Regional Management Corp (RM) Seeks to Capitalize on Underserved Credit Markets in Q2 2025

Regional Management Corp (NYSE: RM), a leading provider of installment loans to underserved borrowers, is set to release its second-quarter 2025 earnings on July 30. The report will serve as a critical update on the company's progress in expanding its footprint in non-traditional lending markets and executing its multi-channel diversification strategy. With a focus on customers excluded from mainstream credit options, RM's growth trajectory hinges on its ability to navigate macroeconomic risks while capitalizing on structural trends in financial inclusion.

The Underserved Credit Opportunity
The consumer credit market is undergoing a transformation, driven by growing demand for accessible lending solutions. A recent ResearchAndMarkets report projects the global market to expand from $11.73 billion in 2024 to $21.42 billion by 2034, fueled by digitalization, alternative credit models, and rising financial inclusion efforts. For RM, this presents a tailwind: its core business targets borrowers who lack access to traditional bank loans, a demographic expected to grow as fintech disrupts legacy systems.

RM's Q1 2025 results hinted at this potential. Revenue rose 7% to $153 million, driven by an 8% increase in net receivables, while auto-secured loans—a high-margin segment—surged 37% year-over-year. This segment's growth reflects the company's “barbell strategy,” which balances risk by pairing high-yield, short-term loans with lower-risk auto-secured products. Such diversification is critical in volatile economic environments, as it reduces reliance on any single revenue stream.

Strategic Moves in Diversifying Lending Channels
RM's multi-channel approach is central to its growth thesis. The company operates through branches, direct mail, digital partnerships, and its website, a strategy that broadens its reach while reducing geographic or demographic constraints. Notably, RM opened 15 new branches since September 2024, with 10 in entirely new markets. These expansions contributed to revenue growth, with new branches typically generating positive pre-provision net income by their third month of operation, according to management.

The digital channel's role is also expanding. RM's website and partnerships with fintech platforms allow it to attract younger, tech-savvy borrowers while maintaining cost discipline. This hybrid model is key to competing with traditional banks and newer BNPL providers, which are increasingly targeting underserved markets.

Challenges and Risks
Despite its momentum, RM faces headwinds. Rising interest rates have increased borrowing costs, with interest expenses climbing to $19.8 million in Q1, or 4.2% of average net receivables. Meanwhile, operating expenses surged to $66 million due to branch expansions and marketing investments. While these costs are expected to moderate over time, they pose a near-term pressure on margins.

Credit quality remains another concern. While the 30+ day delinquency rate improved slightly to 7.1%, the net credit loss rate widened to 12.4%, up 120 basis points from prior-year levels. Management attributes this to stricter underwriting standards, but investors will watch for stabilization as economic conditions evolve.

Investment Implications
RM's Q2 report will provide critical clarity on these factors. Analysts will scrutinize:
1. Loan Portfolio Growth: Continued expansion in auto-secured loans and high-APR segments.
2. Expense Management: Whether cost inflation from branch openings is under control.
3. Credit Metrics: Whether delinquency trends remain stable or worsen amid macroeconomic uncertainty.

The stock's valuation reflects these risks. At current prices, RM trades at 8.5x trailing 12-month earnings, a discount to peers but reasonable given its growth profile. The dividend yield of 3.8% adds further appeal, though investors should note payout ratios remain moderate at 35%, leaving room for growth.

Conclusion
Regional Management Corp's Q2 results will be a litmus test for its ability to sustain growth in underserved credit markets. With a diversified lending model, a growing digital presence, and a balance sheet capable of weathering economic turbulence, RM is positioned to benefit from secular trends in financial inclusion. However, execution on cost discipline and credit quality will determine whether this potential translates into market-beating returns. Investors should watch for these metrics closely—positive outcomes could solidify RM's status as a top pick in the non-bank lending space.

Final Take: Hold for now, but keep an eye on Q2's credit metrics and expense trends. A strong report could justify a buy rating.