RM
Annual Report 2019

Plain-text annual report

2019 Annual Report Fiscal Year 2019 Form 10-K Proxy Statement for the 2020 Annual Meeting of Stockholders (cid:54)(cid:73)(cid:75)(cid:77)(cid:83)(cid:82)(cid:69)(cid:80)(cid:4)(cid:49)(cid:69)(cid:82)(cid:69)(cid:75)(cid:73)(cid:81)(cid:73)(cid:82)(cid:88)(cid:4)(cid:39)(cid:83)(cid:86)(cid:84)(cid:18) (cid:29)(cid:27)(cid:29)(cid:4)(cid:38)(cid:69)(cid:88)(cid:73)(cid:87)(cid:90)(cid:77)(cid:80)(cid:80)(cid:73)(cid:4)(cid:54)(cid:83)(cid:69)(cid:72)(cid:16)(cid:4)(cid:55)(cid:89)(cid:77)(cid:88)(cid:73)(cid:4)(cid:38) (cid:43)(cid:86)(cid:73)(cid:73)(cid:86)(cid:16)(cid:4)(cid:55)(cid:83)(cid:89)(cid:88)(cid:76)(cid:4)(cid:39)(cid:69)(cid:86)(cid:83)(cid:80)(cid:77)(cid:82)(cid:69)(cid:4)(cid:22)(cid:29)(cid:26)(cid:25)(cid:21) (cid:91)(cid:91)(cid:91)(cid:18)(cid:86)(cid:73)(cid:75)(cid:77)(cid:83)(cid:82)(cid:69)(cid:80)(cid:81)(cid:69)(cid:82)(cid:69)(cid:75)(cid:73)(cid:81)(cid:73)(cid:82)(cid:88)(cid:18)(cid:71)(cid:83)(cid:81) 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(cid:74)(cid:83)(cid:86)(cid:91)(cid:69)(cid:86)(cid:72)(cid:17)(cid:80)(cid:83)(cid:83)(cid:79)(cid:77)(cid:82)(cid:75)(cid:4)(cid:87)(cid:88)(cid:69)(cid:88)(cid:73)(cid:81)(cid:73)(cid:82)(cid:88)(cid:87)(cid:18) Annual Report on Form 10-K for the Year Ended December 31, 2019 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE For the fiscal year ended December 31, 2019 ACT OF 1934 For the transition period from to Commission File Number: 001-35477 Regional Management Corp. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 979 Batesville Road, Suite B Greer, South Carolina (Address of principal executive offices) 57-0847115 (I.R.S. Employer Identification No.) 29651 (Zip Code) (864) 448-7000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.10 par value Trading Symbol RM Name of Each Exchange on Which Registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No È Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ‘ No È Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes È No ‘ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ‘ Non-accelerated filer ‘ È Accelerated filer Smaller reporting company ‘ Emerging growth company ‘ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È As of June 28, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the common stock held by non-affiliates of the registrant was $256,875,391 based upon the closing sale price as reported on the New York Stock Exchange. See Part II, Item 5 of this Annual Report on Form 10-K for additional information. As of March 12, 2020, there were 11,017,073 shares of the registrant’s common stock outstanding. Documents Incorporated by Reference Certain information required by Part III of this Annual Report on Form 10-K is incorporated herein by reference to the Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year ended December 31, 2019. REGIONAL MANAGEMENT CORP. ANNUAL REPORT ON FORM 10-K Fiscal Year Ended December 31, 2019 TABLE OF CONTENTS Forward-Looking Statements Business ITEM 1. ITEM 1A. Risk Factors ITEM 1B. Unresolved Staff Comments ITEM 2. ITEM 3. ITEM 4. Mine Safety Disclosures Properties Legal Proceedings PART I PART II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data ITEM 6. ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data ITEM 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ITEM 9. ITEM 9A. Controls and Procedures ITEM 9B. Other Information PART III ITEM 10. Directors, Executive Officers and Corporate Governance ITEM 11. Executive Compensation ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ITEM 13. Certain Relationships and Related Transactions, and Director Independence ITEM 14. Principal Accounting Fees and Services ITEM 15. Exhibits, Financial Statement Schedules ITEM 16. Signatures Form 10-K Summary PART IV Page 1 2 16 44 44 44 44 45 48 49 67 68 104 104 105 106 106 106 106 106 107 112 113 F o r m 1 0 - K FORWARD-LOOKING STATEMENTS Each of the terms “Regional,” the “Company,” “we,” “us,” and “our” as used herein refers collectively to Regional Management Corp. and its wholly-owned subsidiaries, unless otherwise stated. This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, certain statements and disclosures contained in Part I, Item 1, “Business,” Part I, Item 1A, “Risk Factors,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements include, but are not limited to, statements about 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, plans and objectives of management, representations, and contentions, and are not historical facts. Forward-looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” and similar words, although some forward-looking statements are expressed differently. 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. The forward-looking statements included herein reflect and contain management’s current judgment, and 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. We do not intend to update any of these forward-looking statements or publicly announce the results of or any revisions to these forward-looking statements, other than as is required under the federal securities laws. The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, including the notes thereto. Regional Management Corp. | 2019 Annual Report on Form 10-K | 1 ITEM 1. BUSINESS. Overview PART I 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. We operate under the name “Regional Finance” in 366 branch locations across 11 states in the Southeastern, Southwestern, Mid-Atlantic, and Midwestern United States, serving 432,200 active accounts, as of December 31, 2019. 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 multiple 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 in-person 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. Our small loans and large loans are our core loan products and are the drivers of our growth. • Small Loans – We offer small installment loans with cash proceeds to customers ranging from $500 to $2,500, with terms of up to 48 months. Our small loans are typically secured by non-essential household goods and/or, to a lesser extent, a lien on a vehicle, which may be an automobile, motorcycle, boat, or all-terrain vehicle. As of December 31, 2019, we had 283,000 small loans outstanding representing $462.5 million in finance receivables, or an average of approximately $1,600 per loan. In 2019, 2018, and 2017, interest and fee income from small loans contributed $168.4 million, $156.6 million, and $150.1 million, respectively, to our total revenue. • Large Loans – We offer large installment loans with cash proceeds to customers generally ranging from $2,501 to $12,000, with terms between 18 and 60 months. Our large loans are typically secured by non-essential household goods and/or a vehicle. As of December 31, 2019, we had 130,700 large loans outstanding representing $608.6 million in finance receivables, or an average of approximately $4,700 per loan. In 2019, 2018, and 2017, interest and fee income from large loans contributed $145.1 million, $111.1 million, and $80.3 million, respectively, to our total revenue. • Retail Loans – We offer indirect retail loans of up to $7,500, with terms between 6 and 48 months, which are secured by the purchased items. These loans are offered at the point of sale through a network of retailers within and, to a limited extent, outside of our branch footprint. As of December 31, 2019, we had 16,900 retail loans outstanding representing $24.1 million in finance receivables, or an average of approximately $1,400 per loan. In 2019, 2018, and 2017, interest and fee income from retail loans contributed $5.3 million, $5.9 million, and $5.9 million, respectively, to our total revenue. • Optional Payment and Collateral Protection Insurance Products – We offer our customers optional payment and collateral protection insurance relating to many of our loan products. In 2019, 2018, and 2017, insurance income, net contributed $20.8 million, $14.8 million, and $13.1 million, respectively, to our total revenue. Through November 2017, we also offered direct and indirect automobile purchase loans of up to $27,500. We ceased originating automobile loans in November 2017, but we continue to own and service the automobile loans that we previously originated. As of December 31, 2019, we had 1,600 automobile loans outstanding representing $9.6 million in finance receivables, or an average of approximately $6,000 per loan. In 2019, 2018, and 2017, interest and fee income from automobile loans contributed $2.4 million, $6.4 million, and $12.8 million, respectively, to our total revenue. Regional Management Corp. | 2019 Annual Report on Form 10-K | 2 F o r m 1 0 - K Our Industry, Customers, and Purpose We operate in the consumer finance industry, in which consumers are generally described as super-prime (most creditworthy), prime, near-prime, non-prime, subprime, or deep-subprime (least creditworthy). Our customers typically have less-than-perfect credit profiles and, for that reason, are generally considered subprime, non-prime, or near-prime consumers. As a result, our customers often do not qualify for prime financing from banks, thrifts, credit card providers, and other lenders. However, like prime consumers, our customers have a need and a desire to utilize credit. Notwithstanding that many lenders are unwilling to serve our customers, we believe that responsible, transparent, and fairly-priced credit products should be made available to our customers. We exist to serve that purpose, and accordingly, we offer our customers access to credit through our affordable, easy-to-understand small, large, and retail loan products, which we price on fair terms in consideration of the associated credit risk and servicing costs. The average annual percentage rate (“APR”) of our small loans originated in 2019 was 42.6%. Our large loans, which are reserved for higher credit quality customers who meet more stringent underwriting requirements than those applied to small loan applicants, had an average APR of 30.3% for loans originated in 2019. We believe that the rates on our products are significantly more attractive than many other credit options available to our customers, such as payday, pawn, and title loans, which often come with APRs over 300%. Our loans are also safer and more favorably structured than loans offered by alternative financial service providers. We underwrite our loans based on an applicant’s ability to repay, whereas payday, pawn, and title loans are typically underwritten based on an ability to collect, either through access to the borrower’s bank account or by repossession and sale of collateral. We also structure our loans on a fixed-rate, fixed-term basis with fully amortizing, equal monthly installment payments that are designed to be affordable for our customers and made over an average term of 21 months and 44 months for small and large loans, respectively (based on loans originated in 2019). By comparison, payday, pawn, and title loans typically have balloon payments following short terms of 14 to 60 days. Importantly, we further differentiate ourselves from alternative financial service providers by reporting our customers’ payment performance to credit bureaus. This practice provides our customers with the opportunity to improve their credit profile by establishing a responsible payment history with us and, ultimately, to gain access to a wider range of credit options, including our own. For example, in 2019, we worked with many of our deserving customers to refinance more than 22,000 of our customers’ small loans into large loans, representing $104.6 million in finance receivables at origination, and resulting in a decrease in these customers’ average APR from 43.0% to 31.4%. We also believe that, over time, many of our customers transition away from our company to prime sources of credit. Our diversity of loan products with competitive, safe, and transparent pricing and terms, combined with the opportunity for our customers to improve their credit history and profile, distinguishes us in the consumer finance market, provides us with a competitive advantage, and allows us to serve an important purpose that is mutually beneficial to our customers, communities, employees, and stockholders. Our Business Model Multiple Channel Platform. Our multiple channel platform, which includes our branches, direct mail campaigns, digital partners, retailers, and our consumer website, enables us to offer a range of loan products to new, existing, and former customers throughout our markets. We began building our branch network over 30 years ago and have expanded the network to 366 branches as of December 31, 2019. Our branch personnel markets our products in a number of ways, including through a merchant referral program, customer referrals, direct telephone and mail solicitations of current and former customers, and by leveraging our direct mail program. Our direct mail campaigns include mailings of pre-screened convenience checks, pre-qualified offers, Regional Management Corp. | 2019 Annual Report on Form 10-K | 3 and invitations to apply, which enable us to market our products to millions of current and potential customers in a cost-effective manner. We have also developed our consumer website and partnered with digital lead generation sources to promote our products and facilitate loan applications via the internet. Finally, we have relationships with retailers that offer our retail loans in their stores at the point of sale. We believe that our multiple channel platform provides us with a competitive advantage by giving us broad access to our existing and former customers and multiple avenues to attract new customers. Attractive Products for Customers with Limited Access to Credit. Our flexible loan products, generally ranging from $500 to $12,000 with terms of up to 60 months, are competitively priced, easy to understand, and incorporate features designed to meet the varied financial needs and credit profiles of a broad range of consumers. This product diversity distinguishes us from monoline competitors and provides us with the ability to offer our customers new loan products as their credit profiles evolve, building customer loyalty and increasing the overall value of customer relationships. Integrated Branch Model. Our branch network serves as the foundation of our multiple channel platform and the primary point of contact with our customers. Nearly 80% of our loan originations in 2019 occurred in one of our branch locations, and nearly all loans, regardless of origination channel, are serviced through our branches, allowing us to maintain frequent, in-person contact with our customers. By integrating loan origination and loan servicing at the branch level, our employees are able to maintain a relationship with our customers throughout the life of a loan. We believe this frequent-contact, relationship-driven lending model provides greater insight into potential payment difficulties, reduces credit risk, and allows us to assess the borrowing needs of our customers, better enabling us to offer them new loan products as their credit profiles and needs evolve. Consistent Portfolio Performance. Over the past several years, we have sharpened our focus on credit quality by investing in highly-qualified personnel, refining underwriting practices, developing custom credit scorecards, streamlining procedures, automating underwriting decisions, and improving reporting capabilities. These investments allow us to better control the credit quality of our portfolio, maintain compliance with evolving state and federal law, and react quickly whenever market dynamics may change. We have also expanded our centralized collections department and provided our branches with improved collections tools, training, and incentives. As a result of these efforts and practices, between 2015 and 2019, we reported annual net credit loss rates in a relatively narrow band of 8.8% to 9.7% of average finance receivables. Demonstrated Organic Growth. We have grown our total finance receivables by 75.8%, from $628.4 million at December 31, 2015 to $1,104.8 million at December 31, 2019, a compound annual growth rate (“CAGR”) of 15.1%. More importantly, we have grown our core small loan and large loan finance receivables by 121.0%, from $484.7 million at December 31, 2015 to $1,071.1 million at December 31, 2019, a CAGR of 21.9%. This receivables growth has driven a revenue increase of 63.7%, from $217.3 million in 2015 to $355.7 million in 2019, a CAGR of 13.1%. Our portfolio growth has come from expanding our branch network, growing our finance receivable portfolios within existing branches, and developing new products and channels, including through digital lead generation. From 2015 to 2019, we grew our year-end branch count from 331 branches to 366 branches. We opened 7 net new branches in 2019, and we have also grown our existing branch revenues. Historically, our branches have rapidly increased their outstanding finance receivables during the early years of operations and generally achieved profitability within one year of opening. Experienced Management Team. Our executive and senior operations management teams consist of individuals experienced in installment lending and other consumer finance services. Both our Chief Executive Officer and our Chief Operating Officer have over 30 years of experience in consumer financial services, and our Chief Credit Risk Officer has over 15 years of financial and consumer lending experience, including expertise in credit risk management. As of December 31, 2019, our state operations vice presidents averaged nearly 25 years of industry experience and 9 years of service at Regional, while our district supervisors averaged more than 20 years of industry experience and nearly 7 years of service with Regional. Our executive and senior operations management team members intend to leverage their experience and expertise in consumer lending to grow our business, deliver high-quality service to our customers, and carefully manage our credit risk. Regional Management Corp. | 2019 Annual Report on Form 10-K | 4 F o r m 1 0 - K Our Strategies Grow Our Branch Network. We intend to continue to grow the receivables, revenue, and profitability of our existing branches, to open new branches within our existing geographic footprint, and to expand our operations into new states. Establishing local contact with our customers through our branch network is key to our frequent-contact, relationship-driven lending model. We believe that there remains substantial opportunity to grow the finance receivable portfolios of our existing branches by continuing our focus on large loan originations and by cross-selling new loan products to our existing customers, including those customers with retail loans. In addition, from 2015 to 2019, we opened 35 net new branches, and in 2018, we opened our first branches in Missouri and Wisconsin. We expect that as our newer branches mature, their revenue will grow faster than our overall same-store revenue growth rate. We believe there is sufficient demand for consumer finance services to continue new branch openings in certain of the states where we currently operate, allowing us to capitalize on our existing infrastructure and experience in these markets. We also intend to explore opportunities for growth in several states outside of our existing geographic footprint that enjoy favorable operating environments. Our competitors operate in as many as 44 states. Leverage Our Direct Mail Capabilities. Direct mail campaigns are launched throughout the year, but are weighted to coincide with seasonal consumer demand. In addition, we mail convenience checks in new markets as soon as new branches are open, which develops a customer base and builds finance receivables for these new branches. We plan to continue to invest in and to improve the targeting criteria, offer strategies, and testing protocols of our direct mail campaigns, which we believe will enable us to efficiently grow our receivables with improved credit performance. We expect that these efforts will allow us to increase volume at our branches by adding new customers, recapturing former customers, and creating opportunities to offer new loan products to our existing customers. Expand Our Digital Presence. In order to better serve and attract customers who prefer to conduct business digitally, we make an online loan application available on our consumer website, generate customer leads through digital partners, and provide our customers with online account management capabilities. Throughout 2019, we continued to grow our digital acquisition channel, expanding our investment in the channel by nearly 40% year- over-year. This investment enabled us to increase our digitally-sourced loan originations by nearly 30% year-over- year and to grow digital volume as a percentage of new customer volume to more than 19% in 2019. We also continued to enhance and promote our online account management tools that enable customers to make payments and manage their accounts online. In 2020, we expect to continue to invest in the digital channel, thereby adding capabilities, improving efficiencies, enhancing the customer experience, and testing new mechanisms for lead generation to further diversify and expand our new business acquisition mechanisms. Maintain Sound Underwriting and Credit Control. We have invested heavily in our credit and collections functions. We plan to continue to do so in the future by maintaining highly-qualified employees dedicated to managing credit risk, refining our underwriting models, and improving our collection efforts through both our branch operations and our centralized collections department. In early 2018, we completed the implementation of our new loan origination and servicing software platform, which allows us to automate our underwriting decisions, among other benefits. In addition, we began to integrate custom credit models into our automated underwriting processes during the second half of 2018. We completed the rollout of our custom credit models to all of our states in 2019 and began seeing the impact in our results in late 2019. Through these efforts and others, we plan to continue to carefully manage our credit exposure as we grow our business, offer new products, and enter new markets. Carefully Manage Our G&A Expenses. We have made significant investments in our business over the past several years, including by increasing our marketing spend to drive new business, expanding our branch network, hiring operations employees to service our growing finance receivable portfolio, and improving our credit and information technology capabilities. However, during that time, we also remained keenly focused on driving operating leverage through the prudent management of our expenses. Between 2015 and 2019, our Regional Management Corp. | 2019 Annual Report on Form 10-K | 5 operating expense ratio (annualized general and administrative expenses as a percentage of average finance receivables) decreased from 20.2% to 15.9%. As we grow our business, we will remain vigilant in our management of general and administrative expenses, with the goal of decreasing such expenses as a percentage of average finance receivables over time. Our Loan Products We offer small, large, and retail installment loans to our customers. Our underwriting standards focus on our customers’ ability to affordably make loan payments out of their discretionary income, with the value of pledged collateral serving as a credit enhancement rather than the primary underwriting criterion. The interest rates, fees and other charges, maximum principal amounts, and maturities for our loans vary from state to state, depending on the competitive environment and relevant laws and regulations. Small and large loans are closed in our branch network or originated through our convenience check direct mail campaigns. Our convenience check direct mail loan offers enable prospective customers to enter into a loan with us by cashing or depositing the check attached to the loan offer, thereby agreeing to the terms of the loan as prominently set forth on the check and accompanying disclosures. When a customer enters into a loan by cashing or depositing the convenience check, our personnel gathers additional information on the borrower to assist in servicing the loan. Our retail loans are indirect installment loans structured as retail installment sales contracts. Retail loans are made through a retailer at the point of sale without the need for the customer to visit one of our branches. Customers use our retail loans to finance the purchase of furniture, appliances, and other retail products. The vast majority of our retail loans are originated inside of our eleven-state, brick-and-mortar footprint, but on a limited basis, we offer retail loans in states outside of our footprint. The servicing of nearly all retail loans is performed within our branches, with only out-of-footprint retail loans being serviced centrally from our headquarters in South Carolina. For loans originated in our branch network, we consider numerous factors in evaluating a potential customer’s creditworthiness, such as unencumbered income, debt-to-income ratios, length of current employment, duration of residence, and a credit report detailing the applicant’s credit history. Our loan origination and servicing software platform guides our branch personnel through the credit application process and automates much of the underwriting, with underwriting exceptions generally subject to review and approval by a senior operations or centralized underwriting team member. For retail loans, our retail partners typically submit credit applications to us online while the customer waits in the retailer’s store. Underwriting for our retail loans is conducted by our centralized underwriting team using standards substantially similar to our branch small loan and large loan underwriting guidelines. Our retail loan credit decisions generally are provided to the retailer within ten minutes of our receipt of the application. For convenience check loans, each prospect that we solicit has been pre-screened through a major credit bureau against our underwriting criteria, which includes an evaluation of the recipient’s credit score, bankruptcy history, and a number of additional credit attributes relevant to the recipient’s likely ability and willingness to repay the offered convenience check loan. Loan renewals are also an important part of our business. Our customers use renewals to extend and expand their lending relationships with us. We generally offer loan renewals to existing customers who have demonstrated an ability and willingness to repay amounts owed to us. Renewals typically refinance one or more of a customer’s loans into a single new loan, which in some cases will be for a larger principal balance than the customer’s original loan, though we permit renewals of existing loans at or below the original loan amount. In evaluating a loan for renewal, in addition to our standard underwriting requirements, we are able to take into consideration the customer’s prior payment performance with us, which we believe is a very strong indicator of the customer’s future credit performance. In 2019, renewals of loans in an amount greater than the original loan amount represented 56% of our loan originations, while renewals of loans at or below the original loan amount represented 12% of our loan originations. Small Loans. In 2019, the average originated net loan size and term for our small loans were $1,932 and 21 months, respectively. The average yield we earned on our portfolio of small loans was 38.5% in 2019. The Regional Management Corp. | 2019 Annual Report on Form 10-K | 6 F o r m 1 0 - K following table sets forth the distribution of our small loan finance receivable portfolio by state as of the dates indicated. At December 31, 2015 2016 2017 2018 2019 Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31% 32% 34% 34% 39% 23% 20% 17% 16% 13% 15% 15% 14% 15% 15% 13% 14% 14% 13% 11% 18% 19% 21% 22% 22% Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100% 100% 100% The following table sets forth the total number of small loans, total small loan finance receivables, and average size per loan by state as of December 31, 2019. Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of Loans 108,603 35,199 41,351 30,236 67,660 Finance Receivables (In thousands) $177,090 60,454 68,452 53,186 103,317 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,049 $462,499 Average Size Per Loan $1,631 1,717 1,655 1,759 1,527 $1,634 Large Loans. In 2019, our average originated net loan size and term for large loans were $5,330 and 44 months, respectively. The average yield we earned on our portfolio of large loans was 28.8% for 2019. The following table sets forth the distribution of our large loan finance receivable portfolio by state as of the dates indicated. At December 31, 2015 2016 2017 2018 2019 Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22% 22% 24% 27% 27% 22% 20% 19% 21% 19% 18% 21% 19% 16% 15% 17% 14% 12% 11% 11% 21% 23% 26% 25% 28% Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100% 100% 100% The following table sets forth the total number of large loans, total large loan finance receivables, and average size per loan by state as of December 31, 2019. Number of Loans Finance Receivables Average Size Per Loan Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,345 23,045 20,578 13,622 35,060 (In thousands) $171,010 113,470 90,674 64,223 169,231 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,650 $608,608 $4,460 4,924 4,406 4,715 4,827 $4,658 Regional Management Corp. | 2019 Annual Report on Form 10-K | 7 Retail Loans. In 2019, our average originated net loan size and term for retail loans were $2,068 and 29 months, respectively. The average yield we earned on our portfolio of retail loans was 19.0% for 2019. The following table sets forth the distribution of our retail loan finance receivable portfolio by state as of the dates indicated. Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69% 73% 75% 72% 74% 9% 10% 7% 10% 8% 6% 6% 5% 13% 13% 13% 13% 10% 8% 6% Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100% 100% 100% At December 31, 2015 2016 2017 2018 2019 The following table sets forth the total number of retail loans, total retail loan finance receivables, and average size per loan by state as of December 31, 2019. Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,320 1,719 1,011 1,807 (In thousands) $17,772 2,502 1,358 2,451 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,857 $24,083 $1,443 1,455 1,343 1,356 $1,429 Number of Loans Finance Receivables Average Size Per Loan Our Insurance and Ancillary Products We also offer our customers various optional payment and collateral protection insurance products as a complement to our lending operations. Our primary insurance products include optional credit life insurance, accident and health insurance, involuntary unemployment insurance, and personal property insurance. These insurance products are optional and not a condition of the loan, and we do not sell insurance to non-borrowers. Our insurance products, including the types of products offered and their terms and conditions, vary from state to state in compliance with applicable laws and regulations. Insurance policy premiums, claims, and expenses are included in our results of operations as insurance income, net in the consolidated statements of income. In 2019, insurance income, net was $20.8 million, or 5.9% of our total revenue. Credit life insurance provides for the payment in full of the borrower’s credit obligation to the lender in the event of the borrower’s death and, in some states, may provide a payment to a secondary beneficiary listed by the borrower. Credit accident and health insurance provides for the repayment of certain loan installments to the lender that come due during an insured’s period of income interruption resulting from disability from illness or injury. Credit involuntary unemployment insurance provides for repayment of certain loan installments in the event that the borrower is no longer employed as the result of a qualifying event, such as a layoff or reduction in workforce. Credit personal property insurance provides for payment following accidental loss of, or damage to, personal property collateral resulting from certain casualty events. We require that customers maintain property insurance on any personal property securing loans and offer customers the option of providing proof of such insurance purchased from a third party (such as homeowners or renters insurance) in lieu of purchasing property insurance from us. We also require proof of insurance on any vehicles securing loans, and in select markets, we offer vehicle single interest insurance on vehicles used as collateral on small and large loans. All customers purchasing these types of insurance from us are required to sign multiple statements affirming that they understand that their purchase of insurance is optional and not a condition of the loan. In Regional Management Corp. | 2019 Annual Report on Form 10-K | 8 F o r m 1 0 - K addition, a customer may cancel purchased insurance at any time during the life of the loan, including in connection with an early payoff or loan refinancing. Customers who cancel within thirty (30) days of the date of purchase receive a full refund of the insurance premium, and customers who cancel thereafter receive a refund of the unearned portion of the insurance premium. Apart from the various optional payment and collateral protection insurance products that we offer to our customers, on certain loans, we also collect a fee from our customers and, in turn, purchase non-file insurance from an unaffiliated insurance company for our benefit in lieu of recording and perfecting our security interest in personal property collateral. Non-file insurance protects us from credit losses where, following an event of default, we are unable to take possession of personal property collateral because our security interest is not perfected (for example, in certain instances where a customer files for bankruptcy). In such circumstances, non-file insurance generally will pay to us an amount equal to the lesser of the loan balance or the collateral value, with such claims payment lowering our net credit losses. We market and sell insurance policies as an agent of an unaffiliated insurance company, within the limitations established by our agency contracts with the unaffiliated insurance company. We then remit to the unaffiliated insurance company the premiums we collect, net of refunds on prepaid loans and net of commission on new business. The unaffiliated insurance company then cedes to our wholly-owned insurance subsidiary, RMC Reinsurance, Ltd., the net insurance premium revenue and the associated insurance claims liability for all insurance products, including the non-file insurance that we purchase. Life insurance premiums are ceded as written, and non-life insurance premiums are ceded as earned. In accepting the premium revenue and associated claims liability, RMC Reinsurance, Ltd. acts as reinsurer for all insurance products that we sell to our customers and for the non-file insurance that we purchase. RMC Reinsurance, Ltd. pays the unaffiliated insurance company a ceding fee for the continued administration of all insurance products. Regional Management Corp. | 2019 Annual Report on Form 10-K | 9 In addition, in select states, we offer an “Auto Plus Plan” auto club product that is administered and serviced through a third-party provider. The product generally provides certain automobile, home, travel, and other services and benefits to customers, including emergency towing and roadside assistance, emergency locksmith service, automobile repair reimbursement, stolen car expense benefit, automobile insurance deductible reimbursement, limited legal services, and various travel and other discounts. The Auto Plus Plan is not an insurance product, and therefore, it is not included in our results of operations as insurance income, net, but rather, it is included as part of revenue under other income. However, as with the optional insurance products that we offer, any customer purchasing an Auto Plus Plan acknowledges that the purchase is optional and not a condition of the loan and that the plan may be cancelled within 30 days for a full refund. Our Branches Our branches are generally located in visible, high-traffic locations, such as shopping centers. We believe that our branches have an open, welcoming, and hospitable layout. In evaluating whether to locate a branch in a particular community, we examine several factors, including the demographic profile of the community, demonstrated demand for consumer finance, the regulatory and political climate, and the availability of suitable employees to staff, manage, and supervise the new branch. The following table sets forth the number of branches as of the dates indicated: At December 31, 2015 2016 2017 2018 2019 98 Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 98 72 49 36 28 21 8 19 — — 8 339 98 68 47 37 28 21 17 18 — — 8 342 103 67 46 36 28 23 18 17 9 4 8 359 105 65 46 36 24 23 19 16 15 9 8 366 The following table sets forth the average finance receivables per branch based on maturity: Age of Branch (As of December 31, 2019) Branches open less than one year . . . . . Branches open one to three years . . . . . Branches open three to five years . . . . . Branches open five years or more . . . . . Average Finance Receivables Per Branch as of December 31, 2019 (In thousands) $1,128 $2,650 $3,174 $3,217 Percentage Increase From Prior Age Category Number of Branches — 134.9% 19.8% 1.4% 29 18 39 280 Regional Management Corp. | 2019 Annual Report on Form 10-K | 10 F o r m 1 0 - K The average contribution to operating income from our branches has historically increased as our branches mature. The following table sets forth the average operating income contribution per branch for the year ended December 31, 2019, based on maturity of the branch. Age of Branch (As of December 31, 2019) Average Branch Operating Income Contribution Percentage Increase From Prior Age Category Number of Branches Branches open less than one year . . . . . Branches open one to three years . . . . . . Branches open three to five years . . . . . Branches open five years or more . . . . . (In thousands) $ 19 $250 $353 $448 — 1,215.8% 41.2% 26.9% 29 18 39 280 We calculate the average branch contribution as total revenues generated by the branch less the expenses directly attributable to the branch, including the provision for losses and operating expenses, such as personnel, lease, and interest expenses. General corporate overhead, including management salaries, is not attributed to any individual branch. Accordingly, the sum of branch contributions from all of our branches is greater than our income before taxes. Employees and Training As of December 31, 2019, we had 1,638 employees. New employees must complete a comprehensive training curriculum that focuses on the company- and position-specific competencies needed to be successful. The training includes a blended approach utilizing eLearning modules, hands-on exercises, webinars, and assessments. Training content is focused on our operating policies and procedures, as well as several key compliance areas. Incentive compensation for new employees is contingent upon the successful and timely completion of the required new hire training curriculum. All current employees are also required to complete annual compliance training and re-certification. Additional management and developmental training is provided for those employees seeking to advance within our company. Payment and Loan Servicing We have implemented company-wide payment and loan servicing policies and procedures, which are designed to maintain consistent portfolio performance and to ensure regulatory compliance. Our district supervisors, state vice presidents, and compliance and internal audit teams regularly review servicing and collection records to ensure compliance with our policies and procedures. Our centralized management information system enables regular monitoring of branch portfolio metrics by management, and the compensation opportunities of our operations employees and senior management have a significant performance component that is closely tied to credit quality, among other defined performance targets. The responsibility for the servicing and collection of each loan generally rests with the originating branch. Borrowers who have signed up for online account access have on-demand access to their account information through Regional’s website. In addition, borrowers may elect to receive automated, one-way text messages with information regarding their account, including payment reminders. Borrowers have the option of making payments (i) in person at a branch where they may pay by cash, check, money order, debit card, or immediate, one-time future, or recurring ACH, (ii) through our customer portal via debit card or immediate, one-time future, or recurring ACH, or (iii) by immediate or one-time future debit card or ACH over the phone. In the fourth quarter of 2019, over 70% of customer payments were made by debit card or ACH. If a loan becomes severely delinquent, a branch may receive co-collection assistance from our centralized servicing facility. Our philosophy is to work with customers experiencing payment difficulties. If a customer is unable to make the required payments to bring his or her loan current, acceptable solutions to remedy a past due loan may include deferment of a payment, loan renewal, or settlement. All solutions are intended to enable the Regional Management Corp. | 2019 Annual Report on Form 10-K | 11 customer to meet his or her current and future obligations in a manner that we believe will mitigate our risk, while also complying with state and federal laws and regulations, as well as our policies and procedures. Customers are limited to two deferrals in a rolling twelve-month period unless it is determined that an exception is warranted (e.g. following a natural disaster). We generally limit the refinancing of delinquent loans to those customers who have made recent payments and for whom we have verified current employment, and we do not charge any origination fees on the refinancing of a severely delinquent loan. We believe that refinancing delinquent loans for certain deserving customers who have made periodic payments allows us to help customers resolve temporary financial setbacks and repair or sustain their credit. During 2019, we refinanced approximately $24.3 million of loans that were 60 or more days contractually past due, representing approximately 1.9% of our total loan originations in 2019. As of December 31, 2019, the outstanding balance of such refinanced loans was $18.5 million, or 1.6% of finance receivables as of such date. We may also agree to settle a past-due loan by accepting less than the full principal balance owed. A settlement is only used in certain limited cases and is only offered once we have determined that we are unlikely to collect the entire outstanding balance of the loan. For seriously delinquent accounts, we may seek legal judgments or pursue repossession of collateral. We typically initiate repossession efforts only when we have exhausted other means of collection and, in the opinion of management, the customer is unlikely to make further payments. We sell substantially all repossessed collateral through sales conducted by independent auction organizations, after the required post-repossession waiting period. Generally, we charge off loans during the month that the loan becomes 180 days contractually delinquent. Non-titled accounts in a confirmed Chapter 7 or Chapter 13 bankruptcy are charged off at 60 days contractually delinquent, subject to certain exceptions. Deceased borrower accounts are charged off in the month following the proper notification of passing, with the exception of borrowers with credit life insurance. We sell most of our charged-off accounts to third-party debt buyers. Information Technology In 2016, we entered into an agreement with Nortridge Software, LLC (“Nortridge”) to transition to the Nortridge loan origination and servicing platform. From January 2016 to February 2018, we conducted a state-by-state phased implementation of the Nortridge platform in each of our states of operation. Since February 2018, all of our branches have operated using the Nortridge platform. Prior to our use of Nortridge, we serviced our loan portfolio using a software package developed and owned by ParaData Financial Systems. We utilize the Nortridge platform both to originate loans and to service our loan portfolio, and we have invested in customizing the Nortridge platform to meet our needs based upon our specific products, processes, and reporting requirements. The Nortridge custom decision engine utilizes application information and a credit report detailing the applicant’s credit history to generate an initial credit decision and to guide our branch employees through the loan origination process to the final credit decision. Throughout the life of the loan, our employees utilize Nortridge to, among other things, enter payments, generate collection queues, and log collection activity. Nortridge also facilitates electronic and recurring payments, automated text messaging, and customer account access through a customer portal. Nortridge logs and maintains, within our centralized information systems, a permanent record of the loan origination and servicing approvals and processes, and permits all levels of branch and centralized management to review the individual and collective performance of all branches for which they are responsible on a daily basis. We intend to continue to enhance the Nortridge platform to further leverage its capabilities and to meet our evolving needs. In addition, we rely on Teledata Communications Inc. and other third-party software vendors to provide access to certain credit applications. Competition The consumer finance industry is highly fragmented, with numerous competitors. The competition we face for each of our loan products is distinct. Regional Management Corp. | 2019 Annual Report on Form 10-K | 12 F o r m 1 0 - K Small and Large Loans. We compete with several national companies operating greater than 800 branch locations each, as well as a handful of smaller, regionally-focused companies with between 100 and 300 branches in certain of the states in which we operate. We believe that the majority of our competitors are independent operators with generally less than 100 branches. We believe that competition between installment consumer loan companies occurs primarily on the basis of price, breadth of loan product offerings, flexibility of loan terms offered, and the quality of customer service provided. While underbanked customers may also use alternative financial services providers, such as title lenders, payday lenders, and pawn shops, these providers’ products offer different terms and typically carry substantially higher interest rates and fees than our installment loans. Accordingly, we believe that alternative financial services providers are not an attractive option for customers who meet our underwriting standards, which are generally stricter than the underwriting standards of alternative financial services providers. Our small and large loans also compete with pure online lenders, peer-to-peer lenders, and issuers of non-prime credit cards. Retail Loans. In recent years, the retail loan industry has seen an increasing number of lenders enter the market that are dedicated to originating non-prime retail loans. We also face competition from rent-to-own financing, leasing, and credit card companies. Our retail loans are typically made at competitive rates, and competition is largely on the basis of interest rates charged, the quality of credit accepted, the flexibility of loan terms offered, the speed of approval, and the quality of customer service provided. Point-of-sale financing decisions must be made rapidly while the customer is on the sales floor. We endeavor to provide responses to customer applications in less than ten minutes, and we staff our centralized retail loan underwriting team with multiple shifts seven days per week during peak retail shopping hours to ensure rapid response times. 