Regional Management Corp. (RM) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Q1 2015 Regional Management Corp. Earnings Conference Call. My name is Derek and I will be your operator for today. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Garrett Edson, Senior Vice President of ICR. Please proceed.

Thank you, Derek and good afternoon. By now, everyone should have access to our earnings announcement, which was released prior to this call and which may also be found on our website at regionalmanagement.com. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates and projections of management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of Regional Management Corporation. We disclaim any intentions or obligations to update or revise any forward-looking statements, except to the extent required by applicable law. Also, our discussion today may include references to the certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement and posted on our website at regionalmanagement.com. I would now like to introduce Michael Dunn, CEO of Regional Management Corp.

Thanks, Derek. Good afternoon, everyone and welcome to our first quarter of 2015 earnings conference call. I am here with our Executive Vice President and CFO, Don Thomas, who will speak later about our first quarter financial results. And I am also joined by other members of our financial team. On our previous call, we discussed specific objectives we wanted to accomplish in the short-term focused broadly on reducing and managing our risk exposure around our small and large loan portfolios and controlling expenses. We made solid progress during the first few months. And today, we are pleased to report our first quarter results are further evidence of the progress we have made on most of these objectives. To start in the quarter, we continue to improve the overall credit quality of our loan portfolio. The total delinquency profile recorded as of March 31, 2015 to ‘15 is the lowest for the company since the IPO in March of 2012. Total delinquencies as a percent of finance receivables were 19.2%. And importantly, the early stage buckets have shown significant improvement due mainly to the credit and marketing improvements we made in the beginning of the fourth quarter of last year. We also continue to believe that the convenience check loan issue from last year has been fully reflected in our financial statements and we should see the last remaining charge-offs from these felicitations in our second quarter results, but we also believe that these have been fully reserved in the financials. We also talked before about driving receivables growth throughout 2015 by continuing our focus on the core branch small and convenience check loan categories. We are also increasing our emphasis on the opportunity we see in our large loan category. I am pleased to say that aided by our new and expanded marketing initiatives we achieved considerable success in these portfolios in the first quarter. As of March 31, 2015, our large loan category grew by 51.3%, branch small loan receivables grew 21.6%, and our convenience checks grew 9.7%, all on a year-over-year basis. And perhaps even more impressive on a sequential basis, our large loan receivables as of March 31 grew 37% compared to December 31, ‘14. The first quarter is historically our slowest origination period from a seasonal perspective and we normally see a net decline in customer account portfolio receivables from December to March as customer receives their tax refunds to pay down or pay off for the loans. Our ability to generate these results during the seasonally slow quarter for our industry increases our confidence and our ability to continue these strong results going forward. As a result of the focus on our core products, we ended the quarter with total finance receivables of $526 million, down only 3.7% from December 31, better than a 50% improvement from the 7.9% decline we reported from December 31, ‘13 to March 31, ‘14. And importantly, receivables were up 5% or $24 million versus the first quarter of 2014. Our expenses were high in the first quarter in part driven by $2.7 million of non-operating expenses and an increase of $1.5 million in marketing expense, which was related to our portfolio growth plans. $600,000 of the non-operating cost relate to the GOLDPoint System implementation and the termination of our agreement with them. As we know that we did not believe that the termination of the agreement will have a material effect on our operations and we are continuing to use our current loan management systems in the near-term. We now intend to revaluate the various loan management system capabilities available in today’s markets. Also on expense, we have recognized that we have work to do on this very important P&L line. The work – that work began in the first quarter and we have included some new expense disclosures in our press release that would help – that will provide more insight into our expense components and to allow for better tracking over time. Headcount in our existing branches as of March 31, was reduced by 62 staff members from the end of the fourth quarter, principally reflecting the better quality of our credit portfolio and abandonment of our system conversion project. We expect to reduce the headcount in our branches further in the second quarter. Home office staffing has essentially been completed with the hiring of our Chief Credit and Chief Compliance Officers in the last quarter and should be – and should level off from this point going forward. Overall, we believe we remain undoubtedly on the path we established in the prior quarter, especially in terms of improving delinquencies and growing the large loan product category. And we are optimistic that we are positioned well to return to bottom line growth in the near-term and long-term. In terms of regulatory environment, I just wanted to touch briefly on the proposals issued by the CFPB last month. As everything appears to be in a very preliminary stage, it’s premature for us to speculate on what the final rules may entail. That said, we would just note that the initial focus of the proposal appears to be on ensuring that consumers can adequately repay their loans and that is something we have been doing at Regional since we are founded by underwriting our loans to consumers’ credits history. In addition, our customers have always repaid their loans in our branches and we currently do not access customer accounts at others institutions. In the coming months, we will continue to build our compliance infrastructure to observe how the recent CFPB proposals will evolve through rule making process and endeavor to provide competitive safe and transparent products to our consumers. Before turning the call over to Don, I will take you through some first quarter highlights. Diluted earnings per share for the first quarter, was $0.31, but excluding approximately $2.7 million in non-operating charges, non-GAAP diluted earnings per share was $0.44. Total delinquencies as I mentioned before as a percentage of total finance receivable as of March 31, was 19.2% compared to 21.7% as of March 31, ‘14 and 22.6% as of December 31, ‘14. Again, our total delinquencies as a percent of receivables also represent the lowest since the IPO in March 2012. The first quarter revenue increased 5.9% from the prior period. Our total revenue yield for the first quarter was 39.4%, an increase of 170 basis points from the prior year period. Importantly, as I noted earlier the combined branch small loan and convenience check portfolios increased 14.3% year-over-year and our large loan portfolio increased 51.3%. And during the quarter, we opened up six new branches, bringing our branch network total to 306 branches as of March 31, 2015. And since then we have opened up two additional branches and are maintaining our projection of opening between 25 and 30 de novo branches for 2015. And with those brief comments, I will turn it over to Don.

