DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION AND RESULTS OF OPERATIONS OF REGIONAL MANAGEMENT CORP. MANAGEMENT. (Form 10-K)


The following discussion and analysis should be read in conjunction with, and is
qualified in its entirety by reference to, our audited consolidated financial
statements and the related notes that appear in Part II, Item 8, "Financial
Statements and Supplementary Data" in this Annual Report on Form 10-K. These
discussions contain forward-looking statements that reflect our current
expectations and that include, but are not limited to, statements concerning our
strategies, future operations, future financial position, future revenues,
projected costs, expectations regarding demand and acceptance for our financial
products, growth opportunities and trends in the market in which we operate,
prospects, and plans and objectives of management. The words "anticipates,"
"believes," "estimates," "expects," "intends," "may," "plans," "projects,"
"predicts," "will," "would," "should," "could," "potential," "continue," and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. We
may not actually achieve the plans, intentions, or expectations disclosed in our
forward-looking statements, and you should not place undue reliance on our
forward-looking statements. Our forward-looking statements involve risks and
uncertainties that could cause actual results, events, and/or performance to
differ materially from the plans, intentions, and expectations disclosed in the
forward-looking statements. Such risks and uncertainties include, without
limitation, the risks set forth in Part I, Item 1A, "Risk Factors" in this
Annual Report on Form 10-K. The COVID-19 pandemic may also magnify many of these
risks and uncertainties. The forward-looking information we have provided in
this Annual Report on Form 10-K pursuant to the safe harbor established under
the Private Securities Litigation Reform Act of 1995 should be evaluated in the
context of these factors. Forward-looking statements speak only as of the date
they were made, and we undertake no obligation to update or revise such
statements, except as required by the federal securities laws.

overview

We are a diversified consumer finance company that provides installment loan
products primarily to customers with limited access to consumer credit from
banks, thrifts, credit card companies, and other lenders. As of December 31,
2021, we operated under the name "Regional Finance" in 350 branch locations in
13 states across the United States, serving 460,600 active accounts. Most of our
loan products are secured, and each is structured on a fixed-rate, fixed-term
basis with fully amortizing equal monthly installment payments, repayable at any
time without penalty. We source our loans through our omni-channel platform,
which includes our branches, centrally-managed direct mail campaigns, digital
partners, retailers, and our consumer website. We operate an integrated branch
model in which nearly all loans, regardless of origination channel, are serviced
through our branch network. This provides us with frequent contact with our
customers, which we believe improves our credit performance and customer
loyalty. Our goal is to consistently grow our finance receivables and to soundly
manage our portfolio risk, while providing our customers with attractive and
easy-to-understand loan products that serve their varied financial needs.

Our products include small, large and retail installment loans:

• Small loans (?$2,500) – Away December 31, 2021we had 269.5 thousand

small installment loans outstanding, represented $445.0 million in the web

finance receivables. This included 137.2 thousand small loans

checks, represented $197.5 million in net financial receivables.

• Large loans (>$2,500) – Away December 31, 2021we had 184.1 thousand

represent large outstanding installment loans $969.4 million in the web

finance receivables. This included 15.7 thousand large loans

checks, represented $49.2 million in net financial receivables.

• Loans for private customers – From December 31, 2021we had 6.7 thousand retail purchase

outstanding loans, represented $10.5 million in net financial receivables.

• Optional Insurance Products – We offer optional payments and security

Protection insurance for our direct lending customers.


Small and large installment loans are our core loan products and will be the
drivers of our future growth. Our primary sources of revenue are interest and
fee income from our loan products, of which interest and fees relating to small
and large installment loans are the largest component. In addition to interest
and fee income from loans, we derive revenue from optional insurance products
purchased by customers of our direct loan products.

Please see Part I, Item 1, “Business” for more information about our business.

Regional Management Corp. | Annual Report 2021 on Form 10-K | 46 ————————————————————— ——————————-

Effects of the COVID-19 pandemic on the outlook

The COVID-19 pandemic has resulted in economic disruption and uncertainty. At
the outset of the pandemic, during the second quarter of 2020, we experienced a
decrease in demand. Since that time, our loan growth has steadily increased. As
of December 31, 2021, our net finance receivables were $1.4 billion, $290.0
million higher than as of December 31, 2020. Future consumer demand remains
subject to the uncertainty around the extent and duration of the pandemic.

As a result of the pandemic, some branches were temporarily closed in 2021 due to quarantine measures introduced by the company. However, all of our branches were open for most of 2021.

Throughout the pandemic, we have employed a data-driven approach to managing our
risk, which is essential during periods of market volatility. We manage this
risk through our custom risk and response scorecards, analysis of early payment
activity, and detailed geographic and customer segmentation to ensure that
incremental direct mail loan volume is capable of absorbing credit losses at two
to three times our historical levels while still providing positive contribution
margin.

We proactively adjusted our underwriting criteria at the start of the pandemic
in 2020 to adapt to the new environment and continue to originate loans with
appropriately enhanced lending criteria. As we progress through the pandemic and
acquire additional data, we continue to update and sharpen our underwriting
standards, paying close attention to those geographies and industries that have
been most affected by the virus and related economic disruption. As of December
31, 2021, our allowance for loan losses included $14.4 million of reserves
related to the expected economic impact of the COVID-19 pandemic. Our
contractual delinquency as a percentage of net finance receivables increased to
6.0% as of December 31, 2021, up from 5.3% as of December 31, 2020. We believe
this increase corresponds to the decrease in pandemic-related government
stimulus. Going forward, we may experience changes to the macroeconomic
assumptions within our forecast and changes to our credit loss performance
outlook, both of which could lead to further changes in our allowance for credit
losses, reserve rate, and provision for credit losses expense.

We proactively diversified our funding over the past few years and continue to
maintain a strong liquidity profile. During 2021, we (i) successfully closed a
$248.7 million asset-backed securitization with a three-year revolving period
and weighted-average coupon ("WAC") of 2.08% (replacing a prior transaction with
a two-year revolving period and WAC of 4.87%); (ii) enhanced our warehouse
facility capacity to $300.0 million by amending and restating our previously
existing warehouse facility and closing two new warehouse credit facilities;
(iii) successfully closed asset-backed securitizations of $200.0 million, and
$125.0 million, respectively, each with five-year revolving periods. As of
December 31, 2021, we had $209.7 million of immediate liquidity, comprised of
unrestricted cash on hand and immediate availability to draw down cash from our
revolving credit facilities. Our liquidity position has improved $15.3 million
since December 31, 2020. In addition, we ended 2021 with $556.8 million of
unused capacity on our revolving credit facilities (subject to the borrowing
base). We believe our liquidity position provides us substantial runway to fund
our growth initiatives and to support the fundamental operations of our
business.

We continue to rely more heavily on online operations for customer access,
including remote loan closings. On the digital front, we continue to build and
expand upon our end-to-end online and mobile origination capabilities for new
and existing customers, along with additional digital servicing functionality.
Combined with remote loan closings, we believe that these omni-channel sales and
service capabilities will expand the market reach of our branches, increase our
average branch receivables, and improve our revenues and operating efficiencies,
while at the same time increasing customer satisfaction.

The extent to which the pandemic will ultimately impact our business and
financial condition will depend on future events that are difficult to forecast,
including, but not limited to, the duration and severity of the pandemic
(including as a result of waves of outbreak or variant strains of the virus),
the success of actions taken to contain, treat, and prevent the spread of the
virus, and the speed at which normal economic and operating conditions return
and are sustained.

