rate of
15.25% per annum.
|
|
|
|
(4) |
|
Reflects an increase in income
taxes of $ million as a
result of the increase in income before taxes.
|
34
REGIONAL
MANAGEMENT CORP.
UNAUDITED PRO
FORMA CONSOLIDATED BALANCE SHEET
AS OF
MARCH 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA
|
|
|
|
|
|
|
ACTUAL
|
|
|
ADJUSTMENTS
|
|
|
PRO FORMA
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,384
|
|
|
$
|
|
(1)
|
|
$
|
|
|
Gross finance receivables
|
|
|
304,840
|
|
|
|
|
|
|
|
304,840
|
|
Less unearned finance charges, insurance premiums and commissions
|
|
|
(66,723
|
)
|
|
|
|
|
|
|
(66,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
238,117
|
|
|
|
|
|
|
|
238,117
|
|
Allowance for loan losses
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance receivables
|
|
|
220,117
|
|
|
|
|
|
|
|
220,117
|
|
Premises and equipment, net of accumulated depreciation
|
|
|
3,366
|
|
|
|
|
|
|
|
3,366
|
|
Deferred tax asset, net
|
|
|
4,726
|
|
|
|
|
|
|
|
4,726
|
|
Repossessed assets at net realizable value
|
|
|
183
|
|
|
|
|
|
|
|
183
|
|
Other assets
|
|
|
4,727
|
|
|
|
(111
|
) (2)
|
|
|
4,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
237,503
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash overdraft
|
|
$
|
1,404
|
|
|
$
|
|
|
|
$
|
1,404
|
|
Accounts payable and accrued expenses
|
|
|
10,273
|
|
|
|
|
|
|
|
10,273
|
|
Senior revolving credit facility
|
|
|
151,347
|
|
|
|
|
(3)
|
|
|
|
|
Mezzanine debt
|
|
|
25,814
|
|
|
|
(25,814
|
)(4)
|
|
|
|
|
Other debt
|
|
|
196
|
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
189,034
|
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
12,000
|
|
|
|
(12,000
|
)(5)
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.10 per share; 25,000,000 shares
authorized, and 9,336,727 shares issued and outstanding,
actual; shares
authorized
and shares
issues and outstanding, as adjusted
|
|
|
934
|
|
|
|
|
(6)
|
|
|
|
|
Additional paid-in capital
|
|
|
28,049
|
|
|
|
|
(7)
|
|
|
|
|
Retained earnings
|
|
|
7,486
|
|
|
|
|
|
|
|
7,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
36,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
237,503
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the net effect on cash of
the receipt of offering proceeds (net of underwriting discounts
and estimated offering expenses) of
$ million and the uses of
proceeds described under Use of Proceeds.
|
|
(2) |
|
Reflects the write off of
unamortized debt issuance costs related to the mezzanine debt.
|
|
(3) |
|
Reflects the repayment of
$ million in aggregate
principal amount under our senior revolving credit facility as
described under Use of Proceeds.
|
|
(4) |
|
Reflects the repayment of
$25.8 million in aggregate principal amount of mezzanine
debt as described under Use of Proceeds.
|
|
(5) |
|
Reflects the reclassification of
temporary equity to additional paid-in capital. The shareholders
agreement between us, Regional Holdings LLC, the sponsors and
the individual owners provides that the individual owners have
the right to put their stock back to us if an initial public
offering does not occur within five years of the date of
acquisition, March 21, 2007. This right will be terminated
upon the consummation of this offering.
|
|
(6) |
|
Reflects an adjustment to common
stock reflecting the par value for the common stock to be issued
in this offering.
|
|
(7) |
|
Reflects (i) an adjustment for
the estimated net proceeds to us from this offering less the par
value recorded under common stock as described in footnote 6
above and (ii) the reclassification of temporary equity to
additional paid-in capital as described in footnote 5 above.
|
35
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The table sets forth our selected historical consolidated
financial and operating data as of the dates and for the periods
indicated, and should be read together with Unaudited Pro
Forma Consolidated Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the historical
consolidated financial statements and related notes included
elsewhere in this prospectus.
We derived the selected historical consolidated statement of
income data for each of the years ended December 31, 2008,
2009 and 2010 and the selected historical consolidated balance
sheet data as of December 31, 2009 and 2010 from our
audited consolidated financial statements, which are included
elsewhere in this prospectus. We have derived the selected
historical consolidated statement of income data for each of the
years ended December 31, 2006 and 2007 and the selected
historical consolidated balance sheet data as of
December 31, 2006, 2007 and 2008 from our audited financial
statements, which are not included in this prospectus.
The condensed consolidated statement of income data for the
three months ended March 31, 2010 and March 31, 2011,
have been derived from unaudited condensed consolidated
financial statements included elsewhere in this prospectus. The
unaudited condensed consolidated financial statements have been
prepared on substantially the same basis as the audited
consolidated financial statements and include all adjustments
that we consider necessary for a fair presentation of our
consolidated financial position and results of operations for
all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
|
|
|
|
|
|
|
THREE MONTHS
|
|
|
|
|
|
|
ENDED
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
|
2006
|
|
|
2007(1)
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
42,240
|
|
|
$
|
49,478
|
|
|
$
|
58,471
|
|
|
$
|
63,590
|
|
|
$
|
74,218
|
|
|
$
|
18,022
|
|
|
$
|
21,045
|
|
Insurance income, net, and other income
|
|
|
6,718
|
|
|
|
7,144
|
|
|
|
8,271
|
|
|
|
9,224
|
|
|
|
12,614
|
|
|
|
3,657
|
|
|
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
48,958
|
|
|
|
56,622
|
|
|
|
66,742
|
|
|
|
72,814
|
|
|
|
86,832
|
|
|
|
21,679
|
|
|
|
24,696
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses(2)
|
|
|
9,526
|
|
|
|
13,665
|
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
|
|
3,902
|
|
|
|
3,836
|
|
General and administrative expenses
|
|
|
21,128
|
|
|
|
22,950
|
|
|
|
27,862
|
|
|
|
29,120
|
|
|
|
33,525
|
|
|
|
8,919
|
|
|
|
10,212
|
|
Consulting and advisory fees
|
|
|
|
|
|
|
2,006
|
|
|
|
1,644
|
|
|
|
1,263
|
|
|
|
1,233
|
|
|
|
308
|
|
|
|
310
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
7,812
|
|
|
|
8,687
|
|
|
|
7,399
|
|
|
|
4,846
|
|
|
|
5,542
|
|
|
|
1,484
|
|
|
|
1,763
|
|
Mezzanine debt
|
|
|
|
|
|
|
5,353
|
|
|
|
3,706
|
|
|
|
3,835
|
|
|
|
4,342
|
|
|
|
984
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
7,812
|
|
|
|
14,040
|
|
|
|
11,105
|
|
|
|
8,681
|
|
|
|
9,884
|
|
|
|
2,468
|
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
38,466
|
|
|
|
52,661
|
|
|
|
57,987
|
|
|
|
58,469
|
|
|
|
61,210
|
|
|
|
15,597
|
|
|
|
17,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes and discontinued operations
|
|
|
10,492
|
|
|
|
3,961
|
|
|
|
8,755
|
|
|
|
14,345
|
|
|
|
25,622
|
|
|
|
6,082
|
|
|
|
7,579
|
|
Income taxes
|
|
|
3,525
|
|
|
|
857
|
|
|
|
2,276
|
|
|
|
4,472
|
|
|
|
9,178
|
|
|
|
2,129
|
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
6,967
|
|
|
$
|
3,104
|
|
|
$
|
6,479
|
|
|
$
|
9,873
|
|
|
$
|
16,444
|
|
|
$
|
3,953
|
|
|
$
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
0.69
|
|
|
$
|
1.06
|
|
|
$
|
1.76
|
|
|
$
|
0.42
|
|
|
$
|
0.53
|
|
Diluted earnings per
share(3)
|
|
|
|
|
|
|
|
|
|
$
|
0.68
|
|
|
$
|
1.03
|
|
|
$
|
1.70
|
|
|
$
|
0.41
|
|
|
$
|
0.51
|
|
Weighted average shares used in computing basic earnings per
share(3)
|
|
|
|
|
|
|
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
Weighted average shares used in computing diluted earnings per
share(3)
|
|
|
|
|
|
|
|
|
|
|
9,482,604
|
|
|
|
9,590,564
|
|
|
|
9,669,618
|
|
|
|
9,606,178
|
|
|
|
9,648,103
|
|
Consolidated Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables(4)
|
|
$
|
140,605
|
|
|
$
|
167,535
|
|
|
$
|
192,289
|
|
|
$
|
214,909
|
|
|
$
|
247,246
|
|
|
$
|
200,043
|
|
|
$
|
238,117
|
|
Allowance for loan
losses(2)
|
|
|
(11,191
|
)
|
|
|
(13,290
|
)
|
|
|
(15,665
|
)
|
|
|
(18,441
|
)
|
|
|
(18,000
|
)
|
|
|
(17,975
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance
receivables(5)
|
|
$
|
129,414
|
|
|
$
|
154,245
|
|
|
$
|
176,624
|
|
|
$
|
196,468
|
|
|
$
|
229,246
|
|
|
$
|
182,068
|
|
|
$
|
220,117
|
|
Total assets
|
|
|
141,591
|
|
|
|
168,484
|
|
|
|
192,502
|
|
|
|
214,447
|
|
|
|
241,358
|
|
|
|
197,138
|
|
|
|
237,025
|
|
Total liabilities
|
|
|
120,110
|
|
|
|
159,079
|
|
|
|
176,095
|
|
|
|
187,807
|
|
|
|
197,914
|
|
|
|
166,456
|
|
|
|
188,556
|
|
Temporary
equity(6)
|
|
|
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
Total stockholders equity
|
|
|
21,481
|
|
|
|
(2,595
|
)
|
|
|
4,407
|
|
|
|
14,640
|
|
|
|
31,444
|
|
|
|
18,682
|
|
|
|
36,469
|
|
36
|
|
|
(1) |
|
On March 21, 2007, Palladium
Equity Partners III, L.P. and Parallel 2005 Equity Fund, LP
acquired the majority of our outstanding common stock. In
connection with the acquisition transaction, we issued
$25.0 million of mezzanine debt at an interest rate of
18.375%, plus related fees, which we refinanced in 2007 and
again in 2010 with Palladium Equity Partners III, L.P. and
certain of our individual owners. Additionally, we pay the
sponsors annual advisory fees of $675,000, in the aggregate and
pay certain individual owners annual consulting fees of $450,000
in the aggregate, in each case, plus certain expenses. See
Certain Relationships and Related Person
Transactions Advisory and Consulting Fees. We
intend to repay the mezzanine debt in full with proceeds from
this offering, and we expect to terminate the consulting and
advisory agreements concurrent with this offering.
|
|
(2) |
|
As of January 1, 2010, we
changed our loan loss allowance methodology for small
installment loans to determine the allowance using losses from
the trailing eight months, rather than the trailing nine months,
to more accurately reflect the six-month average life of our
small installment loans. The change from nine to eight months of
average losses reduced the loss allowance for small installment
loans by $1.1 million as of January 1, 2010 and
reduced the provision for loan losses by $451,000 for 2010.
|
|
(3) |
|
Prior to the acquisition
transaction, we had a different capital structure, including a
different number of shares of common stock outstanding.
Accordingly, a comparison of earnings before the acquisition
transaction is not meaningful.
|
|
(4) |
|
Finance receivables equal the total
amount due from the customer, net of unearned finance charges,
insurance premiums and commissions.
|
|
(5) |
|
Net finance receivables equal the
total amount due from the customer, net of unearned finance
charges, insurance premiums and commissions and allowance for
loan losses.
|
|
(6) |
|
The shareholders agreement among
us, Regional Holdings LLC, the sponsors and the individual
owners provides that the individual owners have the right to put
their stock back to us if an initial public offering does not
occur within five years of the date of the acquisition
transaction, March 21, 2007. We valued this put option at
the original purchase price of $12.0 million. The filing of
the registration statement of which this prospectus forms a part
relating to this offering makes it probable that the put option
will not become exercisable.
|
37
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the
consolidated financial statements, related notes and other
financial information included in this prospectus. The following
discussion may contain predictions, estimates and other
forward-looking statements that involve a number of risks and
uncertainties, including those discussed under Risk
Factors and elsewhere in this prospectus. These risks
could cause our actual results to differ materially from any
future performance suggested below. Accordingly, you should read
Forward-Looking Statements and Risk
Factors.
Overview
We are a diversified specialty consumer finance company
providing a broad array of loan products primarily to customers
with limited access to consumer credit from banks, thrifts,
credit card companies and other traditional lenders. We began
operations in 1987 with four branches in South Carolina and have
expanded our branch network to 146 locations with over 137,000
active customer accounts across South Carolina, Texas, North
Carolina, Tennessee and Alabama as of March 31, 2011. Each
of our loan products is secured, structured on a fixed rate,
fixed term basis with fully amortizing equal monthly installment
payments and is repayable at any time without penalty. Our loans
are sourced through our multiple channel platform, including in
our branches, through direct mail campaigns, independent and
franchise automobile dealerships, online credit application
networks, furniture and appliance retailers and our consumer
website. We operate an integrated branch model in which all
loans, regardless of origination channel, are serviced and
collected through our branch network, providing us with frequent
in-person contact with our customers, which we believe improves
our credit performance and customer loyalty. Our goal is to
consistently and soundly grow our finance receivables and manage
our portfolio risk while providing our customers with attractive
and
easy-to-understand
loan products that serve their varied financial needs.
Our diversified product offerings include:
|
|
|
|
n
|
Small Installment Loans As of March 31,
2011, we had approximately 110,000 small installment loans
outstanding representing $99.6 million in finance
receivables.
|
|
|
|
|
n
|
Large Installment Loans As of March 31,
2011, we had approximately 11,000 large installment loans
outstanding representing $32.7 million in finance
receivables.
|
|
|
|
|
n
|
Automobile Purchase Loans As of
March 31, 2011, we had approximately 13,700 automobile
purchase loans outstanding representing $102.2 million in
finance receivables.
|
|
|
|
|
n
|
Furniture and Appliance Purchase Loans As of
March 31, 2011, we had approximately 3,200 furniture and
appliance purchase loans outstanding representing
$3.7 million in finance receivables.
|
|
|
|
|
n
|
Insurance Products We offer our customers
optional payment protection insurance options relating to many
of our loan products.
|
Our primary sources of revenue are interest and fee income from
our loan products, of which interest and fees relating to
installment loans and automobile purchase loans have
historically been the largest component. In 2009, we introduced
furniture and appliance purchase loans and expanded our
automobile purchase loans to offer loans through online credit
application networks. In addition to interest and fee income
from loans, we derive revenue from insurance products sold to
customers of our direct loan products.
Factors Affecting
Our Results of Operations
Our business is driven by several factors affecting our
revenues, costs and results of operations, including the
following:
Growth in Loan Portfolio. The revenue that we derive
from interest and fees from our loan products is largely driven
by the number of loans that we originate. Average finance
receivables grew 8.3% from $178.2 million in 2008 to
$193.0 million in 2009 and then grew 11.9% to
$216.0 million in 2010. Average finance receivables grew
16.4% from $206.9 million in the first three months of 2010
to $240.8 million in the first three months of 2011. We
originated 43,000, 47,400, 55,300 and 6,820 new loans during
2008, 2009, 2010 and the first three months of 2011,
respectively. We source our loans through our branches and our
live check program, as well as through automobile dealerships
and furniture and appliance retailers that partner with us. Our
loans are made exclusively in
38
geographic markets served by our network of branches.
Increasing the number of branches we operate allows us to
increase the number of loans that we are able to service. We
opened 16, six and 17 new branches in 2008, 2009 and 2010,
respectively. As of March 31, 2011, we had opened
11 new branches and acquired one branch in 2011, with an
additional 18 locations expected to open before year end.
We have grown more rapidly in our two newest states, Tennessee
and Alabama. We opened our first branch in Tennessee in 2007 and
our first branch in Alabama in 2009. As of March 31, 2011,
we operated 12 branches with a total of $10.1 million in
finance receivables in Tennessee and 10 branches with a total of
$6.4 million in finance receivables in Alabama.
Product Mix. We offer a number of different loan
products, including small installment loans, large installment
loans, automobile purchase loans and furniture and appliance
purchase loans. We charge different interest rates and fees and
are exposed to different credit risks with respect to the
various types of loans we offer. For example, in recent years,
we have sought to increase our product diversification by
growing our automobile purchase and furniture and appliance
purchase loans, which have lower interest rates and fees than
our small and large installment loans but also have longer
maturities and lower charge-off rates. Our product mix also
varies to some extent by state. For example, small installment
loans make up a smaller percentage of our loan portfolio in
North Carolina than in the other states in which we operate
because the rate structure in North Carolina is more favorable
for larger loans. Small installment loans make up a larger
percentage of our loan portfolio in Texas than our other loan
products because our branches in Texas have historically focused
on small installment loans. However, we expect to diversify our
product mix in Texas in the future. The following table sets
forth the finance receivables for each of our loan products as
of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31,
|
|
|
AS OF MARCH 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
FINANCE
|
|
|
TOTAL FINANCE
|
|
|
FINANCE
|
|
|
TOTAL FINANCE
|
|
|
FINANCE
|
|
|
TOTAL FINANCE
|
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
(Dollars in thousands)
|
|
|
Small installment loans
|
|
$
|
102,651
|
|
|
|
47.8
|
%
|
|
$
|
117,599
|
|
|
|
47.6
|
%
|
|
$
|
99,622
|
|
|
|
41.8
|
%
|
Large installment loans
|
|
|
28,217
|
|
|
|
13.1
|
%
|
|
|
33,653
|
|
|
|
13.6
|
%
|
|
|
32,669
|
|
|
|
13.7
|
%
|
Automobile purchase loans
|
|
|
83,253
|
|
|
|
38.7
|
%
|
|
|
93,232
|
|
|
|
37.7
|
%
|
|
|
102,164
|
|
|
|
42.9
|
%
|
Furniture and appliance purchase loans
|
|
|
788
|
|
|
|
0.4
|
%
|
|
|
2,762
|
|
|
|
1.1
|
%
|
|
|
3,661
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
214,909
|
|
|
|
100.0
|
%
|
|
$
|
247,246
|
|
|
|
100.0
|
%
|
|
$
|
238,117
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality. Our results of operations are highly
dependent upon maintaining an asset portfolio with strong credit
quality. We recorded $17.4 million of provisions for loan
losses during 2008 (or 9.8% as a percentage of average finance
receivables), $19.4 million of provisions for loan losses
during 2009 (or 10.1% as a percentage of average finance
receivables), $16.6 million of provisions for loan losses
during 2010 (or 7.7% as a percentage of average finance
receivables) and $3.8 million of provisions for loan losses
during the first three months of 2011 (or 6.4% as a percentage
of average finance receivables (annualized)). The quality of our
asset portfolio is the result of our ability to enforce sound
underwriting standards, maintain diligent portfolio oversight
and respond to changing economic conditions as we grow our loan
portfolio.
Interest Rates. Our costs of funds are affected by
changes in interest rates. In particular, the interest rate that
we pay on our senior revolving credit facility is a floating
rate based on LIBOR. Although we have purchased interest rate
caps to protect a notional amount of $150.0 million of our
outstanding senior revolving credit facility should the
three-month LIBOR exceed 6.0%, our cost of funding will increase
if LIBOR increases. The interest rates that we charge on our
loans are not significantly impacted by changes in market
interest rates.
Efficiency Ratio. One of our key operating metrics
is our efficiency ratio, which is calculated by dividing the sum
of general and administrative expenses by total revenue. Our
efficiency ratio has improved from 43.2% in 2006 to 38.6% in
2010 as a result of our focus on operating efficiencies and
gains in productivity. Our efficiency ratio was 41.4% in the
first three months of 2011, compared to 41.1% in the same period
of 2010. The increase in our efficiency ratio primarily was due
to expenses associated with opening 11 new stores in the
first quarter of 2011. Following this offering, we expect to
incur new expenses associated with operating as a public company
and increased personnel expenses, which will tend to increase
our efficiency ratio.
39
Components of
Results of Operations
Interest and
Fee Income
Our interest and fee income consists primarily of interest
earned on outstanding loans. We cease accruing interest on a
loan when the customer is contractually past due 90 days.
Accrual resumes when the customer makes at least one full
payment and the account is less than 90 days contractually
past due.
Loan fees are additional charges to the customer, such as loan
origination fees, acquisition fees and maintenance fees, as
permitted by state law. The fees may or may not be refundable to
the customer in the event of an early payoff depending on state
law. Fees are accreted to income over the life of the loan on
the constant yield method and are included in the
customers truth in lending disclosure.
The following table sets forth the composition of our average
finance receivables and average yield for each of our loan
products for the year ended December 31, 2010 and for the
three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE YEAR ENDED DECEMBER 31,
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
AVERAGE FINANCE
|
|
|
|
|
|
AVERAGE FINANCE
|
|
|
|
|
|
|
RECEIVABLES
|
|
|
AVERAGE YIELD
|
|
|
RECEIVABLES
|
|
|
AVERAGE YIELD
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Small installment loans
|
|
$
|
96,104
|
|
|
|
47.6
|
%
|
|
$
|
108,324
|
|
|
|
48.8
|
%
|
Large installment loans
|
|
|
32,483
|
|
|
|
26.6
|
%
|
|
|
32,700
|
|
|
|
27.2
|
%
|
Automobile purchase loans
|
|
|
85,705
|
|
|
|
22.7
|
%
|
|
|
96,528
|
|
|
|
22.7
|
%
|
Furniture and appliance purchase loans
|
|
|
1,730
|
|
|
|
22.8
|
%
|
|
|
3,273
|
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
216,024
|
|
|
|
34.4
|
%
|
|
$
|
240,824
|
|
|
|
35.0
|
%
|
|
Insurance
Income
Our insurance income consists of revenue from the sale of
various insurance products and other payment protection options
offered to customers who obtain loans directly from us. We do
not sell insurance to non-borrowers. The type and terms of our
insurance products vary from state to state based on applicable
laws and regulations. We offer optional credit life insurance,
credit accident and health insurance and involuntary
unemployment insurance. We require property insurance on any
personal property securing loans and offer customers the option
of providing proof of such insurance purchased from a third
party (such as homeowners or renters insurance) in lieu of
purchasing property insurance from us. We also require proof of
liability and collision insurance for any vehicles securing
loans, and we obtain collateral insurance on behalf of customers
who permit their other insurance coverage to lapse.
We issue insurance certificates as agents on behalf of an
unaffiliated insurance company and then remit to the
unaffiliated insurance company the premiums we collect (net of
refunds on paid out or renewed loans). The unaffiliated
insurance company cedes life insurance premiums to our
wholly-owned insurance subsidiary, RMC Reinsurance, Ltd.
(RMC Reinsurance), as written and non-life premiums
to RMC Reinsurance as earned. As of March 31, 2011, we had
pledged an $888,000 letter of credit to the unaffiliated
insurance company to secure payment of life insurance claims. We
maintain a cash reserve for life insurance claims in an amount
determined by the unaffiliated insurance company. 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 (except in North
Carolina, which does not permit late charges on consumer loans).
Other income also includes fees for extending the due date of a
loan and returned check charges. Due date extensions are only
available to a customer once every thirteen months, are
available only to customers who are current on their loans and
must be approved by personnel at our headquarters. Less than 1%
of scheduled payments were deferred in 2010.
Provision for
Loan Losses
Provisions for loan losses are charged to income in amounts that
we judge as sufficient to maintain an allowance for loan losses
at an adequate level to provide for losses on the related
finance receivables portfolio. Loan loss experience, contractual
delinquency of finance receivables, the value of underlying
collateral, and managements judgment are factors used in
assessing the overall adequacy of the allowance and the
resulting provision for loan losses. Our provision for loan
losses fluctuates so that we maintain an adequate loan loss
allowance that accurately reflects our estimates of
40
losses in our loan portfolio. Therefore changes in our
charge-off rates may result in changes to our provision for loan
losses. While management uses the best information available to
make its evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic
conditions or portfolio performance.
As of January 1, 2010, we changed our loan loss allowance
methodology for small installment loans to determine the
allowance using losses from the trailing eight months, rather
than the trailing nine months, to more accurately reflect the
six-month average life of our small installment loans. The
change in accounting estimate from nine to eight months of
average losses reduced the loss allowance for small installment
loans by $1.0 million as of January 1, 2010 and
reduced the provision for loan losses by $0.5 million for
2010.
General and
Administrative Expenses
Our general and administrative expenses are comprised of four
categories: personnel, occupancy, advertising and other. We
typically measure our general and administrative expenses as a
percentage of total revenue, which we refer to as our
efficiency ratio.
Our personnel expenses are the largest component of our general
and administrative expenses and consist primarily of the
salaries, bonuses and benefits associated with all of our
branch, field and headquarters employees and related payroll
taxes. As described in Management Compensation
Discussion and Analysis Actions Taken in 2011 and
Anticipated Actions in Connection with the Offering, at
the time of this offering, we intend to grant awards of stock
options to purchase an aggregate
of shares
of our common stock pursuant to the 2011 Stock Plan to certain
of our executive officers and directors. Each stock option will
have an exercise price equal to the initial public offering
price per share in this offering. The vesting and other terms of
the options will be determined prior to the consummation of this
offering. We expect to record deferred stock-based compensation
expense equal to the grant-date fair value of the stock options
issued of $ million, which
will be recognized over the vesting period.
Our occupancy expenses consist primarily of the cost of renting
our branches, all of which are leased, as well as the costs
associated with operating our branches.
Our advertising expenses consist primarily of costs associated
with our live check direct mail campaigns (including postage and
costs associated with selecting recipients), maintaining our web
site as well as telephone directory advertisements and some
local advertising by branches. These costs are expensed as
incurred.
Other expenses consist primarily of various other expenses
including legal, audit, office supplies, credit bureau charges
and postage.
We expect that our general and administrative expenses will
increase as a result of the additional legal, accounting,
insurance and other expenses associated with being a public
company.
Consulting and
Advisory Fees
Consulting and advisory fees consist of amounts payable to the
sponsors and certain former major shareholders, who were members
of our management before our acquisition by the sponsors,
pursuant to the agreements described under Certain
Relationships and Related Party Transactions
Advisory and Consulting Fees. These agreements will be
terminated upon consummation of this offering.
Interest
Expense
Our interest expense consists primarily of interest payable and
amortization of debt issuance costs in respect of borrowings
under our senior revolving credit facility and our mezzanine
debt. Interest expense also includes costs attributable to the
interest rate caps we enter into to manage our interest rate
risk. Changes in the fair value of the interest rate cap are
reflected in interest expense for the senior and other debt. We
intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility with
proceeds from this offering.
Income
Taxes
Incomes taxes consist primarily 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 effects of future tax rate changes are
recognized in the period when the enactment of new rates occurs.
41
Results of
Operations
The following table summarizes key components of our results of
operations for the periods indicated both in dollars and as a
percentage of total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
THREE MONTHS ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
58,471
|
|
|
|
87.6
|
%
|
|
$
|
63,590
|
|
|
|
87.3
|
%
|
|
$
|
74,218
|
|
|
|
85.5
|
%
|
|
$
|
18,022
|
|
|
|
83.1
|
%
|
|
$
|
21,045
|
|
|
|
85.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance income, net
|
|
|
4,620
|
|
|
|
6.9
|
%
|
|
|
5,229
|
|
|
|
7.2
|
%
|
|
|
8,252
|
|
|
|
9.5
|
%
|
|
|
2,295
|
|
|
|
10.6
|
%
|
|
|
2,194
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
3,651
|
|
|
|
5.5
|
%
|
|
|
3,995
|
|
|
|
5.5
|
%
|
|
|
4,362
|
|
|
|
5.0
|
%
|
|
|
1,362
|
|
|
|
6.3
|
%
|
|
|
1,457
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
66,742
|
|
|
|
100.0
|
%
|
|
|
72,814
|
|
|
|
100.0
|
%
|
|
|
86,832
|
|
|
|
100.0
|
%
|
|
|
21,679
|
|
|
|
100.0
|
%
|
|
|
24,696
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
26.0
|
%
|
|
|
19,405
|
|
|
|
26.7
|
%
|
|
|
16,568
|
|
|
|
19.1
|
%
|
|
|
3,902
|
|
|
|
18.0
|
%
|
|
|
3,836
|
|
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
17,781
|
|
|
|
26.7
|
%
|
|
|
18,991
|
|
|
|
26.1
|
%
|
|
|
20,630
|
|
|
|
23.8
|
%
|
|
|
5,946
|
|
|
|
27.4
|
%
|
|
|
6,540
|
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy
|
|
|
4,398
|
|
|
|
6.6
|
%
|
|
|
4,538
|
|
|
|
6.2
|
%
|
|
|
5,165
|
|
|
|
5.9
|
%
|
|
|
1,222
|
|
|
|
5.6
|
%
|
|
|
1,471
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
999
|
|
|
|
1.5
|
%
|
|
|
1,212
|
|
|
|
1.7
|
%
|
|
|
2,027
|
|
|
|
2.3
|
%
|
|
|
547
|
|
|
|
2.5
|
%
|
|
|
647
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
4,684
|
|
|
|
7.0
|
%
|
|
|
4,379
|
|
|
|
6.0
|
%
|
|
|
5,703
|
|
|
|
6.6
|
%
|
|
|
1,204
|
|
|
|
5.6
|
%
|
|
|
1,554
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and advisory fees
|
|
|
1,644
|
|
|
|
2.5
|
%
|
|
|
1,263
|
|
|
|
1.7
|
%
|
|
|
1,233
|
|
|
|
1.4
|
%
|
|
|
308
|
|
|
|
1.4
|
%
|
|
|
310
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
7,399
|
|
|
|
11.0
|
%
|
|
|
4,846
|
|
|
|
6.6
|
%
|
|
|
5,542
|
|
|
|
6.4
|
%
|
|
|
1,484
|
|
|
|
6.8
|
%
|
|
|
1,763
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine debt
|
|
|
3,706
|
|
|
|
5.6
|
%
|
|
|
3,835
|
|
|
|
5.3
|
%
|
|
|
4,342
|
|
|
|
5.0
|
%
|
|
|
984
|
|
|
|
4.5
|
%
|
|
|
996
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
11,105
|
|
|
|
16.6
|
%
|
|
|
8,681
|
|
|
|
11.9
|
%
|
|
|
9,884
|
|
|
|
11.4
|
%
|
|
|
2,468
|
|
|
|
11.4
|
%
|
|
|
2,759
|
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
57,987
|
|
|
|
86.9
|
%
|
|
|
58,469
|
|
|
|
80.3
|
%
|
|
|
61,210
|
|
|
|
70.5
|
%
|
|
|
15,597
|
|
|
|
71.9
|
%
|
|
|
17,117
|
|
|
|
69.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
8,755
|
|
|
|
13.1
|
%
|
|
|
14,345
|
|
|
|
19.7
|
%
|
|
|
25,622
|
|
|
|
29.5
|
%
|
|
|
6,082
|
|
|
|
28.1
|
%
|
|
|
7,579
|
|
|
|
30.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
2,276
|
|
|
|
3.4
|
%
|
|
|
4,472
|
|
|
|
6.1
|
%
|
|
|
9,178
|
|
|
|
10.6
|
%
|
|
|
2,129
|
|
|
|
9.8
|
%
|
|
|
2,644
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,479
|
|
|
|
9.7
|
%
|
|
$
|
9,873
|
|
|
|
13.6
|
%
|
|
$
|
16,444
|
|
|
|
18.9
|
%
|
|
$
|
3,953
|
|
|
|
18.3
|
%
|
|
$
|
4,935
|
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2011 Compared to Three Months Ended
March 31, 2010
Interest and Fee
Income
Interest and fee income increased $3.0 million, or 16.8%,
to $21.0 million in the first three months of 2011 from
$18.0 million in the first three months of 2010. The
increase in interest and fee income was due primarily to a 16.4%
increase in average net finance receivables during the period
and an increase in the average yield on loans from 34.8% to
35.0%.
Insurance
Income
Insurance income decreased $0.1 million, or 4.4%, to
$2.2 million in the first three months of 2011 from
$2.3 million in the first three months of 2010. The
decrease in insurance income was due primarily to a 1.9%
increase in direct automobile purchase loans as a percentage of
total loans in the first three months of 2011 compared to the
first three months of 2010. Insurance sales are lower on
automobile purchase loans than on installment loans because we
often do not have direct contact with automobile purchase loan
customers to offer insurance products. Insurance income was 0.9%
of average finance receivables in the first three months of 2011
compared to 1.1% in the first three months of 2010.
Other
Income
Other income increased $0.1 million, or 7.0%, to
$1.5 million in the first three months of 2011 from
$1.4 million in the first three months of 2010. The largest
component of other income was late charges, which increased
$0.1 million, or 14.2%, to $0.8 million in the first
three months of 2011 from $0.7 million in the first three
months of 2010. Late charges as a percentage of average finance
receivables declined slightly in the first three months of 2011
as compared to the first three months of 2010, which was the
result of lower delinquencies.
Provision for
Loan Losses
Our provision for loan losses decreased $0.1 million, or
1.7%, to $3.8 million in the first three months of 2011
from $3.9 million in the first three months of 2010. The
decrease in provision for loan losses in the first three months
of 2011 resulted mainly from a decrease in charge-offs as a
result of fewer delinquencies in our overall loan
42
portfolio. Net charge-offs for the first three months of 2011
were $3.8 million, or 6.4% of average finance receivables
(annualized), compared to $4.4 million, or 8.4% of average
finance receivables (annualized), in the first three months of
2010.
General and
Administrative Expenses
Our general and administrative expenses, comprising expenses for
personnel, occupancy, advertising and other expenses, increased
$1.3 million, or 14.5%, to $10.2 million in the first
three months of 2011 from $8.9 million in the first three
months of 2010. Our efficiency ratio increased 0.3% to 41.4% in
the first three months of 2011 from 41.1% in the first three
months of 2010.
Personnel. The largest component of general
and administrative expenses is personnel expenses, which
increased $0.6 million, or 10.0%, to $6.5 million in
the first three months of 2011 from $5.9 million in the
first three months of 2010. This increase is primarily
attributable to the opening of an additional 27 branches from
March 31, 2010 to March 31, 2011. Personnel costs decreased
as a percentage of total revenue to 26.5% in the first three
months of 2011 from 27.4% in the first three months of 2010.
Occupancy. Occupancy expenses increased
$0.2 million, or 20.4%, to $1.5 million in the first
three months of 2011 from $1.2 million in the first three
months of 2010. The increase in occupancy expense is the result
of additional branches and the associated rent and utility costs.
Advertising. Advertising expenses increased
$0.1 million, or 18.3%, to $0.6 million in the first
three months of 2011 from $0.5 million in the first three
months of 2010. The increase in advertising expenses was due
primarily to an increase in the size of our live check campaigns
along with the growth in our business.
Other Expenses. Other expenses increased
$0.4 million, or 29.1%, to $1.6 million in the first
three months of 2011 from $1.2 million in the first three
months of 2010. The increase in other expenses was due primarily
to growth in our business.
Interest
Expense
Interest expense increased $0.3 million, or 11.8%, to
$2.8 million in the first three months of 2011 from
$2.5 million in the first three months of 2010. The
increase in interest expense was due primarily to increased
interest expense associated with our senior revolving credit
facility and mezzanine debt.
Interest expense associated with the senior revolving credit
facility increased $0.3 million in the first three months
of 2011. We renewed our senior revolving credit facility in
August 2010. The renewed senior revolving credit facility
included a new LIBOR floor of 1.00%, a higher interest rate
spread over LIBOR and a higher fee on the unused amount of the
facility. In addition, the average amount outstanding under our
senior revolving credit facility increased by $12.9 million in
the first three months of 2011 as compared to the first three
months of 2010. In the first three months of 2010, the average
30-day LIBOR
rate was 0.23% and, in the first three months of 2011, the rate
was 0.26%. The rate on the mezzanine debt was 15.25% in first
three months of 2011 as compared to 14.25% in the first three
months of 2010.
We intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility in
connection with the offering transactions.
Consulting and
Advisory Fees
The consulting and advisory fees paid to related parties was
$0.3 million in each of the first three months of 2010 and
the first three months of 2011. These agreements will be
terminated in connection with the offering transactions.
Income
Taxes
Income taxes increased $0.5 million, or 24.1%, to
$2.6 million in the first three months of 2011 from
$2.1 million in the first three months of 2010. The
increase in income taxes was due primarily to an increase in our
net income before taxes.
43
Year Ended
December 31, 2010 Compared To Year Ended December 31,
2009
Interest and Fee
Income
Interest and fee income increased $10.6 million, or 16.7%,
to $74.2 million in 2010 from $63.6 million in 2009.
The increase in interest and fee income was due primarily to an
11.9% increase in average finance receivables during the period
and an increase in the average yield on loans from 33.0% to
34.4%.
Insurance
Income
Insurance income increased $3.0 million, or 57.8%, to
$8.3 million in 2010 from $5.2 million in 2009. The
increase in insurance income was due primarily to growth in
loans and higher acceptance of insurance products in connection
with our loans. Insurance income also benefited from a refund of
$570,000 from our insurance partner recognized in January 2010
and a reduction of $147,000 in our credit involuntary
unemployment insurance claims reserve recognized in April 2010
and a further reduction of $85,000 in October 2010. Net of these
items, insurance income increased $2.2 million, or 42.5%.
Insurance income was 3.8% of average finance receivables in 2010
compared to 2.7% in 2009.
Other
Income
Other income increased $367,000, or 9.2%, to $4.4 million
in 2010 from $4.0 million in 2009. The largest component of
other income was late charges, which increased $230,000, or
8.9%, to $2.8 million in 2010 from $2.6 million in
2009. The increase in late charges was attributable to growth in
finance receivables, slightly offset by lower delinquencies in
2010 compared to 2009.
Provision for
Loan Losses
Our provision for loan losses decreased $2.8 million, or
14.6%, to $16.6 million in 2010 from $19.4 million in
2009. The decreased provision for loan losses in 2010 resulted
mainly from lower net charge-offs. Net charge-offs for 2010 were
7.9% of average loans, compared to 8.6% of average loans in
2009. The decrease is also due to a change in our determination
of the loan loss allowance for small installment loans. As of
January 1, 2010, we changed our loan loss allowance methodology
for small installment loans to determine the allowance using
losses from the trailing eight months, rather than the trailing
nine months, to more accurately reflect the six-month average
life of our small installment loans. The change from nine to
eight months of average losses reduced the loss allowance for
small installment loans by $1.1 million as of January 1, 2010
and reduced the provision for loan losses by $451,000 for 2010.
General and
Administrative Expenses
Our general and administrative expenses, comprising expenses for
personnel, occupancy, advertising, and other expenses, increased
$4.4 million, or 15.2%, to $33.5 million in 2010 from
$29.1 million in 2009. Our efficiency ratio improved to
38.6% in 2010 from 40.0% in 2009.
Personnel. Personnel expenses increased
$1.6 million, or 8.6%, to $20.6 million in 2010 from
$19.0 million in 2009. This increase was primarily
attributable to the opening of 17 new stores in 2010. Personnel
costs declined as a percentage of total revenue to 23.8% in 2010
from 26.1% in 2009.
Occupancy. Occupancy expenses increased $627,000, or
13.8%, to $5.2 million in 2010 from $4.5 million in
2009. The increase in occupancy expense was the result of
opening new stores and increases in rent on lease renewals for
certain existing stores.
Advertising. Advertising expenses increased
$815,000, or 67.2%, to $2.0 million in 2010 from
$1.2 million in 2009. The increase in advertising expenses
was due primarily to an increase in the size of our live check
campaigns. The volume of our live check distributions increased
81.3% from 2009 to 2010.
Other Expenses. Other expenses increased
$1.3 million, or 30.2%, to $5.7 million in 2010 from
$4.4 million in 2009. The increase in other expenses was
due primarily to growth in our business, as other expenses as a
percentage of total revenue remained relatively constant.
Interest
Expense
Interest expense increased $1.2 million, or 13.9%, to
$9.9 million in 2010 from $8.7 million in 2009. The
increase in interest expense was due primarily to an unfavorable
mark-to-market
adjustment of $843,000 recorded on our interest rate caps in
2010, compared to a favorable adjustment of $280,000 in 2009.
The increase also reflects increased interest expense associated
with our senior revolving credit facility and mezzanine debt.
44
Interest expense associated with the senior revolving credit
facility increased $696,000, primarily because of an increase in
effective interest rates. We renewed our senior revolving credit
facility in August 2010. The renewed senior revolving credit
facility included a new LIBOR floor of 1.00%, a higher interest
rate spread over LIBOR and a higher fee on the unused amount of
the facility. As a result, the effective rate increased from
3.4% in 2009 to a blended effective rate on the new and old
revolving credit facilities of 3.8% in 2010. In 2009, the
average
one-month
LIBOR was 0.33% and, in 2010, the rate was 0.27%. Interest
expense also increased slightly due to an increase in weighted
average borrowings to $144.1 million in 2010 from
$141.8 million in 2009.
Increased costs relating to our mezzanine debt are primarily due
to refinancing such debt in August 2010. The refinancing
resulted in an increase in interest rate from 14.00% to 15.25%
and the recognition of $246,000 in unamortized debt issuance
costs at the time of renewal.
We intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility with
proceeds from this offering.
Consulting and
Advisory Fees
The consulting and advisory fees paid to related parties
decreased $30,000, or 2.4%, to $1.2 million in 2010 from
$1.3 million in 2009. These agreements will be terminated
upon the consummation of this offering.
Income
Taxes
Income taxes increased $4.7 million, or 105.2%, to
$9.2 million in 2010 from $4.5 million in 2009. The
increase in income taxes was due primarily to growth in our
pre-tax income. Additionally, we moved into the 35% bracket
applicable to pre-tax income in excess of $18.3 million.
RMC Reinsurance is qualified as a small life insurance company
for income tax purposes and as such is permitted to exclude a
certain amount of income from taxable income. This income tax
benefit declined on a relative basis in 2010 as our insurance
income exceeded the amount permitted to be excluded.
Year Ended
December 31, 2009 Compared to Year Ended December 31,
2008
Interest and Fee
Income
Interest and fee income increased $5.1 million, or 8.8%, to
$63.6 million in 2009 from $58.5 million in 2008. The
increase in interest and fee income was due primarily to an 8.3%
increase in average finance receivables and a small increase in
the average yield on loans from 32.8% to 33.0%.
Insurance
Income
Insurance income increased $609,000, or 13.2%, to
$5.2 million in 2009 from $4.6 million in 2008. The
increase in insurance income was due primarily to growth of our
loan portfolio. Insurance income was essentially flat in 2009 as
a percentage of average finance receivables at 2.7% compared to
2.6% in 2008.
Other
Income
Other income increased $344,000, or 9.4%, to $4.0 million
in 2009 from $3.7 million in 2008. Late charges increased
slightly to $2.6 million in 2009 from $2.4 million in
2008. The increase was attributable to growth in finance
receivables, as late charges as a percentage of average finance
receivables remained constant.
Provision for
Loan Losses
The provision for loan losses increased $2.0 million, or
11.7%, to $19.4 million in 2009 from $17.4 million in
2008. The increase in the provision for loan losses was due
primarily to an 8.3% increase in average finance receivables and
an increase in net charge-offs from 8.4% of average loans in
2008 to 8.6% of average loans in 2009 and an increase in the
allowance due to prevailing economic conditions.
General and
Administrative Expenses
Our general and administrative expenses, comprising expenses for
personnel, occupancy, advertising, and other expenses increased
$1.3 million, or 4.5%, to $29.1 million in 2009 from
$27.9 million in 2008. Our efficiency ratio improved to
40.0% in 2009 from 41.7% in 2008.
Personnel. Personnel expenses increased
$1.2 million, or 6.8%, to $19.0 million in 2009 from
$17.8 million in 2008. As a percentage of total revenue
personnel costs were 26.1% for 2009 compared to 26.6% for 2008.
The increase in personnel costs was attributable to normal
salary increases and a modest increase in personnel due to the
opening of six stores in the second half of 2009.
45
Occupancy. Occupancy expenses increased $140,000, or
3.2%, to $4.5 million in 2009 from $4.4 million in
2008. The increase in occupancy expense is the result of opening
new stores and increases in rent on lease renewals in existing
stores.
Advertising. Advertising expenses increased
$213,000, or 21.3%, to $1.2 million in 2009 from
$1.0 million in 2008. The increase in advertising expenses
was due primarily to an increase in our live check campaigns.
The volume of our live check distributions increased 68.4% from
2008 to 2009.
Other Expenses. Other expenses decreased $305,000,
or 6.5%, to $4.4 million in 2009 from $4.7 million in
2008. The decrease in other expenses was partly due to the
introduction of our branch scorecard program in 2009. The
scorecard measures a variety of performance criteria, including
branch expense control against a predetermined standard. We
believe that the scorecard program has contributed to a
measurable decline in controllable expenses at our branches.
Interest
Expense
Interest expense decreased $2.4 million, or 21.8%, to
$8.7 million in 2009 from $11.1 million in 2008. The
decrease in interest expense was due primarily to decreased
interest expense associated with our senior revolving credit
facility, slightly offset by increased interest expense
associated with our mezzanine debt.
Interest expense on our senior revolving credit facility
decreased $2.6 million, despite an increase in average
borrowings to $141.8 million in 2009 from
$135.1 million in 2008, because of a decline in variable
interest rates. In 2008, the average rate on
one-month
LIBOR was 2.67%; in 2009, the rate was 0.35%. Additionally,
interest expense in 2009 benefited from a favorable fair value
adjustment of $280,000 on our interest rate cap.
We intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility with
proceeds from this offering.
Consulting and
Advisory Fees
The consulting and advisory fees paid to related parties
decreased $381,000, or 23.2%, to $1.3 million in 2009 from
$1.6 million in 2008. The decrease in consulting and
advisory fees was due primarily to the reduction in fees and
expenses paid in 2008 related to the evaluation of certain
acquisition transactions that were not consummated. These
agreements will be terminated upon the consummation of this
offering.
Income
Taxes
Income taxes increased $2.2 million, or 96.5%, to
$4.5 million in 2009 from $2.3 million in 2008. The
increase was primarily due to an increase in our net income
before taxes. Additionally, the benefit of the small life
insurance company exemption had a more significant impact in
2008 because of the subsidiarys lower effective tax rate
and overall lower income before income taxes.
Quarterly
Information and Seasonality
Our loan volume and corresponding finance receivables follow
seasonal trends. Demand for our loans is typically highest
during the fourth quarter, largely due to holiday spending. Loan
demand has generally been the lowest during the first quarter,
largely due to the timing of income tax refunds. During the
remainder of the year, our loan volume typically grows from
customer loan activity. In addition, we typically generate
higher loan volumes in the second half of the year from our live
check campaigns, which are timed to coincide with seasonal
consumer demand. Consequently, we experience significant
seasonal fluctuations in our operating results and cash needs.
Liquidity and
Capital Resources
We have historically financed, and plan to continue to finance,
the majority of our operating liquidity and capital needs
through a combination of cash flows from operations and
borrowings under our senior revolving credit facility.
As a holding company, almost all of the funds generated from our
operations are earned by our operating subsidiaries. In
addition, our wholly-owned subsidiary RMC Reinsurance is
required to maintain cash reserves against life insurance
policies ceded to it, as determined by the ceding company, and
has also purchased a cash-collateralized letter of credit in
favor of the ceding company. As of March 31, 2011, these
reserve requirements totaled $888,000; additionally, we had a
reserve for life insurance claims on our balance sheet of
$190,000, as determined by the third party, unrelated ceding
company.
46
Our primary cash needs relate to funding our lending activities
and, to a lesser extent, capital expenditures relating to
expanding and maintaining our branch locations.
Cash
Flow
A summary of operating, investing and financing activities are
shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
UNAUDITED THREE MONTHS ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Provided by operating activities
|
|
$
|
26,654
|
|
|
$
|
31,232
|
|
|
$
|
41,215
|
|
|
$
|
11,171
|
|
|
$
|
9,985
|
|
Provided by (used in) investing activities
|
|
|
(41,198
|
)
|
|
|
(40,711
|
)
|
|
|
(50,599
|
)
|
|
|
10,303
|
|
|
|
4,728
|
|
Provided by (used in) by financing activities
|
|
|
14,428
|
|
|
|
11,066
|
|
|
|
7,222
|
|
|
|
(23,730
|
)
|
|
|
(11,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase(decrease) in cash and cash equivalents
|
|
$
|
(116
|
)
|
|
$
|
1,587
|
|
|
$
|
(2,162
|
)
|
|
$
|
(2,256
|
)
|
|
$
|
3,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash provided by operating activities decreased by
$1.2 million, or 10.6%, to $10.0 million in the first
three months of 2011 from $11.1 million in the first three
months of 2010. The decrease was primarily due to an increase in
cash paid for income taxes of $1.8 million, partially
offset by an increase in net income of $1.0 million. We did
not make an estimated tax payment in the first three months of
2010 as we had recently adopted the fair market value method of
valuing loans for tax purposes.