Thanks Mike. I will start with some additional comments on our loan portfolio. As Mike mentioned, total finance receivables at March 31, 2015 were $24.2 million greater than the prior year period. While the branch small, convenience check and large loan portfolios were collectively up $58.1 million, that increase was dampened by declines in auto and retail, totaling $33.9 million. The $28.4 million decline in auto portfolio is the largest portion of the dampening effect and occurred because we have been cautious about the auto market over the past 18 months or so. However, there are areas in the auto market that we feel we can pursue and like in the first quarter we revised our auto program accordingly. We believe the auto program changes are showing some improvement and expect the auto portfolio will remain near current level through the second quarter, at which time we will have completed our strategic review of the product. Total net loan originations increased 22.4% year-over-year. The increase in originations was driven by branch small loans, convenience checks and large loans. Originations for large loans in particular were up 188% year-over-year and 68.2% sequentially reflecting the early success we are having growing this portfolio with pre-approved offers and other marketing programs. We spent $1.5 million more in marketing in the first quarter of 2015 than in the prior year period. This expenditure helped drive the year-over-year growth in originations and significantly reduced the typical seasonality we see in our business during the first quarter. Given the success we have seen thus far and additional marketing initiatives on tap for the remainder of the year, we expect our marketing spend will remain higher than the prior year spend throughout 2015. Portfolio growth drove 87% of the increase and interest in fee income in the first quarter of 2015 over the prior year period while increased yield provided the other 13% of the increase. Our total interest and fee yield for the first quarter was 35.3%, up 180 basis points from the prior year period. The improvement primarily came from convenience check loans, which saw yield increase of 240 basis points. We are pleased that branch small loans, convenience checks and large loans provided the entire increase in the interest and fee income from the prior year period and they will remain the core drivers of our growth strategy for the foreseeable future. Interest income for the first quarter decreased $366,000 year-over-year and represented 5.6% of revenues. The year-over-year decrease was primarily the result of increased claims costs. Other income for the first quarter increased $324,000 year-over-year. As noted previously, the year-over-year increase is due to the implementation of a late fee in North Carolina as part of the modernization of their consumer finance law. As a reminder, approximately 15% of our accounts are in the state of North Carolina. Provision for credit losses in the first quarter was $9.7 million, representing a 42.7% decrease year-over-year and a 39.1% sequential decrease. Net charge-offs in the quarter totaled $13.3 million, exceeding the provision in the first quarter of 2015, due to the release of a portion of the allowance recorded in 2014 for convenience checks. At the back of the press release, we provide information about the $17.9 million remaining balance of summer 2014 convenience check loans. The current allowance for these loans covers 100% of 30-day in contractual delinquencies and 69% of accounts 1 or more days, past due. As we said in our fourth quarter call, we believe the risk related to these lower credit quality convenience check originations was captured in our 2014 financials. Turning to delinquency, total accounts 1 or more days past due increased $23 million sequentially with the large majority of the decline coming from early stage delinquencies. Delinquency was sequentially lower in all product categories due to the credit and marketing changes in May beginning in the fourth quarter of 2014. Annualized net charge-offs were 9.9% on average finance receivables for the first quarter of 2015 slightly above