Factors affecting our results of operations

Our business is driven by several factors that affect our revenues, costs and results of operations, including the following:

Quarterly Information and Seasonality. Our loan volume and contractual
delinquency follow seasonal trends. Demand for our small and large loans is
typically highest during the second, third, and fourth quarters, which we
believe is largely due to customers borrowing money for vacation,
back-to-school, and holiday spending. Loan demand has generally been the lowest
during the first quarter, which we believe is largely due to the timing of
income tax refunds. Delinquencies generally reach their lowest point in the
first half of the year and rise in the second half of the year. The CECL
accounting model requires earlier recognition of credit losses compared to the
prior incurred loss approach. This could result in larger allowance for credit
loss releases in periods of portfolio liquidation, and larger provisions for
credit losses in periods of portfolio growth compared to prior years.
Consequently, we experience seasonal fluctuations in our operating results.
However, changes in borrower assistance programs and customer access


Regional Management Corp. | Annual Report 2021 on Form 10-K | 47 ————————————————————— ——————————-

external stimulus measures related to the COVID-19 pandemic have impacted our typical seasonal trends in credit volumes and arrears.

Growth in Loan Portfolio. The revenue that we derive from interest and fees is
largely driven by the balance of loans that we originate and purchase. Average
net finance receivables were $1.2 billion in 2021 and $1.1 billion in 2020. We
source our loans through our branches, direct mail program, retail partners,
digital partners, and our consumer website. Our loans are made almost
exclusively in geographic markets served by our network of branches. Increasing
the number of loans per branch and growing our state footprint allows us to
increase the number of loans that we are able to service. In April 2021, we
opened our first branch in Illinois, our twelfth state, and in September 2021,
we opened our first branch in Utah, our thirteenth state. In February 2022, we
opened our first branch in Mississippi, our fourteenth state. We expect to enter
at least an additional five states by the end of 2022. After assessing our
legacy branch network for clear opportunities to consolidate operations into
larger branches within close geographic proximity, we closed 31 branches during
the fourth quarter of 2021. This branch optimization is consistent with our
omni-channel strategy and builds upon our recent successes in entering new
states with a lighter branch footprint, while still providing customers with
best-in-class service. We plan to add additional branches in new and existing
states where it is favorable for us to conduct business.

Product Mix. We are exposed to different credit risks and charge different
interest rates and fees with respect to the various types of loans we offer. Our
product mix also varies to some extent by state, and we may further diversify
our product mix in the future. The interest rates and fees vary from state to
state, depending on the competitive environment and relevant laws and
regulations.

Asset Quality and Allowance for Credit Losses. Our results of operations are
highly dependent upon the credit quality of our loan portfolio. The credit
quality of our loan portfolio is the result of our ability to enforce sound
underwriting standards, maintain diligent servicing of the portfolio, and
respond to changing economic conditions as we grow our loan portfolio. Our
allowance for credit losses estimate changed on January 1, 2020, as we adopted
the CECL accounting model. See Note 2, "Significant Accounting Policies" of the
Notes to Consolidated Financial Statements in Part II, Item 8, "Financial
Statements and Supplementary Data," for more information on our allowance for
credit losses.

The primary underlying factors driving the provision for credit losses for each
loan type are our underwriting standards, the general economic conditions in the
areas in which we conduct business, loan portfolio growth, and the effectiveness
of our collection efforts. In addition, the market for repossessed automobiles
at auction is another underlying factor that we believe influences the provision
for credit losses for loans collateralized by automobiles. We monitor these
factors, and the amount and past due status of all loans, to identify trends
that might require us to modify the allowance for credit losses.

Interest Rates. Our costs of funds are affected by changes in interest rates, as
the interest rates that we pay on certain of our credit facilities are variable.
As a component of our strategy to manage the interest rate risk associated with
future interest payments on our variable-rate debt, we have purchased interest
rate cap contracts. As of December 31, 2021, we held interest rate cap contracts
with an aggregate notional principal amount of $550.0 million.

Operating cost. Our financial results are impacted by operating costs and head office functions. These costs are included in general and administrative expenses on our Consolidated Statements of Operations.

Components of the earnings situation

Interest and fee income. Our interest and fee income consists primarily of interest income on outstanding loans. The accrual of interest income on financial receivables is suspended when an account becomes 90 days past due. If the account is closed, the accrued interest income is reversed as a reduction in interest and fee income.

Most states allow certain fees in connection with lending activities, such as
loan origination fees, acquisition fees, and maintenance fees. Some states allow
for higher fees while keeping interest rates lower. Loan fees are additional
charges to the customer and generally are included in the annual percentage rate
shown in the Truth in Lending disclosure that we make to our customers. The fees
may or may not be refundable to the customer in the event of an early payoff,
depending on state law. Fees are recognized as income over the life of the loan
on the constant yield method.

Insurance Income, Net. Our insurance operations are a material part of our
overall business and are integral to our lending activities. Insurance income,
net consists primarily of earned premiums, net of certain direct costs, from the
sale of various optional payment and collateral protection insurance products
offered to customers who obtain loans directly from us. Insurance income, net
also includes the earned premiums and direct costs associated with the non-file
insurance that we purchase to protect us from


Regional Management Corp. | Annual Report 2021 on Form 10-K | 48 ————————————————- ——————————-


credit losses where, following an event of default, we are unable to take
possession of personal property collateral because our security interest is not
perfected. We do not sell insurance to non-borrowers. Direct costs included in
insurance income, net are claims paid, claims reserves, ceding fees, and premium
taxes paid. We do not allocate to insurance income, net, any other head office
or branch administrative costs associated with management of insurance
operations, management of captive insurance company, marketing and selling
insurance products, legal and compliance review, or internal audits.

As reinsurer, we maintain cash reserves for life insurance claims in an amount
determined by the unaffiliated insurance company. As of December 31, 2021, the
restricted cash balance for these cash reserves was $19.9 million. The
unaffiliated insurance company maintains the reserves for non-life claims.

Other Income. Our other income consists primarily of late charges assessed on
customers who fail to make a payment within a specified number of days following
the due date of the payment. In addition, fees for extending the due date of a
loan, returned check charges, commissions earned from the sale of an auto club
product, and interest income from restricted cash are included in other income.

Provision for Credit Losses. Provisions for credit losses are charged to income
in amounts that we estimate as sufficient to maintain an allowance for credit
losses at an adequate level to provide for lifetime expected credit losses on
the related finance receivable portfolio. Credit loss experience, current
conditions, reasonable and supportable economic forecasts, delinquency of
finance receivables, loan portfolio growth, the value of underlying collateral,
and management's judgment are factors used in assessing the overall adequacy of
the allowance and the resulting provision for credit losses. Our provision for
credit losses fluctuates so that we maintain an adequate credit loss allowance
that reflects lifetime expected credit losses for each finance receivable type.
Changes in our delinquency and net credit loss rates may result in changes to
our provision for credit losses. Substantial adjustments to the allowance may be
necessary if there are significant changes in forecasted economic conditions or
loan portfolio performance.

General and Administrative Expenses. Our financial results are impacted by the
costs of operations and head office functions. Those costs are included in
general and administrative expenses within our consolidated statements of
income. Our general and administrative expenses are comprised of four
categories: personnel, occupancy, marketing, and other. We measure our general
and administrative expenses as a percentage of average net finance receivables,
which we refer to as our operating expense ratio.

Our personnel expenses are the largest component of our general and administrative expenses and consist primarily of salaries and wages, overtime, contract labor, relocation expenses, incentives, benefits and related payroll taxes associated with all of our operations and headquarters employees.

Our occupancy expenses consist primarily of the cost of renting our facilities,
all of which are leased, and the utility, depreciation of leasehold improvements
and furniture and fixtures, communication services, data processing, and other
non-personnel costs associated with operating our business.

Our marketing expenses consist primarily of costs associated with our direct
mail campaigns (including postage and costs associated with selecting
recipients), digital marketing, maintaining our consumer website, and some local
marketing by branches. These costs are expensed as incurred.