Net cash provided by operating activities increased by
$10.0 million, or 32.0%, to $41.2 million in 2010 from
$31.2 million in 2009. The increases were primarily due to
increased net income.
Net cash provided by operating activities increased by
$4.6 million, or 17.2%, to $31.2 million in 2009 from
$26.6 million in 2008. The increases were due primarily to
increased net income.
Investing
Activities
Investing activities consist of finance receivables originated,
net increase in restricted cash, purchase of furniture and
equipment for new and existing branches and the purchase of
interest rate caps.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
UNAUDITED THREE MONTHS ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Finance receivables (originated) repaid
|
|
$
|
(39,755
|
)
|
|
$
|
(49,346
|
)
|
|
$
|
10,497
|
|
|
$
|
4,728
|
|
Net increase in restricted cash
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of furniture and equipment
|
|
|
(1,348
|
)
|
|
|
(1,210
|
)
|
|
|
(194
|
)
|
|
|
(565
|
)
|
Purchase of interest rate caps
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
(41,198
|
)
|
|
$
|
(50,599
|
)
|
|
$
|
10,303
|
|
|
$
|
4,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities decreased
$5.6 million, or 54.1%, to $4.7 million in the first
three months of 2011 from $10.3 million in the first three
months of 2010. Outstanding finance receivables typically
decline in the first quarter of each year. In the first three
months of 2011, the decline was smaller than the decline in the
first three months of 2010.
Net cash used in investing activities increased by
$9.9 million, or 24.3%, to $50.6 million in 2010 from
$40.7 million in 2009. The increases were due primarily to
an increase in our finance receivables originated as described
above.
Net cash used in investing activities decreased by $487,000, or
1.2%, to $40.7 million in 2009 from $41.2 million in
2008.
47
Financing
Activities
Financing activities consist of borrowings and payments on our
outstanding indebtedness and the net change in our cash
overdraft.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
UNAUDITED THREE MONTHS ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Net increase (decrease) in cash overdraft
|
|
$
|
(332
|
)
|
|
$
|
(214
|
)
|
|
$
|
215
|
|
|
$
|
744
|
|
|
$
|
1,039
|
|
Net advances (payments) on senior revolving credit facility
|
|
|
16,396
|
|
|
|
11,674
|
|
|
|
7,015
|
|
|
|
(24,591
|
)
|
|
|
(11,954
|
)
|
Proceeds from issuance of mezzanine debt, related party
|
|
|
|
|
|
|
|
|
|
|
25,814
|
|
|
|
|
|
|
|
|
|
Payments on mezzanine debt
|
|
|
|
|
|
|
|
|
|
|
(25,814
|
)
|
|
|
|
|
|
|
|
|
Payments on subordinated debt and other notes, net
|
|
|
(1,636
|
)
|
|
|
(394
|
)
|
|
|
(8
|
)
|
|
|
117
|
|
|
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
$
|
14,428
|
|
|
$
|
11,066
|
|
|
$
|
7,222
|
|
|
$
|
(23,730
|
)
|
|
$
|
(11,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of borrowings required to fund loan growth has
consistently declined since 2008, as illustrated in the
following chart:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ADVANCES ON
|
|
|
|
|
|
|
|
|
|
SENIOR REVOLVING
|
|
|
|
|
|
|
NET ADVANCES
|
|
|
CREDIT FACILITY AS A
|
|
|
|
|
|
|
(PAYMENTS)
|
|
|
PERCENTAGE OF
|
|
|
|
FINANCE
|
|
|
ON SENIOR
|
|
|
FINANCE
|
|
|
|
RECEIVABLES
|
|
|
REVOLVING
|
|
|
RECEIVABLES
|
|
PERIOD
|
|
ORIGINATED
|
|
|
CREDIT FACILITY
|
|
|
ORIGINATED
|
|
|
|
(In thousands, except percentages)
|
|
|
2008
|
|
$
|
39,755
|
|
|
$
|
16,396
|
|
|
|
41
|
%
|
2009
|
|
$
|
39,249
|
|
|
$
|
11,674
|
|
|
|
30
|
%
|
2010
|
|
$
|
49,346
|
|
|
$
|
7,015
|
|
|
|
14
|
%
|
First quarter 2011
|
|
$
|
5,293
|
|
|
$
|
(11,954
|
)
|
|
|
NA
|
|
|
Net cash used in financing activities decreased by
$12.5 million, or 52.9%, to $11.2 million in the three
months ended March 31, 2011 from $23.7 million in the
three months ended March 31, 2010. The decrease in net cash
used in financing activities was primarily a result of a
decrease in net payments to our senior revolving credit facility
due to decreased cash available from operating activities.
Net cash provided by financing activities decreased by
$3.8 million, or 34.7%, to $7.2 million in 2010 from
$11.1 million in 2009. The decrease in net cash provided by
financing activities was primarily a result of a decrease in the
net advances from our senior revolving credit facility, due to
our increased cash available from operating activities, which
has allowed us to fund a greater percentage of our loans using
cash on hand.
Net cash provided by financing activities decreased by
$3.4 million, or 23.3%, to $11.1 million in 2009 from
$14.4 million in 2008. The decrease in net cash provided by
financing activities was primarily a result of a decrease in the
net advances from our senior revolving credit facility, due to
increased cash available from operating activities.
We intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility with
proceeds from this offering.
48
Finance
Receivables
Allowance for
Loan Losses
The following table sets forth information concerning our
allowance for loan losses as of the dates and for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
13,290
|
|
|
$
|
15,665
|
|
|
$
|
18,441
|
|
|
$
|
18,441
|
|
|
$
|
18,000
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
|
|
3,902
|
|
|
|
3,836
|
|
Finance receivables charged off
|
|
|
(15,879
|
)
|
|
|
(17,002
|
)
|
|
|
(17,469
|
)
|
|
|
(4,486
|
)
|
|
|
(4,004
|
)
|
Recoveries
|
|
|
878
|
|
|
|
373
|
|
|
|
460
|
|
|
|
118
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
15,665
|
|
|
$
|
18,441
|
|
|
$
|
18,000
|
|
|
$
|
17,975
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our allowance for loan losses
compared to the related finance receivables as of
December 31, 2010 and March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2010
|
|
|
AS OF MARCH 31, 2011
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
PERCENTAGE OF
|
|
|
|
|
|
PERCENTAGE OF
|
|
|
|
FINANCE
|
|
|
RELATED FINANCE
|
|
|
FINANCE
|
|
|
RELATED FINANCE
|
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
(Dollars in thousands)
|
|
|
Small installment loans
|
|
$
|
117,559
|
|
|
|
7.6
|
%
|
|
$
|
98,623
|
|
|
|
6.9
|
%
|
Large installment loans
|
|
|
33,653
|
|
|
|
8.5
|
%
|
|
|
32,669
|
|
|
|
7.2
|
%
|
Automobile purchase loans
|
|
|
93,232
|
|
|
|
5.7
|
%
|
|
|
102,164
|
|
|
|
4.7
|
%
|
Furniture and appliance purchase loans
|
|
|
2,762
|
|
|
|
5.1
|
%
|
|
|
3,661
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
247,246
|
|
|
|
7.3
|
%
|
|
$
|
238,117
|
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for
Loan Losses
The following table sets forth the changes in the allowance for
loan losses for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
13,290
|
|
|
$
|
15,665
|
|
|
$
|
18,441
|
|
|
$
|
18,441
|
|
|
$
|
18,000
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
(1)
|
|
|
3,902
|
|
|
|
3,836
|
|
Finance receivables charged off
|
|
|
(15,879
|
)
|
|
|
(17,002
|
)
|
|
|
(17,469
|
)
|
|
|
(4,486
|
)
|
|
|
(4,004
|
)
|
Recoveries
|
|
|
878
|
|
|
|
373
|
|
|
|
460
|
|
|
|
118
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
15,665
|
|
|
$
|
18,441
|
|
|
$
|
18,000
|
|
|
$
|
17,975
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reducing the required allowance for
small loans from nine to eight months of losses reduced the 2010
provision by $451,000.
|
Distribution of
Finance Receivables
The following table presents the distribution of our finance
receivables by loan product and segregated by the final maturity
of the loan as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WITHIN ONE
|
|
|
ONE YEAR TO
|
|
|
|
|
|
|
|
|
|
YEAR
|
|
|
FIVE YEARS
|
|
|
AFTER FIVE YEARS
|
|
|
TOTAL
|
|
|
|
(In thousands)
|
|
|
Small installment loans
|
|
$
|
58,169
|
|
|
$
|
59,430
|
|
|
$
|
|
|
|
$
|
117,599
|
|
Large installment loans
|
|
|
4,388
|
|
|
|
29,265
|
|
|
|
|
|
|
|
33,653
|
|
Automobile purchase loans
|
|
|
6,080
|
|
|
|
86,979
|
|
|
|
173
|
|
|
|
93,232
|
|
Furniture and appliance purchase loans
|
|
|
703
|
|
|
|
2,059
|
|
|
|
|
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
69,340
|
|
|
$
|
177,733
|
|
|
$
|
173
|
|
|
$
|
247,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
The following table presents the distribution of our finance
receivables by state and segregated by the final maturity of the
loan as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WITHIN ONE
|
|
|
ONE YEAR TO
|
|
|
|
|
|
|
|
|
|
YEAR
|
|
|
FIVE YEARS
|
|
|
AFTER FIVE YEARS
|
|
|
TOTAL
|
|
|
|
(Dollars in thousands)
|
|
|
South Carolina
|
|
$
|
29,466
|
|
|
$
|
99,935
|
|
|
$
|
66
|
|
|
$
|
129,467
|
|
Texas
|
|
|
20,628
|
|
|
|
21,870
|
|
|
|
61
|
|
|
|
42,559
|
|
North Carolina
|
|
|
10,288
|
|
|
|
48,364
|
|
|
|
16
|
|
|
|
58,668
|
|
Tennessee
|
|
|
5,385
|
|
|
|
4,691
|
|
|
|
30
|
|
|
|
10,106
|
|
Alabama
|
|
|
3,573
|
|
|
|
2,873
|
|
|
|
|
|
|
|
6,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
69,340
|
|
|
$
|
177,733
|
|
|
$
|
173
|
|
|
$
|
247,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of our finance receivables have predetermined, or fixed,
interest rates.
Financing
Arrangements
Senior Revolving
Credit Facility
In August 2010, we renewed our senior revolving credit facility
with a syndicate of banks. The senior revolving credit facility
provides for up to $225.0 million in availability, with a
borrowing base of 85% of eligible finance receivables. The
senior revolving credit facility matures on August 25,
2013. Borrowings under the facility bear interest, payable
monthly at rates equal to LIBOR of a maturity we elect between
one month and six months, with a LIBOR floor of 1.00%, plus an
applicable margin based on our leverage ratio (which was 3.25%
as of March 31, 2011). Alternatively, we may pay interest
at a rate based on the prime rate plus an applicable margin
(which would have been 2.25% as of March 31, 2011). We also
pay an unused line fee of 0.50% per annum, payable monthly. The
senior revolving credit facility is collateralized by certain of
our assets including substantially all of our finance
receivables. The credit agreement contains certain restrictive
covenants, including maintenance of specified interest coverage
and debt ratios, restrictions on distributions and limitations
on other indebtedness, maintenance of a minimum allowance for
loan losses and certain other restrictions.
Our outstanding debt under the senior revolving credit facility
was $151.3 million at March 31, 2011. At
March 31, 2011, we were in compliance with our debt
covenants.
We have entered into interest rate caps to manage interest rate
risk associated with a notional amount of $150.0 million of
our LIBOR-based borrowings. The interest rate caps have a strike
rate of 6.0% and a maturity of March 4, 2014. When
three-month LIBOR exceeds six percent, the counterparty
reimburses us for the excess over six percent; no payment is
required by us or the counterparty when three-month LIBOR is
below six percent. We intend to repay a portion of the
borrowings under our senior revolving credit facility using a
portion of the net proceeds from this offering.
Mezzanine
Debt
In August 2010, we entered into a $25.8 million mezzanine
loan from a sponsor and three individual owners. The mezzanine
debt, which matures on October 25, 2013, accrues interest
at a rate of 15.25% per annum, of which 2.00% is payable in kind
at our option. The mezzanine debt is secured by a junior lien on
certain of our assets, including substantially all of our
finance receivables and is subordinated to our senior revolving
credit facility. The proceeds of this debt were used to retire
the mezzanine debt of the same amount to an unrelated lender.
The mezzanine loan agreement contains certain restrictive
covenants, including maintenance of a specified interest
coverage ratio, a restriction on distributions, limitations on
additional borrowings, debt ratio, maintenance of a minimum
allowance for loan losses and certain other restrictions.
At March 31, 2011, we were in compliance with all debt
covenants. At March 31, 2011, the aggregate principal
amount of mezzanine debt outstanding was $25.8 million. We
intend to use the proceeds from this offering to repay our
mezzanine debt in full.
50
Other Financing
Arrangements
We have a $500,000 unsecured line of credit with a commercial
bank to facilitate our cash management program. The interest
rate is prime plus 1% and interest is payable monthly. The line
of credit matures on July 31, 2011 and there are no
restrictive covenants associated with this line of credit.
Off Balance Sheet
Arrangements
We are not a party to any off balance sheet arrangements.
Contractual
Obligations
The following table summarizes our contractual obligations as of
December 31, 2010 and the effect such obligations are
expected to have on our liquidity and cash flows in future
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAYMENTS DUE BY PERIOD
|
|
|
|
|
|
|
LESS THAN 1
|
|
|
|
|
|
|
|
|
MORE THAN
|
|
|
|
TOTAL
|
|
|
YEAR
|
|
|
1 - 3 YEARS
|
|
|
3 - 5 YEARS
|
|
|
5 YEARS
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
189,581
|
|
|
$
|
466
|
|
|
$
|
189,115
|
|
|
$
|
|
|
|
$
|
|
|
Interest payments on long-term debt obligations
|
|
|
30,744
|
|
|
|
11,341
|
|
|
|
19,403
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
3,936
|
|
|
|
1,836
|
|
|
|
1,998
|
|
|
|
79
|
|
|
|
23
|
|
Other long-term liabilities reflected on our balance sheet under
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224,261
|
|
|
$
|
13,643
|
|
|
$
|
210,516
|
|
|
$
|
79
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our contractual obligations as of
December 31, 2010 and the effect such obligations are
expected to have on our liquidity and cash flows in future
periods after giving effect to this offering and the expected
use of proceeds therefrom.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAYMENTS DUE BY PERIOD
|
|
|
|
|
|
|
LESS THAN 1
|
|
|
|
|
|
|
|
|
MORE THAN
|
|
|
|
TOTAL
|
|
|
YEAR
|
|
|
1 - 3 YEARS
|
|
|
3 - 5 YEARS
|
|
|
5 YEARS
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
|
|
|
$
|
466
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest payments on long-term debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
3,936
|
|
|
|
1,836
|
|
|
|
1,998
|
|
|
|
79
|
|
|
|
23
|
|
Other long-term liabilities reflected on our balance sheet under
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
79
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of
Inflation
Our results of operations and financial condition are presented
based on historical cost, except for the interest rate cap which
is 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 the effects of inflation, if
any, on our results of operations and financial condition have
been immaterial.
Related Party
Transactions
For a description of our related party transactions, see
Certain Relationships and Related Person
Transactions.
51
Quantitative and
Qualitative Disclosures about Market Risk
Interest Rate
Risk
Interest rate risk arises from the possibility that changes in
interest rates will affect our financial statements.
Finance receivables are originated either at prevailing market
rates or at statutory limits. Our loan portfolio turns
approximately 1.2 times per year from cash payments and renewal
of loans. As our automobile purchase loans and furniture and
appliance purchase loans have longer maturities and typically
are not refinanced prior to maturity, the turn of the loan
portfolio may decrease as these loans increase as a percentage
of our portfolio.
At March 31, 2011, our outstanding debt under our senior
revolving credit facility was $151.3 million and interest
on borrowings under this facility was approximately 4.5%
including amortization of debt issuance costs. Because the LIBOR
interest rates are currently below the 1.00% floor provided for
in our senior revolving credit facility, an increase of
100 basis points in the LIBOR interest rate would result in
an increase of less than 100 basis points to our borrowing
costs. Based on a LIBOR rate of 0.30% and the outstanding
balance at March 31, 2011, this increase in LIBOR would
result in an increase of 30 basis points to our borrowing
costs and would result in $454,000 of increased interest expense.
We have entered into interest rate caps to manage interest rate
risk associated with $150.0 million of our LIBOR-based
borrowings. The interest rate caps are based on the three-month
LIBOR contract and reimburse us for the difference when
three-month LIBOR exceeds six percent and have a maturity of
March 4, 2014. The carrying value of the interest rate caps
are adjusted to fair value. For the year ended December 31,
2010, we recorded an unfavorable fair value adjustment of
$843,000 as an increase in interest expense and, for the three
months ended March 31, 2011, we recorded an unfavorable
fair value adjustment of $21,000 as an increase in interest
expense.
Critical
Accounting Policies
Managements discussion and analysis of financial condition
and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States (U.S. GAAP). The preparation of these
financial statements requires estimates and judgments that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Management bases estimates
on historical experience and other assumptions it believes to be
reasonable under the circumstances and evaluates these estimates
on an on-going basis. Actual results may differ from these
estimates under different assumptions or conditions.
Refer to Note 1 to our consolidated financial statements
for the year ended December 31, 2010 included elsewhere in
the prospectus for a complete discussion of our significant
accounting policies. We set forth below those material
accounting policies that we believe are the most critical to an
investors understanding of our financial results and
condition and that involve a higher degree of complexity and
management judgment.
Loan
Losses
Finance receivables are equal to the total amount due from the
customer, net of unearned finance and insurance charges. Net
finance receivables are equal to the total amount due from the
customer, net of unearned finance and insurance charges and
allowance for loan losses.
Provisions for loan losses are charged to income in amounts
sufficient to maintain an adequate allowance for loan losses on
our related finance receivables portfolio. Loan loss experience,
contractual delinquency of finance receivables, the value of
underlying collateral and managements judgment are factors
used in assessing the overall adequacy of the allowance and the
resulting provision for loan losses.
Our loans within each loan product are homogenous and it is not
possible to evaluate individual loans. Prior to 2010, management
analyzed losses in the loan portfolio using two categories of
loans: small (which included all loans of less than $2,500) and
large loans (which included all other loans). As our loan
products have evolved, we have separated our loan portfolio into
four categories: small installment loans, large installment
loans, automobile purchase loans and furniture and appliance
purchase loans. Beginning in 2010, we have evaluated losses in
each of the four categories of loans in establishing the
allowance for loan losses.
52
In making an evaluation about the portfolio we consider the
trend of contractual delinquencies and the slow file. The slow
file consists of all loans that are one or more days past due.
We use the number of accounts in the slow file rather than the
dollar amount to prevent masking delinquencies of smaller loans
compared to larger loans. We evaluate delinquencies and the slow
file by each state and by supervision district within states to
identify trends requiring investigation. Historically, loss
rates have been affected by several factors, including the
unemployment rates in the areas in which we operate, the number
of customers filing for bankruptcy protection and the prices
paid for vehicles at automobile auctions. Management considers
each of these factors in establishing the allowance for loan
losses.
As of January 1, 2010, we changed our accounting estimate
for our loan loss allowance methodology for small installment
loans to determine the allowance using losses from the trailing
eight months, rather than the trailing nine months, to more
accurately reflect the six-month average life of our small
installment loans. We use eight months rather than a shorter
period as it takes one month for a loan to become delinquent and
we believe using eight months provides an allowance that is more
appropriate and more conservative than one resulting from seven
months of losses. The change in accounting estimate from nine to
eight months of average losses reduced the loss allowance for
small installment loans by $1.1 million as of
January 1, 2010 and reduced the provision for loan losses
by $451,000 for 2010. FASB 250-10-45-18 suggests that changes in
a loan loss allowance due to the ongoing evaluation of an
entitys experience constitutes a change in accounting
estimate. We believe the change from nine to eight months is a
change in accounting estimate, rather than an error in the
financial statements. Changes in estimates are appropriately
reflected currently in the financial statements.
We fully reserve for all loans at the date that the loan is
contractually delinquent 180 days. We only initiate
repossession proceedings when an account is seriously
delinquent, we have exhausted other means of collection and, in
the opinion of management, the customer is unlikely to make
further payments. Since 2010, we have sold substantially all
repossessed vehicles through public sales conducted by
independent automobile auction organizations, after the required
post-possession waiting period. Losses on the sale of
repossessed collateral are charged to the allowance for loan
losses.
Income
Recognition
Interest income is recognized using the interest (actuarial)
method, or constant yield method. Therefore, we recognize
revenue from interest at an equal rate over the term of the
loan. Unearned finance charges on pre-compute contracts are
rebated to customers utilizing the Rule of 78s method. The
difference between income recognized under the constant yield
method and the Rule of 78s method is recognized as an adjustment
to interest income at the time of rebate. Accrual of interest
income on finance receivables is suspended when no payment has
been received for 90 days or more on a contractual basis.
The accrual of income is not resumed until one or more full
contractual monthly payments are received and the account is
less than 90 days contractually delinquent. Interest income
is suspended on finance receivables for which collateral has
been repossessed.
We recognize income on credit insurance products using the
constant yield method over the life of the related loan. Rebates
are computed using the Rule of 78s method and any difference
between the constant yield method and the Rule of 78s is
recognized in income at the time of rebate.
We charge a fee to automobile dealers for each loan we purchase
from that dealer. We defer this fee and accrete it to income
using a method that approximates the constant yield method over
the life of the loan.
Charges for late fees are recognized as income when accrued.
Insurance
Operations
Insurance operations include revenue and expense from the sale
of optional insurance products to our customers. These optional
products include credit life, credit accident and health,
property insurance and involuntary unemployment insurance. The
premiums and commissions we receive are deferred and amortized
to income over the life of the insurance policy using the
constant yield method.
Stock-Based
Compensation
We have a stock option plan for certain members of management.
We granted options with respect to 441,000 shares in 2007
and 221,000 shares in 2008. We did not grant any options in
2009, 2010 or the first three months of 2011. We measure
compensation cost for stock-based awards made under this plan at
estimated
53
fair value and recognize compensation expense over the service
period for awards expected to vest. All grants are made at 100%
of fair value at the date of the grant.
The fair value of stock options is determined using the
Black-Scholes valuation model. The Black-Scholes model requires
the input of highly subjective assumptions, including expected
volatility, risk-free interest rate and expected life, changes
to which can materially affect the fair value estimate. In
addition, the estimation of stock-based awards that will
ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from current estimates, such
amounts will be recorded as a cumulative adjustment in the
period estimates are revised.
Prior to this offering, there was no published market value for
our stock; therefore, the performance of the common stock of a
publicly traded company whose business is comparable to ours was
used to estimate the volatility of our stock. The risk-free rate
is based on the U.S. Treasury yield at the date our board
of directors approved the option awards for the period over
which the options are exercisable.
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 effects of future tax rate changes are recognized in the
period when the enactment of new rates occurs.
When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a
tax position is recognized in the financial statements in the
period during which, based on all available evidence, it is more
likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50% likely of
being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described
above is reflected as a liability for unrecognized tax benefits
in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing
authorities upon examination. As of March 31, 2011, we had
not taken any tax positions that exceeds the amount described
above.
Interest and penalties associated with unrecognized tax benefits
are classified as additional income taxes in the consolidated
statements of income.
We file income tax returns in the U.S. federal jurisdiction
and various states. We are generally no longer subject to
U.S. federal or state and local income tax examinations by
taxing authorities before 2007, though we remain subject to
examination in Texas for the 2006 tax year.
The Internal Revenue Service concluded an examination of
RMCs 2007 and 2008 tax returns in early 2010. The amount
assessed by the Internal Revenue Service was not material to the
consolidated financial statements.
Recently Issued
Accounting Standards
Accounting
Pronouncements Issued and Partially Adopted
In July 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU)
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses. ASU
2010-20
requires more robust and disaggregated disclosures about the
credit quality of financing receivables and allowances for
credit losses, including disclosure about credit quality
indicators, past due information and modifications of finance
receivables. The disclosures required as of the end of a
reporting period and certain items related to activity during
the year were adopted in 2010, which significantly expanded the
existing disclosure requirements, but did not have any impact on
our consolidated financial position, results of operations or
cash flows. The remaining amendments that require disclosures
about activity that occurs during a reporting period are
effective for periods beginning on or after December 15,
2010, but will not have any impact on our consolidated financial
position, results of operations or cash flows.
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Accounting
Pronouncements Issued and Not Yet Adopted
In October 2010, the FASB issued ASU
2010-26,
Accounting for Costs Associated with Acquiring or Renewing
Insurance Contracts. ASU
2010-26
modifies the definitions of the type of costs incurred by
insurance entities that can be capitalized in the successful
acquisition of new and renewal contracts. ASU
2010-26
requires incremental direct costs of successful contract
acquisition as well as certain costs related to underwriting,
policy issuance and processing, medical and inspection and sales
force contract selling for successful contract acquisition to be
capitalized. These incremental direct costs and other costs are
those that are essential to the contract transaction and would
not have been incurred had the contract transaction not
occurred. This guidance is effective for us for the year
beginning January 1, 2012 and may be applied prospectively
or retrospectively. We do not expect the adoption of this
guidance to have a material impact on our financial position,
results of operations and cash flows.
In April 2011, the FASB issued ASU
2011-02,
Receivables (Topic 310): A Creditors Determination of
Whether a Restructuring Is a Troubled Debt Restructuring.
ASU 2011-02
clarifies which loan modifications constitute troubled debt
restructurings. It is intended to assist creditors in
determining whether a modification of the terms of a receivable
meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss
and for disclosure of troubled debt restructurings. ASU
2011-02 is
effective for interim and annual periods beginning on or after
June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal
year of adoption. We do not expect the adoption of this guidance
to have a material impact on our consolidated financial
position, results of operations, cash flows or disclosures.
In May 2011, the FASB issued ASU 2011-04, Fair Value
Measurement, which aligns disclosures related to fair value
between U.S. GAAP and International Financial Reporting
Standards. The ASU includes changes to the wording used to
describe many of the requirements in U.S. GAAP for measuring
fair value and changes to the disclosure of information about
fair value measurements. More specifically, the changes clarify
the intent of the FASB regarding the application of existing
fair value measurements and disclosures as well as changing some
particular principles or requirements for measuring fair value
or for disclosing information about fair value measurements.
This ASU is effective for interim and annual periods beginning
after December 15, 2011. We do not expect the adoption of
this guidance to have a material impact on our consolidated
financial statements.
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BUSINESS
Overview
We are a diversified specialty consumer finance company
providing a broad array of loan products primarily to customers
with limited access to consumer credit from banks, thrifts,
credit card companies and other traditional lenders. We began
operations in 1987 with four branches in South Carolina and have
expanded our branch network to 146 locations with over 137,000
active customer accounts across South Carolina, Texas, North
Carolina, Tennessee and Alabama as of March 31, 2011. Each
of our loan products is secured, structured on a fixed rate,
fixed term basis with fully amortizing equal monthly installment
payments and is repayable at any time without penalty. Our loans
are sourced through our multiple channel platform, including in
our branches, through direct mail campaigns, independent and
franchise automobile dealerships, online credit application
networks, furniture and appliance retailers and our consumer
website. We operate an integrated branch model in which all
loans, regardless of origination channel, are serviced and
collected through our branch network, providing us with frequent
in-person contact with our customers, which we believe improves
our credit performance and customer loyalty. Our goal is to
consistently and soundly grow our finance receivables and manage
our portfolio risk while providing our customers with attractive
and
easy-to-understand
loan products that serve their varied financial needs.
Our diversified product offerings include:
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Small Installment Loans We offer standardized
small installment loans ranging from $300 to $2,500, with terms
of up to 36 months, which are secured by non-essential
household goods. We originate these loans both through our
branches and through mailing live checks to pre-screened
individuals who are able to enter into a loan by depositing
these checks. As of March 31, 2011, we had approximately
110,000 small installment loans outstanding representing
$99.6 million in finance receivables or an average of
approximately $910 per loan. In 2010 and the first three months
of 2011, interest and fee income from small installment loans
contributed $45.7 million and $13.2 million,
respectively, to our total revenue.
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Large Installment Loans We offer large
installment loans through our branches ranging from $2,500 to
$18,000, with terms of between 18 and 54 months, which are
secured by a vehicle in addition to non-essential household
goods. As of March 31, 2011, we had approximately 11,000
large installment loans outstanding representing
$32.7 million in finance receivables or an average of
approximately $3,000 per loan. In 2010 and the first three
months of 2011, interest and fee income from large installment
loans contributed $8.6 million and $2.2 million,
respectively, to our total revenue.
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Automobile Purchase Loans We offer automobile
purchase loans of up to $30,000, generally with terms of between
36 and 72 months, which are secured by the purchased
vehicle. Our automobile purchase loans are offered through a
network of dealers in our geographic footprint, including over
1,550 independent and over 540 franchise automobile dealerships
as of March 31, 2011. Our automobile purchase loans include
both direct loans, which are sourced through a dealership and
closed at one of our branches, and indirect loans, which are
originated and closed at a dealership in our network without the
need for the customer to visit one of our branches. As of
March 31, 2011, we had approximately 13,700 automobile
purchase loans outstanding representing $102.2 million in
finance receivables or an average of approximately $7,500 per
loan. In 2010 and the first three months of 2011, interest and
fee income from automobile purchase loans contributed
$19.5 million and $5.5 million, respectively, to our
total revenue.
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Furniture and Appliance Purchase Loans We
offer indirect furniture and appliance purchase loans of up to
$7,500, with terms of between six and 48 months, which are
secured by the purchased furniture or appliance. These loans are
offered through a network of over 100 furniture and appliance
retailers, including 50 franchise locations of the largest
furniture retailer in the United States. Since launching this
product in November 2009, our portfolio has grown to
approximately 3,200 furniture and appliance purchase loans
outstanding representing $3.7 million in finance
receivables or an average of approximately $1,160 per loan as of
March 31, 2011. In 2010 and the first three months of 2011,
interest and fee income from furniture and appliance loans
contributed $362,000 and $149,000, respectively, to our total
revenue.
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Insurance Products We offer our customers
optional payment protection insurance relating to many of our
loan products.
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Our revenue has grown from $49.0 million in 2006 to
$86.8 million in 2010, representing a CAGR of 15.4%. Our
net income from continuing operations has grown even more
rapidly from $7.0 million in 2006 to $16.4 million in
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2010, representing a CAGR of 23.9%. On a pro forma basis,
giving effect to this offering and the application of the
estimated net proceeds therefrom as described under Use of
Proceeds, our net income would have been
$ million in 2010. For the
three months ended March 31, 2011, our revenues were
$24.7 million and our net income from continuing operations
was $4.9 million. Our aggregate finance receivables have
grown from $140.6 million as of December 31, 2006 to
$247.2 million as of December 31, 2010, representing a
CAGR of 15.2%. As of March 31, 2010 and March 31,
2011, our aggregate finance receivables were $200.0 million
and $238.1 million, respectively.
Our
Industry
We operate in the consumer finance industry serving the large
and growing population of underbanked and other non-prime
consumers who have limited access to credit from banks, thrifts,
credit card companies and other traditional lenders. According
to the FDIC, there were approximately 43 million adults
living in underbanked households in the United States in
2009. Furthermore, difficult economic conditions in recent years
have resulted in an increase in the number of non-prime
consumers in the United States. According to FICO, the
percentage of the U.S. population with FICO scores below
600 rose from approximately 15% in 2007 prior to the recession
to 26% in April 2010, representing an increase of more than
17 million people.
While the number of non-prime consumers in the United States has
grown, the supply of consumer credit to this demographic has
contracted. Following deregulation of the U.S. banking
industry in the 1980s, many banks and finance companies that
traditionally provided small denomination consumer credit
refocused their businesses on larger loans with lower
comparative origination costs and lower charge-off rates.
Tightened credit requirements imposed by banks, thrifts, credit
card companies and other traditional lenders that began during
the recession in 2008 and 2009 further reduced the supply of
consumer credit for the growing number of underbanked and
non-prime individuals. According to the Federal Reserve Bank of
New York, $1.1 trillion in consumer credit, including mortgages,
home equity lines of credit, auto loans, credit cards, student
loans and other forms of consumer credit, was removed from the
credit markets between the second half of 2008 and the fourth
quarter of 2010.
We believe the large and growing number of potential customers
in our target market, combined with the decline in available
consumer credit through the end of 2010, provides an attractive
market opportunity for our diversified product
offerings installment lending, automobile purchase
lending and furniture and appliance purchase lending.
Installment Lending. Installment lending to
underbanked and other non-prime consumers is one of the most
highly fragmented sectors of the consumer finance industry. We
believe that installment loans are provided through
approximately 8,000 to 10,000 individually-licensed finance
company branches in the United States. Providers of installment
loans, such as Regional, generally offer loans with longer terms
and lower interest rates than other alternatives available to
underbanked consumers, such as title, payday and pawn lenders.
Automobile Purchase Lending. Automobile
finance comprises one of the largest consumer finance markets in
the United States. According to CNW Research, a market research
company focused on automobile purchase trends, at the end of
2010, there was in excess of $1.7 trillion in automobile
financing outstanding in the United States, including automobile
purchase loans as well as leases, of which 47% related to used
vehicle sales. The automobile purchase loan sector is generally
segmented by the credit characteristics of the borrower.
According to CNW Research, originations by borrowers within the
subprime market averaged $88.5 billion annually over the
past ten years. Automobile purchase loans are typically
initiated or arranged through approximately 68,000 automobile
dealers nationwide who rely on financing to drive their
automobile sales. In recent years, many providers of automobile
financing have substantially curtailed their lending to subprime
borrowers due to significant disruptions in the capital markets
and declines in underlying borrower creditworthiness. As a
result, subprime automobile purchase loan approval rates have
dropped significantly from approximately 69% in early 2007 to
approximately 13% in 2010. This contraction in the supply of
financing presents an attractive opportunity to provide a large,
underserved population of borrowers with automobile purchase
financing.
Furniture and Appliance Purchase Lending. The
furniture and appliance industry represents a large consumer
market with limited financing options for non-prime consumers.
According to the U.S. Department of Commerces Bureau
of Economic Analysis, personal consumption expenditures for
household furniture were estimated at approximately
$87.5 billion for 2010. As measured by Twice, a trade
publication covering the consumer electronics
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and major appliance industries, the top 100 consumer electronics
retailers in the United States reported consumer electronic
sales of $121.3 billion in 2009. Most furniture retailers
do not provide their own financing, but instead partner with
large banks and credit card companies who generally limit their
lending activities to prime borrowers. As a result, non-prime
customers often do not qualify for financing from these
traditional lenders. Continued demand for furniture and
appliances, combined with constraints on the availability of
credit for non-prime consumers, presents a growth opportunity
for furniture and appliance purchase loans.
Our
Strengths
Integrated
Branch Model Offers Advantages Over Traditional
Lenders
Our branch network with 146 locations across five states serves
as the foundation of our multiple channel platform and the
primary point of contact with our over 137,000 active customers.
By integrating underwriting, servicing and collections at the
branch level, our employees are able to maintain a relationship
with our customers throughout the life of a loan. For loans
originated at a branch, underwriting decisions are typically
made by our local branch manager. Our branch managers combine
our sound, company-wide underwriting standards and flexibility
within our guidelines to consider each customers unique
circumstances. This tailored branch-level underwriting approach
allows us to both reject certain bad loans that would otherwise
be approved solely based on a credit report or automated loan
approval system, as well as to selectively extend loans to
customers with prior credit challenges who might otherwise be
denied credit. In addition, all loans, regardless of origination
channel, are serviced and collected through our branches, which
allows us to maintain frequent, in-person contact with our
customers. We believe this frequent-contact, relationship-driven
lending model provides greater insight into potential payment
difficulties and allows us to more effectively pursue payment
solutions, which improves our overall credit performance.
Additionally, with over 70% of monthly payments made in-person
at our branches, we have frequent opportunities to assess the
borrowing needs of our customers and offer new loan products as
their credit profiles evolve.
Multiple
Channel Platform
We offer a diversified range of loan products through our
multiple channel platform, which enables us to efficiently reach
existing and new customers throughout our markets. We began
building our strategically located branch network over
24 years ago and have expanded to 146 branches as of
March 31, 2011. Our automobile purchase loans are offered
through a network of dealers in our geographic footprint,
including over 1,550 independent and over 540 franchise auto
dealerships as of March 31, 2011. We have recently begun to
expand this channel by offering indirect automobile purchase
loans, which are closed at the dealership without the need for
the customer to visit a branch. In addition, we have
relationships with over 100 furniture and appliance retailers
that offer our furniture and appliance purchase loans in their
stores at the point of sale. We have also further developed and
refined our direct mail campaigns, including pre-screened live
check mailings and mailings of invitations to apply for a loan,
which enable us to market our products to hundreds of thousands
of customers on a cost-effective basis. Finally, we have
developed our consumer website to promote our products and
facilitate loan applications. We believe that our multiple
channel platform provides us with a competitive advantage by
giving us broader access to our existing customers and multiple
avenues for attracting new customers, enabling us to grow our
finance receivables, revenues and earnings while we maintain
consistent credit performance through our integrated branch
model.
Attractive
Products for Customers with Limited Access to
Credit
Our flexible loan products, ranging from $300 to $30,000 with
terms between three and 72 months, are competitively
priced, easy to understand and incorporate features designed to
meet the varied financial needs and credit profiles of a broad
array of consumers. This product diversity distinguishes us from
monoline competitors and provides us with the ability to offer
our customers new loan products as their credit profiles evolve,
building customer loyalty.
We believe that the rates on our products are significantly more
attractive than many other credit options available to our
customers, such as payday, pawn or title loans. We also
differentiate ourselves from such alternative financial service
providers by reporting our customers payment performance
to credit bureaus, providing our customers the opportunity to
improve their credit score by establishing a responsible payment
history with us and ultimately gain access to a wider range of
credit options, including our own. We believe this opportunity
for our customers to potentially improve their credit history,
combined with our competitive pricing and terms, distinguish us
in the consumer finance market and provide us with a competitive
advantage.
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Demonstrated
Organic Growth
We have grown our finance receivables by 69.3% from
$140.6 million at December 31, 2006 to
$238.1 million at March 31, 2011. Our growth has come
both from expanding our branch network and developing new
channels and products.
From 2006 to 2010, we grew our year-end branch count from 89
branches to 134 branches, a CAGR of 10.8%, while only closing
one branch, which was consolidated with another existing branch,
during the same period. We opened 11 new branches in the first
quarter of 2011 with an additional 18 locations expected to open
before year end. We have also grown our existing branch
revenues. Our same-store revenue growth rate was 17.4% in 2010,
and has averaged 13.4% annually since 2006. In the first three
months of 2011, our same-store revenue growth rate was 8.9%.
Historically, our branches have rapidly increased their
outstanding finance receivables during the early years of
operations and generally have quickly achieved profitability.
We have also grown by adding new channels and products, which
are then serviced and collected at the local branch level. We
introduced direct automobile purchase loans in 1998, and have
recently expanded our product offerings to include indirect
automobile purchase loans. Indirect automobile purchase loans
allow customers to obtain a loan at a dealership without
visiting one of our branches. We opened two AutoCredit Source
branches in early 2011, which focus solely on originating,
underwriting and servicing indirect automobile purchase loans,
and we have already established over 275 indirect dealer
relationships through these branches. Loan originations from our
live check program have grown from $52.5 million in 2008 to
$123.0 million in 2010, a CAGR of 53.1%, and totaled
$13.1 million and $17.6 million for the first three
months of 2010 and the first three months of 2011, respectively,
as we have increased the volume and sophistication of our live
check marketing campaigns. We also introduced a consumer website
enabling customers to complete a loan application online. Since
the launch of our website in late 2008, we have received more
than 13,100 applications resulting in loans representing
$3.5 million in gross finance receivables.
Strong
Portfolio Quality
Through over 24 years of experience in the consumer finance
industry, we have established conservative and sound
underwriting and lending practices to carefully manage our
credit exposure as we grow our business, develop new products
and enter new markets. This has resulted in strong portfolio
quality as demonstrated by our consistent credit performance. We
generally do not make loans to customers with less than one year
with their current employer and at their current residence,
although we also consider numerous other factors in evaluating a
potential customers creditworthiness, such as unencumbered
income and a credit report detailing the applicants credit
history. Our sound underwriting standards focus on our
customers ability to affordably make loan payments out of
their discretionary income with the value of pledged collateral
serving as a credit enhancement rather than the primary
underwriting criterion. Portfolio performance is further
strengthened by our regular in-person contact with customers at
our branches, which helps us to anticipate repayment problems
before they occur, and allows us to proactively work with
customers to develop solutions prior to default, using
repossession only as a last option. In addition, our centralized
management information system enables regular monitoring of
branch portfolio metrics. Our state operations vice presidents
and district supervisors monitor loan underwriting,
delinquencies and charge-offs of each branch in their respective
regions on a daily basis. In addition, the compensation received
by our branch managers and assistant managers has a significant
performance component and is closely tied to credit quality
among other defined performance targets.
We believe our frequent-contact, relationship-driven lending
model, combined with regular monitoring and alignment of
employee incentives, improves our overall credit performance.
Despite the challenges posed by the sharp economic downturn
beginning in 2008, our annual net charge-offs since
January 1, 2006 remained consistent, ranging from 7.0% to
8.6% of our average finance receivables. In 2010 and the first
three months of 2011, our net charge-offs as a percentage of
average finance receivables were 7.9% and 6.4% (annualized),
respectively. We believe that these metrics demonstrate the
resiliency of our business model throughout economic cycles.
Experienced
Management Team
Our executive and senior operations management teams consist of
individuals highly experienced in installment lending and other
consumer finance services. We believe our executive management
teams experience has allowed us to consistently grow our
business while delivering high-quality service to our customers
and carefully managing our credit risk. Our executive management
team has centralized a number of business procedures, such as
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marketing and direct mail campaigns, which were formerly
conducted at each branch. This has allowed us to achieve annual
improvements in our expense efficiency ratio and enhanced
control over our individual branches. Our management team has
also strengthened our underwriting procedures and improved the
data monitoring that we apply across our business, including for
our direct mail campaigns and our branch location analysis. Our
state operations vice presidents average more than 22 years
of industry experience and more than 15 years of service at
Regional, while our district supervisors average more than
18 years of industry experience and more than five years of
service with Regional. As of March 31, 2011, our 157 branch
managers had an average of more than four years of service as
branch managers at Regional.
Our
Strategies
Grow Our
Branch Network
We intend to continue growing the revenue and profitability of
our branch network by increasing volume at our existing
branches, opening new branches within our existing geographic
footprint and expanding our operations into new states.
Establishing local contact with our customers through the
expansion of our branch network is key to our frequent-contact,
relationship-driven lending model and is embodied in our
marketing tagline: Your Hometown Credit Source.
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Existing Branches We intend to continue
increasing same-store revenues, which have grown an average of
13.4% per annum for the five years ended December 31, 2010,
by further building relationships in the communities in which we
operate and capitalizing on opportunities to offer our customers
new loan products as their credit profiles evolve. From 2006 to
2010, we opened 44 new branches, and we expect revenues at these
branches will continue to grow faster than our overall
same-store revenue growth rate as these branches mature.
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New Branches We believe there is sufficient
demand for consumer finance services to continue our pattern of
new branch growth in the states where we currently operate,
allowing us to capitalize on our existing infrastructure and
experience in these markets. We also analyze detailed
demographic and market data to identify favorable locations for
new branches. Opening new branches allows us to generate both
direct lending at the branches, as well as to create new
origination opportunities by establishing relationships through
the branches with automobile dealerships and furniture and
appliance retailers in the community.
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New States We intend to explore opportunities
for growth in several states outside our existing geographic
footprint that enjoy favorable interest rate and regulatory
environments, such as Georgia, Kentucky, Louisiana, Mississippi,
Missouri, New Mexico, Oklahoma and Virginia. We do not expect to
expand into states with unfavorable interest rate or regulatory
environments even if those states are otherwise attractive for
our business.
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We also believe that the highly fragmented nature of the
consumer finance industry and the evolving competitive and
economic environment provide attractive opportunities for growth
through branch acquisitions although we have no present
agreement or plan concerning any specific acquisition.
Continue to
Expand and Capitalize on Our Diverse Channels and
Products
We intend to continue to expand and capitalize on our multiple
channel platform and broad array of offerings as follows:
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Automobile Purchase Loans We source our
automobile purchase loans through a network of approximately
2,090 dealers as of March 31, 2011, and have identified over
11,500 additional dealers in our existing geographic footprint.
We have hired dedicated marketing personnel to develop
relationships with these additional dealers to expand our
automobile financing network. We will also seek to capture a
larger percentage of the financing activity of dealers in our
existing network by continuing to improve our relationships with
dealers and our response time for loan applications. We intend
to continue expanding the number of franchise dealer
relationships through our AutoCredit Source branches to grow our
loan portfolio through increased penetration.
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Live Check Program We continue to refine our
screening criteria and tracking for direct mail campaigns, which
we believe has enabled us to improve response rates and credit
performance and allowed us to triple the annual number of live
checks that we mailed from 2007 to 2010. We intend to continue
to increase our use of live checks to grow our loan portfolio by
adding new customers and increasing volume at our branches,
creating opportunities to offer new loan products to our
existing customers. In addition, we mail live checks in new
markets shortly before opening new branches, which we believe
helps our new branches
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to more quickly develop a customer base and build finance
receivables. The use of live checks is not subject to
substantial regulation in any of the states in which we
currently operate or any states into which we expect to expand,
but is subject to regulation in other jurisdictions. We are not
aware of any pending legislation in any of the states in which
we operate that would affect our use of live checks.
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Furniture and Appliance Purchase Loans As of
March 31, 2011, we had a network over 100 furniture and
appliance retail locations through which we offer our furniture
and appliance loans, and have identified over 3,700 additional
furniture and appliance retail locations in our existing
geographic footprint. We intend to continue to grow our network
of furniture and appliance retailers by having our dedicated
marketing personnel continue to solicit new retailers, obtain
referrals through relationships with our existing retail
partners, and, to a lesser extent, reach retailers through trade
shows and industry associations. We believe that the furniture
and appliance purchase lending markets are currently
substantially underpenetrated, particularly with respect to
non-prime customers, due to the limited number of lenders
providing financing to these customers and the recent
curtailment of credit provided by prime financing sources.
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Online Sourcing We developed a new channel in
late 2008 by offering an online loan application on our consumer
website to serve customers who seek to reach us over the
Internet. We intend to continue to develop and expand our online
marketing efforts and increase traffic to our consumer website
through the use of tools such as search engine optimization and
paid online advertising.
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We believe the expansion of our channels and products, supported
by the growth of our branch network, will provide us with
opportunities to reach new customers as well as to offer new
loan products to our existing customers as their credit profiles
evolve. We plan to continue to develop and introduce new
products that are responsive to the needs of our customers in
the future.
Continue to
Focus on Sound Underwriting and Credit Control
We intend to continue to leverage our core competencies in sound
underwriting and credit management developed through over
24 years of lending experience as we seek to profitably
grow our share of the consumer finance market. Our philosophy is
to emphasize sound underwriting standards focused on a
customers ability to affordably make loan payments, to
work with customers experiencing payment difficulties and to use
repossession only as a last option. For example, we permit
customers to defer payments or refinance delinquent loans under
certain circumstances although we do not offer customers
experiencing payment difficulties the opportunity to modify
their loans to reduce the amount of principal or interest that
they owe. While we typically only allow customers to refinance
if their loan is current, we allow customers to refinance
delinquent loans on a limited basis if those customers otherwise
satisfy our credit standards. We believe that refinancing
delinquent loans for certain deserving customers who have made
periodic payments allows us to help customers to resolve
temporary financial setbacks and to repair or sustain their
credit. During 2010 and the first three months of 2011, we
refinanced only $7.4 million and $1.6 million,
respectively, of delinquent loans, representing approximately
1.7% and 1.8%, of our total loan volume for the year 2010 and
the first three months of 2011, respectively, and as of
March 31, 2011, the outstanding balance of such
refinancings was only $4.8 million, or 1.6% of gross
finance receivables as of such date. In accordance with this
philosophy, we intend to continue to refine our underwriting
standards to assess an individuals creditworthiness and
ability to repay a loan. In recent years, we have implemented
several new programs to continue improving our underwriting
standards and loan collection rates, including our branch
scorecard program that systematically monitors a
range of operating, credit quality and performance metrics. Our
management information system enables us to regularly review
loan volumes, collections and delinquencies. We believe this
central oversight, combined with our branch-level servicing and
collections, improves credit performance. We plan to continue to
develop strategies to further improve our sound underwriting
standards and loan collection rates as we expand.
Our
Products
Small
Installment Loans
We offer small installment loans ranging from $300 to $2,500
through our branches as well as through our live check program.