the 9.7% figure for the first quarter of 2014, and significantly below the 13.9% fourth quarter 2014 figure. Mike mentioned we have included some expense trend information at the back of the press release to help you better understand our expenses. Personnel cost in the first quarter of 2015 include $2.1 million of non-operating charges of costs for our CEO stock grant, which was disclosed in an 8-K during the quarter and for the retirement agreement with our former Vice Chairman. As reported last quarter, personnel costs for the fourth quarter of 2014 included $1.2 million of non-operating costs for the resignation of our former CEO. Excluding these non-operating items, personnel costs were up $1.8 million sequentially. For home office, headcount increased sequentially by 20 employees, which increased their cost in the first quarter of 2015 by approximately $0.3 million. We now have a full complement with home office personnel and our expense should level off from this point forward. The sequential change in branch personnel cost is further explained by the lower number of loan originations that occur in the first quarter, which means we deferred $1.4 million less in compensation related to deferred loan costs than we did in the fourth quarter. Personnel cost for the first quarter of 2015 increased $8.6 million compared to the prior year period. And let me remind you that in the first quarter of 2014, we have changed the company’s vacation pay policy and recorded a $1.4 million benefit in that period. Excluding these non-operating items, personnel costs were up $5.2 million in the first quarter of 2015 versus the prior year period. Existing branch headcount was up 189 employees, which increased our cost by approximately $2.7 million. Approximately 75 employees were hired for the 25 new branch openings between March 31, ‘14 and March 31, ‘15. The rest of the employees were added to deal with our previously high delinquency level, but now that our delinquency is in good shape, we expect further reduction in branch headcount in the second quarter of 2015, which we will carefully balance with our staffing needs related to both branch and portfolio growth. Also compared to the prior year period on January 1, 2015, we implemented a revised branch incentive program that rewards employees in connection with our corporate goals. The expense for the old branch incentive program started lower and increased in later quarters. The new incentive plan has higher expense in the first quarter and then tapers off the rest of the year. Therefore, we incurred $1.8 million credit costs from the new branch incentive program in the first quarter of 2015 compared to the prior year period. As new program, we are watching it closely and we will adjust it if necessary to properly balance results and rewards. Other expenses for the first quarter of 2015 increased $1.9 million, an increase of 45% year-over-year. The increase was driven by $0.4 million for termination cost for the GOLDPoint agreement as well as increases for credit risk consulting, legal expense related to the securities contracts and lawsuits, executive compensation consulting and legal costs, and cost related to the large number of branches. Collectively, across our income statement, non-operating loan system implementation costs, including the agreement termination costs were $0.6 million in the first quarter. Diluted GAAP earnings per share for the first quarter, was $0.31 compared to $0.43 per share in the prior year period. Excluding non-operating cost of $2.1 million for compensation-related items and $0.6 million for loan system implementation costs, non-GAAP diluted earnings per share for the first quarter was $0.44. Regional Management continues to maintain the ability to fund our growth strategy. At March 31, 2015, Regional Management had finance receivables of $525.9 million, an outstanding debt of $312.5 million on our $500 million senior revolving credit facility. The credit facility has an expansion feature to grow the $600 million and matures in May 2016. That concludes my remarks. Now, I will turn the call back to Mike for some closing comments.