Other expenses consist primarily of legal, compliance, audit, and consulting
costs, as well as non-employee director compensation, amortization of software
licenses and implementation costs, electronic payment processing costs, bank
service charges, office supplies, software maintenance and support, and credit
bureau charges. We frequently experience fluctuations in other expenses as we
grow our loan portfolio and expand our market footprint. For a discussion
regarding how risks and uncertainties associated with the current regulatory
environment may impact our future expenses, net income, and overall financial
condition, see Part I, Item 1A, "Risk Factors."

Interest Expense. Our interest expense consists primarily of paid and accrued
interest for debt, unused line fees, and amortization of debt issuance costs on
debt. Interest expense also includes costs attributable to the change in the
fair value of interest rate caps.

Income Taxes. Income taxes consist of state and federal income taxes. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The change in


Regional Management Corp. | Annual Report 2021 on Form 10-K | 49 ————————————————————— ——————————-


deferred tax assets and liabilities is recognized in the period in which the
change occurs, and the effects of future tax rate changes are recognized in the
period in which the enactment of new rates occurs.

operating results

The following table summarizes our results of operations, both in dollars and as a percentage of average net financial receivables:

                                                                      Year Ended December 31,
                                               2021                             2020                             2019
                                                      % of                             % of                             % of
                                                  Average Net                      Average Net                      Average Net
                                                    Finance                          Finance                          Finance
Dollars in thousands                Amount        Receivables        Amount        Receivables        Amount        Receivables
Revenue
Interest and fee income            $ 382,544               31.5 %   $ 335,215               31.2 %   $ 321,169               31.8 %
Insurance income, net                 35,482                2.9 %      28,349                2.6 %      20,817                2.1 %
Other income                          10,325                0.9 %      10,342                1.0 %      13,727                1.4 %
Total revenue                        428,351               35.3 %     373,906               34.8 %     355,713               35.3 %
Expenses
Provision for credit losses           89,015                7.3 %     123,810               11.5 %      99,611                9.9 %

Personnel                            119,833                9.9 %     109,560               10.2 %      94,000                9.3 %
Occupancy                             24,126                2.0 %      22,629                2.1 %      22,576                2.2 %
Marketing                             14,405                1.2 %      10,357                1.0 %       8,206                0.8 %
Other                                 37,150                3.0 %      33,770                3.1 %      32,202                3.3 %
Total general and administrative     195,514               16.1 %     176,316               16.4 %     156,984               15.6 %

Interest expense                      31,349                2.6 %      37,852                3.6 %      40,125                4.0 %
Income before income taxes           112,473                9.3 %      35,928                3.3 %      58,993                5.8 %
Income taxes                          23,786                2.0 %       9,198                0.8 %      14,261                1.4 %
Net income                         $  88,687                7.3 %   $  26,730                2.5 %   $  44,732                4.4 %

On the following pages you will find information explaining how our results of operations have changed from year to year.

comparison of December 31, 2021Against December 31, 2020

The following discussion and table describes the changes in financial receivables by product type:

• Small loans (?$2,500) – Outstanding small loans increased by $42.0 million,

or 10.4%, too $445.0 million at December 31, 2021from $403.1 million at

December 31, 2020. The increase was the result of new growth initiatives,

improved consumer credit demand and increased marketing, partially offset by

the general transition from small credit customers to large credit customers.

• Large loans (>$2,500) – Outstanding large loans increased by $254.1

million or 35.5% $969.4 million at December 31, 2021from $715.2

       million at December 31, 2020. The increase was due to new growth
       initiatives, improved customer loan demand, increased marketing, and the
       transition of small loan customers to large loans.

• Auto Loans – Outstanding auto loans decreased by $2.5 million,

or 65.5%, too $1.3 million at December 31, 2021from $3.9 million at

December 31, 2020. We have stopped issuing car loans November 2017

       to focus on growing our core loan portfolio.


Regional Management Corp. | Annual Report 2021 on Form 10-K | 50 ————————————————- ——————————-

• Personal Loans – Outstanding personal loans declined $3.6 millionor 25.2%,

       to $10.5 million at December 31, 2021, from $14.1 million at December 31,
       2020.


                                                             Net Finance Receivables by Product
                                                                                           YoY $           YoY %
Dollars in thousands                      December 31, 2021       December 31, 2020      Inc (Dec)       Inc (Dec)
Small loans                              $           445,023     $           403,062     $   41,961            10.4 %
Large loans                                          969,351                 715,210        254,141            35.5 %
Total core loans                                   1,414,374               1,118,272        296,102            26.5 %
Automobile loans                                       1,343                   3,889         (2,546 )         (65.5 )%
Retail loans                                          10,540                  14,098         (3,558 )         (25.2 )%
Total net finance receivables            $         1,426,257     $         1,136,259     $  289,998            25.5 %

Number of branches at period end                         350                     365            (15 )          (4.1 )%
Net finance receivables per branch       $             4,075     $             3,113     $      962            30.9 %


Comparison of the past year December 31, 2021compared to the end of the year
December 31, 2020

Net Income. Net income increased $62.0 million, or 231.8%, to $88.7 million in
2021, from $26.7 million in 2020. The increase was primarily due to an increase
in revenue of $54.4 million, a decrease in provision for credit losses of $34.8
million, and a decrease in interest expense of $6.5 million, offset by an
increase in general and administrative expenses of $19.2 million and an increase
in income taxes of $14.6 million.

Revenue. Total revenue increased $54.4 million, or 14.6%, to $428.4 million in
2021, from $373.9 million in 2020. The components of revenue are explained in
greater detail below.

Interest and Fee Income. Interest and fee income increased $47.3 million, or
14.1%, to $382.5 million in 2021, from $335.2 million in 2020. The increase was
primarily due to a 13.0% increase in average net finance receivables and a 0.3%
increase in average yield.

The table below shows the average net balance of financial receivables and the average yield for our credit products:

                              Average Net Finance Receivables for the Year Ended                           Average Yields for the Year Ended
                                                                             YoY %                                                                 YoY %
Dollars in thousands    December 31, 2021        December 31, 2020         Inc (Dec)         December 31, 2021         December 31, 2020         Inc (Dec)
Small loans             $          394,394       $          406,675               (3.0 )%                  38.2 %                    37.3 %              0.9 %
Large loans                        805,808                  642,085               25.5 %                   28.5 %                    27.9 %              0.6 %
Automobile loans                     2,422                    6,315              (61.6 )%                  13.0 %                    14.0 %             (1.0 )%
Retail loans                        11,259                   18,791              (40.1 )%                  18.3 %                    18.2 %              0.1 %
Total interest and
fee yield               $        1,213,883       $        1,073,866               13.0 %                   31.5 %                    31.2 %              0.3 %

Yields on small and large loans increased by 0.9% and 0.6% respectively in 2021 compared to 2020, mainly due to improved loan performance across the portfolio as a result of tighter lending during the pandemic and our overall mix shift towards Customers with higher credit quality, resulting in fewer accrued loans and fewer unwinds of accrued interest.

As a result of our focus on large loan growth over the last several years, the
large loan portfolio has grown faster than the rest of our loan products, and we
expect that this trend will continue in the future. Over time, large loan growth
will change our product mix, which will reduce our total interest and fee yield
percentage.