Our small installment loans are standardized by amount, rate and
maturity to reduce documentation and related processing costs
and to conform with state lending laws. They are payable in
fixed rate, fully amortizing equal monthly installments with
terms of up to 36 months, and are repayable at any time
without penalty. From January 1, 2010 through
March 31, 2011, the average originated net loan size and
term for our small installment loans were $1,001 and
15 months, respectively. The weighted average yield on our
portfolio of small installment
61
loans was 47.6% during 2010 and 48.8% for the first three
months of 2011. The interest rates, fees and other charges,
maximum principal amounts and maturities for our small
installment loans vary from state to state, depending upon
relevant laws and regulations. See Government
Regulation.
The majority of our small installment loans are made to
customers who visit one of our branches and complete a
standardized credit application. Customers may also complete and
submit a small installment loan application by phone or on our
consumer website before completing the loan in one of our
branches. We carefully evaluate each potential customers
creditworthiness by examining the individuals unencumbered
income, length of current employment, duration of residence and
a credit report detailing the applicants credit history.
Our small installment loan approval process is based on the
customers creditworthiness rather than the value of
collateral pledged. Loan amounts are established based on
underwriting standards designed to allow customers to affordably
make their loan payments out of their discretionary income.
In addition, for small installment loans originated at our
branches, we require our customers to submit a list of their
non-essential household goods and pledge these goods as
collateral. We do not perfect our security interests by filing
UCC financing statements in these goods and instead typically
collect a non-file insurance fee and obtain non-file insurance.
Each of our branches is equipped to perform immediate
background, employment and credit checks, and approve small
installment loan applications promptly while the customer waits.
Our employees verify the applicants employment and credit
histories through telephone checks with employers, other
employment references, supporting documentation, such as
paychecks and earnings summaries, and a variety of third-party
credit reporting agencies.
We also source small installment loans through our live check
mailing campaigns to pre-screened individuals. These campaigns
are often timed to coincide with seasonal demand for loans to
finance vacations,
back-to-school
needs and holiday spending. We also launch live check campaigns
in conjunction with opening new branches to help build an
initial customer base. Customers can cash or deposit live checks
at their convenience thereby agreeing to the terms of the loan
as prominently set forth on the check. Each individual we
solicit for a live check loan has been pre-screened through a
major credit bureau to meet our thorough underwriting criteria.
In addition to screening each potential live check
recipients credit score and bankruptcy history, we also
use a proprietary model that assesses 27 different attributes of
potential recipients. When a customer enters into a loan by
cashing or depositing the live check, our personnel gather
additional contact and other information on the borrower to
assist us in servicing the loan and offering other products to
meet the customers financing needs. Small installment
loans originated through our live check program are secured by
certain non-essential household goods.
The following table sets forth the composition of our finance
receivables for small installment loans by state at December 31
of each year from 2006 through 2010, and at March 31, 2010 and
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT DECEMBER 31,
|
|
|
AT MARCH 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
South Carolina
|
|
|
70
|
%
|
|
|
61
|
%
|
|
|
53
|
%
|
|
|
47
|
%
|
|
|
43
|
%
|
|
|
47
|
%
|
|
|
43
|
%
|
Texas
|
|
|
14
|
%
|
|
|
22
|
%
|
|
|
26
|
%
|
|
|
27
|
%
|
|
|
29
|
%
|
|
|
27
|
%
|
|
|
28
|
%
|
North Carolina
|
|
|
16
|
%
|
|
|
16
|
%
|
|
|
19
|
%
|
|
|
21
|
%
|
|
|
20
|
%
|
|
|
22
|
%
|
|
|
21
|
%
|
Tennessee
|
|
|
|
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
5
|
%
|
|
|
3
|
%
|
|
|
5
|
%
|
Alabama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
3
|
%
|
|
|
1
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
The following table sets forth the total number of small
installment loans, finance receivables and average per loan for
our small installment loans by state at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
NUMBER
|
|
|
FINANCE
|
|
|
AVERAGE
|
|
|
|
OF LOANS
|
|
|
RECEIVABLES
|
|
|
PER LOAN
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
South Carolina
|
|
|
48,109
|
|
|
$
|
42,681
|
|
|
$
|
887
|
|
Texas
|
|
|
33,570
|
|
|
|
28,167
|
|
|
|
839
|
|
North Carolina
|
|
|
17,646
|
|
|
|
20,579
|
|
|
|
1,166
|
|
Tennessee
|
|
|
6,025
|
|
|
|
4,746
|
|
|
|
788
|
|
Alabama
|
|
|
4,256
|
|
|
|
3,449
|
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
109,606
|
|
|
$
|
99,622
|
|
|
$
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large
Installment Loans
We also offer large installment loans through our branches in
amounts ranging from $2,500 to $18,000. Our large installment
loans are payable in fixed rate, fully amortizing equal monthly
installments with terms of 18 to 54 months, and are
repayable at any time without penalty. We require our large
installment loans to be secured by a vehicle, which may be an
automobile, motorcycle, boat or all-terrain vehicle, as well as
certain non-essential household goods. From January 1, 2010
through March 31, 2011, our average originated net loan
size and term for large installment loans were $3,101 and
27 months, respectively. The weighted average yield on our
portfolio of large installment loans was 26.6% during 2010 and
27.2% for the first three months of 2011.
Potential customers apply for a large installment loan by
visiting one of our branches, where they are interviewed by one
of our employees who evaluates the customers
creditworthiness, including a review of a credit bureau report,
before extending a loan. As with our small installment loans,
large installment loans are made to individuals based on the
customers unencumbered income, length of current
employment, duration of residence and prior credit experience
and credit report history. Loan amounts are established based on
underwriting standards designed to allow customers to affordably
make their loan payments out of their discretionary income. Our
branches perform the same immediate verifications that we
perform for small installment loans in order to approve large
installment loan applications promptly.
Our branch employees will perform an in-person appraisal of the
collateral pledged for a large installment loan using our
multipoint checklist and will use one or more third-party
valuation sources, such as the National Automobile Dealers
Association (NADA) Appraisal Guides, to determine an estimate of
the collaterals value. Regardless of the value of the
vehicle, we will not lend in excess of our assessment of the
borrowers ability to repay.
We perfect all first-lien security interests in each pledged
vehicle by retaining the title to the collateral in our files
until the loan is fully repaid. In certain states, we offer
large installment loans secured by second-lien security
interests on vehicles, in which case we instead seek to perfect
our security interest by recording our lien on the title. We
work with customers experiencing payment difficulties to help
them to find a solution and view repossession only as a last
option. In the event we do elect to repossess a vehicle, we use
third-party vendors. We then sell our repossessed vehicle
inventory through public sales conducted by independent
automobile auction organizations after the required
post-repossession waiting period. Any excess proceeds from the
sale of the collateral are returned to the customer.
63
The following table sets forth the composition of our finance
receivables for large installment loans by state at December 31
of each year from 2006 through 2010, and at March 31, 2010 and
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT DECEMBER 31,
|
|
|
AT MARCH 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
South Carolina
|
|
|
79
|
%
|
|
|
72
|
%
|
|
|
72
|
%
|
|
|
62
|
%
|
|
|
57
|
%
|
|
|
62
|
%
|
|
|
53
|
%
|
Texas
|
|
|
12
|
%
|
|
|
20
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
|
|
9
|
%
|
|
|
10
|
%
|
|
|
9
|
%
|
North Carolina
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
15
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
|
|
25
|
%
|
|
|
29
|
%
|
Tennessee
|
|
|
|
|
|
|
|
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
5
|
%
|
Alabama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
4
|
%
|
|
|
1
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the total number of large
installment loans, finance receivables and average per loan for
our large installment loans by state at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NUMBER
|
|
|
FINANCE
|
|
|
AVERAGE
|
|
|
|
OF LOANS
|
|
|
RECEIVABLES
|
|
|
PER LOAN
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
South Carolina
|
|
|
5,775
|
|
|
$
|
17,368
|
|
|
$
|
3,007
|
|
Texas
|
|
|
1,245
|
|
|
|
2,885
|
|
|
|
2,317
|
|
North Carolina
|
|
|
2,851
|
|
|
|
9,638
|
|
|
|
3,380
|
|
Tennessee
|
|
|
524
|
|
|
|
1,479
|
|
|
|
2,823
|
|
Alabama
|
|
|
497
|
|
|
|
1,299
|
|
|
|
2,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,892
|
|
|
$
|
32,669
|
|
|
$
|
2,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
Purchase Loans
Our automobile purchase loans are offered through a network of
dealers in our geographic footprint, including over 1,550
independent and over 540 franchise automobile dealerships as of
March 31, 2011. These loans are offered in amounts up to
$30,000 and are secured by the financed vehicle. They are
payable in fixed rate, fully amortizing equal monthly
installments with terms generally of 36 to 72 months, and
are repayable at any time without penalty. From January 1,
2010 through March 31, 2011, our average originated net
loan size and term for automobile purchase loans were $11,126
and 53 months, respectively. The weighted average yield on
our portfolio of automobile purchase loans was 22.7% during 2010
and 22.7% for the first three months of 2011.
Direct Automobile Purchase Loans. We have business
relationships with dealerships throughout our geographic
footprint that offer our loans to their customers in need of
financing. These dealers will contact one of our local branches
to initiate a loan application when they have identified a
customer that meets our written underwriting standards.
Applications for direct automobile purchase loans may also be
received through one of the online credit application networks
in which we participate, such as DealerTrack and RouteOne. We
will review the application and requested loan terms and propose
modifications, if necessary, before providing initial approval
inviting the dealer and the customer to come to a local branch
to close the loan. Our branch employees interview the customer
to verify information in the dealers credit application,
obtain a credit bureau report on the customer and inspect the
vehicle to confirm that the customers order accurately
describes the vehicle before closing the loan. Our branch
employees will perform the same in-person appraisal of the
pledged vehicle that they would perform for a vehicle securing a
large installment loan.
Indirect Automobile Purchase Loans. Since late 2010,
we have also offered indirect automobile purchase loans, which
allow customers and dealers to complete a loan at the dealership
without the need to visit one of our branches. We only offer
indirect loans through larger franchise dealers within our
geographic footprint. These larger franchise dealers collect
credit applications from their customers and either forward the
applications to us specifically or, more commonly, submit the
applications to numerous potential lenders through online credit
application networks, such as DealerTrack and RouteOne.
Beginning earlier this year, we introduced AutoCredit Source
branches in the Dallas-Ft. Worth, Texas and Charlotte,
North Carolina metropolitan areas, which focus solely on
originating, underwriting and servicing indirect automobile
purchase loans. Since opening these two new
64
AutoCredit Source branches, we have already established over
275 indirect dealer relationships through these branches.
In our other markets, indirect automobile purchase loan
applications are processed by our centralized underwriting
department. Once the loan is approved, the dealer closes the
loan on a standardized retail installment sales contract at the
point of sale. Subsequently, we purchase the loan and then
service and collect on it locally either through an AutoCredit
Source branch or our nearest branch.
Automobile purchase loans are made to individuals based on the
customers unencumbered income, length of current
employment, duration of residence and prior credit experience
and credit report history. Loan amounts are established based on
underwriting standards designed to allow customers to affordably
make their loan payments out of their discretionary income. We
perfect our collateral by recording our lien and retaining the
vehicles title. Our underwriting standards, however, are
primarily based on the creditworthiness of the borrower and we
view repossession only as a last option.
The following table sets forth the composition of our finance
receivables for automobile purchase loans by state at
December 31 of each year from 2006 through 2010, and at
March 31, 2010 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT DECEMBER 31,
|
|
|
AT MARCH 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
South Carolina
|
|
|
85
|
%
|
|
|
76
|
%
|
|
|
64
|
%
|
|
|
61
|
%
|
|
|
64
|
%
|
|
|
61
|
%
|
|
|
62
|
%
|
Texas
|
|
|
|
|
|
|
3
|
%
|
|
|
7
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
8
|
%
|
North Carolina
|
|
|
15
|
%
|
|
|
21
|
%
|
|
|
29
|
%
|
|
|
32
|
%
|
|
|
27
|
%
|
|
|
31
|
%
|
|
|
25
|
%
|
Tennessee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
Alabama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the total number of automobile
purchase loans, finance receivables and average per loan for our
automobile purchase loans by state at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NUMBER
|
|
|
FINANCE
|
|
|
AVERAGE
|
|
|
|
OF LOANS
|
|
|
RECEIVABLES
|
|
|
PER LOAN
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
South Carolina
|
|
|
8,378
|
|
|
$
|
63,699
|
|
|
$
|
7,603
|
|
Texas
|
|
|
917
|
|
|
|
7,685
|
|
|
|
8,381
|
|
North Carolina
|
|
|
3,804
|
|
|
|
25,785
|
|
|
|
6,779
|
|
Tennessee
|
|
|
431
|
|
|
|
3,546
|
|
|
|
8,227
|
|
Alabama
|
|
|
173
|
|
|
|
1,449
|
|
|
|
8,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,703
|
|
|
$
|
102,164
|
|
|
$
|
7,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and
Appliance Purchase Loans
We began offering loans to finance the purchase of furniture and
appliances in late 2009. Our furniture and appliance purchase
loans are indirect installment loans structured as retail
installment sales contracts that are offered in amounts of up to
$7,500. They are payable in fixed rate, fully amortizing equal
monthly installments with terms of between six and
48 months, and are repayable at any time without penalty.
From January 1, 2010 through March 31, 2011, our
average originated net loan size and term for furniture and
appliance purchase loans were $1,377 and 24 months,
respectively. The weighted average yield on our portfolio of
furniture and appliance purchase loans was 22.8% during 2010 and
18.2% for the first three months of 2011.
Our furniture and appliance purchase loans provide financing for
customers who may not qualify for prime financing from
traditional lenders. We believe that the furniture and appliance
purchase lending markets are underserved by sources of non-prime
financing. As compared to other limited sources of non-prime
financing, our furniture and appliance loans often offer more
attractive interest rates and terms to customers.
Our furniture and appliance purchase loans are indirect loans
made through a retailer at the point of sale without the need
for the customer to visit one of our branches, similar to our
indirect automobile purchase loans. We partner
65
with furniture and appliance retailers who offer our furniture
and appliance purchase loans directly to their customers. As of
March 31, 2011, we provided furniture and appliance
purchase loans to customers at over 100 furniture and appliance
retail locations, including 50 franchise store locations of the
largest furniture retailer in the United States. By providing a
source of non-prime financing, we are often able to help our
retailer partners complete sales to customers who may not
otherwise have been able finance their purchase.
Our retail partners typically submit applications to us online
or via facsimile while the customer waits. If a customer is not
accepted by a retailers prime financing provider, we will
evaluate the customers credit based on the same
application data, without the need for the customer to complete
an additional form. Underwriting for our furniture and appliance
purchase loans is conducted through a centralized underwriting
team, RMC Retail.
We individually evaluate the creditworthiness of potential
furniture and appliance purchase loan customers using the same
information and resources as for our other loan products,
including a credit bureau report, before providing a response to
the retailer within ten minutes. If we approve the loan, the
retailer completes our standardized retail installment sales
contract, which includes recording a security interest in the
purchased furniture or appliance. Loan amounts are established
based on underwriting standards designed to allow customers to
affordably make their loan payments out of their discretionary
income. The collections of such loans are performed within our
branches. We work with customers experiencing payment
difficulties to help them to find a solution and view
repossession of the collateral only as a last option.
The following table sets forth the total number of furniture and
appliance purchase loans, the finance receivables and average
per loan for our furniture and appliance purchase loans by state
at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NUMBER
|
|
|
FINANCE
|
|
|
AVERAGE
|
|
|
|
OF LOANS
|
|
|
RECEIVABLES
|
|
|
PER LOAN
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
South Carolina
|
|
|
419
|
|
|
$
|
549
|
|
|
$
|
1,311
|
|
Texas
|
|
|
1,128
|
|
|
|
1,475
|
|
|
|
1,308
|
|
North Carolina
|
|
|
1,603
|
|
|
|
1,613
|
|
|
|
1,006
|
|
Tennessee
|
|
|
11
|
|
|
|
14
|
|
|
|
1,242
|
|
Alabama
|
|
|
5
|
|
|
|
10
|
|
|
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,166
|
|
|
$
|
3,661
|
|
|
$
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
Products
We offer our customers a number of different optional insurance
products and other payment protection in connection with our
loans. The insurance products we offer customers are voluntary
and not a condition of the loan. Our insurance products,
including the types of products offered and the terms and
conditions thereof, vary from state to state in compliance with
applicable laws and regulations. We do not sell insurance to
non-borrowers. In 2010 and the first three months of 2011,
insurance income, net, was $8.3 million and
$2.2 million, or 9.5% and 8.9% of our total revenue,
respectively.
We market and sell insurance policies as an agent for an
unaffiliated third-party insurance company. The policies are
then ceded to our wholly-owned reinsurance subsidiary, RMC
Reinsurance, Ltd., which then bears the full risk of the policy.
For the sale of insurance policies, we, as agent, write policies
only within the limitations established by our agency contracts
with the unaffiliated third-party insurance company.
Credit Life Insurance, Credit Accident and Health Insurance
and Involuntary Unemployment Insurance. We market and
sell optional credit life insurance, credit accident and health
insurance and involuntary unemployment insurance in connection
with our loans in selected markets. Credit life insurance
provides for the payment in full of the borrowers credit
obligation to the lender in the event of the borrowers
death. Credit accident and health insurance, which is only
offered in conjunction with credit life insurance, provides for
the repayment of loan installments to the lender that come due
during an insureds period of income interruption resulting
from disability from illness or injury. Involuntary unemployment
insurance provides for repayment of loan installments in the
event the borrower is no longer employed as the result of a
layoff or reduction in workforce. All customers purchasing
66
these types of insurance from us sign a statement on the loan
contract affirming that they understand that their purchase of
insurance is not a condition of our granting the loan.
Collateral Protection Collision Insurance. Before we
originate an automobile purchase loan or large installment loan,
we require the borrower to provide proof of acceptable liability
and collision insurance on the vehicle securing the loan. While
we do not offer automobile insurance to our customers, we will
obtain collateral protection collision insurance
(CPI) on behalf of customers who permit their other
insurance coverage to lapse. If we obtain CPI for a vehicle, the
customer has the opportunity to provide proof of insurance to
cancel the CPI and receive a refund of all unearned premiums.
Property Insurance. We also require that our
customers provide proof of acceptable insurance for any personal
property securing a loan. Customers can provide proof of such
insurance purchased from a third party (such as homeowners or
renters insurance) or can purchase the property insurance that
we offer.
Our
Branches
Our branches are generally conveniently located in visible, high
traffic locations, such as shopping centers. We do not need to
keep large amounts of cash at our branches because we disburse
our loans by check, rather than by cash payment. As a result,
our branches have an open, welcoming and hospitable layout
without the need for secure booths separating our customers from
our employees.
The following table sets forth the number of branches as of the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT DECEMBER 31,
|
|
|
AT MARCH 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
South Carolina
|
|
|
58
|
|
|
|
59
|
|
|
|
59
|
|
|
|
58
|
|
|
|
61
|
|
|
|
62
|
|
|
|
66
|
|
Texas
|
|
|
21
|
|
|
|
23
|
|
|
|
30
|
|
|
|
31
|
|
|
|
35
|
|
|
|
36
|
|
|
|
37
|
|
North Carolina
|
|
|
10
|
|
|
|
13
|
|
|
|
18
|
|
|
|
18
|
|
|
|
19
|
|
|
|
19
|
|
|
|
21
|
|
Tennessee
|
|
|
|
|
|
|
1
|
|
|
|
5
|
|
|
|
6
|
|
|
|
10
|
|
|
|
10
|
|
|
|
12
|
|
Alabama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
9
|
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
89
|
|
|
|
96
|
|
|
|
112
|
|
|
|
117
|
|
|
|
134
|
|
|
|
136
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the period presented in the table above, we grew net
branches by 45 branches. During the same period, we closed only
one branch, which was consolidated with another nearby branch.
In 2011, we currently plan to open at least 29 new branches in
the five states that we currently serve. In evaluating whether
to locate a branch in a particular community, we examine several
factors, including the demographic profile of the community,
demonstrated demand for consumer finance, the regulatory and
political climate and the availability of suitable employees to
staff, manage and supervise the new branch. We also look for a
concentration of independent and franchise automobile dealers as
well as furniture and appliance retailers in order to build our
sales finance business.
The following table sets forth the average finance receivables
per branch based on maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE FINANCE
|
|
|
|
|
|
|
|
|
|
RECEIVABLES PER
|
|
|
|
|
|
|
|
AGE OF BRANCH
|
|
BRANCH AS OF
|
|
|
PERCENTAGE INCREASE
|
|
|
NUMBER OF
|
|
(AS OF MARCH 31, 2011)
|
|
MARCH 31, 2011
|
|
|
FROM NEWER CATEGORY
|
|
|
BRANCHES
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Branches open less than one year
|
|
$
|
498
|
|
|
|
|
|
|
|
27
|
|
Branches open one to three years
|
|
$
|
1,247
|
|
|
|
150.4
|
%
|
|
|
24
|
|
Branches open three to five years
|
|
$
|
1,425
|
|
|
|
14.3
|
%
|
|
|
24
|
|
Branches open five years or more
|
|
$
|
2,261
|
|
|
|
58.7
|
%
|
|
|
71
|
|
|
Payment and Loan
Collections
We estimate that approximately 70% of monthly loan payments are
received from customers in person at our branches, with the
remaining payments generally made by mail. Encouraging payment
at the branch allows us to
67
maintain regular contact with our customers and further develop
our overall relationship with them. We believe that the
development and continual reinforcement of personal
relationships with customers improves our ability to monitor
their creditworthiness, reduces credit risk and generates
opportunities to offer new loan products to our customers as
their credit profiles evolve. To reduce late payment risk,
branch employees encourage customers to inform us in advance of
expected payment problems.
Branch employees also promptly contact customers following the
first missed payment due date and thereafter remain in close
contact with such customers, including through phone calls and
letters. Our branch employees also contact a delinquent
customers employer and other references listed on the
customers loan application. We use third-party skip
tracing services to locate delinquent customers in the event
that our branch employees are unable to do so. In certain cases,
we seek a legal judgment against delinquent customers.
We obtain security interests for all of our loans, and we
perfect the security interests in vehicles securing large
installment loans and automobile purchase loans. We perfect all
first-lien security interests in each pledged vehicle by
retaining the title to the collateral in our files until the
loan is fully repaid. In certain states, we offer large
installment loans secured by second-lien security interests on
vehicles, in which case we instead seek to perfect our security
interest by recording our lien on the title. We only initiate
repossession efforts when an account is seriously delinquent, we
have exhausted other means of collection and, in the opinion of
management, the customer is unlikely to make further payments.
Since 2010, we have sold substantially all repossessed vehicles
through public sales conducted by independent automobile auction
organizations, after the required post-possession waiting
period. Losses on the sale of repossessed collateral are charged
to the allowance for loan losses.
In certain cases, we permit our existing customers to refinance
their loans. Our refinancings of existing loans are divided into
three categories: refinancings of loans in an amount greater
than the original loan amount, renewals of existing loans that
are current and renewals of existing loans that are delinquent,
which represented 19.1%, 32.9% and 1.7%, respectively, of our
loan originations in 2010 and 13.9%, 35.7% and 1.8%,
respectively, of our loan originations in the first three months
of 2011.
Any refinancing of a loan in an amount greater than the original
amount generally requires an underwriting review to determine a
customers qualification for the increased loan amount.
Furthermore, we obtain a new credit report and may complete a
new application on renewals of existing loans if they have not
completed one within the prior two years. We do not refinance
our automobile purchase or furniture and appliance purchase
loans.
While we typically only allow customers to refinance if their
loan is current, we allow customers to refinance delinquent
loans on a limited basis if those customers otherwise satisfy
our credit standards. We believe that refinancing delinquent
loans for certain deserving customers who have made periodic
payments allows us to help customers to resolve temporary
financial setbacks and to repair or sustain their credit. During
2010 and the first three months of 2011, we refinanced only
$7.4 million and $1.6 million, respectively, of
delinquent loans, and as of March 31, 2011, the outstanding
balance of such refinancings was only $4.8 million, or 1.6%
of gross finance receivables as of such date.
We fully reserve on our financial statements for accounts upon
180 days of contractual delinquency, however, we continue
to pursue payments on such loans, which we believe improves
overall recoveries. Accounts may only be charged off by our
district supervisors or state vice presidents following review
of the collection work applied to them. We continue to attempt
to collect on charged-off loans centrally, and we do not sell
any of our charged-off accounts to third-party debt purchasers,
nor do we place any debt with third-party collection agencies.
Information
Technology
Since 1999, we have used a data processing software package
developed and owned by ParaData Financial Systems and have
invested in customizing the ParaData software to improve the
management of our specific processes and product types. The
ParaData software is also used by many of our competitors. With
this software package, we are able to fully automate all of our
loan account processing and servicing. The system provides
thorough management information and control capabilities,
including monitoring of all loans made, collections,
delinquencies and other functions. We believe that the ParaData
loan management system is adequate for our current business
needs and that it will support our expected growth.
68
Competition
The consumer finance industry is highly fragmented, with
numerous competitors. The competition we face for each of our
loan products is distinct.
Small and
Large Installment Loans
The small and large installment loan industry is highly
fragmented in the five states in which we currently operate. Our
largest installment loan competitor in most of the markets in
which we operate is World Acceptance Corp., an installment
finance lender with approximately 1,000 branches, less than half
of which are located in states that we serve. Additionally, we
compete with Security Finance Corporation for small installment
loans as well as for automobile purchase loans. We believe that
Security Finance Corporation has in excess of 1,100 branches
nationwide. We also compete with a handful of private
competitors with between 100 to 250 branches in certain of the
states in which we operate. We believe that the majority of our
competitors are independent operators with generally less than
100 branches. We believe that competition between
installment consumer loan companies occurs primarily on the
basis of price, breadth of loan product offerings, flexibility
of loan terms offered and the quality of customer service
provided. While underbanked customers may also use alternative
financial services providers, their products offer different
terms and typically carry substantially higher interest rates
than our installment loans. Accordingly, we believe alternative
financial services providers are not an attractive alternative
for customers who meet our underwriting standards, which are
generally stricter than the underwriting standards of
alternative financial services providers. Our small and large
installment loans also compete to a lesser extent with online or
peer-to-peer
lenders and issuers of non-prime credit cards.
Automobile
Purchase Loans
In the automobile purchase loan industry, we compete with
numerous financial service companies, including non-prime auto
lenders, dealers that provide financing, captive finance
companies owned by automobile manufacturers and, to a limited
extent, credit unions. Competition among automobile purchase
lenders is largely on the basis of interest rates charged, the
quality of credit accepted, the flexibility of loan terms
offered, the speed of approval and the quality of customer
service provided. Much of the automobile purchase loan
marketplace has shifted to processing loan applications
generated at dealers through such online credit application
networks as DealerTrack or RouteOne where prompt service and
response times to dealers and their customers are essential to
compete in this market.
Furniture and
Appliance Purchase Loans
In the furniture and appliance purchase loan industry, there are
currently only a small number of lenders dedicated to non-prime
furniture and appliance purchase loans. To the extent customers
require furniture and appliance financing but do not qualify for
a retailers prime sources of financing, the main
alternatives are
rent-to-own
financing providers and credit card companies. Our furniture and
appliance purchase loans are typically made at competitive
rates, and competition is largely on the same basis as
automobile purchase loans.
Point-of-sale
financing decisions must be made rapidly while the customer is
on the sales floor. We provide responses to customers in less
than ten minutes, and we staff RMC Retail, our centralized
furniture and appliance purchase loan underwriting team, with
multiple shifts seven days per week during peak retail furniture
shopping hours to ensure rapid response times.
Seasonality
Our loan volume and corresponding finance receivables follow
seasonal trends. Demand for our loans is typically highest
during the fourth quarter, largely due to holiday spending. Loan
demand has generally been the lowest during the first quarter,
largely due to decreases in demand as a result of the timing of
income tax refunds. During the remainder of the year, our loan
volume typically grows from customer loan activity. In addition,
we typically generate higher loan volumes in the second half of
the year from our live check campaigns, which are timed to
coincide with seasonal consumer demand. Consequently, we
experience significant seasonal fluctuations in our operating
results and cash needs.
Employees
As of March 31, 2011, we had approximately
529 employees, none of whom were represented by labor
unions. We consider our relations with our personnel to be good.
We experience a high level of turnover among our entry-level
employees, which we believe is typical of the consumer finance
industry. However, as of March 31, 2011, our 146 branch
managers had an average of more than four years of service as
branch managers at Regional.
69
Staff and
Training
Local branches are generally staffed with three to four
employees. The branch manager oversees operations of the branch
and is responsible for approving all loan applications. Each
branch has one or two assistant managers who contact delinquent
customers, review loan applications and prepare operational
reports. Each branch also has a customer service representative
who takes loan applications, processes loan applications,
processes payments and assists in the preparation of operational
reports, collection efforts and marketing activities. Larger
volume branches may employ additional assistant managers and
customer service representatives.
New employees are tested on a detailed training manual that
outlines our operating policies and procedures during the first
year of employment. In addition, each branch provides weekly
in-branch training sessions and periodic training sessions
outside the branch.
Monitoring and
Supervision
We have robust oversight structures and procedures in place to
ensure compliance with our operational standards and policies
and the applicable regulatory requirements in each state. All of
our loans are prepared using our loan management software, which
is programmed to compute fees, interest rates and other loan
terms in compliance with our underwriting standards and
applicable regulations. We work with our regulatory counsel to
develop standardized forms and agreements for each state,
ensuring consistency and compliance.
Our loan operations are organized by state with separate
business units for each of South Carolina, North Carolina and
Texas and a fourth business unit that includes both Alabama and
Tennessee. Several levels of management monitor and supervise
the operations of each of our branches. Branch managers are
directly responsible for the performance of their respective
branches. District supervisors are responsible for the
performance of between six and ten branches in their districts,
communicating with the branch managers of each of their branches
at least weekly and visiting the branches at least monthly. Four
state vice presidents monitor the performance of all of our
branches, primarily through communications with district
supervisors. These state vice presidents communicate with the
district supervisors of each of their districts at least weekly
and visit each of their branches at least quarterly. Our
information technology platform enables us to regularly monitor
our portfolio, which we believe improves our credit performance.
At least once per year, each branch undergoes an audit by our
internal auditors. These audits include an examination of cash
balances and compliance with our loan approval, review and
collection procedures and compliance with state and federal laws
and regulations. Branches that do not receive a satisfactory
grade from our internal audit team are automatically re-audited
within 90 days in order to confirm operational improvements.
In 2009, we introduced a scorecard program to
systematically monitor a range of operating metrics at each
branch. Our scorecard system currently tracks 15 different
dimensions of operations, including the performance and
compliance of each branch on a series of underwriting metrics.
Our headquarters staff provides central oversight by reconciling
on a daily basis all account payments, cash balances and bank
deposits for each of our branches. Senior management receives
daily delinquency, loan volume, charge-off and other statistical
reports consolidated by state and has access to these daily
reports for each branch. On a monthly basis, district
supervisors audit the operations of each branch in their
geographic area and submit standardized reports detailing their
findings to senior management. District supervisors and state
vice presidents meet with the executive management team once per
quarter to review branch scorecard results as well as to discuss
other operational and financial performance results against our
targets and historical standards. Remedial plans are put in
place to correct any underperformance.
Properties
We own our home office buildings in Greenville, South Carolina,
which total approximately 9,500 square feet. Each of our
146 branches, as of March 31, 2011, is leased under fixed
term lease agreements. Our branches are located throughout South
Carolina, Texas, North Carolina, Tennessee and Alabama, and the
average branch size is approximately 1,200 square feet.
Government
Regulation
Consumer finance companies are subject to extensive regulation,
supervision and licensing under various state and federal
statutes, ordinances and regulations. Many of these regulations
impose detailed constraints on the terms of
70
our loans or the retail installment sales contracts that we
purchase, lending forms and operations. The software that we use
to originate loans is designed to ensure compliance with all
applicable lending regulations.
State Lending
Regulation
In general, state statutes establish maximum loan amounts and
interest rates and the types and maximum amounts of fees,
insurance premiums and other fees that may be charged for both
direct and indirect lending. Specific allowable charges vary by
state. Statutes in Texas allow for indexing the maximum small
loan amounts to the Consumer Price Index and set maximum rates
for automobile purchase loans based on the age of the vehicle.
Except in the state of North Carolina, our direct loan products
are pre-computed loans in which the finance charge is a
combination of origination or acquisition fees, account
maintenance fees, monthly account handling fees and other
charges permitted by the relevant state laws. Direct loans in
North Carolina are structured as simple interest loans as
prescribed by state law.
In addition, state laws regulate the keeping of books and
records and other aspects of the operation of consumer finance
companies. State and federal laws regulate account collection
practices. Generally, state regulations also establish minimum
capital requirements for each local branch. State agency
approval is required to open new branches.
Each of our branches is separately licensed under the laws of
the state in which the branch is located. Licenses granted by
the regulatory agencies in these states are subject to renewal
every year and may be revoked for failure to comply with
applicable state and federal laws and regulations. In the states
in which we currently operate, licenses may be revoked only
after an administrative hearing. We believe we are in compliance
with state law and regulations applicable to our lending
operations in each state.
We and our operations are regulated by several state agencies,
including the Consumer Finance Division of the South Carolina
Board of Financial Institutions, the South Carolina Department
of Consumer Affairs, the North Carolina Office of the
Commissioner of Banks, the Texas Office of the Consumer Credit
Commissioner, the Tennessee Department of Financial Institutions
and the Alabama State Banking Department. These state regulatory
agencies audit our branches from time to time, and each state
agency performs an annual compliance audit of our operations in
that state.
Insurance
Regulation
Charges for credit insurance and similar payment protection
products are made at authorized statutory rates and are stated
separately in our disclosure to customers, as required by the
Truth in Lending Act and by various applicable state laws.
We are also subject to state regulations governing insurance
agents in the states in which we sell insurance. State insurance
regulations require that insurance agents be licensed and limit
the premium amount charged for such insurance. Our captive
insurance subsidiary is regulated by the insurance authorities
of the Turks and Caicos Islands of the British West Indies,
where the subsidiary is organized and domiciled.
Dodd-Frank
Wall Street Reform and Consumer Protection Act of
2010
At the federal level, Congress enacted comprehensive financial
regulatory reform legislation on July 21, 2010, which is to
take effect July 21, 2011. A significant focus of the new
law, known as the Dodd-Frank Act, is heightened consumer
protection. The Dodd-Frank Act established a new body, called
the CFPB, that will have regulatory, supervisory and enforcement
powers over providers of consumer financial products and
services, including explicit supervisory authority to examine
and require registration of non-depository lenders and
promulgate rules that can affect the practices and activities of
lenders.
Although the Dodd-Frank Act expressly provides that the CFPB has
no authority to establish usury limits, some consumer advocacy
groups have suggested that various forms of alternative
financial services or specific features of consumer loan
products should be a regulatory priority and it is possible that
at some time in the future the CFPB could propose and adopt
rules making such lending services materially less profitable or
impractical, which may include installment finance loans or
other products that we offer.
In addition to the grant of certain regulatory powers to the
CFPB, the Dodd-Frank Act gives the CFPB authority to pursue
administrative proceedings or litigation for violations of
federal consumer financial laws. In these proceedings, the CFPB
can obtain cease and desist orders (which can include orders for
restitution or rescission of contracts, as well as other kinds
of affirmative relief) and monetary penalties.
71
Other Federal
Laws and Regulations
In addition to the Dodd-Frank Act and state and local laws and
regulations, numerous other federal laws and regulations affect
our lending operations. These laws include the Truth in Lending
Act, the Equal Credit Opportunity Act, the Fair Credit Reporting
Act, the Gramm-Leach-Bliley Act and in each case the regulations
thereunder, and the Federal Trade Commissions Credit
Practices Rule. These laws require us to provide complete
disclosure of the principal terms of each loan to the borrower,
prior to the consummation of the loan transaction, prohibit
misleading advertising, protect against discriminatory lending
practices and proscribe unfair credit practices.
Under the Truth in Lending Act and Regulation Z promulgated
thereunder, we must disclose certain material terms related to a
credit transaction, including, but not limited to, the annual
percentage rate, finance charge, amount financed, total of
payments, the number and amount of payments and payment due
dates to repay the indebtedness.
Under the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, we cannot discriminate against any
credit applicant on the basis of any protected category, such as
race, color, religion, national origin, sex, marital status or
age. We are also required to make certain disclosures regarding
consumer rights and advise customers whose credit applications
are not approved of the reasons for the rejection.
Under the Fair Credit Reporting Act, we must provide certain
information to customers whose credit applications are not
approved on the basis of a report obtained from a consumer
reporting agency, promptly update any credit information
reported to a credit reporting agency about a customer and have
a process by which customers may inquire about credit
information furnished by us to a consumer reporting agency.
Under the Gramm-Leach-Bliley Act, we must protect the
confidentiality of our customers nonpublic personal
information and disclose information on our privacy policy and
practices, including with regard to the sharing of
customers nonpublic personal information with third
parties. This disclosure must be made to customers at the time
the customer relationship is established and, in some cases, at
least annually thereafter.
The Federal Trade Commissions Credit Practices Rule limits
the types of property we may accept as collateral to secure a
consumer loan.
Violations of these statutes and regulations may result in
actions for damages, claims for refund of payments made, certain
fines and penalties, injunctions against certain practices and
the potential forfeiture of rights to repayment of loans.
Changes to any of these statutes and regulations may have a
materially adverse effect on our business as described under
Risk Factors Risks Related to Regulation.
Legal
Proceedings
We are involved in routine litigation and claims primarily
arising out of our operations in the normal course of business,
which we do not expect to have a material adverse effect upon
our consolidated financial statements.
72
MANAGEMENT
Directors,
Director Nominees and Executive Officers
The following table sets forth the names, ages and positions of
our directors, director nominees and executive officers as of
the date of this prospectus.
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NAME
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AGE
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POSITION
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David Perez
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42
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Chairman of the Board of Directors
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Roel C. Campos
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62
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Director Nominee
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Richard T. DellAquila
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34
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Director
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Richard A. Godley
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63
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Director
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Jared L. Johnson
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39
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Director
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Alvaro G. de Molina
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53
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Director Nominee
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Erik A. Scott
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43
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Director
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Thomas F. Fortin
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47
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Chief Executive Officer and Director Nominee
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C. Glynn Quattlebaum
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64
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President and Chief Operating Officer
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Robert D. Barry
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67
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Executive Vice President and Chief Financial Officer
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A. Michelle Masters
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36
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Senior Vice President, Strategic Development and Corporate
Secretary
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David Perez has served as the chairman of the board of
directors since April 2011 and has been a director of Regional
since March 2007. He has served as a Managing Director with
Palladium since 2003. Previously, he held senior private equity
positions at General Atlantic Partners and Atlas Venture, and
also held positions at Chase Capital Partners and James D.
Wolfensohn, Inc. Mr. Perez serves on the Board of Directors
of Palladiums privately held portfolio companies Aconcagua
Holdings, Inc., American Gilsonite Company, Capital Contractors,
Inc., DolEx Dollar Express, Inc., Jordan Healthcare Holdings,
Inc. and Prince Minerals, Inc. Mr. Perez serves as the
Chair of the Board of Directors of the National Association of
Investment Companies (NAIC), is a member of the Council on
Foreign Relations, and is the President of the Board of
Directors of Ballet Hispánico. Mr. Perez earned a
B.S./M.S. degree from the Dresden University of Technology, an
M.Eng. degree in Engineering Management from Cornell University
and an M.B.A. degree from Harvard Business School.
Roel C. Campos is a director nominee. Mr. Campos is
a partner with the law firm of Locke Lord Bissell &
Liddell LLP, which he joined in April 2011. He practices in the
areas of securities regulation, corporate governance and
securities enforcement. He had previously been a partner in the
law firm of Cooley Godward Kronish LLP from September 2007 to
April 2011. Prior to that, he received a presidential
appointment and served as a Commissioner of the Securities and
Exchange Commission (SEC) from 2002 to 2007. Prior
to serving with the SEC, Mr. Campos was a founding partner
of a Houston-based radio broadcaster. Earlier in his career, he
practiced corporate law and served as a federal prosecutor in
Los Angeles, California. Mr. Campos is a trustee for the
Managed Portfolio Series, an open-end mutual fund registered
with the SEC under the Investment Company Act. Mr. Campos
was selected by President Barack Obama to serve on his citizen
Presidential Intelligence Advisory Board. Mr. Campos also
serves on the Advisory Board for the Public Company Accounting
Oversight Board and serves on various non-profit boards.
Mr. Campos earned a B.S. degree from the United States Air
Force Academy, an M.B.A. degree from the University of
California, Los Angeles, and a J.D. degree from Harvard Law
School.
Richard T. DellAquila has been a director of
Regional since July 2010. Mr. DellAquila is a
Principal at Parallel, which he joined in March 2010. Prior to
joining Parallel, Mr. DellAquila was a Principal at
Southfield Capital Advisors LLC from January 2006 to February
2010, and has previously held positions at Sasco Capital, Inc.,
Pangea, Ltd, and Bear, Stearns & Co. Inc.
Mr. DellAquila also serves on the boards of
Parallels privately held portfolio companies
Quartermaster, Inc., USA Discounters, Inc. and Newhall
Laboratories, Inc. Mr. DellAquila graduated from
Hamilton College where he received a B.A. degree in Economics.
He also studied as an undergraduate at Oxford University.
73
Richard A. Godley has been a director of Regional since
its inception in 1987 and is its founder. He previously served
as President and Chief Executive Officer of Regional from 1987
to his retirement in March 2007. Prior to founding Regional,
Mr. Godley served as Senior Vice President of World
Acceptance Corporation. Mr. Godley is a veteran of the
U.S. Army and served in Vietnam from 1968 to 1969.
Jared L. Johnson has been a director of Regional since
2009. Mr. Johnson is a Managing Director at Parallel, which
he joined as a Principal in 2003. Prior to joining Parallel,
Mr. Johnson was a Vice President with Summit Partners and
has previously held positions with Robertson Stephens and
Kirkland Messina. Mr. Johnson also serves on the boards of
Parallels privately held portfolio companies Marmalade
Holdings, Inc., New Moosejaw, LLC, Quartermaster, Inc. and TFO
Holdings, Inc. Mr. Johnson is a graduate of Stanford
University, where he received an A.B. degree in American Studies.
Alvaro G. de Molina is a director nominee. Until 2009,
Mr. de Molina was the Chief Executive Officer of GMAC LLC, which
he had originally joined as Chief Operating Officer in 2007.
Since departing GMAC LLC, Mr. de Molina has been a private
investor. He also joined Cerberus Capital Management where he
worked with the operations group for a period during 2007,
following a
17-year
career at Bank of America where he most recently served as its
Chief Financial Officer from 2005 until 2007. During his tenure
at Bank of America, Mr. de Molina also served as Chief Executive
Officer of Banc of America Securities, President of Global
Capital Markets and Investment Banking, head of Market Risk
Management and Corporate Treasurer. Previously, he also served
in key roles at JPMorgan Chase Bank, N.A., Becton, Dickinson and
Company and PriceWaterhouse LLP (now PricewaterhouseCoopers
LLP). Mr. de Molina is a member of the Board of Visitors of Duke
Universitys Fuqua School of Business. He holds a B.S.
degree in Accounting from Fairleigh Dickinson University and an
M.B.A. degree from Rutgers Business School and is a graduate of
the Duke University Advanced Management Program.
Erik A. Scott has been a director of Regional since 2007.
He currently serves as a Managing Director with Palladium, a
position he has held since 2010. From 2005 to 2010, he was a
Vice President and Principal with Palladium. Previously, he was
a Principal at FdG Associates and Parthenon Capital and also
held positions at Allied Capital and Bowles Hollowell
Conner & Co. Mr. Scott also serves on the boards
of Palladiums privately held portfolio companies Capital
Contractors, Inc. and DolEx Dollar Express, Inc. Mr. Scott
earned a B.A. degree in Economics with a concentration in
Spanish from Vanderbilt University and an M.B.A. degree from the
Darden Graduate School of Business Administration at the
University of Virginia.
Thomas F. Fortin was appointed Chief Executive Officer of
Regional in March 2007 and is also a director nominee. Prior to
joining Regional, Mr. Fortin was, from 2005 to 2007,
President of Cogent Strategic Advisors, LLC, a consulting firm
serving institutional investors. He also served as an Operating
Partner of Parallel from 2003 to March 2007. From 1998 to 2005,
Mr. Fortin was Vice President, Development for EJB Group,
Inc., a private investment holding company based in Charlotte,
North Carolina. From 1992 to 1998, Mr. Fortin was Vice
President and Chief Financial Officer of InLight Solutions,
Inc., a medical technology business located in Albuquerque, New
Mexico that he co-founded. He also held positions at Bowles
Hollowell Conner & Co. and Trammell Crow Company. In
2008, Mr. Fortin was elected to the Board of Directors of
the American Financial Services Association (AFSA),
the principal trade organization for the installment lending
industry. He currently serves on the Executive Committee of the
Board of Directors of AFSA, is Vice Chairman of the AFSA
Independents Section and is the Chairman of the AFSA Political
Action Committee. Mr. Fortin earned a B.S. degree in
Industrial Engineering from Stanford University and an M.B.A.
degree from Harvard Business School.
C. Glynn Quattlebaum has served as President and
Chief Operating Officer of Regional since March 2007. Prior to
that time, he served Regional as Senior Vice President,
Operations from 1998 to 2007. He is a co-founder of Regional and
has been employed by Regional since its founding in 1987. Prior
to joining Regional, Mr. Quattlebaum was a Supervisor with
World Acceptance Corporation, where he began his career in
consumer finance in 1974. Mr. Quattlebaum also serves on
the board of the South Carolina Independent Consumer Finance
Association.
Robert D. Barry, CPA, was appointed Executive Vice
President and Chief Financial Officer of Regional in March 2007.
Prior to joining Regional, Mr. Barry was the Managing
Member of AccessOne Mortgage Company, LLC in Raleigh, North
Carolina from 1997 to 2007. During this time, he also served as
part-time Chief Financial Officer for Patriot State Bank,
Fuquay-Varina, North Carolina, from March 2006 to March 2007 and
Nuestro Banco, Raleigh, North Carolina, from July 2006 to March
2007. Prior to his time at AccessOne, Mr. Barry was
Executive Vice
74
President and Chief Financial Officer for Regional Acceptance
Corporation, a consumer finance company unrelated to us, and
prior to that he was a financial institutions partner in the
Raleigh, North Carolina office of KPMG LLP. Mr. Barry
earned a B.S. degree in Accounting from the University of
Delaware and is a Certified Public Accountant licensed in North
Carolina and Georgia.
A. Michelle Masters currently serves as
Regionals Senior Vice President, Strategic Development and
Corporate Secretary. Ms. Masters joined Regional in
December 1999 as Senior Financial Analyst and was promoted to
Controller and Treasurer in January 2006. Ms. Masters was
subsequently promoted to Senior Vice President of Finance in May
2008. Ms. Masters holds a B.A. degree in Accounting and
Business Administration from Furman University and an M.B.A.
degree from Clemson University.
There are no family relationships among any of our directors or
executive officers. Mr. Fortin is the
brother-in-law
of F. Barron Fletcher, III, the managing member of
Parallel, one of the sponsors.
Composition of
the Board of Directors After this Offering
Our board of directors currently consists of five directors,
Messrs. DellAquila, Godley, Johnson, Perez and Scott,
with Mr. Perez serving as chair. Upon the listing of our
common stock on the New York Stock Exchange, Messrs. Campos and
de Molina, two director nominees who are independent in
accordance with the criteria established by the New York Stock
Exchange for independent board members, will be appointed to the
board of directors. Additionally, in connection with this
offering, our Chief Executive Officer, Mr. Fortin, will be
appointed to our board of directors. Upon the consummation of
this offering, the size of our board of directors will be
increased to eight directors.
We expect that, following this offering, our existing owners
will continue to control more than 50% of the voting power for
the election of directors of our outstanding common stock.
Accordingly, we intend to elect to rely upon exemptions
available to a controlled company under the New York
Stock Exchange corporate governance standards. These exemptions
would exempt us from the obligation to comply with certain New
York Stock Exchange corporate governance requirements including
the requirements that:
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within one year of the date of the listing of our common stock
on the New York Stock Exchange, a majority of our board of
directors consists of independent directors, as
defined under the rules of the New York Stock Exchange;
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n
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we have a compensation committee that is, within one year of the
date of the listing of our common stock on the New York Stock
Exchange, composed entirely of independent directors; and
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we have a corporate governance and nominating committee that is,
within one year of the date of the listing of our common stock
on the New York Stock Exchange, composed entirely of independent
directors.