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. Consequently, we experience seasonal fluctuations in our operating results and cash needs. Government Regulation Consumer finance companies are subject to extensive regulation, supervision, and licensing under various federal, state, and local statutes, regulations, and ordinances. Many of these laws impose detailed constraints on the terms of our loans and the retail installment sales contracts that we purchase, the lending forms that we utilize, and our operations. The software that we use to originate loans is designed in part to aid in compliance with all applicable lending laws and regulations. State Lending Regulation. We are regulated by state agencies that regularly audit our branches and operations. In general, state statutes establish maximum loan amounts and interest rates, as well as the types and maximum amounts of fees and insurance premiums that we may charge for both direct and indirect lending. Specific allowable charges vary by state. In addition, state laws regulate the keeping of books and records and other aspects of the operation of consumer finance companies, and state and federal laws regulate account collection practices. State agency approval is required to open new branches, and each of our branches is separately licensed under the laws of the state in which the branch is located. Licenses granted by the regulatory agencies in these states are subject to renewal every year and may be revoked for failure to comply with applicable state and federal laws and regulations. In the states in which we currently operate, licenses may be revoked only after an administrative hearing. We believe we are in compliance with state laws and regulations applicable to our lending operations in each state. State Insurance Regulation. Premiums and charges for optional payment and collateral protection insurance products are set at or below authorized statutory rates and are stated separately in our disclosures to Regional Management Corp. | 2019 Annual Report on Form 10-K | 13 customers, as required by the federal Truth in Lending Act and by various applicable state laws. We are also subject to state laws and regulations governing insurance agents in the states in which we sell insurance. State insurance regulations require that insurance agents be licensed and limit the premium amount charged for such insurance. Our captive insurance subsidiary is regulated by the insurance authorities of the Turks and Caicos Islands of the British West Indies, where the subsidiary is organized and domiciled. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). At the federal level, Congress enacted comprehensive financial regulatory reform legislation in 2010. A significant focus of the law, known as the Dodd-Frank Act, is heightened consumer protection. The Dodd-Frank Act established the Consumer Financial Protection Bureau (the “CFPB”), which has regulatory, supervisory, and enforcement powers over providers of consumer financial products and services, including explicit supervisory authority to examine and require registration of non-depository lenders and to promulgate rules that can affect the practices and activities of lenders. The Dodd-Frank Act and the regulations promulgated thereunder may affect our operations through increased oversight of financial services products by the CFPB and the imposition of restrictions on the terms of certain loans. The CFPB has significant authority to implement and enforce federal consumer finance laws, including the protections established in the Dodd-Frank Act, as well as the authority to identify and prohibit unfair, deceptive, and abusive acts and practices. The Dodd-Frank Act also gives the CFPB the authority to examine and regulate large non-depository financial companies and gives the CFPB authority over anyone deemed by rule to be a “larger participant of a market for other consumer financial products or services.” The CFPB contemplates regulating the installment lending industry as part of the “consumer credit and related activities” market. However, this so-called “larger participant rule” will not impose substantive consumer protection requirements, but rather will provide to the CFPB the authority to supervise larger participants in certain markets, including by requiring reports and conducting examinations to ensure, among other things, that they are complying with existing federal consumer financial law. While the CFPB has defined a “larger participant” standard for certain markets, such as the debt collection, automobile finance, and consumer reporting markets, it has not yet acted to define “larger participant” in the traditional installment lending market. If, in the future, a traditional installment lending “larger participant rule” is promulgated by the CFPB, the rule would likely cover only the largest installment lenders, and we do not yet know whether the definition of larger participant would cover us. In addition to the grant of certain regulatory powers to the CFPB, the Dodd-Frank Act gives the CFPB authority to pursue administrative proceedings or litigation for violations of federal consumer financial laws. In these proceedings, the CFPB can obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations thereunder, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to remedy violations of state law. Other Federal Laws and Regulations. In addition to the Dodd-Frank Act and state and local laws, regulations, and ordinances, numerous other federal laws and regulations affect our lending operations. These laws include the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Military Lending Act, the Gramm-Leach-Bliley Act, and in each case the regulations thereunder, and the Federal Trade Commission’s Credit Practices Rule. These laws require us to provide complete disclosure of the principal terms of each loan to the borrower prior to the consummation of the loan transaction, prohibit misleading advertising, protect against discriminatory lending practices, govern the manner in which we report customer information to consumer reporting agencies, govern the terms of loans to servicemembers, and proscribe unfair credit practices. • Truth in Lending Act. Under the Truth in Lending Act and Regulation Z promulgated thereunder, we must disclose certain material terms related to a credit transaction, including, but not limited to, the Regional Management Corp. | 2019 Annual Report on Form 10-K | 14 F o r m 1 0 - K annual percentage rate, finance charge, amount financed, total of payments, the number and amount of payments, and payment due dates to repay the indebtedness. • Equal Credit Opportunity Act. Under the Equal Credit Opportunity Act and Regulation B promulgated thereunder, we cannot discriminate against any credit applicant on the basis of any protected category, such as race, color, religion, national origin, sex, marital status, or age. We are also required to make certain disclosures regarding consumer rights and advise customers whose credit applications are not approved of the reasons for the rejection. • Fair Credit Reporting Act. Under the Fair Credit Reporting Act, we must provide certain information to customers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency, promptly update any credit information reported to a credit reporting agency about a customer, and have a process by which customers may inquire about credit information furnished by us to a consumer reporting agency. • Servicemembers Civil Relief Act. The Servicemembers Civil Relief Act is designed to ease legal and financial burdens on military personnel and their families during active duty status. We may be required to reduce interest rates on “pre-service” debts incurred by servicemembers, and we may be prohibited from pursuing certain forms of legal action against servicemembers, such as default judgments, during periods of active duty. • Military Lending Act. The Military Lending Act applies to active-duty servicemembers and their covered dependents. We are prohibited from charging a borrower covered under the Military Lending Act more than a 36% Military Annual Percentage Rate, which includes certain costs associated with the loan in calculating the interest rate. • Gramm-Leach-Bliley Act. Under the Gramm-Leach-Bliley Act, we must protect the confidentiality of our customers’ non-public personal information and disclose information on our privacy policy and practices, including with regard to the sharing of customers’ non-public personal information with third parties. This disclosure must be made to customers at the time the customer relationship is established and, in some cases, at least annually thereafter. • Credit Practices Rule. The Federal Trade Commission’s Credit Practices Rule limits the types of property we may accept as collateral to secure a consumer loan. Violations of these statutes and regulations may result in actions for damages, claims for refund of payments made, certain fines and penalties, injunctions against certain practices, and the potential forfeiture of rights to repayment of loans. 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.” Additional Information Regional Management Corp. was incorporated in South Carolina on March 25, 1987, and converted into a Delaware corporation on August 23, 2011. The Company’s principal internet address is www.regionalmanagement.com. The Company provides its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and all amendments to those reports, free of charge on www.regionalmanagement.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The Company’s consumer website is www.regionalfinance.com. The information contained on, or that can be accessed through, the Company’s websites is not incorporated by reference into this Annual Report on Form 10-K. The Company has included its website addresses as factual references and does not intend the website addresses to be active links to such websites. Regional Management Corp. | 2019 Annual Report on Form 10-K | 15 ITEM 1A. RISK FACTORS. We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. The following discussion highlights some of the risks that may affect our future operating results. These are the risks and uncertainties that we believe are the most important for you to consider, but the risks described below are not the only risks facing our company. Additional risks and uncertainties not presently known to us, that we currently deem immaterial, or that are similar to those faced by other companies in our industry or in business in general, may also impair our business operations. If any of the following risks or uncertainties occurs, continues, or worsens, our business, financial condition, and operating results would likely suffer. You should carefully consider the risks described below together with the other information set forth in this Annual Report on Form 10-K. Risks Related to Our Business We have grown significantly in recent years, and our delinquency, credit loss rates, and overall results of operations may be adversely affected if we do not manage our growth effectively. We have experienced substantial growth in recent years, opening 3 net new branches in 2017, 17 net new branches in 2018, and 7 net new branches in 2019, and increasing the size of our finance receivable portfolio from $717.8 million at the beginning of 2017 to $1,104.8 million at the end of 2019, a compound annual growth rate of 15.5%. We intend to continue our growth strategy in the future. As we increase the number of branches we operate, we will be required to find new, or relocate existing, employees to operate our branches and allocate resources to train and supervise those employees. The success of a branch depends significantly on the manager overseeing its operations and on our ability to enforce our underwriting standards and implement controls over branch operations. Recruiting suitable managers for new branches can be challenging, particularly in remote areas and in areas where we face significant competition. Furthermore, the annual turnover rate among our branch managers was approximately 22% in 2018 and 16.1% in 2019, and turnover rates of managers in our new branches may be similar or higher. Increasing the number of branches that we operate may divide the attention of our senior management or strain our ability to adapt our infrastructure and systems to accommodate our growth. If we are unable to promote, relocate, or recruit suitable managers, oversee their activities effectively, maintain our underwriting and loan servicing standards, and otherwise appropriately and effectively staff our branches, our delinquency and credit loss rates may increase and our overall results of operations may be adversely impacted. We face significant risks in implementing our growth strategy, some of which are outside of our control. We intend to continue our growth strategy, which is based on opening and acquiring branches in existing and new markets, introducing new products and channels, and increasing the finance receivable portfolios of our existing branches. Our ability to execute this growth strategy is subject to significant risks, some of which are beyond our control, including: • • • • • • the inherent uncertainty regarding general economic conditions, including the economic effects of a prolonged public health crisis or pandemic (such as the recent outbreak of a novel coronavirus (COVID-19)); the prevailing laws and regulatory environment of each state in which we operate or seek to operate and federal laws and regulations, all of which are subject to change at any time; the degree of competition in new markets and its effect on our ability to attract new customers; our ability to identify attractive locations for new branches; our ability to recruit qualified personnel, particularly in remote areas and in areas where we face a great deal of competition; and our ability to obtain adequate financing for our expansion plans. Regional Management Corp. | 2019 Annual Report on Form 10-K | 16 F o r m 1 0 - K For example, certain states into which we may expand limit the number of lending licenses granted. For instance, Georgia requires a “convenience and advantage” assessment of a new lending license and location prior to the granting of the license. This assessment adds time and expense to opening new locations and creates risk that our state regulator will deny an application for a new lending license due to a perceived oversaturation of existing licensed lenders in the area in which we seek to expand and operate. There can be no assurance that if we apply for a license for a new branch, whether in one of the states where we currently operate or in a state into which we would like to expand, we will be granted a license to operate. We also cannot be certain that any such license, even if granted, would be obtained in a timely manner or without burdensome conditions or limitations. In addition, we may not be able to obtain and maintain the regulatory approvals, government permits, or licenses that may be required to operate. We are exposed to credit risk in our lending activities. Our ability to collect on loans depends on the willingness and repayment ability of our borrowers. Any material adverse change in the effectiveness of our underwriting models, our implementation of such models (including through our loan origination software and processes), or the ability or willingness of a significant portion of our borrowers to meet their obligations to us, whether due to changes in general economic, political, or social conditions, the cost of consumer goods, interest rates, natural disasters, acts of war or terrorism, prolonged public health crises or a pandemic (such as COVID-19), or other causes over which we have no control, or to changes or events affecting our borrowers such as unemployment, major medical expenses, bankruptcy, divorce, or death, would have a material adverse impact on our earnings and financial condition. Further, a substantial majority of our borrowers are non-prime borrowers, who are more likely to be affected, and more severely affected, by adverse macroeconomic conditions. We cannot be certain that our credit administration personnel, policies, and procedures will adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. Our convenience check strategy exposes us to certain risks. A significant portion of the growth in our installment loans has been achieved through direct mail campaigns. One aspect of our direct mail campaigns involves mailing “convenience checks” to pre-screened recipients, which customers can sign and cash or deposit, thereby agreeing to the terms of the loan, which are disclosed on the front and back of the check and in the accompanying disclosures. We use convenience checks to seed new branch openings and to attract new customers to existing branches in our geographic footprint. In 2018 and 2019, loans initiated through convenience checks represented 19.2% and 20.3%, respectively, of the value of our originated loans. We expect that convenience checks will continue to represent a meaningful portion of our installment loan originations in the future. There are several risks associated with the use of convenience checks, including the following: • it is more difficult to maintain sound underwriting standards with convenience check customers, and these customers have historically presented a higher risk of default than customers that originate loans in our branches, as we do not meet convenience check customers prior to soliciting them and extending a loan to them, and we may not be able to verify certain elements of their financial condition, including their current employment status, income, or life circumstances; • we rely on credit information from a third-party credit bureau that is more limited than a full credit report to pre-screen potential convenience check recipients, which may not be as effective as a full credit report or may be inaccurate or outdated; • we face limitations on the number of potential borrowers who meet our lending criteria within proximity to our branches; • we may not be able to continue to access the demographic and credit file information that we use to generate our mailing lists due to expanded regulatory or privacy restrictions; • convenience checks pose a risk of fraud; Regional Management Corp. | 2019 Annual Report on Form 10-K | 17 • we depend on one bank to issue and clear our convenience checks, and any failure by that bank to properly process the convenience checks could limit the ability of a recipient to cash the check and enter into a loan with us; • • customers may opt out of direct mail solicitations and solicitations based on their credit file or may otherwise prohibit us from soliciting them; and postal rates and production costs may continue to rise. In the future, we could experience one or more of these issues associated with our direct mail strategy. Any increase in the use of convenience checks will further increase our exposure to, and the magnitude of, these risks. Our policies and procedures for underwriting, processing, and servicing loans are subject to potential failure or circumvention, which may adversely affect our results of operations. A substantial portion of our underwriting activities and our credit extension decisions are made at our local branches. We rely on certain inputs and verifications in the underwriting process to be performed by individual personnel at the branch level. In addition, pursuant to our operations policies and procedures, exceptions to general underwriting criteria can be approved by central underwriting employees and certain other senior employees. We train our employees individually onsite in the branch and through online training modules to make loans that conform to our underwriting standards. Such training includes critical aspects of state and federal regulatory compliance, cash handling, account management, and customer relations. Although we have standardized employee manuals and online training modules, we primarily rely on our district supervisors, with oversight by our state vice presidents, branch auditors, and headquarters personnel, to train and supervise our branch employees, rather than centralized training programs. Therefore, the quality of training and supervision may vary from district to district and branch to branch depending on the amount of time apportioned to training and supervision and individual interpretations of our operations policies and procedures. There can also be no assurance that we will be able to attract, train, and retain qualified personnel to perform the tasks that are part of the underwriting process. If the training and supervision of our personnel fails to be effective, or if we are unable to attract and retain qualified employees, it is possible that our underwriting criteria will be improperly applied to a greater percentage of loan applications. If such improper applications were to increase, delinquency and losses on our loan portfolio could increase. In addition, we rely on certain third-party service providers in connection with loan underwriting and origination. Any error or failure by a third-party service provider in providing loan underwriting and origination services may cause us to originate loans to borrowers that do not meet our underwriting standards. Likewise, any failure or error by us in utilizing third-party software or services to implement our underwriting and origination criteria may cause us to originate loans to borrowers that do not meet our underwriting standards. We cannot be certain that every loan is made in accordance with our underwriting standards and rules. We have experienced instances of loans extended that varied from our underwriting standards. Variances in underwriting standards and lack of supervision could expose us to greater delinquencies and credit losses than we have historically experienced. Due to the decentralized nature in which the loan application process occurs, employee misconduct or error in the application or closing process could also result in the origination of loans that do not satisfy our underwriting standards, which could in turn have a material adverse effect on our results of operations and financial condition. In addition, in deciding whether to extend credit or enter into other transactions with customers and counterparties, we rely heavily on information provided by customers, counterparties, and other third parties, including credit bureaus and data aggregators, and we further rely on representations of customers and counterparties as to the accuracy and completeness of that information. If a significant percentage of our customers were to intentionally or negligently misrepresent any of this information, or provide incomplete information, and our internal processes were to fail to detect such misrepresentations in a timely manner, or any or all of the other components of the underwriting process described above were to fail, we could end up Regional Management Corp. | 2019 Annual Report on Form 10-K | 18 F o r m 1 0 - K approving a loan that, based on our underwriting criteria, we would not have otherwise made. As a result, our earnings and our financial condition could be negatively impacted. We may be limited in our ability to collect on our loan portfolio, and the security interests securing a significant portion of our loan portfolio are not perfected, which may increase our credit losses. Legal and practical limitations may limit our ability to collect on our loan portfolio, resulting in increased credit losses, decreased revenues, and decreased earnings. State and federal laws and regulations restrict our collection efforts. The amounts that we are able to recover from the repossession and sale of collateral typically do not fully cover the outstanding loan balance and costs of recovery. In cases where we repossess a vehicle securing a loan, we generally sell our repossessed automobile inventory through sales conducted by independent automobile auction organizations after the required post-repossession waiting period. In certain instances, we may sell repossessed collateral other than vehicles through our branches after the required post-repossession waiting period and appropriate receipt of valid bids. In either case, such sales are made consistent with applicable state law. The proceeds we receive from such sales depend upon various factors, including the supply of, and demand for, used vehicles and other property at the time of sale. During periods of economic slowdown or recession, there may be less demand for used vehicles and other property that we desire to resell. Most of our loan portfolio is secured, but a significant portion of such security interests have not been and will not be perfected, which means that we cannot be certain that such security interests will be given first priority over other creditors. The lack of perfected security interests is one of several factors that may make it more difficult for us to collect on our loan portfolio. Additionally, for those of our loans that are unsecured, borrowers may choose to repay obligations under other indebtedness before repaying loans to us because such borrowers may feel that they have no collateral at risk. In addition, given the relatively small size of our loans, the costs of collecting loans may be high relative to the amount of the loan. As a result, many collection practices that are legally available, such as litigation, may be financially impracticable. Lastly, there is an inherent risk that a portion of the retail installment contracts that we hold will be subject to certain claims or defenses that the borrower may assert against the originator of the contract and, by extension, us as the holder of the contract. These factors may increase our credit losses, which would have a material adverse effect on our results of operations and financial condition. Our insurance operations are subject to a number of risks and uncertainties. We market and sell optional credit life, accident and health, personal property, involuntary unemployment, and vehicle single interest insurance to our borrowers in selected markets as an agent for an unaffiliated third- party insurance company. In addition, on certain loans, we collect a fee from our customers and in turn purchase non-file insurance from an unaffiliated insurance company for our benefit in lieu of recording and perfecting our security interest in personal property collateral. The unaffiliated insurance company cedes to our wholly-owned insurance subsidiary, RMC Reinsurance, Ltd., the net insurance premium revenue and the associated insurance claims liability for all insurance products, including the non-file insurance that we purchase. When purchased by a borrower, the optional credit insurance products benefit the borrower by insuring the borrower’s payment obligations on the associated loan in the event of the borrower’s inability to make monthly payments due to death, disability, or involuntary unemployment, or in the event of a casualty event associated with collateral. Payment of the associated premiums can be made by the borrower separately, but except in very rare instances, the borrower finances payment of the premium, with the financed premium included in the balance of the loan. A credit insurance product may be cancelled if, for example, (i) we request cancellation due to the borrower’s default on obligations under the associated loan, (ii) the borrower prepays the principal balance of the associated loan in full, or (iii) the borrower elects to terminate the credit insurance prior to the expiration of the term thereof (which the borrower may do at any time). Generally, upon any cancellation of credit insurance, the borrower will be entitled to a refund of the unearned premium for the cancelled insurance. We typically refund insurance premiums by reducing the principal balance of the associated loan by the required refund amount, following which the unaffiliated insurance company reimburses us for the refunded amount. Regional Management Corp. | 2019 Annual Report on Form 10-K | 19 Our insurance operations are subject to a number of material risks and uncertainties, including changes in laws and regulations, borrower demand for insurance products, claims experience, and insurance carrier relationships. Changes to laws or regulations may, for example, negatively impact our ability to offer one or more of our insurance products or to purchase non-file insurance; the manner in which we are permitted to offer such products; capital and reserve requirements; the frequency and type of regulatory monitoring and reporting to which we are subject; benefits or loss ratio requirements; insurance producer licensing or appointment requirements; and reinsurance operations. In addition, because our borrowers are not required to purchase the credit insurance products that we offer, we cannot be certain that borrower demand for credit insurance products will not decrease in the future. In addition to adversely impacting our insurance income, net, any decrease in the demand for credit insurance products would negatively impact our interest and fee income because we finance substantially all of our borrowers’ insurance premiums. Our insurance operations are also dependent on our lending operations as the sole source of business and product distribution. If our lending operations discontinue offering insurance products, our insurance operations would have no method of distribution. Insurance claims and policyholder liabilities are also difficult to predict and may exceed the related reserves set aside for claims and associated expenses for claims adjudication. We are also dependent on the continued willingness of unaffiliated third-party insurance companies to participate in the credit insurance market and to offer non-file insurance to us. For example, in 2016, we transitioned our credit insurance business to a new unaffiliated third-party insurance company because the insurance company with which we previously had a relationship made a strategic decision to exit the credit insurance market altogether. While we were able to transition successfully to a new provider in 2016, we cannot be certain that the credit insurance market will remain viable in the future. Further, if our insurance provider is for any reason unable or unwilling to meet its claims and premium reimbursement payment obligations or its premium ceding obligations, we would experience increased net credit losses, regulatory scrutiny, litigation, and other losses and expenses. Finally, in recent years, as large loans have become a larger percentage of our portfolio, the severity of non-file insurance claims has increased and non-file insurance claims expenses have exceeded non-file insurance premiums by a material amount. The resulting net loss from the non-file insurance product is reflected in our insurance income, net. It is uncertain whether the non-file insurance product will be available to us in the future on the same terms as it is today, or at all. If the unaffiliated insurance company were to enforce limitations on our non-file loss ratios or otherwise change the terms under which it offers non-file insurance to us, our net credit losses, loss rates, and provision for credit losses could increase. If any of these events, risks, or uncertainties were to occur or materialize, it could have a material adverse effect on our business, financial condition, and results of operations and cash flows. A reduction in demand for our products and a failure by us to adapt to such reduction could adversely affect our business and results of operations. The demand for the products we offer may be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences or financial conditions, regulatory restrictions that decrease customer access to particular products, or the availability of competing products, including through alternative or competing marketing channels. For example, we are highly dependent upon selecting and maintaining attractive branch locations. These locations are subject to local market conditions, including the employment available in the area, housing costs, traffic patterns, crime, and other demographic influences, any of which may quickly change, thereby negatively impacting demand for our products in the area. Should we fail to adapt to significant changes in our customers’ demand for, or access to, our products, our revenues could decrease significantly and our operations could be harmed. Even if we do make changes to existing products or introduce new products and channels to fulfill customer demand, customers may resist or may reject such products. Moreover, the effect of any product change on the results of our business may not be fully ascertainable until the change has been in effect for some time, and by that time it may be too late to make further modifications to such product without causing further harm to our business, results of operations, and financial condition. Regional Management Corp. | 2019 Annual Report on Form 10-K | 20 F o r m 1 0 - K We face strong direct and indirect competition. The consumer finance industry is highly competitive, and the barriers to entry for new competitors are relatively low in the markets in which we operate. We compete for customers, locations, employees, and other important aspects of our business with many other local, regional, national, and international financial institutions, many of which have greater financial resources than we do. Our installment loan operations compete with other installment lenders, as well as with alternative financial services providers (such as payday and title lenders, check advance companies, and pawnshops), online or peer-to-peer lenders, issuers of non-prime credit cards, and other competitors. We believe that regulatory developments in the consumer finance industry have caused and may in the future cause lenders that focus on alternative financial services to begin to offer installment loans. In addition, if companies in the installment loan business attempt to provide more attractive loan terms than is standard across the industry, we may lose customers to those competitors. With respect to installment loans, we compete primarily on the basis of price, breadth of loan product offerings, flexibility of loan terms offered, and the quality of customer service provided. Our retail purchase loan operations compete with non-prime retail lenders, store and third-party credit cards, prime lending sources, rent-to-own finance providers, and other competitors. We compete primarily on the basis of interest rates charged, the quality of credit accepted, the flexibility of loan terms offered, the speed of approval, and the quality of customer service provided. If we fail to compete successfully, we could face lower sales and may decide or be compelled to materially alter our lending terms to our customers, which could result in decreased profitability. We may attempt to pursue acquisitions or strategic alliances that may be unsuccessful. We may attempt to achieve our business objectives through acquisitions and strategic alliances. We compete with other companies for these opportunities, including companies with greater financial resources, and we cannot be certain that we will be able to effect acquisitions or strategic alliances on commercially reasonable terms, or at all. Furthermore, most acquisition targets that we have pursued previously have been significantly smaller than us. We do not have extensive experience with integrating larger acquisitions. In pursuing these transactions, we may experience, among other things: • • • • • • • overvaluing potential targets; difficulties in integrating any acquired companies, branches, or products into our existing business, including integration of account data into our information systems; inability to realize the benefits we anticipate in a timely fashion, or at all; attrition of key personnel from acquired businesses; unexpected losses due to the acquisition of loan portfolios with loans originated using less stringent underwriting criteria; significant costs, charges, or write-downs; or unforeseen operating difficulties that require significant financial and managerial resources that would otherwise be available for the ongoing development and expansion of our existing operations. Geographic concentration of our loan portfolio may increase the risk of loss. Any concentration of our loan portfolio in a state or region may present unique risk concentrations. Our branches in South Carolina, Texas, and North Carolina accounted for 16%, 33%, and 15%, respectively, of our finance receivables in 2019. Furthermore, all of our operations are in five Southeastern, three Southwestern, one Mid-Atlantic, and two Midwestern states. As a result, we are highly susceptible to adverse economic conditions Regional Management Corp. | 2019 Annual Report on Form 10-K | 21 in those areas. The unemployment and bankruptcy rates in some states in our footprint are among the highest in the country. High unemployment rates may reduce the number of qualified borrowers to whom we will extend loans, which would result in reduced loan originations. In addition, some geographic regions of the United States will, from time to time, experience weaker regional economic conditions and consequently will experience higher rates of loss and delinquency. A regional economy may be adversely affected by the loss of jobs in certain industries, by state and local taxes, or by other factors, including natural disasters, prolonged public health crises or a pandemic (such as COVID-19), civil disturbances, or international events such as wars. In the event that a significant portion of our loan portfolio is comprised of loans owed by borrowers residing in certain jurisdictions where economic conditions, elevated bankruptcy filings, natural disasters, or other factors specific to these jurisdictions adversely impact the delinquency and default experience of our loan portfolio, we could experience reduced or delayed payments on outstanding loans. For example, in 2017 and 2018, we experienced increases in credit losses as a result of hurricanes impacting customer accounts in our geographic footprint. These losses occurred in states where a substantial majority of our loan portfolio is concentrated—specifically in Texas in 2017 and in South Carolina and North Carolina in 2018. Conversely, an improvement in economic conditions could result in prepayments by our borrowers of their payment obligations on our loans. As a result, we may receive principal payments on the outstanding loans earlier than anticipated, which would reduce our finance receivables and the interest income earned thereon. No prediction can be made and no assurance can be given as to the effect of economic conditions on the rate of delinquencies, prepayments, or losses on our loan portfolio with respect to any part of our geographic footprint. Furthermore, the concentration of our loan portfolio in one or more states would have a disproportionate effect on our business if governmental authorities in any of those states take action against us. In addition, the occurrence of any of the adverse regulatory or legislative events described in this “Risk Factors” section in states with a high concentration of our loan portfolio could materially and adversely affect our business, results of operations, and financial condition. For example, if interest rates in South Carolina, which currently are not capped, were to be capped, our business, results of operations, and financial condition would be materially and adversely affected. Failure of third-party service providers upon which we rely could adversely affect our business. We rely on certain third-party service providers. In particular, we currently rely on one key vendor to print and mail our convenience check and other offers for our direct mail marketing campaigns, and on certain other third-party service providers in connection with loan underwriting, origination, and servicing. Our reliance on these and other third parties can expose us to risks. For example, an error by our current convenience check vendor in 2015 resulted in check offers being misdirected, requiring us in some cases to notify state regulators and to refund certain interest and fee amounts, and exposing us to increased credit risk. If any of our third-party service providers, including our direct mail vendor and those third parties providing services in connection with loan underwriting, origination, and servicing, are unable to provide their services timely, accurately, and effectively, or at all, it could have a material adverse effect on our business, financial condition, and results of operations and cash flows. We rely on information technology products developed, owned, and supported by third parties. Our ability to manage our business and monitor results is highly dependent upon these information technology products. A failure of these products and systems or of the implementation of new information technology products and systems could disrupt our business. In the operation of our business, we are highly dependent upon a variety of information technology products, including our loan management system, which allows us to record, document, and manage our loan portfolio. In April 2016, we entered into an agreement with Nortridge pursuant to which Nortridge provides us with loan management software and related services. In 2018, we completed our transition to the Nortridge loan management software across our operations footprint. Regional Management Corp. | 2019 Annual Report on Form 10-K | 22 F o r m 1 0 - K Since we began transitioning to the Nortridge platform, we have tailored it to meet our specific needs. To a certain extent, we depend on the willingness and ability of Nortridge to continue to provide customized solutions and to support our evolving products and business model. In the future, Nortridge may not be willing or able to provide the services necessary to meet our loan management system needs. If this occurs, we may be forced to migrate to an alternative software package, which could materially affect our business, results of operations, and financial condition. Further, the Nortridge platform may in the future fail to perform in a manner consistent with our current expectations and may be inadequate for our needs. As we are dependent upon our ability to gather and promptly transmit accurate information to key decision makers, our business, results of operations, and financial condition may be adversely affected if our loan management system does not allow us to transmit accurate information, even for a short period of time. Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could adversely affect our competitive position, business, results of operations, and financial condition. We also rely on Teledata Communications Inc. and other third-party software vendors to provide access to loan applications and/or screen applications. There can be no assurance that these third party providers will continue to provide us with information in accordance with our lending guidelines or that they will continue to provide us lending leads at all. If this occurs, our credit losses, business, results of operations, and financial condition may be adversely affected. Further, the Nortridge platform and other third-party software vendor products and applications are subject to damage or interruption from: • • • • • • • power loss, computer systems failures, and internet, telecommunications, or data network failures; operator negligence or improper operation by, or supervision of, employees; physical and electronic loss of data or security breaches, misappropriation, and similar events; computer viruses; cyberterrorism; intentional acts of vandalism and similar events; and hurricanes, fires, floods, and other natural disasters. Any failure of the Nortridge platform or any other third-party software vendor product systems, if not addressed by our disaster recovery plan, could cause an interruption in operations. Though we have implemented contingency and disaster recovery processes in the event of one or several technology failures, any unforeseen failure, interruption, or compromise of these systems or security measures could affect the origination, servicing, and collection of loans. The risk of possible failures or interruptions may not be adequately addressed, and such failures or interruptions could occur. For example, in January 2020, we experienced an information technology infrastructure event caused by a system backup that affected our ability to originate branch loans and process certain methods of payment. As a result, our loan management system was not fully operational for a total of approximately seven business days between January 5, 2020 and January 16, 2020. The outage is expected to have an adverse impact on our results of operations. Although the Company, with the assistance of third-party experts, addressed and resolved the issue, there can be no assurance that a similar event will not occur in the future. 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 on this outage. Regional Management Corp. | 2019 Annual Report on Form 10-K | 23 We may not be able to make technological improvements as quickly as some of our competitors, which could harm our competitive ability and adversely affect our business, prospects, results of operations, and financial condition. The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products, services, and marketing channels. We rely on our integrated branch network as the foundation of our multiple channel platform and the primary point of contact with our active accounts., In order to serve consumers who want to reach us over the internet, we make an online loan application available on our consumer website, and we provide our customers an online customer portal, giving them online access to their account information and an electronic payment option. Our future success will depend, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demand for convenience, as well as to create additional efficiencies in our operations. We expect that new technologies and business processes applicable to the consumer finance industry will continue to emerge, and these new technologies and business processes may be more efficient than those that we currently use. We cannot ensure that we will be able to sustain our investment in new technology, and we may not be able to effectively implement new technology-driven products and services as quickly as some of our competitors or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could cause disruptions in our operations, harm our ability to compete with our competitors, and adversely affect our business, prospects, results of operations, and financial condition. Security breaches, cyber-attacks, failures in our information systems, or fraudulent activity could result in damage to our operations or lead to reputational damage. We rely heavily on communications and information systems to conduct our business. Each branch is part of an information network that is designed to permit us to maintain adequate cash inventory, reconcile cash balances on a daily basis, and report revenues and expenses to our headquarters. Our computer systems, software, and networks may be vulnerable to breaches (including via computer hackings), unauthorized access, misuse, computer viruses, malware, phishing, employee error or malfeasance, or other failures or disruptions that could result in disruption to our business or the loss or theft of confidential information, including customer, employee, and business information. Any failure, interruption, or breach in security of these systems, including any failure of our back-up systems, hardware failures, or an inability to access data maintained offsite, could result in failures or disruptions in our customer relationship management, general ledger, loan, and other systems and could result in a loss of data (including loan portfolio data), a loss of customer business, or a violation of applicable privacy and other laws, subject us to additional regulatory scrutiny, or expose us to civil litigation, possible financial liability, and other adverse consequences, any of which could have a material adverse effect on our financial condition and results of operations. Furthermore, the techniques that are used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often difficult to detect for long periods of time. Accordingly, we may not be able to detect immediately any such breach, which may increase the losses that we would suffer. In addition, our existing insurance policies would not reimburse us for all of the damages that we might incur as a result of a breach. A security breach or cyber-attack on our computer systems could interrupt or damage our operations or harm our reputation. We have implemented systems and processes designed to protect against unauthorized access to or use of personal information, and rely on encryption and authentication technology to effectively secure transmission of confidential information, including customer bank account, credit card, and other personal information. Despite the implementation of these security measures, there is no guarantee that they are adequate to safeguard against all security breaches and our systems may still be vulnerable to data theft, computer viruses, programming errors, attacks by third parties, or similar disruptive problems. If we were to experience a security breach or cyber-attack, we could be required to incur substantial costs and liabilities, including, among other things, the following: • • expenses to rectify the consequences of the security breach or cyber-attack; liability for stolen assets or information; Regional Management Corp. | 2019 Annual Report on Form 10-K | 24 F o r m 1 0 - K • • • • • costs of repairing damage to our systems; lost revenue and income resulting from any system downtime caused by such breach or attack; increased costs of cyber security protection; costs of incentives we may be required to offer to our customers or business partners to retain their business; and damage to our reputation causing customers and investors to lose confidence in our company. Further, any compromise of security or cyber-attack could deter consumers from entering into transactions that require them to provide confidential information to us. In addition, if confidential customer information or information belonging to our business partners is misappropriated from our computer systems, we could be sued by those who assert that we did not take adequate precautions to safeguard our systems and confidential data belonging to our customers or business partners, which could subject us to liability and result in significant legal fees and expenses in defending these claims. As a result, any compromise of security of our computer systems or cyber-attack could have a material adverse effect on our business, prospects, results of operations, and financial condition. As part of our business, and subject to applicable privacy laws, we may share confidential customer information and proprietary information with vendors, service providers, and business partners. The information systems of these third parties may also be vulnerable to security breaches, and we may not be able to ensure that these third parties have appropriate security controls in place to protect the information that we share with them. If our proprietary or confidential customer information is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition, and liquidity. Although we maintain insurance that is intended to cover certain losses from such events, there can be no assurance that such insurance will be adequate or available. Our centralized headquarters’ functions and branch operations are susceptible to disruption by catastrophic events, which could have a material adverse effect on our business, results of operations, and financial condition. Our headquarters are in an office building located in Greer, South Carolina, a town located outside of Greenville, South Carolina. Our information systems and administrative and management processes are primarily provided to our branches from this centralized location, and our separate data management facility is located in Greenville, South Carolina. These processes could be disrupted if a catastrophic event, such as a tornado, power outage, or act of terror, affected Greenville, Greer, or the nearby areas. Any such catastrophic event(s) or other unexpected disruption of our headquarters or data management facility could have a material adverse effect on our business, results of operations, and financial condition. Our business could suffer if we are unsuccessful in making, continuing, and growing relationships with retailers, or if the retailers with whom we have relationships experience a decline or disruption in their sales volumes. Our retail purchase loans are reliant on our relationships with retailers. Our retail purchase loan business model is based on our ability to enter into agreements with individual retailers to provide financing to customers in their stores. If a competitor were to offer better service or more attractive loan products to our retail partners, it is possible that our retail partners would terminate their relationships with us. If we are unable to continue to grow our existing relationships and develop new relationships, our results of operations, financial condition, and ability to continue to expand could be adversely affected. Regional Management Corp. | 2019 Annual Report on Form 10-K | 25 Even with good relationships with retailers, our ability to originate retail purchase loans is dependent, in large part, on the underlying consumer demand for retail goods. Retail sales are subject to fluctuation as a result of general economic trends and other factors. If sales volumes at the retailers with whom we have relationships decrease in the future as a result of general economic trends or due to any other factors, we may experience a corresponding decrease in the volume of such loans that we originate. In such circumstances, we may experience an adverse effect on our business, results of operations, and financial condition. Interest rates on retail purchase loans are determined at competitive market interest rates, and we may fail to adequately set interest rates, which may adversely affect our business. Unlike installment loans, particularly small installment loans, which in certain states are typically made at or near the maximum interest rates permitted by law, retail purchase loans are often made at competitive market interest rates, which are governed by laws for installment sales contracts. If we fail to set interest rates at a level that adequately reflects market rates or the credit risks of our customers, or if we set interest rates at a level too low to sustain our profitability, our business, results of operations, and financial condition could be adversely affected. Regular turnover among our managers and other employees at our branches makes it more difficult for us to operate our branches and increases our costs of operations, which could have an adverse effect on our business, results of operations, and financial condition. Our workforce is comprised primarily of employees who work on an hourly basis. In certain areas where we operate, there is significant competition for employees. In the past, we have lost employees and candidates to competitors who have been willing to pay higher compensation. Our ability to continue to expand our operations depends on our ability to attract, train, and retain a large and growing number of qualified employees. The turnover among all of our branch employees was approximately 40% in 2017, 51% in 2018, and 45% in 2019. This turnover increases our cost of operations and makes it more difficult to operate our branches. Our account executives and assistant manager roles have historically experienced high turnover. We may not be able to retain and cultivate personnel at these ranks for future promotion to branch manager. If our employee turnover rates increase above historical levels or if unanticipated problems arise from our high employee turnover and we are unable to readily replace such employees, our business, results of operations, financial condition, and ability to continue to expand could be adversely affected. The departure, transition, or replacement of key personnel could significantly impact the results of our operations. If we cannot continue to hire and retain high-quality employees, our business and financial results may be negatively affected. Our future success significantly depends on the continued service and performance of our key management personnel. Competition for these employees is intense. Our operating results could be adversely affected by higher employee turnover or increased salary and benefit costs. Like most businesses, our employees are important to our success and we are dependent in part on our ability to retain the services of our key management, operational, finance, and administrative personnel. We have built our business on a set of core values, and we attempt to hire employees who are committed to these values. We want to hire and retain employees who will fit our culture of compliance and of providing exceptional service to our customers. In order to compete and to continue to grow, we must attract, retain, and motivate employees, including those in executive, senior management, and operational positions. As our employees gain experience and develop their knowledge and skills, they become highly desired by other businesses. Therefore, to retain our employees, we must provide a satisfying work environment and competitive compensation and benefits. If costs to retain our skilled employees increase, then our business and financial results may be negatively affected. Our continued growth is also dependent, in part, on the skills, experience, and efforts of our executive officers and senior management. As previously announced, our former Executive Vice President and Chief Regional Management Corp. | 2019 Annual Report on Form 10-K | 26 F o r m 1 0 - K Financial Officer, Donald E. Thomas, retired from Regional in the third quarter of 2019, and our former Executive Vice President and Chief Credit Risk Officer, Daniel J. Taggart, stepped down from his position at Regional in the first quarter of 2020. Prior to their departure, the Company hired a new Chief Financial Officer and a new Chief Credit Risk Officer. We may not be successful in retaining the other members of our executive or senior management team or our other key employees. The loss of the services of any of our executive officers, senior management, or key team members, including state vice presidents, or the inability to attract additional qualified personnel as needed, could have an adverse effect on our business, financial condition, and results of operations. We also depend on our district supervisors to supervise, train, and motivate our branch employees. These supervisors have significant experience with our company and within our industry, and would be difficult to replace. If we lose a district supervisor to a competitor, we could also be at risk of losing other employees and customers. In addition, the process of identifying management successors creates uncertainty and could become a distraction to our senior management and our Board of Directors, and we may not be successful in attracting qualified candidates to replace key positions when necessary. The identification and recruitment of candidates to fill senior management positions, and the resulting transition process, may be disruptive to our business and operations. Employee misconduct or misconduct by third parties acting on our behalf could harm us by subjecting us to significant legal liability, regulatory scrutiny, and reputational harm. Our reputation is critical to maintaining and developing relationships with our existing and potential customers and third parties with whom we do business. There is a risk that our employees or third-party contractors could engage in misconduct that adversely affects our business. For example, if an employee or third- party contractor were to engage—or be accused of engaging—in illegal or suspicious activities, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, customer relationships, and ability to attract future customers. Employee or third-party misconduct could prompt regulators to allege or to determine, based upon such misconduct, that we have not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect and deter violations of such rules. It is not always possible to deter employee or third-party misconduct, and the precautions we take to detect and prevent misconduct may not be effective in all cases. Misconduct by our employees or third-party contractors, or even unsubstantiated allegations, could result in a material adverse effect on our reputation and our business. Security breaches in our branches or acts of theft, fraud, or violence could adversely affect our financial condition and results of operations. A portion of our account payments occur at our branches, either in person or by mail, and often consist of cash payments, which we deposit at local banks throughout the day. This business practice exposes us daily to the potential for employee theft of funds or, alternatively, to theft and burglary due to the cash we maintain in our branches. Despite controls and procedures to prevent such losses, we have sustained losses due to employee theft and fraud (including collusion), including from the origination of fraudulent loans. We are also susceptible to break-ins at our branches, where money and/or customer records necessary for day-to-day operations (which also contain extensive confidential information about our customers, including financial and personally identifiable information) could be taken. A breach in the security of our branches or in the safety of our employees could result in employee injury, loss of funds or records, and adverse publicity, and could result in a loss of customer business or expose us to additional regulatory scrutiny and penalties, civil litigation, and possible financial liability, any of which could have a material adverse effect on our reputation, financial condition, and results of operations. Our risk management efforts may not be effective. We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as regulatory and operational risks related Regional Management Corp. | 2019 Annual Report on Form 10-K | 27 to our business, assets, and liabilities. Our risk management policies, procedures, and techniques may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified, or identify additional risks to which we may become subject in the future. We may be unsuccessful in maintaining effective internal controls over financial reporting and disclosure controls and procedures. Controls and procedures are particularly important for consumer finance companies. Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud or material error. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurance that the objectives of the system are met. Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting. Any failure to maintain current internal controls or implement required new or improved controls, or difficulties encountered in their maintenance and/or implementation, could cause us to fail to meet our reporting obligations. If material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future or if our controls and procedures fail or are circumvented, our consolidated financial statements may contain material misstatements, we could be required to restate our financial results, we may be unable to produce accurate and timely financial statements, and we may be unable to maintain compliance with applicable stock exchange listing requirements, any of which could have a material adverse effect on our business, results of operations, financial condition, and stock price. The discovery of a material weakness and the disclosure of that fact, even if quickly remediated, could reduce the market value of shares of our common stock. Additionally, the existence of any material weakness or significant deficiency requires management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiency, and management may not be able to remediate any such material weaknesses or significant deficiency in a timely manner. Undetected material weaknesses in our internal controls could lead to financial statement restatements, which could have a material adverse effect on our business, financial condition, and results of operation. If our estimate of allowance for credit losses is not adequate to absorb actual losses, our provision for credit losses would increase, which would adversely affect our results of operations. We maintain an allowance for credit losses for all loans we make. To estimate the appropriate level of credit loss reserves, we consider known and relevant internal and external factors that affect loan collectability, including the total amount of loans outstanding; delinquency levels, roll rates, and trends; historical credit losses; our current collection patterns; and economic trends. Our methodology for establishing our allowance for credit losses is based in large part on our delinquency roll rates and our historic loss experience. If customer behavior changes because of economic, political, social, or other conditions and if we are unable to predict how the unemployment rate and general economic uncertainty may affect our credit loss allowance, our provision for credit losses may be inadequate. During fiscal 2019, our provision for credit losses was $99.6 million, and we had net credit losses of $95.7 million. As of December 31, 2019, our finance receivables were $1,104.8 million. Maintaining the adequacy of our allowance for credit losses may require significant and unanticipated changes in our provisions for credit losses, which would materially affect our results of operations. Our allowance for credit losses, however, is an estimate, and if actual credit losses are materially greater than our credit loss allowance, Regional Management Corp. | 2019 Annual Report on Form 10-K | 28 F o r m 1 0 - K our financial condition and results of operations could be adversely affected. Neither state regulators nor federal regulators regulate our allowance for credit losses. In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting update significantly changing the impairment model for estimating credit losses on financial assets. While the then- existing incurred loss impairment model required the recognition of credit losses when it was probable that a loss had been incurred, the new current expected credit loss (“CECL”) model requires entities to estimate the lifetime expected credit losses on such instruments and to record an allowance to offset the amortized cost basis of the financial assets. The CECL model requires earlier recognition of credit losses as compared to the incurred loss approach. It uses historical experience, current conditions, and reasonable and supportable economic forecasts to estimate lifetime expected credit losses. In addition to the risks and uncertainties identified in the preceding paragraph, the CECL model requires increased use of judgment and dependence on forward-looking economic forecasts that may prove to be incorrect. Based on analyses and forecasts of future macroeconomic conditions as of December 31, 2019, we estimated a CECL allowance for credit losses of $122 million. The allowance under the prior incurred loss approach was $62 million as of December 31, 2019. Thus, effective January 1, 2020, the adoption of CECL accounting, through a modified-retrospective approach, caused an increase to the allowance for credit losses of approximately $60 million. Adjusting the CECL allowance for credit losses for changes in economic forecasts may result in the need for significant and unanticipated changes in our provisions for credit losses, which would materially affect our results of operations. 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 this new accounting standard. If assumptions or estimates we use in preparing our financial statements are incorrect or are required to change, our reported results of operations and financial condition may be adversely affected. We are required to use certain assumptions and estimates in preparing our financial statements under U.S. Generally Accepted Accounting Principles (“GAAP”), including in determining allowances for credit losses, the fair value of financial instruments, asset impairment, reserves related to litigation and other legal matters, the fair value of share-based compensation, valuation of income, and other taxes and regulatory exposures. In addition, significant assumptions and estimates are involved in determining certain disclosures required under GAAP, including those involving the fair value of our financial instruments. If the assumptions or estimates underlying our financial statements are incorrect, the actual amounts realized on transactions and balances subject to those estimates will be different, and this could have a material adverse effect on our results of operations and financial condition. In addition, the FASB is currently reviewing or proposing changes to several financial accounting and reporting standards that govern key aspects of our financial statements, including areas where assumptions or estimates are required. As a result of changes to financial accounting or reporting standards, whether promulgated or required by the FASB or other regulators, we could be required to change certain of the assumptions or estimates we previously used in preparing our financial statements, which could negatively impact how we record and report our results of operations and financial condition generally. For additional information on the key areas for which assumptions and estimates are used in preparing our financial statements, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and Note 2, “Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.” We depend to a substantial extent on borrowings under our senior revolving credit facility to fund our liquidity needs. We have a senior revolving credit facility committed through September 2022 that allows us to borrow up to $640.0 million, assuming we are in compliance with a number of covenants and conditions. The credit facility also has an accordion provision that allows for the expansion of the facility up to $650.0 million. The senior revolving credit facility is collateralized by certain of our assets, including substantially all of our finance Regional Management Corp. | 2019 Annual Report on Form 10-K | 29 receivables (other than those held by certain special purpose entities (each, an “SPE”), as described below) and equity interests of the majority of our subsidiaries. As of December 31, 2019, the amount outstanding under our senior revolving credit facility was $350.8 million and we had $290.7 million of eligible borrowing capacity on the credit facility (subject to certain covenants and conditions). During fiscal 2019, the maximum amount of borrowings outstanding under the facility at any one time was $395.2 million. We use our senior revolving credit facility as a source of liquidity, including for working capital and to fund the loans we make to our customers. If our existing sources of liquidity become insufficient to satisfy our financial needs or our access to these sources becomes unexpectedly restricted, we may need to try to raise additional capital in the future. If such an event were to occur, we can give no assurance that such alternate sources of liquidity would be available to us on favorable terms or at all. In addition, we cannot be certain that we will be able to replace the amended and restated senior revolving credit facility when it matures on favorable terms or at all. If any of these events occur, our business, results of operations, and financial condition could be adversely affected. The credit agreements governing our long-term debt contain restrictions and limitations that could affect our ability to operate our business. The credit agreements governing our senior revolving credit facility and revolving warehouse credit facility contain a number of covenants that could adversely affect our business and our flexibility to respond to changing business and economic conditions or opportunities. Among other things, these covenants limit our ability to: • • • • • • • • incur or guarantee additional indebtedness; purchase loan portfolios in bulk; pay dividends or make distributions on our capital stock or make certain other restricted payments; sell assets, including our loan portfolio or the capital stock of our subsidiaries; enter into transactions with our affiliates; offer certain loan products; create or incur liens; and consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets. The credit agreements also impose certain obligations on us relating to our underwriting standards, recordkeeping and servicing of our loans, and our loss reserves and charge-off policies, and they require us to maintain certain financial ratios, including an interest coverage ratio and a capital base ratio. If we were to breach any covenants or obligations under our credit agreements and such breaches were to result in an event of default, our lenders could cause all amounts outstanding to become due and payable, subject to applicable grace periods. An event of default in any one credit agreement could also trigger cross-defaults under other existing and future credit agreements and other debt instruments, and materially and adversely affect our financial condition and ability to continue operating our business as a going concern. Our securitizations may expose us to financing and other risks, and there can be no assurance that we will be able to access the securitization market in the future, which may require us to seek more costly financing. We completed two securitizations in 2018 and one securitization in 2019, and we may in the future securitize certain of our finance receivables to generate cash to originate new finance receivables or to pay our outstanding indebtedness. In such transactions, we typically convey a pool of finance receivables to a special purpose entity, which, in turn, conveys the finance receivables to a trust (the issuing entity). Concurrently, the issuing entity issues non-recourse notes or certificates pursuant to the terms of an indenture and/or amended and restated trust agreement, which then are transferred to the special purpose entity in exchange for the finance Regional Management Corp. | 2019 Annual Report on Form 10-K | 30 F o r m 1 0 - K receivables. The securities issued by the issuing entity are secured by the pool of finance receivables. In exchange for the transfer of finance receivables to the issuing entity, we typically receive the cash proceeds from the sale of the securities issued by the issuing entity, all residual interests, if any, in the cash flows from the finance receivables after payment of the securities, and a 100% beneficial interest in the issuing entity. Although we successfully completed securitizations in 2018 and 2019, we can give no assurances that we will be able to complete additional securitizations, including if, for example, the securitization markets become constrained or events within the Company cause investors to lack confidence in our ability to fulfill our obligations as servicer with respect to the securitizations. Further, the value of any subordinated securities that we may retain in our securitizations might be reduced or, in some cases, eliminated as a result of an adverse change in economic conditions or other factors. Regional Management Corp. currently acts as the servicer (in such capacity, the “Servicer”) with respect to each securitization. If the Servicer defaults in its servicing obligations, an early amortization event could occur under each securitization and the Servicer could be replaced as servicer. Servicer defaults include, but are not limited to, the failure of the Servicer to make any payment, transfer, or deposit in accordance with applicable securitization documents; breaches of representations, warranties, or agreements made by the Servicer under applicable securitization documents; and the occurrence of certain insolvency events with respect to the Servicer. Such an early amortization event could have materially adverse consequences on our liquidity and cost of funds. Rating agencies may also affect our ability to execute a securitization transaction or increase the costs we expect to incur from executing securitization transactions, not only by deciding not to issue ratings for our securitization transactions, but also by altering the processes and criteria they follow in issuing ratings. Rating agencies could alter their ratings processes or criteria after we have accumulated finance receivables for securitization in a manner that effectively reduces the value of those finance receivables by increasing our financing costs or otherwise requiring that we incur additional costs in order to comply with those processes and criteria. We have no ability to control or predict what actions the rating agencies may take. Further, other matters, such as (i) accounting standards applicable to securitization transactions and (ii) capital and leverage requirements applicable to banks and other regulated financial institutions holding asset- backed securities, could result in decreased investor demand for securities issued through our securitization transactions or increased competition from other institutions that undertake securitization transactions. In addition, compliance with certain regulatory requirements, including the Dodd-Frank Act, may affect the type of securitization transactions that we are able to complete. An inability to consummate further securitization transactions on terms similar to our existing securitization transactions, or at all, could require us to seek more costly financing and/or have a material adverse effect on our business, results of operations, and financial condition. We may be required to indemnify, or repurchase certain finance receivables from, purchasers of finance receivables that we have sold or securitized, or which we will sell or securitize in the future, if our finance receivables fail to meet certain criteria or characteristics or under other circumstances, which could adversely affect our results of operations, financial condition, and liquidity. We have entered into certain financing arrangements, including a revolving warehouse credit facility, which is secured by certain retail installment contracts and promissory notes (the “Receivables”). In June 2018, we securitized approximately $168.5 million of Receivables, in December 2018, we securitized approximately $136.9 million of Receivables, and in October 2019, we securitized approximately $144.5 million of Receivables. Our operating subsidiaries originated the Receivables and subsequently transferred the Receivables to certain of our wholly-owned subsidiaries that were established for the special purpose of entering into the financing arrangements and the respective securitizations. The documents governing our financing arrangements and securitizations contain provisions that require us to repurchase the affected Receivables under certain Regional Management Corp. | 2019 Annual Report on Form 10-K | 31 circumstances. While our financing and securitization documents vary, they generally contain customary provisions that require us and the special purpose entities to make certain representations and warranties about the quality and nature of the Receivables. Together with the special purpose entities, we may be required to repurchase the Receivables if a representation or warranty is later determined to be inaccurate. In such a case, we will be required to pay a repurchase price for the release of the affected Receivables. We believe that many purchasers of loans and other counterparties to transactions like those provided for in the revolving warehouse credit facility, the securitizations, and other similar transactions are particularly aware of the conditions under which originators or sellers of such finance receivables must indemnify for or repurchase finance receivables, and may benefit from enforcing any available repurchase remedies. If we are required to repurchase Receivables that we have sold or pledged, it could adversely affect our results of operations, financial condition, and liquidity. We are subject to interest rate risk resulting from general economic conditions and policies of various governmental and regulatory agencies. Interest rate risk arises from the possibility that changes in interest rates will affect our results of operations and financial condition. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Furthermore, market conditions or regulatory restrictions on interest rates we charge may prevent us from passing any increases in interest rates along to our customers. We originate finance receivables at either prevailing market rates or at statutory limits. Subject to statutory limits, our ability to react to changes in prevailing market rates is dependent upon the speed at which our customers pay off or renew loans in our existing loan portfolio, which allows us to originate new loans at prevailing market rates. Our loan portfolio turns over approximately 1.2 times per year from cash payments, renewals, and charged-off loans. Because our large loans have longer maturities than our small loans and typically renew at a slower rate than our small loans, the rate of turnover of the loan portfolio may change as our large loans change as a percentage of our portfolio. In addition, rising interest rates will increase our cost of capital by influencing the amount of interest we pay on our senior revolving credit facility, our revolving warehouse credit facility, or any other floating interest rate obligations that we may incur, which would increase our operating costs and decrease our operating margins. Interest payable on our senior revolving credit facility and our revolving warehouse credit facility is variable and could increase in the future. For additional information, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.” Any replacement of LIBOR as the basis on which our variable rate debt is calculated may harm our cost of capital, financial results, and cash flows. Borrowings under our senior revolving credit facility and our revolving warehouse credit facility bear interest at rates that are calculated based on LIBOR, and from time to time, we purchase interest rate cap contracts with strike rates that are also calculated based on LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities. Although there have been a few issuances utilizing SOFR or the Sterling Over Night Index Average, an alternative reference rate that is based on transactions, it is unknown whether these alternative reference rates will attain market acceptance as replacements of LIBOR. If LIBOR ceases to exist, the method and rate used to calculate our variable-rate debt in the future may result in interest rates and/or payments that are higher than, lower than, or that do not otherwise correlate over Regional Management Corp. | 2019 Annual Report on Form 10-K | 32 F o r m 1 0 - K time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form. Changes in interest rates may also influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and cash flows. In addition, any transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in the value of certain instruments or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes. This could materially and adversely affect our results of operations, cash flows, and liquidity. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our cost of capital, financial results, and cash flows cannot yet be determined. Our use of derivatives exposes us to credit and market risk. From time to time, we enter into derivative transactions for economic hedging purposes, such as managing our exposure to interest rate risk. By using derivative instruments, we are exposed to credit and market risk, including the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost, default risk, and the risk of insolvency or other inability of the counterparty to a particular derivative transaction to perform its obligations. For additional information, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.” Macroeconomic conditions could have a material adverse effect on our business, financial position, results of operations, and cash flows, and may increase loan defaults and affect the value and liquidity of your investment. We are not insulated from the pressures and potentially negative consequences of financial crises and similar risks beyond our control that have in the past and may in the future affect the capital and credit markets, the broader economy, the financial services industry, or the segment of that industry in which we operate. Our financial performance generally, and in particular the ability of our borrowers to make payments on outstanding loans, is highly dependent upon the business and economic environments in the markets where we operate and in the United States as a whole. During an economic downturn or recession, credit losses in the financial services industry generally increase and demand for credit products often decreases. Declining asset values, defaults on consumer loans, and the lack of market and investor confidence, as well as other factors, all combine to decrease liquidity during an economic downturn. As a result of these factors, some banks and other lenders have suffered significant losses during economic downturns, and the strength and liquidity of many financial institutions worldwide weakened during the most recent economic crisis. Additionally, during an economic downturn, our loan servicing costs and collection costs may increase as we may have to expend greater time and resources on these activities. Our underwriting criteria, policies and procedures, and product offerings may not sufficiently protect our growth and profitability during a sustained period of economic downturn or recession. Any renewed economic downturn will adversely affect the financial resources of our customers and may result in the inability of our customers to make principal and interest payments on, or refinance, the outstanding debt when due. In addition, periods of economic slowdown or recession are typically accompanied by decreased consumer demand for retail goods. Our ability to originate retail purchase loans depends, in large part, on the underlying demand for such products. Further, our business is focused on customers who generally do not qualify for conventional retail financing, and customers in this demographic are more likely to be affected, and more severely affected, by an economic downturn. Accordingly, our business, financial position, results of operations, and cash flows may be adversely impacted during any economic downturn or recession. Should economic conditions worsen, they may adversely affect the credit quality of our loans. In the event of increased default by borrowers under the loans, and/or a decrease in the volume of the loans we originate, our business, results of operations, and financial condition could be adversely affected. Regional Management Corp. | 2019 Annual Report on Form 10-K | 33 Damage to our reputation could negatively impact our business. Recently, financial services companies have been experiencing increased reputational risk as consumers and the media take issue with certain of their practices or judgments. Maintaining a strong reputation is critical to our attracting and retaining customers, investors, and employees. Harm to our reputation can arise from many sources, including employee misconduct, misconduct by outsourced service providers or other counterparties, litigation or regulatory actions, failure by us to meet minimum standards of service and quality, inadequate protection of customer information, and compliance failures. Negative publicity regarding our company (or others engaged in a similar business or similar activities), whether or not accurate, may damage our reputation, which could have a material adverse effect on our business, results of operations, and financial condition. Risks Related to Regulation and Legal Proceedings Our business products and activities are strictly and comprehensively regulated at the local, state, and federal levels. The consumer finance industry is extensively regulated by federal, state, and local laws and regulations, including consumer protection laws and regulations relating to the creation, collection, and enforcement of consumer contracts, such as consumer loans. These laws and regulations impose significant costs and limitations on the way we conduct and expand our business, and these costs and limitations may increase in the future if such laws and regulations are changed. These laws and regulations govern or affect, among other things: • • • • • • • • • • • • the interest rates and manner of calculating such rates that we may charge customers; terms of loans, including fees, maximum amounts, and minimum durations; origination practices; disclosure requirements, including posting of fees; solicitation and advertising practices; currency and suspicious activity reporting; recording and reporting of certain financial transactions; privacy of personal customer information; the types of products and services that we may offer; servicing and collection practices; approval of licenses; and locations of our branches. Due to the highly regulated nature of the consumer finance industry, we are required to comply with a wide array of federal, state, and local laws and regulations that affect, among other things, the manner in which we conduct our origination and servicing operations. These laws and regulations directly impact our business and require constant compliance, monitoring, and internal and external audits. Although we have an enterprise-wide compliance framework structured to continuously evaluate our activities, compliance with applicable law is costly and may create operational constraints. At a federal level, these laws and their implementing regulations include, among others, the Truth in Lending Act and Regulation Z, the Consumer Financial Protection Act, the Dodd-Frank Act, the Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the Electronic Funds Transfer Act, the Federal Trade Commission Act, the Servicemembers Civil Relief Act, the Military Lending Act, the Telephone Consumer Protection Act, and requirements related to unfair, deceptive, or abusive acts or practices. Many states and local jurisdictions have consumer protection laws analogous to, or in addition Regional Management Corp. | 2019 Annual Report on Form 10-K | 34 F o r m 1 0 - K to, those listed above, such as usury laws and state debt collection practices laws that apply to first-party lenders. These federal, state, and local laws regulate the manner in which consumer finance companies deal with customers when making loans or conducting other types of financial transactions. Changes to statutes, regulations, or regulatory policies, including the interpretation, implementation, and enforcement of statutes, regulations, or policies, could affect us in substantial and unpredictable ways, including limiting the types of financial services and products that we may offer and increasing the ability of competitors to offer competing financial services and products. Compliance with laws and regulations requires us to invest increasingly significant portions of our resources in compliance planning and training, monitoring tools, and personnel, and requires the time and attention of management. These costs divert capital and focus away from efforts intended to grow our business. Because these laws and regulations are complex and often subject to interpretation, or because of a result of unintended errors, we may, from time to time, inadvertently violate these laws, regulations, and policies, as each is interpreted by our regulators. If we do not successfully comply with laws, regulations, or policies, we could be subject to fines, penalties, lawsuits, or judgments, our compliance costs could increase, our operations could be limited, and we may suffer damage to our reputation. If more restrictive laws, rules, and regulations are enacted or more restrictive judicial and administrative interpretations of current laws are issued, compliance with the laws could become more expensive or difficult. Furthermore, changes in these laws and regulations could require changes in the way we conduct our business, and we cannot predict the impact such changes would have on our profitability. The Dodd-Frank Act also may adversely affect the securitization market because it requires, among other things, that the sponsor of a securitization transaction or a majority-owned affiliate of the sponsor retain not less than 5% of the credit risk of the assets collateralizing the asset-backed securities. The risk retention requirement may limit our ability to securitize loans. The impact of the risk retention rule on the asset-backed securities market remains uncertain. In addition, rules relating to securitizations rated by nationally-recognized statistical rating agencies require that the findings of any third-party due diligence service providers be made publicly available at least five (5) business days prior to the first sale of securities, which has led, and will continue to lead, us to incur additional costs in connection with each securitization. Our primary regulators are the state regulators for the states in which we operate. We operate each of our branches under licenses granted to us by these state regulators. State regulators may enter our branches and conduct audits of our records and practices at any time, with or without notice. If we fail to observe, or are not able to comply with, applicable legal requirements, we may be forced to discontinue certain product offerings, which could adversely affect our business, results of operations, and financial condition. In addition, violation of these laws and regulations could result in fines and other civil and/or criminal penalties, including the suspension or revocation of our branch licenses, rendering us unable to operate in one or more locations. All of the states in which we operate have laws governing the interest rates and fees that we can charge and required disclosure statements, among other restrictions. Violation of these laws could involve penalties requiring the forfeiture of principal and/or interest and fees that we have charged. Depending on the nature and scope of a violation, fines and other penalties for noncompliance of applicable requirements could be significant and could have a material adverse effect on our business, results of operations, and financial condition. While we believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable federal, state, and local laws and regulations, we may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations. In addition, changes in laws or regulations applicable to us could subject us to additional licensing, registration, and other regulatory requirements in the future or could adversely affect our ability to operate or the manner in which we conduct business. Licenses to open new branches are granted in the discretion of state regulators. Accordingly, licenses may be denied unexpectedly or for reasons outside of our control. This could hinder our ability to implement our business plans in a timely manner or at all. Regional Management Corp. | 2019 Annual Report on Form 10-K | 35 As we enter new markets and develop new products and services, we may become subject to additional local, state, and federal laws and regulations. For example, although we intend to expand into new states, we may encounter unexpected regulatory or other difficulties in these new states, including as they relate to securing the necessary licenses to operate, which may inhibit our growth. As a result, we may not be able to successfully execute our strategies to grow our revenue and earnings. We are also subject to potential enforcement, supervision, or other actions that may be brought by state attorneys general or other state enforcement authorities and other governmental agencies. For example, the CFPB, state and federal banking regulators, state attorneys general, the Federal Trade Commission, the U.S. Department of Justice, and federal government agencies have imposed sanctions on consumer loan originators for practices including, but not limited to, charging borrowers excessive fees, steering borrowers to loans with higher costs or more onerous terms, imposing higher interest rates than the borrower’s credit risk warrants, failing to disclose material terms of loans to borrowers, and otherwise engaging in discriminatory or unfair lending practices or unfair, deceptive, or abusive acts or practices. While we believe we are in substantial compliance with all applicable federal, state, and local laws and regulations, a contrary determination by a regulator, and any resulting action, could subject us to civil money penalties, customer remediation, and increased compliance costs, as well as damage to our reputation and brand and could limit or prohibit our ability to offer certain products and services or engage in certain business practices. Additionally, Congress, the states, and regulatory agencies could further regulate the consumer credit industry in ways that make it more difficult for us to conduct business. Further, changes in the regulatory application or judicial interpretation of the laws and regulations applicable to financial institutions also could impact the manner in which we conduct our business. The regulatory environment in which financial institutions operate has become increasingly complex and robust, and following the financial crisis of 2008, supervisory efforts to apply relevant laws, regulations, and policies have become more intense. Any of the events described above could have a material adverse effect on all aspects of our business, results of operations, and financial condition. We may become involved in investigations, examinations, and proceedings by government and self- regulatory agencies, which may result in material adverse consequences to our business, financial condition, and results of operations. From time to time, we may become involved in formal and informal reviews, investigations, examinations, proceedings, and information-gathering requests by federal and state government and self-regulatory agencies. Should we become subject to such an investigation, examination, or proceeding, the matter could result in material adverse consequences to us, including, but not limited to, increased compliance costs, adverse judgments, significant settlements, fines, penalties, injunction, or other actions. Changes in laws and regulations or interpretations of laws and regulations could negatively impact our business, results of operations, and financial condition. The laws and regulations directly affecting our lending activities are constantly under review and are subject to change. In addition, consumer advocacy groups and various other media sources continue to advocate for governmental and regulatory action to prohibit or severely restrict various financial products, including the loan products we offer. Any changes in such laws and regulations, or the implementation, interpretation, or enforcement of such laws and regulations, could force us to modify, suspend, or cease part or, in the worst case, all of our existing operations. It is also possible that the scope of federal regulations could change or expand in such a way as to preempt what has traditionally been state law regulation of our business activities. The enactment of one or more of such regulatory changes could materially and adversely affect our business, results of operations, and prospects. State and federal legislatures and regulators may also seek to impose new requirements or interpret or enforce existing requirements in new ways. Changes in current laws or regulations or the implementation of new Regional Management Corp. | 2019 Annual Report on Form 10-K | 36 F o r m 1 0 - K laws or regulations in the future may restrict our ability to continue our current methods of operation or expand our operations. For example, on December 12, 2019, legislation referred to as the “Unsolicited Loan Act of 2019” was reintroduced in the Senate after first being introduced in December 2018. This legislation would prohibit the practice of directly mailing convenience checks to potential borrowers. Currently, the only action that has been taken on the bill is referral to the Senate Committee on Banking, Housing, and Urban Affairs, which occurred immediately after its introduction on December 12, 2019. If the Unsolicited Loan Act of 2019 or a similar bill were to ultimately become law, we would no longer be permitted to mail convenience check offers to potential customers, which could materially and adversely affect our business, results of operations, and prospects. In addition, the “Veterans and Consumers Fair Credit Act” was introduced in the Senate on November 12, 2019 and referred to the Committee on Banking, Housing, and Urban Affairs. This legislation would extend the Military Lending Act’s consumer protections to all consumers, including a 36 percent interest rate cap on all consumer loans. If the Veterans and Consumers Fair Credit Act or a similar bill were to ultimately become law, our consumer loans would be capped at an annual percentage rate of 36 percent, which could materially and adversely affect our business, results of operations, and prospects. Additionally, new laws and regulations could subject us to liability for prior operating activities or lower or eliminate the profitability of operations going forward by, among other things, reducing the amount of interest and fees we charge in connection with our loans or limiting the types of insurance and other ancillary products that we may offer to our customers. If these or other factors lead us to close our branches in a state, in addition to the loss of net revenues attributable to that closing, we would incur closing costs such as lease cancellation payments and we would have to write off assets that we could no longer use. If we were to suspend rather than permanently cease our operations in a state, we would also have continuing costs associated with maintaining our branches and our employees in that state, with little or no revenues to offset those costs. In addition to state and federal laws and regulations, our business is subject to various local rules and regulations, such as local zoning regulations. Local zoning boards and other local governing bodies have been increasingly restricting the permitted locations of consumer finance companies. Any future actions taken to require special use permits for or impose other restrictions on our ability to provide products could adversely affect our ability to expand our operations or force us to attempt to relocate existing branches. If we were forced to relocate any of our branches, in addition to the costs associated with the relocation, we may be required to hire new employees in the new areas, which may adversely impact the operations of those branches. Relocation of an existing branch may also hinder our collection abilities, as our business model relies in part on the location of our branches being close to where our customers live in order to successfully collect on outstanding loans. Changes in laws or regulations may have a material adverse effect on all aspects of our business in a particular state and on our overall business, results of operations, and financial condition. The Dodd-Frank Act authorizes the CFPB to adopt rules and undertake supervisory and enforcement activity that could potentially have a serious impact on our ability to offer installment loans or otherwise materially and adversely affect our operations and financial performance. Title X of the Dodd-Frank Act establishes the CFPB, which became operational on July 21, 2011. Under the Dodd-Frank Act, the CFPB has regulatory, supervisory, and enforcement powers over providers of consumer financial products that we offer, including explicit supervisory authority to examine and require registration of installment lenders such as ourselves. Included in the powers afforded to the CFPB is the authority to adopt rules describing specified acts and practices as being “unfair,” “deceptive,” or “abusive,” and hence unlawful. Specifically, the CFPB has the authority to declare an act or practice abusive if it, among other things, materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service or takes unreasonable advantage of a lack of understanding on the part of the consumer of the product or service. Although the Dodd-Frank Act expressly provides that the CFPB has no authority to establish usury limits, some consumer advocacy groups have suggested that certain forms of alternative consumer finance products, Regional Management Corp. | 2019 Annual Report on Form 10-K | 37 such as traditional installment loans, should be a regulatory priority, and it is possible that the CFPB could propose and adopt rules making the products that we offer materially less profitable or impractical. Further, the CFPB may target specific features of loans or loan practices, such as refinancings, by rulemaking that could cause us to cease offering certain products or cease engaging in certain practices. The CFPB could also adopt rules imposing new and potentially burdensome requirements and limitations with respect to any of our current or future products or lines of business or on our methods of servicing our loans. Any such rules could have a material adverse effect on our business, results of operation, and financial condition. The Dodd-Frank Act also gives the CFPB the authority to examine and regulate entities it classifies as a “larger participant of a market for other consumer financial products or services.” In the past, the CFPB has indicated that it may in the future issue a proposed rule defining larger participants in the installment lending market. The CFPB has not yet issued a “larger participant” rule applicable to us. However, if in the future we are covered by a final larger participant rule for the installment lending market, we will be subject to related CFPB supervisory examinations. In addition to the Dodd-Frank Act’s grant of regulatory powers to the CFPB, the Dodd-Frank Act gives the CFPB authority to pursue administrative proceedings or litigation for violations of federal consumer financial laws. In these proceedings, the CFPB can obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties ranging from a maximum of $5,883 per day for minor violations of federal consumer financial laws (including the CFPB’s own rules) to $29,416 per day for reckless violations and $1,176,638 per day for knowing violations. If we are subject to such administrative proceedings, litigation, orders, or monetary penalties in the future, it could have a material adverse effect on our operations and financial performance. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations under Title X, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions for the kind of cease and desist orders available to the CFPB (but not for civil penalties). If the CFPB or one or more state officials find that we have violated the foregoing laws, they could exercise their enforcement powers in ways that would have a material adverse effect on us. In addition to preexisting enforcement rights for state attorneys general, the Dodd-Frank Act gives attorneys general authority to enforce the Dodd-Frank Act and regulations promulgated under the Dodd-Frank Act’s authority. In conducting an investigation, the CFPB or state attorneys general may issue a civil investigative demand requiring a target company to prepare and submit, among other items, documents, written reports, answers to interrogatories, and deposition testimony. If we are subject to investigation, the required response could result in substantial costs and a diversion of our management’s attention and resources. In addition, the market price of our common stock could decline as a result of the initiation of a CFPB investigation of our company or even the perception that such an investigation could occur, even in the absence of any finding by the CFPB that we have violated any state or federal law. Although many of the regulations implementing portions of the Dodd-Frank Act have been promulgated, we are still unable to predict how this significant legislation may be interpreted and enforced or the full extent to which implementing regulations and supervisory policies may affect us. Finally, President Donald Trump and the Congressional majority have indicated that the Dodd-Frank Act will be under further scrutiny and some of the provisions of the Dodd-Frank Act and rules promulgated thereunder, including those provisions establishing the CFPB and the rules and regulations proposed and enacted by the CFPB, may be revised, repealed, or amended. The results of the 2020 presidential and congressional elections may further impact the extent to which new or revised legislation or regulations are adopted. There can be no assurance that future reforms will not significantly and adversely impact our business, financial condition, and results of operations. Regional Management Corp. | 2019 Annual Report on Form 10-K | 38 F o r m 1 0 - K We sell certain of our loans, including, in some instances, charged-off loans and loans where the borrower is in default. This practice could subject us to heightened regulatory scrutiny, expose us to legal action, cause us to incur losses, and/or limit or impede our collection activity. As part of our business model, we have purchased and sold, and may in the future purchase and sell, some of our finance receivables, including loans that have been charged-off and loans where the borrower is in default. The CFPB and other regulators recently have significantly increased their scrutiny of debt sales, especially delinquent and charged-off debt. The CFPB has criticized sellers of debt for insufficient documentation to support and verify the validity or amount of the debt. It has also criticized debt collectors for, among other things, collection tactics, attempting to collect debts that are no longer valid, misrepresenting the amount of the debt, not having sufficient documentation to verify the validity or amount of the debt, and failing to obtain or maintain proper licenses. Accordingly, our sales of loans could expose us to lawsuits or fines by regulators if we do not have sufficient documentation to support and verify the validity and amount of the loans underlying the transactions, or if we or purchasers of our loans use collection methods that are viewed as unfair, deceptive, or abusive. In addition, our collections could suffer and we may incur additional expenses if we are required to change collection practices or stop collecting on certain debts as a result of a lawsuit or action on the part of regulators. Our use of third-party vendors is subject to increasing regulatory attention. The CFPB and other regulators have issued regulatory guidance that has focused on the need for financial institutions to oversee their business relationships with service providers in a manner that ensures such service providers comply with applicable law. This results in increased due diligence and ongoing monitoring of third- party vendor relationships, thus increasing the scope of management involvement and decreasing the benefit that we receive from using third-party vendors. Moreover, if regulators conclude that we have not met the heightened standards for oversight of our third-party vendors, we could be subject to enforcement actions, civil monetary penalties, supervisory orders to cease and desist, or other remedial actions, which could have an adverse effect on our business, financial condition, and operating results. We are subject to government regulations concerning our hourly and our other employees, including minimum wage, overtime, and health care laws. We are subject to applicable rules and regulations relating to our relationship with our employees, including minimum wage and break requirements, health benefits, unemployment and sales taxes, overtime, and working conditions and immigration status. Legislated increases in the federal minimum wage and increases in additional labor cost components, such as employee benefit costs, workers’ compensation insurance rates, compliance costs and fines, as well as the cost of litigation in connection with these regulations, would increase our labor costs. Unionizing and collective bargaining efforts have received increased attention nationwide in recent periods. Should our employees become represented by unions, we would be obligated to bargain with those unions with respect to wages, hours, and other terms and conditions of employment, which is likely to increase our labor costs. Moreover, as part of the process of union organizing and collective bargaining, strikes and other work stoppages may occur, which would cause disruption to our business. Similarly, many employers nationally in similar retail environments have been subject to actions brought by governmental agencies and private individuals under wage-hour laws on a variety of claims, such as improper classification of workers as exempt from overtime pay requirements and failure to pay overtime wages properly, with such actions sometimes brought as class actions. These actions can result in material liabilities and expenses. Should we be subject to employment litigation, such as actions involving wage-hour, overtime, break, and working time, it may distract our management from business matters and result in increased labor costs. In addition, we currently sponsor employer-subsidized premiums for major medical programs for eligible personnel who elect health care coverage through our insurance programs. As a result of regulatory changes, we may not be able to continue to offer health care coverage to our employees on affordable terms or at all and subsequently may face increased difficulty in hiring and retaining employees. If we are unable to locate, attract, train, or retain qualified personnel, Regional Management Corp. | 2019 Annual Report on Form 10-K | 39 or if our costs of labor increase significantly, our business, results of operations, and financial condition may be adversely affected. Our stock price or results of operations could be adversely affected by media and public perception of installment loans and of legislative and regulatory developments affecting activities within the installment lending sector. Consumer advocacy groups and various media sources continue to criticize alternative financial services providers (such as payday and title lenders, check advance companies, and pawnshops). These critics frequently characterize such alternative financial services providers as predatory or abusive toward consumers. If these persons were to criticize the products that we offer, it could result in further regulation of our business and could negatively impact our relationships with existing borrowers and efforts to attract new borrowers. Furthermore, our industry is highly regulated, and announcements regarding new or expected governmental and regulatory action in the alternative financial services sector may adversely impact our stock price and perceptions of our business even if such actions are not targeted at our operations and do not directly impact us. Legal proceedings to which we may become subject may have a material adverse impact on our financial position and results of operations. Like many companies in our industry, we are from time to time involved in various legal proceedings and subject to claims and other actions related to our business activities brought by borrowers and others. All such legal proceedings are inherently unpredictable and, regardless of the merits of the claims, litigation is often expensive, time-consuming, disruptive to our operations and resources, and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts and judgments, injunctive relief, equitable relief, and other adverse consequences that may affect our financial condition and how we operate our business. Similarly, if we settle such legal proceedings, it may affect our financial condition and how we operate our business. Future court decisions, alternative dispute resolution awards, business expansion, or legislative activity may increase our exposure to litigation and regulatory investigations. In some cases, substantial non-economic remedies or punitive damages may be sought. Although we maintain liability insurance coverage, there can be no assurance that such coverage will cover any particular verdict, judgment, or settlement that may be entered against us, that such coverage will prove to be adequate, or that such coverage will continue to remain available on acceptable terms, if at all. If in any legal proceeding we incur liability or defense costs that exceed our insurance coverage or that are not within the scope of our insurance coverage, it could have a material adverse effect on our business, financial condition, and results of operations. Current and proposed regulation related to consumer privacy, data protection, and information security could increase our costs. We are subject to a number of federal and state consumer privacy, data protection, and information security laws and regulations. Moreover, various federal and state regulatory agencies require us to notify customers in the event of a security breach. Federal and state legislators and regulators are increasingly pursuing new guidance, laws, and regulations. Compliance with current or future customer privacy, data protection, and information security laws and regulations could result in higher compliance, technology, or other operating costs. Any violations of these laws and regulations may require us to change our business practices or operational structure, and could subject us to legal claims, monetary penalties, sanctions, and the obligation to indemnify and/or notify customers or take other remedial actions. Regional Management Corp. | 2019 Annual Report on Form 10-K | 40 F o r m 1 0 - K Risks Related to the Ownership of Our Common Stock If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our common stock, our stock price and trading volume could decline. The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our common stock price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid. The market price of shares of our common stock may continue to be volatile, which could cause the value of your investment to decline. The market price of our common stock has been highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market, or political conditions, could reduce the market price of shares of our common stock in spite of our operating performance. In addition, our operating results and the market price of our common stock could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies, speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures, or capital commitments, adverse publicity about the industries we participate in, or individual scandals. We have no current plans to pay cash dividends on our common stock for the foreseeable future. We do not expect to pay cash dividends for the foreseeable future. Instead, we intend to retain future earnings, if any, for future operation, expansion, and debt repayment. The declaration, amount, and payment of any future cash dividends on shares of common stock will be at the discretion of our Board of Directors. Our Board of Directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions and implications on the payment of cash dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our Board of Directors may deem relevant. In addition, our ability to pay cash dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur, including our senior revolving credit facility. As a result, investors may need to rely on sales of their common stock after price appreciation, which may not occur, as the only way to realize future gains on their investment. Your stock ownership may be diluted by the future issuance of additional common stock in connection with our incentive plans, acquisitions, or otherwise. We have approximately 986 million shares of common stock authorized but unissued, as of March 12, 2020. Our amended and restated certificate of incorporation authorizes us to issue these shares of common stock and options, rights, warrants, and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our Board of Directors in its discretion, whether in connection with acquisitions or otherwise. Our stockholders previously approved the Regional Management Corp. 2015 Long- Term Incentive Plan (as amended and/or restated, the “2015 Plan”). Subject to adjustments as provided in the Regional Management Corp. | 2019 Annual Report on Form 10-K | 41 2015 Plan, the maximum aggregate number of shares of our common stock that may be issued under the 2015 Plan may not exceed the sum of (a) 1,550,000 shares plus (b) any shares (i) remaining available for the grant of awards as of the effective date under the 2007 Management Incentive Plan (the “2007 Plan”) or the 2011 Stock Incentive Plan (the “2011 Plan”), and/or (ii) subject to an award granted under the 2007 Plan or the 2011 Plan, which award is forfeited, cancelled, terminated, expires or lapses. We have 818,656 shares available for issuance under the 2015 Plan, as of March 12, 2020. In addition, our Board may recommend in the future that our stockholders approve new stock plans. Any common stock that we issue, including under our 2015 Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by our stockholders. In addition, the market price of our common stock could decline as a result of sales of a large number of shares of common stock in the market or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to issue equity securities in the future at a time and at a price that we deem appropriate. Anti-takeover provisions in our charter documents and applicable state law might discourage or delay acquisition attempts for us that you might consider favorable. Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult without the approval of our Board of Directors. Among other things, these provisions: • • • • authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock; prohibit stockholder action by written consent, which will require all stockholder actions to be taken at a meeting of our stockholders; provide that the Board of Directors is expressly authorized to make, alter, or repeal our bylaws and that our stockholders may only amend our bylaws with the approval of 80% or more of all of the outstanding shares of our capital stock entitled to vote; and establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. In addition, certain states require the approval of a state regulator for the acquisition, directly or indirectly, of more than a certain amount of the voting or common stock of a consumer finance company. The overall effect of these laws is to make it more difficult to acquire a consumer finance company than it might be to acquire control of a nonregulated corporation. Furthermore, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay, or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. Our amended and restated certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities identified by our non-employee directors and their affiliates. Certain of our non-employee directors and their affiliates are in the business of providing buyout capital and growth capital to developing companies and may acquire interests in businesses that directly or indirectly compete with certain portions of our business. Our amended and restated certificate of incorporation provides for Regional Management Corp. | 2019 Annual Report on Form 10-K | 42 the allocation of certain corporate opportunities between us, on the one hand, and certain of our non-employee directors and their affiliates, on the other hand. As set forth in our amended and restated certificate of incorporation, such non-employee directors and their affiliates shall not have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Therefore, a non-employee director of our company may pursue certain acquisition opportunities that may be complementary to our business and, as a result, such acquisition opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations, or prospects if attractive corporate opportunities are allocated by such non-employee directors to themselves or their other affiliates instead of to us. F o r m 1 0 - K Regional Management Corp. | 2019 Annual Report on Form 10-K | 43 ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. Our headquarters operations are located in an approximately 51,700 square foot leased facility in Greer, South Carolina, a town located outside of Greenville, South Carolina. As of March 12, 2020, each of our 368 branches is leased under fixed-term lease agreements. Our branches are located in 11 states throughout the Southeastern, Southwestern, Mid-Atlantic, and Midwestern United States, and the average branch size is approximately 1,573 square feet. In the opinion of management, our properties have been well-maintained, are in sound operating condition, and contain all equipment and facilities necessary to operate at present levels. We believe that all of our facilities are suitable and adequate for our present purposes. Our only reportable segment, which is our consumer finance segment, uses the properties described in this Part I, Item 2, “Properties.” ITEM 3. LEGAL PROCEEDINGS. The Company is involved in various legal proceedings and related actions that have arisen in the ordinary course of its business that have not been fully adjudicated. The Company’s management does not believe that these matters, when ultimately concluded and determined, will have a material adverse effect on its financial condition, liquidity, or results of operations. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. Regional Management Corp. | 2019 Annual Report on Form 10-K | 44 F o r m 1 0 - K PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock has been listed on the New York Stock Exchange (the “NYSE”) under the symbol “RM” since March 28, 2012. The last reported sale price of our common stock on the NYSE on March 12, 2020, was $20.39 per share. Holders As of March 12, 2020, there were 32 registered holders of our common stock. Because many of the shares of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to determine the exact number of beneficial stockholders represented by those record holders, but we believe that there were approximately 2,200 beneficial owners of our common stock as of March 6, 2020. Non-Affiliate Ownership For purposes of calculating the aggregate market value of shares of our common stock held by non-affiliates, as set forth on the cover page of this Annual Report on Form 10-K, we have assumed that all outstanding shares are held by non-affiliates, except for shares held by each of our executive officers, directors, and 5% or greater stockholders as of June 30, 2019. In the case of 5% or greater stockholders, we have not deemed such stockholders to be affiliates unless there are facts and circumstances which would indicate that such stockholders exercise any control over our company or unless they hold 10% or more of our outstanding common stock. These assumptions should not be deemed to constitute an admission that all executive officers, directors, and 5% or greater stockholders are, in fact, affiliates of our company, or that there are no other persons who may be deemed to be affiliates of our company. Further information concerning shareholdings of our officers, directors, and principal stockholders is incorporated by reference in Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K. Dividends; Stock Repurchases We have not paid any cash dividends since our initial public offering in 2012. In both 2016 and 2019, we repurchased approximately $25 million of our common stock at weighted-average prices of $16.17 per share and $26.65 per share, respectively. Other than our 2016 and 2019 stock repurchase programs, which were completed in June 2016 and October 2019, respectively, we have historically retained earnings for future operations, expansion, and debt repayment. Regional Management Corp. | 2019 Annual Report on Form 10-K | 45 The following table provides information regarding our repurchase of our common stock during the year ended December 31, 2019. Period Issuer Purchases of Equity Securities Total Number of Shares Purchased Weighted-Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program* January 1, 2019 – April 30, 2019 . . . . . . . . . . May 1, 2019 – May 31, 2019 . . . . . . . . . . . . . June 1, 2019 – June 30, 2019 . . . . . . . . . . . . . July 1, 2019 – July 31, 2019 . . . . . . . . . . . . . . August 1, 2019 – August 31, 2019 . . . . . . . . . September 1, 2019 – September 30, 2019 . . . . October 1, 2019 – October 31, 2019 . . . . . . . . November 1, 2019 – November 30, 2019 . . . . December 1, 2019 – December 31, 2019 . . . . — 36,342 248,862 204,224 — 68,561 379,922 — — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937,911 $ — 24.26 25.13 26.26 — 28.15 27.82 — — $26.65 — 36,342 248,862 204,224 — 68,561 379,922 — — 937,911 $ — $24,118,324 $17,865,184 $12,501,253 $12,501,253 $10,571,196 15 $ 15 $ 15 $ * On May 8, 2019, we announced that our Board of Directors had authorized the repurchase of up to $25.0 million of our outstanding shares of common stock. The authorization was effective immediately and extended through May 6, 2021. In October 2019, we completed the stock repurchase program. The declaration, amount, and payment of any future cash dividends on shares of common stock and/or repurchases of common stock will be at the discretion of our Board of Directors. Our Board of Directors may take into account general and economic conditions; our financial condition and results of operations; our available cash and current and anticipated cash needs; capital requirements; contractual, legal, tax, and regulatory restrictions and implications on the payment of cash dividends by us to our stockholders or by our subsidiaries to us; and such other factors as our Board of Directors may deem relevant. Our amended and restated senior revolving credit facility includes a provision restricting our ability to pay dividends on our common stock based upon, among other things, our net income and hypothetical availability under the credit facility. Likewise, certain of our credit facilities restrict certain of our wholly-owned subsidiaries from paying dividends to us, subject to certain exceptions. Regional Management Corp. | 2019 Annual Report on Form 10-K | 46 Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933. The following graph shows a comparison of the cumulative total return for our common stock, the NYSE Composite Index, and the NYSE Financial Index for the five years ended December 31, 2019. The graph assumes that $100 was invested at the market close on December 31, 2014, in the common stock of the Company, the NYSE Composite Index, and the NYSE Financial Index, and data for the NYSE Composite Index and the NYSE Financial Index assumes reinvestments of dividends. The stock price performance of the following graph is not necessarily indicative of future stock price performance. F o r m 1 0 - K Regional Management Corp. | 2019 Annual Report on Form 10-K | 47 ITEM 6. SELECTED FINANCIAL DATA. The selected consolidated historical financial data for the periods set forth below are derived from audited consolidated financial statements. We derived the selected historical consolidated statement of income data for each of the years ended December 31, 2019, 2018, and 2017 and the selected historical consolidated balance sheet data as of December 31, 2019 and 2018 from our audited consolidated financial statements, which appear in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. We have derived the selected historical consolidated statement of income data for the years ended December 31, 2016 and 2015 and the selected historical consolidated balance sheet data as of December 31, 2017, 2016, and 2015 from our audited financial statements, which do not appear elsewhere in this Annual Report on Form 10-K. The following selected consolidated financial data should be read in conjunction with our consolidated financial statements, the related notes, and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results to be expected for any future period. In thousands, except per share data 2019 2018 2017 2016 2015 Year Ended December 31, Consolidated Statements of Income Data: Revenue Interest and fee income . . . . . . . . . . . . . . . . . . . Insurance income, net, and other income . . . . . $ 321,169 34,544 $280,121 26,585 $249,034 23,425 $220,963 19,555 $195,794 21,512 Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,713 306,706 272,459 240,518 217,306 Expenses Provision for credit losses . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 99,611 156,984 40,125 87,056 140,284 33,464 77,339 130,955 23,908 63,014 118,632 19,924 47,348 115,598 16,221 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296,720 260,804 232,202 201,570 179,167 Income before income taxes . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,993 14,261 45,902 10,557 40,257 10,294 38,948 14,917 38,139 14,774 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,732 $ 35,345 $ 29,963 $ 24,031 $ 23,365 Earnings per Share Data: Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . Basic weighted-average shares . . . . . . . . . . . . . . . . . Diluted weighted-average shares . . . . . . . . . . . . . . . Consolidated Balance Sheet Data (at period end): Finance receivables(1) . . . . . . . . . . . . . . . . . . . . . . . . Allowance for credit losses . . . . . . . . . . . . . . . . . . . . $ $ 3.92 3.80 11,401 11,773 $ $ 3.03 2.93 11,655 12,078 $ $ 2.59 2.54 11,551 11,783 $ $ 2.03 1.99 11,824 12,085 $ $ 1.82 1.79 12,849 13,074 $1,104,813 (62,200) $932,243 (58,300) $817,463 (48,910) $717,775 (41,250) $628,444 (37,452) . . . . . . . . . . . . . . . . . . . . . Net finance receivables(2) Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . $1,042,613 1,158,540 808,218 855,757 $ 302,783 $873,943 956,395 660,507 677,234 $279,161 $768,553 829,483 571,496 590,072 $239,411 $676,525 712,224 491,678 504,749 $207,475 $590,992 626,373 411,177 421,146 $205,227 (1) Finance receivables equal the total amount due from the customer, net of unearned finance charges and insurance premiums. (2) Net finance receivables equal the total amount due from the customer, net of unearned finance charges, insurance premiums, and allowance for credit losses. Regional Management Corp. | 2019 Annual Report on Form 10-K | 48 F o r m 1 0 - K ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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 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. We operate under the name “Regional Finance” in 366 branch locations across 11 states in the Southeastern, Southwestern, Mid-Atlantic, and Midwestern United States, serving 432,200 active accounts, as of December 31, 2019. 