Regional Management Corp. | Annual Report 2021 on Form 10-K | 51 ————————————————- ——————————-


We continue to originate new loans with enhanced lending criteria. Demand for
our loan products has continued to recover as total originations increased to
$1.5 billion in 2021, from $1.1 billion in 2020. The following table represents
the principal balance of loans originated and refinanced:


                                                            Loans 

Created for the past year

                                                                                           YoY $           YoY %
Dollars in thousands                      December 31, 2021       December 31, 2020      Inc (Dec)       Inc (Dec)
Small loans                              $           602,613     $           516,124     $   86,489            16.8 %
Large loans                                          856,699                 557,952        298,747            53.5 %
Retail loans                                           8,275                   9,201           (926 )         (10.1 )%
Total loans originated                   $         1,467,587     $         1,083,277     $  384,310            35.5 %

The following table summarizes the components of the increase in interest and fee income:

                                                         Components of 

Increase in interest and fee income

                                               Year Ended December 31, 2021 

Compared to the end of the year December 31, 2020

                                                                        Increase (Decrease)
                                                                                        Volume &
Dollars in thousands                          Volume               Rate                   Rate                   Net
Small loans                                 $    (4,576 )       $     3,781         $           (114 )       $      (909 )
Large loans                                      45,737               3,530                      900              50,167
Automobile loans                                   (546 )               (64 )                     40                (570 )
Retail loans                                     (1,373 )                23                       (9 )            (1,359 )
Product mix                                       4,465              (4,066 )                   (399 )                 -

Overall increase in interest and fee income $43,707 $3,204

         $            418         $    47,329


The $47.3 million increase in interest and fee income in 2021 compared to 2020
was primarily driven by growth of our average net finance receivables and
improved credit performance across the portfolio, which resulted in fewer loans
in non-accrual status and fewer interest accrual reversals. These benefits were
partially offset by the intended product mix shift toward large loans and the
portfolio composition shift toward higher credit quality customers with lower
interest rates due to the use of enhanced credit standards during the pandemic.

Insurance Income, Net. Insurance income, net increased $7.1 million, or 25.2%,
to $35.5 million in 2021, from $28.3 million in 2020. In both 2021 and 2020,
personal property insurance premiums represented the largest component of
aggregate earned insurance premiums, and life insurance claims expense
represented the largest component of direct insurance expenses.

The following table summarizes the components of insurance revenue, net:

                                                    Insurance Premiums and 

Direct expenses for the past year

                                                                                                 YoY $            YoY %
Dollars in thousands                      December 31, 2021         December 31, 2020            B(W)             B(W)
Earned premiums                          $            53,218       $            42,816       $      10,402           24.3 %
Claims, reserves, and certain direct
expenses                                             (17,736 )                 (14,467 )            (3,269 )        (22.6 )%
Insurance income, net                    $            35,482       $            28,349       $       7,133           25.2 %


Fiscal 2021 earned premiums increased by $10.4 million and claims, reserves, and
certain direct expenses increased by $3.3 million, in each case compared to
2020. The increase in earned premiums was primarily due to loan growth and
adjusted pricing. The increase in claims, reserves, and certain direct expenses
compared to 2020 was primarily due to increases in insurance claims expense and
ceding fees of $2.8 million and $0.6 million, respectively, offset by a $0.3
million decrease in reserves for expected insurance claims during 2021.

other income. Other income of $10.3 million in 2021 was comparable to $10.3 million in 2020.

Provision for Credit Losses. Our provision for credit losses decreased $34.8
million, or 28.1%, to $89.0 million in 2021, from $123.8 million in 2020. The
decrease was due to a decrease in the allowance for credit losses of $18.4
million primarily due to the release of COVID-19 reserves in 2021 and a decrease
in net credit losses of $16.4 million compared to the prior-year period.


Regional Management Corp. | Annual Report 2021 on Form 10-K | 52 ————————————————- ——————————-


Allowance for Credit Losses. We evaluate delinquency and losses in each of our
loan products in establishing the allowance for credit losses. The following
table sets forth our allowance for credit losses compared to the related finance
receivables as of the end of the periods indicated:

                                                    Allowance for Credit Losses for the Year
                                                                      Ended
                                                      December 31,             December 31,
Dollars in thousands                                      2021                     2020
Beginning balance                                   $        150,000         $         62,200
Impact of CECL adoption                                            -                   60,100
COVID-19 reserve build (release)                             (16,000 )                 30,400
General reserve build (release) due to portfolio
change                                                        25,300                   (2,700 )
Ending balance                                      $        159,300         $        150,000
Allowance for credit losses as a percentage of
net finance receivables                                         11.2 %                   13.2 %


As of December 31, 2021, our allowance for credit losses included $14.4 million
of reserves related to the expected economic impact of the COVID-19 pandemic.
The allowance for credit losses included a net build of $25.3 million related to
portfolio growth and a base reserve release of $2.7 million during 2021 and
2020, respectively. We ran several macroeconomic stress scenarios, and our final
forecast assumes a resumption of normal unemployment rates at the end of 2022.
See Note 4, "Finance Receivables, Credit Quality Information, and Allowance for
Credit Losses" of the Notes to Consolidated Financial Statements in Part II,
Item 8, "Financial Statements and Supplementary Data," for additional
information regarding our allowance for credit losses.

Net Credit Losses. Net credit losses decreased $16.4 million, or 17.1%, to $79.7
million in 2021, from $96.1 million in 2020. The decrease was primarily due to
historically low delinquency levels. Net credit losses as a percentage of
average net finance receivables were 6.6% in 2021, compared to 8.9% in 2020. We
expect future increases to net credit losses as a percentage of average net
finance receivables as our delinquency rates rise toward more normalized levels.

Delinquency Performance. Our contractual delinquency as a percentage of net
finance receivables increased to 6.0% as of December 31, 2021, from 5.3% as of
December 31, 2020 as delinquency levels continued to normalize. Our credit
performance remains strong due to the quality and adaptability of our
underwriting criteria and the performance of our custom scorecards. We expect
contractual delinquency as a percentage of net finance receivables to continue
to rise towards more normalized levels in future periods.

The following tables include delinquency balances by aging category and by
product:

                                         Contractual Delinquency by Aging
Dollars in thousands               December 31, 2021           December 31, 2020
Current                         $ 1,237,165        86.7 %   $   990,467        87.2 %
1 to 29 days past due               104,201         7.3 %        85,342         7.5 %
Delinquent accounts:
30 to 59 days                        25,283         1.9 %        18,381         1.6 %
60 to 89 days                        20,395         1.4 %        14,955         1.3 %
90 to 119 days                       15,962         1.0 %        10,496         0.9 %
120 to 149 days                      12,466         0.9 %         9,085         0.8 %
150 to 179 days                      10,785         0.8 %         7,533         0.7 %
Total contractual delinquency   $    84,891         6.0 %   $    60,450         5.3 %
Total net finance receivables   $ 1,426,257       100.0 %   $ 1,136,259       100.0 %



                                        Contractual Delinquency by Product
Dollars in thousands               December 31, 2021           December 31, 2020
Small loans                     $    39,794          8.9 %   $    27,703        6.9 %
Large loans                          44,264          4.6 %        31,259        4.4 %
Automobile loans                         84          6.3 %           296        7.6 %
Retail loans                            749          7.1 %         1,192        8.5 %
Total contractual delinquency   $    84,891          6.0 %   $    60,450        5.3 %


Regional Management Corp. | Annual Report 2021 on Form 10-K | 53 ————————————————- ——————————-



General and Administrative Expenses. Our general and administrative expenses
increased $19.2 million, or 10.9%, to $195.5 million in 2021 from $176.3 million
in 2020. The absolute dollar increase in general and administrative expenses is
explained in greater detail below.

Personnel. The largest component of general and administrative expenses is
personnel expense, which increased $10.3 million, or 9.4%, to $119.8 million in
2021, from $109.6 million in 2020. We had several offsetting increases and
decreases in personnel expenses during 2021. Labor expense and incentive costs
increased $7.8 million and $7.4 million, respectively, compared to 2020.
Additionally, 2021 included branch optimization costs of $0.3 million.
Capitalized loan origination costs, which reduced personnel expenses, increased
by $1.8 million compared to the 2020 due to an increase in loans originated.
Additionally, 2020 included executive transition costs of $3.0 million and
severance expense related to workforce actions of $0.8 million.