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If we are a controlled company and avail ourselves of such
exemptions, you will not have the same protections afforded to
stockholders of companies that are subject to all of the New
York Stock Exchange corporate governance requirements. In the
event that we cease to be a controlled company, we will be
required to comply with these provisions within the transition
periods specified in the rules of the New York Stock Exchange.
These exemptions do not modify the independence requirements for
our audit committee, and we intend to comply with the applicable
requirements of the SEC and New York Stock Exchange rules with
respect to our audit committee within the applicable time frame.
See Board Committees Audit
Committee.
Our board of directors will have discretion to determine the
size of the board of directors. Our directors will be elected at
each years annual meeting of stockholders.
Director
Qualifications
Historically, the members of our board of directors have been
designated in accordance with our current shareholders
agreement, which we expect will be replaced upon completion of
this offering with our amended and restated shareholders
agreement, and which provides that the board is comprised of
five directors, including (i) four designees of Regional
Holdings LLC (which, pursuant to an agreement among the holders
of Regional Holdings LLC, includes two designees of Palladium
and two designees of Parallel) and (ii) a designee of our
individual owners. Following this offering, our existing owners
will initially continue to have the right to designate a
majority of the members of our board of directors. See
Certain Relationships and Related Person
Transactions Shareholders
75
Agreement. Our existing owners have sought to ensure that
our board of directors is composed of members whose particular
experience, qualifications, attributes and professional and
functional skills, when taken together, will allow the board to
effectively satisfy its oversight responsibilities. In
identifying candidates for membership on our board, our existing
owners have historically taken into account (1) certain
individual qualifications, such as high ethical standards,
integrity, mature, careful judgment, industry knowledge or
experience and an ability to work collegially with the other
members of our board and (2) all other factors they
consider appropriate, including alignment with our stockholders.
When determining whether our current directors and proposed new
directors have the experience, qualifications, attributes and
skills, taken as a whole, to enable our board to satisfy its
oversight responsibilities effectively in light of our business
and structure, our board focused primarily on their valuable
contributions to our success in recent years and on the
information discussed in the biographical information set forth
under Management Directors, Director Nominees
and Executive Officers. In particular,
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Mr. Perez was selected to serve as a director in light of
his affiliation with Palladium and his significant experience in
working with companies controlled by private equity sponsors,
including several financial companies, and his experience in
working with the management of various other companies owned by
Palladiums funds;
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Mr. Campos was selected to serve as a director in light of
his extensive financial background and experience in working
with financial services companies, his experience with the SEC
and his significant experience with public companies across a
variety of industries;
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Mr. DellAquila was selected to serve as a director in
light of his affiliation with Parallel, his extensive financial
background and experience in working with financial services
companies and his experience in working with the management of
various other companies owned by Parallel;
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n
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Mr. Godley was selected to serve as a director due to his
long-standing role with the company as founder and his
significant continuing equity ownership;
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Mr. Johnson was selected to serve as a director in light of
his affiliation with Parallel, his extensive financial
background and his experience in working with the management of
various other companies owned by Parallel;
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Mr. de Molina was selected to serve as a director in light of
his extensive financial background and his significant
experience with public and private financial services companies;
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Mr. Scott was selected as a director in light of his
affiliation with Palladium, his extensive financial background
and his experience in working with the management of various
other companies owned by Palladium funds; and
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Mr. Fortin was selected to serve as a director in light of
his role as our Chief Executive Officer and the management
perspective he brings to board deliberations as well as his
experience with the state and federal regulators applicable to
our business.
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Board
Committees
Our board of directors has established an audit committee and a
compensation committee, and will establish a corporate
governance and nominating committee prior to the consummation of
this offering. The composition and responsibilities of each
committee are described below. Members serve on these committees
until their resignation or until otherwise determined by our
board.
Audit
Committee
Our audit committee currently consists of Messrs. Scott and
DellAquila. Upon the completion of this offering, our
audit committee will consist of
Messrs. , and ,
with
Mr. serving
as chair. Pursuant to the audit committees written
charter, our audit committee is responsible for, among other
things:
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selecting and hiring our independent auditors, and approving the
audit and non-audit services to be performed by our independent
auditors;
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assisting the board of directors in evaluating the
qualifications, performance and independence of our independent
auditors;
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assisting the board of directors in monitoring the quality and
integrity of our financial statements and our accounting and
financial reporting processes;
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assisting the board of directors in monitoring our compliance
with legal and regulatory requirements;
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76
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assisting the board of directors in reviewing the adequacy and
effectiveness of our internal control over financial reporting
processes;
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assisting the board of directors in monitoring the performance
of our internal audit function;
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discussing the scope and results of the audit with the
independent registered public accounting firm;
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reviewing with management and our independent auditors our
annual and quarterly financial statements;
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establishing procedures for the receipt, retention and treatment
of complaints received by us regarding accounting, internal
accounting controls or auditing matters and the confidential,
anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters; and
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preparing the audit committee report that the SEC requires in
our annual proxy statement.
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The SEC rules and New York Stock Exchange rules require us to
have a fully independent audit committee within one year of the
date of the listing of our common stock on the New York Stock
Exchange.
Compensation
Committee
Our compensation committee currently consists of
Messrs. Johnson, Godley and Perez. Upon consummation of
this offering, our compensation committee will consist of
Messrs. , and ,
with
Mr. serving
as chair. The compensation committee is or will be responsible
for, among other things:
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reviewing and approving, or making recommendations to the board
of directors with respect to, corporate goals and objectives
relevant to the compensation of our CEO, evaluating our
CEOs performance in light of those goals and objectives,
and, either as a committee or together with the other
independent directors (as directed by the board of directors),
determining and approving our CEOs compensation level
based on such evaluation;
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reviewing and approving the compensation of our executive
officers, including annual base salary, annual incentive
bonuses, specific goals, equity compensation, employment
agreements, severance and change in control arrangements, and
any other benefits, compensation or arrangements;
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reviewing and recommending the compensation of our directors;
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reviewing and discussing annually with management our
Compensation Discussion and Analysis disclosure
required by SEC rules following the consummation of this
offering;
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preparing the compensation committee report required by the SEC
to be included in our annual proxy statement following the
consummation of this offering; and
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reviewing and making recommendations with respect to our equity
compensation plans.
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Corporate
Governance and Nominating Committee
Upon consummation of this offering, our corporate governance and
nominating committee will consist of
Messrs. , and ,
with
Mr. serving
as chair. The corporate governance and nominating committee will
be responsible for, among other things:
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assisting our board of directors in identifying prospective
director nominees and recommending nominees to the board of
directors;
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overseeing the evaluation of the board of directors and
management;
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reviewing developments in corporate governance practices and
developing and recommending a set of corporate governance
guidelines; and
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recommending members for each committee of our board of
directors.
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Compensation
Committee Interlocks and Insider Participation
Mr. Godley, a member of our compensation committee, is the
founder of Regional, a significant stockholder and a party to
our shareholders agreement. Prior to March 2007, he served as
our President and Chief Executive Officer. Since March 2007,
Mr. Godley has served as a consultant to Regional pursuant
to a consulting agreement, which will be terminated pursuant to
its terms upon the consummation of this offering and the payment
by us of a $150,000 one-time termination fee to Mr. Godley
pursuant to the terms of the consulting agreement.
Mr. Godley is also a lender under our mezzanine debt
arrangements, which we intend to repay with a portion of the
proceeds of this offering. See Certain Relationships and
Related Person Transactions. None of the other members of
our compensation committee is our current or former officer or
employee.
77
None of our executive officers serves as a member of the board
of directors or compensation committee (or other committee
performing equivalent functions) of any entity that has one or
more executive officers serving on our board of directors or
compensation committee.
Director
Compensation
During 2010, the directors of Regional Management Corp. were
Messrs. Perez, DellAquila, Godley, Johnson and Scott.
Our directors receive no separate compensation for service on
the board of directors or on committees of the board of
directors. Accordingly, we have not presented a Director
Compensation Table. Mr. Godley, however, received
consulting fees pursuant to a consulting agreement as described
under Certain Relationships and Related Person
Transactions. Pursuant to the agreement, we pay
Mr. Godley a monthly fee equal to $12,500, as well as pay
or reimburse him for all reasonable
out-of-pocket
expenses directly related to the performance of his duties and
responsibilities to us under the agreement. For 2010, we paid
Mr. Godley a total of $150,000 of consulting fees pursuant
to the agreement. Upon the consummation of this offering, the
agreement will be terminated pursuant to its terms and we will
pay Mr. Godley a one-time termination fee of $150,000.
Following this offering, our employees who serve as directors
will receive no separate compensation for service on the board
of directors or on committees of the board of directors. We
anticipate that each non-employee director will receive an
annual retainer of $25,000, plus $10,000 for each committee on
which each such director serves. In addition, upon joining the
board of directors, each new non-employee director will receive
options to purchase shares of
our common stock with an exercise price equal to the fair market
value on the date of grant and will, subject to the
directors continued service on our board of directors,
have standard vesting provisions, which will be determined prior
to the consummation of this offering. We expect to grant each
such non-employee director additional stock options of
comparable value and terms annually. In addition, each director
will be reimbursed for reasonable
out-of-pocket
expenses incurred in connection with his service on our board of
directors. In order to set the levels of director compensation
for the non-executive directors, the compensation committee
reviewed the director compensation packages for the same
publicly-traded comparable set used for executive officers, as
described below under Compensation Discussion and
Analysis Compensation Determination Process,
and also spoke to executive recruiting firms as to market
practice.
Compensation
Discussion and Analysis
The following discussion and analysis of the compensation
arrangements of our named executive officers identified in the
Summary Compensation Table below should be read
together with the compensation tables and related disclosures
regarding our current plans, considerations, expectations and
determinations regarding future compensation programs. Our
executive compensation programs following the consummation of
this offering could differ materially from those summarized in
this Compensation Discussion and Analysis section.
Compensation
Program Objectives
The primary objectives of our executive compensation program are
to attract and retain talented executives to effectively manage
and lead our company and create value for our stockholders. The
compensation packages for our named executive officers generally
include a base salary, performance-based annual cash awards,
discretionary cash bonuses, equity awards and other benefits.
The discussion below includes a review of our compensation
decisions with respect to 2010. Our named executive officers for
2010 were Thomas F. Fortin, our Chief Executive Officer; Robert
D. Barry, our Executive Vice President and Chief Financial
Officer; C. Glynn Quattlebaum, our President and Chief Operating
Officer; and A. Michelle Masters, our Senior Vice President,
Strategic Development and Corporate Secretary.
Compensation
Determination Process
Our current compensation program for our named executive
officers has been designed based on our view that each component
of executive compensation should be set at levels that are
necessary, within reasonable parameters, to successfully attract
and retain skilled executives and that are fair and equitable in
light of market practices. We did not use a compensation
consultant in 2010. In setting an individual named executive
officers initial compensation package and the relative
allocation among different types of compensation, we consider
the nature of the position being filled, the scope of associated
responsibilities, the individuals prior experience and
skills and the individuals
78
compensation expectations, as well as the compensation of
existing executive officers at our company and our general
impressions of prevailing conditions in the market for executive
talent.
We generally monitor compensation practices in the market where
we compete for executive talent to obtain an overview of market
practices and to ensure that we make informed decisions on
executive pay packages. Consistent with our compensation
objectives of attracting and retaining top executive talent, we
believe that the base salaries and performance-based annual cash
award targets of our named executive officers should be set at
levels which are competitive with our peer group companies of
comparable size, although we do not target any specific pay
percentile for our named executive officers. To obtain a sense
of the market, we review the compensation awarded by the
following publicly-traded companies: Aarons, Inc.,
Americas Car-Mart, Inc., Credit Acceptance Corp., Dollar
Financial Corp., EZCORP, Inc., First Cash Financial Services,
Inc., Nicholas Financial, Inc., Rent-A-Center, Inc. and World
Acceptance Corp., as well as select private companies in the
portfolios of the sponsors and companies that compete with us.
In conducting this review, we place particular emphasis on the
relative size of such companies in relation to our size and also
consider the overall salary levels for each position held,
individual bonus targets and incentive compensation paid and
equity ownership levels. We believe that appropriate base
salaries for our named executive officers should generally be in
line with those paid by peer group companies of comparable size,
that performance-based annual cash awards should reward
exceptional performance with overall compensation which can
exceed those of peer group companies of comparable size and that
total compensation for named executive officers may approach the
higher end of such peer group companies of comparable size if
bonus targets are reached.
For 2010, the compensation for our named executive officers was
generally higher than publicly-traded peer companies that are
smaller than us and either slightly higher, comparable to or
lower than the larger publicly-traded peer group companies.
Our board of directors makes all compensation determinations for
Messrs. Fortin, Quattlebaum and Barry. Historically,
Ms. Masters compensation has been determined by
Messrs. Fortin and Quattlebaum. We have an employment
agreement with each of Messrs. Fortin and Quattlebaum and a
letter agreement with Mr. Barry. Ms. Masters is an
at-will employee and does not have an employment agreement or a
letter agreement with us. We anticipate that, following this
offering, the compensation committee of our board of directors
will review and approve the compensation determinations for all
of our executive officers.
Elements of
Compensation
Base
Salaries
Base salaries are intended to provide a minimum, fixed level of
cash compensation sufficient to attract and retain an effective
management team when considered in combination with other
components of our executive compensation program. We believe
that the base salary element is required to provide our named
executive officers with a stable income stream that is
commensurate with their responsibilities and to compensate them
for services rendered during the fiscal year. Annual base
salaries are established on the basis of market conditions at
the time we hire an executive as well as by taking into account
the particular executives level of qualifications and
experience. Any subsequent modifications to annual base salaries
are made in consideration of the appropriateness of each
executive officers compensation, both individually and
relative to the other executive officers, the individual
performance of each executive officer and any significant
changes in market conditions. We do not apply specific formulas
to determine increases. The current annual base salaries for our
named executive officers, which were at the same levels
throughout 2010, are as follows: $350,000 for Mr. Fortin,
$225,000 for Mr. Barry, $435,750 for Mr. Quattlebaum;
and $102,300 for Ms. Masters.
Performance-Based
Annual Cash Awards
Our annual incentive program is designed to drive achievement of
annual corporate goals, including key financial and operating
results and strategic goals that create value for stockholders.
Our named executive officers are eligible for performance-based
annual cash awards linked to our performance in relation to
performance targets set by our board of directors. Target annual
incentive levels for each named executive officer are shown in
the table below. In addition, the board of directors retains the
authority to award special bonuses for exceptional achievement.
The awards for 2010 were based on our performance with respect
to the following metrics:
|
|
|
|
n
|
net income from operations, which measures profitability;
|
|
|
n
|
total debt / EBITDA (earnings before interest, taxes,
depreciation and amortization), which is our leverage ratio;
|
|
|
n
|
average finance receivables, which measures our loan growth;
|
79
|
|
|
|
n
|
net loans charged off, which measures our charge-off
control; and
|
|
|
n
|
total general and administrative expense percentage, which
measures our expense control.
|
These metrics drive the overall performance of our business from
year to year and are elements of our historical financial
success. Net income from operations measures the effectiveness
of our management teams execution of our strategic and
operational plans. We believe that this measure accurately
reflects business variables and factors that are directly within
managements control or, if not directly within
managements control, are directly influenced by decisions
made by our management executives. Total debt / EBITDA
measures our reliance on our credit facilities to produce cash
flow. We believe that we should, over time, reduce our reliance
upon borrowings and should fund proportionately more of our loan
originations from operating cash flow as we grow. This measure
holds management accountable for de-leveraging our balance sheet
over time. Average finance receivables measures the growth of
our loan portfolio. We seek to continually grow our business on
a consistent and sound basis. We establish annual growth
objectives for our management team for loans that we originate
and service. Net loans charged off measures the control our
management team exerts on loans and is ultimately a measure of
the quality of underwriting policies and decisions. We guide our
management team to specific aggregate net charge-off goals each
year that, combined with our average finance receivables
measure, balances attractive growth with effective portfolio
control. Total general and administrative expense percent
measure the effectiveness with which our management team
utilizes our corporate resources.
The following table illustrates our five performance metrics for
2010, their initial weightings, our performance targets, our
actual results, the resulting actual weightings and the maximum
weightings:
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ACTUAL
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|
ACTUAL
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MAXIMUM
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|
INITIAL
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|
TARGET FOR
|
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|
RESULTS FOR
|
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WEIGHTING
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|
WEIGHTING
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PERFORMANCE METRIC
|
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WEIGHTING
|
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2010
|
|
|
2010
|
|
|
FOR 2010
|
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|
FOR 2010
|
|
|
Net income from
operations(1)
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|
30.0
|
%
|
|
$
|
15,151,000
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|
|
$
|
20,023,000
|
|
|
|
33.0
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%
|
|
|
33
|
%
|
Total debt / EBITDA
(2)
|
|
|
30.0
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%
|
|
|
5.7
|
x
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4.5
|
x
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|
|
33.0
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%
|
|
|
33
|
%
|
Average finance
receivables(3)
|
|
|
13.3
|
%
|
|
$
|
214,038,000
|
|
|
$
|
216,115,000
|
|
|
|
13.5
|
%
|
|
|
14.63
|
%
|
Net loans charged
off(4)
|
|
|
13.3
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%
|
|
|
8.5
|
%
|
|
|
8.0
|
%
|
|
|
14.1
|
%
|
|
|
14.63
|
%
|
Total general and administrative expense
percentage(5)
|
|
|
13.3
|
%
|
|
|
41.7
|
%
|
|
|
38.3
|
%
|
|
|
14.4
|
%
|
|
|
14.63
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
108.0
|
%
|
|
|
109.89
|
%
|
|
|
|
(1)
|
|
If net income from operations is
(A) equal to or greater than 90% but less than 100% of the
target, the executive is entitled to an award equal to 30% of
the target award amount multiplied by a fraction, the numerator
of which is equal to the actual net income from operations
expressed as a percentage of the target minus 90% and the
denominator of which is equal to 10%; and (B) equal to or
greater than 100% of the target, the executive is entitled to an
award equal to 30% of the target award amount multiplied by a
fraction, the numerator of which is equal to the actual net
income from operations expressed as a percentage of the target
and the denominator of which is equal to 100%.
|
|
(2) |
|
If total debt / EBITDA is
(A) greater than 100% but less than 110% of the target, the
executive is entitled to an award equal to 30% of the target
award multiplied by a fraction, the numerator of which is equal
to the difference between 110% and the actual total debt /
EBITDA expressed as a percentage of the target and the
denominator of which is equal to 10%; and (B) equal to or
less than 100% of the target, the executive is entitled to an
award equal to 30% of the target award amount multiplied by the
sum of one and the difference between 100% and the actual total
debt / EBITDA expressed as a percentage of the target.
|
|
(3) |
|
If average monthly finance
receivables is equal to or greater than 100% of the target, the
executive is entitled to an award equal to 13.3% of the target
award amount multiplied by a fraction, the numerator of which is
equal to the actual finance receivables expressed as a
percentage of the target and the denominator of which is equal
to 100%.
|
|
(4) |
|
If net loans charged off is equal
to or less than 100% of the target, the executive is entitled to
an award equal to 13.3% of the target award amount multiplied by
the sum of one and the difference between 100% and actual net
loans charged off expressed as a percentage of net loans charged
off.
|
|
(5) |
|
If the total general and
administrative expense percentage is equal to or less than 100%
of the target, the executive is entitled to an award equal to
13.3% of the target award amount multiplied by the sum of one
and the difference between 100% and the actual total general and
administrative expense percentage expressed as a percentage of
the total general and administrative expense percentage.
|
Based on the extent to which we achieved the performance goals,
as shown above, the following table sets forth the target award
for each named executive officer for 2010 as a percentage of his
or her annual base salary, the actual
80
award, which was determined by applying the 108% performance
factor based on our performance in relation to the metrics set
forth in the table above, and the maximum award:
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|
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|
|
|
|
|
|
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|
PERCENTAGE
|
|
|
|
|
|
|
|
|
MAXIMUM
|
|
|
|
|
|
|
OF BASE
|
|
|
|
|
|
|
|
|
AWARD
|
|
|
|
ANNUAL
|
|
|
SALARY USED TO
|
|
|
|
|
|
ACTUAL
|
|
|
(109.89%
|
|
|
|
BASE
|
|
|
DETERMINE AWARD
|
|
|
TARGET
|
|
|
AWARD (108%
|
|
|
OF TARGET
|
|
NAME
|
|
SALARY
|
|
|
ELIGIBILITY
|
|
|
AWARD
|
|
|
OF TARGET AWARD)
|
|
|
AWARD)
|
|
|
Thomas F. Fortin
|
|
$
|
350,000
|
|
|
|
59
|
%
|
|
$
|
206,500
|
|
|
$
|
223,020
|
|
|
$
|
226,923
|
|
Robert D. Barry
|
|
$
|
225,000
|
|
|
|
74.5
|
%
|
|
$
|
167,625
|
|
|
$
|
181,035
|
|
|
$
|
184,203
|
|
C. Glynn Quattlebaum
|
|
$
|
435,750
|
|
|
|
42.4
|
%
|
|
$
|
184,758
|
|
|
$
|
199,539
|
|
|
$
|
203,031
|
|
A. Michelle Masters
|
|
$
|
102,300
|
|
|
|
25
|
%
|
|
$
|
25,575
|
|
|
$
|
27,621
|
|
|
$
|
28,104
|
|
The percentages set forth in the table above in the column
Percentage of Base Salary Used to Determine Award
Eligibility are set forth in the employment agreements of
Messrs. Fortin and Quattlebaum and the letter agreement of
Mr. Barry and determined with respect to Ms. Masters
by Messrs. Fortin and Quattlebaum. They are calibrated so
that the total compensation opportunity for each named executive
officer is commensurate with that executives role and
responsibilities with us and so that Messrs. Fortin, Barry
and Quattlebaum can have similar performance-based annual cash
award opportunities despite differences in their respective base
salaries. An executive must be employed by us on the last day of
the performance year in order to be eligible to receive payment
in respect of a performance-based annual cash award.
Discretionary
Cash Bonuses
Our board of directors has made periodic cash bonus payments to
Messrs. Fortin and Barry in recognition of various specific
projects and achievements. There is no formula or schedule for
such discretionary payments. For 2010, Mr. Fortin was paid
an aggregate discretionary cash bonus of $12,000 in recognition
of his leadership in developing and launching our furniture
financing business and AutoCredit Source, and Mr. Barry was
paid an aggregate discretionary cash bonus of $3,400 in
recognition of successfully expanding our senior revolving
credit facility.
Equity
Awards
In 2007 and 2008, our board of directors granted options to
Messrs. Fortin, Barry and Quattlebaum pursuant to our 2007
Stock Plan. See Outstanding Equity Awards at
2010 Fiscal Year-End. These grants were intended to
directly align the interests of such named executive officers
with those of our stockholders, to give such named executive
officers a strong incentive to maximize stockholder returns on a
long-term basis and to aid in our recruitment and retention of
key executive talent necessary to ensure our continued success.
Each of Messrs. Fortin, Barry and Quattlebaum currently
holds options which have a strike price of $5.4623 per share and
vest 20% on the date of grant and 20% per year in each of the
subsequent four years. In addition, these options vest and
become exercisable in full upon the occurrence of a Change of
Control (as defined in the Option Award Agreements). Our board
of directors did not grant any equity awards during 2009 or 2010.
Other
Compensation
We also provide various other limited perquisites and other
personal benefits to our named executive officers that are
intended to be part of a competitive compensation program. These
benefits include 401(k) plan matching contributions for each of
our named executive officers and monthly automobile allowances
of $1,150 for Messrs. Fortin and Barry and $1,650 for
Mr. Quattlebaum. Mr. Quattlebaum receives a higher
allowance to reflect additional driving that he does for us in
his capacity as President and Chief Operating Officer. The board
of directors believes that these benefits are comparable to
those offered by other companies that compete with us for
executive talent and consistent with our overall compensation
program. Perquisites are not a material part of our compensation
program. We also provide our named executive officers with
benefits that are generally available to all of our employees,
including health insurance, disability insurance, dental
insurance, vision insurance, a $10,000 life insurance benefit
and vacation time. See Summary Compensation
Table All Other Compensation.
Payments Upon
Termination and Change in Control
Pursuant to the terms of his employment agreement or letter
agreement, each of Messrs. Fortin, Barry and Quattlebaum is
entitled to certain benefits upon the termination of his
employment with us, the terms of which are
81
described below under Potential Payments Upon Termination
or Change in Control. These benefits are intended to
alleviate concerns that may arise in the event of an
executives separation from service with us and enable
executives to fully focus on their duties to us while employed
by us. As noted above under Equity
Awards, outstanding options held by Messrs. Fortin,
Barry and Quattlebaum pursuant to our 2007 Stock Plan vest upon
a change in control.
Actions Taken
in 2011 and Anticipated Actions in Connection with the
Offering
We anticipate making adjustments to our executive compensation
program in connection with this offering. At the time of this
offering, we intend to
grant , ,
and
options to Mr. Fortin, Mr. Barry, Mr. Quattlebaum
and Ms. Masters, respectively. In addition, we intend to
grant options to certain of our directors. The options will each
have an exercise price equal to the initial public offering
price and will be granted pursuant to the 2011 Stock Plan. The
vesting and other terms of the options will be determined prior
to the consummation of this offering.
Following the consummation of this offering, we may determine
that we wish to change some of our executive compensation
programs in light of the availability of publicly-traded equity
as a compensation tool, but we have not yet formulated any plans
to make such changes.
Deductibility
of Executive Compensation
Section 162(m) of the Internal Revenue Code (the
Code) limits the ability of the company to deduct
for tax purposes compensation over $1,000,000 to our principal
executive officer or any one of our three highest paid executive
officers, other than our principal executive officer or
principal financial officer, who are employed by us on the last
day of our taxable year, unless, in general, the compensation is
paid pursuant to a plan that is performance related,
non-discretionary and has been approved by our stockholders. No
such limitation on deductibility was applicable in 2010. The
compensation committee will review and consider the
deductibility of executive compensation under
Section 162(m) and may authorize certain payments that will
be in excess of the $1,000,000 limitation. The compensation
committee believes that it needs to balance the benefits of
designing awards that are tax-deductible with the need to design
awards that attract, retain and reward executives responsible
for the success of the company.
Summary
Compensation Table
The following table provides summary information concerning the
compensation for services rendered to us during fiscal 2010 by
(1) our Chief Executive Officer, (2) our Chief
Financial Officer and (3) each of our other executive
officers as of December 31, 2010 (collectively, the
named executive officers).
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCENTIVE PLAN
|
|
|
ALL OTHER
|
|
|
|
|
|
|
|
|
|
SALARY
|
|
|
BONUS
|
|
|
COMPENSATION
|
|
|
COMPENSATION
|
|
|
TOTAL
|
|
NAME AND PRINCIPAL POSITION
|
|
YEAR
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)
|
|
|
($)(2)
|
|
|
($)
|
|
|
Thomas F. Fortin,
Chief Executive Officer
|
|
|
2010
|
|
|
|
350,000
|
|
|
|
12,000
|
|
|
|
223,020
|
|
|
|
15,847
|
|
|
|
600,867
|
|
Robert D. Barry,
Executive Vice President and Chief Financial Officer
|
|
|
2010
|
|
|
|
225,000
|
|
|
|
3,400
|
|
|
|
181,035
|
|
|
|
17,894
|
|
|
|
427,329
|
|
C. Glynn Quattlebaum,
President and Chief Operating Officer
|
|
|
2010
|
|
|
|
435,750
|
|
|
|
|
|
|
|
199,539
|
|
|
|
26,695
|
|
|
|
661,984
|
|
A. Michelle Masters,
Senior Vice President, Strategic Development and Corporate
Secretary
|
|
|
2010
|
|
|
|
102,300
|
|
|
|
|
|
|
|
27,621
|
|
|
|
4,118
|
|
|
|
134,039
|
|
|
|
|
(1)
|
|
Represents discretionary bonuses
awarded in 2010. See Compensation Discussion and
Analysis Elements of Compensation
Discretionary Cash Bonuses.
|
82
|
|
|
(2) |
|
Represents aggregate automobile
allowance payments of $13,800 to each of Messrs. Fortin and
Barry, and $19,800 to Mr. Quattlebaum, a 401(k) plan
matching contribution of $2,047 (of which $178 was an excess
contribution and was refunded by the 401(k) plan administrator
to the executive), $4,094 (of which $2,441 was an excess
contribution and was refunded by the 401(k) plan administrator
to the executive), $6,895 (of which $5,508 was an excess
contribution and was refunded by the 401(k) plan administrator
to the executive) and $2,224 (of which $378 was an excess
contribution and was refunded by the 401(k) plan administrator
to the executive) to Mr. Fortin, Mr. Barry,
Mr. Quattlebaum and Ms. Masters, respectively, and a
cash payment of $1,894 to Ms. Masters in lieu of accrued
and unused vacation time as provided by company policy.
|
Grants of
Plan-Based Awards in 2010
The following table reflects grants of plan-based awards made by
us in 2010 to our named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESTIMATED FUTURE PAYOUTS
|
|
|
|
UNDER NON-EQUITY INCENTIVE PLAN
|
|
|
|
AWARDS(1)
|
|
|
|
THRESHOLD
|
|
|
TARGET
|
|
|
MAXIMUM
|
|
NAME
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Thomas F. Fortin,
Chief Executive Officer
|
|
|
|
|
|
|
206,500
|
|
|
|
226,923
|
|
Robert D. Barry,
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
167,625
|
|
|
|
184,203
|
|
C. Glynn Quattlebaum,
President and Chief Operating Officer
|
|
|
|
|
|
|
184,758
|
|
|
|
203,031
|
|
A. Michelle Masters,
Senior Vice President, Strategic Development and Corporate
Secretary
|
|
|
|
|
|
|
25,575
|
|
|
|
28,104
|
|
|
|
|
(1)
|
|
Amounts represent estimated
possible payments under our annual incentive program. Actual
amounts paid under the annual incentive program for 2010 are
shown in the Non-Equity Incentive Plan Compensation
column of the Summary Compensation Table. For more
information on the performance metrics applicable to these
awards, see Compensation Discussion and
Analysis Elements of Compensation
Performance-Based Annual Cash Awards.
|
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table provides information regarding outstanding
equity awards held by our named executive officers as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION AWARDS
|
|
|
|
NUMBER OF
|
|
|
NUMBER OF
|
|
|
|
|
|
|
|
|
|
SECURITIES
|
|
|
SECURITIES
|
|
|
|
|
|
|
|
|
|
UNDERLYING
|
|
|
UNDERLYING
|
|
|
|
|
|
|
|
|
|
UNEXERCISED
|
|
|
UNEXERCISED
|
|
|
OPTION
|
|
|
|
|
|
|
OPTIONS
|
|
|
OPTIONS
|
|
|
EXERCISE
|
|
|
OPTION
|
|
|
|
(#)
|
|
|
(#)
|
|
|
PRICE
|
|
|
EXPIRATION
|
|
NAME
|
|
EXERCISABLE
|
|
|
UNEXERCISABLE
|
|
|
($)
|
|
|
DATE
|
|
|
Thomas F. Fortin,
Chief Executive Officer
|
|
|
117,937.8
|
(1)
|
|
|
78,625.2
|
(1)
|
|
$
|
5.4623
|
|
|
|
3/21/17
|
|
Robert D. Barry,
|
|
|
58,968.8
|
(2)
|
|
|
14,742.2
|
(2)
|
|
$
|
5.4623
|
|
|
|
3/21/17
|
|
Executive Vice President and
Chief Financial Officer
|
|
|
14,702.4
|
(3)
|
|
|
9,801.6
|
(3)
|
|
$
|
5.4623
|
|
|
|
3/21/17
|
|
C. Glynn Quattlebaum,
President and Chief Operating Officer
|
|
|
235,875.2
|
(2)
|
|
|
58,968.8
|
(2)
|
|
$
|
5.4623
|
|
|
|
3/21/17
|
|
A. Michelle Masters,
Senior Vice President, Strategic Development and Corporate
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Of these options, 20% vested on the
February 26, 2008 grant date; 20% vested on March 21,
2009; 20% vested on March 21, 2010; 20% vested on
March 21, 2011; and 20% are scheduled to vest on
March 21, 2012, subject to Mr. Fortin remaining
employed by us through such vesting date. The remaining unvested
options automatically vest upon a change of control, which would
be triggered, among other things, if the existing owners cease
to own at least 50% of the outstanding voting power of the
Company.
|
|
|
|
(2) |
|
Of these options, 20% vested on the
October 11, 2007 grant date; 20% vested on March 21,
2008; 20% vested on March 21, 2009; 20% vested on
March 21, 2010; and 20% vested on March 21, 2011.
|
83
|
|
|
(3) |
|
Of these options, 20% vested on the
April 23, 2008 grant date; 20% vested on April 23,
2009; 20% vested on April 23, 2010; 20% vested on
April 23, 2011; and 20% are scheduled to vest on April,
2012, subject to Mr. Barry remaining employed by us through
such vesting date. The remaining unvested options automatically
vest upon a change of control, which would be triggered, among
other things, if the existing owners cease to own at least 50%
of the outstanding voting power of the Company.
|
Option Exercises
and Stock Vested in 2010
None of our named executive officers had options that were
exercised or restricted stock that vested during 2010.
Pension Benefits
for 2010
We do not offer pension benefits to our named executive officers.
Non-Qualified
Deferred Compensation for 2010
We do not offer non-qualified deferred compensation to our named
executive officers.
Potential
Payments Upon Termination or Change in Control
The following table illustrates the additional benefits that
would have been triggered for Messrs. Fortin, Barry and
Quattlebaum by a termination or change in control of our company
on December 31, 2010. The actual amounts that would be
payable in these circumstances can only be determined at the
time of the executives termination or a change in control
and, accordingly, may differ from the estimated amounts set
forth in the tables below. Ms. Masters would not have been
entitled to additional benefits triggered by such events.
Mr.
Fortin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCELERATED
|
|
|
|
|
|
|
|
|
|
SALARY
|
|
|
VESTING
|
|
|
COBRA
|
|
|
|
|
|
|
CONTINUATION
|
|
|
OF OPTIONS
|
|
|
PREMIUMS
|
|
|
TOTAL
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Termination With Cause; Voluntary Termination;
Death(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability(2)
|
|
|
175,000
|
|
|
|
|
|
|
|
11,545
|
|
|
|
186,545
|
|
Termination Without Cause; Involuntary
Termination(2)
|
|
|
175,000
|
|
|
|
|
|
|
|
11,545
|
|
|
|
186,545
|
|
Change in Control
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
(1)
|
|
If Mr. Fortins death
occurs during a fiscal year, he is entitled to a pro rata
portion of his performance-based annual cash award for the year.
|
|
(2) |
|
Following termination upon
Disability, termination without Cause or an Involuntary
Termination (each as defined in Mr. Fortins
Employment Agreement), Mr. Fortin would be entitled to
continued salary payments for six months, provided that those
payments will be reduced by the value of any disability benefits
paid to Mr. Fortin (in the case of Disability) and by the
amount of any income Mr. Fortin earns from any other
employment. During the salary continuation period,
Mr. Fortin is entitled to COBRA premium payments for
coverage comparable to that under our group medical plan unless
he becomes entitled to health insurance from a subsequent
employer. If Mr. Fortins termination upon Disability,
termination without Cause or Involuntary Termination occurs
during a fiscal year, he is entitled to a pro rata portion of
his performance-based annual cash award for the year.
|
|
(3) |
|
Upon a Change of Control (as
defined in Mr. Fortins Option Award Agreement), all
of Mr. Fortins unvested options would vest. As of
December 31, 2010, Mr. Fortin held 78,625.2 unvested
options. Because there was no public market for our Common Stock
as of December 31, 2010, the market value of each share of
Common Stock as of that date is not determinable. Accordingly,
we cannot calculate the value of accelerated vesting of options
on that date.
|
Mr. Fortin is subject to non-competition and
non-solicitation covenants for three years following termination
of his employment with us.
84
Mr.
Barry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCELERATED
|
|
|
|
|
|
|
|
|
|
SALARY
|
|
|
VESTING
|
|
|
COBRA
|
|
|
|
|
|
|
CONTINUATION
|
|
|
OF OPTIONS
|
|
|
PREMIUMS
|
|
|
TOTAL
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Termination Without
Cause(1)
|
|
|
112,500
|
|
|
|
|
|
|
|
|
|
|
|
112,500
|
|
Change in Control
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
(1)
|
|
Following termination without
cause, Mr. Barry would be entitled to continued salary
payments for six months.
|
|
(2) |
|
Upon a Change of Control (as
defined in Mr. Barrys Option Award Agreements), all
of Mr. Barrys unvested options would vest. As of
December 31, 2010, Mr. Barry held an aggregate of
24,543.8 unvested options. Because we there was no public market
for our Common Stock as of December 31, 2010, the market
value of each share of Common Stock as of that date is not
determinable. Accordingly, we cannot calculate the value of
accelerated vesting of options on that date.
|
Mr. Quattlebaum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCELERATED
|
|
|
|
|
|
|
|
|
|
SALARY
|
|
|
VESTING
|
|
|
COBRA
|
|
|
|
|
|
|
CONTINUATION
|
|
|
OF OPTIONS
|
|
|
PREMIUMS
|
|
|
TOTAL
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Termination With Cause; Voluntary Termination;
Death(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability(2)
|
|
|
435,750
|
|
|
|
|
|
|
|
23,697
|
|
|
|
459,447
|
|
Termination Without Cause; Involuntary
Termination(2)
|
|
|
435,750
|
|
|
|
|
|
|
|
23,697
|
|
|
|
459,447
|
|
Change in Control
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
(1)
|
|
If Mr. Quattlebaums
death occurs during a fiscal year, he is entitled to a pro rata
portion of his performance-based annual cash award for the year.
|
|
(2) |
|
Following termination upon
Disability, termination without Cause or an Involuntary
Termination (each as defined in Mr. Quattlebaums
Employment Agreement), Mr. Quattlebaum would be entitled to
continued salary payments for twelve months, provided that those
payments will be reduced by the value of any disability benefits
paid to Mr. Quattlebaum (in the case of Disability) and by
the amount of any income Mr. Quattlebaum earns from any
other employment. During the salary continuation period,
Mr. Quattlebaum is entitled to COBRA premium payments for
coverage comparable to that under our group medical plan unless
he becomes entitled to health insurance from a subsequent
employer. If Mr. Quattlebaums termination upon
Disability, termination without Cause or Involuntary Termination
occurs during a fiscal year, he is entitled to a pro rata
portion of his performance-based annual cash award for the year.
|
|
(3) |
|
Upon a Change of Control (as
defined in Mr. Quattlebaums Option Award Agreement),
all of Mr. Quattlebaums unvested options would vest.
As of December 31, 2010, Mr. Quattlebaum held 58,968.8
unvested options. Because there was no public market for our
Common Stock as of December 31, 2010, the market value of
each share of Common Stock as of that date is not determinable.
Accordingly, we cannot calculate the value of accelerated
vesting of options on that date.
|
Mr. Quattlebaum is subject to a non-solicitation covenant
for three years following termination of his employment with us.
Employment
Agreements
The agreements described in this section are filed as
exhibits to the registration statement of which this prospectus
forms a part, and the following descriptions are qualified by
reference thereto.
Employment
Agreement with Mr. Fortin
We have entered into an employment agreement with
Mr. Fortin as of February 29, 2008, as amended,
pursuant to which he serves as our Chief Executive Officer. The
employment term is a five-year term that began on
February 29, 2008.
Mr. Fortin is currently entitled to receive an annual base
salary of $350,000, which is subject to increases as may be
determined by our board of directors from time to time. With
respect to each calendar year during the employment term,
Mr. Fortin is also eligible to earn an annual bonus award
under the applicable bonus plan based
85
upon the achievement of performance targets established by our
board of directors. Pursuant to the employment agreement,
Mr. Fortin also received a grant of 196,563 time-vesting
stock options, subject to the terms of our 2007 Stock Plan,
which will fully accelerate upon a change in control
of the Company.
If Mr. Fortins employment is terminated by us without
cause or by Mr. Fortin as a result of
involuntary termination, Mr. Fortin will be
entitled to receive (1) accrued but unpaid salary, bonus
and expense reimbursements through his termination date,
(2) continued payment of his annual base salary until
six months after his termination date, reduced by the
amount of income received by Mr. Fortin from other
employment during that period, (3) payment of the COBRA
premium applicable to Mr. Fortin for comparable coverage
under our group medical plan for so long as he is entitled to
continued payment of his base salary and is not entitled to
obtain insurance from a subsequent employer and (4) an
amount equal to the annual cash bonus award, if any, that
Mr. Fortin would have been entitled to receive pursuant to
the terms of his employment agreement in respect of such year
had his employment not terminated, prorated for the portion of
such year Mr. Fortin was employed during such year. Such
salary and bonus would be paid as and at such times as
Mr. Fortin would have received his salary and bonus had he
remained our employee.
If Mr. Fortins employment terminates due to his death
or disability (as defined in his employment
agreement), Mr. Fortin will be entitled to receive accrued
but unpaid salary, bonus and expense reimbursement prior to his
death or disability, and an amount equal to the annual cash
bonus award, if any, that Mr. Fortin would have been
entitled to receive pursuant to the terms of his employment
agreement in respect of such year had his employment not
terminated, prorated for the portion of such year
Mr. Fortin was employed during such year. Such salary and
expense reimbursement is payable within 45 days of his
death or disability, and such bonus would be paid as and at such
times as Mr. Fortin would have received his salary and
bonus had he remained our employee. In addition, in the event
Mr. Fortins employment is terminated due to
disability, he is entitled to continued payment of his annual
base salary until six months after his termination date, reduced
by the amounts payable under any disability insurance, plan or
policy maintained by us and by the amount of any salary, wages
or other income paid to or for the benefit of Mr. Fortin
from any other employment, and payment of the COBRA premiums,
when due, for Mr. Fortin to obtain continuation medical
insurance for such period or until he obtains health insurance
from a subsequent employer. Such salary would be paid as and at
such times as Mr. Fortin would have received his salary had
he remained our employee.
If we terminate Mr. Fortins agreement with
cause, or if Mr. Fortin voluntarily terminates
his employment not due to involuntary termination,
he is entitled only to accrued but unpaid salary and expense
reimbursements through his termination date.
For the purpose of the employment agreement with
Mr. Fortin, cause includes (1) the willful
or grossly negligent material failure by Mr. Fortin to
perform his duties thereunder; (2) Mr. Fortins
conviction of any felony or certain other crimes;
(3) certain acts of fraud, embezzlement or
misappropriation; (4) certain failures to comply with any
written policy of ours that materially interferes with his
ability to discharge his duties, responsibilities or obligations
under his employment agreement; (5) the knowing
misstatement of our financial records; (6) the material
breach by Mr. Fortin of any of the terms of his employment
agreement; or (7) the failure to disclose material
financial or other information to our board of directors.
For the purpose of the employment agreement with
Mr. Fortin, involuntary termination means
Mr. Fortins termination of his employment which, in
his good faith judgment, is due to a material change of
Mr. Fortins responsibilities, position, authority,
duties or in the terms or status of his employment agreement or
a reduction in his base salary.
Mr. Fortin is also subject to a covenant not to disclose
our confidential information during his employment term and at
all times thereafter and covenants not to compete with us and
not to solicit our employees or customers during his employment
term and for three years following termination of his employment
for any reason.
Employment
Agreement with Mr. Quattlebaum
We have entered into an employment agreement with
Mr. Quattlebaum as of March 21, 2007, as amended,
pursuant to which Mr. Quattlebaum serves as our President
and Chief Operating Officer. The employment term is a five-year
term that began on March 21, 2007.
86
Mr. Quattlebaum is currently entitled to receive an annual
base salary of $435,750, which is subject to increases as may be
determined by our board of directors from time to time. With
respect to each calendar year during the employment term,
Mr. Quattlebaum is also eligible to earn an annual bonus
award under the applicable bonus plan based upon the achievement
of performance targets established by our board of directors.
Pursuant to the employment agreement, Mr. Quattlebaum also
received a grant of 294,844 time-vesting stock options to
Mr. Quattlebaum, subject to the terms of our 2007 Stock
Plan, which will fully accelerate upon a change in
control of the Company.
If Mr. Quattlebaums employment is terminated by us
without cause or by Mr. Quattlebaum as a result
of involuntary termination (as such terms are
defined in the employment agreement), Mr. Quattlebaum will
be entitled to receive (1) accrued but unpaid salary, bonus
and expense reimbursement through his termination date,
(2) continued payment of his annual base salary until
twelve months after his termination date, (3) payment
of the COBRA premium applicable to Mr. Quattlebaum for
comparable coverage under our group medical plan for so long as
he is entitled to continued payment of his base salary and is
not entitled to obtain insurance from a subsequent employer and
(4) an amount equal to the annual cash bonus award, if any,
that Mr. Quattlebaum would have been entitled to receive
pursuant to the terms of his employment agreement in respect of
such year had his employment not terminated, prorated for the
portion of such year Mr. Quattlebaum was employed during
such year. Such salary and bonus would be paid as and at such
times as Mr. Quattlebaum would have received his salary and
bonus had he remained our employee.
If we terminate Mr. Quattlebaums agreement with
cause, or if Mr. Quattlebaum voluntarily
terminates his employment for a reason other than due to
involuntary termination, he is entitled only to
accrued but unpaid salary and expense reimbursements through his
termination date.
If Mr. Quattlebaums employment terminates due to his
death or disability (as defined in his employment
agreement), Mr. Quattlebaum will be entitled to receive
accrued but unpaid salary, bonus and expense reimbursement prior
to his death or disability, and an amount equal to the annual
cash bonus award, if any, that Mr. Quattlebaum would have
been entitled to receive pursuant to the terms of his employment
agreement in respect of such year had his employment not
terminated, prorated for the portion of such year
Mr. Quattlebaum was employed during such year. Such salary
and expense reimbursement is payable within 45 days of his
death or disability, and such bonus would be paid as and at such
times as Mr. Quattlebaum would have received his bonus had
he remained our employee. In addition, in the event
Mr. Quattlebaums employment is terminated due to
disability, he is entitled to continued payment of his annual
base salary until twelve months after his termination date,
reduced by the amounts payable under any disability insurance,
plan or policy maintained by us, and payment of the COBRA
premiums, when due, for Mr. Quattlebaum to obtain
continuation medical insurance for such period or until he
obtains health insurance from a subsequent employer. Such salary
would be paid as and at such times as Mr. Quattlebaum would
have received his salary had he remained our employee.
For the purpose of the employment agreement with
Mr. Quattlebaum, cause includes (1) the
willful or grossly negligent material failure by
Mr. Quattlebaum to perform his duties thereunder;
(2) Mr. Quattlebaums conviction of any felony or
certain other crimes; (3) certain acts of fraud,
embezzlement or misappropriation; (4) certain failures to
comply with any written policy of ours that materially
interferes with his ability to discharge his duties,
responsibilities or obligations under his employment agreement;
(5) the knowing misstatement of our financial records;
(6) the material breach by Mr. Quattlebaum of any of
the terms of his employment agreement; or (7) the failure
to disclose material financial or other information to our board
of directors.
For the purpose of the employment agreement with
Mr. Quattlebaum, involuntary termination means
Mr. Quattlebaums termination of his employment which,
in his good faith judgment, is due to a material change of
Mr. Quattlebaums responsibilities, position,
authority, duties or in the terms or status of his employment
agreement, a reduction in his base salary or a forced relocation
outside the Greenville, SC metropolitan area.
Mr. Quattlebaum is also subject to a covenant not to
disclose our confidential information during his employment term
and at all times thereafter and covenants not to solicit our
employees or customers during his employment term and for three
years following termination of his employment for any reason.
87
Employment
Letter Agreement with Mr. Barry
We have entered into a letter agreement with Mr. Barry as
of July 1, 2008, as amended, pursuant to which
Mr. Barry serves as our Executive Vice President and Chief
Financial Officer.
Mr. Barry is currently entitled to receive an annual base
salary of $225,000, subject to annual review. With respect to
each calendar year during the employment term, the letter
agreement provides that Mr. Barry is also eligible to earn
an annual bonus award under the applicable bonus plan based upon
the achievement of our performance targets for Mr. Barry
established by our board of directors. The employment agreement
also provides for the grant of stock options to Mr. Barry
under our 2007 Stock Plan to increase his option holdings to
1.00% of Regionals outstanding and reserved shares, which
options were granted in 2008.
If we terminate Mr. Barrys employment without cause,
he is entitled to receive six months of his prevailing base
salary as severance.
2007 Management
Incentive Plan
General
We adopted our 2007 Stock Plan effective as of March 21,
2007. The 2007 Stock Plan permits the grant of non-qualified
stock options and incentive stock options to our and our
subsidiaries key employees, executive officers,
non-employee directors, consultants or other independent
advisors. As of March 31, 2011, 448,390 shares of our
common stock were available for future awards of options under
the 2007 Stock Plan. No awards may be made under the 2007 Stock
Plan after the tenth anniversary of the effective date of the
plan. We will not grant any further awards under the 2007 Stock
Plan following the completion of this offering.