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 multiple 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 in-person 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) – As of December 31, 2019, we had 283.0 thousand small installment loans outstanding, representing $462.5 million in finance receivables. This included 116.1 thousand small loan convenience checks, representing $174.1 million in finance receivables. Large Loans (>$2,500) – As of December 31, 2019, we had 130.7 thousand large installment loans outstanding, representing $608.6 million in finance receivables. This included 4.7 thousand large loan convenience checks, representing $14.1 million in finance receivables. • Retail Loans – As of December 31, 2019, we had 16.9 thousand retail purchase loans outstanding, representing $24.1 million in finance receivables. • Optional Insurance Products – We offer optional payment and collateral protection insurance to our direct loan customers. Regional Management Corp. | 2019 Annual Report on Form 10-K | 49 Small and large installment loans are our core loan products and will be the drivers of our future growth. We ceased originating automobile purchase loans in November 2017 to focus on growing our core loan portfolio, but we continue to own and service the automobile loans that we previously originated. As of December 31, 2019, we had 1.6 thousand automobile loans outstanding, representing $9.6 million in finance receivables. 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. For additional information regarding our business operations, see Part I, Item 1, “Business.” Factors Affecting Our Results of Operations Our business is driven by several factors affecting 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. Consequently, we experience seasonal fluctuations in our operating results and cash needs. 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 finance receivables grew 13.2% to $744.2 million in 2017, grew 14.7% to $853.8 million in 2018, and grew 15.5% to $985.7 million in 2019. 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 the number of branches we operate allows us to increase the number of loans that we are able to service. We opened 7, 17, and 3 net new branches in 2019, 2018, and 2017, respectively. We believe that we have the opportunity to add hundreds of additional branches in states where it is currently favorable for us to conduct business, and we have plans to continue to grow our branch network. 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. The allowance for credit losses calculation uses the current delinquency profile and historical delinquency roll rates as key data points in estimating the allowance. We believe that 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 automobile purchase loans and, to a lesser extent, large loans. We monitor these factors, and the amount and past due status of all loans one or more days past due, 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 Regional Management Corp. | 2019 Annual Report on Form 10-K | 50 F o r m 1 0 - K associated with future interest payments on our variable-rate debt, we have purchased interest rate cap contracts. As of December 31, 2019, we held three interest rate cap contracts with an aggregate notional principal amount of $350.0 million. The interest rate caps have maturities of April 2020 ($100.0 million, 3.25% strike rate), June 2020 ($50.0 million, 2.50% strike rate), and April 2021 ($200.0 million, 3.50% strike rate). As of December 31, 2019, the one-month LIBOR was 1.76%. When the one-month LIBOR exceeds the strike rate, the counterparty reimburses us for the excess over the strike rate. No payment is required by us or the counterparty when the one-month LIBOR is below the strike rate. In addition, as described below, the interest rate on a portion of our long-term debt is fixed. As of December 31, 2019, 50.8% of our long-term debt was at a fixed rate. 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 purchase of an interest rate cap contract in March 2020. Operating Costs. Our financial results are impacted by the costs of operations and home office functions. Those costs are included in the general and administrative expenses line of our consolidated statements of income. Our operating expense ratio (general and administrative expenses as a percentage of average finance receivables) was 15.9% for 2019, compared to 16.4% in 2018 and 17.6% in 2017. We believe that this ratio is generally in line with industry standards for companies of our size, and we expect that it will continue to decline in future years as we continue to grow our loan portfolio and control expense growth. Components of Results of Operations Interest and Fee Income. Our interest and fee income consists primarily of interest earned on outstanding loans. Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent. If the account is charged off, the accrued interest income is reversed as a reduction of 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 accrued to income over the life of the loan on the constant yield method. Insurance Income, Net. Our insurance operations are a material part of our overall business and are integral to our lending activities. Insurance income, net consists primarily of earned premiums, net of certain direct costs, from the sale of various optional payment and collateral protection insurance products offered to customers who obtain loans directly from us. Insurance income, net also includes the earned premiums and direct costs associated with the non-file insurance that we purchase to protect us from credit losses where, following an event of default, we are unable to take possession of personal property collateral because our security interest is not perfected. We do not sell insurance to non-borrowers. Direct costs included in insurance income, net are claims paid, claims reserves, ceding fees, and premium taxes paid. We do not allocate to insurance income, net, any other home office or branch administrative costs associated with managing our insurance operations, managing our captive insurance company, marketing and selling insurance products, legal and compliance review, or internal audits. In recent years, as large loans have become a larger percentage of our loan portfolio, the severity of non-file insurance claims has increased and non-file insurance claims expenses have exceeded non-file insurance fees. The resulting net loss from the non-file insurance product has been reflected in our insurance income, net. We evaluated various ways to lower our non-file insurance claims, and we reduced our utilization of non-file insurance beginning in the fourth quarter of 2018. This policy change will cause substantially offsetting increases to insurance income, net and net credit losses in current and future years. Regional Management Corp. | 2019 Annual Report on Form 10-K | 51 As reinsurer, we maintain cash reserves for life insurance claims in an amount determined by the unaffiliated insurance company. As of December 31, 2019, the restricted cash balance for these cash reserves was $9.9 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 estimated losses on the related finance receivable portfolio. Credit loss experience, 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 forecasted future credit losses over the estimated loss emergence period (the interval of time between the event that caused a borrower to default and our recording of the credit loss) 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 economic conditions or loan portfolio performance. General and Administrative Expenses. 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 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 the salaries and wages, overtime, contract labor, relocation costs, bonuses, benefits, and related payroll taxes associated with all of our operations and home office employees. Our occupancy expenses consist primarily of the cost of renting our facilities, all of which are leased, as well as the utility, depreciation of leasehold improvements and furniture and fixtures, telecommunication, 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, and maintaining our consumer website, as well as some local marketing by branches. These costs are expensed as incurred. Other expenses consist primarily of legal, compliance, audit, and consulting costs, non-employee director compensation, amortization of software licenses and implementation costs, electronic payment processing costs, bank service charges, office supplies, and credit bureau charges. We expect legal and compliance costs to remain elevated due to the regulatory environment in the consumer finance industry. 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 long-term debt, unused line fees, and amortization of debt issuance costs on long-term debt. Interest expense also includes costs attributable to the interest rate caps that we use to manage our interest rate risk. Changes in the fair value of the interest rate caps are reflected in interest expense. 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 Regional Management Corp. | 2019 Annual Report on Form 10-K | 52 F o r m 1 0 - K those temporary differences are expected to be recovered or settled. The change in deferred tax assets and liabilities is recognized in the period in which the change occurs, and the effects of future tax rate changes are recognized in the period in which the enactment of new rates occurs. Results of Operations The following table summarizes our results of operations, both in dollars and as a percentage of average finance receivables: In thousands Revenue Year Ended December 31, 2019 2018 2017 % of Average Receivables Amount % of Average Receivables Amount % of Average Receivables Amount Interest and fee income . . . . . . . . . Insurance income, net . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . $321,169 20,817 13,727 32.6% $280,121 14,793 2.1% 11,792 1.4% 32.8% $249,034 13,061 1.7% 10,364 1.4% Total revenue . . . . . . . . . . . . . 355,713 36.1% 306,706 35.9% 272,459 Expenses Provision for credit losses . . . . . . . Personnel . . . . . . . . . . . . . . . . . . . . Occupancy . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . Total general and administrative . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . 99,611 94,000 24,618 8,206 30,160 156,984 40,125 58,993 14,261 10.1% 9.5% 2.5% 0.8% 3.1% 15.9% 4.1% 6.0% 1.5% 87,056 84,068 22,519 7,745 25,952 140,284 33,464 45,902 10,557 10.2% 9.8% 2.6% 0.9% 3.1% 16.4% 3.9% 5.4% 1.3% 77,339 75,992 21,530 7,128 26,305 130,955 23,908 40,257 10,294 Net income . . . . . . . . . . . . . . . . . . . . . . . $ 44,732 4.5% $ 35,345 4.1% $ 29,963 33.5% 1.8% 1.3% 36.6% 10.4% 10.2% 2.9% 1.0% 3.5% 17.6% 3.2% 5.4% 1.4% 4.0% Information explaining the changes in our results of operations from year-to-year is provided in the following pages. Comparison of December 31, 2019, Versus December 31, 2018 • The following discussion and table describe the changes in finance receivables by product type: Small Loans (≤$2,500) – Small loans outstanding increased by $24.8 million, or 5.7%, to $462.5 million at December 31, 2019, from $437.7 million at December 31, 2018. The increase was primarily due to increased marketing. • Large Loans (>$2,500) – Large loans outstanding increased by $170.6 million, or 39.0%, to $608.6 million at December 31, 2019, from $438.0 million at December 31, 2018. The increase was primarily due to increased marketing and the transition of small loan customers to large loans. • Automobile Loans – Automobile loans outstanding decreased by $16.5 million, or 63.2%, to $9.6 million at December 31, 2019, from $26.2 million at December 31, 2018. We ceased originating automobile loans in November 2017 to focus on growing our core loan portfolio. Regional Management Corp. | 2019 Annual Report on Form 10-K | 53 • Retail Loans – Retail loans outstanding decreased $6.3 million, or 20.9%, to $24.1 million at December 31, 2019, from $30.4 million at December 31, 2018. In thousands Finance Receivables by Product December 31, 2019 December 31, 2018 YoY $ Inc (Dec) YoY % Inc (Dec) Small loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 462,499 608,608 $437,662 437,998 $ 24,837 170,610 Total core loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071,107 9,623 24,083 875,660 26,154 30,429 195,447 (16,531) (6,346) 5.7% 39.0% 22.3% (63.2)% (20.9)% Total finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,104,813 $932,243 $172,570 18.5% Number of branches at period end . . . . . . . . . . . . . . . . . . . . . . . Average finance receivables per branch . . . . . . . . . . . . . . . . . . . $ 366 3,019 359 2,597 $ $ 7 422 1.9% 16.2% Comparison of the Year Ended December 31, 2019, Versus the Year Ended December 31, 2018 Net Income. Net income increased $9.4 million, or 26.6%, to $44.7 million during 2019, from $35.3 million in 2018. The increase was primarily due to an increase in revenue of $49.0 million, offset by increases in general and administrative expenses of $16.7 million, provision for credit losses of $12.6 million, interest expense of $6.7 million, and income taxes of $3.7 million. Revenue. Total revenue increased $49.0 million, or 16.0%, to $355.7 million in 2019, from $306.7 million in 2018. The components of revenue are explained in greater detail below. Interest and Fee Income. Interest and fee income increased $41.0 million, or 14.7%, to $321.2 million in 2019, from $280.1 million in 2018. The increase was primarily due to a 15.5% increase in average finance receivables, offset by a 0.2% decrease in average yield. The following table sets forth the average finance receivables balance and average yield for our loan products: In thousands Average Finance Receivables for the Year Ended Average Yields for the Year Ended December 31, 2019 December 31, 2018 YoY % Inc (Dec) December 31, 2019 December 31, 2018 YoY % Inc (Dec) Small loans . . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . . Automobile loans . . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . . $437,358 504,302 16,384 27,701 $391,481 389,919 41,026 31,393 11.7% 29.3% (60.1)% (11.8)% Total interest and fee yield . . . . . . . $985,745 $853,819 15.5% 38.5% 28.8% 14.8% 19.0% 32.6% 40.0% 28.5% 15.6% 19.0% 32.8% (1.5)% 0.3% (0.8)% 0.0% (0.2)% Regional Management Corp. | 2019 Annual Report on Form 10-K | 54 F o r m 1 0 - K Small loan yields decreased 1.5% compared to 2018 as more of our small loan customers have originated loans with larger balances and longer maturities, which typically are priced at lower interest rates. Large loan yields increased 0.3% compared to 2018 as a result of adjusted pricing that reflects current market conditions. Automobile loan yields decreased 0.8% compared to 2018. We anticipate that the automobile loan yields will remain at the current level or decline due to higher-yielding loans paying off or renewing into large loans, leaving the lower-yielding loans in the liquidating automobile loan portfolio. When compared to 2018, retail loan yields remained unchanged. 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. The following table represents the amount of loan originations and refinancing, net of unearned finance charges: In thousands Net Loans Originated for the Year Ended December 31, 2019 December 31, 2018 YoY $ Inc (Dec) YoY% Inc (Dec) Small loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 662,281 594,617 19,630 $ 624,243 409,174 26,579 $ 38,038 185,443 (6,949) 6.1% 45.3% (26.1)% Total net loans originated . . . . . . . . . . . . . . . . . . $1,276,528 $1,059,996 $216,532 20.4% The hurricane that impacted our branches in September 2018 had an estimated $2.8 million negative impact on loan originations in 2018. The small loan portfolio experienced most of this impact. 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, 2019 Compared to Year Ended December 31, 2018 Increase (Decrease) In thousands Volume Rate Small loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Product mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,356 32,602 (3,842) (700) (3,134) $(5,932) 1,067 (315) 4 3,241 Total increase in interest and fee income . . . . . . . . . $43,282 $(1,935) Volume & Rate $(695) 314 189 — (107) $(299) Net $11,729 33,983 (3,968) (696) — $41,048 The $41.0 million increase in interest and fee income in 2019 compared to 2018 was primarily driven by finance receivables growth, offset by a decrease in yield, as illustrated in the table above. We expect future increases in interest and fee income to continue to be driven primarily from growth in our average finance receivables. Insurance Income, Net. Insurance income, net increased $6.0 million, or 40.7%, to $20.8 million in 2019, from $14.8 million in 2018. Insurance income, net represented 2.1% and 1.7% of average finance receivables in 2019 and 2018, respectively. In both 2019 and 2018, personal property insurance premiums represented the largest component of aggregate earned insurance premiums and non-file insurance claims expense represented the largest component of direct insurance expenses. Regional Management Corp. | 2019 Annual Report on Form 10-K | 55 The following table summarizes the components of insurance income, net: Insurance Premiums and Direct Expenses for the Year Ended In thousands December 31, 2019 December 31, 2018 Earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . Claims, reserves, and certain direct expenses . . . . . . $ 35,544 (14,727) $ 31,095 (16,302) Insurance income, net . . . . . . . . . . . . . . . . . . . . . . . . $ 20,817 $ 14,793 YoY $ B(W) $4,449 1,575 $6,024 YoY% B(W) 14.3% 9.7% 40.7% In 2019, earned premiums increased by $4.4 million and claims, reserves, and certain direct expenses decreased by $1.6 million, in each case compared to 2018. The increase in earned premiums was primarily due to loan growth. The decrease in claims, reserves, and certain direct expenses was primarily due to $4.2 million less in non-file insurance claims expense related to our change in business practice to decrease utilization of non-file insurance. The change in business practice to lower utilization of non-file insurance causes substantially offsetting increases to insurance income, net and net credit losses. Other Income. Other income increased $1.9 million, or 16.4%, to $13.7 million in 2019, from $11.8 million in 2018, due to a $1.3 million increase in commissions earned from the sale of our auto club product, a $0.5 million increase in interest income from restricted cash, and a $0.3 million increase in late charges. Late charges of $8.9 million and $8.6 million represented 64.9% and 73.0% of total other income in 2019 and 2018, respectively. As large loans continue to represent a greater percentage of our total loan portfolio and we continue to leverage electronic payment options, we expect lower late charges per active account. Other income represented 1.4% of average finance receivables in both 2019 and 2018. Provision for Credit Losses. Our provision for credit losses increased $12.6 million, or 14.4%, to $99.6 million in 2019, from $87.1 million in 2018. The increase was due to an increase in net credit losses of $18.0 million, offset by a $5.5 million decrease in the allowance for credit losses compared to 2018. The provision for credit losses as a percentage of average finance receivables in 2019 was 10.1%, compared to 10.2% in 2018. Fiscal 2019 included a 0.8% impact from the $7.6 million of net credit losses discussed in the insurance income, net paragraph above. Fiscal 2018 included a 0.4% impact from the $3.7 million of provision for credit losses related to a hurricane in 2018 and a 0.4% impact from the $3.4 million of net credit losses discussed in the insurance income, net paragraph above. The increase in the provision for credit losses is explained in greater detail below. Net Credit Losses. Net credit losses increased $18.0 million, or 23.2%, to $95.7 million in 2019, from $77.7 million in 2018. The increase was primarily due to a $131.9 million increase in average finance receivables in 2019. Additionally, $4.2 million of the increase in net credit losses was related to the increase in non-file insurance claims expense related to our change in business practice to decrease utilization of non-file insurance. Net credit losses as a percentage of average finance receivables were 9.7% in 2019, compared to 9.1% in 2018. Fiscal 2019 included a 0.4% impact from the $4.2 million incremental increase in net credit losses discussed in the insurance income, net paragraph above. Regional Management Corp. | 2019 Annual Report on Form 10-K | 56 F o r m 1 0 - K The following table provides net credit losses and the benefit to net credit losses associated with non-file insurance claims payments as a percentage of average finance receivables for the periods indicated: Non-File Insurance Impact on Net Credit Loss Rates for the Year Ended December 31, 2019 December 31, 2018 Net credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-file benefit 9.7% 0.5% 9.1% 1.0% Delinquency Performance. Our December 31, 2019 contractual delinquency as a percentage of total finance receivables decreased to 7.2% from 7.7% as of December 31, 2018. Total contractual delinquency as of December 31, 2018 included 0.5% attributable to the impact of a hurricane in 2018. The following tables include delinquency balances by aging category and by product: In thousands Contractual Delinquency by Aging December 31, 2019 December 31, 2018 Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 to 29 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,200 921,856 103,925 5.6% $ 58,300 83.4% 754,162 9.4% 105,920 6.3% 80.9% 11.4% Delinquent accounts: 30 to 59 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 to 89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 to 119 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 to 149 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 to 179 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,110 18,665 13,836 11,595 9,826 2.3% 1.7% 1.3% 1.0% 0.9% 22,529 17,382 12,279 10,890 9,081 Total contractual delinquency . . . . . . . . . . . . . . . . . . . . . $ 79,032 7.2% $ 72,161 2.3% 1.9% 1.3% 1.2% 1.0% 7.7% Total finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . $1,104,813 100.0% $932,243 100.0% In thousands Contractual Delinquency by Product December 31, 2019 December 31, 2018 Small loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,265 33,554 754 2,459 9.1% $ 40,663 26,814 5.5% 2,083 7.8% 2,601 10.2% Total contractual delinquency . . . . . . . . . . . . . . . . . . . . . $ 79,032 7.2% $ 72,161 9.3% 6.1% 8.0% 8.5% 7.7% Regional Management Corp. | 2019 Annual Report on Form 10-K | 57 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: December 31, 2019 December 31, 2018 In thousands Finance Receivables Allowance for Credit Losses Allowance as a Percentage of Finance Receivables Small loans . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . $ 462,499 608,608 $30,588 29,148 Total core loans . . . . . . . . . . Automobile loans . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . 1,071,107 9,623 24,083 59,736 820 1,644 Total . . . . . . . . . . . . . . . $1,104,813 $62,200 6.6% 4.8% 5.6% 8.5% 6.8% 5.6% Finance Receivables Allowance for Credit Losses $437,662 437,998 $30,759 23,702 875,660 26,154 30,429 54,461 1,893 1,946 $932,243 $58,300 Allowance as a Percentage of Finance Receivables 7.0% 5.4% 6.2% 7.2% 6.4% 6.3% The allowance for credit losses as a percentage of finance receivables decreased to 5.6% as of December 31, 2019, from 6.3% as of December 31, 2018. The decrease was primarily due to a $3.6 million decrease in the allowance related to credit losses on customer accounts impacted by a hurricane in the prior-year period. Additionally, our large loan portfolio growth and implementation of custom scorecards in all 11 states have further reduced the allowance for credit losses as a percentage of finance receivables. General and Administrative Expenses. Our general and administrative expenses, comprising expenses for personnel, occupancy, marketing, and other expenses, increased $16.7 million, or 11.9%, to $157.0 million in 2019 from $140.3 million in 2018. Our operating expense ratio decreased to 15.9% in 2019, from 16.4% in 2018. We believe that our operating expense ratio will continue to decline in future years as we continue to grow our loan portfolio and control expense growth. 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 $9.9 million, or 11.8%, to $94.0 million in 2019, from $84.1 million in 2018. Labor expense increased $8.2 million primarily due to added headcount in our branches to effectively service active account growth that has occurred since December 31, 2018. Additional increases include branch incentive costs of $0.9 million, personnel costs related to our 7 net new branches that opened since the prior-year period of $0.4 million, and employee relocation costs of $0.3 million. Occupancy. Occupancy expenses increased $2.1 million, or 9.3%, to $24.6 million in 2019, from $22.5 million in 2018. The increase was primarily due to costs related to branch relocations, remodels, and our 7 net new branches that opened since the prior-year period. Additionally, we frequently experience increases in rent, leasehold improvements, and computer equipment expenses as we renew existing branch leases. Marketing. Marketing expenses increased $0.5 million, or 6.0%, to $8.2 million in 2019, from $7.7 million in 2018. The increase was primarily due to increased investment in our digital marketing channels and the impact of our 7 net new branches that opened during 2019. Other Expenses. Other expenses increased $4.2 million, or 16.2%, to $30.2 million in 2019, from $26.0 million in 2018. We frequently 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. Interest Expense. Interest expense on long-term debt increased $6.7 million, or 19.9%, to $40.1 million in 2019, from $33.5 million in 2018. The increase was primarily due to an increase in the average balance of our Regional Management Corp. | 2019 Annual Report on Form 10-K | 58 F o r m 1 0 - K long-term debt facilities from finance receivable growth. The average cost of our total long-term debt increased 0.11% to 5.77% in 2019, from 5.66% in 2018, primarily due to an increase in the amortization of debt issuance costs related to securitizations. Income Taxes. Income taxes increased $3.7 million, or 35.1%, to $14.3 million in 2019, from $10.6 million in 2018. The increase was primarily due to a $13.1 million increase in pre-tax income compared to the prior-year period. Our effective tax rate increased to 24.2% in 2019, compared to 23.0% in 2018. The increase was primarily due to the decrease in tax benefits from the exercise and vesting of share-based awards and the decrease in research and development tax credits. Comparison of the Year Ended December 31, 2018, Versus the Year Ended December 31, 2017 For a comparison of our results of operations for the years ended December 31, 2018 and December 31, 2017, 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, 2018 (which was filed with the SEC on March 8, 2019), 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. In connection with our plans to improve our technology infrastructure and to expand our branch network in future years, we expect to incur approximately $9.0 million to $12.0 million of expenditures annually. We have historically financed, and plan to continue to finance, our short-term 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 facility, and asset-backed securitization transactions, all of which are described below. We had a funded debt-to-equity ratio (long-term debt divided by total stockholders’ equity) of 2.7 to 1.0 and a shareholder equity ratio (total stockholders’ equity as a percentage of total assets) of 26.1% as of December 31, 2019. We believe that cash flow from our operations and borrowings under our long-term debt facilities will be adequate to fund our business for the next twelve months, including initial operating losses of new branches and finance receivable growth of new and existing branches. 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 periods of our warehouse credit facility and RMIT 2018-1, RMIT 2018-2, and RMIT 2019-1 securitizations (each as described below) end in April 2021, June 2020, December 2020, and October 2021, respectively. There can be no assurance that we will be able to secure an extension of the warehouse credit facility or close additional securitization transactions if and when needed in the future. We are continuing to seek ways to diversify our long-term funding sources. In May 2019, the Board of Directors authorized the repurchase of up to $25.0 million of our outstanding shares of common stock. The authorization was effective immediately and extended through May 6, 2021. In October 2019, we completed the stock repurchase program. Cash Flow. Operating Activities. Net cash provided by operating activities increased by $18.8 million, or 12.8%, to $165.1 million in 2019, from $146.3 million in 2018. The increase was primarily due to the growth in our business described above, which produced an increase in net income, before provision for credit losses. Investing Activities. Investing activities consist of originations and purchases of finance receivables, purchases of intangible assets, and purchases of property and equipment for new and existing branches. Net cash Regional Management Corp. | 2019 Annual Report on Form 10-K | 59 used in investing activities in 2019 was $275.6 million, compared to $199.2 million in 2018, a net increase of $76.4 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 and issuances of common stock. In 2019, net cash provided by financing activities was $116.9 million, an increase of $35.8 million compared to $81.1 million in 2018. The increase in cash provided was primarily a result of an increase in net advances on debt instruments of $58.7 million and a decrease in payments for debt issuance costs of $2.3 million, offset by a $25.0 million increase in the repurchase of our common stock. Financing Arrangements. Senior Revolving Credit Facility. In September 2019, we amended and restated our senior revolving credit facility to, among other things, increase the availability under the facility from $638 million to $640 million and extend the maturity of the facility from June 2020 to September 2022. The facility has an accordion provision that allows for the expansion of the facility to $650 million. 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 85% of eligible secured finance receivables, 80% of eligible unsecured finance receivables, and 60% of eligible delinquent renewals (80% of eligible secured finance receivables, 75% of eligible unsecured finance receivables, and 55% of eligible delinquent renewals as of December 31, 2019). As of December 31, 2019, we had $109.6 million of eligible borrowing capacity under the facility. Borrowings under the facility bear interest, payable monthly, at rates equal to one-month LIBOR, with a LIBOR floor of 1.00%, plus a 3.00% margin, increasing to 3.25% when the availability percentage is below 10%. The one-month LIBOR rate was 1.76% and 2.50% at December 31, 2019 and December 31, 2018, respectively. The amended and restated facility provides for a process to transition from LIBOR to a new benchmark, if necessary. We pay an unused line fee between 0.375% and 0.65% based upon the average outstanding balance of the facility. Our long-term debt under the senior revolving credit facility was $350.8 million as of December 31, 2019. In advance of its September 2022 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. 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, special purpose entities, 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 after each debt is paid. These long-term 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 $39.4 million and $33.5 million as of December 31, 2019 and December 31, 2018, 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. Distributions from the SPEs to us are permitted under the debt arrangements. 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 Regional Management Corp. | 2019 Annual Report on Form 10-K | 60 F o r m 1 0 - K 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. Amortizing Loan. In November 2017, we and our wholly-owned SPE, Regional Management Receivables, LLC (“RMR I”), amended and restated the December 2015 credit agreement that provided for a $75.7 million asset-backed, amortizing loan. The amended and restated credit agreement provided for an additional advance in the amount of $37.8 million and extended the maturity date to December 2024. The amended and restated credit agreement also allowed us to prepay the loan when the outstanding balance fell below 20% of the original loan amount. In October 2019, we and RMR I exercised the right to make an optional principal repayment in full, and in connection with such prepayment, the facility terminated. Revolving Warehouse Credit Facility. In October 2019, we and our wholly-owned SPE, Regional Management Receivables II, LLC (“RMR II”), amended the credit agreement that provides for a $125 million revolving warehouse credit facility to RMR II. The amendment extended the date at which the facility converts to an amortizing loan and the termination date to April 2021 and April 2022, respectively. The facility has an accordion provision that allows for the expansion of the facility to $150 million. 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. Advances on the facility are capped at 80% of eligible finance receivables. Borrowings under the facility bear interest, payable monthly, at a blended rate equal to three-month LIBOR, plus a margin of 2.15% (2.20% prior to the October 2019 amendment). The three-month LIBOR was 1.91% and 2.81% at December 31, 2019 and December 31, 2018, respectively. RMR II pays an unused commitment fee between 0.35% and 0.85% based upon the average daily utilization of the facility. As of December 31, 2019, our long-term debt under the credit facility was $46.6 million. RMIT 2018-1 Securitization. In June 2018, we, our wholly-owned SPE, Regional Management Receivables III, LLC (“RMR III”), and our indirect wholly-owned SPE, Regional Management Issuance Trust 2018-1 (“RMIT 2018-1”), completed a private offering and sale of $150 million of asset-backed notes. The transaction consisted of the issuance of three classes of fixed-rate asset-backed notes by RMIT 2018-1. 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 2018-1. The notes have a revolving period ending in June 2020, with a final maturity date in July 2027. Borrowings under the RMIT 2018-1 securitization bear interest, payable monthly, at a weighted-average rate of 3.93%. Prior to maturity in July 2027, 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 July 2020. No payments of principal of the notes will be made during the revolving period. As of December 31, 2019, our long-term debt under the securitization was $150.2 million. RMIT 2018-2 Securitization. In December 2018, we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE, Regional Management Issuance Trust 2018-2 (“RMIT 2018-2”), completed a private offering and sale of $130 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2018-2. 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 2018-2. The notes have a revolving period ending in December 2020, with a final maturity date in January 2028. Borrowings under the RMIT 2018-2 securitization bear interest, payable monthly, at a weighted-average rate of 4.87%. Prior to maturity in January 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 January 2021. No payments of principal of the notes will be made during the revolving period. As of December 31, 2019, our long-term debt under the securitization was $130.3 million. RMIT 2019-1 Securitization. In October 2019, we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE, Regional Management Issuance Trust 2019-1 (“RMIT 2019-1”), completed a Regional Management Corp. | 2019 Annual Report on Form 10-K | 61 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 2018-2. The notes have a revolving period ending in December 2020, with a final maturity date in January 2028. Borrowings under the RMIT 2018-2 securitization bear interest, payable monthly, at a weighted-average rate of 4.87%. Prior to maturity in January 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 January 2021. No payments of principal of the notes will be made during the revolving period. As of December 31, 2019, our long-term debt under the securitization was $130.3 million. 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, maintenance of a minimum allowance for credit losses, and certain other restrictions. At December 31, 2019, we were in compliance with all debt covenants. We expect that the LIBOR reference rate will be phased out by the end of 2021. Both our senior revolving credit facility and revolving warehouse credit facility use LIBOR as a benchmark in determining the cost of funds borrowed. Our senior revolving credit facility provides 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. Revolving Warehouse Credit Facility. The credit agreement governing the 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, 2019, the warehouse facility cash reserve requirement totaled $0.3 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 $3.3 million as of December 31, 2019. RMIT 2018-1 Securitization. As required under the transaction documents governing the RMIT 2018-1 securitization, we deposited $1.7 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 $14.9 million as of December 31, 2019. RMIT 2018-2 Securitization. As required under the transaction documents governing the RMIT 2018-2 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 $11.3 million as of December 31, 2019. 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 $9.9 million as of December 31, 2019. 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, 2019, cash reserves for reinsurance were $9.9 million Regional Management Corp. | 2019 Annual Report on Form 10-K | 62 F o r m 1 0 - K Interest Rate Caps. 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, 2019, we held three interest rate cap contracts with an aggregate notional principal amount of $350.0 million. The interest rate caps have maturities of April 2020 ($100.0 million, 3.25% strike rate), June 2020 ($50.0 million, 2.50% strike rate), and April 2021 ($200.0 million, 3.50% strike rate). As of December 31, 2019, the one-month LIBOR was 1.76%. When the one-month LIBOR exceeds the strike rate, the counterparty reimburses us for the excess over the strike rate. No payment is required by us or the counterparty when the one-month LIBOR is below the strike rate. 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 purchase of an interest rate cap contract in March 2020. Off-Balance Sheet Arrangements 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, 2019, the cash reserves were $9.9 million. Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2019, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. In thousands Total Principal payments on long-term debt obligations . . Interest payments on long-term debt obligations . . . Operating lease obligations . . . . . . . . . . . . . . . . . . . . $808,218 81,646 33,274 Payments Due by Period Less than 1 Year $ 59,940 35,807 7,047 1 – 3 Years 3 – 5 Years $704,725 45,302 11,804 $43,553 537 8,237 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $923,138 $102,794 $761,831 $52,327 More than 5 Years $ — — 6,186 $6,186 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 estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. Critical Accounting Policies 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. We set forth below those material accounting policies that we believe are the most critical to an understanding of our financial results and condition and that involve a higher degree of complexity and management judgment. Regional Management Corp. | 2019 Annual Report on Form 10-K | 63 Credit Losses. Provisions for credit losses are charged to income as losses are estimated to have occurred and in amounts sufficient to maintain an allowance for credit losses at an adequate level to provide for future losses on our finance receivables. We charge credit losses against the allowance when the account becomes 180 days contractual delinquent, subject to certain exceptions. Our policy for non-titled accounts in a confirmed bankruptcy is to charge them off at 60 days contractual delinquency, subject to certain exceptions. Deceased borrower accounts are charged off in the month following the proper notification of passing, with the exception of borrowers with credit life insurance. Subsequent recoveries, if any, are credited to the allowance. Loss experience, the loss emergence period, contractual delinquency of finance receivables by loan type, 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. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or loan portfolio performance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available. We initiate repossession proceedings when, in the opinion of management, the customer is unlikely to make further payments. We sell substantially all repossessed vehicle inventory through sales conducted by independent automobile auction organizations after the required post-repossession waiting period. Losses on the sale of repossessed collateral are charged to the allowance for credit losses. The allowance for credit losses consists of general and specific components. The general component of the allowance estimates credit losses for groups of finance receivables on a collective basis and relates to probable incurred losses of unimpaired finance receivables. Our finance receivable types are stratified by delinquency stages, and the future monthly delinquency profiles and credit losses are projected forward using historical delinquency roll rates. We record a general allowance for credit losses that includes forecasted future credit losses over the estimated loss emergence period (the interval of time between the event which caused a borrower to default and our recording of the credit loss) for each finance receivable type. We adjust the computed roll rate forecast as described above for qualitative factors based on an assessment of internal and external influences on credit quality that are not fully reflected in the roll rate forecast. Those qualitative factors include trends in growth in the loan portfolio, delinquency, unemployment, bankruptcy, operational risks, and other economic trends. The specific component of the allowance for credit losses relates to impaired finance receivables, which include accounts for which a customer has initiated a bankruptcy filing and finance receivables that have been modified under our loss mitigation policies. Finance receivables that have been modified are accounted for as troubled debt restructurings. At the time of the bankruptcy filing or restructuring pursuant to a loss mitigation policy, a specific valuation allowance is established for such finance receivables within the allowance for credit losses. We compute the estimated loss on our impaired loans by discounting the projected cash flows at the original contract rates on the loan using the terms imposed by the bankruptcy court or restructured by us. This method is applied in the aggregate to each of our four classes of loans. In making the computations of the present value of cash payments to be received on impaired accounts in each product category, we use the weighted- average interest rates and weighted-average remaining term based on data as of each balance sheet date. For customers in a confirmed Chapter 13 bankruptcy plan, we reduce the interest rate to that specified in the bankruptcy order and we receive payments with respect to the remaining amount of the loan from the bankruptcy trustee. For customers who recently filed for Chapter 13 bankruptcy, we generally do not receive any payments until their bankruptcy plan is confirmed by the court. If the customers have made payments to the trustee in advance of plan confirmation, we may receive a lump sum payment from the trustee once the plan is confirmed. This lump sum payment represents our pro-rata share of the amount paid by the customer. If a customer fails to comply with the terms of the bankruptcy order, we will petition the trustee to have the customer Regional Management Corp. | 2019 Annual Report on Form 10-K | 64 F o r m 1 0 - K dismissed from bankruptcy. Upon dismissal, we restore the account to the original terms and pursue collection through our normal loan servicing activities. If a customer files for bankruptcy under Chapter 7 of the bankruptcy code, the bankruptcy court has the authority to cancel the customer’s debt. If a vehicle secures a Chapter 7 bankruptcy account, the customer has the option of surrendering the vehicle, buying the vehicle at fair value, or reaffirming the loan and continuing to pay the loan. The FASB issued an accounting update in June 2016 to change the impairment model for estimating credit losses on financial assets. While the then-existing incurred loss impairment model required the recognition of credit losses when it was probable that a loss had been incurred, the new CECL model requires entities to estimate the lifetime expected credit loss on such instruments and to record an allowance to offset the amortized cost basis of the financial assets. This update is effective for annual and interim periods beginning after December 15, 2019, and early adoption was permitted. Based on analyses and forecasts of future macroeconomic conditions as of December 31, 2019, we have quantified the estimated impacts. 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 this new accounting standard. Income Recognition. Interest income is recognized using the interest method (constant yield method). Therefore, we recognize revenue from interest at an equal rate over the term of the loan. Unearned finance charges on pre-compute contracts are rebated to customers utilizing statutory methods, which in many cases is the sum-of-the-years’ digits method. The difference between income recognized under the constant yield method and the statutory method is recognized as an adjustment to interest income at the time of rebate. Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent. If the account is charged off, the accrued interest income is reversed as a reduction of interest and fee income. We recognize income on credit life insurance, credit property insurance, and automobile insurance using the sum-of-the-years’ digits or straight-line methods over the terms of the policies. We recognize income on credit accident and health insurance using the average of the sum-of-the-years’ digits and the straight-line methods over the terms of the policies. We recognize income on credit involuntary unemployment insurance using the straight-line method over the terms of the policies. Rebates are computed using statutory methods, which in many cases match the GAAP method, and where it does not match, the difference between the GAAP method and the statutory method is recognized in income at the time of rebate. Fee income for non-file insurance is recognized using the sum-of-the-years’ digits method over the loan term. Charges for late fees are recognized as income when collected. Share-Based Compensation. We measure compensation cost for share-based awards at estimated fair value and recognize compensation expense over the service period for awards expected to vest. We use the closing stock price on the date of grant as the fair value of restricted stock awards. The fair value of stock options is determined using the Black-Scholes valuation model. The Black-Scholes model requires the input of highly subjective assumptions, including expected volatility, risk-free interest rate, and expected life, changes to which can materially affect the fair value estimate. We estimate volatility using our historical stock prices. The risk-free rate is based on the zero coupon U.S. Treasury bond rate for the expected term of the award on the grant date. The expected term is calculated by using the simplified method (average of the vesting and original contractual terms) due to insufficient historical data to estimate the expected term. In addition, the estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. Regional Management Corp. | 2019 Annual Report on Form 10-K | 65 Income Taxes. We record a tax provision for the anticipated tax consequences of our reported operating results. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effects of future tax rate changes are recognized in the period when the enactment of new rates occurs. We recognize the financial statement effects of a tax position when it is more likely than not that, based on technical merits, the position will be sustained upon examination. The tax benefits of the position recognized in the consolidated financial statements are then measured based on the largest amount of benefit that is greater than 50% likely to be realized upon settlement with a taxing authority. We recognize the tax benefits or deficiencies from the exercise or vesting of share-based awards in the income tax line of our consolidated statements of income. Recently Issued Accounting Standards See Note 2, “Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards. Regional Management Corp. | 2019 Annual Report on Form 10-K | 66 F o r m 1 0 - K ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest Rate Risk Interest rate risk arises from the possibility that changes in interest rates will affect our results of operations and financial condition. We originate finance receivables at either prevailing market rates or at statutory limits. Our finance receivables are structured on a fixed-rate, fixed-term basis. Accordingly, subject to statutory limits, our ability to react to changes in prevailing market rates is dependent upon the speed at which our customers pay off or renew loans in our existing loan portfolio, which allows us to originate new loans at prevailing market rates. Our loan portfolio turns over approximately 1.2 times per year from payments, renewals, and net credit losses. Because our large loans have longer maturities than our small loans and typically renew at a slower rate than our small loans, the rate of turnover of the loan portfolio may change as our large loans change as a percentage of our portfolio. We also are exposed to changes in interest rates as a result of certain borrowing activities. As of December 31, 2019, the interest rates on 50.8% of our long-term debt (the securitizations) were fixed. We maintain liquidity and fund our business operations in part through variable-rate borrowings under a senior revolving credit facility and a revolving warehouse credit facility. At December 31, 2019, the balances of the senior revolving credit facility and the revolving warehouse credit facility were $350.8 million and $46.6 million, respectively. Borrowings under the senior revolving credit facility bear interest, payable monthly, at rates equal to one-month LIBOR, with a LIBOR floor of 1.00%, plus a margin of 3.00%, increasing to 3.25% when the availability percentage is below 10%. Borrowings under the revolving warehouse credit facility bear interest, payable monthly, at a blended rate equal to three-month LIBOR, plus a margin of 2.15% (2.20% prior to the October 2019 amendment). As of December 31, 2019, the LIBOR rates under the senior revolving credit facility and the revolving warehouse credit facility were 1.76% and 1.91%, respectively. We have purchased interest rate caps to manage the risk associated with an aggregate notional $350.0 million of our LIBOR-based borrowings. These interest rate caps are based on the one-month LIBOR and reimburse us for the difference when the one-month LIBOR exceeds the strike rate. The interest rate caps have maturities of April 2020 ($100.0 million, 3.25% strike rate), June 2020 ($50.0 million, 2.50% strike rate), and April 2021 ($200.0 million, 3.50% strike rate). 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 purchase of an interest rate cap contract in March 2020. Effective interest rates for borrowings under the senior revolving credit facility and the revolving warehouse credit facility were 5.80% and 5.99%, respectively, for the year ended December 31, 2019, including, in each case, an unused line fee. Based on the LIBOR rates and the outstanding balances at December 31, 2019, an increase of 100 basis points in LIBOR rates would result in approximately $4.0 million of increased interest expense on an annual basis, in the aggregate, under these LIBOR-based borrowings. Our interest rate cap coverage at December 31, 2019 would reduce this increased expense by approximately $0.1 million on an annual basis. The nature and amount of our debt may vary as a result of future business requirements, market conditions, and other factors. Regional Management Corp. | 2019 Annual Report on Form 10-K | 67 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REGIONAL MANAGEMENT CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Year Ended December 31, 2019 Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2019 and December 31, 2018 Consolidated Statements of Income for the Years Ended December 31, 2019, December 31, 2018, and December 31, 2017 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, December 31, 2018, and December 31, 2017 Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, December 31, 2018, and December 31, 2017 Notes to Consolidated Financial Statements Page 69 72 73 74 75 76 Regional Management Corp. | 2019 Annual Report on Form 10-K | 68 F o r m 1 0 - K Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Regional Management Corp. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Regional Management Corp. and its subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 13, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for lease transactions in 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842). Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ RSM US LLP We have served as the Company’s auditor since 2007. Raleigh, North Carolina March 13, 2020 Regional Management Corp. | 2019 Annual Report on Form 10-K | 69 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Regional Management Corp. and Subsidiaries Opinion on the Internal Control Over Financial Reporting We have audited Regional Management Corp. and its subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2019 and 2018 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019 of the Company and our report dated March 13, 2020 expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying SOX 404 Management Assessment Report—Effectiveness of Internal Controls over Financial Reporting (“ICFR”) for the Twelve Months Ended December 31, 2019. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Regional Management Corp. | 2019 Annual Report on Form 10-K | 70 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. F o r m 1 0 - K /s/ RSM US LLP Raleigh, North Carolina March 13, 2020 Regional Management Corp. | 2019 Annual Report on Form 10-K | 71 Regional Management Corp. and Subsidiaries Consolidated Balance Sheets December 31, 2019 and 2018 (in thousands, except par value amounts) 2019 2018 Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned finance charges and insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,263 1,500,962 (396,149) 1,104,813 (62,200) 1,042,613 54,164 26,438 15,301 9,438 619 7,704 $1,158,540 $ 3,657 1,237,526 (305,283) 932,243 (58,300) 873,943 46,484 — 13,926 10,010 — 8,375 $ 956,395 Liabilities and Stockholders’ Equity Liabilities: Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 808,218 (9,607) 798,611 28,676 28,470 — 855,757 $ 660,507 (9,158) 651,349 25,138 — 747 677,234 Commitments and contingencies (Notes 6, 17, and 18) Stockholders’ equity: Preferred stock ($0.10 par value, 100,000 shares authorized, no shares issued or outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock ($0.10 par value, 1,000,000 shares authorized, 13,497 shares issued and 11,013 shares outstanding at December 31, 2019 and 13,323 shares issued and 11,777 shares outstanding at December 31, 2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock (2,484 shares at December 31, 2019 and 1,546 shares at December 31, 2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1,350 102,678 248,829 1,332 98,778 204,097 (50,074) 302,783 $1,158,540 (25,046) 279,161 $ 956,395 The following table presents the assets and liabilities of our consolidated variable interest entities: Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 152 474,340 (22,015) 44,221 68 $496,766 $ 168 342,481 (18,378) 39,361 75 $363,707 Liabilities Net long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $450,297 86 $450,383 $324,879 25 $324,904 See accompanying notes to consolidated financial statements. Regional Management Corp. | 2019 Annual Report on Form 10-K | 72 F o r m 1 0 - K Regional Management Corp. and Subsidiaries Consolidated Statements of Income Years Ended December 31, 2019, 2018, and 2017 (in thousands, except per share amounts) 2019 2018 2017 Revenue Interest and fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $321,169 20,817 13,727 $280,121 14,793 11,792 $249,034 13,061 10,364 Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,713 306,706 272,459 Expenses Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total general and administrative expenses . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,611 94,000 24,618 8,206 30,160 156,984 40,125 58,993 14,261 87,056 84,068 22,519 7,745 25,952 140,284 33,464 45,902 10,557 77,339 75,992 21,530 7,128 26,305 130,955 23,908 40,257 10,294 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,732 $ 35,345 $ 29,963 Net income per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 3.92 3.80 $ $ 3.03 2.93 $ $ 2.59 2.54 Weighted-average common shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,401 11,655 11,551 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,773 12,078 11,783 See accompanying notes to consolidated financial statements. Regional Management Corp. | 2019 Annual Report on Form 10-K | 73 Regional Management Corp. and Subsidiaries Consolidated Statements of Stockholders’ Equity Years Ended December 31, 2019, 2018, and 2017 (in thousands) Year Ended December 31, 2019 Common Stock Shares Amount Additional Paid-in-Capital Retained Earnings Treasury Stock Total Balance, December 31, 2018 . . . . . . . . . . . 13,323 211 16 — Issuance of restricted stock awards . . . Exercise of stock options . . . . . . . . . . Repurchase of common stock . . . . . . . Shares withheld related to net share $1,332 21 2 — $ 98,778 (21) — — $204,097 — — — $(25,046) $279,161 — — (25,028) — 2 (25,028) settlement . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . (53) — — (5) — — (1,226) 5,147 — — — 44,732 — — — (1,231) 5,147 44,732 Balance, December 31, 2019 . . . . . . . . . . . 13,497 $1,350 $102,678 $248,829 $(50,074) $302,783 Year Ended December 31, 2018 Common Stock Shares Amount Additional Paid-in-Capital Retained Earnings Treasury Stock Total Balance, December 31, 2017 . . . . . . . . . . . 13,205 101 89 Issuance of restricted stock awards . . . Exercise of stock options . . . . . . . . . . Shares withheld related to net share $1,321 10 8 $94,384 (10) — $168,752 — — settlement . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . (72) — — (7) — — (858) 5,262 — — — 35,345 $(25,046) $239,411 — — — — — — 8 (865) 5,262 35,345 Balance, December 31, 2018 . . . . . . . . . . . 13,323 $1,332 $98,778 $204,097 $(25,046) $279,161 Year Ended December 31, 2017 Common Stock Shares Amount Additional Paid-in-Capital Retained Earnings Treasury Stock Total Balance, December 31, 2016 . . . . . . . . . . . 12,996 74 289 Issuance of restricted stock awards . . . Exercise of stock options . . . . . . . . . . Shares withheld related to net share $1,300 7 29 $92,432 (7) 305 $138,789 — — settlement . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . (154) — — (15) — — (2,006) 3,660 — — — 29,963 $(25,046) $207,475 — — — — — — 334 (2,021) 3,660 29,963 Balance, December 31, 2017 . . . . . . . . . . . 13,205 $1,321 $94,384 $168,752 $(25,046) $239,411 See accompanying notes to consolidated financial statements. Regional Management Corp. | 2019 Annual Report on Form 10-K | 74 F o r m 1 0 - K Regional Management Corp. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2019, 2018, and 2017 (in thousands) 2019 2018 2017 Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating $ 44,732 $ 35,345 $ 29,963 activities: Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value adjustment on interest rate caps . . . . . . . . . . . . . . . . . . Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in operating assets and liabilities: 99,611 10,856 94 5,147 249 (1,366) 87,056 8,803 24 5,262 330 (4,214) 77,339 7,357 245 3,660 64 4,994 (Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . Increase in accounts payable and accrued expenses . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . 2,456 3,283 165,062 7,306 6,373 146,285 (11,294) 3,105 115,433 Cash flows from investing activities: Net originations of finance receivables . . . . . . . . . . . . . . . . . . . . . Purchases of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . Proceeds from disposal of property and equipment . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . (268,281) (1,603) (5,804) 59 (275,629) (192,446) (1,446) (5,352) — (199,244) (169,366) (6,355) (4,765) 558 (179,928) Cash flows from financing activities: Net advances (payments) on senior revolving credit facility . . . . . Net proceeds from (payments on) amortizing loan . . . . . . . . . . . . Net advances (payments) on revolving warehouse credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net advances on securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments for debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes paid related to net share settlement of equity awards . . . . . Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . . Net change in cash and restricted cash . . . . . . . . . . . . . . . Cash and restricted cash at beginning of period . . . . . . . . . . . . . . . . . . . Cash and restricted cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . 22,744 (21,642) (123,977) (31,738) (799) 14,551 16,507 130,102 (4,891) (939) — (25,028) 116,853 6,286 50,141 $ 56,427 (35,940) 280,665 (7,235) (692) — — 81,083 28,124 22,017 $ 50,141 66,066 — (4,547) (1,809) 307 — 73,769 9,274 12,743 $ 22,017 Supplemental cash flow information: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,478 $ 30,127 $ 20,460 Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,695 $ 3,600 $ 15,681 The following table reconciles cash and restricted cash from the Consolidated Balance Sheets to the statements above: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . Total cash and restricted cash . . . . . . . $ 2,263 54,164 $56,427 $ 3,657 46,484 $50,141 $ 5,230 16,787 $22,017 $ 4,446 8,297 $12,743 December 31, 2019 December 31, 2018 December 31, 2017 December 31, 2016 See accompanying notes to consolidated financial statements. Regional Management Corp. | 2019 Annual Report on Form 10-K | 75 Regional Management Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Nature of Business Regional Management Corp. (the “Company”) was incorporated and began operations in 1987. The Company is engaged in the consumer finance business, offering small loans, large loans, retail loans, and related payment and collateral protection insurance products. The Company previously offered automobile loans, but ceased such originations in November 2017. As of December 31, 2019, the Company operated under the name “Regional Finance” in 366 branch locations across 11 states in the Southeastern, Southwestern, Mid-Atlantic, and Midwestern United States. The Company opened 7, 17, and 3 net new branches during the years ended December 31, 2019, 2018, and 2017, respectively. The Company’s loan volume and contractual delinquency follow seasonal trends. Demand for the Company’s small and large loans is typically highest during the second, third, and fourth quarters, which the Company believes 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 the Company believes 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. Consequently, the Company experiences seasonal fluctuations in its operating results and cash needs. Note 2. Significant Accounting Policies The following is a description of significant accounting policies used in preparing the financial statements. The accounting and reporting policies of the Company are in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and conform to general practices within the consumer finance industry. Business segments: The Company has one reportable segment, which is the consumer finance segment. The other revenue generating activities of the Company, including insurance operations, are performed in the existing branch network in conjunction with or as a complement to the lending operations. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates through a separate wholly-owned subsidiary in each state. The Company also consolidates variable interest entities (each, a “VIE”) when it is considered to be the primary beneficiary of the VIE because it has (i) power over the significant activities of the VIE and (ii) the obligation to absorb losses or the right to receive returns that could be significant to the VIE. Treasury stock: The Company records the repurchase of shares of its common stock at cost on the settlement date of the transaction. These shares are considered treasury stock, which is a reduction to stockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares. Variable interest entities: The Company transfers pools of loans to wholly-owned, bankruptcy-remote, special purpose entities (each, an “SPE”) to secure debt for general funding purposes. These entities have the limited purpose of acquiring finance receivables and holding and making payments on the related debts. Assets transferred to each SPE are legally isolated from the Company and its affiliates, as well as the claims of the Company’s and its 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 the Company or any of its affiliates. The Company continues to service the finance receivables transferred to the SPEs. The lenders and investors in the debt issued by the SPEs generally only have recourse to the assets of the SPEs and do not have recourse to the general credit of the Company. The SPEs’ debt arrangements are structured to provide enhancements to the lenders and investors in the form of overcollateralization (the principal balance of the collateral exceeds the balance of the debt) and reserve funds Regional Management Corp. | 2019 Annual Report on Form 10-K | 76 F o r m 1 0 - K (restricted cash held by the SPEs). These enhancements, along with the isolated finance receivables pools, increase the creditworthiness of the SPEs above that of the Company as a whole. This increases the marketability of the Company’s collateral for borrowing purposes, leading to more favorable borrowing terms, improved interest rate risk management, and additional flexibility to grow the business. The SPEs are considered VIEs under GAAP and are consolidated into the financial statements of their primary beneficiary. The Company is considered to be the primary beneficiary of the SPEs because it has (i) power over the significant activities through its 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 the Company’s interest in the monthly residual cash flows of the SPEs after each debt is paid. Consolidation of VIEs results in these transactions being accounted for as secured borrowings; therefore, the pooled receivables and the related debts remain on the consolidated balance sheet of the Company. Each debt is secured solely by the assets of the VIEs and not by any other assets of the Company. The assets of the VIEs are the only source of funds for repayment on each debt, and restricted cash held by the VIEs can only be used to support payments on the debt. The Company recognizes revenue and provision for credit losses on the finance receivables of the VIEs and interest expense on the related secured debt. Use of estimates: The preparation of financial statements requires management to make 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. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for credit losses, the fair value of share-based compensation, the valuation of deferred tax assets and liabilities, contingent liabilities on litigation matters, and the allocation of the purchase price to assets acquired in business combinations. Reclassifications: Certain prior-period amounts have been reclassified to conform to the current presentation. Such reclassifications had no impact on previously reported net income or stockholders’ equity. Statement of cash flows: Cash flows from finance receivables and the Company’s long-term debt are reported on a net basis. Finance receivables: The Company’s small loan portfolio is comprised of branch small loan receivables and convenience check receivables. Branch small loan receivables are direct loans to customers closed in the branch and are secured by non-essential household goods and, in some instances, an automobile. Convenience checks are direct loans originated by mailing checks to customers based on a pre-screening process that includes a review of the prospective customer’s credit profile provided by national credit reporting bureaus or data aggregators. A recipient of a convenience check is able to enter into a loan by endorsing and depositing or cashing the check. Large loan receivables are direct loans to customers, some of which are convenience check receivables and the vast majority of which are secured by automobiles, other vehicles, and/or non-essential household goods. Retail loan receivables consist principally of retail installment sales contracts collateralized by the purchased furniture, appliances, and other retail items, and are initiated by and purchased from retailers, subject to the Company’s credit approval. Automobile loan receivables consist of direct automobile purchase loans, which were originated at the dealership and closed in one of the Company’s branches, and indirect automobile purchase loans, which were originated and closed at a dealership in the Company’s network without the need for the customer to visit one of the Company’s branches. In each case, these automobile loans are collateralized primarily by the purchased automobiles and, in the case of indirect loans, were initiated by and purchased from automobile dealerships, subject to the Company’s credit approval. The Company ceased originating automobile loans in November 2017. Regional Management Corp. | 2019 Annual Report on Form 10-K | 77 Credit losses: Provisions for credit losses are charged to income as losses are estimated to have occurred and in amounts sufficient to maintain an allowance for credit losses at an adequate level to provide for future losses on the Company’s finance receivables. The Company charges credit losses against the allowance when the account becomes 180 days delinquent, subject to certain exceptions. The Company’s policy for non-titled accounts in a confirmed bankruptcy is to charge them off at 60 days delinquent, subject to certain exceptions. Deceased borrower accounts are charged off in the month following the proper notification of passing, with the exception of borrowers with credit life insurance. Subsequent recoveries, if any, are credited to the allowance. Loss experience, the loss emergence period, contractual delinquency of finance receivables by loan type, 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. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or loan portfolio performance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available. The Company initiates repossession proceedings when, in the opinion of management, the customer is unlikely to make further payments. The Company sells substantially all repossessed vehicle inventory through sales conducted by independent automobile auction organizations after the required post-repossession waiting period. Losses on the sale of repossessed collateral are charged to the allowance for credit losses. The allowance for credit losses consists of general and specific components. The general component of the allowance estimates credit losses for groups of finance receivables on a collective basis and relates to probable incurred losses of unimpaired finance receivables. The general component of the allowance is primarily based on delinquency roll rates. The Company’s finance receivable types are stratified by delinquency stages, and the future monthly delinquency profiles and credit losses are projected forward using historical delinquency roll rates. The Company records a general allowance for credit losses that includes forecasted future credit losses over the estimated loss emergence period (the interval of time between the event which caused a borrower to default and the Company’s recording of the credit loss) for each finance receivable type. The Company adjusts the computed roll rate forecast as described above for qualitative factors based on an assessment of internal and external influences on credit quality that are not fully reflected in the roll rate forecast. Those qualitative factors include trends in growth in the loan portfolio, delinquency, unemployment, bankruptcy, operational risks, and other economic trends. Impaired finance receivables: The specific component of the allowance for credit losses relates to impaired finance receivables, which include accounts for which a customer has initiated a bankruptcy filing and finance receivables that have been modified under Company loss mitigation policies. Finance receivables that have been modified are accounted for as troubled debt restructurings. At the time of the bankruptcy filing or restructuring pursuant to a loss mitigation policy, a specific valuation allowance is established for such finance receivables within the allowance for credit losses. The Company computes the estimated loss on its impaired loans by discounting the projected cash flows at the original contract rates on the loan using the terms imposed by the bankruptcy court or restructured by the Company. This method is applied in the aggregate to each of the Company’s four classes of loans. In making the computations of the present value of cash payments to be received on impaired accounts in each product category, the Company uses the weighted-average interest rates and weighted-average remaining term based on data as of each balance sheet date. For customers in a confirmed Chapter 13 bankruptcy plan, the Company reduces the interest rate to that specified in the bankruptcy order and the Company receives payments with respect to the remaining amount of the loan from the bankruptcy trustee. For customers who recently filed for Chapter 13 bankruptcy, the Company generally does not receive any payments until their bankruptcy plan is confirmed by the court. If the customers have made payments to the trustee in advance of plan confirmation, the Company may receive a lump sum payment from the trustee once the plan is confirmed. This lump sum payment represents the Company’s pro-rata share of the amount paid by the customer. If a customer fails to comply with the terms of the bankruptcy order, the Company Regional Management Corp. | 2019 Annual Report on Form 10-K | 78 F o r m 1 0 - K will petition the trustee to have the customer dismissed from bankruptcy. Upon dismissal, the Company restores the account to the original terms and pursues collection through its normal loan servicing activities. If a customer files for bankruptcy under Chapter 7 of the bankruptcy code, the bankruptcy court has the authority to cancel the customer’s debt. If a vehicle secures a Chapter 7 bankruptcy account, the customer has the option of surrendering the vehicle, buying the vehicle at fair value, or reaffirming the loan and continuing to pay the loan. Delinquency: The Company determines past due status using the contractual terms of the finance receivable. Delinquency is one of the primary credit quality indicators used to evaluate the allowance for credit losses for each class of finance receivables. Repossessed assets: Repossessed collateral is valued at the lower of the receivable balance on the finance receivable prior to repossession or the estimated net realizable value. Management estimates net realizable value at the projected cash value upon liquidation, less costs to sell the related collateral. Property and equipment: The Company leases its current headquarters building. Branch offices are leased under non-cancellable leases of three to seven years with renewal options. Leasehold improvements are depreciated over the shorter of their useful lives or the remaining term of the lease. Furniture and equipment are depreciated on the straight-line method over their estimated useful lives, generally five to ten years. Maintenance and repairs are charged to expense as incurred. Restricted cash: Restricted cash includes cash and cash equivalents for which the Company’s ability to withdraw funds is contractually limited. The Company’s restricted cash consists of cash reserves that are maintained as collateral for potential credit life insurance claims and cash restricted for debt servicing of the Company’s revolving warehouse credit facility and securitizations. Derivative instruments: The Company holds derivative instruments in the form of interest rate caps for the purpose of hedging a portion of its exposure to interest rate risk. Derivative instruments are recorded at fair value and included in other assets, with their resulting gains or losses recognized in interest expense. Changes in fair value are reported as an adjustment to net income in computing cash flows from operating activities. Income recognition: Interest income is recognized using the interest method (constant yield method). Therefore, the Company recognizes revenue from interest at an equal rate over the term of the loan. Unearned finance charges on pre-compute contracts are rebated to customers utilizing statutory methods, which in many cases is the sum-of-the-years’ digits method. The difference between income recognized under the constant yield method and the statutory method is recognized as an adjustment to interest income at the time of rebate. Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent. If the account is charged off, the accrued interest income is reversed as a reduction of interest and fee income. The Company recognizes income on credit life insurance, credit property insurance, and automobile insurance using the sum-of-the-years’ digits or straight-line methods over the terms of the policies. The Company recognizes income on credit accident and health insurance using the average of the sum-of-the-years’ digits and the straight-line methods over the terms of the policies. The Company recognizes income on credit involuntary unemployment insurance using the straight-line method over the terms of the policies. Rebates are computed using statutory methods, which in many cases match the GAAP method, and where it does not match, the difference between the GAAP method and the statutory method is recognized in income at the time of rebate. Fee income for non-file insurance is recognized using the sum-of-the-years’ digits method over the loan term. Charges for late fees are recognized as income when collected. Finance receivable origination fees and costs: Non-refundable fees received and direct costs incurred for the origination of finance receivables are deferred and recognized to interest income over their contractual lives using the constant yield method. Unamortized amounts are recognized in income at the time that finance receivables are paid in full. Regional Management Corp. | 2019 Annual Report on Form 10-K | 79 Share-based compensation: The Company measures compensation cost for share-based awards at estimated fair value and recognizes compensation expense over the service period for awards expected to vest. The Company uses the closing stock price on the date of grant as the fair value of restricted stock awards. The fair value of stock options is determined using the Black-Scholes valuation model. The Black-Scholes model requires the input of highly subjective assumptions, including expected volatility, risk-free interest rate, and expected life, changes to which can materially affect the fair value estimate. The Company estimates volatility using its historical stock prices. The risk-free rate is based on the zero coupon U.S. Treasury bond rate for the expected term of the award on the grant date. The expected term is calculated by using the simplified method (average of the vesting and original contractual terms) due to insufficient historical data to estimate the expected term. In addition, the estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. Marketing costs: Marketing costs are expensed as incurred. Income taxes: The Company records a tax provision for the anticipated tax consequences of its reported operating results. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effects of future tax rate changes are recognized in the period when the enactment of new rates occurs. The Company recognizes the financial statement effects of a tax position when it is more likely than not that, based on technical merits, the position will be sustained upon examination. The tax benefits of the position recognized in the consolidated financial statements are then measured based on the largest amount of benefit that is greater than 50% likely to be realized upon settlement with a taxing authority. The Company recognizes the tax benefits or deficiencies from the exercise or vesting of share-based awards in the income tax line of the consolidated statements of income. Earnings per share: Earnings per share have been computed based on the weighted-average number of common shares outstanding during each reporting period presented. Common shares issuable upon the exercise of share- based compensation, which are computed using the treasury stock method, are included in the computation of diluted earnings per share. Recent accounting pronouncements: In February 2016, the Financial Accounting Standards Board (the “FASB”) issued an accounting update to increase transparency and comparability of accounting for lease transactions. The update required: (i) all leases to be recognized on the balance sheet as lease (right-of-use) assets and lease liabilities and (ii) both quantitative and qualitative disclosures regarding key information about leasing arrangements. The update was effective for annual and interim periods beginning after December 15, 2018. The Company completed the implementation of third-party software to facilitate compliance with the accounting and reporting requirements of the lease standard. Prior to adoption, all of the Company’s leases were classified as operating leases, with no lease assets or liabilities recorded. The Company transitioned to this accounting change on a modified retrospective basis by recording the cumulative-effect of lease assets and liabilities for active leases as of January 1, 2019. The Company did not restate comparative periods in transition and elected to use the effective date of January 1, 2019 as the initial date of transition. The Company also elected to utilize the package of transition practical expedients, which included not reassessing the following: (i) whether existing contracts contain leases, (ii) the existing classification of leases as operating or financing, or (iii) the initial direct costs of leases. The Company did not use hindsight to determine the lease term or include options to extend for leases existing at the transition date. In addition, the Company elected not to apply the new lease standard to leases with terms of twelve months or less. Regional Management Corp. | 2019 Annual Report on Form 10-K | 80 F o r m 1 0 - K As a result of the adoption of the new lease standard on January 1, 2019, the Company recorded $24.1 million for both lease liabilities and the corresponding lease assets. The lease liabilities were based on the present value of the remaining minimum rental payments using discount rates as of the effective date. There was no impact to the consolidated statements of income related to the adoption of this standard. The adoption of this standard did not require the Company to alter its debt covenants. In June 2016, the FASB issued an accounting update significantly changing the impairment model for estimating credit losses on financial assets. While the then-existing incurred loss impairment model required the recognition of credit losses when it was probable that a loss had been incurred, the new current expected credit loss (“CECL”) model requires entities to estimate the lifetime expected credit loss on such instruments and to record an allowance to offset the amortized cost basis of the financial assets. The CECL model requires earlier recognition of credit losses as compared to the incurred loss approach. It uses historical experience, current conditions, and reasonable and supportable economic forecasts to estimate lifetime expected credit losses. This accounting update is effective for annual and interim periods beginning after December 15, 2019, and early adoption was permitted. The Company’s cross-functional CECL implementation team, software vendor, and consulting team have completed the established implementation plan to ensure compliance with the accounting update at the time of adoption. The Company continues to finalize refinements to the future state business processes, policies, controls, and related documentation, and those items are being audited. Based on analyses and forecasts of future macroeconomic conditions as of December 31, 2019, the Company estimates a CECL allowance for credit losses of $122 million. The allowance under the prior incurred loss approach was $62 million as of December 31, 2019. Effective January 1, 2020, the adoption of CECL accounting, through a modified-retrospective approach, caused an increase to the allowance for credit losses of $60 million and a one-time, cumulative reduction to retained earnings of $46 million (net of $14 million in taxes). The Company’s allowance for credit losses of 5.8% as a percentage of finance receivables on December 31, 2019 increased to 10.8% as a percentage of the amortized cost basis on January 1, 2020. The CECL accounting adoption will not result in any changes in the cash flows of the financial assets, will not cause the Company to violate any of its existing debt covenants, and will not inhibit the Company in funding its growth or returning capital to its shareholders. The following table illustrates the impact of the CECL accounting adoption by product: In thousands Small loans . . . . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . . . . Automobile loans . . . . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . . . . Allowance for credit losses . . . . . . . . . December 31, 2019 January 1, 2020 Pre-Adoption Allowance $30,588 29,148 820 1,644 $62,200 Impact of Adoption $24,185 33,550 599 1,766 CECL Allowance $ 54,773 62,698 1,419 3,410 $60,100 $122,300 Regional Management Corp. | 2019 Annual Report on Form 10-K | 81 Beginning in January 2020 with the adoption of CECL accounting, the Company will reclassify unearned insurance premiums out of the finance receivables line item to align its consolidated balance sheet presentation with the amortized cost definition in the new accounting standard. The tables below illustrate the impacts of this reclassification to the Company’s previously reported balance sheet presentation of receivables and other key metrics: In thousands Quarterly Trend – As Reported (Pre-CECL Adoption) 3/31/2019 6/30/2019 9/30/2019 12/31/2019 Gross finance receivables . . . . . . . . . . . . . . Unearned finance charges . . . . . . . . . . . . . . Unearned insurance premiums . . . . . . . . . . $1,204,495 (273,651) (18,594) $1,300,043 (305,063) (21,546) $1,404,172 (337,086) (24,900) $1,500,962 (367,558) (28,591) Finance receivables . . . . . . . . . . . . . . . . . . Allowance for credit losses . . . . . . . . . . . . . 912,250 (56,400) 973,434 (57,200) 1,042,186 (60,900) 1,104,813 (62,200) Net finance receivables . . . . . . . . . . . . . . . . $ 855,850 $ 916,234 $ 981,286 $1,042,613 Average finance receivables . . . . . . . . . . . . $ 924,948 $ 934,373 $1,010,515 $1,071,265 As a % of finance receivables: Allowance for credit losses . . . . . . . . . . . . . 30+ day contractual delinquency . . . . . . . . . As a % of average finance receivables: Interest and fee yield (annualized) . . . . . . . Operating expense ratio (annualized) . . . . . . . . . . . . . Net credit loss ratio (annualized) 6.2% 7.0% 32.1% 16.5% 10.9% 5.9% 6.4% 32.5% 16.2% 10.7% 5.8% 6.6% 32.9% 15.9% 8.2% 5.6% 7.2% 32.8% 15.3% 9.2% In thousands Quarterly Trend – Amortized Cost Basis (Post-CECL Adoption) 3/31/2019 6/30/2019 9/30/2019 12/31/2019 Finance receivables . . . . . . . . . . . . . . . . . . Unearned insurance premiums . . . . . . . . . . . Allowance for credit losses . . . . . . . . . . . . . $930,844 (18,594) (56,400) $994,980 (21,546) (57,200) $1,067,086 (24,900) (60,900) $1,133,404 (28,591) (62,200) Net finance receivables . . . . . . . . . . . . . . . . $855,850 $916,234 $ 981,286 $1,042,613 Average finance receivables . . . . . . . . . . . . $944,763 $954,940 $1,033,939 $1,098,410 As a % of finance receivables: Allowance for credit losses . . . . . . . . . . . . . 30+ day contractual delinquency . . . . . . . . . As a % of average finance receivables: Interest and fee yield (annualized) . . . . . . . . Operating expense ratio (annualized) . . . . . . Net credit loss ratio (annualized) . . . . . . . . . 6.1% 6.9% 31.5% 16.2% 10.7% 5.7% 6.3% 31.8% 15.8% 10.4% 5.7% 6.5% 32.1% 15.5% 8.1% 5.5% 7.0% 32.0% 14.9% 9.0% Regional Management Corp. | 2019 Annual Report on Form 10-K | 82 F o r m 1 0 - K In thousands Quarterly Trend – Reclassification Change 3/31/2019 6/30/2019 9/30/2019 12/31/2019 Finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,594 $21,546 $24,900 $28,591 Average finance receivables . . . . . . . . . . . . . . . . . . . . . $19,815 $20,567 $23,424 $27,145 As a % of finance receivables: Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . 30+ day contractual delinquency . . . . . . . . . . . . . . . . . . As a % of average finance receivables: (0.1)% (0.1)% (0.2)% (0.1)% (0.1)% (0.1)% (0.1)% (0.2)% Interest and fee yield (annualized) . . . . . . . . . . . . . . . . . Operating expense ratio (annualized) . . . . . . . . . . . . . . Net credit loss ratio (annualized) . . . . . . . . . . . . . . . . . . (0.6)% (0.3)% (0.2)% (0.7)% (0.4)% (0.3)% (0.8)% (0.4)% (0.1)% (0.8)% (0.4)% (0.2)% In August 2018, the FASB issued an accounting update to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The amendments align the capitalization requirements for hosting arrangements that are service contracts with the capitalization principles for internal-use software. This update is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted. Upon adoption, the Company will apply the update on a prospective basis. The adoption will not have a material impact on its financial statements. Note 3. Concentrations of Credit Risk The Company’s portfolio of finance receivables is primarily with customers living in five Southeastern states (Alabama, Georgia, North Carolina, South Carolina, and Tennessee), three Southwestern states (Oklahoma, New Mexico, and Texas), one Mid-Atlantic state (Virginia), and two Midwestern states (Missouri and Wisconsin). Consequently, such customers’ ability to honor their installment contracts may be affected by economic conditions in these areas. Additionally, the Company is exposed to a concentration of credit risk inherent in providing consumer finance products to near prime and non-prime borrowers. The Company also has a risk that its customers will seek protection from creditors by filing under the bankruptcy laws. When a customer files for bankruptcy protection, the Company must cease collection efforts and petition the bankruptcy court to obtain its collateral or work out a court-approved bankruptcy plan involving the Company and all other creditors of the customer. It is the Company’s experience that such plans can take an extended period of time to conclude and usually involve a reduction in the interest rate from the rate in the contract to a court-approved rate. The Company maintains amounts in bank accounts which, at times, may exceed federally insured limits. The Company has not experienced losses in such accounts, which are maintained with large domestic banks. Management believes the Company’s exposure to credit risk is minimal for these accounts. Note 4. Finance Receivables, Credit Quality Information, and Allowance for Credit Losses Finance receivables for the periods indicated consisted of the following: In thousands December 31, 2019 2018 Small loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 462,499 608,608 9,623 24,083 $437,662 437,998 26,154 30,429 Finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,104,813 $932,243 Regional Management Corp. | 2019 Annual Report on Form 10-K | 83 The contractual delinquency of the finance receivable portfolio by product and aging for the periods indicated are as follows: In thousands $ % $ % Small Large December 31, 2019 Automobile $ % Retail Total $ % $ Current . . . . . . . . . . . . . . 