Occupancy. Occupancy expenses increased $1.5 million, or 6.6%, to $24.1 million
in 2021, from $22.6 million in 2020. The increase was primarily due to costs
related to our branch optimization initiative of $1.1 million and an increase in
COVID-19 enhanced sanitation efforts of $0.2 million.

Marketing. Marketing expenses increased $4.0 million, or 39.1%, to $14.4 million
in 2021, from $10.4 million in 2020. The increase was primarily due to increased
activity in our direct mail campaigns and digital marketing to support growth
and abnormally low marketing spend in the second quarter of 2020. At the outset
of the pandemic during the second quarter of 2020, we temporarily paused direct
mail and digital marketing aimed at customer acquisition, before gradually
restarting our marketing campaigns in May 2020.

Other Expenses. Other expenses increased $3.4 million, or 10.0%, to $37.2
million in 2021, from $33.8 million in 2020, primarily due to increased
investment in digital and technological capabilities of $3.0 million.
Additionally, we often experience increases in other expenses including legal
and settlement expenses, external fraud, collections expense, bank fees, and
certain professional expenses as we grow our loan portfolio and expand our
market footprint.

Operating Expense Ratio. Our operating expense ratio decreased by 0.3% to 16.1%
during 2021 from 16.4% during 2020. Fiscal 2021 included a ratio increase of
0.1% related to branch optimization expenses of $1.6 million. Fiscal 2020
included non-operating expenses of $3.1 million of executive transition costs,
severance expense related to workforce actions of $0.8 million, and system
outage costs of $0.7 million which increased our operating expense ratio by 0.4%
in 2020.

Interest Expense. Interest expense on debt decreased $6.5 million, or 17.2%, to
$31.3 million in 2021, from $37.9 million in 2020. The decrease was primarily
due to favorable mark-to-market adjustments on interest rate caps of $2.7
million in 2021 compared to unfavorable mark-to-market adjustments on interest
rate caps of $0.3 million in 2020 and a decrease in our average cost of debt,
offset by an increase in the average balance of our debt facilities. The average
cost of our total debt decreased 1.60% to 3.59% in 2021, from 5.19% in 2020,
primarily reflecting the lower rate environment.

Income Taxes. Income taxes increased $14.6 million, or 158.6%, to $23.8 million
in 2021, from $9.2 million in 2020. The increase was primarily due to a $76.5
million increase in income before taxes compared to 2020. Our effective tax rate
decreased to 21.1% in 2021, compared to 25.6% in 2020. Fiscal 2021 was impacted
by tax benefits from the exercise and vesting of share-based awards and amended
state tax returns. The effective tax rate for 2020 was impacted by the margin
tax in Texas that was based on gross income, rather than net income, and
non-deductible executive compensation (including executive transition costs)
under Internal Revenue Code Section 162(m) that was not correlated to income
before taxes.

Comparison of the past year December 31, 2020compared to the end of the year
December 31, 2019

For a comparison of our results of operations for the years ended December 31,
2020 and December 31, 2019, see Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2020 (which was filed with
the SEC on February 25, 2021), which comparison is incorporated by reference
herein.

liquidity and capital resources

Our primary cash needs relate to the funding of our lending activities and, to a
lesser extent, expenditures relating to improving our technology infrastructure
and expanding and maintaining our branch locations. We have historically
financed, and plan to continue to finance, our short- and long-term operating
liquidity and capital needs through a combination of cash flows from operations
and borrowings under our debt facilities, including our senior revolving credit
facility, revolving warehouse credit facilities, and asset-backed securitization
transactions, all of which are described below. We continue to seek ways to
diversify our


Regional Management Corp. | Annual Report 2021 on Form 10-K | 54 ————————————————- ——————————-


funding sources. As of December 31, 2021, we had a funded debt-to-equity ratio
(debt divided by total stockholders' equity) of 3.9 to 1.0 and a stockholders'
equity ratio (total stockholders' equity as a percentage of total assets) of
19.4%.

Cash and cash equivalents increased to $10.5 million as of December 31, 2021,
from $8.1 million as of December 31, 2020. As of December 31, 2021 and December
31, 2020 we had $199.2 million and $186.3 million, respectively, of immediate
availability to draw down cash from our revolving credit facilities. Our unused
capacity on our revolving credit facilities (subject to the borrowing base) was
$556.8 million and $438.1 million as of December 31, 2021 and 2020,
respectively. Our total debt increased to $1.1 billion as of December 31, 2021,
from $768.9 million as of December 31, 2020.

A summary of future significant financial obligations subject to repayment as of December 31, 2021 is as follows:

                                                Future Material Financial Obligations by Period
                                               Next Twelve        Beyond Twelve
Dollars in thousands                             Months              Months              Total

Principal payments on debt obligations $74,703 $1,033,250 $1,107,953
Interest payments on debt obligations

                28,635              60,710            89,345
Operating lease obligations                           7,248              28,068            35,316
Total                                         $     110,586       $   1,122,028       $ 1,232,614

Based on the expected cash flows, management believes that the cash flows from operations and our various financing alternatives will provide adequate financing for debt maturities and operations over the next twelve months and into the future.

From time to time, we have extended the maturity date of and increased the
borrowing limits under our senior revolving credit facility. While we have
successfully obtained such extensions and increases in the past, there can be no
assurance that we will be able to do so if and when needed in the future. In
addition, the revolving period maturities of our securitizations and warehouse
credit facilities (each as described below within "Financing Arrangements")
range from October 2022 to September 2026. There can be no assurance that we
will be able to secure an extension of the warehouse credit facilities or close
additional securitization transactions if and when needed in the future.

Share buybacks and dividends.

In October 2020, we announced that our Board had authorized a stock repurchase
program allowing for the repurchase of up to $30.0 million of our outstanding
shares of common stock in open market purchases, privately negotiated
transactions, or through other structures in accordance with applicable federal
securities laws. The authorization was effective immediately and extended
through October 22, 2022. In May 2021, we completed this stock repurchase
program, repurchasing a total of 1.0 million shares pursuant to the program.

In May 2021, we announced that our Board had authorized a stock repurchase
program, allowing for the repurchase of up to $30.0 million of our outstanding
shares of common stock. Share repurchases under the stock repurchase program may
be made in the open market at prevailing market prices or through privately
negotiated transactions in accordance with applicable federal securities laws.
The authorization was effective immediately and extended through April 29, 2023.
In August 2021, we announced that our Board had approved a $20.0 million
increase in the amount authorized under the stock repurchase program, from $30.0
million to $50.0 million. The authorization was effective immediately and
extended through July 29, 2023. As of December 31, 2021, we had repurchased 0.9
million shares of common stock at a total cost of $49.4 million under this stock
repurchase program. Under these programs, we repurchased an aggregate of 1.5
million shares of common stock at a total cost of $67.4 million in 2021. See
Note 20, "Subsequent Events" of the Notes to the Consolidated Financial
Statements in Part II, Item 8, "Financial Statements and Supplementary Data,"
for more information regarding the completion of the 2021 repurchase program
following the end of the year and a new repurchase program announced on February
9, 2022.


Regional Management Corp. | Annual Report 2021 on Form 10-K | 55 ————————————————————— ——————————-

The Board of Directors, in its sole discretion, may declare and pay cash dividends on our common stock. The table below shows the dividends declared and paid for 2021:

                                                                                   Dividends Declared Per
Three Months Ended   Declaration Date       Record Date         Payment Date            Common Share
March 31, 2021       February 10, 2021   February 23, 2021     March 12, 2021     $                   0.20
June 30, 2021           May 4, 2021        May 26, 2021        June 15, 2021      $                   0.25
September 30, 2021    August 3, 2021      August 25, 2021    September 15, 2021   $                   0.25
December 31, 2021    November 2, 2021    November 24, 2021   December 15, 2021    $                   0.25
Total                                                                             $                   0.95


The Board declared and paid $9.5 million of cash dividends on our common stock
during 2021. The declaration, amount, and payment of any future cash dividends
on shares of our common stock will be at the discretion of the Board. See Note
20, "Subsequent Events" of the Notes to Consolidated Financial Statements in
Part II, Item 8, "Financial Statements and Supplementary Data," for more
information regarding our quarterly cash dividend following the end of the year.