Administration
The 2007 Stock Plan is administered by the board of directors or
such other committee of our board of directors to which it has
delegated power (the Committee), which, prior to our
initial registration, unless the board of directors determines
otherwise, consists of the entire board of directors. The
Committee has the full authority and discretion to administer
the 2007 Stock Plan and to take any action that is necessary or
advisable in connection with the administration of the 2007
Stock Plan, including, without limitation, the authority and
discretion to interpret and construe any provision of the 2007
Stock Plan, or any agreement, notification, or document entered
into or delivered pursuant to the 2007 Stock Plan, and to
determine whether a participants termination of employment
resulted from voluntary resignation for good reason, discharge
for cause, or any other reason. The interpretation and
construction by the Committee of any such provision and any
determination by the Committee pursuant to any provision of the
2007 Stock Plan, or any agreement, notification, or document
entered into or delivered pursuant to the 2007 Stock Plan, will
be final and conclusive.
Terms of Stock
Options
Options granted under the 2007 Stock Plan are vested and
exercisable at such times and upon such terms and conditions as
may be determined by the Committee, but in no event will an
option be exercisable more than ten years after it is granted.
Under the 2007 Stock Plan, the exercise price per share for any
option awarded is determined by the Committee, but may not be
less than 100% of the fair market value of a share on the day
the option is granted.
All stock options granted by our board of directors to date
under the 2007 Stock Plan have been granted at or above the fair
market value of our common stock at the grant date based upon
the most recent valuation of our common stock. As a
privately-owned company, there has been no market for our common
stock. Accordingly, we have no program, plan or practice
pertaining to the timing of stock option grants to executive
officers, coinciding with the release of material non-public
information.
An option may be exercised by paying the exercise price in cash
or its equivalent, shares, to the extent authorized by the
Committee, by permitting us to withhold a number of shares
otherwise issuable having an aggregate value equal to the
aggregate exercise price in respect of the option, or any
combination of the foregoing.
As of March 31, 2011, options to purchase
589,022 shares of our common stock were outstanding under
the 2007 Stock Plan.
88
Any shares of our common stock issued upon the exercise of such
options are subject to a repurchase right, pursuant to which we
may repurchase shares acquired upon the exercise of an option,
in specified circumstances including any termination of
employment of a participant. This repurchase right will lapse
upon the closing of a public offering of our shares.
Each of Messrs. Fortin, Barry and Quattlebaum currently
holds options which have a strike price of $5.4623 per share and
vest 20% on the date of grant and 20% per year in each of the
subsequent four years. In addition, these options vest and
become exercisable in full upon the occurrence of a Change of
Control (as defined in the Option Award Agreements). Our board
of directors did not grant any equity awards during 2009 or 2010.
Adjustments
Upon Certain Events
The Committee will make or provide for adjustment in the number
of shares subject to the 2007 Stock Plan, the number of shares
subject to an option granted under the 2007 Stock Plan, the
option price applicable to any such options, in each case as the
Committee in its sole discretion may determine is equitably
required to maintain the intent of the 2007 Stock Plan or to
prevent dilution or enlargement of the rights of participants
that would otherwise result from (1) any stock dividend,
stock split, combination of shares, recapitalization, or other
change in the capital structure of the Company, (2) any
merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other
distribution of assets, issuance of rights or warrants to
purchase securities, or (3) any other corporate transaction
or event having an effect similar to any of the foregoing. In
addition, in the event of any such transaction or event, the
Committee, in its sole discretion, may provide in substitution
for any or all outstanding options under the 2007 Stock Plan,
such alternative consideration as it, in good faith, may
determine to be equitable in the circumstances and may require
in connection with such substitution the surrender of all stock
options so replaced.
Amendment and
Termination
The Committee may amend or terminate the 2007 Stock Plan at any
time, provided that the 2007 Stock Plan may not be amended
without further approval of our stockholders if such amendment
would result in the plan no longer satisfying any applicable
listing requirements. In addition, neither the Committee nor the
board may reduce the exercise price of an option, or replace an
underwater option with a new option having a lower exercise
price, without approval of each class of stockholders of the
corporation, in each case other than amendments made pursuant to
the Committees authority to adjust awards upon certain
events (described under Adjustments Upon Certain
Events above).
2011 Stock
Incentive Plan
Our board of directors expects to adopt, and we expect our
stockholders to approve, the 2011 Stock Plan prior to the
completion of this offering. The following description of the
2011 Stock Plan is not complete and is qualified by reference to
the full text of the 2011 Stock Plan, which will be filed as an
exhibit to the registration statement of which this prospectus
forms a part.
Purpose
The purpose of the 2011 Stock Plan is to aid us and our
affiliates in recruiting and retaining key employees, directors
and other service providers of outstanding ability and to
motivate those employees, directors, consultants and other
service providers to exert their best efforts on our behalf and
on behalf of our affiliates by providing incentives through the
granting of stock options, stock appreciation rights
(SARs), other stock-based awards, and other
performance-based awards.
Shares Subject
to the Plan
The 2011 Stock Plan provides that the total number of shares of
common stock that may be issued under the 2011 Stock Plan
is ,
and the maximum number of shares for which incentive stock
options may be granted
is .
Shares of our common stock covered by awards that terminate or
lapse without the payment of consideration may be granted again
under the 2011 Stock Plan. Awards may be made under the 2011
Stock Plan in substitution for outstanding awards previously
granted by a company that is acquired by us, but the shares
subject to such substituted awards will not be counted against
the aggregate number of shares otherwise available for awards
under the 2011 Stock Plan.
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Administration
The 2011 Stock Plan will be administered by the compensation
committee of our board of directors or such other committee of
our board of directors to which it has delegated power (the
Committee). The Committee is authorized to interpret
the 2011 Stock Plan, to establish, amend and rescind any rules
and regulations relating to the 2011 Stock Plan and to make any
other determinations that it deems necessary or desirable for
the administration of the 2011 Stock Plan and may delegate such
authority. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the 2011 Stock Plan
in the manner and to the extent the Committee deems necessary or
desirable. The Committee will have the full power and authority
to establish the terms and conditions of any award consistent
with the provisions of the 2011 Stock Plan and to waive any such
terms and conditions at any time (including, without limitation,
accelerating or waiving any vesting conditions). Determinations
made by the Committee need not be uniform and may be made
selectively among participants in the 2011 Stock Plan.
Limitations
No award may be granted under the 2011 Stock Plan after the
tenth anniversary of the effective date (as defined therein),
but awards theretofore granted may extend beyond that date.
Options
The Committee may grant non-qualified stock options and
incentive stock options, which will be subject to the terms and
conditions as set forth in the 2011 Stock Plan, the related
award agreement and any other terms, not inconsistent therewith,
as determined by the Committee; provided that all stock options
granted under the 2011 Stock Plan are required to have a per
share exercise price that is not less than 100% of the fair
market value of our common stock underlying such stock options
on the date an option is granted (other than in the case of
options granted in substitution of previously granted awards),
and all stock options that are intended to qualify as incentive
stock options will be subject to the terms and conditions that
comply with the rules as may be prescribed by Section 422
of the Code. The maximum term for stock options granted under
the 2011 Stock Plan will be 10 years from the initial date
of grant. The purchase price for the shares as to which a stock
option is exercised will be paid to us, to the extent permitted
by law (1) in cash or its equivalent at the time the stock
option is exercised, (2) in shares having a fair market
value equal to the aggregate exercise price for the shares being
purchased and satisfying any requirements that may be imposed by
the Committee, so long as the shares will have been held for
such period established by the Committee in order to avoid
adverse accounting treatment, (3) partly in cash and partly
in shares, (4) if there is a public market for the shares
at such time, through the delivery of irrevocable instructions
to a broker to sell the shares being obtained upon the exercise
of the stock option and to deliver to us an amount out of the
proceeds of such sale equal to the aggregate exercise price for
the shares being purchased, or (5) allow for payment
through a net settlement feature. The
repricing of stock options is prohibited without
prior approval of our stockholders.
Stock
Appreciation Rights
The Committee may grant stock appreciation rights, or SARs,
independent of or in connection with a stock option. The
exercise price per share of a SAR will be an amount determined
by the Committee but in no event will such amount be less than
100% of the fair market value of a share on the date the SAR is
granted (other than in the case of SARs granted in substitution
of previously granted awards). Generally, each SAR will entitle
the participant upon exercise to an amount equal to the product
of (1) the excess of (A) the fair market value on the
exercise date of one share of common stock, over (B) the
exercise price per share, times (2) the numbers of shares
of common stock covered by the SAR. As discussed above with
respect to options, the repricing of SARs is
prohibited under the 2011 Stock Plan without prior approval of
our stockholders.
Other
Stock-Based Awards (including Performance-Based
Awards)
In addition to stock options and SARs, the Committee may grant
or sell awards of shares, restricted shares, restricted stock
units, and awards that are valued in whole or in part by
reference to, or otherwise based on the fair market value of
shares, including performance-based awards. The Committee, in
its sole discretion, may grant awards which are denominated in
shares or cash (such awards, Performance-Based
Awards), which awards may, but are not required to, be
granted in a manner which is intended to be deductible by us
under Section 162(m) of the Code. Such Performance-Based
Awards will be in such form, and dependent on such conditions,
as the Committee will determine, including, without limitation,
the right to receive, or vest with respect to, one or more
shares or the cash value of the award upon the completion of a
specified period of service, the occurrence of an event
and/or the
attainment of performance objectives. The maximum amount of a
Performance-Based Award that may be earned during each fiscal
year during a performance period by any participant will be:
(x) with respect to Performance-Based Awards that are
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denominated in
shares, shares and
(y) with respect to Performance-Based Awards that are
denominated in cash,
$ .
The amount of the Performance-Based Award actually paid to a
participant may be less than the amount determined by the
applicable performance goal formula, at the discretion of the
Committee.
Effect of
Certain Events on 2011 Stock Plan and Awards
In the event of any stock dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination
or exchange of shares or other corporate exchange, any equity
restructuring (as defined under FASB Accounting Standard
Codification 718), or any distribution to stockholders of common
stock other than regular cash dividends or any similar event,
the Committee in its sole discretion and without liability to
any person will make such substitution or adjustment, if any, as
it deems to be reasonably necessary to address, on an equitable
basis, the effect of such event, as to (i) the number or
kind of common stock or other securities that may be issued as
set forth in the 2011 Stock Plan or pursuant to outstanding
awards, (ii) the maximum number of shares for which options
or SARs may be granted during a fiscal year to any participant,
(iii) the maximum amount of a Performance-Based Award that
may be granted during a fiscal year to any participant,
(iv) the exercise price of any award
and/or
(v) any other affected terms of such awards. Except as
otherwise provided in an award agreement or otherwise determined
by the Committee, in the event of a Change in Control (as
defined in the 2011 Stock Plan), with respect to any outstanding
awards then held by participants which are unexercisable or
otherwise unvested or subject to lapse restrictions, the
Committee may, but will not be obligated to, in a manner
intended to comply with the requirements of Section 409A of
the Code, (1) accelerate, vest, or cause the restrictions
to lapse with all or any portion of an award, (2) cancel
awards for fair value (as determined in the sole discretion of
the Committee), which, in the case of stock options and SARs,
may equal the excess, if any, of the value of the consideration
to be paid in the Change in Control transaction to holders of
the same number of shares subject to such stock options or SARs
over the aggregate exercise price of such stock options or SARs,
(3) provide for the issuance of substitute awards or
(4) provide that the stock options will be exercisable for
all shares subject thereto for a period of at least 30 days
prior to the Change in Control and that upon the occurrence of
the Change in Control, the stock options will terminate and be
of no further force or effect. The Committee may cancel stock
options and SARs for no consideration if the fair market value
of the shares subject to such options or SARs is less than or
equal to the aggregate exercise price of such stock options or
SARs.
Forfeiture and
Clawback
The Committee may in its sole discretion specify in an award or
a policy that is incorporated into an award by reference that
the participants rights, payments, and benefits with
respect to such award will be subject to reduction,
cancellation, forfeiture or recoupment upon the occurrence of
certain specified events, in addition to any otherwise
applicable vesting or performance conditions contained in such
award. Such events may include, but are not limited to,
termination of employment for cause, termination of the
participants provision of services to us, breach of
noncompetition, confidentiality, or other restrictive covenants
that may apply to the participant, or adverse restatement of our
previously released financial statements as a consequence of
errors, omissions, fraud, or misconduct.
Nontransferability
of Awards
Unless otherwise determined by the Committee, an award will not
be transferable or assignable by a participant otherwise than by
will or by the laws of descent and distribution.
Amendment and
Termination
The Committee may generally amend, alter or discontinue the 2011
Stock Plan, but no amendment, alteration or discontinuation will
be made (1) without the approval of our stockholders to the
extent such approval is (a) required by or
(b) desirable to satisfy the requirements of any applicable
law, including the listing standards of the securities exchange,
which is, at the applicable time, the principal market for the
shares of our common stock, or (2) without the consent of a
participant, would materially adversely impair any of the rights
or obligations under any award theretofore granted to the
participant under the 2011 Stock Plan; provided, however, that
the Committee may amend the 2011 Stock Plan in such manner as it
deems necessary to permit the granting of awards meeting the
requirements of the Code or other applicable laws, including,
without limitation, to avoid adverse tax consequences or
accounting consequences to us or any participant.
Section 409A
of the Code
The 2011 Stock Plan and awards issued thereunder will be
interpreted in accordance with Section 409A of the Code and
Department of Treasury regulations, and no award will be
granted, deferred, accelerated, paid out or
91
modified under the 2011 Stock Plan in a manner that would result
in the imposition of an additional tax under Code
Section 409A upon a participant.
United States
Federal Income Tax Consequences
The following is a general summary of the material United States
federal income tax consequences of the grant, vesting and
exercise of awards under the 2007 Stock Plan and the 2011 Stock
Plan and the disposition of shares acquired pursuant to the
exercise of such awards and is intended to reflect the current
provisions of the Code and the regulations thereunder. This
summary is not intended to be a complete statement of applicable
law, nor does it address foreign, state, local and payroll tax
considerations. Moreover, the United States federal income tax
consequences to any particular participant may differ from those
described herein by reason of, among other things, the
particular circumstances of such participant.
Incentive Stock
Options
Options granted as incentive stock options (ISOs)
under Section 422 of the Code may qualify for special tax
treatment. The Code requires that, for treatment of an option as
an ISO, common stock acquired through the exercise of the option
cannot be disposed of before the later of (i) two years
from the date of grant of the option or (ii) one year from
the date of exercise. Holders of ISOs will generally incur no
federal income tax liability at the time of grant or upon
exercise of those options. However, the option spread
value at the time of option exercise will be an item
of tax preference, which may give rise to
alternative minimum tax liability for the taxable
year in which the exercise occurs. If the holder does not
dispose of the shares before two years following the date of
grant and one year following the date of exercise, the
difference between the exercise price and the amount realized
upon disposition of the shares will constitute long-term capital
gain or loss, as the case may be. Assuming both holding periods
are satisfied, we will not be allowed a deduction for federal
income tax purposes in connection with the grant or exercise of
the ISO. If, within two years following the date of grant or
within one year following the date of exercise, the holder of
shares acquired through the exercise of an ISO disposes of those
shares, the participant will generally realize taxable
compensation at the time of such disposition equal to the
difference between the exercise price and the lesser of the fair
market value of the share on the date of exercise or the amount
realized on the subsequent disposition of the shares, and that
amount will generally be deductible by us for federal income tax
purposes, subject to the possible limitations on deductibility
under Sections 280G and 162(m) of the Code for compensation
paid to executives designated in those Sections. Finally, if an
otherwise qualified ISO becomes first exercisable in any one
year for shares having an aggregate value in excess of $100,000
(based on the grant date value), the portion of the ISO in
respect of those excess shares will be treated as a
non-qualified stock option for federal income tax purposes.
Non-Qualified
Stock Options
No income will be realized by a participant upon grant of a
non-qualified stock option. Upon the exercise of a non-qualified
stock option, the participant will recognize ordinary
compensation income in an amount equal to the excess, if any, of
the fair market value of the underlying exercised shares over
the option exercise price paid at the time of exercise. We will
be able to deduct this same amount for United States federal
income tax purposes, but such deduction may be limited under
Sections 280G and 162(m) of the Code for compensation paid
to certain executives designated in those Sections.
SARs
No income will be realized by a participant upon grant of an
SAR. Upon the exercise of an SAR, the participant will recognize
ordinary compensation income in an amount equal to the fair
market value of the shares of stock or cash payment received in
respect of the SAR. We will be able to deduct this same amount
for United States federal income tax purposes, but such
deduction may be limited under Sections 280G and 162(m) of
the Code for compensation paid to certain executives designated
in those Sections.
Restricted
Stock
A participant will not be subject to tax upon the grant of an
award of restricted stock unless the participant otherwise
elects to be taxed at the time of grant pursuant to
Section 83(b) of the Code. On the date an award of
restricted stock becomes transferable or is no longer subject to
a substantial risk of forfeiture, the participant will have
taxable compensation equal to the difference between the fair
market value of the shares on that date over the amount the
participant paid for such shares, if any, unless the participant
made an election under Section 83(b) of the Code to be
taxed at the time of grant. If the participant makes an election
under Section 83(b), the participant will have taxable
92
compensation at the time of grant equal to the difference
between the fair market value of the shares on the date of grant
over the amount the participant paid for such shares, if any.
(Special rules apply to the receipt and disposition of
restricted stock received by officers and directors who are
subject to Section 16(b) of the Exchange Act). We will be
able to deduct, at the same time as it is recognized by the
participant, the amount of taxable compensation to the
participant for United States federal income tax purposes, but
such deduction may be limited under Sections 280G and
162(m) of the Code for compensation paid to certain executives
designated in those Sections.
Restricted Stock
Units
A participant will not be subject to tax upon the grant of a
restricted stock unit award. Rather, upon the delivery of shares
or cash pursuant to a restricted stock unit award, the
participant will have taxable compensation equal to the fair
market value of the number of shares (or the amount of cash) the
participant actually receives with respect to the award. We will
be able to deduct the amount of taxable compensation to the
participant for United States federal income tax purposes, but
the deduction may be limited under Sections 280G and 162(m)
of the Code for compensation paid to certain executives
designated in those Sections.
Stock Bonus
Awards
A participant will have taxable compensation equal to the
difference between the fair market value of the shares on the
date the common stock subject to the award is transferred to the
participant over the amount the participant paid for such
shares, if any. We will be able to deduct, at the same time as
it is recognized by the participant, the amount of taxable
compensation to the participant for United States federal income
tax purposes, but such deduction may be limited under
Sections 280G and 162(m) of the Code for compensation paid
to certain executives designated in those Sections.
Section 162(m)
In general, Section 162(m) of the Code denies a publicly
held corporation a deduction for United States federal income
tax purposes for compensation in excess of $1 million per
year per person to its principal executive officer, and the
three other officers (other than the principal executive officer
and principal financial officer) whose compensation is disclosed
in its prospectus or proxy statement as a result of their total
compensation, subject to certain exceptions. Subject to
obtaining approval of the 2011 Stock Plan by our stockholders
prior to the payment of any awards thereunder, the 2011 Stock
Plan is intended to satisfy an exception with respect to grants
of options to covered employees. In addition, the 2011 Stock
Plan is designed to permit certain awards of restricted stock,
restricted stock units, cash bonus awards and other awards to be
awarded as performance compensation awards intended to qualify
under the performance-based compensation exception
to Section 162(m) of the Code. Finally, under a special
Section 162(m) exception, any compensation paid pursuant to
a compensation plan in existence before the effective date of
this offering will not be subject to the $1,000,000 limitation
until the earliest of: (1) the expiration of the
compensation plan, (2) a material modification of the
compensation plan (as determined under Section 162(m)),
(3) the issuance of all the employer stock and other
compensation allocated under the compensation plan, or
(4) the first meeting of stockholders at which directors
are elected after the close of the third calendar year following
the year in which the offering occurs.
Annual Incentive
Plan
Our board of directors expects to adopt, and expects our
stockholders to approve, the Regional Management Corp. Annual
Incentive Plan, (the Annual Incentive Plan), prior
to the completion of this offering. The following description of
the Annual Incentive Plan is not complete and is qualified by
reference to the full text of the Annual Incentive Plan, which
will be filed as an exhibit to the registration statement of
which this prospectus forms a part.
Purpose
The Annual Incentive Plan is a bonus plan designed to attract,
retain, motivate and reward participants by providing them with
the opportunity to earn competitive compensation directly linked
to our performance.
Administration
The Annual Incentive Plan will be administered by the
compensation committee of our board of directors or such other
committee of our board of directors to which it has delegated
power (the Committee).
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Eligibility;
Awards
Awards may be granted to our officers and key employees in the
sole discretion of the Committee. The Annual Incentive Plan
provides for the payment of incentive bonuses in the form of
cash, or, at the sole discretion of the Committee, in awards
under the 2011 Stock Plan. For performance-based bonuses
intended to comply with the performance-based compensation
exemption under Section 162(m) of the Code, by no later
than the end of the first quarter of a given performance period
(or such other date as may be required or permitted by
Section 162(m) of the Code to the extent applicable to us
and the Annual Incentive Plan), the Committee will establish
such target incentive bonuses for each individual participant in
the Annual Incentive Plan. However, the Committee may in its
sole discretion grant such bonuses, if any, to such participants
as the Committee may choose, in respect of any given performance
period, that is not intended to comply with the
performance-based exemption under Section 162(m) of the
Code. No participant may receive a bonus under the Annual
Incentive Plan, with respect of any fiscal year, in excess of
$ .
Performance
Goals
The Committee will establish the performance periods over which
performance objectives will be measured. A performance period
may be for a fiscal year or a shorter period, as determined by
the Committee. No later than the last day of the first quarter
of a given performance period begins (or such other date as may
be required or permitted by Section 162(m) of the Code to
the extent applicable to us and the Annual Incentive Plan), the
Committee will establish (1) the performance objective or
objectives that must be satisfied for a participant to receive a
bonus for such performance period, and (2) the target
incentive bonus for each participant. Performance objective(s)
will be based upon one or more of the following criteria, as
determined by the Committee: (i) consolidated income before
or after taxes (including income before interest, taxes,
depreciation and amortization); (ii) EBITDA;
(iii) adjusted EBITDA, (iv) operating income;
(v) net income; (vi) adjusted cash net income;
(vii) adjusted cash net income per share; (viii) net
income per share; (ix) book value per share;
(x) return on members or stockholders equity;
(xi) expense management; (xii) return on investment;
(xiii) improvements in capital structure;
(xiv) profitability of an identifiable business unit or
product; (xv) maintenance or improvement of profit margins;
(xvi) stock price; (xvii) market share;
(xviii) revenue or sales; (xiv) costs; (xx) cash
flow; (xxi) working capital; (xxii) multiple of
invested capital; and (xxiii) total return. The foregoing
criteria may relate to us, one or more of our subsidiaries or
one or more of our divisions or units, or any combination of the
foregoing, and may be applied on an absolute basis
and/or be
relative to one or more peer group companies or indices, or any
combination thereof, all as the Committee will determine. The
performance measures and objectives established by the Committee
may be different for different fiscal years and different
objectives may be applicable to different officers and key
employees.
As soon as practicable after the applicable performance period
ends, the Committee will (A) determine (i) whether and
to what extent any of the performance objective(s) established
for such performance period have been satisfied and certify to
such determination, and (ii) for each participant employed
as of the date on which bonuses under the plan are payable,
unless otherwise determined by the Committee (to the extent
permitted under Section 162(m) of the Code, to the extent
applicable to us and the Annual Incentive Plan), the actual
bonus to which such participant will be entitled, taking into
consideration the extent to which the performance objective(s)
have been met and such other factors as the Committee may deem
appropriate and (B) cause such bonus to be paid to such
participant. The Committee has absolute discretion to reduce or
eliminate the amount otherwise payable to any participant under
the Annual Incentive Plan and to establish rules or procedures
that have the effect of limiting the amount payable to each
participant to an amount that is less than the maximum amount
otherwise authorized as that participants target incentive
bonus.
To the extent permitted under Section 162(m) of the Code,
to the extent applicable to us and the Annual Incentive Plan,
unless otherwise determined by the Committee, if a participant
is hired or rehired by us after the beginning of a performance
period (or such corresponding period if the performance period
is not a fiscal year) for which a bonus is payable, such
participant may, if determined by the Committee, receive an
annual bonus equal to the bonus otherwise payable to such
participant based upon our actual performance for the applicable
performance period or, if determined by the Committee, based
upon achieving targeted performance objectives pro-rated for the
days of employment during such period or such other amount as
the Committee may deem appropriate.
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Forfeiture and
Clawback
The Committee may in its sole discretion specify in an award or
a policy that is incorporated into an award by reference that
the participants rights, payments, and benefits with
respect to such award will be subject to reduction,
cancellation, forfeiture or recoupment upon the occurrence of
certain specified events, in addition to any otherwise
applicable vesting or performance conditions contained in such
award. Such events may include, but are not limited to,
termination of employment for cause, termination of the
participants provision of services to us, breach of
noncompetition, confidentiality, or other restrictive covenants
that may apply to the participant, or restatement of our
financial statements to reflect adverse results from those
previously released financial statements as a consequence of
errors, omissions, fraud, or misconduct.
Change in
Control
If there is a Change in Control (as defined in the 2011 Stock
Plan, as described above), the Committee, as constituted
immediately prior to the change in control, will determine in
its sole discretion whether and to what extent the performance
criteria have been met or will be deemed to have been met for
the year in which the change in control occurs and for any
completed performance period for which a determination under the
plan has not been made.
Termination of
Employment
If a participant dies or becomes disabled prior to date on which
bonuses under the Annual Incentive Plan for the applicable
performance period are payable, the participant may receive an
annual bonus equal to the bonus otherwise payable to the
participant based on actual company performance for the
applicable performance period or, if determined by the
Committee, based upon achieving targeted performance objectives,
pro-rated for the days of employment during the performance
period. Unless otherwise determined by the Committee, if a
participants employment terminates for any other reason,
such participant will not receive a bonus.
Payment of
Awards
Payment of any bonus amount is made to participants as soon as
is practicable after the Committee certifies that one or more of
the applicable performance objectives has been attained or after
the Committee determines the amount of such bonus. All payments
thus made will be in accordance with or exempt from the
requirements of Section 409A of the Code.
Amendment and
Termination of Plan
Our board of directors or the Committee may at any time amend,
suspend, discontinue or terminate the Annual Incentive Plan,
subject to stockholder approval if such approval is necessary to
continue to qualify the amounts payable under the Annual
Incentive Plan under Section 162(m) of the Code if such
amounts are intended to be so qualified; provided, that no such
amendment, suspension, discontinuance or termination will
adversely affect the rights of any participant in respect of any
fiscal year that has already begun. Unless earlier terminated,
the Annual Incentive Plan will expire on the day immediately
prior to our first shareholder meeting at which directors are to
be elected that occurs after the close of the third calendar
year following the calendar year in which our initial public
offering occurs.
95
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Shareholders
Agreement
In March 2007, we entered into a shareholders agreement with the
sponsors, Regional Holdings LLC (a holding company owned by the
sponsors) and the individual owners. Among other things, the
existing shareholders agreement provides that the board is
comprised of five directors, including (a) four designees
of Regional Holdings LLC (which, pursuant to an agreement among
the holders of Regional Holdings LLC, includes two designees of
Palladium and two designees of Parallel) and (b) a designee
of our individual owners. The existing shareholders agreement
also provides: (1) the existing owners with
tag-along rights in connection with certain
transfers of shares by the other existing owners,
(2) Regional Holdings LLC with drag-along
rights, to require other existing owners to sell shares to a
third party in connection with certain transfers of shares by
Regional Holdings LLC, (3) the other existing owners with a
right of first offer in connection with certain transfers of
shares by Regional Holdings LLC, (4) Regional Holdings LLC
with a right of first refusal in connection with certain
transfers of shares by the other existing owners,
(5) Regional Holdings LLC with demand registration rights,
and provides incidental registration rights to the other
existing owners, (6) the existing owners with
pre-emptive rights with respect to new issuances of
shares of our common stock, (7) the individual owners with
a right to put all or a portion of their shares to
us at their fair market value beginning in March 2012 if a
qualified public offering has not occurred by that date and
(8) certain limitations on transfer of shares by the
existing owners until the earlier of the expiration of the
lock-up
agreement following an initial public offering and March 2012.
We anticipate that our shareholders agreement will be amended
and restated prior to the consummation of this offering. A
description of the amended and restated shareholders agreement
will be included in the prospectus for this offering. The form
of the amended and restated shareholders agreement will be filed
as an exhibit to the registration statement of which this
prospectus forms a part, and the foregoing description is
qualified by reference thereto.
Mezzanine
Debt
As of March 31, 2011, we had $25.8 million aggregate
principal amount of our mezzanine debt outstanding, of which
$20.8 million was held by Palladium (a sponsor),
$2.0 million was held by Richard A. Godley (a director and
an individual owner) and $2.0 million was held by Jerry L.
Shirley (an individual owner). The remainder of the mezzanine
debt was held by another individual owner. The mezzanine debt
matures on October 25, 2013 and accrues interest at a rate
of 15.25% per annum. The mezzanine debt is secured by a junior
lien on certain of our assets including substantially all of our
finance receivables and is subordinated to our senior revolving
credit facility. The mezzanine debt was issued on
August 25, 2010 to retire mezzanine debt in the same
amount, which had been held by an unrelated lender. The
agreement governing our mezzanine debt contains certain
restrictive covenants, including maintenance of a specified
interest coverage ratio, a prohibition on distributions,
additional borrowings, debt ratios, maintenance of a minimum
allowance for loan losses and certain other restrictions.
We intend to use the proceeds of this offering to repay the
mezzanine debt in full. During 2010, Palladium, Richard A.
Godley and Jerry L. Shirley each received payments of interest
and financing fees totaling $947,311, $91,028 and $91,028,
respectively, and $793,521, $76,250 and $76,250, respectively,
during the first three months of 2011.
The agreement governing our mezzanine debt is filed as an
exhibit to the registration statement of which this prospectus
forms a part, and the foregoing description is qualified by
reference thereto.
Advisory and
Consulting Fees
We have entered into an advisory agreement with the sponsors,
pursuant to which they have agreed to provide us with certain
advisory and consulting services. In consideration for such
services, we agreed to pay each sponsor an annual fee equal to
$337,500 and pay or reimburse each of them for all reasonable
out-of-pocket
expenses directly related to the services rendered by the
sponsors, not to exceed $50,000 in any year unless approved by
our board of directors. This advisory agreement will be
terminated pursuant to its terms effective upon the consummation
of this offering upon the payment to each sponsor of a one-time
termination fee of $337,500.
In March 2007, we entered into a consulting agreement with each
of Mr. Godley, Brenda F. Kinlaw and Jerry L. Shirley, each
an individual owner. In addition, Mr. Godley is a director
on our board of directors. Pursuant to these
96
agreements, each of them have agreed to provide us with certain
consulting services. In consideration for such services, we
agreed to pay each of them a monthly fee equal to $12,500, as
well as pay or reimburse each of them for all reasonable
out-of-pocket
expenses directly related to the performance of his or her
duties and responsibilities to us under the agreements. Under
these consulting agreements, we also provided each of these
individual owners with health insurance through March 2009. Each
of these consulting agreements will be terminated pursuant to
their terms upon the consummation of this offering upon the
payment to each consultant of a one-time termination fee of
$150,000.
Statement of
Policy Regarding Transactions with Related Persons
Prior to the consummation of this offering, our board of
directors will adopt a written statement of policy regarding
transactions with related persons, which we refer to as our
related person policy. Our related person policy
requires that a related person (as defined as in
paragraph (a) of Item 404 of
Regulation S-K)
must promptly disclose to our general counsel, or other person
designated by our board of directors, any related person
transaction (defined as any transaction that is
anticipated would be reportable by us under Item 404(a) of
Regulation S-K
in which we were or are to be a participant and the amount
involved exceeds $120,000 and in which any related person had or
will have a direct or indirect material interest) and all
material facts with respect thereto. The general counsel, or
such other person, will then promptly communicate that
information to our board of directors. No related person
transaction will be executed without the approval or
ratification of our board of directors. It is our policy that
directors interested in a related person transaction will recuse
themselves from any vote of a related person transaction in
which they have an interest. Our policy does not specify the
standards to be applied by directors in determining whether or
not to approve or ratify a related person transaction and we
accordingly anticipate that these determinations will be made in
accordance with principles of Delaware law generally applicable
to directors of a Delaware corporation.
Our amended and restated certificate of incorporation provides
for the allocation of certain corporate opportunities between
us, on the one hand, and the sponsors, on the other hand. These
terms of our amended and restated certificate of incorporation
are more fully described in Description of Capital
Stock Corporate Opportunity.
Indemnification
of Directors and Officers
Our amended and restated bylaws provide that we will indemnify
our directors and officers to the fullest extent permitted by
the Delaware General Corporation Law, which we refer to as the
DGCL. In addition, our amended and restated certificate of
incorporation will provide that our directors will not be liable
for monetary damages for breach of fiduciary duty to the fullest
extent permitted by the DGCL.
There is no pending litigation or proceeding naming any of our
directors or officers to which indemnification is being sought,
and we are not aware of any pending or threatened litigation
that may result in claims for indemnification by any director or
officer.
97
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of shares of our common stock by
(1) each person known to us to beneficially own more than
5% of the outstanding shares of our common stock, (2) each
selling stockholder, (3) each of our directors, director
nominees and named executive officers and (4) all of our
directors and executive officers as a group, each as of the date
of this prospectus. As of the date of this prospectus, there
were nine holders of record of our common stock.
Beneficial ownership is determined in accordance with the rules
of the SEC. These rules deem common stock subject to options,
warrants or rights currently exercisable, or exercisable within
60 days, to be outstanding for purposes of computing the
percentage ownership of the person holding the options, warrants
or rights or of a group of which the person is a member, but
they do not deem such stock to be outstanding for purposes of
computing the percentage ownership of any other person or group.
All shares indicated below as beneficially owned are held with
sole voting and investment power except as otherwise indicated.
All of our stockholders prior to this offering are parties to an
amended and restated shareholders agreement that contains
certain voting agreements. You should read the description of
the shareholders agreement set forth under Certain
Relationships and Related Person Transactions for more
information regarding the voting arrangements.
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SHARES OF COMMON STOCK BENEFICIALLY OWNED
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AFTER THE OFFERING
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AFTER THE OFFERING
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SHARES OF
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SHARES OF
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ASSUMING
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ASSUMING
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COMMON
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COMMON
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UNDERWRITERS
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UNDERWRITERS
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STOCK
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STOCK
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OPTION IS NOT
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OPTION IS
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BEING
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SUBJECT TO
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PRIOR TO THE OFFERING
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EXERCISED
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EXERCISED IN FULL
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OFFERED
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OPTION
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NAME OF BENEFICIAL OWNER
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NUMBER
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%
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NUMBER
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%
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NUMBER
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%
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NUMBER
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NUMBER
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5% stockholders:
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Parties to the amended and restated shareholders agreement as a
group(1)
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9,881,535
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100.0
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%
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Palladium Equity Partners III,
L.P.(2)
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4,495,461
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48.2
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%
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Parallel 2005 Equity Fund,
LP(3)
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2,644,389
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28.3
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%
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Jerry L.
Shirley(4)
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549,219
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5.9
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%
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Named executive officers, directors and director nominees:
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Richard A.
Godley(5)
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1,246,512
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13.4
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%
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C. Glynn
Quattlebaum(6)
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477,917
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5.0
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%
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Robert D.
Barry(7)
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92,714
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*
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Roel C. Campos
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Richard T.
DellAquila(8)
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Thomas F.
Fortin(9)
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157,250
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1.7
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%
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Jared L.
Johnson(10)
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A. Michelle Masters
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Alvaro G. de Molina
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David
Perez(11)
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Erik A.
Scott(12)
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Directors and executive officers as a group (9 persons)
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1,974,393
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20.0
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%
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Other selling stockholders:
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Brenda F.
Kinlaw(13)
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183,073
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2.0
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%
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Jesse W. Geddings
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35,000
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*
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*
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Represents less than 1%.
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(1) |
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Regional Holdings LLC, Parallel
2005 Equity Fund, LP, Palladium Equity Partners III, L.P.,
Richard A. Godley, Sr. Revocable Trust, the estate of Richard
Allen Godley, Jr., William T. Godley, Denise Godley, Jerry L.
Shirley, Brenda F. Kinlaw, C. Glynn Quattlebaum,
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98
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Sherri Quattlebaum and Jesse W.
Geddings will be parties to our amended and restated
shareholders agreement as described under Certain
Relationships and Related Person Transactions
Shareholders Agreement.
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(2) |
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Palladium Equity Partners III,
L.L.C. (Palladium General) is the general partner of
Palladium Equity Partners III, L.P. Marcos A. Rodriguez is the
managing member of Palladium General. The address of each of the
entities listed and Mr. Rodriguez is Rockefeller Center,
1270 Avenue of the Americas, Suite 2200 New York, New York
10020. Mr. Rodriguez disclaims beneficial ownership of such
shares. Palladium Equity Partners III, L.P. is a party to our
shareholders agreement and its affiliate receives advisory fees
from us pursuant to an advisory agreement that will be
terminated upon consummation of this offering, as described
under Certain Relationships and Related Person
Transactions.
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(3) |
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Parallel 2005 Equity Partners, LP
is the general partner of Parallel 2005 Equity Fund, LP.
Parallel 2005 Equity Partners, LLC is the general partner of
Parallel 2005 Equity Partners, LP. F. Barron Fletcher, III
is the managing member of Parallel 2005 Equity Partners, LLC.
The address of each of the entities listed and Mr. Fletcher
is 2100 McKinney Avenue, Ste. 1200, Dallas, Texas 75201.
Mr. Fletcher disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interest therein. Parallel
2005 Equity Fund, LP is a party to our shareholders agreement
and its affiliate receives advisory fees from us pursuant to an
advisory agreement that will be terminated upon consummation of
this offering, as described under Certain Relationships
and Related Person Transactions.
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(4) |
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The address for Mr. Shirley is
c/o Regional
Management Corp., 509 West Butler Road, Greenville, South
Carolina 29607. Mr. Shirley currently acts as a consultant
to Regional as described under Certain Relationships and
Related Person Transactions Advisory and Consulting
Fees.
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(5) |
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The address for Mr. Godley is
c/o Regional
Management Corp., 509 West Butler Road, Greenville, South
Carolina 29607. Includes shares owned by Mr. Godleys
spouse Denise Godley (75,000 shares),
Mr. Godleys son, William T. Godley
(35,870 shares) and the estate of Mr. Godleys
deceased son Richard Allen Godley, Jr. (31,122 shares),
over which Mr. Godley may be deemed to have beneficial
ownership. Mr. Godley disclaims beneficial ownership with
respect to the shares beneficially owned by these family
members. Mr. Godley is a director of Regional Management
Corp. In addition, Mr. Godley is party to our shareholders
agreement and currently serves as a consultant to Regional, in
each case as described under Certain Relationships and
Related Person Transactions.
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(6) |
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Includes 294,844 shares
subject to options either currently exercisable or exercisable
within 60 days over which Mr. Quattlebaum will not
have voting or investment power until the options are exercised.
The shares described in this note are considered outstanding for
the purpose of computing the percentage of outstanding stock
owned by Mr. Quattlebaum and by directors and executive
officers as a group, but not for the purpose of computing the
percentage ownership of any other person.
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(7) |
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Includes 92,714 shares subject
to options either currently exercisable or exercisable within
60 days over which Mr. Barry will not have voting or
investment power until the options are exercised. The shares
described in this note are considered outstanding for the
purpose of computing the percentage of outstanding stock owned
by Mr. Barry and by directors and executive officers as a
group, but not for the purpose of computing the percentage
ownership of any other person.
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(8) |
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Mr. DellAquila is a
Principal with Parallel.
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(9) |
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Includes 157,250 shares
subject to options either currently exercisable or exercisable
within 60 days over which Mr. Fortin will not have
voting or investment power until the options are exercised. The
shares described in this note are considered outstanding for the
purpose of computing the percentage of outstanding stock owned
by Mr. Fortin and by directors and executive officers as a
group, but not for the purpose of computing the percentage
ownership of any other person. Mr. Fortin was an operating
partner of Parallel from 2003 to 2007.
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(10) |
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Mr. Johnson is a Managing
Director with Parallel.
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(11) |
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Mr. Perez is a Managing
Director with Palladium.
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(12) |
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Mr. Scott is a Managing
Director with Palladium.
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(13) |
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Ms. Kinlaw currently acts as a
consultant to Regional as described under Certain
Relationships and Related Person Transactions
Advisory and Consulting Fees.
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99
DESCRIPTION OF
CAPITAL STOCK
The following description of our capital stock as it will be in
effect upon the consummation of this offering is a summary and
is qualified in its entirety by reference to our amended and
restated certificate of incorporation and amended and restated
bylaws, the forms of which are filed as exhibits to the
registration statement of which this prospectus forms a part,
and by applicable law.
Upon consummation of this offering, our authorized capital stock
will consist of 1,000,000,000 shares of common stock, par
value $0.10 per share, and 100,000,000 shares of preferred
stock, par value $0.10 per share. Unless our board of directors
determines otherwise, we will issue all shares of our capital
stock in uncertificated form.
Common
Stock
Holders of shares of our common stock are entitled to one vote
for each share held of record on all matters submitted to a vote
of stockholders.
Holders of shares of our common stock are entitled to receive
dividends when and if declared by our board of directors out of
funds legally available therefor, subject to any statutory or
contractual restrictions on the payment of dividends and to any
restrictions on the payment of dividends imposed by the terms of
any outstanding preferred stock.
Upon our dissolution or liquidation or the sale of all or
substantially all of our assets, after payment in full of all
amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the
holders of shares of our common stock will be entitled to
receive pro rata our remaining assets available for distribution.
Holders of shares of our common stock do not have preemptive,
subscription, redemption or conversion rights.
Preferred
Stock
Our amended and restated certificate of incorporation authorizes
our board of directors to establish one or more series of
preferred stock (including convertible preferred stock). Unless
required by law or by any stock exchange, the authorized shares
of preferred stock will be available for issuance without
further action by you. Our board of directors is able to
determine, with respect to any series of preferred stock, the
terms and rights of that series, including:
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n
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the designation of the series;
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n
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the number of shares of the series, which our board may, except
where otherwise provided in the preferred stock designation,
increase or decrease, but not below the number of shares
then-outstanding;
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n
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whether dividends, if any, will be cumulative or non-cumulative
and the dividend rate of the series;
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n
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the dates at which dividends, if any, will be payable;
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n
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the redemption rights and price or prices, if any, for shares of
the series;
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n
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the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series;
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n
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the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or
winding-up
of the affairs of our company;
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n
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whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of our
company or any other entity, and, if so, the specification of
the other class or series or other security, the conversion
price or prices or rate or rates, any rate adjustments, the date
or dates as of which the shares will be convertible and all
other terms and conditions upon which the conversion may be made;
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n
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restrictions on the issuance of shares of the same series or of
any other class or series; and
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n
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the voting rights, if any, of the holders of the series.
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We could issue a series of preferred stock that could, depending
on the terms of the series, impede or discourage an acquisition
attempt or other transaction that some, or a majority, of you
might believe to be in your best interests or in which you might
receive a premium for your shares of common stock over the
market price of the shares of common stock.
100
Authorized but
Unissued Capital Stock
Delaware law does not require stockholder approval for any
issuance of authorized shares. However, the listing requirements
of the New York Stock Exchange, which would apply so long as the
shares of common stock remain listed on the New York Stock
Exchange, require stockholder approval of certain issuances
equal to or exceeding 20% of the then-outstanding voting power
or the then-outstanding number of shares of common stock. These
additional shares may be used for a variety of corporate
purposes, including future public offerings, to raise additional
capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved
common stock or preferred stock may be to enable our board of
directors to issue shares to persons friendly to current
management, which issuance could render more difficult or
discourage an attempt to obtain control of our company by means
of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of our management and possibly
deprive the stockholders of opportunities to sell their shares
at prices higher than prevailing market prices.
Forum Selection
Clause
Unless we consent in writing to the selection of an alternative
forum, the Court of Chancery of the State of Delaware will be
the sole and exclusive forum for (i) any derivative action
or proceeding brought on our behalf, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any of
our directors, officers, employees or agents or our
stockholders, (iii) any action asserting a claim arising
pursuant to any provision of the DGCL or (iv) any action
asserting a claim governed by the internal affairs doctrine, in
each such case subject to said Court of Chancery having personal
jurisdiction over the indispensable parties named as defendants
therein. Any person or entity purchasing or otherwise acquiring
any interest in shares of our capital stock of the corporation
will be deemed to have notice of and consented to the forum
selection clause.
Anti-Takeover
Effects of Provisions of Delaware Law and Our Amended and
Restated Certificate of Incorporation and Bylaws
Undesignated
Preferred Stock
The ability to authorize undesignated preferred stock will make
it possible for our board of directors to issue preferred stock
with super majority voting, special approval, dividend or other
rights or preferences on a discriminatory basis that could
impede the success of any attempt to acquire us or otherwise
effect a change in control of us. These and other provisions may
have the effect of deferring, delaying or discouraging hostile
takeovers, or changes in control or management of our company.
Requirements
for Advance Notification of Stockholder Meetings, Nominations
and Proposals
Our amended and restated bylaws provide that special meetings of
the stockholders may be called only by or at the direction of
the board of directors, the chairman of our board or the chief
executive officer or, for so long as the parties to our
shareholders agreement continue to beneficially own at least 40%
of the total voting power of all the then outstanding shares of
our capital stock, by the sponsors. Our amended and restated
bylaws prohibit the conduct of any business at a special meeting
other than as specified in the notice for such meeting. These
provisions may have the effect of deferring, delaying or
discouraging hostile takeovers, or changes in control or
management of our company.
Our amended and restated bylaws establish advance notice
procedures with respect to stockholder proposals and the
nomination of candidates for election as directors, other than
nominations made by or at the direction of the board of
directors or a committee of the board of directors. In order for
any matter to be properly brought before a meeting,
a stockholder will have to comply with advance notice
requirements and provide us with certain information.
Additionally, vacancies and newly created directorships may be
filled only by a vote of a majority of the directors then in
office, even though less than a quorum, and not by the
stockholders. Our amended and restated bylaws allow the
presiding officer at a meeting of the stockholders to adopt
rules and regulations for the conduct of meetings which may have
the effect of precluding the conduct of certain business at a
meeting if the rules and regulations are not followed. These
provisions may also defer, delay or discourage a potential
acquirer from conducting a solicitation of proxies to elect the
acquirers own slate of directors or otherwise attempting
to obtain control of our company.
101
Our amended and restated certificate of incorporation provides
that the board of directors is expressly authorized to make,
alter, or repeal our bylaws and that our stockholders may only
amend our bylaws with the approval of 80% or more of all of the
outstanding shares of our capital stock entitled to vote from
and after the date on which the parties to our shareholders
agreement cease to beneficially own at least 40% of the total
voting power of all the then outstanding shares of our capital
stock or with the approval of a majority of the voting power of
all the then outstanding shares of our capital stock prior to
such date.
No Cumulative
Voting
The DGCL provides that stockholders are not entitled to the
right to cumulate votes in the election of directors unless our
amended and restated certificate of incorporation provides
otherwise. Our amended and restated certificate of incorporation
does not expressly provide for cumulative voting.
Stockholder
Action by Written Consent
Pursuant to Section 228 of the DGCL, any action required to
be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without
a vote if a consent or consents in writing, setting forth the
action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which
all shares of our stock entitled to vote thereon were present
and voted, unless the companys amended and restated
certificate of incorporation provides otherwise. Our amended and
restated certificate of incorporation provides that from and
after the date on which the parties to our shareholders
agreement cease to beneficially own at least 40% of the total
voting power of all the then outstanding shares of our capital
stock any action, any action required or permitted to be taken
by our stockholders may not be effected by consent in writing by
such stockholders unless such action is recommended by all
directors then in office.
Delaware
Anti-Takeover Statute
We have opted out of Section 203 of the DGCL.
Section 203 provides that, subject to certain exceptions
specified in the law, a publicly-held Delaware corporation shall
not engage in certain business combinations with any
interested stockholder for a three-year period after
the date of the transaction in which the person became an
interested stockholder. These provisions generally prohibit or
delay the accomplishment of mergers, assets or stock sales or
other takeover or
change-in-control
attempts that are not approved by a companys board of
directors.
However, our amended and restated certificate of incorporation
and bylaws will provide that in the event the parties to our
shareholders agreement cease to beneficially own at least 5% of
the total voting power of all the then outstanding shares of our
capital stock, we will automatically become subject to
Section 203 of the DGCL. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging,
under certain circumstances, in a business combination with an
interested stockholder for a period of three years following the
date the person became an interested stockholder unless:
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prior to the date of the transaction, the board of directors of
the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an
interested stockholder;
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upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding
(1) shares owned by persons who are directors and also
officers and (2) shares owned by employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
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on or subsequent to the date of the transaction, the business
combination is approved by the board and authorized at an annual
or special meeting of stockholders, and not by written consent,
by the affirmative vote of at least
662/3%
of the outstanding voting stock which is not owned by the
interested stockholder.