Thanks, Don. In closing, we are pleased with our continuing progress, especially in our large loan portfolio growth. We remain focused on improving our expense management and growing our top and bottom lines. The operating improvements, tightened risk management policies, and our marketing initiatives implemented during the last few months are beginning to produce the results we anticipated and more importantly are laying the foundation for increased profitability in creating longer term shareholder value. Thanks for your time and interest. And now, I would like to open up the call for questions.

[Operator Instructions] And our first question will be from the line of Sanjay Sakhrani, KBW.

Thank you. I appreciate it. Good afternoon. Thank you for all the color on expenses, but I still have a couple of more, if you don’t mind. So if we think about the personnel costs going forward, I know you guys alluded to the fact that it should come down, could you just talk about dimensions of how much it can come down throughout the year? And then, I have got a follow-up question on marketing.

So Sanjay, yes on the branch side, what we tried to on Page 12 of the press release, is to kind of show you the patterning of the expenses in the branches to the four quarters of ‘14 and into the first quarter of ‘15. And as I said and as Don said, if you look at the way it lays out, we built – we had increased people in the branches in 2014 for a couple of reasons. One, we started in the first quarter when we started to add some people to deal with the delinquency problems. Throughout the year, we added some more. We added some more for the increased number of branches. And at the end of the fourth quarter, the new management team, we were – as a new management we were reluctant to change anything in terms of the branch headcount until we were sure that the issues that we were dealing with on delinquencies are issues around the loan implementation, system conversion, we had that sort of figured out. First quarter, we are feeling more comfortable, beginning actually in January month and we started to let the headcount decline, mostly from turnover of the people. And we took out as it says here on Page 12, 62 from the existing branch and we added 15 for the new branches. Our sense for the branches, the core branch is not for 2015, new branches would be, by the end of the second quarter, I think that we will have that right sized, if I can use that expression. My sense would be not quite the same decrease that we saw from the fourth – from the first, but maybe two-thirds of that or something like that. In terms of home office, again of course, in this business as in most businesses as I suppose or a lot of business anyway, headcount drives the expense. As you can see, we added 20 folks from the end of fourth quarter to the end of the first quarter in home office. And as I said in my remarks, we added and I think we also issued a press release on this as well. We hired a Chief Credit Officer. I think it was in early January, we put out a press release. And in the credit functional alone, we have added about 10 folks, combination of credit people and collectors. And we added some people in compliance and added in a few other areas. But as Don said in his remarks at 125, we think that maybe we have another one or two to add in home office mostly for credit. But we think we are – we have as Don used the word a full complement of people. So the expense for home office should level off and flatten out, but we also have some as Don mentioned and we have also on Page 12. We also had some non-recurring, non-operating items in the first quarter, that won’t be there going forward. So when you take a look at the home office G&A expenses of $10.8 million in the first quarter, that number will come down because of the absence of the non-recurring items and the expenses in the branches should also come down a little bit as we take more people out. And as Don said, as Regional Rewards, which is the new reward system or a bonus system for the branches, it will display the trend that Don talked about, which is a little higher in the first half of the year and a little lower going forward. So our expectations of expenses going forward will be below what we reported in the first quarter.

Okay, great. I guess, to follow up on advertising, when we think about your advertising run rate today, it’s almost 2x what it was in 2013. The portfolio had shrunk some, can you just talk about like what’s changed that, you guys have to advertise a fair amount more, I mean is there more targeted marketing that’s being driven out of the branches or what exactly is driving that higher cost?

Yes. Well, just a couple of reference points. One is if you look at the first quarter of last year, we reported a significant increase in marketing expense over the first quarter and that – and if you take a look again on Page 12, the layout for five quarters. First quarter of last year was a very low level of marketing expense for a variety of reasons, including switching vendors, which as you all know didn’t go so well for us. But we had a low level of marketing spend in the first quarter. But if you take to look at the second through the fourth quarters of last year, there are about $1.7 million to a $1.8 million. In this year’s first quarter and most of the money that we spent from the fourth quarter and prior was, I am going to stay almost entirely focused on not only on small loans and really small loans for convenience checks and invitation to apply. Thank you. And what we have done in the first quarter is, we – again, we have recognized this is a slow quarter seasonally. We didn’t want – what happened last year with our portfolio was we declined from the fourth of ’13 we didn’t back to the December ‘13 level until September ‘14. And we didn’t want that to recur in this year, so we spent more marketing dollars to make sure that didn’t happen. And as we said, we were successful and that we had half of the decline that we had a year ago. And also, we are spending about half of the money that spent this year was on the large loan portfolio, large loan offers, if you will. These are all prequalified, these are not convenience checks. These were all prequalified offers to our customers and very successful. We were up from $46 million at the end of the fourth quarter. We ended the first quarter at $62 million. So this business is a business, where you have to spend marketing dollars in order to drive portfolio growth. And we feel really comfortable about the level of spend. Our expectations as we go forward on this is that this quarter was probably one of the higher quarters that we will see over the last couple of years. In the second quarter, we have a customer appreciation, fourth quarter we have a customer appreciation. But I think our spending levels on marketing will be higher than they have been maybe a little lower than we had in the first quarter, but higher than they have been over the past four or five quarters on average.