While we intend to pay our quarterly dividend for the foreseeable future, all
subsequent dividends will be reviewed and declared at the discretion of the
Board and will depend on many factors, including our financial condition,
earnings, cash flows, capital requirements, level of indebtedness, statutory and
contractual restrictions applicable to the payment of dividends, and other
considerations that the Board deems relevant. Our dividend payments may change
from time to time, and the Board may choose not to continue to declare dividends
in the future.

Cash Flow.

Operating Activities. Net cash provided by operating activities in 2021 was
$189.0 million, compared to $165.0 million provided by operating activities in
2020, a net increase of $24.0 million. The increase was primarily due to the
growth in our average net finance receivables.

Investing Activities. Investing activities consist of originations of finance
receivables, purchases of intangible assets, and purchases of property and
equipment for new and existing branches. Net cash used in investing activities
in 2021 was $355.1 million, compared to $91.7 million in 2020, a net increase in
cash used of $263.4 million. The increase in cash used was primarily due to
increased net originations of finance receivables.

Financing Activities. Financing activities consist of borrowings and payments on
our outstanding indebtedness. In 2021, net cash provided by financing activities
was $243.4 million, compared to net cash used in financing activities of $57.8
million in 2020, a net increase of $301.2 million. The net increase in cash
provided was the result of a $377.9 million net increase in advances on debt
instruments, partially offset by an increase in the repurchase of common stock
of $55.4 million, an increase in cash dividends of $7.3 million, an increase in
taxes paid of $8.3 million, and an increase in payments for debt issuance costs
of $5.7 million.

Financing Arrangements.

Senior Revolving Credit Facility. In December 2021, we amended and restated our
senior revolving credit facility to, among other things, decrease the
availability under the facility from $640 million to $500 million and extend the
maturity of the facility from September 2022 to September 2024. Excluding the
receivables held by our variable interest entities (each, a "VIE"), the senior
revolving credit facility is secured by substantially all of our finance
receivables and equity interests of the majority of our subsidiaries. Advances
on the senior revolving credit facility are capped at 83% of eligible secured
finance receivables (83% of eligible secured finance receivables as of December
31, 2021). As of December 31, 2021, we had $199.2 million of available liquidity
under the facility and held $10.5 million in unrestricted cash. Borrowings under
the facility bear interest, payable monthly, at rates equal to one-month LIBOR,
with a LIBOR floor of 0.50%, plus a 3.00% margin. The effective interest rate
was 3.50% at December 31, 2021. The amended and restated facility provides for a
process to transition from LIBOR to a new benchmark in certain circumstances. We
pay a flat unused line fee of 0.50%.

Our debt under the senior revolving credit facility was $112.1 million as of
December 31, 2021. In advance of its September 2024 maturity date, we intend to
extend the maturity date of the amended and restated senior revolving credit
facility or take other appropriate action to address repayment upon maturity.
See Part I, Item 1A, "Risk Factors" and the filings referenced therein for a
discussion of risks related to our amended and restated senior revolving credit
facility, including refinancing risk.


Regional Management Corp. | Annual Report 2021 on Form 10-K | 56 ————————————————- ——————————-


Variable Interest Entity Debt. As part of our overall funding strategy, we have
transferred certain finance receivables to affiliated VIEs for asset-backed
financing transactions, including securitizations. The following debt
arrangements are issued by our wholly-owned, bankruptcy-remote, SPEs, which are
considered VIEs under GAAP and are consolidated into the financial statements of
their primary beneficiary. We are considered to be the primary beneficiary
because we have (i) power over the significant activities through our role as
servicer of the finance receivables under each debt arrangement and (ii) the
obligation to absorb losses or the right to receive returns that could be
significant through our interest in the monthly residual cash flows of the SPEs.

These debts are supported by the expected cash flows from the underlying
collateralized finance receivables. Collections on these finance receivables are
remitted to restricted cash collection accounts, which totaled $107.7 million
and $46.6 million as of December 31, 2021 and 2020, respectively. Cash inflows
from the finance receivables are distributed to the lenders/investors, the
service providers, and/or the residual interest that we own in accordance with a
monthly contractual priority of payments. The SPEs pay a servicing fee to us,
which is eliminated in consolidation.

At each sale of receivables from our affiliates to the SPEs, we make certain
representations and warranties about the quality and nature of the
collateralized receivables. The debt arrangements require us to repurchase the
receivables in certain circumstances, including circumstances in which the
representations and warranties made by us concerning the quality and
characteristics of the receivables are inaccurate. Assets transferred to SPEs
are legally isolated from us and our affiliates, and the claims of our and our
affiliates' creditors. Further, the assets of each SPE are owned by such SPE and
are not available to satisfy the debts or other obligations of us or any of our
affiliates. See Part I, Item 1A, "Risk Factors" and the filings referenced
therein for a discussion of risks related to our variable interest entity debt.

RMR II Revolving Warehouse Credit Facility. In April 2021, we and our
wholly-owned SPE, Regional Management Receivables II, LLC ("RMR II"), amended
and restated the credit agreement that provides for a revolving warehouse credit
facility to RMR II to, among other things, extend the date at which the facility
converts to an amortizing loan and the termination date to March 2023 and March
2024, respectively, decrease the total facility from $125 million to $75
million, increase the cap on facility advances from 80% to 83% of eligible
finance receivables, and increase the rate at which borrowings under the
facility bear interest, payable monthly, at a blended rate equal to three-month
LIBOR, with a LIBOR floor of 0.25%, plus a margin of 2.35% (2.15% prior to the
April 2021 amendment). The debt is secured by finance receivables and other
related assets that we purchased from our affiliates, which we then sold and
transferred to RMR II. The effective interest rate was 2.60% at December 31,
2021. RMR II pays an unused commitment fee between 0.35% and 0.85% based upon
the average daily utilization of the facility. The RMR II revolving warehouse
credit facility provides for a process to transition from LIBOR to a new
benchmark in certain circumstances. As of December 31, 2021, our debt under the
credit facility was $52.5 million.

RMR IV Revolving Warehouse Credit Facility. In April 2021, we and our
wholly-owned SPE, Regional Management Receivables IV, LLC ("RMR IV"), entered
into a credit agreement that provides for a $125 million revolving warehouse
credit facility to RMR IV. The facility converts to an amortizing loan in April
2023 and terminates in April 2024. The debt is secured by finance receivables
and other related assets that we purchased from our affiliates, which we then
sold and transferred to RMR IV. Advances on the facility are capped at 81% of
eligible finance receivables. Borrowings under the facility bear interest,
payable monthly, at a rate equal to one-month LIBOR, plus a margin of 2.35%. The
effective interest rate was 2.45% at December 31, 2021. RMR IV pays an unused
commitment fee between 0.35% and 0.70% based upon the average daily utilization
of the facility. The RMR IV revolving warehouse credit facility provides for a
process to transition from LIBOR to a new benchmark in certain circumstances. As
of December 31, 2021, our debt under the credit facility was $20.1 million.

RMR V Revolving Warehouse Credit Facility. In April 2021, we and our
wholly-owned SPE, Regional Management Receivables V, LLC ("RMR V"), entered into
a credit agreement that provides for a $100 million revolving warehouse credit
facility to RMR V. The facility converts to an amortizing loan in October 2022
and terminates in October 2023. The debt is secured by finance receivables and
other related assets that we purchased from our affiliates, which we then sold
and transferred to RMR V. Advances on the facility are capped at 80% of eligible
finance receivables. Borrowings under the facility bear interest, payable
monthly, at a per annum rate, which in the case of a conduit lender is the
commercial paper rate, plus a margin of 2.20%. The effective interest rate was
2.41% at December 31, 2021. RMR V pays an unused commitment fee between 0.45%
and 0.75% based upon the average daily utilization of the facility. As of
December 31, 2021, our debt under the credit facility was $59.5 million.