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Generally, a business combination includes a merger, asset or
stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. An interested stockholder
is a person who, together with affiliates and associates, owns
or, within three years prior to the determination of interested
stockholder status, did own 15% or more of a corporations
outstanding voting stock.
Under certain circumstances, Section 203 makes it more
difficult for a person who would be an interested
stockholder to effect various business combinations with a
corporation for a three-year period. Accordingly,
Section 203 could have an anti-takeover effect with respect
to certain transactions our board of directors does not
102
approve in advance. The provisions of Section 203 may
encourage companies interested in acquiring our company to
negotiate in advance with our board of directors because the
stockholder approval requirement would be avoided if our board
of directors approves either the business combination or the
transaction that results in the stockholder becoming an
interested stockholder. However, Section 203 also could
discourage attempts that might result in a premium over the
market price for the shares of common stock held by
stockholders. These provisions also may make it more difficult
to accomplish transactions that stockholders may otherwise deem
to be in their best interests.
Corporate
Opportunity
The sponsors have no obligation to offer us an opportunity to
participate in business opportunities presented to them or their
affiliates even if the opportunity is one that we might
reasonably have pursued, and neither the sponsors nor their
affiliates will be liable to us or our stockholders for breach
of any duty by reason of any such activities unless, in the case
of any person who is our director or officer, such business
opportunity (1) is expressly offered to such director or
officer in writing solely in his or her capacity as our officer
or director and (2) is not separately offered to the
sponsors or any of their affiliates or representatives (other
than us) by a party other than such director or officer.
Stockholders will be deemed to have notice of and consented to
this provision of our amended and restated certificate of
incorporation.
Transfer Agent
and Registrar
The transfer agent and registrar for shares of our common stock
will
be .
Listing
We intend to apply to have our common stock approved for listing
on the New York Stock Exchange under the symbol RM.
103
CERTAIN UNITED
STATES FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES TO
NON-U.S.
HOLDERS
The following is a summary of certain United States federal
income and estate tax consequences of the purchase, ownership
and disposition of our common stock as of the date hereof.
Except where noted, this summary deals only with common stock
that is held as a capital asset by a
non-U.S. holder.
A
non-U.S. holder
means a person (other than a partnership) that is not for United
States federal income tax purposes any of the following:
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an individual citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia;
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person.
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This summary is based upon provisions of the Internal Revenue
Code of 1986, as amended (the Code), and
regulations, rulings and judicial decisions as of the date
hereof. Those authorities may be changed, perhaps retroactively,
so as to result in United States federal income and estate tax
consequences different from those summarized below. This summary
does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state, local or
other tax considerations that may be relevant to
non-U.S. holders
in light of their personal circumstances. In addition, it does
not represent a detailed description of the United States
federal income tax consequences applicable to you if you are
subject to special treatment under the United States federal
income tax laws (including if you are a United States
expatriate, controlled foreign corporation,
passive foreign investment company or a partnership
or other pass-through entity for United States federal income
tax purposes). We cannot assure you that a change in law will
not alter significantly the tax considerations that we describe
in this summary.
If a partnership (or any entity treated as a partnership for
United States federal income tax purposes) holds our common
stock, the tax treatment of a partner will generally depend upon
the status of the partner and the activities of the partnership.
If you are a partner of a partnership holding our common stock,
you should consult your tax advisors.
If you are considering the purchase of our common stock, you
should consult your own tax advisors concerning the particular
United States federal income and estate tax consequences to you
of the ownership of the common stock, as well as the
consequences to you arising under the laws of any other taxing
jurisdiction.
Dividends
Dividends paid to a
non-U.S. holder
of our common stock generally will be subject to withholding of
United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
However, dividends that are effectively connected with the
conduct of a trade or business by the
non-U.S. holder
within the United States (and, if required by an applicable
income tax treaty, are attributable to a United States permanent
establishment) are not subject to the withholding tax, provided
certain certification and disclosure requirements are satisfied.
Instead, such dividends are subject to United States federal
income tax on a net income basis in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code. Any such
effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
A
non-U.S. holder
of our common stock who wishes to claim the benefit of an
applicable treaty rate and avoid backup withholding, as
discussed below, for dividends will be required (a) to
complete Internal Revenue Service
Form W-8BEN
(or other applicable form) and certify under penalty of perjury
that such holder is not a United States person as defined under
the Code and is eligible for treaty benefits or (b) if our
common stock is held through certain foreign intermediaries, to
satisfy the relevant certification requirements of applicable
United States Treasury regulations. Special certification and
other requirements apply to certain
non-U.S. holders
that are pass-through entities rather than corporations or
individuals.
A
non-U.S. holder
of our common stock eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by timely filing an
appropriate claim for refund with the Internal Revenue Service.
104
Gain on
Disposition of Shares of Common Stock
Any gain realized on the disposition of our common stock
generally will not be subject to United States federal income
tax unless:
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the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a United States permanent
establishment of the
non-U.S. holder);
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation for United States federal income tax purposes.
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An individual
non-U.S. holder
described in the first bullet point immediately above will be
subject to tax on the net gain derived from the sale under
regular graduated United States federal income tax rates. An
individual
non-U.S. holder
described in the second bullet point immediately above will be
subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States source capital losses, even
though the individual is not considered a resident of the United
States. If a
non-U.S. holder
that is a foreign corporation falls under the first bullet point
immediately above, it will be subject to tax on its net gain in
the same manner as if it were a United States person as defined
under the Code and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings
and profits or at such lower rate as may be specified by an
applicable income tax treaty.
We believe we are not and do not anticipate becoming a
United States real property holding corporation for
United States federal income tax purposes.
Federal Estate
Tax
Common stock held by an individual
non-U.S. holder
at the time of death will be included in such holders
gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
Information
Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to
each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. holder
will be subject to backup withholding for dividends paid to such
holder unless such holder certifies under penalty of perjury
that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that such holder is a United States person as defined under the
Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
common stock within the United States or conducted through
certain United States-related financial intermediaries, unless
the beneficial owner certifies under penalty of perjury that it
is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), or such owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
United States federal income tax liability provided the required
information is furnished to the Internal Revenue Service.
Additional
Withholding Requirements
Under recently enacted legislation, the relevant withholding
agent may be required to withhold 30% of any dividends and the
proceeds of a sale of our common stock paid after
December 31, 2012 to (i) a foreign financial
institution unless such foreign financial institution agrees to
verify, report and disclose its United States accountholders and
meets certain other specified requirements or (ii) a
non-financial foreign entity that is the beneficial owner of the
payment unless such entity certifies that it does not have any
substantial United States owners or provides the name, address
and taxpayer identification number of each substantial United
States owner and such entity meets certain other specified
requirements. Prospective investors should consult their own tax
advisors regarding this legislation.
105
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for
shares of our common stock. We cannot predict the effect, if
any, future sales of shares of common stock, or the availability
for future sale of shares of common stock, will have on the
market price of shares of our common stock prevailing from time
to time. The sale of substantial amounts of shares of our common
stock in the public market, or the perception that such sales
could occur, could harm the prevailing market price of shares of
our common stock.
Upon consummation of this offering we will have a total
of shares
of our common stock outstanding. Of the outstanding shares,
the shares
sold in this offering
(or shares
if the underwriters exercise their over-allotment option in
full) will be freely tradable without restriction or further
registration under the Securities Act except that any shares
held by our affiliates, as that term is defined under
Rule 144 of the Securities Act, may be sold only in
compliance with the limitations described below. The remaining
outstanding shares of common stock will be deemed restricted
securities, as defined under Rule 144. Restricted
securities may be sold in the public market only if the sale is
registered or if it qualifies for an exemption from registration
under the Securities Act, certain of which we summarize below.
Lock-Up
Agreements
We, our officers, directors and holders of all of our
outstanding shares of common stock immediately prior to this
offering will be subject to
lock-up
agreements with the underwriters that will restrict the sale of
the shares of our common stock held by them for 180 days
after the date of this prospectus, subject to certain
exceptions, including the shares of common stock being sold in
this offering. See Underwriting (Conflicts of
Interest) for a description of these
lock-up
agreements.
Eligibility of
Restricted Shares for Sale in the Public Market
Other than the shares sold in this offering, all of the
remaining shares of our common stock will be available for sale,
subject to the
lock-up
agreements described above, after the date of this prospectus in
registered sales or pursuant to Rule 144 or another
exemption from registration.
Rule 144
In general, under Rule 144, as currently in effect, a
person who is not deemed to be or have been one of our
affiliates for purposes of the Securities Act at any time during
90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least six months is entitled
to sell such shares without registration, subject to compliance
with the public information requirements of Rule 144. If
such a person has beneficially owned the shares proposed to be
sold for at least one year then such person is entitled to sell
such shares without complying with any of the requirements of
Rule 144.
In general, under Rule 144, as currently in effect, our
affiliates or persons selling shares on behalf of our affiliates
are entitled to sell within any three-month period beginning
90 days after the date of this prospectus, a number of
shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after this offering; or
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the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
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Sales under Rule 144 by our affiliates or persons selling
shares on behalf of our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Stock Incentive
Compensation
In addition, there 589,022 shares of our common stock
issuable upon exercise of options at a weighted average exercise
price of $5.4623 per share outstanding as of March 31, 2011
under our 2007 Stock Plan, including options granted in 2007 and
2008.
Furthermore, shares
of common stock may be granted under our 2011 Stock Plan,
including shares
issuable upon the exercise of stock options that we intend to
grant to our
106
executive officers and directors at the time of this offering.
See Management Compensation Discussion and
Analysis 2011 Stock Incentive Plan and
Actions Taken in 2011 and Anticipated Actions
in Connection with the Offering. We intend to file one or
more registration statements on
Form S-8
under the Securities Act to register shares of common stock or
securities convertible into or exchangeable for shares of common
stock issued under or covered by our 2011 Stock Plan. Any such
Form S-8
registration statements will automatically become effective upon
filing. Accordingly, shares of common stock registered under
such registration statements will be available for sale in the
open market. We expect that the initial registration statement
on
Form S-8
will
cover shares
of common stock.
Registration
Rights
Upon the closing of this offering, we will enter into an amended
and restated shareholders agreement with our existing owners,
pursuant to which we will grant them, their affiliates and
certain of their transferees the right, under certain
circumstances and subject to certain restrictions, to require us
to register under the Securities Act shares of common stock (and
other securities convertible into or exchangeable or exercisable
for shares of common stock) held by them. Securities registered
under any such registration statement will be available for sale
in the open market unless restrictions apply. See Certain
Relationships and Related Person Transactions
Shareholders Agreement.
107
UNDERWRITING
(CONFLICTS OF INTEREST)
Subject to the terms and conditions set forth in the
underwriting agreement by and among us, the selling stockholders
and Jefferies & Company, Inc., as representative of
the underwriters, we and the selling stockholders have agreed to
sell to the underwriters and the underwriters have severally
agreed to purchase from us and the selling stockholders, the
number of shares of common stock indicated in the table below:
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NUMBER OF SHARES
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UNDERWRITERS
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OF COMMON STOCK
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Jefferies & Company, Inc.
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Stephens Inc.
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JMP Securities LLC
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BMO Capital Markets Corp.
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Total
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Jefferies & Company, Inc. and Stephens Inc. are acting
as joint book-running managers of this offering and
Jefferies & Company, Inc. is acting as representative
of the underwriters named above.
The underwriting agreement provides that the obligations of the
several underwriters are subject to certain conditions precedent
such as the receipt by the underwriters of officers
certificates and legal opinions and approval of certain legal
matters by their counsel. The underwriting agreement provides
that the underwriters will purchase all of the shares, other
than those shares subject to the underwriters
over-allotment option, if any of them are purchased. If an
underwriter defaults, the underwriting agreement provides that
the purchase commitments of the nondefaulting underwriters may
be increased or the underwriting agreement may be terminated. We
and the selling stockholders have agreed to indemnify the
underwriters and certain of their controlling persons against
certain liabilities, including liabilities under the Securities
Act, and to contribute to payments that the underwriters may be
required to make in respect of those liabilities.
The underwriters have advised us that they currently intend to
make a market in our common stock. However, the underwriters are
not obligated to do so and may discontinue any market-making
activities at any time without notice. No assurance can be given
as to the liquidity of the trading market for our common stock.
The underwriters are offering the shares of common stock subject
to their acceptance of the shares from us and the selling
stockholders and subject to prior sale. The underwriters reserve
the right to withdraw, cancel or modify offers to the public and
to reject orders in whole or in part. In addition, the
underwriters have advised us that they do not expect sales to
accounts over which they have discretionary authority to exceed
5% of the shares of common stock being offered.
Commission and
Expenses
The underwriters have advised us that they propose to offer the
shares to the public at the initial public offering price set
forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of
$ per share. The underwriters may
allow, and certain dealers may reallow, a discount from the
concession not in excess of $ per
share to certain brokers and dealers. After the offering, the
initial public offering price, concession and reallowance to
dealers may be reduced by the representative. No such reduction
will change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus.
The following table shows the public offering price, the
underwriting discount that we and the selling stockholders are
to pay the underwriters and the proceeds, before expenses, to us
and the selling stockholders in connection with
108
this offering. Such amounts are shown assuming both no exercise
and full exercise of the underwriters over-allotment
option.
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PER SHARE
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TOTAL
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WITHOUT
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WITH
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WITHOUT
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WITH
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OVER-ALLOTMENT
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OVER-ALLOTMENT
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OVER-ALLOTMENT
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OVER-ALLOTMENT
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OPTION
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OPTION
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OPTION
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OPTION
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Public offering price
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$
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$
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$
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$
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Underwriting discount paid by us
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$
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$
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$
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$
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Proceeds to us, before expenses
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$
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$
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$
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$
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Underwriting discount paid by the selling stockholders
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$
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$
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$
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$
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Proceeds to the selling stockholders, before expenses
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$
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$
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$
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$
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We estimate expenses payable by us in connection with this
offering, other than the underwriting discount referred to
above, will be approximately
$ .
Determination of
Offering Price
Prior to the offering, there has not been a public market for
our common stock. Consequently, the initial public offering
price for our common stock will be determined by negotiations
between us and the underwriters. Among the factors to be
considered in these negotiations will be prevailing market
conditions, our financial information, market valuations of
other companies that we and the underwriters believe to be
comparable to us, estimates of our business potential, the
present state of our development and other factors deemed
relevant.
We offer no assurances that the initial public offering price
will correspond to the price at which the common stock will
trade in the public market subsequent to the offering or that an
active trading market for the common stock will develop and
continue after the offering.
Listing
We intend to apply to have our common stock approved for listing
on the New York Stock Exchange under the trading symbol
RM.
Over-Allotment
Option
The selling stockholders have granted to the underwriters an
option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate
of
additional shares of common stock from the selling stockholders
at the public offering price set forth on the cover page of this
prospectus, less the underwriting discount, solely to cover
over-allotments, if any. If the underwriters exercise this
option, each underwriter will be obligated, subject to specified
conditions, to purchase a number of additional shares
proportionate to that underwriters initial purchase
commitment as indicated in the table above. This option may be
exercised only if the underwriters sell more shares than the
total number set forth on the cover page of this prospectus.
No Sales of
Similar Securities
We, our officers, directors and holders of all of our
outstanding shares of common stock immediately prior to this
offering have agreed, subject to specified exceptions, not to
directly or indirectly:
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sell, offer, contract or grant any option to sell (including any
short sale), pledge, transfer, establish an open put
equivalent position within the meaning of
Rule 16a-1(h)
under the Exchange Act, or
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otherwise dispose of any shares of common stock, options or
warrants to acquire common stock, or securities exchangeable or
exercisable for or convertible into common stock currently or
hereafter owned either of record or beneficially, or
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publicly announce an intention to do any of the foregoing for a
period of 180 days after the date of this prospectus
without the prior written consent of Jefferies &
Company, Inc.
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109
This restriction terminates after the close of trading of the
common stock on and including the 180 days after the date
of this prospectus. However, subject to certain exceptions, in
the event that either:
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during the last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to us occurs, or
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prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
restricted period,
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then in either case the expiration of the
180-day
restricted period will be extended until the expiration of the
18-day
period beginning on the date of the issuance of an earnings
release or the occurrence of the material news or event, as
applicable, unless Jefferies & Company, Inc. waives,
in writing, such an extension.
Jefferies & Company, Inc. may, in its sole discretion
and at any time or from time to time before the termination of
the 180-day
period, without public notice, release all or any portion of the
securities subject to
lock-up
agreements. There are no existing agreements between the
underwriters and any of our stockholders who will execute a
lock-up
agreement, providing consent to the sale of shares prior to the
expiration of the
lock-up
period.
Stabilization
The underwriter has advised us that, pursuant to
Regulation M under the Exchange Act, certain persons
participating in the offering may engage in transactions,
including over-allotment, stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have
the effect of stabilizing or maintaining the market price of the
common stock at a level above that which might otherwise prevail
in the open market. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short
position. Covered short sales are sales made in an
amount not greater than the underwriters over-allotment
option. The underwriters may close out any covered short
position by either exercising their over-allotment option or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase shares through the
over-allotment option. Naked short sales are sales
in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the
open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
after pricing that could adversely affect investors who purchase
in this offering. A stabilizing bid is a bid for the purchase of
common stock on behalf of the underwriters for the purpose of
fixing or maintaining the price of the common stock. A syndicate
covering transaction is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A
penalty bid is an arrangement permitting the underwriters to
reclaim the selling concession otherwise accruing to a syndicate
member in connection with the offering if the notes originally
sold by such syndicate member are purchased in a syndicate
covering transaction and therefore have not been effectively
placed by such syndicate member.
None of we, the selling stockholders or any of the underwriters
makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above
may have on the price of our common stock. The underwriters are
not obligated to engage in these activities and, if commenced,
any of the activities may be discontinued at any time.
Electronic
Distribution
A prospectus in electronic format may be made available by
e-mail or on
the web sites or through online services maintained by one or
more of the underwriters or their affiliates. In those cases,
prospective investors may view offering terms online and may be
allowed to place orders online. The underwriters may agree with
us to allocate a specific number of shares of common stock for
sale to online brokerage account holders. Any such allocation
for online distributions will be made by the underwriters on the
same basis as other allocations. Other than the prospectus in
electronic format, the information on the underwriters web
sites and any information contained in any other web site
maintained by any of the underwriters is not part of this
prospectus, has not been approved
and/or
endorsed by us or the underwriters and should not be relied upon
by investors.
110
Affiliations and
Conflicts of Interest
The underwriters or their affiliates may from time to time in
the future provide investment banking, commercial lending and
financial advisory services to us and our affiliates in the
ordinary course of business. The underwriters and their
affiliates, as applicable, will receive customary compensation
and reimbursement of expenses in connection with such services.
In the course of their businesses, the underwriters and their
affiliates may actively trade our securities or loans for their
own account or for the accounts of customers, and, accordingly,
the underwriters and their affiliates may at any time hold long
or short positions in such securities or loans.
BMO Capital Markets Financing, Inc., an affiliate of BMO Capital
Markets Corp., is one of the lenders under our senior revolving
credit facility and Bank of Montreal, another affiliate of BMO
Capital Markets Corp., is the counterparty to our interest rate
cap. We intend to use a portion of the proceeds to repay
outstanding borrowings under the senior revolving credit
facility. Because more than 5% of the proceeds of this offering,
not including underwriting compensation, will be received by an
affiliate of an underwriter in this offering, this offering is
being conducted in compliance with FINRA Rule 5121, as
administered by the Financial Industry Regulatory Authority,
Inc. However, no qualified independent underwriter is needed for
this offering because this offering meets the conditions set
forth in FINRA Rule 5121(a)(1)(A). See Use of
Proceeds.
111
CERTAIN ERISA
CONSIDERATIONS
The following discussion is a summary of certain considerations
associated with the purchase of our common stock by
(i) employee benefit plans that are subject to Title I
of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), (ii) plans, individual
retirement accounts and other arrangements that are subject to
Section 4975 of the Code or provisions under any federal,
state, local,
non-U.S. or
other laws or regulations that are similar to such provisions of
ERISA or the Code, and (iii) entities whose underlying
assets are considered to include plan assets of any
such plan, account or arrangement (each, an ERISA
Plan).
Section 406 of ERISA and Section 4975 of the Code
prohibit ERISA Plans from engaging in specified transactions
involving plan assets with persons or entities who
are parties in interest, within the meaning of
ERISA, or disqualified persons, within the meaning
of Section 4975 of the Code, unless an exemption is
available. A party in interest or disqualified person who
engaged in a non-exempt prohibited transaction may be subject to
excise taxes and other penalties and liabilities under ERISA and
the Code. In addition, the fiduciary of the ERISA Plan that
engaged in such a non-exempt prohibited transaction may be
subject to penalties and liabilities under ERISA and the Code. A
prohibited transaction within the meaning of ERISA and the Code
may result if our common stock is acquired by an ERISA Plan to
which we or an underwriter is a party in interest and such
acquisition is not entitled to an applicable exemption, of which
there are many.
The foregoing discussion is general in nature and is not
intended to be all-inclusive. Due to the complexity of these
rules and the penalties that may be imposed upon persons
involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons
considering purchasing our common stock on behalf of, or with
the assets of, any ERISA Plan, consult with their counsel
regarding the matters described herein.
112
NOTICE TO
INVESTORS
The shares of common stock are being offered for sale only in
those jurisdictions where it is lawful to make such offers. The
distribution of this prospectus and the offering or sale of the
shares of common stock in some jurisdictions may be restricted
by law. Persons into whose possession this prospectus comes are
required by us and the underwriters to inform themselves about
and to observe any applicable restrictions. This prospectus may
not be used for or in connection with an offer or solicitation
by any person in any jurisdiction in which that offer or
solicitation is not authorized or to any person to whom it is
unlawful to make that offer or solicitation.
European Economic
Area
In relation to each member state of the European Economic Area
which has implemented the Prospectus Directive, each of which we
refer to as a Relevant Member State, including each Relevant
Member State that has implemented amendments to
Article 3(2) of the Prospectus Directive with regard to
persons to whom an offer of securities is addressed and the
denomination per unit of the offer of securities, each of which
we refer to as an Early Implementing Member State, with effect
from and including the date on which the Prospectus Directive is
implemented in that Relevant Member State, which we refer to as
the Relevant Implementation Date, no offer of shares of our
common stock offered hereby will be made in this offering to the
public in that Relevant Member State (other than offers, which
we refer to as Permitted Public Offers where a prospectus will
be published in relation to the shares of our common stock
offered hereby that has been approved by the competent authority
in a Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive), except that with effect from and
including that Relevant Implementation Date, offers of shares of
our common stock offered hereby may be made to the public in
that Relevant Member State at any time:
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(a)
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to qualified investors, as defined in the Prospectus
Directive, including:
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(i)
|
(in the case of Relevant Member States other than Early
Implementing Member States), legal entities which are authorized
or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to
invest in securities, or any legal entity which has two or more
of (i) an average of at least 250 employees during the
last financial year; (ii) a total balance sheet of more
than 43.0 million and (iii) an annual net
turnover of more than 50.0 million as shown in its
last annual or consolidated accounts; or
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(ii)
|
(in the case of Early Implementing Member States), persons or
entities that are described in points (1) to (4) of
Section I of Annex II to Directive 2004/39/EC, and
those who are treated on request as professional clients in
accordance with Annex II to Directive 2004/39/EC, or
recognized as eligible counterparties in accordance with
Article 24 of Directive 2004/39/EC unless they have
requested that they be treated as non-professional
clients; or
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(b)
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to fewer than 100 (or, in the case of Early Implementing Member
States, 150) natural or legal persons (other than
qualified investors as defined in the Prospectus
Directive) subject to obtaining the prior consent of the
book-running mangers for any such offer; or
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(c)
|
in any other circumstances falling within Article 3(2) of
the Prospectus Directive, provided that no such offer of shares
of our common stock offered hereby shall result in a requirement
for the publication of a prospectus pursuant to Article 3
of the Prospectus Directive or of a supplement to a prospectus
pursuant to Article 16 of the Prospectus Directive.
|
Each person in a Relevant Member State (other than a Relevant
Member State where there is a Permitted Public Offer) who
initially acquires any shares of our common stock offered hereby
or to whom any offer is made under this offering will be deemed
to have represented, acknowledged and agreed to and with each
book-running manager that (A) it is a qualified
investor, and (B) in the case of any shares of our
common stock offered hereby acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, (x) the shares of our common stock
offered hereby acquired by it in this offering have not been
acquired on behalf of, nor have they been acquired with a view
to their offer or resale to, persons in any Relevant Member
State other than qualified
113
investors as defined in the Prospectus Directive, or in
circumstances in which the prior consent of the Subscribers has
been given to the offer or resale, or (y) where shares of
our common stock offered hereby have been acquired by it on
behalf of persons in any Relevant Member State other than
qualified investors as defined in the Prospectus
Directive, the offer of those shares to it is not treated under
the Prospectus Directive as having been made to such persons.
For the purpose of the above provisions, the expression an
offer to the public in relation to any shares of our
common stock offered hereby in any Relevant Member State means
the communication in any form and by any means of sufficient
information on the terms of the offer of any such shares to be
offered so as to enable an investor to decide to purchase any
such shares, as the same may be varied in the Relevant Member
State by any measure implementing the Prospectus Directive in
the Relevant Member State and the expression Prospectus
Directive means Directive 2003/71/EC (including that
Directive as amended, in the case of Early Implementing Member
States) and includes any relevant implementing measure in each
Relevant Member State.
United
Kingdom
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling with Article 49(2)(a)
to (d) of the Order (all such persons together being
referred to as relevant persons). The securities are
only available to, and any invitation, offer or agreement to
subscribe, purchase or otherwise acquire such securities will be
engaged in only with, relevant persons. Any person who is not a
relevant person should not act or rely on this document or any
of its contents.
Each underwriter has represented, warranted and agreed that:
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(a)
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it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the Financial Services and Markets Act
2000, as amended (the FSMA)) received by it in
connection with the issue or sale of the Shares in circumstances
in which Section 21(1) of the FSMA does not apply to
us; and
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(b)
|
it has complied and will comply with all applicable provisions
of the FSMA with respect to anything done by it in relation to
the shares of our common stock in, from or otherwise involving
the United Kingdom.
|
Germany
Any offer or solicitation of securities within Germany must be
in full compliance with the German Securities Prospectus Act
(Wertpapierprospektgesetz WpPG). The offer and
solicitation of securities to the public in Germany requires the
publication of a prospectus that has to be filed with and
approved by the German Federal Financial Services Supervisory
Authority (Bundesanstalt für
Finanzdienstleistungsaufsicht BaFin). This
prospectus has not been and will not be submitted for filing and
approval to the BaFin and, consequently, will not be published.
Therefore, this prospectus does not constitute a public offer
under the German Securities Prospectus Act
(Wertpapierprospektgesetz). This prospectus and any other
document relating to our common stock, as well as any
information contained therein, must therefore not be supplied to
the public in Germany or used in connection with any offer for
subscription of our common stock to the public in Germany, any
public marketing of our common stock or any public solicitation
for offers to subscribe for or otherwise acquire our common
stock. This prospectus and other offering materials relating to
the offer of our common stock are strictly confidential and may
not be distributed to any person or entity other than the
designated recipients hereof.
Notice to
Prospective Investors in Hong Kong
Our securities may not be offered or sold in Hong Kong, by means
of this prospectus or any document other than (i) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (ii) in circumstances
which do not constitute an offer to the public within the
meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong),
or (iii) in other circumstances which do not result in the
document being a prospectus within the meaning of
the Companies Ordinance (Cap.32, Laws of
114
Hong Kong). No advertisement, invitation or document relating to
our securities may be issued or may be in the possession of any
person for the purpose of issue (in each case whether in Hong
Kong or elsewhere) which is directed at, or the contents of
which are likely to be accessed or read by, the public in Hong
Kong (except if permitted to do so under the securities laws of
Hong Kong) other than with respect to the securities which are
or are intended to be disposed of only to persons outside Hong
Kong or only to professional investors within the
meaning of the Securities and Futures Ordinance (Cap. 571, Laws
of Hong Kong) and any rules made thereunder.
Notice to
Prospective Investors in Singapore
This document has not been registered as a prospectus with the
Monetary Authority of Singapore and in Singapore, the offer and
sale of our securities is made pursuant to exemptions provided
in sections 274 and 275 of the Securities and Futures Act,
Chapter 289 of Singapore (SFA). Accordingly,
this prospectus and any other document or material in connection
with the offer or sale, or invitation for subscription or
purchase, of our securities may not be circulated or
distributed, nor may our securities be offered or sold, or be
made the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than (i) to an institutional investor as defined in
Section 4A of the SFA pursuant to Section 274 of the
SFA, (ii) to a relevant person as defined in
section 275(2) of the SFA pursuant to Section 275(1)
of the SFA, or any person pursuant to Section 275(1A) of
the SFA, and in accordance with the conditions specified in
Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA, in each case subject to compliance with
the conditions (if any) set forth in the SFA. Moreover, this
document is not a prospectus as defined in the SFA. Accordingly,
statutory liability under the SFA in relation to the content of
prospectuses would not apply. Prospective investors in Singapore
should consider carefully whether an investment in our
securities is suitable for them.
Where our securities are subscribed or purchased under
Section 275 of the SFA by a relevant person which is:
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(a)
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by a corporation (which is not an accredited investor as defined
in Section 4A of the SFA) the sole business of which is to
hold investments and the entire share capital of which is owned
by one or more individuals, each of whom is an accredited
investor; or
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(b)
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for a trust (where the trustee is not an accredited investor)
whose sole purpose is to hold investments and each beneficiary
of the trust is an individual who is an accredited investor,
|
shares of that corporation or the beneficiaries rights and
interest (howsoever described) in that trust shall not be
transferable for six months after that corporation or that trust
has acquired the shares under Section 275 of the SFA,
except:
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(1)
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to an institutional investor (for corporations under
Section 274 of the SFA) or to a relevant person defined in
Section 275(2) of the SFA, or any person pursuant to an
offer that is made on terms that such shares of that corporation
or such rights and interest in that trust are acquired at a
consideration of not less than $200,000 (or its equivalent in a
foreign currency) for each transaction, whether such amount is
to be paid for in cash or by exchange of securities or other
assets, and further for corporations, in accordance with the
conditions, specified in Section 275 of the SFA;
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(2)
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where no consideration is given for the transfer; or
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(3)
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where the transfer is by operation of law.
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In addition, investors in Singapore should note that the
securities acquired by them are subject to resale and transfer
restrictions specified under Section 276 of the SFA, and
they, therefore, should seek their own legal advice before
effecting any resale or transfer of their securities.
115
LEGAL
MATTERS
The validity of the shares of common stock will be passed upon
for us by Simpson Thacher & Bartlett LLP,
New York, New York. Certain legal matters in connection
with this offering will be passed upon for the underwriters by
White & Case LLP, New York, New York.
EXPERTS
The consolidated financial statements of Regional Management
Corp. and subsidiaries as of December 31, 2009 and
December 31, 2010 and for the years ended December 31,
2008, December 31, 2009 and December 31, 2010
appearing in this prospectus and the registration statement have
been audited by McGladrey & Pullen, LLP, an
independent registered public accounting firm, as stated in
their report appearing elsewhere herein, and are included in
reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of common
stock offered by this prospectus. This prospectus, filed as part
of the registration statement, does not contain all of the
information set forth in the registration statement and its
exhibits and schedules, portions of which have been omitted as
permitted by the rules and regulations of the SEC. For further
information about us and shares of our common stock, we refer
you to the registration statement and to its exhibits and
schedules. Statements in this prospectus about the contents of
any contract, agreement or other document are not necessarily
complete and in each instance we refer you to the copy of such
contract, agreement or document filed as an exhibit to the
registration statement. Anyone may inspect the registration
statement and its exhibits and schedules without charge at the
public reference facilities the SEC maintains at
100 F Street, N.E., Washington, D.C. 20549. You
may obtain copies of all or any part of these materials from the
SEC upon the payment of certain fees prescribed by the SEC. You
may obtain further information about the operation of the
SECs Public Reference Room by calling the SEC at
1-800-SEC-0330.
You may also inspect these reports and other information without
charge at a website maintained by the SEC. The address of this
site is
http://www.sec.gov.
Upon consummation of this offering, we will become subject to
the informational requirements of the Exchange Act and will be
required to file reports and other information with the SEC. You
will be able to inspect and copy these reports and other
information at the public reference facilities maintained by the
SEC at the address noted above. You also will be able to obtain
copies of this material from the Public Reference Room of the
SEC as described above, or inspect them without charge at the
SECs website. We intend to make available to our common
stockholders annual reports containing consolidated financial
statements audited by an independent registered public
accounting firm.
116
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F-2
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Audited Financial Statements at December 31, 2009 and 2010
and for the years ended December 31, 2008, 2009 and 2010
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F-3
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F-4
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F-5
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F-6
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F-7
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Unaudited Condensed Financial Statements at March 31, 2011
and for the three months ended March 31, 2010 and 2011
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F-29
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F-30
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F-31
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F-32
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F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Regional Management Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Regional Management Corp. and Subsidiaries as of
December 31, 2009 and 2010, and the consolidated statements
of income, stockholders equity, and cash flows for the
years ended December 31, 2008, 2009 and 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Regional Management Corp. and Subsidiaries as of
December 31, 2009 and 2010, and the results of their
operations and their cash flows for the years ended
December 31, 2008, 2009 and 2010 in conformity with
U.S. generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Raleigh, North Carolina
May 16, 2011
F-2
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2009
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2010
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(Dollars in thousands, except per share information)
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Assets
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|
|
|
|
|
|
|
|
Cash
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|
$
|
3,018
|
|
|
$
|
856
|
|
|
|
|
|
|
|
|
|
|
Gross finance receivables
|
|
|
272,432
|
|
|
|
318,991
|
|
Less unearned finance charges, insurance premiums and commissions
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|
|
(57,523
|
)
|
|
|
(71,745
|
)
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
214,909
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|
|
|
247,246
|
|
Allowance for loan losses
|
|
|
(18,441
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)
|
|
|
(18,000
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)
|
|
|
|
|
|
|
|
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|
Net finance receivables
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|
196,468
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|
|
|
229,246
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|
Premises and equipment, net of accumulated depreciation
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|
2,812
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|
|
|
3,069
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|
Deferred tax asset, net
|
|
|
7,306
|
|
|
|
4,376
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|
Repossessed assets at net realizable value
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|
|
665
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|
|
|
296
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|
Other assets
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|
|
4,178
|
|
|
|
3,515
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
214,447
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|
|
$
|
241,358
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
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|
|
|
|
|
|
Liabilities:
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|
|
|
|
|
|
|
Cash overdraft
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|
$
|
150
|
|
|
$
|
365
|
|
Accounts payable and accrued expenses
|
|
|
5,217
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|
|
|
7,968
|
|
Senior revolving credit facility
|
|
|
156,286
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|
|
|
163,301
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|
Mezzanine debt to third party
|
|
|
25,680
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|
|
|
|
|
Mezzanine debt to related party
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|
|
|
|
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|
25,814
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Other debt
|
|
|
474
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|
|
|
466
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|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
187,807
|
|
|
|
197,914
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
12,000
|
|
|
|
12,000
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock (25,000,000 shares authorized; 9,336,727
issued and outstanding; $.10 par value per share)
|
|
|
934
|
|
|
|
934
|
|
Additional paid-in capital
|
|
|
27,599
|
|
|
|
27,959
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|
Retained earnings (deficit)
|
|
|
(13,893
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)
|
|
|
2,551
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|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
14,640
|
|
|
|
31,444
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
214,447
|
|
|
$
|
241,358
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-3
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|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
58,471
|
|
|
$
|
63,590
|
|
|
$
|
74,218
|
|
Insurance income, net
|
|
|
4,620
|
|
|
|
5,229
|
|
|
|
8,252
|
|
Other income
|
|
|
3,651
|
|
|
|
3,995
|
|
|
|
4,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
66,742
|
|
|
|
72,814
|
|
|
|
86,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
17,781
|
|
|
|
18,991
|
|
|
|
20,630
|
|
Occupancy
|
|
|
4,398
|
|
|
|
4,538
|
|
|
|
5,165
|
|
Advertising
|
|
|
999
|
|
|
|
1,212
|
|
|
|
2,027
|
|
Other
|
|
|
4,684
|
|
|
|
4,379
|
|
|
|
5,703
|
|
Consulting and advisory fees
|
|
|
1,644
|
|
|
|
1,263
|
|
|
|
1,233
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility and other debt
|
|
|
7,399
|
|
|
|
4,846
|
|
|
|
5,542
|
|
Mezzanine debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
|
3,706
|
|
|
|
3,835
|
|
|
|
2,915
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
11,105
|
|
|
|
8,681
|
|
|
|
9,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
57,987
|
|
|
|
58,469
|
|
|
|
61,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
8,755
|
|
|
|
14,345
|
|
|
|
25,622
|
|
Income taxes
|
|
|
2,276
|
|
|
|
4,472
|
|
|
|
9,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,479
|
|
|
$
|
9,873
|
|
|
$
|
16,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.69
|
|
|
$
|
1.06
|
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
1.03
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
9,482,604
|
|
|
|
9,590,564
|
|
|
|
9,669,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
RETAINED
|
|
|
|
|
|
|
COMMON
|
|
|
PAID-IN
|
|
|
EARNINGS
|
|
|
|
|
|
|
STOCK
|
|
|
CAPITAL
|
|
|
(DEFICIT)
|
|
|
TOTAL
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, December 31, 2007
|
|
$
|
934
|
|
|
$
|
26,716
|
|
|
$
|
(30,245
|
)
|
|
$
|
(2,595
|
)
|
Stock option expense
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
523
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
6,479
|
|
|
|
6,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
934
|
|
|
|
27,239
|
|
|
|
(23,766
|
)
|
|
|
4,407
|
|
Stock option expense
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
360
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
9,873
|
|
|
|
9,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
934
|
|
|
|
27,599
|
|
|
|
(13,893
|
)
|
|
|
14,640
|
|
Stock option expense
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
360
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
16,444
|
|
|
|
16,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
934
|
|
|
$
|
27,959
|
|
|
$
|
2,551
|
|
|
$
|
31,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,479
|
|
|
$
|
9,873
|
|
|
$
|
16,444
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
Amortization of stock option expense
|
|
|
523
|
|
|
|
360
|
|
|
|
360
|
|
Fair value adjustment on interest rate caps
|
|
|
|
|
|
|
(280
|
)
|
|
|
843
|
|
Payment of in-kind interest on mezzanine debt
|
|
|
168
|
|
|
|
512
|
|
|
|
134
|
|
Deferred income taxes
|
|
|
(1,183
|
)
|
|
|
(98
|
)
|
|
|
2,930
|
|
Depreciation and amortization
|
|
|
1,078
|
|
|
|
1,144
|
|
|
|
1,383
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(506
|
)
|
|
|
182
|
|
|
|
(198
|
)
|
Other liabilities
|
|
|
2,719
|
|
|
|
134
|
|
|
|
2,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
26,654
|
|
|
|
31,232
|
|
|
|
41,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables originated
|
|
|
(39,755
|
)
|
|
|
(39,249
|
)
|
|
|
(49,346
|
)
|
Net increase in restricted cash
|
|
|
(95
|
)
|
|
|
(106
|
)
|
|
|
|
|
Purchase of furniture and equipment
|
|
|
(1,348
|
)
|
|
|
(556
|
)
|
|
|
(1,210
|
)
|
Purchase of interest rate caps
|
|
|
|
|
|
|
(800
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(41,198
|
)
|
|
|
(40,711
|
)
|
|
|
(50,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash overdraft
|
|
|
(332
|
)
|
|
|
(214
|
)
|
|
|
215
|
|
Net advances on senior revolving credit facility
|
|
|
16,396
|
|
|
|
11,674
|
|
|
|
7,015
|
|
Proceeds from issuance of mezzanine debt, related party
|
|
|
|
|
|
|
|
|
|
|
25,814
|
|
Payments on mezzanine debt
|
|
|
|
|
|
|
|
|
|
|
(25,814
|
)
|
Payments on subordinated debt and other notes, net
|
|
|
(1,636
|
)
|
|
|
(394
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
14,428
|
|
|
|
11,066
|
|
|
|
7,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(116
|
)
|
|
|
1,587
|
|
|
|
(2,162
|
)
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
1,547
|
|
|
|
1,431
|
|
|
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
1,431
|
|
|
$
|
3,018
|
|
|
$
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid to third parties
|
|
$
|
11,152
|
|
|
$
|
8,918
|
|
|
$
|
7,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid to related parties
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes
|
|
$
|
1,820
|
|
|
$
|
4,844
|
|
|
$
|
8,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of mezzanine debt in lieu of cash interest payment
|
|
$
|
168
|
|
|
$
|
512
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-6
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
(Dollars in thousands, except per share information)
Note 1.
Nature of Business and Significant Accounting Policies
Nature of business: Regional Management Corp. (the
Company) was incorporated and began operations in
1987. The Company is engaged in the consumer finance business,
offering small installment loans, large installment loans,
automobile purchase loans, furniture and appliance purchase
loans, related credit insurance, and ancillary products and
services. As of December 31, 2010, the Company operates
offices in 134 locations in the states of Alabama (9 offices),
North Carolina (19 offices), South Carolina (61 offices),
Tennessee (10 offices), and Texas (35 offices) under the brand
names Regional Finance, RMC Financial Services, Anchor Finance,
and Sun Finance. The Company opened 16, six, and 17 new offices
during the years ended December 31, 2008, 2009, and 2010,
respectively.
Principles of consolidation: The consolidated
financial statements include the accounts of Regional Management
Corp. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. The Company operates through a separate
subsidiary in each state.
The accounting and reporting policies of the Company are in
accordance with accounting principles generally accepted in the
United States of America and conform to general practices within
the consumer finance industry.
The following is a description of significant accounting
policies used in preparing the financial statements.
Use of estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses,
fair value of stock-based compensation and the valuation of
deferred tax assets.
Business segments: The Company reports operating
segments in accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic
280. Operating segments are components of an enterprise about
which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
determining how to allocate resources and assess performance.
FASB ASC Topic 280 requires that a public enterprise report a
measure of segment profit or loss, certain specific revenue and
expense items, segment assets, information about the way
operating segments were determined, and other items.
The Company has one reportable segment, which is the consumer
finance business. The other revenue generating activities of the
Company, including insurance operations and income tax
preparation, are done in the existing branch network in
conjunction with or as a complement to the consumer finance
operations. There is no discrete financial information available
for these activities and they do not meet the criteria under
FASB ASC Topic 280 to be reported separately.
Cash and statement of cash flows: Cash flows from
loan operations and short-term borrowings are reported on a net
basis.
F-7
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Finance receivables: The Companys loan
portfolio consists of the following (2010 originations):
|
|
|
|
|
|
|
|
AVERAGE SIZE
|
|
Small installment loans
|
|
$
|
1.0
|
|
Large installment loans
|
|
$
|
3.1
|
|
Automobile purchase loans
|
|
$
|
10.8
|
|
Furniture and appliance purchase loans
|
|
$
|
1.4
|
|
|
Small installment loan receivables are direct loans to customers
and are secured by non-essential household goods and include
live check loans, which are checks mailed to customers based on
a rigorous pre-screening process that includes a review of the
prospective customers credit profile provided by one of
the national credit reporting bureaus. Large installment loan
receivables are direct loans to customers and are secured by
automobiles or other vehicles in addition to non-essential
household goods. Automobile purchase loan receivables consist of
direct loans, which are originated at the dealership and closed
in one of our branches, and indirect loans, which are originated
and closed at a dealership in our network without the need for
the customer to visit one of our branches. In each case these
automobile purchase loans are collateralized primarily by used
and some new automobiles, which are initiated by and purchased
from automobile dealerships, subject to the Companys
credit approval. Furniture and appliance purchase loan
receivables consist principally of retail installment sales
contracts collateralized by the furniture purchased, which are
initiated by and purchased from furniture retailers, subject to
the Companys credit approval.
Loan losses: Provisions for loan losses are charged
to income as losses are estimated to have occurred and in
amounts sufficient to maintain an allowance for loan losses at
an adequate level to provide for losses on the finance
receivables. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the
allowance. Loan loss experience, average loan life, and
contractual delinquency of finance receivables by loan type, the
value of underlying collateral, and managements judgment
are factors used in assessing the overall adequacy of the
allowance and the resulting provision for loan losses. While
management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary
if there are significant changes in economic conditions or
portfolio performance. This evaluation is inherently subjective
as it requires estimates that are susceptible to significant
revisions as more information becomes available.
The allowance consists of allocated and general components. The
allocated component relates to loans that are considered
impaired. The Company fully reserves for all loans at the date
that the loan is contractually delinquent 180 days. The
Company only initiates repossession proceedings when an account
is seriously delinquent and in the opinion of management, the
customer is unlikely to make further payments. Since 2010, the
Company has sold substantially all repossessed vehicle inventory
through public sales conducted by independent automobile auction
organizations after the required post-repossession waiting
period. Vehicles held for sale at the office location are
generally taken to an auction if not sold within 90 days of
obtaining title. Losses on the sale of repossessed collateral
are charged to the allowance for loan losses.
The Companys allowance for loan losses has three
components. The following is a description of the components of
the allowance for loan losses:
|
|
|
|
n
|
Most recent twelve months of historical losses are used to
estimate the allowance for large installment loans (loans in
excess of $2,500), automobile purchase loans and all furniture
and appliance purchase loans
|
|
|
n
|
Most recent eight months of historical losses are used to
estimate the allowance for small installment loans, including
live checks (loans of $2,500 or less)
|
F-8
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
|
|
|
|
n
|
An unallocated allowance amount
|
Automobile purchase, furniture and appliance purchase and large
installment loans have longer maturities than small installment
loans, which is why a shorter time period is used for small
installment loan losses.
Impaired loans: The Company does not have impaired
loans as defined by FASB ASC Topic 310, except accounts 180 or
more days contractually delinquent, which are fully reserved for
as described above. In accordance with the Companys
charge-off policy, once a loan is deemed uncollectible, 100% of
the net investment is charged-off.
The factors used to determine whether an account is
uncollectible are the age of the account, supervisory review of
collection efforts, and other factors such as customers
relocating to an area where collection is not practical. As of
December 31, 2010, bankrupt accounts that had not been
charged-off were approximately $2,662. Such accounts are
evaluated collectively for impairment along with the rest of the
portfolio of finance receivables. Of the total $2,662 of
bankrupt accounts at December 31, 2010, $311 are more than
180 days contractually delinquent and thus fully reserved.
For customers with a confirmed bankruptcy plan, the Company
receives payments through the bankruptcy court. For customers
who recently filed bankruptcy, the Company generally does not
receive any payments until their bankruptcy plan is confirmed by
the court. If the customers have made payments to the trustee in
advance of plan confirmation, the Company may receive a lump sum
payment from the trustee once the plan is confirmed. This lump
sum payment represents the Companys pro-rata share of the
amount paid by the customer. If a customer files for bankruptcy
under Chapter 7 of the bankruptcy code, the customers
entire debt is cancelled. In such cases, the Company charges off
the account upon receiving notice from the bankruptcy court. If
a vehicle secures a Chapter 7 bankruptcy account, the
customer has the option of buying the vehicle at fair value or
reaffirming the loan and continuing to pay the loan.
The remainder of the accounts are those that operations
personnel are of the view that some portion of the account can
be collected. Following is a chart of the maturity of accounts
that are 180 days or more past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2010
|
|
|
|
NON-BANKRUPT
|
|
|
CUSTOMERS
|
|
|
TOTAL 180+ PAST DUE
|
|
|
|
CUSTOMERS
|
|
|
IN BANKRUPTCY
|
|
|
ACCOUNTS
|
|
|
Accounts at least 180 days but less than one year
contractually delinquent
|
|
$
|
709
|
|
|
$
|
224
|
|
|
$
|
933
|
|
Accounts at least one year but less than two years contractually
delinquent
|
|
|
91
|
|
|
|
82
|
|
|
|
173
|
|
Accounts at least two years contractually delinquent
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
800
|
|
|
$
|
311
|
|
|
$
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency: The Company determines past due status
using the contractual terms of the loan. This is the credit
quality indicator used to evaluate the allowance for loan losses
for each class of finance receivables.
Repossessed assets: Repossessed collateral is valued
at the lower of the receivable balance on the loan prior to
repossession or estimated net realizable value. Management
estimates net realizable value at the projected cash value upon
liquidation, less costs to sell the related collateral.