Okay, great. I guess, I have a question on credit quality, but I will let my peers ask it. I have another follow-up question just on LEAF and OneMain. I mean are there any opportunities that are created for you guys as a result of that combination, I mean is that something that you are actively kind of trying to find out?

Well and I think we have talked about this a little bit to some of you. One of the things we see with the combination is and we have seen this personally, professionally as well as companies that are of like size and emerging what typically happens is a lot of inward focus. And so I think that’s what happened. But the reality is, we are in eight states that the combined company is probably in 42, 43 states. Their portfolio in the large loan combined is around $11 billion on a pro forma basis, $11 billion, sorry. In ours – our large loan portfolio is $62 million. So I think we have a lot of opportunity to grow irrespective of what happens with OneMain and Springleaf especially in the large loan category and they don’t play in small loans like we do. And Jody Anderson came from OneMain as our President. He has a very good sense for where OneMain was successful in terms of branches in states and those kinds of things. And we have a good sense for that as well. And – so I think we have some expansion opportunities. I don’t think it’s related specifically to OneMain or the combination, but we are looking at what we can do on the expansion front.

Alright, great. Thank you.

Your next question will be from the line of Bob Ramsey, FBR.

Hey. Good evening guys. Just wanted to touch on the provision, obviously a lot of improvement in your credit metrics this quarter and the provision this quarter, looked a lot more like 2012 or ‘13 as a percent of revenues than last year. Are those years, good ways to think about the full year credit cost something in the 20% to 22% of revenues, kind of ballpark.

Let me just answer that in a different way, I mean I will let Don answer the percent of revenue. The way we typically look at it internally or when we look at it now internally I should say as a percent of receivables and again as a mix on that as well, because of the composition of the receivable base. But in the fourth quarter, we were at 13.4%, I think it was, and in the first quarter 9.9%, fourth quarter – first quarter less than quarter 9.7%. Our expectations would be write-offs. These are – this is not the provision that I am talking about is the write-offs. And I think the write-offs obviously drive the provisioning. The two things that are involved in the – in the provisioning one is the write-offs and two is the level of delinquencies. So, as it relates to the provisioning, delinquencies improved. So, that shouldn’t require us to add anything in addition to what we already have, all other things being equal, because the delinquencies are better. And on the write-offs, this quarter, first quarter, 9.9%. Second quarter as I mentioned, we will have the remaining effects of the bad solicitations we did in 2014 hit our write-off line, but I would expect that going forward, we will be 20% better on the write-off line to 15% better, something like that going forward, because of the absence of the convenience check issues, plus just for the balance of 2015 plus the better quality portfolio. Don, you want to add on the percent of revenue as you guys thought about it in the past?

Well, it’s obviously changing, I mean, with Dan Taggart coming on board and building a team and spending a lot of time with our underwriting and things that we are doing. It’s getting better. So, yes, we are not sure exactly where that will come out, but it’s going to be better than we have seen over this last year when things were not working very well for us. So, as a percent of revenues, previously I might have said 23%, 24%, this might be a good place for you to be short-term until we prove to you we can do better. And I guess, that’s what I would offer up to you, Bob?

Okay.

And maybe the right way to look at it is look at both of those things and it’s got to be the range I think.

Okay. And thinking about it from the net charge-off sort of approach, your expectation that through the course of the year, your provision would be less than net charge-offs like this quarter as you continue to kind of work down some of the excess reserves that you built up at the end of last year?