RMIT 2019-1 Securitization. In October 2019, we, our wholly-owned SPE, Regional
Management Receivables III, LLC ("RMR III"), and our indirect wholly-owned SPE,
Regional Management Issuance Trust 2019-1 ("RMIT 2019-1"), completed a private
offering and sale of $130 million of asset-backed notes. The transaction
consisted of the issuance of three classes of fixed-rate asset-backed notes by
RMIT 2019-1. The asset-backed notes are secured by finance receivables and other
related assets that RMR III purchased from us, which RMR III then sold and
transferred to RMIT 2019-1. The notes had a revolving period ending in October


Regional Management Corp. | Annual Report 2021 on Form 10-K | 57 ————————————————————— ——————————-


2021, with a final maturity date in November 2028. Borrowings under the RMIT
2019-1 securitization bear interest, payable monthly, at an effective interest
rate of 3.19% as of December 31, 2021. Prior to maturity in November 2028, we
may redeem the notes in full, but not in part, at our option on any note payment
date on or after the payment date occurring in November 2021. During 2021, we
made principal payments of $20.8 million after the completion of the revolving
period. As of December 31, 2021, our debt under the securitization was $109.4
million. See Note 20, "Subsequent Events" of the Notes to Consolidated Financial
Statements in Part II, Item 8, "Financial Statements and Supplementary Data,"
for additional information regarding this securitization.

RMIT 2020-1 Securitization. In September 2020, we, our wholly-owned SPE, RMR
III, and our indirect wholly-owned SPE, Regional Management Issuance Trust
2020-1 ("RMIT 2020-1"), completed a private offering and sale of $180 million of
asset-backed notes. The transaction consisted of the issuance of four classes of
fixed-rate asset-backed notes by RMIT 2020-1. The asset-backed notes are secured
by finance receivables and other related assets that RMR III purchased from us,
which RMR III then sold and transferred to RMIT 2020-1. The notes have a
revolving period ending in September 2023, with a final maturity date in October
2030. Borrowings under the RMIT 2020-1 securitization bear interest, payable
monthly, at an effective interest rate of 2.85% as of December 31, 2021. Prior
to maturity in October 2030, we may redeem the notes in full, but not in part,
at our option on any business day on or after the payment date occurring in
October 2023. No payments of principal of the notes will be made during the
revolving period. As of December 31, 2021, our debt under the securitization was
$180.2 million.

RMIT 2021-1 Securitization. In February 2021, we, our wholly-owned SPE, RMR III,
and our indirect wholly-owned SPE, Regional Management Issuance Trust 2021-1
("RMIT 2021-1"), completed a private offering and sale of $249 million of
asset-backed notes. The transaction consisted of the issuance of four classes of
fixed-rate asset-backed notes by RMIT 2021-1. The asset-backed notes are secured
by finance receivables and other related assets that RMR III purchased from us,
which RMR III then sold and transferred to RMIT 2021-1. The notes have a
revolving period ending in February 2024, with a final maturity date in March
2031. Borrowings under the RMIT 2021-1 securitization bear interest, payable
monthly, at an effective interest rate of 2.08% as of December 31, 2021. Prior
to maturity in March 2031, we may redeem the notes in full, but not in part, at
our option on any business day on or after the payment date occurring in March
2024. No payments of principal of the notes will be made during the revolving
period. As of December 31, 2021, our debt under the securitization was $248.9
million.

RMIT 2021-2 Securitization. In July 2021, we, our wholly-owned SPE, RMR III, and
our indirect wholly-owned SPE, Regional Management Issuance Trust 2021-2 ("RMIT
2021-2"), completed a private offering and sale of $200 million of asset-backed
notes. The transaction consisted of the issuance of four classes of fixed-rate
asset-backed notes by RMIT 2021-2. The asset-backed notes are secured by finance
receivables and other related assets that RMR III purchased from us, which RMR
III then sold and transferred to RMIT 2021-2. The notes have a revolving period
ending in July 2026, with a final maturity date in August 2033. Borrowings under
the RMIT 2021-2 securitization bear interest, payable monthly, at an effective
interest rate of 2.30% as of December 31, 2021. Prior to maturity in August
2033, we may redeem the notes in full, but not in part, at our option on any
business day on or after the payment date occurring in August 2026. No payments
of principal of the notes will be made during the revolving period. As of
December 31, 2021, our debt under the securitization was $200.2 million.

RMIT 2021-3 Securitization. In October 2021, we, our wholly-owned SPE, RMR III,
and our indirect wholly-owned SPE, Regional Management Issuance Trust 2021-3
("RMIT 2021-3"), completed a private offering and sale of $125 million of
asset-backed notes. The transaction consisted of the issuance of fixed-rate
asset-backed notes by RMIT 2021-3. The asset-backed notes are secured by finance
receivables and other related assets that RMR III purchased from us, which RMR
III then sold and transferred to RMIT 2021-3. The notes have a revolving period
ending in September 2026, with a final maturity date in October 2033. Borrowings
under the RMIT 2021-3 securitization bear interest, payable monthly, at an
effective interest rate of 3.88% as of December 31, 2021. Prior to maturity in
October 2033, we may redeem the notes in full, but not in part, at our option on
any business day on or after the payment date occurring in October 2024. No
payments of principal of the notes will be made during the revolving period. As
of December 31, 2021, our debt under the securitization was $125.2 million.

RMIT 2022-1 Securitization. See Note 20, "Subsequent Events" of the Notes to
Consolidated Financial Statements in Part II, Item 8, "Financial Statements and
Supplementary Data," for information regarding the completion of a private
offering and sale of $250.0 million of asset-backed notes following the end of
the year.

Our debt arrangements are subject to certain covenants, including monthly and
annual reporting, maintenance of specified interest coverage and debt ratios,
restrictions on distributions, limitations on other indebtedness, and certain
other restrictions. At December 31, 2021, we were in compliance with all debt
covenants.

We expect that the LIBOR reference rate will be phased out by June 2023. Our
senior revolving credit facility, RMR II revolving warehouse credit facility,
and RMR IV revolving warehouse credit facility each use LIBOR as a benchmark in
determining


Regional Management Corp. | Annual Report 2021 on Form 10-K | 58 ————————————————- ——————————-


the cost of funds borrowed. These credit facilities provide for a process to
transition from LIBOR to a new benchmark, if necessary. We plan to continue to
work with our banking partners to modify our credit agreements to contemplate
the cessation of the LIBOR reference rate. We will also continue to work to
identify a replacement rate to LIBOR and look to adjust the pricing structure of
our facilities as needed.

Restricted Cash Reserve Accounts.

RMR II Revolving Warehouse Credit Facility. The credit agreement governing the
RMR II revolving warehouse credit facility requires that we maintain a 1% cash
reserve based upon the ending finance receivables balance of the facility. As of
December 31, 2021, the warehouse facility cash reserve requirement totaled $0.6
million. The warehouse facility is supported by the expected cash flows from the
underlying collateralized finance receivables. Collections are remitted to a
restricted cash collection account, which totaled $5.1 million as of December
31, 2021.

RMR IV Revolving Warehouse Credit Facility. The credit agreement governing the
RMR IV revolving warehouse credit facility requires that we maintain a 1% cash
reserve based upon the ending finance receivables balance of the facility. As of
December 31, 2021, the warehouse facility cash reserve requirement totaled $0.2
million. The warehouse facility is supported by the expected cash flows from the
underlying collateralized finance receivables. Collections are remitted to a
restricted cash collection account, which totaled $2.1 million as of December
31, 2021.