Premises and equipment: The Company owns its
headquarters buildings. During 2010, the Company sold the only
branch office that it owned. Offices are leased under
non-cancellable leases. Office buildings are depreciated on the
straight-line method for financial reporting purposes over their
estimated useful lives of 39 to 40 years. Furniture and
equipment are depreciated on the straight-line method over their
estimated useful lives, generally three to
F-9
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
five years. Leasehold improvements are depreciated over the
shorter of the life of the asset or the remaining term of the
lease agreement. Maintenance and repairs are charged to expense
as incurred.
Income recognition: Interest income is recognized
using the interest (actuarial) method, also known as the
constant yield method. Therefore, the Company recognizes revenue
from interest at an equal rate over the term of the loan.
Unearned finance charges on pre-compute contracts are rebated to
customers utilizing the Rule of 78s method. The difference
between income recognized under the constant yield method and
the Rule of 78s method is recognized as an adjustment to
interest income at the time of rebate. Accrual of interest
income on finance receivables is suspended when no payment has
been received for 90 days or more on a contractual basis.
The accrual of income is not resumed until one or more full
contractual monthly payments are received and the finance
receivable is less than 90 days contractually delinquent.
Interest income is suspended on finance receivables for which
collateral has been repossessed. Payments received on loans in
nonaccrual status are first applied to interest, then to any
late charges or other fees, with any remaining amount applied to
principal.
The Company recognizes income on credit insurance products using
the constant yield method over the life of the related loan.
Rebates are computed using the Rule of 78s method and any
difference between the constant yield method and the Rule of 78s
is recognized in income at the time of rebate.
The Company charges a fee to automobile dealers for each loan it
purchases from that dealer. The Company defers this fee and
accretes it to income using a method that approximates the
constant yield method.
Charges for late fees are recognized as income when accrued.
Loan origination fees and costs: Non-refundable fees
received and direct costs incurred for the origination of
finance receivables are deferred and amortized to interest
income over the contractual lives of the loans using the
constant yield method. Unamortized amounts are recognized in
income at the time that loans are paid in full.
Insurance operations: Insurance operations include
revenue and expense from the Companys sale of optional
insurance products to its customers. These optional products
include credit life, credit accident and health, property
insurance, and involuntary unemployment insurance. Insurance
premiums are remitted to an unaffiliated company that issues the
policy to the customer. This company cedes the premiums to the
Companys wholly-owned insurance subsidiary, RMC
Reinsurance, Ltd. Life insurance premiums are ceded to the
Company as written, non-life products are ceded as earned. The
premiums and commissions received by the Company are deferred
and amortized to income over the life of the insurance policy
using the constant yield method.
In 2009, the Company began a collateral protection collision
insurance (CPI) program in one state. CPI is added
to a loan when a customer fails to provide the Company proof of
collision insurance on an automobile securing a loan. The CPI
program is administered by an independent third party, which
tracks insurance lapses and cancellations and issues a policy
when the customer does not provide proof of insurance. The
insurance is added to the loan and increases the customers
monthly loan payment. The third party and its insurance partner
retain a percentage of the premium and pay all claims. The
Company earns a percentage of the premium and will earn
additional income if losses are less than estimated by the
independent third party. Income is recognized on the constant
yield method over the life of the insurance policy, which is
generally one year.
Non-file insurance is written in lieu of recording and
perfecting the Companys security interest in the assets
pledged on certain loans. Non-file insurance and the related
insurance premiums, claims, and recoveries are not reflected in
the accompanying financial statements except when claims are
incurred. Non-file insurance premiums are collected from the
borrower on certain loans at inception and renewal and remitted
directly to the unaffiliated insurance company.
F-10
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
The Company maintains a cash reserve for life insurance claims
in an amount determined by the ceding company. The cash reserve
secures a letter of credit issued by a commercial bank in favor
of the ceding company. The ceding company maintains the reserves
for non-life claims.
Reinsurance balances and transactions: Reinsurance
is accounted for over the terms of the underlying reinsured
policies using assumptions consistent with those used to account
for the policies. Following are total net premiums written and
reinsured and total earned premiums for the years ended
December 31, 2008, 2009, and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
NET WRITTEN
|
|
EARNED
|
YEAR ENDED DECEMBER 31,
|
|
PREMIUMS
|
|
PREMIUMS
|
|
2008
|
|
$
|
8,000
|
|
|
$
|
6,892
|
|
2009
|
|
|
10,463
|
|
|
|
8,592
|
|
2010
|
|
|
12,641
|
|
|
|
11,845
|
|
|
Interest rate caps: In 2009, the Company purchased
three interest rate caps with notional amounts of $10,000 each.
The Company purchased the caps to protect a portion of its
senior revolving credit facility from increases in interest
rates above the strike rate of the cap. In early 2010, the
Company exchanged its $30,000 notional cap for a cap with a
notional amount of $128,500, a strike rate of 6.0%, and a
maturity of March 2014. There was no cost related to this
exchange. In late 2010, the Company purchased an additional cap
increasing the total interest rate protection to $150,000 on the
same terms as the exchanged cap. At December 31, 2010, the
caps are based on the three-month LIBOR contract and reimburse
the Company for the difference when three-month LIBOR exceeds
six percent. The carrying value of the caps, are adjusted to
fair value. For the year ended December 31, 2010 the
Company recorded an unfavorable fair value adjustment of $843 as
an increase in interest expense.
Stock-based compensation: The Company has a stock
option plan for certain members of management. The Company
measures compensation cost for stock-based awards made under
this plan at estimated fair value and recognizes compensation
expense over the service period for awards expected to vest. All
grants are made at 100% of the fair value on the date of the
grant. The fair value of stock options is determined using the
Black-Scholes valuation model. The Black-Scholes model requires
the input of highly subjective assumptions, including expected
volatility, risk-free interest rate, and expected life, changes
to which can materially affect the fair value estimate. In
addition, the estimation of stock-based awards that will
ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from current estimates, such
amounts will be recorded as a cumulative adjustment in the
period estimates are revised. Prior to the proposed initial
public offering, there has been no published market value for
the Companys stock; therefore, the performance of the
common stock of a publicly traded company whose business is
comparable to the Company was used to estimate the volatility of
the Companys stock.
Advertising costs: Advertising costs are expensed as
incurred and advertising costs totaled $999, $1,212, and $2,027
for the years ended December 31, 2008, 2009, and 2010,
respectively.
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 effects of future tax rate changes
are recognized in the period when the enactment of new rates
occurs.
When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of
F-11
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
the position that would be ultimately sustained. The benefit of
a tax position is recognized in the financial statements in the
period during which, based on all available evidence, it is more
likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50% likely of
being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described
above is reflected as a liability for unrecognized tax benefits
in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing
authorities upon examination.
Interest and penalties associated with unrecognized tax benefits
are classified as additional income taxes in the consolidated
statements of income.
The Company files U.S. federal and various state income tax
returns. The Company is generally no longer subject to
U.S. federal or state and local income tax examinations by
taxing authorities before 2007, with the exception of Texas,
which is 2006.
The Internal Revenue Service (IRS) concluded an
examination of the Companys 2007 and 2008 tax returns in
early 2010. The amount assessed by the IRS was not material to
the consolidated financial statements.
Earnings per share: Earnings per share has been
computed on the basis of the weighted-average number of common
shares outstanding during each year presented. Common shares
issuable upon the exercise of the stock-based compensation,
which are computed using the treasury stock method, are included
in the computation of diluted earnings per share.
Government regulation: The Company is subject to
various state and federal laws and regulations, which, among
other things, impose limits on interest rates, other charges,
and insurance premiums and require licensing and qualifications.
Congress recently passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act. Among other provisions, the bill
created the Consumer Financial Protection Bureau
(CFPB). The CFPB has the authority to promulgate
regulations that could affect the Companys business. The
CFPB has not issued any regulations to date and the Company is
not aware of any pending regulations that might affect its
business.
Subsequent events: The Company has evaluated its
subsequent events (events occurring after December 31,
2010) through May 16, 2011, which represents the date
the financial statements were issued.
Disclosure about fair value of financial
instruments: The following methods and assumptions were
used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Finance receivables: Finance receivables are
originated either at prevailing market rates or at statutory
limits. The Companys loan portfolio turns approximately
1.2 times per year from cash payments and renewal of loans.
Management believes that the carrying value approximates the
fair value of its loan portfolio.
Interest rate caps: The fair value of the interest
rate caps is the estimated amount the Company would receive to
terminate the cap agreements at the reporting date, taking into
account current interest rates and the creditworthiness of the
counterparty for assets and creditworthiness of the Company for
liabilities.
Debt: The Company refinanced its senior revolving
credit facility in August 2010 and as a result of the
refinancing believes that the fair value of this variable rate
debt approximates its carrying value at December 31, 2010.
The
F-12
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Company also refinanced its mezzanine debt in August 2010 and
estimates that the fixed interest rate on the mezzanine debt
exceeds the estimated market interest rate for similar debt,
resulting in a fair value in excess of the carrying amount. The
Company also considered its creditworthiness in its
determination of fair value.
The estimated carrying and fair values of the Companys
financial instruments as of December 31, 2009 and 2010 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
|
CARRYING
|
|
FAIR
|
|
CARRYING
|
|
FAIR
|
|
|
AMOUNT
|
|
VALUE
|
|
AMOUNT
|
|
VALUE
|
|
Cash
|
|
$
|
3,018
|
|
|
$
|
3,018
|
|
|
$
|
856
|
|
|
$
|
856
|
|
Restricted cash
|
|
|
888
|
|
|
|
888
|
|
|
|
888
|
|
|
|
888
|
|
Finance receivables
|
|
|
196,468
|
|
|
|
196,468
|
|
|
|
229,246
|
|
|
|
229,246
|
|
Interest rate caps
|
|
|
1,080
|
|
|
|
1,080
|
|
|
|
280
|
|
|
|
280
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility
|
|
|
156,286
|
|
|
|
156,208
|
|
|
|
163,301
|
|
|
|
163,301
|
|
Mezzanine
|
|
|
25,680
|
|
|
|
23,764
|
|
|
|
25,814
|
|
|
|
26,697
|
|
Other
|
|
|
474
|
|
|
|
474
|
|
|
|
466
|
|
|
|
466
|
|
|
The Company Follows the Provisions of
ASC 820-10.
ASC 820-10
applies to all assets and liabilities that are being measured
and reported on a fair value basis.
ASC 820-10
requires disclosure that establishes a framework for measuring
fair value in GAAP, and expands disclosure about fair value
measurements. This statement enables the reader of the financial
statements to assess the inputs used to develop those
measurements by establishing a hierarchy for ranking the quality
and reliability of the information used to determine fair
values. The statement requires that assets and liabilities
carried at fair value be classified and disclosed in one of the
following three categories:
Level 1 Quoted market prices in active markets
for identical assets or liabilities.
Level 2 Observable market based inputs or
unobservable inputs that are corroborated by market data.
Level 3 Unobservable inputs that are not
corroborated by market data.
In determining the appropriate levels, the Company performs a
detailed analysis of the assets and liabilities that are subject
to
ASC 820-10.
At each reporting period, all assets and liabilities for which
the fair value measurement is based on significant unobservable
inputs are classified as Level 3.
The table below presents the balances of assets measured at fair
value on a recurring basis by level within the hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST RATE CAPS
|
DECEMBER 31,
|
|
TOTAL
|
|
LEVEL 1
|
|
LEVEL 2
|
|
LEVEL 3
|
|
2009
|
|
$
|
1,080
|
|
|
$
|
|
|
|
$
|
1,080
|
|
|
$
|
|
|
2010
|
|
|
280
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
F-13
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
The following methods and assumptions were used to estimate the
fair value of each asset subject to ASC
820-10 for
which it is carried at fair value on a nonrecurring basis:
Certain assets and liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at
fair value on an ongoing basis but are subject to fair value
adjustments in certain circumstances (for example, when there is
evidence of impairment). The following table presents the assets
carried on the balance sheet by level within the hierarchy as of
December 31, 2009 and 2010 for which a nonrecurring change
in fair value has been recorded during the years ended
December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPOSSESSED ASSETS
|
DECEMBER 31,
|
|
TOTAL
|
|
LEVEL 1
|
|
LEVEL 2
|
|
LEVEL 3
|
|
TOTAL LOSSES
|
|
2009
|
|
$
|
665
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
665
|
|
|
$
|
518
|
|
2010
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
|
|
218
|
|
|
Accounting pronouncements issued and partially
adopted: In July 2010, the FASB issued Accounting
Standards Update (ASU)
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses. ASU
2010-20
requires more robust and disaggregated disclosures about the
credit quality of financing receivables and allowances for
credit losses, including disclosure about credit quality
indicators, past due information and modifications of finance
receivables. The disclosures required as of the end of a
reporting period and certain items related to activity during
the year were adopted in 2010, which significantly expanded the
existing disclosure requirements, but did not have any impact on
the Companys consolidated financial position, results of
operations, or cash flows. The remaining amendments that require
disclosures about activity that occurs during a reporting period
are effective for periods beginning on or after
December 15, 2010 and will not have an impact on the
Companys consolidated financial position, results of
operations or cash flows.
Accounting pronouncements issued, not yet
adopted: In October 2010, the FASB issued ASU
2010-26,
Accounting for Costs Associated with Acquiring or Renewing
Insurance Contracts. ASU
2010-26
modifies the definitions of the type of costs incurred by
insurance entities that can be capitalized in the successful
acquisition of new and renewal contracts. ASU
2010-26
requires incremental direct costs of successful contract
acquisition as well as certain costs related to underwriting,
policy issuance and processing, medical and inspection and sales
force contract selling for successful contract acquisition to be
capitalized. These incremental direct costs and other costs are
those that are essential to the contract transaction and would
not have been incurred had the contract transaction not
occurred. This guidance is effective for the Company for the
year beginning January 1, 2012 and may be applied
prospectively or retrospectively. The Company does not expect
the adoption of this guidance to have a material impact on the
Companys consolidated financial position, results of
operations, cash flows, or disclosures.
In April 2011, the FASB issued ASU
2011-02,
Receivables (Topic 310): A Creditors Determination of
Whether a Restructuring Is a Troubled Debt Restructuring.
The ASU clarifies which loan modifications constitute
troubled debt restructurings. It is intended to assist creditors
in determining whether a modification of the terms of a
receivable meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss
and for disclosure of troubled debt restructurings. This ASU is
effective for interim and annual periods beginning on or after
June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal
year of adoption. The Company does not expect the adoption of
this guidance to have a material impact on the Companys
consolidated financial position, results of operations, cash
flows, or disclosures.
F-14
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Note 2.
Finance Receivables, Credit Quality Information and Allowance
for Loan Losses
Finance receivables at December 31, 2009 and 2010 consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
102,651
|
|
|
$
|
117,599
|
|
Large installment loans
|
|
|
28,217
|
|
|
|
33,653
|
|
Automobile purchase loans
|
|
|
83,253
|
|
|
|
93,232
|
|
Furniture and appliance purchase loans
|
|
|
788
|
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
214,909
|
|
|
$
|
247,246
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses for the years ended
December 31, 2008, 2009, and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Balance at beginning of year
|
|
$
|
13,290
|
|
|
$
|
15,665
|
|
|
$
|
18,441
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
(1)
|
Finance receivables charged off
|
|
|
(15,879
|
)
|
|
|
(17,002
|
)
|
|
|
(17,469
|
)
|
Recoveries
|
|
|
878
|
|
|
|
373
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
15,665
|
|
|
$
|
18,441
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reducing the required allowance for
small loans from nine to eight months of losses reduced the 2010
provision by $451.
|
The following is a reconciliation of the allowance for loan
losses by component for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOAN
|
|
|
OF LOAN
|
|
|
OF LOAN
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
BALANCE
|
|
|
BALANCE
|
|
|
BALANCE
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2010
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
8,022
|
|
|
$
|
10,642
|
|
|
$
|
(10,068
|
)
|
|
$
|
295
|
|
|
$
|
8,891
|
|
|
$
|
117,599
|
|
|
|
7.8
|
%
|
|
|
7.6
|
%
|
Large installment loans
|
|
|
2,700
|
|
|
|
2,685
|
|
|
|
(2,588
|
)
|
|
|
61
|
|
|
|
2,858
|
|
|
|
33,653
|
|
|
|
9.6
|
%
|
|
|
8.5
|
%
|
Automobile purchase loans
|
|
|
7,517
|
|
|
|
2,457
|
|
|
|
(4,738
|
)
|
|
|
103
|
|
|
|
5,339
|
|
|
|
93,232
|
|
|
|
9.0
|
%
|
|
|
5.7
|
%
|
Furniture and appliance purchase loans
|
|
|
7
|
|
|
|
208
|
|
|
|
(75
|
)
|
|
|
1
|
|
|
|
141
|
|
|
|
2,762
|
|
|
|
9.0
|
%
|
|
|
5.1
|
%
|
Unallocated
|
|
|
195
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
771
|
|
|
|
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,441
|
|
|
$
|
16,568
|
|
|
$
|
(17,469
|
)
|
|
$
|
460
|
|
|
$
|
18,000
|
|
|
$
|
247,246
|
|
|
|
8.6
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
As of January 1, 2010, the Company changed its loan loss
allowance methodology for small installment loans to determine
the allowance using losses from the trailing eight months,
rather than the trailing nine months, to more accurately reflect
the six-month average life of its small installment loans. The
change from nine to eight months of average losses reduced the
loss allowance for small installment loans by $1,074 as of
January 1, 2010 and reduced the provision for loan losses
by $451 for 2010.
Following is a summary of the finance receivables associated
with customers in bankruptcy as of December 31, 2009 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
FINANCE
|
|
|
|
RECEIVABLES IN
|
|
|
RECEIVABLES IN
|
|
|
|
BANKRUPTCY
|
|
|
BANKRUPTCY
|
|
|
|
AS OF
|
|
|
AS OF
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
440
|
|
|
$
|
353
|
|
Large installment loans
|
|
|
732
|
|
|
|
559
|
|
Automobile purchase loans
|
|
|
1,641
|
|
|
|
1,715
|
|
Furniture and appliance purchase loans
|
|
|
27
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,840
|
|
|
$
|
2,662
|
|
|
|
|
|
|
|
|
|
|
|
The following is an assessment of the credit quality of finance
receivables at December 31, 2009 and 2010. The contractual
delinquency of the finance receivable portfolio by component at
December 31, 2009 and 2010 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
FURNITURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AND
|
|
|
|
|
|
|
SMALL
|
|
|
LARGE
|
|
|
|
|
|
APPLIANCE
|
|
|
|
|
|
|
INSTALLMENT
|
|
|
INSTALLMENT
|
|
|
AUTOMOBILE
|
|
|
PURCHASE
|
|
|
|
|
|
|
LOANS
|
|
|
LOANS
|
|
|
PURCHASE LOANS
|
|
|
LOANS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Current accounts
|
|
$
|
79,625
|
|
|
|
77.6
|
%
|
|
$
|
17,555
|
|
|
|
62.2
|
%
|
|
$
|
55,718
|
|
|
|
66.9
|
%
|
|
$
|
516
|
|
|
|
65.5
|
%
|
|
$
|
153,414
|
|
|
|
71.4
|
%
|
1-29 days
|
|
|
13,251
|
|
|
|
12.9
|
%
|
|
|
6,920
|
|
|
|
24.5
|
%
|
|
|
19,718
|
|
|
|
32.7
|
%
|
|
|
190
|
|
|
|
24.1
|
%
|
|
|
40,079
|
|
|
|
18.6
|
%
|
Delinquency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
2,995
|
|
|
|
2.9
|
%
|
|
|
1,463
|
|
|
|
5.2
|
%
|
|
|
3,829
|
|
|
|
4.6
|
%
|
|
|
67
|
|
|
|
8.5
|
%
|
|
|
8,354
|
|
|
|
3.9
|
%
|
60 to 89 days
|
|
|
2,092
|
|
|
|
2.0
|
%
|
|
|
728
|
|
|
|
2.6
|
%
|
|
|
1,860
|
|
|
|
2.2
|
%
|
|
|
4
|
|
|
|
0.5
|
%
|
|
|
4,684
|
|
|
|
2.2
|
%
|
Over 90 days
|
|
|
4,688
|
|
|
|
4.6
|
%
|
|
|
1,551
|
|
|
|
5.5
|
%
|
|
|
2,128
|
|
|
|
2.6
|
%
|
|
|
11
|
|
|
|
1.4
|
%
|
|
|
8,378
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquency
|
|
|
9,775
|
|
|
|
9.5
|
%
|
|
|
3,742
|
|
|
|
13.3
|
%
|
|
|
7,817
|
|
|
|
9.4
|
%
|
|
|
82
|
|
|
|
10.4
|
%
|
|
|
21,416
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
102,651
|
|
|
|
100.0
|
%
|
|
$
|
28,217
|
|
|
|
100.0
|
%
|
|
$
|
83,253
|
|
|
|
100.0
|
%
|
|
$
|
788
|
|
|
|
100.0
|
%
|
|
$
|
214,909
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables in nonaccrual status
|
|
$
|
4,688
|
|
|
|
4.6
|
%
|
|
$
|
1,551
|
|
|
|
5.5
|
%
|
|
$
|
2,128
|
|
|
|
2.6
|
%
|
|
$
|
11
|
|
|
|
1.4
|
%
|
|
$
|
8,378
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
FURNITURE AND
|
|
|
|
|
|
|
SMALL
|
|
|
LARGE
|
|
|
|
|
|
APPLIANCE
|
|
|
|
|
|
|
INSTALLMENT
|
|
|
INSTALLMENT
|
|
|
AUTOMOBILE
|
|
|
PURCHASE
|
|
|
|
|
|
|
LOANS
|
|
|
LOANS
|
|
|
PURCHASE LOANS
|
|
|
LOANS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Current accounts
|
|
$
|
90,455
|
|
|
|
76.9
|
%
|
|
$
|
22,969
|
|
|
|
68.3
|
%
|
|
$
|
67,751
|
|
|
|
72.7
|
%
|
|
$
|
2,299
|
|
|
|
83.2
|
%
|
|
$
|
183,474
|
|
|
|
74.2
|
%
|
1-29 days
|
|
|
18,387
|
|
|
|
15.7
|
%
|
|
|
7,424
|
|
|
|
22.0
|
%
|
|
|
20,363
|
|
|
|
21.8
|
%
|
|
|
342
|
|
|
|
12.4
|
%
|
|
|
46,516
|
|
|
|
18.8
|
%
|
Delinquency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
3,269
|
|
|
|
2.8
|
%
|
|
|
1,486
|
|
|
|
4.4
|
%
|
|
|
2,816
|
|
|
|
3.0
|
%
|
|
|
40
|
|
|
|
1.5
|
%
|
|
|
7,611
|
|
|
|
3.1
|
%
|
60 to 89 days
|
|
|
1,986
|
|
|
|
1.6
|
%
|
|
|
762
|
|
|
|
2.3
|
%
|
|
|
1,113
|
|
|
|
1.2
|
%
|
|
|
31
|
|
|
|
1.1
|
%
|
|
|
3,892
|
|
|
|
1.6
|
%
|
Over 90 days
|
|
|
3,502
|
|
|
|
3.0
|
%
|
|
|
1,012
|
|
|
|
3.0
|
%
|
|
|
1,189
|
|
|
|
1.3
|
%
|
|
|
50
|
|
|
|
1.8
|
%
|
|
|
5,753
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquency
|
|
|
8,757
|
|
|
|
7.4
|
%
|
|
|
3,260
|
|
|
|
9.7
|
%
|
|
|
5,118
|
|
|
|
5.5
|
%
|
|
|
121
|
|
|
|
4.4
|
%
|
|
|
17,256
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
117,599
|
|
|
|
100.0
|
%
|
|
$
|
33,653
|
|
|
|
100.0
|
%
|
|
$
|
93,232
|
|
|
|
100.0
|
%
|
|
$
|
2,762
|
|
|
|
100.0
|
%
|
|
$
|
247,246
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables in nonaccrual status
|
|
$
|
3,502
|
|
|
|
3.0
|
%
|
|
$
|
1,012
|
|
|
|
3.0
|
%
|
|
$
|
1,189
|
|
|
|
1.3
|
%
|
|
$
|
50
|
|
|
|
1.8
|
%
|
|
$
|
5,753
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is a summary of finance receivables evaluated for
impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2009
|
|
|
DECEMBER 31, 2010
|
|
|
Finance receivables evaluated individually for impairment
|
|
|
|
|
|
|
|
|
Accounts 180 days or more past due
|
|
$
|
2,187
|
|
|
$
|
1,111
|
|
|
|
|
|
|
|
|
|
|
Finance receivables evaluated collectively
|
|
|
212,722
|
|
|
|
246,135
|
|
|
|
|
|
|
|
|
|
|
Finance receivables outstanding
|
|
$
|
214,909
|
|
|
$
|
247,246
|
|
|
|
|
|
|
|
|
|
|
|
Note 3.
Premises and Equipment and Rental Commitments
At December 31, 2009 and 2010, premises and equipment
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Land and premises
|
|
$
|
1,020
|
|
|
$
|
844
|
|
Furniture, fixtures, and equipment
|
|
|
6,619
|
|
|
|
7,807
|
|
Leasehold improvements
|
|
|
1,183
|
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,822
|
|
|
|
9,940
|
|
Less accumulated depreciation
|
|
|
6,010
|
|
|
|
6,871
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,812
|
|
|
$
|
3,069
|
|
|
|
|
|
|
|
|
|
|
|
F-17
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Depreciation expense for the years ended December 31, 2008,
2009, and 2010 totaled $702, $797 and $953, respectively.
Future minimum rent commitments under non-cancellable operating
leases in effect as of December 31, 2010 are as follows:
|
|
|
|
|
|
|
YEAR ENDING DECEMBER 31,
|
|
AMOUNT
|
|
|
2011
|
|
$
|
1,836
|
|
2012
|
|
|
1,255
|
|
2013
|
|
|
587
|
|
2014
|
|
|
156
|
|
2015
|
|
|
79
|
|
Thereafter
|
|
|
23
|
|
|
|
|
|
|
|
|
$
|
3,936
|
|
|
|
|
|
|
|
Leases generally contain options to extend for periods from 1 to
10 years; the cost of such extensions is not included
above. Rent expense for the years ended December 31, 2008,
2009, and 2010 equaled $1,728, $1,868, and $2,073, respectively.
In addition to rent, the Company typically pays for all
operating expenses, property taxes, and repairs and maintenance
on properties that it leases.
Note 4.
Other Assets
Other assets include the following at December 31, 2009 and
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Interest receivable
|
|
$
|
758
|
|
|
$
|
792
|
|
Intangible assets, including debt issuance costs, net of
accumulated amortization
|
|
|
752
|
|
|
|
808
|
|
Interest rate caps
|
|
|
1,080
|
|
|
|
280
|
|
Restricted cash
|
|
|
888
|
|
|
|
888
|
|
Other
|
|
|
700
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,178
|
|
|
$
|
3,515
|
|
|
|
|
|
|
|
|
|
|
|
The Company has debt issuance costs included in other assets
with estimated future amortization of $153, $153, and $138 for
the years ending December 31, 2011, 2012, and 2013,
respectively.
F-18
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Note 5.
Debt
Following is a summary of the Companys debt as of
December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Senior revolving credit facility
|
|
$
|
156,286
|
|
|
$
|
163,301
|
|
Mezzanine debt
|
|
|
25,680
|
|
|
|
25,814
|
|
Mortgage loan and line of credit
|
|
|
122
|
|
|
|
|
|
Unsecured line of credit
|
|
|
352
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
182,440
|
|
|
$
|
189,581
|
|
|
|
|
|
|
|
|
|
|
Unused amount of senior revolving credit facility, subject to
borrowing base
|
|
$
|
11,214
|
|
|
$
|
61,699
|
|
|
|
|
|
|
|
|
|
|
|
The senior revolving credit facility consisted of senior secured
maximum available borrowings totaling $167,500 and $225,000 at
December 31, 2009 and 2010, respectively. The Company
renewed and increased the senior revolving credit facility in
August 2010. The new senior revolving credit facility bears
interest at rates equal to LIBOR plus an applicable margin
(3.25% at December 31, 2010) which varies based on a
borrowing base ratio (with a LIBOR minimum of 1.0%) or the prime
rate plus 2.25% as elected by the Company. The Company also pays
an unused line fee of .50% per annum, payable monthly. Interest
payments are due monthly and the agreement expires
August 25, 2013. Advances on this agreement are at 85% of
eligible finance receivables. The senior revolving credit
facility is secured by substantially all of the Companys
finance receivables. The senior revolving credit facility
agreement contains certain restrictive covenants, including
maintenance of a specified interest coverage ratio, restrictions
on distributions, limitations on additional borrowings, debt
ratio, maintenance of a minimum allowance for loan losses, and
certain other restrictions. At December 31, 2010, the
Company was in compliance with all debt covenants.
As of December 31, 2010, the mezzanine debt was a $25,814
loan from one of the Companys sponsors and three
individual owners maturing October 25, 2013, secured by a
junior lien on substantially all of the Companys finance
receivables. This agreement is subordinated to the senior bank
debt. The proceeds of this debt were used to retire the
mezzanine debt of the same amount to an unrelated lender. The
interest rate is 15.25% per annum, of which 2% is payable in
kind at the Companys option. Through the date of the
refinancing, the Company deferred $814 in interest payments to
the unrelated lender. The mezzanine loan agreement contains
certain restrictive covenants, including maintenance of a
specified interest coverage ratio, a restriction on
distributions, limitations on additional borrowings, debt ratio,
maintenance of a minimum allowance for loan losses, and certain
other restrictions. At December 31, 2010, the Company was
in compliance with all debt covenants.
In 2009, the Company was obligated on a mortgage loan secured by
a branch office. The Company relocated to a new location during
2010, sold the branch office, and retired the mortgage debt.
The Company has a $500 unsecured line of credit with a
commercial bank to facilitate its cash management program. The
interest rate is prime plus 1% and interest is payable monthly.
The line of credit matures July 31, 2011 and there are no
restrictive covenants associated with this line of credit.
The
one-month
LIBOR was 0.25% and 0.375% at December 31, 2009 and 2010,
respectively, although under the new senior revolving credit
facility the minimum LIBOR rate is 1.0%. The prime rate was
3.25% at December 31, 2009 and 2010.
F-19
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Following is a summary of principal payments required on
outstanding debt during each of the next 5 years:
|
|
|
|
|
|
|
YEAR ENDING DECEMBER 31,
|
|
AMOUNT
|
|
|
2011
|
|
$
|
466
|
|
2012
|
|
|
|
|
2013
|
|
|
189,115
|
|
2014
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
189,581
|
|
|
|
|
|
|
|
Note 6.
Temporary Equity
The shareholders agreement between the Company, Regional
Holdings LLC, the sponsors and the individual owners provides
that the individual owners have the right to put their stock
back to the Company if an initial public offering does not occur
within five years of the acquisition date, March 21, 2007.
The put option is exercisable for 90 days following
March 21, 2012. The purchase price of the stock is the then
fair value, and the option is subject to contingencies,
principally failure to complete an initial public offering and
approval of the senior lender. The Company valued this put
option at the original purchase price of $12,000. The proposed
initial public offering makes it probable that the put option
will not become exercisable. There are 2,196,877 shares
owned by the individual owners.
F-20
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Note 7.
Income Taxes
Regional Management Corp. and its subsidiaries file a
consolidated federal income tax return. The Company files
consolidated or separate state income tax returns as permitted
by individual states in which it operates.
Income tax expense was $2,276, $4,472, and $9,178 for the years
ended December 31, 2008, 2009, and 2010, respectively,
which differed from the amount computed by applying the
U.S. federal income tax rate of 34% for the years ended
December 31, 2008 and 2009, and 35% for the year ended
December 31, 2010 to total income before income taxes as a
result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
U. S. federal tax expense at statutory rate
|
|
$
|
2,977
|
|
|
$
|
4,877
|
|
|
$
|
8,968
|
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Small insurance company income exclusion
|
|
|
(568
|
)
|
|
|
(583
|
)
|
|
|
(444
|
)
|
State tax, net of federal benefit
|
|
|
209
|
|
|
|
360
|
|
|
|
569
|
|
Other
|
|
|
(342
|
)
|
|
|
(182
|
)
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,276
|
|
|
$
|
4,472
|
|
|
$
|
9,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense attributable to total income before income
taxes consists of the following for the years ended
December 31, 2008, 2009, and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. federal
|
|
$
|
2,967
|
|
|
$
|
4,024
|
|
|
$
|
5,732
|
|
State and local
|
|
|
492
|
|
|
|
546
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,459
|
|
|
|
4,570
|
|
|
|
6,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. federal
|
|
|
(1,007
|
)
|
|
|
(83
|
)
|
|
|
2,553
|
|
State and local
|
|
|
(176
|
)
|
|
|
(15
|
)
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,183
|
)
|
|
|
(98
|
)
|
|
|
2,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,276
|
|
|
$
|
4,472
|
|
|
$
|
9,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Net deferred tax assets consist of the following as of
December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
6,340
|
|
|
$
|
6,587
|
|
Unearned insurance commissions
|
|
|
840
|
|
|
|
1,172
|
|
Non-refundable dealer fees
|
|
|
554
|
|
|
|
813
|
|
Stock-based compensation
|
|
|
496
|
|
|
|
636
|
|
Fair value adjustment on interest rate cap
|
|
|
|
|
|
|
329
|
|
Amortization of non-compete
|
|
|
248
|
|
|
|
227
|
|
Group insurance reserve
|
|
|
98
|
|
|
|
135
|
|
Accrued expenses
|
|
|
|
|
|
|
129
|
|
Unearned insurance premium reserves
|
|
|
66
|
|
|
|
63
|
|
Book over tax depreciation and amortization
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
8,885
|
|
|
|
10,091
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fair market value adjustment of finance receivables
|
|
|
|
|
|
|
4,394
|
|
Deferred loan costs
|
|
|
1,240
|
|
|
|
1,161
|
|
Tax over book depreciation
|
|
|
|
|
|
|
66
|
|
Prepaid expenses
|
|
|
4
|
|
|
|
|
|
Fair value adjustment on interest rate cap
|
|
|
154
|
|
|
|
|
|
Other
|
|
|
181
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
1,579
|
|
|
|
5,715
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
7,306
|
|
|
$
|
4,376
|
|
|
|
|
|
|
|
|
|
|
|
Note 8.
Earnings Per Share
The following schedule reconciles the computation of basic and
diluted earnings per share for the years ended December 31,
2008, 2009, and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
6,479
|
|
|
|
9,336,727
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
145,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
6,479
|
|
|
|
9,482,604
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
9,873
|
|
|
|
9,336,727
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
253,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
9,873
|
|
|
|
9,590,564
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
16,444
|
|
|
|
9,336,727
|
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
332,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
16,444
|
|
|
|
9,669,618
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9.
Related Party Transactions
The Company is majority owned by two sponsors. Following is a
summary of transactions during the years ended December 31,
2008, 2009, and 2010 with the sponsors and the individual owners
who retain an interest in the Company.
|
|
|
|
|
|
|
|
|
|
|
|
INDIVIDUAL
|
|
|
|
|
OWNERS
|
|
SPONSORS
|
|
2008:
|
|
|
|
|
|
|
|
|
Consulting and advisory fees expense
|
|
$
|
454
|
|
|
$
|
948
|
|
2009:
|
|
|
|
|
|
|
|
|
Consulting and advisory fees expense
|
|
|
454
|
|
|
|
809
|
|
2010:
|
|
|
|
|
|
|
|
|
Issuance of 15.25% mezzanine debt
|
|
|
5,000
|
|
|
|
20,814
|
|
Financing fees
|
|
|
20
|
|
|
|
83
|
|
Interest paid on mezzanine debt
|
|
|
210
|
|
|
|
864
|
|
Consulting and advisory fees expense
|
|
|
450
|
|
|
|
783
|
|
|
Note 10.
Concentrations of Credit Risk
The Companys portfolio of finance receivables is with
customers living in four southeastern states (Alabama, North
Carolina, South Carolina, and Tennessee) and one southwestern
state (Texas); consequently, such customers ability to
honor their installment contracts may be affected by economic
conditions in these areas. Additionally, the
F-23
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Company is exposed to a concentration of credit risk inherent in
providing consumer finance products to borrowers who cannot
obtain traditional bank financing. A majority of the
Companys loans are secured by household goods or
automobiles and the Company believes it has access to this
collateral through repossession. The ability to repossess
collateral mitigates this risk; however, as a matter of practice
the Company does not generally repossess household goods
collateral.
The Company also has a risk that its customers will seek
protection from creditors by filing under the bankruptcy laws.
When a customer files bankruptcy, the Company must cease
collection efforts and petition the bankruptcy court to obtain
its collateral or work out a court approved bankruptcy plan
involving the Company and all other creditors of the customer.
It is the Companys experience that such plans can take an
extended period of time to conclude and usually involve a
reduction in the interest rate from the rate in the contract to
a court-approved rate.
Note 11.
Employee Benefit Plans
Retirement savings plan: The Company has a defined
contribution employee benefit plan (401(k) plan) covering
full-time employees who have at least one year of service.
Employees can invest up to $16.5 ($22.0 if over
age 50) of their gross pay; the Company makes a
matching contribution equal to 50 percent of the first six
percent of employees gross income contributed to the plan.
The Companys matching contribution is discretionary and
subject to approval of the Compensation Committee. For the years
ended December 31, 2008, 2009, and 2010, the Company
recorded expense for the Companys match of $150, $122, and
$29, respectively.
Health insurance plan: The Company has a
self-insured health plan available to all full-time salaried
employees after one month of service. At the beginning of each
plan year, the Company estimates the total cost of health
insurance for the forthcoming year, allocates a portion of the
cost to plan participants, and pays the balance of the cost. The
Company has insurance to protect against claims in excess
individual and aggregate amounts. The Companys insurance
advisors estimate the reserve required for incurred, but not
reported claims which have been recorded in the consolidated
financial statements. The Companys expense for the years
ended December 31, 2008, 2009, and 2010 was $1,021, $1,479,
and $1,223, respectively.
Effective with the plan year beginning May 1, 2008, the
Company began offering a mini-med insurance plan for
newly hired hourly employees and hourly employees not then
participating in the self-insured plan. A portion of the premium
is paid by the employee and the balance by the Company. The
insurance company bears all risk of loss on this policy.
Discretionary bonuses: The Company pays
discretionary bonuses to certain of its officers. The amount of
bonuses charged to operating expenses was $544.0, $423.2, and
$675.0, for the years ended December 31, 2008, 2009, and
2010, respectively. Bonus payments are subject to approval by
the compensation committee.
Stock compensation plan: On March 21, 2007, the
Company adopted the 2007 Management Incentive Plan (the
Plan) pursuant to which the Companys Board of
Directors may grant options to purchase a maximum of
1.037 million shares of its $.10 par value common
stock. All grants are made at 100% of the fair value at the date
of grant. Options granted under the plan vest at 20 percent
at the date of grant and 20 percent on the anniversary date
of the grant each year thereafter for four years. In addition,
these options vest and become exercisable in full upon the
occurrence of a Change of Control (as defined in the Option
Award Agreements). Optionees must exercise their options within
ten and nine years of the grant, for the 2007 and 2008 grants,
respectively. No options were granted in 2009 or 2010.
F-24
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
The Company recognizes compensation expense in the financial
statements for all stock-based payments granted on or after
October 11, 2007 based upon the fair value estimated in
accordance with the provisions of the Codification.
The fair value of option grants is estimated on the grant date
using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
|
Expected volatility
|
|
|
37.48
|
%
|
|
|
37.48
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
|
|
|
10.00
|
|
|
|
9.00
|
|
Risk-free rate
|
|
|
4.50
|
%
|
|
|
3.77
|
%
|
Vesting period (in years)
|
|
|
4
|
|
|
|
4
|
|
|
Expected volatility is based on the historic volatility of a
publicly traded company in the same industry. The risk free
interest rate is based on the U.S. Treasury yield at the
date the Board approved the option awards for the period (9 to
10 years) over which options are exercisable.
For the years ended December 31, 2008, 2009, and 2010, the
Company recorded stock-based compensation expense in the amount
of $523.0, $359.9, and $359.9, respectively. As of
December 31, 2010, unrecognized stock-based compensation
expense to be recognized over future periods approximated
$212.6. This amount will be recognized as expense over a period
of 1.3 years. The total income tax benefit recognized in
the income statement for the stock-based compensation
arrangements was $204.3, 140.3, and $140.3 for the years ended
December 31, 2008, 2009, and 2010, respectively.
F-25
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
A summary of the status of the Companys stock option plan
is presented below (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
REMAINING
|
|
|
AGGREGATE
|
|
|
|
NUMBER OF
|
|
|
PRICE
|
|
|
CONTRACTUAL
|
|
|
INTRINSIC
|
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
LIFE (YEARS)
|
|
|
VALUE
|
|
|
Options outstanding at January 1, 2008
|
|
|
441
|
|
|
$
|
5.4623
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
221
|
|
|
|
5.4623
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(73
|
)
|
|
|
5.4623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008
|
|
|
589
|
|
|
$
|
5.4623
|
|
|
|
8.3
|
|
|
$
|
3,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2008
|
|
|
191
|
|
|
$
|
5.4623
|
|
|
|
8.3
|
|
|
$
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31, 2008
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008
|
|
|
589
|
|
|
$
|
5.4623
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
|
589
|
|
|
$
|
5.4623
|
|
|
|
7.3
|
|
|
$
|
5,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2009
|
|
|
309
|
|
|
$
|
5.4623
|
|
|
|
7.3
|
|
|
$
|
2,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31, 2009
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
|
589
|
|
|
$
|
5.4623
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2010
|
|
|
589
|
|
|
$
|
5.4623
|
|
|
|
6.3
|
|
|
$
|
9,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2010
|
|
|
427
|
|
|
$
|
5.4623
|
|
|
|
6.3
|
|
|
$
|
6,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31, 2010
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the options have a weighted-average
remaining contractual life of 6.3 years.
The intrinsic value was estimated by applying the Companys
operating metrics to those of a publicly traded company in the
same industry.
F-26
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Information on the vesting status of options outstanding at
December 31, 2009 and 2010, respectively, follows (shares
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
GRANT DATE
|
|
|
|
|
|
GRANT DATE
|
|
|
|
SHARES
|
|
|
FAIR VALUE
|
|
|
SHARES
|
|
|
FAIR VALUE
|
|
|
Non-vested options, beginning of the year
|
|
|
398
|
|
|
$
|
5.4623
|
|
|
|
280
|
|
|
$
|
5.4623
|
|
Granted
|
|
|
|
|
|
|
5.4623
|
|
|
|
|
|
|
|
5.4623
|
|
Vested
|
|
|
(118
|
)
|
|
|
5.4623
|
|
|
|
(118
|
)
|
|
|
5.4623
|
|
Forfeited
|
|
|
|
|
|
|
5.4623
|
|
|
|
|
|
|
|
5.4623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested options, end of the year
|
|
|
280
|
|
|
$
|
5.4623
|
|
|
|
162
|
|
|
$
|
5.4623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements: The Company has employment
contracts with two members of senior management and an
employment letter agreement with a third employee. These
contracts and agreement stipulate the payment of salary, bonus,
perquisites, and stock option awards to the affected individuals.
The Company has consulting agreements with three of its
individual owners. Consulting fees paid totaled $453.5, $453.5,
and $450.0, for the years ended December 31, 2008, 2009 and
2010, respectively.
Note 12.
Commitments and Contingencies
The Company is a defendant in various pending or threatened
lawsuits. These matters are subject to various legal proceedings
in the ordinary course of business. Each of these matters is
subject to various uncertainties and some of them may have an
unfavorable outcome to the Company. The Company has established
accruals for the matters that are probable and reasonably
estimable. The Company is not party to any legal proceedings
that management believes would have a materially adverse effect
on the Companys consolidated financial statements.
Note 13.
Restricted Assets
RMC Reinsurance, Ltd. is a wholly-owned life insurance
subsidiary of the Company. RMC Reinsurance is required to
maintain cash reserves against life insurance policies ceded to
it, as determined by the ceding company. In 2009, the Company
purchased a letter of credit in the amount of $888 in favor of
the ceding company. The letter of credit is secured by a cash
deposit of $888. The cash securing the letter of credit in 2009
and 2010 and the required reserves are presented as restricted
cash in the other asset category in the accompanying balance
sheets, which totaled $888 at December 31, 2009 and 2010.
Note 14.
Interest Rate Caps
On April 9, 2009 the Company purchased interest rate caps
with a notional amount of $30,000, a strike rate of 3.0%, and
equal maturities in April 2013, 2014, and 2015. On March 4,
2010, the company exchanged its $30,000 of interest rate caps
for a rate cap with a notional amount of $128,500, a strike rate
of 6.0%, and a maturity of March 4, 2014. There was no cost
associated with this exchange.
On November 5, 2010, the company purchased an additional
interest rate cap of $21,500, increasing its interest rate
coverage to $150,000. The strike rate and maturity of this
latter purchase are the same as the cap purchased on
March 4, 2010.
F-27
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Following is a summary of changes in the rate caps:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Balance at end of prior year
|
|
$
|
|
|
|
$
|
1,080
|
|
Purchases
|
|
|
800
|
|
|
|
43
|
|
Fair value adjustment included as an (increase) decrease in
interest expense
|
|
|
280
|
|
|
|
(843
|
)
|
|
|
|
|
|
|
|
|
|
Balance sheet at December 31, included in other assets
|
|
$
|
1,080
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
When three-month LIBOR exceeds six percent, the counter party
reimburses the Company for the excess over six percent; no
payment is required by the Company or the counterparty when
three-month LIBOR is below six percent.
Note 15.
Subsequent Event
On May 5, 2011, the Companys Board of Directors
approved the filing of a registration statement on
Form S-1
for an initial public offering of the Companys common
stock.
F-28
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
856
|
|
|
$
|
4,384
|
|
Gross finance receivables
|
|
|
318,991
|
|
|
|
304,840
|
|
Less unearned finance charges, insurance premiums and commissions
|
|
|
(71,745
|
)
|
|
|
(66,723
|
)
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
247,246
|
|
|
|
238,117
|
|
Less allowance for loan losses
|
|
|
(18,000
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
Net finance receivables
|
|
|
229,246
|
|
|
|
220,117
|
|
Premises and equipment, net of accumulated depreciation
|
|
|
3,069
|
|
|
|
3,366
|
|
Deferred tax asset, net
|
|
|
4,376
|
|
|
|
4,726
|
|
Repossessed assets at net realizable value
|
|
|
296
|
|
|
|
183
|
|
Other assets
|
|
|
3,515
|
|
|
|
4,727
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
241,358
|
|
|
$
|
237,503
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Cash overdraft
|
|
$
|
365
|
|
|
$
|
1,404
|
|
Accounts payable and accrued expenses
|
|
|
7,968
|
|
|
|
10,273
|
|
Senior revolving credit facility
|
|
|
163,301
|
|
|
|
151,347
|
|
Mezzanine debt to related parties
|
|
|
25,814
|
|
|
|
25,814
|
|
Other debt
|
|
|
466
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
197,914
|
|
|
|
189,034
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies:
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.10 per share; 25,000,000 shares
authorized; 9,336,727 issued and outstanding
|
|
|
934
|
|
|
|
934
|
|
Additional
paid-in-capital
|
|
|
27,959
|
|
|
|
28,049
|
|
Retained earnings
|
|
|
2,551
|
|
|
|
7,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,444
|
|
|
|
36,469
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
241,358
|
|
|
$
|
237,503
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
|
|
|
|
$
|
18,022
|
|
|
|
|
|
|
$
|
21,045
|
|
Insurance income, net
|
|
|
|
|
|
|
2,295
|
|
|
|
|
|
|
|
2,194
|
|
Other income
|
|
|
|
|
|
|
1,362
|
|
|
|
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
21,679
|
|
|
|
|
|
|
|
24,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
|
|
|
|
3,902
|
|
|
|
|
|
|
|
3,836
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
|
|
|
|
5,946
|
|
|
|
|
|
|
|
6,540
|
|
Occupancy
|
|
|
|
|
|
|
1,222
|
|
|
|
|
|
|
|
1,471
|
|
Advertising
|
|
|
|
|
|
|
547
|
|
|
|
|
|
|
|
647
|
|
Other
|
|
|
|
|
|
|
1,204
|
|
|
|
|
|
|
|
1,554
|
|
Consulting and advisory fees
|
|
|
|
|
|
|
308
|
|
|
|
|
|
|
|
310
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility and other debt
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
|
|
1,763
|
|
Mezzanine debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
|
|
|
|
|
984
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
|
|
|
|
2,468
|
|
|
|
|
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
15,597
|
|
|
|
|
|
|
|
17,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
6,082
|
|
|
|
|
|
|
|
7,579
|
|
Income taxes
|
|
|
|
|
|
|
2,129
|
|
|
|
|
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
3,953
|
|
|
|
|
|
|
$
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
|
0.42
|
|
|
|
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
$
|
0.41
|
|
|
|
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
9,336,727
|
|
|
|
|
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
9,606,178
|
|
|
|
|
|
|
|
9,648,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-30
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,953
|
|
|
$
|
4,935
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
3,902
|
|
|
|
3,836
|
|
Depreciation and amortization
|
|
|
293
|
|
|
|
305
|
|
Amortization of stock compensation expense
|
|
|
90
|
|
|
|
90
|
|
Fair value adjustment on interest rate caps
|
|
|
439
|
|
|
|
21
|
|
Payment of in-kind interest on mezzanine debt
|
|
|
128
|
|
|
|
|
|
Deferred income taxes
|
|
|
150
|
|
|
|
(350
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
116
|
|
|
|
(1,157
|
)
|
Other liabilities
|
|
|
2,100
|
|
|
|
2,305
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
11,171
|
|
|
|
9,985
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Finance receivables repaid
|
|
|
10,497
|
|
|
|
5,293
|
|
Purchase of furniture and equipment
|
|
|
(194
|
)
|
|
|
(565
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
10,303
|
|
|
|
4,728
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Increase in cash overdraft
|
|
|
744
|
|
|
|
1,039
|
|
Net payments on senior revolving credit facility
|
|
|
(24,591
|
)
|
|
|
(11,954
|
)
|
Issuance (payments) on subordinated debt and other notes, net
|
|
|
117
|
|
|
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(23,730
|
)
|
|
|
(11,185
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(2,256
|
)
|
|
|
3,528
|
|
Cash
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
3,018
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
762
|
|
|
$
|
4,384
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
|
|
|
|
|
|
|
Paid to third parties
|
|
$
|
1,676
|
|
|
$
|
1,731
|
|
|
|
|
|
|
|
|
|
|
Paid to related parties
|
|
$
|
|
|
|
$
|
957
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes
|
|
$
|
160
|
|
|
$
|
1,949
|
|
|
|
|
|
|
|
|
|
|
Issuance of mezzanine debt in lieu of cash interest payments
|
|
$
|
128
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-31
(Unaudited)
Note 1.