No. I think as when you take a look at the disclosure that we have was making sure I know where it is. Take a look at the disclosure on Page 10. And as Don mentioned in his comments, we built reserves in the third quarter and a little bit in the fourth quarter of 2014 for the convenience check problems. And I am not going to remember the total that we showed at the end of the fourth quarter, but it was in the $12 million, $13 million range if I recall correctly. And I think what we have done since then is that was a reserve specific to the convenience checks. And as the convenience checks write-offs have come through, we have basically taken them against that reserve. Once the remaining convenience check write-offs are taken, which is going to happen in the second quarter – early in the second quarter, we have utilized a fair portion of this reserve. And then going forward, we will – the reserve will be – the provision and the reserve both I suppose will be reviewed and we will add to the reserve. Our write-offs will be one of the components of our reserve adequacy. Delinquency is another component of reserve adequacy and the loan growth. So, I guess my expectations going forward is the short answer to your question is, no, I don’t expect to see any significant releases of reserves. And I think we will build results as we hopefully build our portfolio and that’s just a function of the growth in the portfolio.

Great.

Hopefully, credit losses will be very consistent going forward. And then the only reason that you will build reserves hopefully again delinquencies will remain hopefully good. And the only reason you had build reserves going forward is because you have to accommodate the increase of the size of the portfolio.

Okay, great. Last question, I will hop out, but coming out of the expenses again, I know you all have talked about the desire to sort of improve efficiency on the model overall and it looks like even backing out the non-operating items this quarter, efficiency was higher than it was last year, just curious if you will have got a target for efficiency this year?

Well, I think that the efficiency will be derived at the end of the year from all the initiatives that we have going on, on expenses. So, again what I would say would be this that I would – our expectation is with lower headcount and going into the second quarter on the branches than we had going into the first quarter and with additional reductions in headcount in the branches in the second quarter, my expectation – and then combination as Don also said with the Regional Rewards having a slightly lower number in the second quarter. My expectation is the branch expense should be lower in the second quarter and then flatten out and then it only adds to the expenses in branches from that point going forward should be because of new branches. And then home office will be flat at a 125 people, give or take 1 or 2 for additional adds on the credit side and then hopefully the absence of these non-operating items. So on Page 9, we disclosed efficiency at 62% in the quarter and it’s up from 53% -- I am rounding numbers 52.40%. Our expectations by the end of the year, is if that should come by the end of the year, much closer to the end of the fourth quarter or slightly lower than that, but again, what we are trying to do is manage expenses as a discrete line item. And that targeting at this point for this year any target for the percentage of revenue, but basically trying to leverage the infrastructure expense that we currently have and not add anything to it, allow our portfolio to grow, spend some marketing dollars as we need to spend them to support the growth in the portfolio and allow revenue to take off from that point.

Okay, thank you.

Your next question will be from the line of Eric Jaschke, Stephens.

Hi, yes. Thanks for taking my questions. My first one is just kind of around the large loan portfolio growth, can you tell us a little bit about kind of the customers that are taking on this product or the current customers, former customers, new customers? And then also given kind of the seasonality in Q1, how are you thinking about the growth of this portfolio over the remainder of the year?

Sure. We had $46 million at the end of the fourth quarter in the large loan category and we ended the first quarter around $62 million if I am remembering my numbers correctly. And so that $60 million of growth, as I mentioned before in one of the other questions, we increased the marketing efforts. Well, I shouldn’t even say that. Actually, what we have really ended up doing is we have initiated the marketing efforts on large loans in the first quarter in a significant way. I mean, the other thing what I said before, pre-qualified offers to folks who we think would be creditworthy for these large loans. Large loans, I think on average were about $3,800, the offers were to these folks, and clearly, a better credit quality customer than our small loans or convenience check customers. Of this $15 million in growth we got in the first quarter, $9 million was from net new customers. They come in from a variety of the channels, but mostly from the mail, but we also got some through the internet and through the branch channels. The other $7 million in growth came from a combination of up-selling our existing customers out of small loans or the auto loans or from former borrowers that we contacted through the branch infrastructure. So, that’s the growth we had in the first quarter. Our – and the credit quality of those customers are different and better than small loan customers. Going forward, again, if you go back to what I said about $1 million in spring, it’s the $11 billion portfolio, we think there is ample opportunity for us to continue to grow those – growth that portfolio. And we are looking at what we have matrices out in the field, which tell them how to make the loan. We have had training that 100% of our branch personnel have been trained in how to sell a large loan, which is new for this company. And this company was typically a convenience check small loan customer – small loan company. So, we have training out there. We have matrices out there. We have the Regional Rewards provides them with bonuses. So, we think we have all the tools in place and we don’t see any reason why we can’t continue to grow this portfolio, maybe not the same percentage growth, but maybe the same dollar growth for the balance of the year.