RMR V Revolving Warehouse Credit Facility. The credit agreement governing the
RMR V revolving warehouse credit facility requires that we maintain a 1% cash
reserve based upon the ending finance receivables balance of the facility. As of
December 31, 2021, the warehouse facility cash reserve requirement totaled $0.7
million. The warehouse facility is supported by the expected cash flows from the
underlying collateralized finance receivables. Collections are remitted to a
restricted cash collection account, which totaled $5.1 million as of December
31, 2021.

RMIT 2019-1 Securitization. As required under the transaction documents
governing the RMIT 2019-1 securitization, we deposited $1.4 million of cash
proceeds into a restricted cash reserve account at closing. The securitization
is supported by the expected cash flows from the underlying collateralized
finance receivables. Collections are remitted to a restricted cash collection
account, which totaled $11.8 million as of December 31, 2021.

RMIT 2020-1 Securitization. As required under the transaction documents
governing the RMIT 2020-1 securitization, we deposited $1.9 million of cash
proceeds into a restricted cash reserve account at closing. The securitization
is supported by the expected cash flows from the underlying collateralized
finance receivables. Collections are remitted to a restricted cash collection
account, which totaled $16.4 million as of December 31, 2021.

RMIT 2021-1 Securitization. As required under the transaction documents
governing the RMIT 2021-1 securitization, we deposited $2.6 million of cash
proceeds into a restricted cash reserve account at closing. The securitization
is supported by the expected cash flows from the underlying collateralized
finance receivables. Collections are remitted to a restricted cash collection
account, which totaled $26.6 million as of December 31, 2021.

RMIT 2021-2 Securitization. As required under the transaction documents
governing the RMIT 2021-2 securitization, we deposited $2.1 million of cash
proceeds into a restricted cash reserve account at closing. The securitization
is supported by the expected cash flows from the underlying collateralized
finance receivables. Collections are remitted to a restricted cash collection
account, which totaled $21.0 million as of December 31, 2021.

RMIT 2021-3 Securitization. As required under the transaction documents
governing the RMIT 2021-3 securitization, we deposited $1.5 million of cash
proceeds into a restricted cash reserve account at closing. The securitization
is supported by the expected cash flows from the underlying collateralized
finance receivables. Collections are remitted to a restricted cash collection
account, which totaled $19.6 million as of December 31, 2021.

RMC Reinsurance. Our wholly-owned subsidiary, RMC Reinsurance, Ltd., is required
to maintain cash reserves against life insurance policies ceded to it, as
determined by the ceding company. As of December 31, 2021, cash reserves for
reinsurance were $19.9 million.

Impact of Inflation

Our results of operations and financial condition are presented based on
historical cost, except for interest rate caps, which are carried at fair value.
While it is difficult to accurately measure the impact of inflation due to the
imprecise nature of the


Regional Management Corp. | Annual Report 2021 on Form 10-K | 59 ————————————————————— ——————————-

Estimates are required, we believe that the impact of inflation, if any, on our results of operations and financial condition has not been material to date.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with GAAP and conform to general practices within the
consumer finance industry. The preparation of these financial statements
requires estimates and assumptions that affect the reported amounts of assets
and liabilities, revenues and expenses, and disclosure of contingent assets and
liabilities for the periods indicated in the financial statements. Management
bases estimates on historical experience and other assumptions it believes to be
reasonable under the circumstances and evaluates these estimates on an ongoing
basis. Actual results may differ from these estimates under different
assumptions or conditions.

Allowance for Loan Losses.

The allowance for credit losses is based on historical credit experience,
current conditions, and reasonable and supportable economic forecasts. The
historical loss experience is adjusted for quantitative and qualitative factors
that are not fully reflected in the historical data. In determining our estimate
of expected credit losses, we evaluate information related to credit metrics,
changes in our lending strategies and underwriting practices, and the current
and forecasted direction of the economic and business environment. These metrics
include, but are not limited to, loan portfolio mix and growth, unemployment,
credit loss trends, delinquency trends, changes in underwriting, and operational
risks.

We selected a static pool Probability of Default ("PD") / Loss Given Default
("LGD") model to estimate our base allowance for credit losses, in which the
estimated loss is equal to the product of PD and LGD. Historical static pools of
net finance receivables are tracked over the term of the pools to identify the
incidences of loss (PDs) and the average severity of losses (LGDs).

To enhance the precision of the allowance for credit loss estimate, we evaluate
our finance receivable portfolio on a pool basis and segment each pool of
finance receivables with similar credit risk characteristics. As part of our
evaluation, we consider loan portfolio characteristics such as product type,
loan size, loan term, internal or external credit scores, delinquency status,
geographical location, and vintage. Based on analysis of historical loss
experience, we selected the following segmentation: product type, Fair Isaac
Corporation score, and delinquency status.

We account for certain finance receivables that have been modified by bankruptcy
proceedings or company loss mitigation policies using a discounted cash flows
approach to properly reserve for customer concessions (rate reductions and term
extensions).

As finance receivables are originated, provisions for credit losses are recorded
in amounts sufficient to maintain an allowance for credit losses at an adequate
level to provide for estimated losses over the contractual life of the finance
receivables (considering the effect of prepayments). Subsequent changes to the
contractual terms that are a result of re-underwriting are not included in the
finance receivable's contractual life (considering the effect of prepayments).
We use our segmentation loss experience to forecast expected credit losses.
Historical information about losses generally provides a basis for the estimate
of expected credit losses. We also consider the need to adjust historical
information to reflect the extent to which current conditions differ from the
conditions that existed for the period over which historical information was
evaluated. These adjustments to historical loss information may be qualitative
or quantitative in nature.

Macroeconomic forecasts are required for our allowance for credit loss model and
require significant judgment and estimation uncertainty. We consider key
economic factors, most notably unemployment rates, to incorporate into our
estimate of the allowance for credit losses. We engaged a major rating service
provider to assist with compiling a reasonable and supportable forecast which we
use to support the adjustments of our historical loss experience. We do not
require reversion adjustments, as the contractual lives of our loan portfolio
(considering the effect of prepayments) are shorter than our available forecast
periods.

Due to the judgment and uncertainty in estimating the expected credit losses, we
may experience changes to the macroeconomic assumptions within our forecast, as
well as changes to our credit loss performance outlook, both of which could lead
to further changes in our allowance for credit losses, allowance as a percentage
of net finance receivables, and provision for credit losses.

During 2020, management captured the potential impact of the COVID-19 pandemic
in its macroeconomic forecast, we had reserved $33.4 million as of June 30,
2020. Overall improvements in the pandemic led us to release that reserve
gradually. As of December 31, 2021, we had $14.4 million in reserves. COVID-19
has created conditions that increase the level of uncertainty associated with
our estimate of the amount and timing of future credit losses from our loan
portfolio.


Regional Management Corp. | Annual Report 2021 on Form 10-K | 60 ————————————————————— ——————————-


Macroeconomic Sensitivity. To demonstrate the sensitivity of forecasting
macroeconomic conditions, we stressed our macroeconomic model with an increase
of 100 bps to unemployment that would have increased our reserves as of December
31, 2021 by $1.8 million.

The macroeconomic scenarios are highly influenced by timing, severity, and
duration of changes in the underlying economic factors. This makes it difficult
to estimate how potential changes in economic factors affect the estimated
credit losses. Therefore, this hypothetical analysis is not intended to
represent our expectation of changes in our estimate of expected credit losses
due to a change in the macroeconomic environment, nor does it consider
management's judgment of other quantitative and qualitative information which
could increase or decrease the estimate.


Regional Management Corp. | Annual Report 2021 on Form 10-K | 61 ————————————————- ——————————-

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