Basis of Presentation
Basis of presentation: The consolidated financial
statements of Regional Management Corp. (the
Company) at March 31, 2011 and for the three
months ended March 31, 2010 and 2011 are unaudited and have
been prepared in conformity with Financial Accounting Standards
Board (FASB) Accounting Standards Codification
(ASC) 270, Interim Reporting. In the opinion of
management include all adjustments, all of which are normal,
recurring adjustments that are necessary for a fair presentation
of the financial position at March 31, 2011 and the results
of operations and cash flows for the three month periods ended
March 31, 2010 and 2011.
The accompanying financial statements have been prepared in
accordance with the accounting policies stated in the
Companys audited financial statements for the year ended
December 31, 2010 and should be read in conjunction with
the notes to those consolidated financial statements. The
consolidated balance sheet data as of December 31, 2010 was
derived from the Companys audited financial statements,
but does not include all disclosures required by accounting
principles generally accepted in the United States of America.
Note 2.
Nature of Business and Significant Accounting Policies
Nature of business: The Company was incorporated and
began operations in 1987. The Company is engaged in the consumer
finance business, offering small installment loans, large
installment loans, automobile purchase loans, furniture and
appliance purchase loans, related credit insurance, and
ancillary products and services. As of March 31, 2011, the
Company operates offices in 146 locations in the states of
Alabama (10 offices), North Carolina (21 offices), South
Carolina (66 offices), Tennessee (12 offices), and Texas (37
offices) under the brand names Regional Finance, RMC Financial
Services, Anchor Finance, and Sun Finance. In the three months
ended March 31, 2011, the Company opened 11 offices and
made one small branch acquisition.
Principles of consolidation: The consolidated
financial statements include the accounts of Regional Management
Corp. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. The Company operates through a separate
subsidiary in each state.
The accounting and reporting policies of the Company are in
accordance with accounting principles generally accepted in the
United States of America and conform to general practices within
the consumer finance industry.
The following is a description of significant accounting
policies used in preparing the financial statements.
Use of estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses,
fair value of stock-based compensation, and the valuation of
deferred tax assets.
Business segments: The Company reports operating
segments in accordance with FASB ASC Topic 280. Operating
segments are components of an enterprise about which separate
financial information is available that is evaluated regularly
by the chief operating decision maker in determining how to
allocate resources and assess performance. FASB ASC Topic 280
requires that a public enterprise report a measure of segment
profit or loss, certain specific
F-32
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
revenue and expense items, segment assets, information about the
way operating segments were determined, and other items.
The Company has one reportable segment, which is the consumer
finance business. The other revenue generating activities of the
Company, including insurance operations and income tax
preparation, are done in the existing branch network in
conjunction with or as a complement to the consumer finance
operations. There is no discrete financial information available
for these activities and they do not meet the criteria under
FASB ASC Topic 280 to be reported separately.
Cash and statement of cash flows: Cash flows from
loan operations and short-term borrowings are reported on a net
basis.
Finance receivables: The Company offers four types
of consumer loans. Small installment loan receivables are direct
loans to customers and are secured by non-essential household
goods and include live check loans, which are checks mailed to
customers based on a rigorous pre-screening process that
includes a review of the prospective customers credit
profile provided by one of the national credit reporting
bureaus. Large installment loan receivables are direct loans to
customers and are secured by automobiles or other vehicles in
addition to non-essential household goods. Automobile purchase
loan receivables consist of direct loans, which are originated
at the dealership and closed in one of our branches, and
indirect loans, which are originated and closed at a dealership
in our network without the need for the customer to visit one of
our branches. In each case, these automobile purchase loans are
collateralized primarily by used and some new automobiles, which
are initiated by and purchased from automobile dealerships,
subject to the Companys credit approval. Furniture and
appliance purchase loan receivables consist principally of
retail installment sales contracts collateralized by the
furniture purchased, which are initiated by and purchased from
furniture retailers, subject to the Companys credit
approval.
Loan losses: Provisions for loan losses are charged
to income as losses are estimated to have occurred and in
amounts sufficient to maintain an allowance for loan losses at
an adequate level to provide for losses on the finance
receivables. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the
allowance. Loan loss experience, average loan life, and
contractual delinquency of finance receivables by loan type, the
value of underlying collateral, and managements judgment
are factors used in assessing the overall adequacy of the
allowance and the resulting provision for loan losses. While
management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary
if there are significant changes in economic conditions or
portfolio performance. This evaluation is inherently subjective,
as it requires estimates that are susceptible to significant
revisions as more information becomes available.
The allowance consists of allocated and general components. The
allocated component relates to loans that are considered
impaired. The Company fully reserves for all loans at the date
that the loan is contractually delinquent 180 days. The
Company only initiates repossession proceedings when an account
is seriously delinquent and in the opinion of management, the
customer is unlikely to make further payments. Since 2010, the
Company has sold substantially all repossessed vehicle inventory
through public sales conducted by independent automobile auction
organizations after the required post-repossession waiting
period. Vehicles held for sale at the office location are
generally taken to an auction if not sold within 90 days of
obtaining title. Losses on the sale of repossessed collateral
are charged to the allowance for loan losses.
F-33
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
The Companys allowance for loan losses has three
components. The following is a description of the components of
the allowance for loan losses:
|
|
|
|
n
|
Most recent twelve months of historical losses are used to
estimate the allowance for large installment loans (loans in
excess of $2,500), automobile purchase loans, and all furniture
and appliance purchase loans
|
|
|
|
|
n
|
Most recent eight months of historical losses are used to
estimate the allowance for small installment loans, including
live checks (loans of $2,500 or less)
|
|
|
|
|
n
|
An unallocated allowance amount
|
Automobile purchase, furniture and appliance purchase, and large
installment loans have longer maturities than small installment
loans, which is why a shorter period is used for small
installment loan losses.
Impaired loans: The Company does not have impaired
loans as defined by FASB ASC Topic 310, except accounts 180 or
more days contractually delinquent, which are fully reserved for
as described above. In accordance with the Companys
charge-off policy, once a loan is deemed uncollectible, 100% of
the net investment is charged-off.
The factors used to determine whether an account is
uncollectible are the age of the account, supervisory review of
collection efforts, and other factors such as customers
relocating to an area where collection is not practical. As of
March 31, 2011, bankrupt accounts that had not been
charged-off were approximately $2.7 million. Such accounts
are evaluated collectively for impairment along with the rest of
the portfolio of finance receivables. Of the total
$2.7 million of bankrupt accounts at March 31, 2011,
$214 are more than 180 days delinquent and thus fully
reserved. For customers with a confirmed bankruptcy plan, we
receive payments through the bankruptcy court. For customers who
recently filed bankruptcy, the Company generally does not
receive any payments until their bankruptcy plan in confirmed by
the court. If the customers have made payments to the trustee in
advance of plan confirmation, the Company may receive a lump sum
payment from the trustee once the plan is confirmed. This lump
sum payment represents the Companys pro-rata share of the
amount paid by the customer. If a customer files for bankruptcy
under Chapter 7 of the bankruptcy code, the customers
entire debt is cancelled. In such cases, the Company charges off
the account upon receiving notice from the bankruptcy court. If
a vehicle secures a Chapter 7 bankruptcy account, the
customer has the option of buying the vehicle at fair value or
reaffirming the loan and continuing to pay the loan.
At March 31, 2011, approximately $214 of the 180 days
or more past due accounts are customers in bankruptcy. The
remainder of the 180+ past due accounts are those of which
operations personnel are of the view that some
F-34
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
portion can be collected. Following is a chart of the maturity
of accounts that are 180 days or more that are past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, 2011
|
|
|
|
NON-
|
|
|
CUSTOMERS
|
|
|
TOTAL 180+
|
|
|
|
BANKRUPT
|
|
|
IN
|
|
|
PAST DUE
|
|
|
|
CUSTOMERS
|
|
|
BANKRUPTCY
|
|
|
ACCOUNTS
|
|
|
Accounts at least 180 days but less than one year contractually
delinquent
|
|
$
|
937
|
|
|
$
|
187
|
|
|
$
|
1,124
|
|
Accounts at least one year but less than two years contractually
delinquent
|
|
|
39
|
|
|
|
22
|
|
|
|
61
|
|
Accounts at least two years contractually delinquent
|
|
|
1
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
977
|
|
|
$
|
214
|
|
|
$
|
1,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency: The Company determines past due status
using the contractual terms of the loan. This is the credit
quality indicator used to evaluate the allowance for loan losses
for each class of finance receivables.
Repossessed assets: Repossessed collateral is valued
at the lower of the receivable balance on the loan prior to
repossession or estimated net realizable value. Management
estimates net realizable value at the projected cash value upon
liquidation, less costs to sell the related collateral.
Premises and equipment: The Company owns its
headquarters buildings. During 2010, the Company sold the only
branch office that it owned. Offices are leased under
non-cancellable leases. Office buildings are depreciated on the
straight-line method for financial reporting purposes over their
estimated useful lives of 39 to 40 years. Furniture and
equipment are depreciated on the straight-line method over their
estimated useful lives, generally three to five years. Leasehold
improvements are depreciated over the shorter of the life of the
asset or the remaining term of the lease agreement. Maintenance
and repairs are charged to expense as incurred.
Income recognition: Interest income is recognized
using the interest (actuarial) method, also known as the
constant yield method. Therefore, the Company recognizes revenue
from interest at an equal rate over the term of the loan.
Unearned finance charges on pre-compute contracts are rebated to
customers utilizing the Rule of 78s method. The difference
between income recognized under the constant yield method and
the Rule of 78s method is recognized as an adjustment to
interest income at the time of rebate. Accrual of interest
income on finance receivables is suspended when no payment has
been received for 90 days or more on a contractual basis.
The accrual of income is not resumed until one or more full
contractual monthly payments are received and the finance
receivable is less than 90 days contractually delinquent.
Interest income is suspended on finance receivables for which
collateral has been repossessed. Payments received on loans in
nonaccrual status are first applied to interest, then to any
late charges or other fees, with any remaining amount applied to
principal.
The Company recognizes income on credit insurance products using
the constant yield method over the life of the related loan.
Rebates are computed using the Rule of 78s method and any
difference between the constant yield method and the Rule of 78s
is recognized in income at the time of rebate.
The Company charges a fee to automobile dealers for each loan it
purchases from that dealer. The Company defers this fee and
accretes it to income using a method that approximates the
constant yield method.
F-35
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Charges for late fees are recognized as income when accrued.
Loan origination fees and costs: Non-refundable fees
received and direct costs incurred for the origination of
finance receivables are deferred and amortized to interest
income over the contractual lives of the loans using the
constant yield method. Unamortized amounts are recognized in
income at the time that loans are paid in full.
Insurance operations: Insurance operations include
revenue and expense from the Companys sale of optional
insurance products to its customers. These optional products
include credit life, credit accident and health, property
insurance, and involuntary unemployment insurance. Insurance
premiums are remitted to an unaffiliated company that issues the
policy to the customer. This company cedes the premiums to the
Companys wholly-owned insurance subsidiary, RMC
Reinsurance, Ltd. Life insurance premiums are ceded to the
Company as written, non-life products are ceded as earned. The
premiums and commissions received by the Company are deferred
and amortized to income over the life of the insurance policy
using the constant yield method.
In 2009, the Company began a collateral protection collision
insurance (CPI) program in one state. CPI is added
to a loan when a customer fails to provide the Company proof of
collision insurance on an automobile securing a loan. The CPI
program is administered by an independent third party, which
tracks insurance lapses and cancellations and issues a policy
when the customer does not provide proof of insurance. The
insurance is added to the loan and increases the customers
monthly loan payment. The third party and its insurance partner
retain a percentage of the premium and pay all claims. The
Company earns a percentage of the premium and will earn
additional income if losses are less than estimated by the
independent third party. Income is recognized on the constant
yield method over the life of the insurance policy, which is
generally one year.
Non-file insurance is written in lieu of recording and
perfecting the Companys security interest in the assets
pledged on certain loans. Non-file insurance and the related
insurance premiums, claims, and recoveries are not reflected in
the accompanying financial statements except when claims are
incurred. Non-file insurance premiums are collected from the
borrower on certain loans at inception and renewal and remitted
directly to the unaffiliated insurance company.
The Company maintains a cash reserve for life insurance claims
in an amount determined by the ceding company. The cash reserve
secures a letter of credit issued by a commercial bank in favor
of the ceding company. The ceding company maintains the reserves
for non-life claims.
Reinsurance balances and transactions: Reinsurance
is accounted for over the terms of the underlying reinsured
policies using assumptions consistent with those used to account
for the policies.
Interest rate caps: In 2009, the Company purchased
three interest rate caps with notional amounts of $10,000 each.
The Company purchased the caps to protect a portion of its
senior revolving credit facility from increases in interest
rates above the strike rate of the cap. In early 2010, the
Company exchanged its $30,000 notional cap for a cap with a
notional amount of $128,500, a strike rate of 6.0%, and a
maturity of March 2014. There was no cost related to this
exchange. In late 2010, the Company purchased an additional cap
increasing the total interest rate protection to $150,000 on the
same terms as the exchanged cap. At March 31, 2011, the
caps are based on the three-month LIBOR contract and reimburse
the Company for the difference when three-month LIBOR exceeds
six percent. The carrying value of the caps, are adjusted to
fair value. For the three months ended March 31, 2010 and
2011, the Company recorded unfavorable fair value adjustments of
$439 and $21, respectively as increases in interest expense.
F-36
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
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 effects of future tax rate changes
are recognized in the period when the enactment of new rates
occurs.
When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a
tax position is recognized in the financial statements in the
period during which, based on all available evidence, it is more
likely than not that, the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50% likely of
being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described
above is reflected as a liability for unrecognized tax benefits
in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing
authorities upon examination.
The Company files U.S. federal and various state income tax
returns. The Company is generally no longer subject to
U.S. federal or state and local income tax examinations by
taxing authorities before 2007, with the exception of Texas,
which is 2006.
The Internal Revenue Service (IRS) concluded an
examination of the Companys 2007 and 2008 tax returns in
early 2010. The amount assessed by the IRS was not material to
the consolidated financial statements.
Earnings per share: Earnings per share have been
computed based on the weighted-average number of common shares
outstanding during each year presented. Common shares issuable
upon the exercise of the stock-based compensation, which are
computed using the treasury stock method, are included in the
computation of diluted earnings per share.
Government regulation: The Company is subject to
various state and federal laws and regulations, which, among
other things, impose limits on interest rates, other charges,
and insurance premiums and require licensing and qualifications.
Congress recently passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act. Among other provisions, the bill
created the Consumer Financial Protection Bureau
(CFPB). The CFPB has the authority to promulgate
regulations that could affect the Companys business. The
CFPB has not issued any regulations to date and the Company is
not aware of any pending regulations that might affect its
business.
Subsequent events: The Company has evaluated its
subsequent events (events occurring after March 31,
2011) through June 22, 2011, which represents the date
the financial statements were issued.
Disclosure about fair value of financial
instruments: The following methods and assumptions were
used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Finance receivables: Finance receivables are
originated either at prevailing market rates or at statutory
limits. The Companys loan portfolio turns approximately
1.2 times per year from cash payments and renewal of loans.
Management believes that the carrying value approximates the
fair value of its loan portfolio.
F-37
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Interest rate caps: The fair value of the interest
rate caps is the estimated amount the Company would receive to
terminate the cap agreements at the reporting date, taking into
account current interest rates and the creditworthiness of the
counterparty for assets and creditworthiness of the Company for
liabilities.
Debt: The Company refinanced its senior revolving
credit facility in August 2010 and as a result of the
refinancing believes that the fair value of this variable rate
debt approximates its carrying value at December 31, 2010
and March 31, 2011. The Company also refinanced its
mezzanine debt in August 2010 and estimates that the fixed
interest rate on the mezzanine debt exceeds the estimated market
interest rate for similar debt, resulting in a fair value in
excess of the carrying amount. The Company also considered its
creditworthiness in its determination of fair value.
The estimated carrying and fair values of the Companys
financial instruments as of December 31, 2010 and
March 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
MARCH 31, 2011
|
|
|
|
CARRYING AMOUNT
|
|
|
FAIR VALUE
|
|
|
CARRYING AMOUNT
|
|
|
FAIR VALUE
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Cash
|
|
$
|
856
|
|
|
$
|
856
|
|
|
$
|
4,384
|
|
|
$
|
4,384
|
|
Restricted cash
|
|
|
888
|
|
|
|
888
|
|
|
|
888
|
|
|
|
888
|
|
Net finance receivables
|
|
|
229,246
|
|
|
|
229,246
|
|
|
|
220,117
|
|
|
|
220,117
|
|
Interest rate caps
|
|
|
280
|
|
|
|
280
|
|
|
|
259
|
|
|
|
259
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility
|
|
|
163,301
|
|
|
|
163,301
|
|
|
|
151,347
|
|
|
|
151,347
|
|
Mezzanine
|
|
|
25,814
|
|
|
|
26,697
|
|
|
|
25,814
|
|
|
|
26,647
|
|
Other
|
|
|
466
|
|
|
|
466
|
|
|
|
196
|
|
|
|
196
|
|
|
The Company follows the provisions of
ASC 820-10.
ASC 820-10
applies to all assets and liabilities that are being measured
and reported on a fair value basis.
ASC 820-10
requires disclosure that establishes a framework for measuring
fair value in GAAP, and expands disclosure about fair value
measurements. This statement enables the reader of the financial
statements to assess the inputs used to develop those
measurements by establishing a hierarchy for ranking the quality
and reliability of the information used to determine fair
values. The statement requires that assets and liabilities
carried at fair value be classified and disclosed in one of the
following three categories:
Level 1 Quoted market prices in active markets
for identical assets or liabilities.
Level 2 Observable market based inputs or
unobservable inputs that are corroborated by market data.
Level 3 Unobservable inputs that are not
corroborated by market data.
In determining the appropriate levels, the Company performs a
detailed analysis of the assets and liabilities that are subject
to
ASC 820-10.
At each reporting period, all assets and liabilities for which
the fair value measurement is based on significant unobservable
inputs are classified as Level 3.
F-38
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
The table below presents the balances of assets measured at fair
value on a recurring basis by level within the hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST RATE CAPS (INCLUDED IN OTHER ASSETS)
|
|
|
|
|
QUOTED
|
|
|
|
|
|
|
|
|
PRICES IN
|
|
|
|
|
|
|
|
|
ACTIVE
|
|
SIGNIFICANT
|
|
|
|
|
|
|
MARKETS FOR
|
|
OTHER
|
|
SIGNIFICANT
|
|
|
|
|
IDENTICAL
|
|
OBSERVABLE
|
|
UNOBSERVABLE
|
|
|
|
|
ASSETS
|
|
INPUTS
|
|
INPUTS
|
|
|
TOTAL
|
|
(LEVEL 1)
|
|
(LEVEL 2)
|
|
(LEVEL 3)
|
|
December 31, 2010
|
|
$
|
280
|
|
|
$
|
|
|
|
$
|
280
|
|
|
$
|
|
|
March 31, 2011(unaudited)
|
|
|
259
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
The following methods and assumptions were used to estimate the
fair value of each asset subject to
ASC 820-10
for which it is carried at fair value on a nonrecurring basis:
Certain assets and liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at
fair value on an ongoing basis but are subject to fair value
adjustments in certain circumstances (for example, when there is
evidence of impairment). The following table presents the assets
carried on the balance sheet by level within the hierarchy as of
December 31, 2010 and March 31, 2011 for which a
nonrecurring change in fair value has been recorded during the
year ended December 31, 2010 and the three months ended
March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPOSSESSED ASSETS
|
|
|
|
|
QUOTED
|
|
|
|
|
|
|
|
|
|
|
PRICES IN
|
|
|
|
|
|
|
|
|
|
|
ACTIVE
|
|
|
|
|
|
|
|
|
|
|
MARKETS
|
|
SIGNIFICANT
|
|
|
|
|
|
|
|
|
FOR
|
|
OTHER
|
|
SIGNIFICANT
|
|
|
|
|
|
|
IDENTICAL
|
|
OBSERVABLE
|
|
UNOBSERVABLE
|
|
|
|
|
|
|
ASSETS
|
|
INPUTS
|
|
INPUTS
|
|
TOTAL
|
|
|
TOTAL
|
|
(LEVEL 1)
|
|
(LEVEL 2)
|
|
(LEVEL 3)
|
|
LOSSES
|
|
December 31, 2010
|
|
$
|
296
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
296
|
|
|
$
|
218
|
|
March 31, 2011(unaudited)
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
218
|
|
|
Accounting pronouncements issued and adopted: In
July 2010, the FASB issued Accounting Standards Update (ASU)
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses. ASU
2010-20
requires more robust and disaggregated disclosures about the
credit quality of financing receivables and allowances for
credit losses, including disclosure about credit quality
indicators, past due information and modifications of finance
receivables. The disclosures required as of the end of a
reporting period and certain items related to activity during
the year were adopted in 2010, which significantly expanded the
existing disclosure requirements, but did not have any impact on
the Companys consolidated financial position, results of
operations, or cash flows. The remaining amendments that require
disclosures about activity that occurs during a reporting period
are effective for periods beginning on or after
December 15, 2010 and were adopted January 1, 2011 and
did not have an impact on the Companys consolidated
financial position, results of operations or cash flows.
F-39
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Accounting pronouncements issued, not yet
adopted: In October 2010, the FASB issued ASU
2010-26,
Accounting for Costs Associated with Acquiring or Renewing
Insurance Contracts. ASU
2010-26
modifies the definitions of the type of costs incurred by
insurance entities that can be capitalized in the successful
acquisition of new and renewal contracts. ASU
2010-26
requires incremental direct costs of successful contract
acquisition as well as certain costs related to underwriting,
policy issuance and processing, medical and inspection and sales
force contract selling for successful contract acquisition to be
capitalized. These incremental direct costs and other costs are
those that are essential to the contract transaction and would
not have been incurred had the contract transaction not
occurred. This guidance is effective for the Company for the
year beginning January 1, 2012 and may be applied
prospectively or retrospectively. The Company does not expect
the adoption of this guidance to have a material impact on the
Companys consolidated financial position, results of
operations, cash flows, or disclosures.
In April 2011, the FASB issued ASU
2011-02,
Receivables (Topic 310): A Creditors Determination of
Whether a Restructuring Is a Troubled Debt Restructuring.
The ASU clarifies which loan modifications constitute
troubled debt restructurings. It is intended to assist creditors
in determining whether a modification of the terms of a
receivable meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss
and for disclosure of troubled debt restructurings. This ASU is
effective for interim and annual periods beginning on or after
June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal
year of adoption. The Company does not expect the adoption of
this guidance to have a material impact on the Companys
consolidated financial position, results of operations, cash
flows, or disclosures.
In May 2011, the FASB issued ASU 2011-04, Fair Value
Measurement, which aligns disclosures related to fair value
between U.S. GAAP and International Financial Reporting
Standards. The ASU includes changes to the wording used to
describe many of the requirements in U.S. GAAP for measuring
fair value and changes to the disclosure of information about
fair value measurements. More specifically, the changes clarify
the intent of the FASB regarding the application of existing
fair value measurements and disclosures as well as changing some
particular principles or requirements for measuring fair value
or for disclosing information about fair value measurements.
This ASU is effective for interim and annual periods beginning
after December 15, 2011. The Company does not expect the
adoption of this guidance to have a material impact on its
consolidated financial statements.
Note 3.
Finance Receivables, Credit Quality Information, and Allowance
for Loan Losses
Finance receivables at December 31, 2010 and March 31,
2011 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
MARCH 31, 2011
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Small installment loans
|
|
$
|
117,599
|
|
|
$
|
99,623
|
|
Large installment loans
|
|
|
33,653
|
|
|
|
32,669
|
|
Automobile purchase loans
|
|
|
93,232
|
|
|
|
102,164
|
|
Furniture and appliance purchase loans
|
|
|
2,762
|
|
|
|
3,661
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
247,246
|
|
|
$
|
238,117
|
|
|
|
|
|
|
|
|
|
|
|
F-40
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Changes in the allowance for loan losses for the three months
ended March 31, 2010 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
|
MARCH 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
Balance at beginning of period
|
|
$
|
18,441
|
|
|
$
|
18,000
|
|
Provision for loan losses
|
|
|
3,902
|
|
|
|
3,836
|
|
Finance receivables charged off
|
|
|
(4,486
|
)
|
|
|
(4,004
|
)
|
Recoveries
|
|
|
118
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
17,975
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the allowance for loan
losses by component for the year ended December 31, 2010
and the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOAN
|
|
|
OF LOAN
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
BALANCE
|
|
|
BALANCE
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2010
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
8,022
|
|
|
$
|
10,642
|
|
|
$
|
(10,068
|
)
|
|
$
|
295
|
|
|
$
|
8,891
|
|
|
$
|
117,599
|
|
|
|
7.6
|
%
|
Large installment loans
|
|
|
2,700
|
|
|
|
2,685
|
|
|
|
(2,588
|
)
|
|
|
61
|
|
|
|
2,858
|
|
|
|
33,653
|
|
|
|
8.5
|
%
|
Automobile purchase loans
|
|
|
7,517
|
|
|
|
2,457
|
|
|
|
(4,738
|
)
|
|
|
103
|
|
|
|
5,339
|
|
|
|
93,232
|
|
|
|
5.7
|
%
|
Furniture and appliance purchase loans
|
|
|
7
|
|
|
|
208
|
|
|
|
(75
|
)
|
|
|
1
|
|
|
|
141
|
|
|
|
2,762
|
|
|
|
5.1
|
%
|
Unallocated
|
|
|
195
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,441
|
|
|
$
|
16,568
|
|
|
$
|
(17,469
|
)
|
|
$
|
460
|
|
|
$
|
18,000
|
|
|
$
|
247,246
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
OF FINANCE
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
DECEMBER 31,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
MARCH 31,
|
|
|
MARCH 31,
|
|
|
MARCH 31,
|
|
|
|
2010
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
Small installment loans
|
|
$
|
8,891
|
|
|
$
|
324
|
|
|
$
|
(2,465
|
)
|
|
$
|
123
|
|
|
$
|
6,873
|
|
|
$
|
99,623
|
|
|
|
6.9
|
%
|
Large installment loans
|
|
|
2,858
|
|
|
|
69
|
|
|
|
(579
|
)
|
|
|
19
|
|
|
|
2,367
|
|
|
|
32,669
|
|
|
|
7.2
|
%
|
Automobile purchase loans
|
|
|
5,339
|
|
|
|
377
|
|
|
|
(925
|
)
|
|
|
26
|
|
|
|
4,817
|
|
|
|
102,164
|
|
|
|
4.7
|
%
|
Furniture and appliance purchase loans
|
|
|
141
|
|
|
|
60
|
|
|
|
(35
|
)
|
|
|
0
|
|
|
|
166
|
|
|
|
3,661
|
|
|
|
4.5
|
%
|
Unallocated
|
|
|
771
|
|
|
|
3,006
|
|
|
|
|
|
|
|
|
|
|
|
3,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,000
|
|
|
$
|
3,836
|
|
|
$
|
(4,004
|
)
|
|
$
|
168
|
|
|
$
|
18,000
|
|
|
$
|
238,117
|
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is a summary of the finance receivables associated
with customers in bankruptcy as of December 31, 2010 and
March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
FINANCE
|
|
|
|
RECEIVABLES IN
|
|
|
RECEIVABLES IN
|
|
|
|
BANKRUPTCY
|
|
|
BANKRUPTCY
|
|
|
|
AS OF DECEMBER 31,
|
|
|
AS OF MARCH 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Small installment loans
|
|
$
|
353
|
|
|
$
|
341
|
|
Large installment loans
|
|
|
559
|
|
|
|
544
|
|
Automobile purchase loans
|
|
|
1,715
|
|
|
|
1,760
|
|
Furniture and appliance purchase loans
|
|
|
35
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,662
|
|
|
$
|
2,674
|
|
|
|
|
|
|
|
|
|
|
|
F-42
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
The following is an assessment of the credit quality of finance
receivables at December 31, 2010 and March 31, 2011.
The contractual delinquency of the finance receivable portfolio
by component at December 31, 2010 and March 31, 2011
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
FURNITURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AND
|
|
|
|
|
|
|
SMALL
|
|
|
LARGE
|
|
|
|
|
|
APPLIANCE
|
|
|
|
|
|
|
INSTALLMENT
|
|
|
INSTALLMENT
|
|
|
AUTOMOBILE
|
|
|
PURCHASE
|
|
|
|
|
|
|
LOANS
|
|
|
LOANS
|
|
|
PURCHASE LOANS
|
|
|
LOANS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Current accounts
|
|
$
|
90,455
|
|
|
|
76.9
|
%
|
|
$
|
22,969
|
|
|
|
68.3
|
%
|
|
$
|
67,751
|
|
|
|
72.7
|
%
|
|
$
|
2,299
|
|
|
|
83.2
|
%
|
|
$
|
183,474
|
|
|
|
74.2
|
%
|
1-29 days
|
|
|
18,387
|
|
|
|
15.7
|
%
|
|
|
7,424
|
|
|
|
22.0
|
%
|
|
|
20,363
|
|
|
|
21.8
|
%
|
|
|
342
|
|
|
|
12.4
|
%
|
|
|
46,516
|
|
|
|
18.8
|
%
|
Delinquency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
3,269
|
|
|
|
2.8
|
%
|
|
|
1,486
|
|
|
|
4.4
|
%
|
|
|
2,816
|
|
|
|
3.0
|
%
|
|
|
40
|
|
|
|
1.5
|
%
|
|
|
7,611
|
|
|
|
3.1
|
%
|
60 to 89 days
|
|
|
1,986
|
|
|
|
1.6
|
%
|
|
|
762
|
|
|
|
2.3
|
%
|
|
|
1,113
|
|
|
|
1.2
|
%
|
|
|
31
|
|
|
|
1.1
|
%
|
|
|
3,892
|
|
|
|
1.6
|
%
|
Over 90 days
|
|
|
3,502
|
|
|
|
3.0
|
%
|
|
|
1,012
|
|
|
|
3.0
|
%
|
|
|
1,189
|
|
|
|
1.3
|
%
|
|
|
50
|
|
|
|
1.8
|
%
|
|
|
5,753
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquency
|
|
|
8,757
|
|
|
|
7.4
|
%
|
|
|
3,260
|
|
|
|
9.7
|
%
|
|
|
5,118
|
|
|
|
5.5
|
%
|
|
|
121
|
|
|
|
4.4
|
%
|
|
|
17,256
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
117,599
|
|
|
|
100.0
|
%
|
|
$
|
33,653
|
|
|
|
100.0
|
%
|
|
$
|
93,232
|
|
|
|
100.0
|
%
|
|
$
|
2,762
|
|
|
|
100.0
|
%
|
|
$
|
247,246
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables in nonaccrual status
|
|
$
|
3,502
|
|
|
|
3.0
|
%
|
|
$
|
1,012
|
|
|
|
3.0
|
%
|
|
$
|
1,189
|
|
|
|
1.3
|
%
|
|
$
|
50
|
|
|
|
1.8
|
%
|
|
$
|
5,753
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
FURNITURE AND
|
|
|
|
|
|
|
SMALL
|
|
|
LARGE
|
|
|
|
|
|
APPLIANCE
|
|
|
|
|
|
|
INSTALLMENT
|
|
|
INSTALLMENT
|
|
|
AUTOMOBILE
|
|
|
PURCHASE
|
|
|
|
|
|
|
LOANS
|
|
|
LOANS
|
|
|
PURCHASE LOANS
|
|
|
LOANS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
|
(Unaudited)
|
|
|
Current accounts
|
|
$
|
76,899
|
|
|
|
77.2
|
%
|
|
$
|
23,869
|
|
|
|
73.1
|
%
|
|
$
|
81,317
|
|
|
|
79.6
|
%
|
|
$
|
3,186
|
|
|
|
87.0
|
%
|
|
$
|
185,271
|
|
|
|
77.8
|
%
|
1-29 days
|
|
|
15,314
|
|
|
|
15.4
|
%
|
|
|
6,329
|
|
|
|
19.3
|
%
|
|
|
17,269
|
|
|
|
16.9
|
%
|
|
|
374
|
|
|
|
10.2
|
%
|
|
|
39,286
|
|
|
|
16.5
|
%
|
Delinquency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
2,421
|
|
|
|
2.4
|
%
|
|
|
985
|
|
|
|
3.0
|
%
|
|
|
1,854
|
|
|
|
1.8
|
%
|
|
|
26
|
|
|
|
0.7
|
%
|
|
|
5,286
|
|
|
|
2.2
|
%
|
60 to 89 days
|
|
|
1,651
|
|
|
|
1.6
|
%
|
|
|
488
|
|
|
|
1.5
|
%
|
|
|
648
|
|
|
|
0.6
|
%
|
|
|
29
|
|
|
|
0.8
|
%
|
|
|
2,816
|
|
|
|
1.2
|
%
|
Over 90 days
|
|
|
3,338
|
|
|
|
3.4
|
%
|
|
|
998
|
|
|
|
3.1
|
%
|
|
|
1,076
|
|
|
|
1.1
|
%
|
|
|
46
|
|
|
|
1.3
|
%
|
|
|
5,458
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquency
|
|
$
|
7,410
|
|
|
|
7.4
|
%
|
|
$
|
2,471
|
|
|
|
7.6
|
%
|
|
$
|
3,578
|
|
|
|
3.5
|
%
|
|
$
|
101
|
|
|
|
2.8
|
%
|
|
$
|
13,560
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
99,623
|
|
|
|
100.0
|
%
|
|
$
|
32,669
|
|
|
|
100.0
|
%
|
|
$
|
102,164
|
|
|
|
100.0
|
%
|
|
|
3,661
|
|
|
|
100.0
|
%
|
|
$
|
238,117
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables in nonaccrual status
|
|
$
|
3,338
|
|
|
|
3.4
|
%
|
|
$
|
998
|
|
|
|
3.1
|
%
|
|
$
|
1,076
|
|
|
|
1.1
|
%
|
|
$
|
46
|
|
|
|
1.3
|
%
|
|
$
|
5,459
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Following is a summary of finance receivables evaluated for
impairment at December 31, 2010 and March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
MARCH 31, 2011
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Finance receivables evaluated individually for impairment
|
|
|
|
|
|
|
|
|
Accounts 180 days or more past due
|
|
$
|
1,111
|
|
|
$
|
1,192
|
|
|
|
|
|
|
|
|
|
|
Finance receivables evaluated collectively
|
|
|
246,135
|
|
|
|
236,925
|
|
|
|
|
|
|
|
|
|
|
Finance receivables outstanding
|
|
$
|
247,246
|
|
|
$
|
238,117
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all the Companys finance receivables are
pledged to the senior revolving credit facility and to the
mezzanine debt.
Note 5.
Debt
The Companys senior revolving credit facility and
mezzanine debt contain restrictive covenants including
maintenance of a specified interest coverage ratio, restrictions
on distributions, limitations on additional borrowings, debt
ratio, maintenance of a minimum allowance for loan losses, and
certain other restrictions. At March 31, 2011, the Company
was in compliance with all debt covenants. Substantially all the
Companys finance receivables are pledged to the senior
revolving credit facility and secondarily to the mezzanine debt.
Note 6.
Temporary Equity
The shareholders agreement between the Company, Regional
Holdings LLC, the sponsors and the individual owners provides
that the individual owners have the right to put their stock
back to the Company if an initial public offering does not occur
within five years of the acquisition date, March 21, 2007.
The put option is exercisable for 90 days following
March 21, 2012. The purchase price of the stock is the then
fair value, and the option is subject to contingencies,
principally failure to complete an initial public offering and
approval of the senior lender. The Company valued this put
option at the original purchase price of $12,000. The proposed
initial public offering makes it probable that the put option
will not become exercisable. There are 2,196,877 shares
owned by the individual owners.
Note 7.
Income Taxes
Regional Management Corp. and its subsidiaries file a
consolidated federal income tax return. The Company files
consolidated or separate state income tax returns as permitted
by individual states in which it operates.
Note 8.
Stock Based Compensation
There were no options to purchase common stock granted,
forfeited, or exercised during the three months ended
March 31, 2011.
F-44
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Note 9.
Earnings Per Share
The following schedule reconciles the computation of basic and
diluted earnings per share for the three months ended
March 31, 2010 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
|
(Unaudited)
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
3,953
|
|
|
|
9,336,727
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
269,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
3,953
|
|
|
|
9,606,178
|
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
|
(Unaudited)
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
4,935
|
|
|
|
9,336,727
|
|
|
$
|
.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
311,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
4,935
|
|
|
|
9,648,103
|
|
|
$
|
.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10.
Related Party Transactions
The Company is majority owned by two sponsors. Following is a
summary of transactions during the three months ended
March 31, 2010 and 2011 with the sponsors and the
individual owners who retain an interest in the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
INDIVIDUAL
|
|
|
|
|
|
|
OWNERS
|
|
|
SPONSORS
|
|
|
2010 (unaudited)
|
|
|
|
|
|
|
|
|
Consulting and advisory fees expense
|
|
$
|
113
|
|
|
$
|
195
|
|
2011 (unaudited)
|
|
|
|
|
|
|
|
|
Interest paid on mezzanine debt
|
|
|
191
|
|
|
|
794
|
|
Consulting and advisory fees expense
|
|
|
113
|
|
|
|
195
|
|
|
Note 11.
Commitments and Contingencies
The Company is a defendant in various pending or threatened
lawsuits. These matters are subject to various legal proceedings
in the ordinary course of business. Each of these matters is
subject to various uncertainties and some
F-45
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
of them may have an unfavorable outcome to the Company. The
Company has established accruals for the matters that are
probable and reasonably estimable. The Company is not party to
any legal proceedings that management believes would have a
materially adverse effect on the Companys consolidated
financial statements.
Note 12.
Restricted Assets
RMC Reinsurance, Ltd. is a wholly-owned life insurance
subsidiary of the Company. RMC Reinsurance is required to
maintain cash reserves against life insurance policies ceded to
it, as determined by the ceding company. In 2009, the Company
purchased a letter of credit for $888 in favor of the ceding
company. The letter of credit is secured by a cash deposit of
$888. The cash securing the letter of credit in 2010 and 2011
and the required reserves are presented as restricted cash in
the other asset category in the accompanying balance sheets,
which totaled $888 at December 31, 2010 and March 31,
2011.
Note 13.
Subsequent Event
On May 16, 2011, the Company filed a registration statement
on
Form S-1
relating to an initial public offering of the Companys
common stock.
F-46
Shares
Common Stock
PRELIMINARY
PROSPECTUS
Jefferies
Stephens Inc.
JMP Securities
BMO Capital Markets
,
2011
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution.
The following table sets forth the expenses payable by the
Registrant in connection with the issuance and distribution of
the shares of common stock being registered hereby. All of such
expenses are estimates, other than the filing and listing fees
payable to the Securities and Exchange Commission, the Financial
Industry Regulatory Authority and the New York Stock Exchange.
|
|
|
|
|
Filing Fee Securities and Exchange Commission
|
|
$
|
11,610
|
|
Fee Financial Industry Regulatory Authority,
Inc.
|
|
$
|
10,500
|
|
Listing Fee New York Stock Exchange
|
|
|
*
|
|
Fees and Expenses of Counsel
|
|
|
*
|
|
Printing Expenses
|
|
|
*
|
|
Fees and Expenses of Accountants
|
|
|
*
|
|
Transfer Agent and Registrars Fees
|
|
|
*
|
|
Miscellaneous Expenses
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
|
*
|
|
|
|
|
|
|
|
|
|
*
|
|
To be provided by amendment.
|
Item 14.
Indemnification of Directors and Officers.
Section 102(b)(7) of the DGCL allows a corporation to
provide in its certificate of incorporation that a director of
the corporation will not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary
duty as a director, except where the director breached the duty
of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment
of a dividend or approved a stock repurchase in violation of
Delaware corporate law or obtained an improper personal benefit.
Our amended and restated certificate of incorporation will
provide for this limitation of liability.
Section 145 of the DGCL, or Section 145, provides that
a Delaware corporation may indemnify any person who was, is or
is threatened to be made, party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such
person is or was an officer, director, employee or agent of such
corporation or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the
corporations best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe that his or her conduct was illegal. A Delaware
corporation may indemnify any persons who were or are a party to
any threatened, pending or completed action or suit by or in the
right of the corporation by reasons of the fact that such person
is or was a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys fees) actually and reasonably
incurred by such person in connection with the defense or
settlement of such action or suit, provided such person acted in
good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporations best interests,
provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged
to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him
against the expenses which such officer or director has actually
and reasonably incurred.
Section 145 further authorizes a corporation to purchase
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as
II-1
a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his or
her status as such, whether or not the corporation would
otherwise have the power to indemnify him under Section 145.
Our amended and restated bylaws will provide that we must
indemnify our directors and officers to the fullest extent
authorized by the DGCL and must also pay expenses incurred in
defending any such proceeding in advance of its final
disposition upon delivery of an undertaking, by or on behalf of
an indemnified person, to repay all amounts so advanced if it
should be determined ultimately that such person is not entitled
to be indemnified under this section or otherwise.
The indemnification rights set forth above shall not be
exclusive of any other right which an indemnified person may
have or hereafter acquire under any statute, provision of our
amended and restated certificate of incorporation, our amended
and restated bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
We expect to maintain standard policies of insurance that
provide coverage (1) to our directors and officers against
loss rising from claims made by reason of breach of duty or
other wrongful act and (2) to us with respect to
indemnification payments that we may make to such directors and
officers.
The proposed form of Underwriting Agreement to be filed as
Exhibit 1.1 to this Registration Statement provides for
indemnification to our directors and officers by the
underwriters against certain liabilities.
Item 15.
Recent Sales of Unregistered Securities.
None.
Item 16.
Exhibits and Financial Statement Schedules.
|
|
|
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant*
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of the Registrant*
|
|
5
|
.1
|
|
Opinion of Simpson Thacher & Bartlett LLP regarding
validity of the shares of common stock registered*
|
|
10
|
.1
|
|
Form of Amended and Restated Shareholders Agreement*
|
|
10
|
.2
|
|
Third Amended and Restated Loan and Security Agreement, dated as
of March 21, 2007, among the lenders named therein, Bank of
America, N.A., as the agent, and the Registrant, Regional
Finance Corporation of South Carolina, Regional Finance
Corporation of Georgia, Regional Finance Corporation of Texas,
Regional Finance Corporation of North Carolina, Regional Finance
Corporation of Alabama, Regional Finance Corporation of
Tennessee and R.M.C. Financial Services Corp., as borrowers;
Amendment No. 1, dated as of June 29, 2007; Consent
and Amendment No. 2, dated as of November 21, 2007;
Amendment No. 3, dated as of May 27, 2008; Joinder and
Amendment No. 4, dated as of July 28, 2008; and
Extension and Amendment No. 5, dated as of August 25,
2010*
|
|
10
|
.3
|
|
Senior Subordinated Loan and Security Agreement, dated as of
August 25, 2010, by and among the lenders named therein,
Palladium Capital Management III, L.L.C., as the agent, and the
Registrant, Regional Finance Corporation of South Carolina,
Regional Finance Corporation of Georgia, Regional Finance
Corporation of Texas, Regional Finance Corporation of North
Carolina, Regional Finance Corporation of Alabama and Regional
Finance Corporation of Tennessee*
|
|
10
|
.4
|
|
Regional Management Corp. 2007 Management Incentive Plan
|
|
10
|
.5
|
|
Form of Regional Management Corp. 2011 Stock Incentive Plan*
|
|
10
|
.6
|
|
Form of Regional Management Corp. Annual Incentive Plan*
|
|
10
|
.7
|
|
Option Award Agreement with Robert D. Barry, dated as of
October 11, 2007
|
|
10
|
.8
|
|
Option Award Agreement with Thomas F. Fortin, dated
February 26, 2008
|
|
10
|
.9
|
|
Option Award Agreement with Robert D. Barry, effective as of
April 23, 2008
|
|
10
|
.10
|
|
Option Award Agreement with C. Glynn Quattlebaum, dated as of
October 11, 2007
|
II-2
|
|
|
|
|
|
10
|
.11
|
|
Employment Agreement, dated as of March 21, 2007, between
C. Glynn Quattlebaum and the Registrant; First Amendment, dated
as of July 18, 2008; Second Amendment, dated effective as
of January 1, 2009; Third Amendment, dated as of
April 13, 2010; and Fourth Amendment, dated as of
May 17, 2011
|
|
10
|
.12
|
|
Employment Agreement, dated as of February 29, 2008,
between the Registrant and Thomas F. Fortin; First Amendment to
Employment Agreement between the Registrant and Thomas F.
Fortin, dated as of July 18, 2008; Second Amendment, dated
effective as of January 1, 2009; Third Amendment, dated as
of April 13, 2010; and Fourth Amendment, dated as of
May 17, 2011
|
|
10
|
.13
|
|
Letter agreement, dated as of July 1, 2008, between the
Registrant and Robert D. Barry; the letter agreement, dated as
of April 13, 2010; and the letter agreement, dated as of
May 17, 2011
|
|
21
|
.1
|
|
Subsidiaries of the Registrant*
|
|
23
|
.1
|
|
Consent of McGladrey & Pullen, LLP
|
|
23
|
.2
|
|
Consent of Simpson Thacher & Bartlett LLP (included as
part of Exhibit 5.1)*
|
|
23
|
.3
|
|
Consent of Roel C. Campos to be named as a director nominee**
|
|
23
|
.4
|
|
Consent of Alvaro G. de Molina to be named as a director
nominee**
|
|
23
|
.5
|
|
Consent of Thomas F. Fortin to be named as a director nominee**
|
|
24
|
.1
|
|
Power of Attorney (included on signature page to this
Registration Statement)**
|
|
|
|
*
|
|
To be filed by amendment.
|
|
|
(b)
|
Financial
Statement Schedule
|
None. Financial statement schedules have been omitted since the
required information is included in our consolidated financial
statements contained elsewhere in this registration statement.
ITEM 17.
Undertakings.
|
|
(1)
|
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
|
|
(2)
|
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
|
|
(3)
|
The undersigned Registrant hereby undertakes that:
|
|
|
|
|
(A)
|
For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by
the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was
declared effective.
|
|
|
(B)
|
For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
|
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Greenville, South Carolina, on the
22nd day of June, 2011.
Regional Management Corp.
Name: Thomas F. Fortin
|
|
|
|
Title:
|
Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities indicated on the 22nd day of
June, 2011.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
*
David
Perez
|
|
Chairman of the Board of Directors
|
|
|
|
*
Richard
T. DellAquila
|
|
Director
|
|
|
|
*
Richard
A. Godley
|
|
Director
|
|
|
|
*
Jared
L. Johnson
|
|
Director
|
|
|
|
*
Erik
A. Scott
|
|
Director
|
|
|
|
/s/ Thomas
F. Fortin
Thomas
F. Fortin
|
|
Chief Executive Officer
(principal executive officer)
|
|
|
|
*
Robert
D. Barry
|
|
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
|
|
|
|
*By:
|
/s/ Thomas
F. Fortin
|
|
Name: Thomas F. Fortin
Title: Attorney in Fact
II-4