Great. Thanks for the detail. And then what about kind of with the cancellation of GOLDPoint earlier in the quarter, can you just update us on kind of how you are thinking about your loan management systems kind of where you are in the process of possibly evaluating some new alternatives and kind of what benefit you expect to see from installing something different?

Sure. It was regrettable with GOLDPoint, we thought that, that will provide us with some enhanced capability, but it didn’t work out. We are on a system called ParaData. And we have been on that system for about 15 years. What we are doing currently is, we are getting improved functionality from that vendor, which allows to do some of the things that we want to do in terms of product enhancements and customer interface and those kinds of things. And we are working on that currently. But concurrently, we brought in an outside consulting firm to help us with a vendor selection process. And we anticipate that this will take us over the next couple of months to figure that out, because part of what we are doing is we are remapping all of our business processes and ensuring what it is we exactly wants from the new vendor – the new vendor for our loan processing system. So we are currently working with our current vendor to help us to get some more functionality, some more efficiency that we can get from them. And at the same time, we are looking to sign up with a new vendor to provide us with the functionality that we want, we anticipate as I said that process to take a couple of months before that we select a new vendor.

Great. Thanks a lot.

Your next question will be from the line of John Hecht, Jefferies.

Thanks very much. First question, Don, forgive me if you mentioned this, but what would your sales – same store sales like on a receivable basis I guess been, so same-store receivable growth ex the contraction of the auto portfolio?

John, great question, we have done a little bit of dealing around this actually within the last 30 days to 60 days. And I think we had determined there might be as much as a 5% impact on our same store sales calculation from the auto loan decline. So we are reporting downtime and we would certainly be down a lot less if the auto loan portfolio or be up a little if the auto loan portfolio had not caught.

Okay, great. That’s important, the second question is I mean for all kinds of purposes, the material credit issues are behind you, you can start focusing I guess on growth and a lot of the commentary has been around that. I am just wondering, how should we think about when I guess the prioritization of the growth story is this maximizing infrastructure, drive receivables to the branches now and increase efficiencies or is it back to maybe what the post-IPO story was, which was new branches and season those branches or how do we think about the focus of growth right now?

I think that it’s a combination of things, which says most things usually are. So one of the things we are doing is, we see interest on large loans, we see a huge opportunity as I mentioned. And our expectations as I answered somebody else would be to continue to grow that portfolio significantly over the balance of the year through marketing activities, through in branch activities as well. But we are not going to give up the bread and butter for this business, which is the small loans and convenience check products. And I think we did very well in the first quarter, given that it’s a seasonally slow quarter for us for the industry rather. And I think we will continue to do that. So our strategy is if we take a look at on our average branch, our book is still about $1.8 million per branch. We think that that is – and that’s obviously their branch is much higher branch, some of the new branch is much lower. It’s not a strategy here that just is going to be based upon expansion of branches and volume growth, just solely from the branches. We can tell you as I said in my comments that we will open up 30 branches or so this year. We have already opened up eight, six in the first quarter, two in the second quarter. So we will continue to open up branches and that will be part of what we want to do. Somebody asked the question about new territories, we will look at that as part of our branch strategy and expansion strategy as well. But we also are focusing on the operating results of our existing branch – branches. If those branches that have been opened for 15 months or so and longer. And as you might expect in the 300 branch network, the performance of those branches as it relates to growth and profitability are at best spotty. So, one of the things we think we can do from a growth perspective is get some of those branches that have an experience to grow that they should have an experience in the over the past couple of years. To continue to grow again whether that means we need to provide training, which we have done and we will do that, it means we need to bring more mail into those branch trade areas, we will do that and we are focusing on all of that. So, I think we will achieve the growth strategy for the company through better management of our existing structure, more marketing dollars, better focused on the different product categories we have as well as growing the branch footprint, if you will. I think all of those things and the large loans as well I think all those things will allow us to grow this portfolio pretty significantly over the balance of the year.

Okay. And then final question understanding the consolidated yield might shift if there is a mix shift in kind of product concentration, but at the product level, would you think that the current yields are going to be consistent going forward or is there anything to think about there?

Yes, I mean, it’s – the large loans, I think we have a yield of 27% in the quarter. I think that’s pretty consistent in the new products we are putting on are not similar to that. And I think the small and convenience checks, there always is a little bit of change depending upon the states where we are doing the largest or highest amount of growth, but I think broadly speaking that the yields would stay around the same by category. So, the total might change a little bit, but that’s going to be as the mix changes, but the categories will remain roughly the same.

Great, thanks very much.

Sure, John.

You have another question coming from the line of Vincent Caintic, Macquarie.

Hi, good evening guys. And I apologize if this might have been addressed at the opening remarks, but I was wondering if you could discuss the regulatory landscape. I know we had a little bit of volatility from the CFPB. And I was wondering if you have any thoughts on that? And conversely, if there might be any tailwinds to your business if the regulations in other specialty lending businesses?

Yes. I mean, obviously, Don spoken to you a little bit about this, but obviously the CFPB, I am not in a way to call it a proposal, but they came out a few weeks ago pre-proposal I guess is the way to maybe frame it. We got a lot of attention from everybody in our industry and including us. And we have included conversations in-house, most of conversations at the board trying to figure out if we can tell what the impact might be. But as I mentioned in my remarks, opening up, we think that very early stages and we have talked to outside counsel as well and very early stages of where the CFPB is in terms of rule-making. And it’s hard to say from what they put out a few weeks ago, what direction that it will ultimately take. Their initial focus as I mentioned was really on the ability to – those vendors who focus on the ability to repay or focus on ability to access customer accounts and not on lenders like us who do mostly underwriting for all of our products. And as I mentioned, we don’t have access to our customer accounts and through the ACH or equivalents. And so not sure how this will play out, we think it’s premature. We don’t think we have tried to assess what we think might be the impact. And again, with knowing specifically how it ultimately will play out, it’s hard to guess at it, but we don’t think and again we are just sort of guessing at this, we don’t think it will have much of an impact for us. And if it does have any kind of impact in any of our products, we also think that since we do underwrite all of our loans that we might have to make modifications, but those modifications won’t be big overhauls, but slight tweaks of the current processes we have. As it relates to how it will impact other people who are more directly affected by these preliminary rules, not clear, but we are also looking at that and we will be paying attention to that and there could be some opportunities for us. But again, premature, first, we have to figure out how it plays out. And we were – we have talked to some folks and we have talked to some folks about the timeline. And some people who were in the government or some people with the CFPB before think that at best this is a couple of years out and there will be lot of give and take between the CFPB and the industry between now and then. And so we will be watching it and making sure that we know what’s going on and making sure I understand the impact to us as it becomes clear, but at this point, just too early to tell.

Great, thanks for the color.

At this time, I am showing no further questions in queue. I would like to turn the call back over to Mr. Michael Dunn for any closing remarks.

I think that’s it. Thanks everybody for the participation and interest. We think in summary that small things we said earlier we had a good quarter. Production was up 22%. We have the liquidation that we observed last year in 2014 in the first quarter. We grew the small loans year-over-year in the convenience checks. We grew large loans significantly both year-over-year and in the quarter. And we think the profile obviously have delinquencies as I said at the best since the IPO. So, we think we are – we have got a lot of some of the issues or lot of the issues behind us. And now it’s a focus on growing the portfolio as this business is all about growing the portfolio and making sure we continue to manage your credit and then managing our expenses and then trying to drive a little more margin through those efforts and we think we can do it. So, I look forward to the July call. So, hopefully there will be even better news, but we have lot of work to do between now and then. Again, thanks for the participation and the interest rate and we will talk again soon.

Ladies and gentlemen that concludes today’s conference. We thank you for your participation. You may now disconnect. Have a great day.