1 to 29 days past due . . . Delinquent accounts 30 to 59 days . . . . . 60 to 89 days . . . . . 90 to 119 days . . . . 120 to 149 days . . . 150 to 179 days . . . Total $372,921 47,313 80.7% $523,936 10.2% 51,118 86.1% $6,906 8.4% 1,963 71.8% $18,093 20.4% 3,531 75.1% $ 921,856 14.7% 103,925 12,666 9,889 7,500 6,570 5,640 2.8% 11,351 8,103 2.1% 5,832 1.6% 4,541 1.4% 3,727 1.2% 1.9% 240 1.3% 110 1.0% 129 0.7% 127 0.6% 148 2.5% 1.1% 1.4% 1.3% 1.5% 853 563 375 357 311 3.6% 2.3% 1.5% 1.5% 1.3% 25,110 18,665 13,836 11,595 9,826 % 83.4% 9.4% 2.3% 1.7% 1.3% 1.0% 0.9% delinquency . . . . $ 42,265 9.1% $ 33,554 5.5% $ 754 7.8% $ 2,459 10.2% $ 79,032 7.2% Total finance receivables . . . . . . . . . $462,499 100.0% $608,608 100.0% $9,623 100.0% $24,083 100.0% $1,104,813 100.0% Finance receivables in nonaccrual status . . . . $ 22,718 4.9% $ 17,739 2.9% $ 590 6.1% $ 1,186 4.9% $ 42,233 3.8% December 31, 2018 In thousands $ % $ % $ % $ % $ Small Large Automobile Retail Total Current . . . . . . . . . . . . . . . 1 to 29 days past due . . . . Delinquent accounts $347,053 49,946 79.3% $365,950 11.4% 45,234 83.6% $17,767 10.3% 6,304 67.9% $23,392 24.1% 4,436 76.9% $754,162 14.6% 105,920 30 to 59 days . . . . . . 60 to 89 days . . . . . . 90 to 119 days . . . . . 120 to 149 days . . . . 150 to 179 days . . . . Total delinquency . . 12,168 9,555 7,202 6,266 5,472 $ 40,663 2.8% 8,768 2.2% 6,779 1.6% 4,407 1.4% 3,823 3,037 1.3% 9.3% $ 26,814 2.0% 751 1.5% 421 1.0% 241 0.9% 434 236 0.7% 6.1% $ 2,083 2.9% 842 1.6% 627 0.9% 429 1.7% 367 336 0.9% 8.0% $ 2,601 2.7% 22,529 2.1% 17,382 1.4% 12,279 1.2% 10,890 9,081 1.1% 8.5% $ 72,161 % 80.9% 11.4% 2.3% 1.9% 1.3% 1.2% 1.0% 7.7% Total finance receivables . . . . . . . . . . $437,662 100.0% $437,998 100.0% $26,154 100.0% $30,429 100.0% $932,243 100.0% Finance receivables in nonaccrual status . . . . . $ 22,549 5.2% $ 14,379 3.3% $ 1,359 5.2% $ 1,276 4.2% $ 39,563 4.2% Changes in the allowance for credit losses for the periods indicated are as follows: In thousands Year Ended December 31, 2019 2018 2017 Balance at beginning of period . . . . . . . . . . . . . . . . . . Provision for credit losses . . . . . . . . . . . . . . . . . . Credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,300 99,611 (100,056) 4,345 $ 48,910 87,056 (82,341) 4,675 $ 41,250 77,339 (75,880) 6,201 Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . $ 62,200 $ 58,300 $ 48,910 In the third quarter of 2018, three changes occurred that impacted the Company’s estimate of the allowance for credit losses. The changes collectively increased the allowance for credit losses as of September 30, 2018 and the provision for credit losses for the three months ended September 30, 2018, which decreased net income by $0.2 million, or $0.01 diluted earnings per share. The three changes are described in more detail in the paragraphs below. Regional Management Corp. | 2019 Annual Report on Form 10-K | 84 F o r m 1 0 - K Certain of the Company’s loan origination fees are non-refundable, and the unearned portion of those non-refundable fees reduces the Company’s recorded investment in the related finance receivables (non-refundable fees are included in “Unearned finance charges” on the Company’s consolidated balance sheets). When using unearned non-refundable fees to estimate an allowance for credit losses, an allowance can be established when the recorded investment in the finance receivables is accreted past the estimated incurred loss amount. Prior to September 30, 2018, the Company properly reduced estimated future net credit losses in its allowance modeling for the reversal of unearned non-refundable fees and, accordingly, did not reduce the required allowance by the remaining unearned non-refundable fees on the Company’s consolidated balance sheets. Effective September 30, 2018, the Company changed its estimated future net credit losses in its allowance modeling to exclude the reversal of unearned non-refundable fees and, accordingly, reduced the required allowance by the remaining unearned non-refundable fees on the Company’s consolidated balance sheets. This change in estimate had the impact of reducing the allowance for credit losses as of September 30, 2018 and the provision for credit losses for the three months ended September 30, 2018 by $6.6 million, which increased net income by $5.0 million, or $0.41 diluted earnings per share. In September 2018, the Company updated modeling assumptions used in estimating the specific component of the allowance for credit losses related to impaired finance receivables. The Company obtained additional performance data on finance receivables that had been modified under Company loss mitigation policies. Loss mitigation policies were formalized during 2016, and the impacted finance receivables now have more seasoning and predictable performance data. As a result of this change in estimate, the Company increased the allowance for credit losses as of September 30, 2018 and the provision for credit losses for the three months ended September 30, 2018 by $2.8 million, which decreased net income by $2.1 million, or $0.17 diluted earnings per share. Apart from the various optional payment and collateral protection insurance products that the Company offers to customers, on certain loans, the Company also collects a fee from customers and, in turn, purchases non-file insurance for the Company’s benefit in lieu of recording and perfecting the Company’s security interest in personal property collateral. Non-file insurance protects the Company from credit losses where, following an event of default, the Company is unable to take possession of personal property collateral because the Company’s security interest is not perfected (for example, in certain instances where a customer files for bankruptcy). In such circumstances, non-file insurance generally will pay an amount equal to the lesser of the loan balance or the collateral value. In September 2018, the non-file insurance product had been operating at a loss, and the Company was implementing a policy change that would reduce the amount of claims filed, which will have the impact of increasing future net credit losses and, in turn, increasing the required allowance for credit losses. As a result of the policy change, the Company increased the allowance for credit losses as of September 30, 2018 and the provision for credit losses for the three months ended September 30, 2018 by $4.1 million, which decreased net income by $3.1 million, or $0.25 diluted earnings per share. Separate from the changes noted above, in September 2018, the Company recorded a $3.9 million increase to the allowance for credit losses related to estimated incremental credit losses on customer accounts impacted by hurricanes. As of June 30, 2019, the allowance for credit losses no longer required or included an incremental hurricane allowance. In September 2017, the Company recorded a $3.0 million increase to the allowance for credit losses related to estimated incremental credit losses on customer accounts impacted by hurricanes. As of June 30, 2018, the allowance for credit losses no longer required or included an incremental hurricane allowance. On an annual basis, the Company updates the estimated loss emergence period for each finance receivable type. During 2017, the loss emergence period for each finance receivable type changed as follows: small loan finance receivables increased from six to seven months; large loan finance receivables decreased from twelve to ten months; and retail loan finance receivables increased from ten to eleven months. These net changes in the loss emergence periods increased the Company’s allowance for credit losses by $0.1 million, which decreased net income for the year ended December 31, 2017 by $0.1 million, or $0.01 diluted earnings per share. Regional Management Corp. | 2019 Annual Report on Form 10-K | 85 During 2018, the loss emergence period for each finance receivable type changed as follows: small loan finance receivables increased from seven to eight months; large loan finance receivables decreased from ten to eight months; automobile loan finance receivables decreased from twelve to nine months; and retail loan finance receivables decreased from eleven to eight months. These net changes in the loss emergence periods decreased the Company’s allowance for credit losses by $0.2 million, which increased net income for the year ended December 31, 2018 by $0.2 million, or $0.01 diluted earnings per share. During 2019, the loss emergence period for each finance receivable type neither required nor included any changes. The Company sells previously charged-off loans for all products in the portfolio to a third-party debt buyer. The proceeds from these sales are recognized as a recovery in the allowance for credit losses. In September 2017, the Company recognized a recovery of $1.0 million from the bulk sale of previously charged-off customer accounts in bankruptcy. These accounts had been excluded from previous sales of charged-off loans. The following is a reconciliation of the allowance for credit losses by product for the periods indicated: In thousands Small loans . . . . . Large loans . . . . . Automobile loans . . . . . . . . Retail loans . . . . . Balance January 1, 2019 Provision Credit Losses Recoveries Balance December 31, 2019 $30,759 23,702 $54,842 41,278 $ (57,323) (37,475) $2,310 1,643 $30,588 29,148 Finance Receivables December 31, 2019 $ 462,499 608,608 1,893 1,946 575 2,916 (1,893) (3,365) 245 147 820 1,644 9,623 24,083 Total . . . . . . . . . . $58,300 $99,611 $(100,056) $4,345 $62,200 $1,104,813 Allowance as Percentage of Finance Receivables December 31, 2019 6.6% 4.8% 8.5% 6.8% 5.6% Total . . . . . . . . . . $48,910 $87,056 $(82,341) $4,675 $58,300 $932,243 In thousands Small loans . . . . . Large loans . . . . . Automobile loans . . . . . . . . Retail loans . . . . . In thousands Small loans . . . . . Large loans . . . . . Automobile loans . . . . . . . . Retail loans . . . . . Balance January 1, 2018 Provision Credit Losses Recoveries Balance December 31, 2018 Finance Receivables December 31, 2018 Allowance as Percentage of Finance Receivables December 31, 2018 $24,749 17,548 $51,859 31,103 $(48,333) (26,337) $2,484 1,388 $30,759 23,702 $437,662 437,998 4,025 2,588 1,300 2,794 (4,085) (3,586) 653 150 1,893 1,946 26,154 30,429 Balance January 1, 2017 Provision Credit Losses Recoveries Balance December 31, 2017 Finance Receivables December 31, 2017 Allowance as Percentage of Finance Receivables December 31, 2017 $21,770 11,460 $45,104 25,024 $(45,612) (20,088) $3,487 1,152 $24,749 17,548 $375,772 347,218 5,910 2,110 4,210 3,001 (7,424) (2,756) 1,329 233 4,025 2,588 61,423 33,050 7.0% 5.4% 7.2% 6.4% 6.3% 6.6% 5.1% 6.6% 7.8% 6.0% Total . . . . . . . . . . $41,250 $77,339 $(75,880) $6,201 $48,910 $817,463 Regional Management Corp. | 2019 Annual Report on Form 10-K | 86 F o r m 1 0 - K Impaired finance receivables as a percentage of total finance receivables were 2.8% and 2.9% for the years ended December 31, 2019 and 2018, respectively. The following is a summary of finance receivables evaluated for impairment for the periods indicated: December 31, 2019 In thousands Small Large Automobile Retail Total Impaired receivables specifically evaluated . . . . . . . . Finance receivables evaluated collectively . . . . . . . . $ 9,920 452,579 $ 20,667 587,941 $ 652 8,971 $ 130 23,953 $ 31,369 1,073,444 Finance receivables outstanding . . . . . . . . . . . . . . . . . $462,499 $608,608 $9,623 $24,083 $1,104,813 Impaired receivables in nonaccrual status . . . . . . . . . $ 1,629 $ 3,189 $ 184 Amount of the specific reserve for impaired accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,069 $ 7,733 $ 386 $ $ 40 69 $ $ 5,042 12,257 Amount of the general component of the allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,519 $ 21,415 $ 434 $ 1,575 $ 49,943 December 31, 2018 In thousands Small Large Automobile Retail Total Impaired receivables specifically evaluated . . . . . . . . . Finance receivables evaluated collectively . . . . . . . . . . $ 8,361 429,301 $ 17,196 420,802 $ 918 25,236 $ 110 30,319 $ 26,585 905,658 Finance receivables outstanding . . . . . . . . . . . . . . . . . . $437,662 $437,998 $26,154 $30,429 $932,243 Impaired receivables in nonaccrual status . . . . . . . . . . . $ 1,209 $ 2,292 Amount of the specific reserve for impaired accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,791 $ 6,860 $ $ 178 492 $ $ 37 $ 3,716 61 $ 11,204 Amount of the general component of the allowance . . $ 26,968 $ 16,842 $ 1,401 $ 1,885 $ 47,096 The average recorded investment in impaired finance receivables and the amount of interest income recognized on impaired loans for the periods indicated are as follows: In thousands Small loans . . . . . . . . . . . . . . . . . . . . . . . . Large loans . . . . . . . . . . . . . . . . . . . . . . . . Automobile loans . . . . . . . . . . . . . . . . . . . . Retail loans . . . . . . . . . . . . . . . . . . . . . . . . Average Recorded Investment $ 9,723 18,938 786 129 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,576 Year Ended December 31, 2019 2018 Interest Income Recognized $1,551 2,538 37 5 $4,131 Average Recorded Investment $ 6,577 13,221 1,381 109 $21,288 Interest Income Recognized $1,066 1,639 60 6 $2,771 Regional Management Corp. | 2019 Annual Report on Form 10-K | 87 Note 5. Property and Equipment For the periods indicated, property and equipment consisted of the following: In thousands Furniture, fixtures, and equipment . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment cost . . . . . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . Property and equipment, net of accumulated December 31, 2019 2018 $25,185 12,110 37,295 21,994 $23,131 10,578 33,709 19,783 depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,301 $13,926 Depreciation expense for the years ended December 31, 2019, 2018, and 2017 totaled $4.3 million, $3.7 million, and $3.4 million, respectively. Note 6. Leases The Company adopted a new lease accounting standard in January 2019. See Note 2, “Significant Accounting Policies,” for an overview of the transition to this standard. The Company maintains lease agreements related to its branch network and for its corporate headquarters. The branch lease agreements range from five to seven years and generally contain options to extend from three to five years. The corporate headquarters lease agreement is for eleven years and contains an option to extend for ten years. All of the Company’s lease agreements are considered operating leases. None of the Company’s lease payments are dependent on an index that may change after the commencement date. The Company’s lease liability was $28.5 million as of December 31, 2019. This liability is based on the present value of the remaining minimum rental payments using a discount rate that is based on the Company’s incremental borrowing rate on its senior revolving credit facility. The lease asset was $26.4 million as of December 31, 2019. This asset includes right-of-use assets equaling the lease liability, net of prepaid rent and deferred rents that existed as of the adoption of the new lease standard. The Company assesses its leased assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If a lease is impaired, the impairment loss is recognized in lease costs and the right-of-use asset is reduced to the impaired value. The Company has made several policy elections related to lease assets and liabilities. The Company elected to utilize the package of transition practical expedients, which includes not reassessing the following at adoption: (i) whether existing contracts contained leases, (ii) the existing classification of leases as operating or financing, or (iii) the initial direct costs of leases. In addition, the Company did not use hindsight to determine the lease term or include options to extend for leases existing at the transition date. Lease agreements with terms of twelve months or less are not capitalized as part of lease assets or liabilities and are expensed as incurred. The Company has elected to account for each separate lease component of a contract and its associated non-lease components as a single lease component for its branch leases. The Company has elected not to apply this policy in relation to the corporate headquarters lease. The Company has also determined that it is reasonably certain that the first option to extend lease contracts will be exercised for new branch locations; therefore, the first option to extend is included in the lease asset and liability calculation. Regional Management Corp. | 2019 Annual Report on Form 10-K | 88 F o r m 1 0 - K Future maturities of the Company’s operating lease liabilities are as follows: In thousands 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Present value adjustment December 31, 2019 $ 7,047 6,562 5,242 4,641 3,596 6,186 33,274 (4,804) Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,470 The Company’s operating and short-term lease expenses are presented below: In thousands Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2019 $7,929 435 $8,364 Supplemental cash flow and non-cash information related to the Company’s operating leases is presented below: In thousands Year Ended December 31, 2019 Cash paid for operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease assets and liabilities acquired(1) $ 7,379 $10,102 (1) Excludes $24.1 million of lease assets and liabilities recorded on the transition date. As of December 31, 2019, the weighted-average remaining lease term and weighted-average discount rate were 5.6 years and 5.40%, respectively. Rent expense for the years ended December 31, 2019, 2018, and 2017 equaled $8.4 million, $8.1 million, and $7.7 million, respectively. In addition to rent, the Company typically pays for all operating expenses, property taxes, and repairs and maintenance on properties that it leases. Note 7. Intangible Assets The following table provides the gross carrying amount and related accumulated amortization of intangible assets: December 31, 2019 December 31, 2018 In thousands Gross Carrying Amount Accumulated Amortization Net Amount Gross Carrying Amount Accumulated Amortization Net Amount Software . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . Total intangible assets . . . . $15,389 950 $16,339 $(6,667) (234) $(6,901) $8,722 716 $9,438 $13,811 950 $14,761 $(4,517) (234) $ 9,294 716 $(4,751) $10,010 Regional Management Corp. | 2019 Annual Report on Form 10-K | 89 Intangible amortization expense for the years ended December 31, 2019, 2018, and 2017 totaled $2.2 million, $2.0 million, and $2.2 million, respectively. The following table sets forth the future amortization of intangible assets: In thousands 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount $2,120 1,966 1,870 1,596 915 255 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,722 The Company performs an annual impairment test on goodwill during the fourth quarter of each fiscal year. There were no goodwill additions or impairment losses for the years ended December 31, 2019 and 2018, respectively. Note 8. Other Assets Other assets include the following as of the periods indicated: In thousands Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit insurance receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Card payments receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2019 2018 $3,256 2,061 1,853 534 $4,167 1,027 2,292 889 Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,704 $8,375 Note 9. Interest Rate Caps The Company has interest rate cap contracts with an aggregate notional principal amount of $350.0 million. Each contract contains a strike rate against the one-month LIBOR (1.76% and 2.50% as of December 31, 2019 and 2018, respectively). The interest rate caps have maturities of April 2020 ($100.0 million with 3.25% strike rate), June 2020 ($50.0 million with 2.50% strike rate), and April 2021 ($200.0 million with 3.50% strike rate). When the one-month LIBOR exceeds the strike rate, the counterparty reimburses the Company for the excess over the strike rate. No payment is required by the Company or the counterparty when the one-month LIBOR is below the strike rate. The following is a summary of changes in the rate caps: In thousands December 31, 2019 2018 2017 Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value adjustment included as an increase in interest expense . . . . . . . . . $ 249 — (249) $ 98 481 (330) $ 62 100 (64) Balance at end of period, included in other assets . . . . . . . . . . . . . . . . . . . . . $ — $ 249 $ 98 See Note 20, “Subsequent Events,” for information regarding the purchase of an interest rate cap contract in March 2020. Regional Management Corp. | 2019 Annual Report on Form 10-K | 90 F o r m 1 0 - K Note 10. Long-Term Debt The following is a summary of the Company’s long-term debt as of the periods indicated: In thousands Senior revolving credit facility . . . Amortizing loan . . . . . . . . . . . . . . . Revolving warehouse credit facility . . . . . . . . . . . . . . . . . . . . RMIT 2018-1 securitization . . . . . RMIT 2018-2 securitization . . . . . RMIT 2019-1 securitization . . . . . December 31, 2019 December 31, 2018 Long-Term Debt $350,818 — Unamortized Debt Issuance Costs Net Long-Term Debt $(2,504) — $348,314 — Long-Term Debt $328,074 21,642 Unamortized Debt Issuance Costs Net Long-Term Debt $(1,604) (201) $326,470 21,441 46,633 150,246 130,349 130,172 (1,875) (1,558) (1,687) (1,983) 44,758 148,688 128,662 128,189 30,126 150,246 130,419 — (1,899) (2,849) (2,605) — 28,227 147,397 127,814 — Total . . . . . . . . . . . . . . . . . . . . . . . . $808,218 $(9,607) $798,611 $660,507 $(9,158) $651,349 Unused amount of revolving credit facilities (subject to borrowing base) . . . . . . . . . . . . . . . . . . . . . . $369,271 $406,600 Senior Revolving Credit Facility: In September 2019, the Company amended and restated its senior revolving credit facility to, among other things, increase the availability under the facility from $638 million to $640 million and extend the maturity of the facility from June 2020 to September 2022. The facility has an accordion provision that allows for the expansion of the facility to $650 million. Excluding the receivables held by the Company’s VIEs, the senior revolving credit facility is secured by substantially all of the Company’s finance receivables and equity interests of the majority of its subsidiaries. Advances on the senior revolving credit facility are capped at 85% of eligible secured finance receivables, 80% of eligible unsecured finance receivables, and 60% of eligible delinquent renewals (80% of eligible secured finance receivables, 75% of eligible unsecured finance receivables, and 55% of eligible delinquent renewals as of December 31, 2019). As of December 31, 2019, the Company had $109.6 million of eligible borrowing capacity under the facility. Borrowings under the facility bear interest, payable monthly, at rates equal to one-month LIBOR, with a LIBOR floor of 1.00%, plus a 3.00% margin, increasing to 3.25% when the availability percentage is below 10%. The one-month LIBOR rate was 1.76% and 2.50% at December 31, 2019 and 2018, respectively. The amended and restated facility provides for a process to transition from LIBOR to a new benchmark, if necessary. The Company pays an unused line fee between 0.375% and 0.65% based upon the average outstanding balance of the facility. Variable Interest Entity Debt: As part of its overall funding strategy, the Company has transferred certain finance receivables to VIEs for asset-backed financing transactions, including securitizations. The following debt arrangements are issued by the Company’s SPEs, which are considered VIEs under GAAP and are consolidated into the financial statements of their primary beneficiary. The Company is considered to be the primary beneficiary because it has (i) power over the significant activities through its 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 the Company’s interest in the monthly residual cash flows of the SPEs after each debt is paid. These long-term 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 $39.4 million and $33.5 million as of December 31, 2019 and 2018, respectively. Cash inflows from the finance receivables are distributed to the lenders/investors, the service providers, and/or the residual interest that the Company owns in accordance with a monthly contractual priority of payments. The SPEs pay a servicing fee to the Company, which is eliminated in consolidation. Distributions from the SPEs to the Company are permitted under the debt arrangements. Regional Management Corp. | 2019 Annual Report on Form 10-K | 91 At each sale of receivables from the Company’s affiliates to the SPEs, the Company makes certain representations and warranties about the quality and nature of the collateralized receivables. The debt arrangements require the Company to repurchase the receivables in certain circumstances, including circumstances in which the representations and warranties made by the Company concerning the quality and characteristics of the receivables are inaccurate. Assets transferred to each SPE are legally isolated from the Company and its affiliates, as well as the claims of the Company’s and its 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 the Company or any of its affiliates. Amortizing Loan: In November 2017, the Company and its wholly-owned SPE, Regional Management Receivables, LLC (“RMR I”), amended and restated the December 2015 credit agreement that provided for a $75.7 million asset-backed, amortizing loan. The amended and restated credit agreement provided for an additional advance in the amount of $37.8 million and extended the maturity date to December 2024. The amended and restated credit agreement also allowed the Company to prepay the loan when the outstanding balance fell below 20% of the original loan amount. In October 2019, the Company and RMR I exercised the right to make an optional principal repayment in full, and in connection with such prepayment, the facility terminated. Revolving Warehouse Credit Facility: In October 2019, the Company and its wholly-owned SPE, Regional Management Receivables II, LLC (“RMR II”), amended the credit agreement that provides for a $125 million revolving warehouse credit facility to RMR II. The amendment extended the date at which the facility converts to an amortizing loan and the termination date to April 2021 and April 2022, respectively. The facility has an accordion provision that allows for the expansion of the facility to $150 million. The debt is secured by finance receivables and other related assets that the Company purchased from its affiliates, which the Company then sold and transferred to RMR II. Advances on the facility are capped at 80% of eligible finance receivables. RMR II held $0.3 million in restricted cash reserves as of December 31, 2019 to satisfy provisions of the credit agreement. Borrowings under the facility bear interest, payable monthly, at a blended rate equal to three-month LIBOR, plus a margin of 2.15% (2.20% prior to the October 2019 amendment). The three-month LIBOR was 1.91% and 2.81% at December 31, 2019 and 2018, respectively. RMR II pays an unused commitment fee between 0.35% and 0.85% based upon the average daily utilization of the facility. RMIT 2018-1 Securitization: In June 2018, the Company, its wholly-owned SPE, Regional Management Receivables III, LLC (“RMR III”), and its indirect wholly-owned SPE, Regional Management Issuance Trust 2018-1 (“RMIT 2018-1”), completed a private offering and sale of $150 million of asset-backed notes. The transaction consisted of the issuance of three classes of fixed-rate asset-backed notes by RMIT 2018-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from the Company, which RMR III then sold and transferred to RMIT 2018-1. The notes have a revolving period ending in June 2020, with a final maturity date in July 2027. RMIT 2018-1 held $1.7 million in restricted cash reserves as of December 31, 2019 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2018-1 securitization bear interest, payable monthly, at a weighted-average rate of 3.93%. Prior to maturity in July 2027, the Company may redeem the notes in full, but not in part, at its option on any note payment date on or after the payment date occurring in July 2020. No payments of principal of the notes will be made during the revolving period. RMIT 2018-2 Securitization: In December 2018, the Company, RMR III, and the Company’s indirect wholly- owned SPE, Regional Management Issuance Trust 2018-2 (“RMIT 2018-2”), completed a private offering and sale of $130 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2018-2. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from the Company, which RMR III then sold and transferred to RMIT 2018-2. The notes have a revolving period ending in December 2020, with a final maturity date in January 2028. RMIT 2018-2 held $1.4 million in restricted cash reserves as of December 31, 2019 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2018-2 securitization bear interest, payable monthly, at a weighted-average rate of 4.87%. Prior to maturity in January 2028, the Company may redeem the notes in full, but not in part, at its option on any note payment date on or after the payment date occurring in January 2021. No payments of principal of the notes will be made during the revolving period. Regional Management Corp. | 2019 Annual Report on Form 10-K | 92 RMIT 2019-1 Securitization: In October 2019, the Company, RMR III, and the Company’s 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 the Company, which RMR III then sold and transferred to RMIT 2019-1. The notes have a revolving period ending in October 2021, with a final maturity date in November 2028. RMIT 2019-1 held $1.4 million in restricted cash reserves as of December 31, 2019 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2019-1 securitization bear interest, payable monthly, at a weighted-average rate of 3.17%. Prior to maturity in November 2028, the Company may redeem the notes in full, but not in part, at its option on any note payment date on or after the payment date occurring in November 2021. No payments of principal of the notes will be made during the revolving period. The carrying amounts of consolidated VIE assets and liabilities are as follows: F o r m 1 0 - K In thousands Assets December 31, 2019 2018 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for credit losses . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 152 474,340 (22,015) 44,221 68 $ 168 342,481 (18,378) 39,361 75 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $496,766 $363,707 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Net long-term debt Accounts payable and accrued expenses . . . . . . . . . . $450,297 86 $324,879 25 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $450,383 $324,904 The Company’s 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, maintenance of a minimum allowance for credit losses, and certain other restrictions. At December 31, 2019, the Company was in compliance with all debt covenants. The following is a summary of estimated principal payments required on outstanding debt during each of the next five years: In thousands 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount $ 59,940 170,817 533,908 43,553 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $808,218 Note 11. Stockholders’ Equity Stock repurchase program: In May 2019, the Company’s Board of Directors (the “Board”) authorized a new stock repurchase program allowing for the repurchase of up to $25.0 million of the Company’s 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 Regional Management Corp. | 2019 Annual Report on Form 10-K | 93 through May 6, 2021. In October 2019, the Company completed its $25.0 million stock repurchase program. The Company repurchased a total of 938 thousand shares of common stock pursuant to the program. Note 12. Disclosure About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and restricted cash: Cash and restricted cash is recorded at cost, which approximates fair value due to its generally short maturity and highly liquid nature. Finance receivables: Finance receivables are originated at prevailing market rates. The Company’s finance receivable portfolio turns approximately 1.2 times per year. The portfolio turnover is calculated by dividing cash payments, renewals, and net credit losses by the average finance receivables. Management believes that the carrying amount approximates the fair value of its finance receivable portfolio. Interest rate caps: The fair value of the interest rate caps is the estimated amount the Company would receive to terminate the cap agreements at the reporting date, taking into account current interest rates and the creditworthiness of the counterparty. Long-term debt: The Company’s long-term debt is frequently renewed, amended, or recently originated. As a result, the Company believes that the fair value of long-term debt approximates carrying amounts. The Company also considered its creditworthiness in its determination of fair value. The carrying amount and estimated fair values of the Company’s financial instruments summarized by level are as follows: In thousands Assets Level 1 inputs December 31, 2019 December 31, 2018 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . $ 2,263 54,164 $ 2,263 54,164 $ 3,657 46,484 $ 3,657 46,484 Level 2 inputs Interest rate caps . . . . . . . . . . . . . . . . . . . . — — 249 249 Level 3 inputs Net finance receivables . . . . . . . . . . . . . . . 1,042,613 1,042,613 873,943 873,943 Liabilities Level 3 inputs Long-term debt . . . . . . . . . . . . . . . . . . . . . 808,218 808,218 660,507 660,507 Certain of the Company’s assets carried at fair value are classified and disclosed in one of the following three categories: Level 1 – Quoted market prices in active markets for identical assets or liabilities. Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 – Unobservable inputs that are not corroborated by market data. Regional Management Corp. | 2019 Annual Report on Form 10-K | 94 F o r m 1 0 - K In determining the appropriate levels, the Company performs an analysis of the assets and liabilities that are carried at fair value. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The table below presents the balances of assets measured at fair value on a recurring basis by level within the hierarchy as of December 31, 2019 and 2018: In thousands Interest Rate Caps Total Level 1 Level 2 Level 3 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $249 $— $— $— $249 $— $— Note 13. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. The Company files consolidated or separate state income tax returns as required by individual states in which it operates. The Company is generally no longer subject to federal, state, or local income tax examinations by taxing authorities before 2016, though the Company remains subject to examination for the Texas tax return for the 2015 tax year. Income tax expense differed from the amount computed by applying the federal income tax rate to total income before income taxes as a result of the following: In thousands Federal tax expense at statutory rate . . . . . . . . . . . . . . . . . . . . Increase (reduction) in income taxes resulting from: Year Ended December 31, 2019 2018 2017 $ % $ % $ % $12,389 21.0% $ 9,639 21.0% $14,090 35.0% State tax, net of federal benefit . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based awards . . . . . . . . . Research and development tax credits . . . . . . . . . . . . . . Tax Cuts and Jobs Act . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,980 (171) (31) — 94 3.4% 1,521 (0.3)% (370) (0.1)% (114) 0.0% — 0.2% (119) 3.3% 1,253 (0.8)% (1,603) (0.2)% (400) 0.0% (3,122) 76 (0.3)% 3.1% (4.0)% (1.0)% (7.8)% 0.3% $14,261 24.2% $10,557 23.0% $10,294 25.6% In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act made changes to U.S. tax law, including a reduction in the federal corporate tax rate from 35.0% to 21.0%. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the enacted rate. The revaluation resulted in a $3.1 million income tax benefit and a corresponding reduction in the Company’s net deferred tax liability. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects of the Tax Act and recorded provisional amounts in its consolidated financial statements as of December 31, 2017. The accounting for the tax effects of the Tax Act was completed in December 2018. Regional Management Corp. | 2019 Annual Report on Form 10-K | 95 Income tax expense attributable to total income before income taxes consists of the following for the periods indicated: In thousands Current: Year Ended December 31, 2019 2018 2017 Federal State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,270 2,357 $12,442 2,329 $ 4,479 821 Deferred: Federal State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,627 14,771 5,300 (1,298) (68) (1,366) (3,705) (509) (4,214) 4,464 530 4,994 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,261 $10,557 $10,294 Net deferred tax assets and liabilities consist of the following as of the periods indicated: In thousands Deferred tax assets: December 31, 2019 2018 Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . Unearned insurance premiums . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State net operating loss carryforward . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred contract incentive . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,879 5,058 2,933 1,928 262 200 129 60 83 $10,315 3,393 2,765 1,773 274 376 — 86 86 Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . 23,532 19,068 Deferred tax liabilities: Fair market value adjustment of finance receivables . . Tax over book depreciation . . . . . . . . . . . . . . . . . . . . . . Deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . 16,853 3,735 1,983 316 26 22,913 13,378 4,058 1,814 372 193 19,815 Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . $ 619 $ (747) The Company had state net operating loss carryforwards of approximately $8.0 million and $8.2 million as of December 31, 2019 and 2018, respectively, and related deferred tax assets of $0.3 million for both periods. These carryforwards are available to offset future taxable income. If not used, the current carryforwards will expire beginning in 2032. Income tax expense was $14.3 million, $10.6 million, and $10.3 million for the years ended December 31, 2019, 2018, and 2017, respectively. Included in these amounts are tax benefits from share-based awards of $0.2 million, $0.4 million, and $1.6 million for the years ended December 31, 2019, 2018, and 2017, respectively. Regional Management Corp. | 2019 Annual Report on Form 10-K | 96 F o r m 1 0 - K Companies are not permitted to recognize the tax benefit attributable to a tax position unless such position is more likely than not to be sustained upon examination by taxing authorities, based solely on the technical merits of the position. The Company had $0.8 million of material unrecognized tax benefits as of December 31, 2019. Included in these amounts are interest and penalties accrued related to unrecognized tax benefits of $52 thousand for the year ended December 31, 2019. These components are included in the income tax line of the consolidated statements of income. The following schedule reconciles unrecognized tax positions for the periods indicated: In thousands Year Ended December 31, 2019 Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions based on tax positions related to the current year . . . . Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— 363 452 — — $815 Note 14. Earnings Per Share The following schedule reconciles the computation of basic and diluted earnings per share for the periods indicated: In thousands, except per share amounts Numerator: Year Ended December 31, 2019 2018 2017 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,732 $35,345 $29,963 Denominator: Weighted-average shares outstanding for basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of dilutive securities . . . . . . . . . . . . . . . . . . . . 11,401 372 11,655 423 11,551 232 Weighted-average shares adjusted for dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,773 12,078 11,783 Earnings per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 3.92 3.80 $ $ 3.03 2.93 $ $ 2.59 2.54 Options to purchase 250 thousand, 148 thousand, and 126 thousand shares of common stock were outstanding during the years ended December 31, 2019, 2018, and 2017, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive. Note 15. Employee Benefit Plans Retirement savings plan: The Company has a defined contribution employee benefit plan (401(k) plan) covering full-time employees who have at least six months of service. The Company made a matching contribution equal to 100 percent of the first three percent of an employee’s gross income and 50 percent of the next two percent of gross income in 2019, 2018, and 2017. For the years ended December 31, 2019, 2018, and 2017, the Company recorded expense for the Company’s match of $1.5 million, $0.9 million, and $0.8 million, respectively. Regional Management Corp. | 2019 Annual Report on Form 10-K | 97 Note 16. Share-Based Compensation The Company previously adopted the 2007 Management Incentive Plan (the “2007 Plan”) and the 2011 Stock Incentive Plan (the “2011 Plan”). On April 22, 2015, the stockholders of the Company approved the 2015 Long- Term Incentive Plan (the “2015 Plan”), and on April 27, 2017, the stockholders of the Company re-approved the 2015 Plan, as amended and restated. As of December 31, 2019, subject to adjustments as provided in the 2015 Plan, the maximum aggregate number of shares of the Company’s common stock that could be issued under the 2015 Plan could not exceed the sum of (i) 1.55 million shares plus (ii) any shares (A) remaining available for the grant of awards as of the 2015 Plan effective date (April 22, 2015) under the 2007 Plan or the 2011 Plan, and/or (B) subject to an award granted under the 2007 Plan or the 2011 Plan, which award is forfeited, cancelled, terminated, expires, or lapses without the issuance of shares or pursuant to which such shares are forfeited. As of the effectiveness of the 2015 Plan (April 22, 2015), there were 0.9 million shares available for grant under the 2015 Plan, inclusive of shares previously available for grant under the 2007 Plan and the 2011 Plan that were rolled over to the 2015 Plan. No further grants will be made under the 2007 Plan or the 2011 Plan. However, awards that are outstanding under the 2007 Plan and the 2011 Plan will continue in accordance with their respective terms. As of December 31, 2019, there were 0.8 million shares available for grant under the 2015 Plan. For the years ended December 31, 2019, 2018, and 2017, the Company recorded share-based compensation expense of $5.1 million, $5.3 million, and $3.7 million, respectively. As of December 31, 2019, unrecognized share-based compensation expense to be recognized over future periods approximated $5.6 million. This amount will be recognized as expense over a weighted-average period of 1.7 years. Share-based compensation expenses are recognized on a straight-line basis over the requisite service period of the agreement. All share-based compensation is classified as equity awards. The Company allows for the settlement of share-based awards on a net share basis. With net share settlement, the employee does not surrender any cash or shares upon the exercise of stock options or the vesting of stock awards or stock units. Rather, the Company withholds the number of shares with a value equivalent to the option exercise price (for stock options) and the statutory tax withholding (for all share-based awards). Net share settlements have the effect of reducing the number of shares that would have otherwise been issued as a result of exercise or vesting. Long-term incentive program: The Company issues non-qualified stock options, performance-contingent restricted stock units (“RSUs”), cash-settled performance units (“CSPUs”), and restricted stock awards (“RSAs”) to certain members of senior management under a long-term incentive program (“LTIP”). The CSPUs are cash incentive awards, and the associated expense is not based on the market price of the Company’s common stock. Recurring annual grants are made at the discretion of the Board. The annual grants are subject to cliff- and graded-vesting, generally concluding at the end of the third calendar year and subject to continued employment or as otherwise provided in the underlying award agreements. The actual value of the RSUs and CSPUs that may be earned can range from 0% to 150% of target based on the percentile ranking of the Company’s compound annual growth rate of net income and net income per share compared to a public company peer group over a three-year performance period. The Company also has a key team member incentive program for certain other members of senior management. Recurring annual participation in the program is at the discretion of the Board and executive management. Each participant in the program is eligible to earn an RSA, subject to performance over a one-year period. Payout under the program can range from 0% to 150% of target based on the achievement of five Company performance metrics and individual performance goals (subject to continued employment and certain other terms and conditions of the program). If earned, the RSA is issued following the one-year performance period and vests ratably over a subsequent two-year period (subject to continued employment or as otherwise provided in the underlying award agreement). Inducement and retention program: From time to time, the Company issues stock awards and other long-term incentive awards in conjunction with employment offers to select new employees and retention grants to select Regional Management Corp. | 2019 Annual Report on Form 10-K | 98 F o r m 1 0 - K existing employees. The Company issues these awards to attract and retain talent and to provide market competitive compensation. The grants have various vesting terms, including fully-vested awards at the grant date, cliff-vesting, and graded-vesting over periods of up to five years (subject to continued employment or as otherwise provided in the underlying award agreements). Non-employee director compensation program: The Company awards its non-employee directors a cash retainer and shares of restricted common stock. The RSAs are granted on the fifth business day following the Company’s annual meeting of stockholders and fully vest upon the earlier of the first anniversary of the grant date or the completion of the directors’ annual service to the Company. The Board revised the compensation program in April 2018 to modify the amount of the annual cash retainers for Board and committee members, eliminate committee meeting fees, and modify the value of the RSAs for committee members. The following are the terms and amounts of the awards issued under the Company’s share-based incentive programs: Non-qualified stock options: The exercise price of all stock options is equal to the Company’s closing stock price on the date of grant. Stock options are subject to various vesting terms, including graded- and cliff-vesting over periods of up to five years. In addition, stock options vest and become exercisable in full or in part under certain circumstances, including following the occurrence of a change of control (as defined in the option award agreements). Participants who are awarded options must exercise their options within a maximum of ten years of the grant date. The fair value of option grants is estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for option grants during the periods indicated below: Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.06% 41.63% 43.95% 0.00% 0.00% 0.00% 6.0 6.0 2.41% 2.66% 2.09% 6.0 Year Ended December 31, 2019 2018 2017 Expected volatility is based on the Company’s historical stock price volatility. The expected term is calculated by using the simplified method (average of the vesting and original contractual terms) due to insufficient historical data to estimate the expected term. The risk-free rate is based on the zero coupon U.S. Treasury bond rate over the expected term of the awards. The following table summarizes the stock option activity for the year ended December 31, 2019: In thousands, except per share amounts Number of Shares Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Options outstanding at January 1, 2019 . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981 124 (16) (22) — Options outstanding at December 31, 2019 . . . . . . . . 1,067 Options exercisable at December 31, 2019 . . . . . . . . . 956 $18.69 27.53 16.50 25.70 — $19.61 $18.67 5.7 5.3 $11,222 $10,957 Regional Management Corp. | 2019 Annual Report on Form 10-K | 99 The following table provides additional stock option information for the periods indicated: In thousands, except per share amounts Year Ended December 31, 2019 2018 2017 Weighted-average grant date fair value per share . . . . . . . . . . Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . Fair value of stock options that vested . . . . . . . . . . . . . . . . . . . $11.82 $ 265 $1,126 $12.39 $1,604 $1,809 $ 8.90 $4,981 $3,004 Performance-contingent restricted stock units: Compensation expense for RSUs is based on the Company’s closing stock price on the date of grant and the probability that certain financial goals are achieved over the performance period. Compensation cost is estimated based on expected performance and is adjusted at each reporting period. The following table summarizes RSU activity during the year ended December 31, 2019: In thousands, except per unit amounts Non-vested units at January 1, 2019 . . . . . . . . . . . . . . . Granted (target) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Achieved performance adjustment(1) . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-vested units at December 31, 2019 . . . . . . . . . . . . Units 182 40 8 (54) (20) 156 Weighted-Average Grant Date Fair Value Per Unit $21.89 27.89 16.98 16.98 24.39 $24.57 (1) The 2016 LTIP RSUs were earned and vested at 116.5% of target, as described in greater detail in the Company’s definitive proxy statement filed with the SEC on March 27, 2019. The following table provides additional RSU information for the periods indicated: In thousands, except per unit amounts Year Ended December 31, 2019 2018 2017 Weighted-average grant date fair value per unit . . . . . . . . . . . Fair value of RSUs that vested . . . . . . . . . . . . . . . . . . . . . . . . . $27.89 $ 916 $28.25 $ — $19.99 $ — Restricted stock awards: The fair value and compensation cost of restricted stock is calculated using the Company’s closing stock price on the date of grant. The following table summarizes restricted stock activity during the year ended December 31, 2019: In thousands, except per share amounts Non-vested shares at January 1, 2019 . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-vested shares at December 31, 2019 . . . . . . . . . Shares 71 166 (103) (8) 126 Weighted-Average Grant Date Fair Value Per Share $26.95 26.78 26.97 26.06 $26.78 The following table provides additional restricted stock information: In thousands, except per share amounts Year Ended December 31, 2019 2018 2017 Weighted-average grant date fair value per share . . . . . . . . . . Fair value of RSAs that vested . . . . . . . . . . . . . . . . . . . . . . . . . $26.78 $2,767 $24.98 $1,609 $18.38 $ 983 Regional Management Corp. | 2019 Annual Report on Form 10-K | 100 F o r m 1 0 - K Note 17. Commitments and Contingencies In the normal course of business, the Company has been named as a defendant in legal actions in connection with its activities. Some of the actual or threatened legal actions include claims for compensatory damages or claims for indeterminate amounts of damages. The Company contests liability and the amount of damages, as appropriate, in each pending matter. Where available information indicates that it is probable that a liability has been incurred and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to net income. However, in many legal actions, it is inherently difficult to determine whether any loss is probable, or even reasonably possible, or to estimate the amount of loss. This is particularly true for actions that are in their early stages of development or where plaintiffs seek indeterminate damages. In addition, even where a loss is reasonably possible or an exposure to loss exists in excess of the liability already accrued, it is not always possible to reasonably estimate the size of the possible loss or range of loss. Before a loss, additional loss, range of loss, or range of additional loss can be reasonably estimated for any given action, numerous issues may need to be resolved, including through lengthy discovery, following determination of important factual matters, and/or by addressing novel or unsettled legal questions. For certain other legal actions, the Company can estimate reasonably possible losses, additional losses, ranges of loss, or ranges of additional loss in excess of amounts accrued, but the Company does not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on the consolidated financial statements. While the Company will continue to identify legal actions where it believes a material loss to be reasonably possible and reasonably estimable, there can be no assurance that material losses will not be incurred from claims that the Company has not yet been notified of or are not yet determined to be probable, or reasonably possible and reasonable to estimate. The Company expenses legal costs as they are incurred. Note 18. Insurance Products and Reinsurance of Certain Risks RMC Reinsurance, Ltd. is a wholly-owned insurance subsidiary of the Company. The Company sells optional insurance products to its customers in connection with its lending operations. These optional products include credit life, credit accident and health, credit property, vehicle single interest, and credit involuntary unemployment insurance. The type and terms of our optional insurance products vary from state to state based on applicable laws and regulations. Insurance premiums are remitted to an unaffiliated company that issues the policy to the customer. This unaffiliated company cedes the premiums to RMC Reinsurance, Ltd. Life insurance premiums are ceded to the Company as written and non-life products are ceded as earned. The Company maintains a cash reserve for life insurance claims in an amount determined by the ceding company. As of December 31, 2019 and 2018, the cash reserves were $9.9 million and $7.1 million, respectively. The Company also purchased a cash collateralized letter of credit in favor of the ceding company. The letter of credit was $0 and $0.1 million as of December 31, 2019 and 2018, respectively. 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 the Company. Earned premiums are accounted for over the period of the underlying reinsured policies using assumptions consistent with the policy terms. Direct costs included in insurance income, net are claims paid, claims reserves, ceding fees, and premium taxes paid. The Company does not allocate to insurance income, net, any other home office or branch administrative costs associated with managing its insurance operations, managing its captive insurance company, marketing and selling insurance products, legal and compliance review, or internal audits. Regional Management Corp. | 2019 Annual Report on Form 10-K | 101 The following table summarizes the components of insurance income, net during the years ended December 31, 2019, 2018, and 2017: In thousands Insurance Premiums and Direct Expenses 2019 2018 2017 Earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Claims, reserves, and certain direct expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,544 (14,727) $ 31,095 (16,302) $ 25,860 (12,799) Insurance income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,817 $ 14,793 $ 13,061 The Company was covered under a blanket vendor single interest insurance policy. The policy protected the Company’s interest when the customer failed to maintain the required insurance coverage on an automobile securing an automobile purchase loan. The customer’s loan and monthly payment were not impacted by this insurance policy. This blanket vendor single interest insurance policy was cancelled in March 2018. The Company offered a self-insured Guaranteed Asset Protection (“GAP”) coverage to customers in North Carolina and Alabama. A GAP program is a contractual arrangement whereby the Company forgives the remaining balance of the insured customer’s automobile purchase loan if the automobile is determined to be a total loss by the primary insurance carrier and insurance proceeds are not sufficient to pay off the customer’s loan. The GAP program revenue is recognized over the life of the loan. Losses are recognized in the period in which they occur. The Company ceased offering the GAP product when it ceased its automobile loan originations in November 2017. Apart from the various optional payment and collateral protection insurance products that the Company offers to customers, on certain loans, the Company also collects a fee from customers and, in turn, purchases non-file insurance from an unaffiliated insurance company for its benefit in lieu of recording and perfecting its security interest in personal property collateral. Non-file insurance protects the Company from credit losses where, following an event of default, it is unable to take possession of personal property collateral because its security interest is not perfected (for example, in certain instances where a customer files for bankruptcy). In such circumstances, non-file insurance generally will pay to the Company an amount equal to the lesser of the loan balance or the collateral value. In recent years, as large loans have become a larger percentage of the Company’s loan portfolio, the severity of non-file insurance claims has increased and non-file insurance claims expenses have exceeded non-file insurance fees. The resulting net loss from the non-file insurance product has been reflected in the Company’s insurance income, net. The Company evaluated various ways to lower its non-file insurance claims, and reduced its utilization of non-file insurance beginning in the fourth quarter of 2018. This policy change will cause substantially offsetting increases to insurance income, net and net credit losses in current and future years. Regional Management Corp. | 2019 Annual Report on Form 10-K | 102 F o r m 1 0 - K Note 19. Quarterly Information (unaudited) The following tables summarize the Company’s quarterly financial information for each of the four quarters of 2019 and 2018: 2019 In thousands, except per share amounts First Second Third Fourth Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $81,748 23,343 38,183 9,721 2,393 $ 8,108 $84,274 25,714 37,743 9,771 2,677 $ 8,369 $91,707 24,515 40,167 10,348 4,105 $12,572 $97,984 26,039 40,891 10,285 5,086 $15,683 Net income per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 0.69 0.67 $ $ 0.71 0.70 $ $ 1.11 1.08 $ $ 1.44 1.38 2018 In thousands, except per share amounts First Second Third Fourth Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for credit losses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $72,625 19,515 34,592 7,177 2,697 $ 8,644 $72,416 20,203 33,215 7,915 2,601 $ 8,482 $77,916 23,640 35,861 8,729 2,237 $ 7,449 $83,749 23,698 36,616 9,643 3,022 $10,770 Net income per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 0.74 0.72 $ $ 0.73 0.70 $ $ 0.64 0.61 $ $ 0.92 0.90 (1) Third quarter 2018 includes a $3.9 million incremental hurricane allowance for credit losses. Note 20. Subsequent Events In January 2020, the Company experienced an isolated information technology infrastructure event that caused an extended outage of its loan management system, which was not fully operational for a total of approximately seven business days between January 5, 2020 and January 16, 2020. The Company determined that an inadvertent operational failure in information technology allowed a system back-up process to run concurrently and inappropriately with normal nightly processes, resulting in the event. The outage affected the Company’s ability to originate branch loans and process certain methods of payment. However, during that time, all branches remained open, serviced customers, and accepted payments via cash, personal check, money order, and certain electronic payment methods. The outage did not impact the security of customer information or the integrity of company and customer data. The event also did not involve an external breach or the compromise of data by any third party. The Company, with the assistance of third-party experts, addressed and resolved the issue. While the event did not impact the Company’s fourth quarter 2019 financial results, the Company expects that the outage will adversely impact net income by approximately $1.3 million in the first quarter of 2020 and by an additional $0.3 million throughout the remainder of the year. In March 2020, as a component of its strategy to manage the interest rate risk associated with future interest payments on variable-rate debt, the Company purchased an interest rate cap contract for $0.2 million with an aggregate notional principal amount of $100.0 million. The interest rate cap matures in March 2023 with a 1.75% strike rate against the one-month LIBOR. Regional Management Corp. | 2019 Annual Report on Form 10-K | 103 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost–benefit relationship of possible controls and procedures. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for the preparation, integrity, accuracy, and fair presentation of the consolidated financial statements appearing in this Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The financial statements were prepared in conformity with GAAP and include amounts based on judgments and estimates by management. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with GAAP. Our internal control over financial reporting is supported by internal audits, appropriate reviews by management, policies and guidelines, careful selection and training of qualified personnel, and codes of ethics adopted by our company’s Board of Directors that are applicable to all directors, officers, and employees of our company. Because of its inherent limitations, no matter how well designed, internal control over financial reporting may not prevent or detect all misstatements. Internal controls can only provide reasonable assurance with respect to financial statement preparation and presentation. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that the controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline. Management assessed the effectiveness of our internal control over financial reporting, with the participation of our chief executive officer and chief financial officer, as of December 31, 2019. In conducting this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this assessment, Regional Management Corp. | 2019 Annual Report on Form 10-K | 104 F o r m 1 0 - K management believes that we maintained effective internal control over financial reporting as of December 31, 2019. Our independent registered public accounting firm, RSM US LLP, has issued a report on our internal control over financial reporting, which appears in Part II, Item 8, “Financial Statements and Supplementary Data.” Changes in Internal Control We implemented certain internal controls related to the January 1, 2020 adoption of the new current expected credit loss (“CECL”) model. Because these changes were not fully implemented until January 2020, except for the estimated impact of CECL adoption, we used our then-existing incurred loss impairment methodology, processes, and controls in preparing our 2019 consolidated financial statements included in this report. There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. Not applicable. Regional Management Corp. | 2019 Annual Report on Form 10-K | 105 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required under this item is incorporated herein by reference to the information presented under the headings “Board of Directors and Corporate Governance Matters—Committees of the Board,” “Executive Officers,” “Stockholder Proposals—Proposal No. 1: Election of Directors,” and “Delinquent Section 16(a) Reports” (to the extent reported therein) in the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the end of the Company’s fiscal year ended December 31, 2019. Our Board of Directors has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”). The Code of Ethics applies to all of our directors, officers, and employees and is posted on the Company’s Investor Relations website under the “Governance” tab at www.regionalmanagement.com. A stockholder may request a copy of the Code of Ethics by contacting our Corporate Secretary at 979 Batesville Road, Suite B, Greer, SC 29651. To the extent permissible under applicable law, the rules of the SEC, and NYSE listing standards, we intend to disclose on our website any amendment to our Code of Ethics, or any grant of a waiver from a provision of our Code of Ethics, that requires disclosure under applicable law, the rules of the SEC, or NYSE listing standards. ITEM 11. EXECUTIVE COMPENSATION. The information required under this item is incorporated herein by reference to the information presented under the headings “Board of Directors and Corporate Governance Matters—Compensation Committee Interlocks and Insider Participation,” “Board of Directors and Corporate Governance Matters—Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation Tables,” “Summary of Employment Arrangements with Executive Officers,” and “Summary of Company Incentive Plans” in the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the end of the Company’s fiscal year ended December 31, 2019. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required under this item is incorporated herein by reference to the information presented under the headings “Other Information—Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation Tables—Equity Compensation Plan Information” in the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the end of the Company’s fiscal year ended December 31, 2019. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information required under this item is incorporated herein by reference to the information presented under the headings “Other Information—Certain Relationships and Related Person Transactions,” “Board of Directors and Corporate Governance Matters—Board Independence,” and “Board of Directors and Corporate Governance Matters—Current Directors and Director Nominees” in the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the end of the Company’s fiscal year ended December 31, 2019. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information required under this item is incorporated herein by reference to the information presented under the heading “Stockholder Proposals—Proposal No. 2: Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the end of the Company’s fiscal year ended December 31, 2019. Regional Management Corp. | 2019 Annual Report on Form 10-K | 106 F o r m 1 0 - K PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) The following documents are filed as part of this report: (1) Financial Statements: (i) Reports of Independent Registered Public Accounting Firm (ii) Consolidated Balance Sheets at December 31, 2019 and December 31, 2018 (iii) Consolidated Statements of Income for the Years Ended December 31, 2019, December 31, 2018, and December 31, 2017 (iv) Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, December 31, 2018, and December 31, 2017 (v) Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, December 31, 2018, and December 31, 2017 (vi) Notes to Consolidated Financial Statements (2) Financial Statement Schedules: None. Financial statement schedules have been omitted because the required information is included in our consolidated financial statements contained elsewhere in this Annual Report on Form 10-K. (3) Exhibits: The exhibits listed in the following index are filed as a part of this Annual Report on Form 10-K. Exhibit Number Exhibit Description Incorporated by Reference Filed Herewith Form File Number Exhibit Filing Date 3.1 3.2 4.1 4.2 4.3 Amended and Restated Certificate of Incorporation of Regional Management Corp. Amended and Restated Bylaws of Regional Management Corp. Indenture, dated June 28, 2018, by and among Regional Management Issuance Trust 2018-1, as issuer, Regional Management Corp., as servicer, Wells Fargo Bank, N.A., as indenture trustee, and Wells Fargo Bank, N.A., as account bank Indenture, dated December 13, 2018, by and among Regional Management Issuance Trust 2018-2, as issuer, Regional Management Corp., as servicer, Wells Fargo Bank, N.A., as indenture trustee, and Wells Fargo Bank, N.A., as account bank Indenture, dated October 31, 2019, by and among Regional Management Issuance Trust 2019-1, as issuer, Regional Management Corp., as servicer, Wells Fargo Bank, N.A., as indenture trustee, and Wells Fargo Bank, N.A., as account bank 8-K 001-35477 3.1 04/02/2012 8-K 001-35477 3.2 04/02/2012 8-K 001-35477 4.1 06/29/2018 8-K 001-35477 4.1 12/13/2018 8-K 001-35477 4.1 10/31/2019 Regional Management Corp. | 2019 Annual Report on Form 10-K | 107 Exhibit Number 4.4 10.1 10.2 10.3.1 10.3.2 10.3.3 Exhibit Description Incorporated by Reference Filed Herewith Form File Number Exhibit Filing Date Description of Securities X 8-K 001-35477 10.1 01/29/2018 8-K 001-35477 10.1 09/20/2019 8-K 001-35477 10.1 11/28/2017 10-Q 001-35477 10.3 05/01/2018 8-K 001-35477 10.1 11/02/2018 Cooperation Agreement, dated as of January 26, 2018, by and between Basswood Capital Management, L.L.C. and the Company Seventh Amended and Restated Loan and Security Agreement, dated September 20, 2019, by and among Regional Management Corp. and certain of its subsidiaries named as borrowers therein, the financial institutions named as lenders therein, and Wells Fargo Bank, National Association, as Agent Amended and Restated Credit Agreement, dated as of November 21, 2017, by and among Regional Management Receivables, LLC, as borrower, Regional Management Corp., as servicer, Wells Fargo Bank, National Association, as lender, the other lenders from time to time parties thereto, Wells Fargo Bank, National Association, as account bank, collateral custodian, and backup servicer, and Wells Fargo Securities, LLC, as administrative agent for the lender and other lenders from time to time parties thereto Amendment No. 1 to the Amended and Restated Credit Agreement, dated as of February 20, 2018, by and among Regional Management Receivables, LLC, as borrower, Regional Management Corp., as servicer, Wells Fargo Bank, National Association, as lender, and Wells Fargo Securities, LLC, as administrative agent Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of October 30, 2018, by and among Regional Management Receivables, LLC, as borrower, Regional Management Corp., as servicer, Wells Fargo Bank, National Association, as lender, and Wells Fargo Securities, LLC, as administrative agent Regional Management Corp. | 2019 Annual Report on Form 10-K | 108 Incorporated by Reference Filed Herewith Form File Number Exhibit Filing Date 8-K 001-35477 10.1 10/22/2019 F o r m 1 0 - K 8-K 001-35477 10.1 06/29/2018 8-K 001-35477 10.1 12/13/2018 8-K 001-35477 10.1 10/31/2019 Exhibit Number 10.4 10.5 10.6 10.7 Exhibit Description Amended and Restated Credit Agreement, dated as of October 17, 2019, by and among Regional Management Receivables II, LLC, as borrower, Regional Management Corp., as servicer, the lenders from time to time parties thereto, the agents from time to time parties thereto, Wells Fargo Bank, National Association, as account bank, image file custodian, and backup servicer, Wells Fargo Bank, National Association, as administrative agent, and Credit Suisse AG, New York Branch, as structuring and syndication agent Sale and Servicing Agreement, dated as of June 28, 2018, by and among Regional Management Receivables III, LLC, as depositor, Regional Management Corp., as servicer, the subservicers party thereto, Regional Management Issuance Trust 2018-1, as issuer, and Regional Management North Carolina Receivables Trust, acting thereunder solely with respect to the 2018-1A SUBI Sale and Servicing Agreement, dated as of December 13, 2018, by and among Regional Management Receivables III, LLC, as depositor, Regional Management Corp., as servicer, the subservicers party thereto, Regional Management Issuance Trust 2018-2, as issuer, and Regional Management North Carolina Receivables Trust, acting thereunder solely with respect to the 2018-2A SUBI Sale and Servicing Agreement, dated October 31, 2019, by and among Regional Management Receivables III, LLC, as depositor, Regional Management Corp., as servicer, the subservicers party thereto, Regional Management Issuance Trust 2019-1, as issuer, and Regional Management North Carolina Receivables Trust, acting thereunder solely with respect to the 2019-1A SUBI 10.8† 10.9.1† Regional Management Corp. 2007 Management Incentive Plan Regional Management Corp. 2011 Stock Incentive Plan and Forms of Nonqualified Stock Option Agreement (forms for grants prior to October 1, 2014) 10.9.2† Form of Stock Award Agreement under the 2011 Stock Incentive Plan S-1/A 333-174245 10.4 06/23/2011 S-1/A 333-174245 10.5 08/04/2011 10-K 001-35477 10.4.2 03/17/2014 Regional Management Corp. | 2019 Annual Report on Form 10-K | 109 Exhibit Number 10.9.3† 10.9.4† 10.9.5† 10.9.6† 10.9.7† 10.10.1† 10.10.2† 10.10.3† 10.10.4† 10.10.5† 10.10.6† 10.10.7† 10.10.8† Exhibit Description Form of Restricted Stock Award Agreement under the 2011 Stock Incentive Plan (form for director grants) Form of Nonqualified Stock Option Agreement under the 2011 Stock Incentive Plan (form for grants on or after October 1, 2014) Form of Performance-Contingent Restricted Stock Unit Award Agreement under the 2011 Stock Incentive Plan Form of Cash-Settled Performance Share Award Agreement under the 2011 Stock Incentive Plan Form of Restricted Stock Award Agreement under the 2011 Stock Incentive Plan (form for employee grants) Regional Management Corp. 2015 Long-Term Incentive Plan (As Amended and Restated Effective April 27, 2017) Form of Nonqualified Stock Option Agreement under the 2015 Long-Term Incentive Plan (form for grants prior to April 27, 2017) Form of Performance-Contingent Restricted Stock Unit Award Agreement under the 2015 Long-Term Incentive Plan (form for grants prior to March 29, 2016) Form of Cash-Settled Performance Unit Award Agreement under the 2015 Long-Term Incentive Plan (form for grants prior to March 29, 2016) Form of Restricted Stock Award Agreement under the 2015 Long-Term Incentive Plan (form for grants prior to April 27, 2017) Form of Stock Award Agreement under the 2015 Long-Term Incentive Plan (form for grants prior to April 27, 2017) Form of Performance-Contingent Restricted Stock Unit Award Agreement under the 2015 Long-Term Incentive Plan (form for grants on or after March 29, 2016 through April 26, 2017) Form of Cash-Settled Performance Unit Award Agreement under the 2015 Long-Term Incentive Plan (form for grants on or after March 29, 2016 through April 26, 2017) Incorporated by Reference Filed Herewith Form File Number Exhibit Filing Date 10-K 001-35477 10.4.3 03/17/2014 8-K 001-35477 10.1 10/07/2014 8-K 001-35477 10.2 10/07/2014 8-K 001-35477 10.3 10/07/2014 8-K 001-35477 10.4 10/07/2014 8-K 001-35477 10.1 05/02/2017 8-K 001-35477 10.3 04/28/2015 8-K 001-35477 10.4 04/28/2015 8-K 001-35477 10.5 04/28/2015 8-K 001-35477 10.6 04/28/2015 8-K 001-35477 10.7 04/28/2015 8-K 001-35477 10.1 04/01/2016 8-K 001-35477 10.2 04/01/2016 Regional Management Corp. | 2019 Annual Report on Form 10-K | 110 Exhibit Number 10.10.9† Exhibit Description Form of Nonqualified Stock Option Agreement under the 2015 Long-Term Incentive Plan (form for grants on or after April 27, 2017) Incorporated by Reference Filed Herewith Form File Number Exhibit Filing Date 8-K 001-35477 10.2 05/02/2017 F o r m 1 0 - K 10.10.10† Form of Performance-Contingent Restricted 8-K 001-35477 10.3 05/02/2017 Stock Unit Award Agreement under the 2015 Long-Term Incentive Plan (form for grants on or after April 27, 2017) 10.10.11† Form of Cash-Settled Performance Unit 8-K 001-35477 10.4 05/02/2017 Award Agreement under the 2015 Long-Term Incentive Plan (form for grants on or after April 27, 2017) 10.10.12† Form of Restricted Stock Award Agreement 8-K 001-35477 10.5 05/02/2017 under the 2015 Long-Term Incentive Plan (form for grants on or after April 27, 2017) 10.10.13† Form of Stock Award Agreement under the 8-K 001-35477 10.6 05/02/2017 2015 Long-Term Incentive Plan (form for grants on or after April 27, 2017) 10.11† Regional Management Corp. Annual Incentive Plan (as amended and restated effective March 23, 2015) 10.12† Description of Non-Employee Director Compensation Program 8-K 001-35477 10.2 04/28/2015 10-Q 001-35477 10.4 08/06/2018 10.13.1† Employment Agreement, dated as of June 14, 8-K 001-35477 10.1 06/14/2016 2016, by and between Peter R. Knitzer and Regional Management Corp. 10.13.2† First Amendment to Employment Agreement, dated as of August 30, 2017, by and between Peter R. Knitzer and Regional Management Corp. 10.13.3† Employment Agreement, dated as of May 6, 2019, between Peter R. Knitzer and Regional Management Corp. 10.14.1† Employment Agreement, dated as of May 15, 2017, by and between John D. Schachtel and Regional Management Corp. 10.14.2† First Amendment to Employment Agreement, dated as of August 30, 2017, by and between John D. Schachtel and Regional Management Corp. 8-K 001-35477 10.1 09/01/2017 8-K 001-35477 10.1 05/08/2019 8-K 001-35477 10.1 05/15/2017 8-K 001-35477 10.2 09/01/2017 10.15.1† Employment Agreement, dated as of 8-K 001-35477 10.3 09/01/2017 August 30, 2017, by and between Donald E. Thomas and Regional Management Corp. Regional Management Corp. | 2019 Annual Report on Form 10-K | 111 Exhibit Number Exhibit Description Incorporated by Reference Filed Herewith Form File Number Exhibit Filing Date 10.15.2† Letter Agreement, dated as of February 12, 8-K 001-35477 10.1 02/12/2019 10.16† 10.17† 10.18† 2019, between Donald E. Thomas and Regional Management Corp. Employment Agreement, dated as of August 30, 2017, by and between Daniel J. Taggart and Regional Management Corp. Employment Agreement, dated as of August 30, 2017, by and between Brian J. Fisher and Regional Management Corp. Employment Agreement, dated July 10, 2019, between Robert W. Beck and Regional Management Corp. 8-K 001-35477 10.4 09/01/2017 8-K 001-35477 10.5 09/01/2017 8-K 001-35477 10.1 07/16/2019 10.21† Form of Retention Award Agreement 8-K 001-35477 10.1 03/13/2015 21.1 23.1 31.1 31.2 32.1 101 X X X X X X Subsidiaries of Regional Management Corp. Consent of RSM US LLP Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer Section 1350 Certifications The following materials from our Annual Report on Form 10-K for the year ended December 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018, (ii) the Consolidated Statements of Income for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, (iii) the Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text † Indicates a management contract or a compensatory plan, contract, or arrangement. ITEM 16. FORM 10-K SUMMARY. None. Regional Management Corp. | 2019 Annual Report on Form 10-K | 112 Notice of 2020 Annual Meeting of Stockholders and Proxy Statement NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held on May 21, 2020 To the Stockholders of Regional Management Corp.: We hereby give notice that the 2020 Annual Meeting of Stockholders (the “Annual Meeting”) of Regional Management Corp. Regional Management Corp. 979 Batesville Road, Suite B Greer, South Carolina 29651 (864) 448-7000 will be held exclusively online via the Internet on May 21, 2020, at 3:00 p.m. Eastern Time. The purposes of the meeting are as follows: (1) To elect the nine nominees named in the accompanying Proxy Statement to serve as members of our Board of Directors until the next annual meeting of stockholders or until their successors are elected and qualified; To ratify the appointment of RSM US LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; To hold an advisory vote to approve executive compensation; and To transact such other business as may properly come before the Annual Meeting or any adjournments thereof. (2) (3) (4) We began mailing this Notice of Annual Meeting of Stockholders and our Proxy Statement to stockholders on or about April 22, 2020. Only stockholders whose names appear of record on our books at the close of business on April 7, 2020 will be entitled to notice of and to vote at the Annual Meeting or at any adjournments thereof. In light of the novel coronavirus (“COVID-19”) pandemic, for the safety of our directors, team members, and stockholders, and taking into account recent federal, state, and local guidance related to COVID-19 and restrictions on the size of gatherings, we have determined that the Annual Meeting will be held in a virtual meeting format only, via the Internet, with no physical in-person meeting. If you plan to participate in the virtual meeting, please see “General Information and Frequently Asked Questions” in this Proxy Statement. Stockholders will be able to attend, vote, and submit questions (both before, and during a designated portion of, the meeting) from any location via the Internet. The Annual Meeting will be presented exclusively online at www.virtualshareholdermeeting.com/RM2020. You will be able to attend the Annual Meeting online, vote your shares electronically, and submit your questions to management during the Annual Meeting by visiting www.virtualshareholdermeeting.com/RM2020. At this time, we intend to resume holding in-person meetings beginning with our 2021 Annual Meeting of Stockholders. To participate in the Annual Meeting (e.g., submit questions and/or vote), you will need the control number provided on your proxy card or voting instruction form. If you are not a stockholder or do not have a control number, you may still access the Annual Meeting as a guest, but you will not be able to participate. Your vote is important. Whether or not you plan to attend the virtual Annual Meeting, you are urged to cast your vote promptly in order to assure representation of your shares at the meeting and so that a quorum may be established. In advance of the Annual Meeting, you may vote by Internet or by mail. If you attend the virtual Annual Meeting, you may revoke your proxy and vote your shares electronically during the meeting. To vote by Internet prior to the meeting, please visit www.proxyvote.com. Have the enclosed proxy card in hand when you access the website, and follow the instructions to obtain your records and to create an electronic voting instruction form. To vote by mail, please complete, date, and sign the enclosed proxy card, and mail it in the enclosed envelope. No postage need be affixed if the proxy card is mailed in the United States. On behalf of our Board of Directors and our management team, we thank you for your interest in Regional and for your participation in the Annual Meeting. By Order of the Board of Directors Brian J. Fisher EVP, General Counsel, and Secretary Greer, South Carolina April 22, 2020 IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 21, 2020: The Notice of Annual Meeting of Stockholders, Proxy Statement, and Annual Report on Form 10-K are available free of charge at https://materials.proxyvote.com/75902K and on our Investor Relations website at www.regionalmanagement.com. PROXY STATEMENT 2020 Annual Meeting of Stockholders TABLE OF CONTENTS 2020 Proxy Statement Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Information and Frequently Asked Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board of Directors and Corporate Governance Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current Directors and Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Matrix of Director Skills, Experience, and Demographic Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Committees of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Role in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Code of Business Conduct and Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Communications with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Summary of Compensation Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Objectives and Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elements of Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Compensation Policies, Practices, and Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding Equity Awards at Fiscal Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CEO Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of Employment Arrangements with Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employment Agreements with Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement Agreement with Former Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consulting Agreement with Former Chief Credit Risk Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Payments Upon Termination or Change-in-Control Summary of Company Incentive Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-Term Incentive Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposal No. 1: Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposal No. 2: Ratification of Appointment of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . Proposal No. 3: Advisory Vote to Approve Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delinquent Section 16(a) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related Person Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposals by Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Householding of Annual Meeting Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 1 5 9 9 9 10 15 16 16 16 17 19 19 20 20 20 23 24 24 28 31 40 44 45 45 48 49 51 52 53 54 54 56 56 57 62 62 63 64 64 64 66 67 67 68 70 71 73 73 73 REGIONAL MANAGEMENT CORP. 979 Batesville Road, Suite B Greer, South Carolina 29651 PROXY STATEMENT For the Annual Meeting of Stockholders to Be Held on May 21, 2020 Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 21, 2020: The Notice of Annual Meeting of Stockholders, Proxy Statement, and Annual Report on Form 10-K are available free of charge at https://materials.proxyvote.com/75902K and on the Investor Relations website of Regional Management Corp. at www.regionalmanagement.com. April 22, 2020 This summary highlights information contained elsewhere in this Proxy Statement. It does not contain all of the information that you should consider. You should read the entire Proxy Statement carefully before voting. 2020 PROXY STATEMENT SUMMARY Annual Meeting of Stockholders P r o x y S t a t e m e n t May 21, 2020 3:00 p.m. Eastern Time Virtually via the Internet at www.virtualshareholdermeeting.com/RM2020. Instructions as to how you may attend and participate in the virtual Annual Meeting are set forth in the Proxy Statement under “General Information and Frequently Asked Questions – How do I attend and participate in the Annual Meeting online?” April 7, 2020 Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each other proposal. Stockholders may vote by proxy or electronically during the virtual Annual Meeting by visiting www.virtualshareholdermeeting.com/RM2020. Instructions as to how you may cast your vote are found on the accompanying proxy card and are set forth in the Proxy Statement under “General Information and Frequently Asked Questions – How do I vote?” The Proxy Statement and the accompanying proxy card are first being mailed on or about April 22, 2020 to the stockholders of Regional Management Corp. Date: Time: Access: Record Date: Voting: Proxy Materials: Meeting Agenda Proposal Election of nine directors Ratification of the appointment of RSM US LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020 Advisory vote to approve executive compensation Transact other business as may properly come before the meeting Board Vote Recommendation FOR ALL Page Reference (for more detail) 64 FOR FOR 64 66 Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 1 Election of Director Nominees The following table provides summary information about each director nominee. The nominees receiving a plurality of the votes cast at the meeting will be elected as directors. Name Carlos Palomares, Chair of the Board Director Since 2012 Robert W. Beck 2020 Jonathan D. Brown 2018 Roel C. Campos 2012 Maria Contreras-Sweet 2018 Michael R. Dunn 2014 Steven J. Freiberg 2014 Sandra K. Johnson 2020 Alvaro G. de Molina 2012 Experience/Qualifications Financial Services Industry, Leadership, Credit Risk, Corporate Finance, Executive Compensation, Accounting, Risk Management Financial Services Industry, Leadership, Credit Risk, Corporate Finance, Marketing, M&A, Accounting, Risk Management, Investor Relations Financial Services Industry, Capital Allocation, M&A, Corporate Governance, Investor Relations Leadership, Cybersecurity, Corporate Governance, Government Affairs, Securities Compliance, Regulatory Financial Services Industry, Leadership, Corporate Finance, Technology/Innovation, Corporate Governance, Regulatory, Public Relations, Government Affairs Financial Services Industry, Leadership, Credit Risk, Corporate Finance, M&A, Risk Management, Investor Relations Financial Services Industry, Leadership, Credit Risk, Corporate Finance, Marketing, M&A, Executive Compensation, Technology, Risk Management, Investor Relations Financial Services Industry, Leadership, Information Technology, Cybersecurity, Blockchain Technology, Technology/Innovation, Entrepreneurship Financial Services Industry, Leadership, Credit Risk, Corporate Finance, M&A, Accounting, Risk Management Committees Independent ✓ AC ✓ CC ✓ CGN ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ C C C ✓ ✓ ✓ AC = Audit Committee CC = Compensation Committee CGN = Corporate Governance and Nominating Committee C = Committee Chair Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 2 Ratification of Independent Registered Public Accounting Firm As a matter of good corporate governance, we are asking our stockholders to ratify the selection of RSM US LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020. Advisory Vote to Approve Executive Compensation As required by Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are providing our stockholders with the opportunity to vote on a non-binding advisory resolution to approve the compensation of our named executive officers (commonly known as a “Say-on-Pay Vote”). 2019 Compensation-Related Highlights ✓ Continued alignment of executive pay with company performance: O 2019 incentives are largely performance-contingent, with long-term incentive awards roughly one-half performance-contingent and short-term incentive awards entirely performance-contingent O Performance goals are rigorous and are based almost exclusively on objective, quantitative criteria ✓ Maintained competitive compensation and incentive program target opportunities for our executives in order to continue to align their overall compensation with the market for executive talent ✓ Set our short-term incentive payout opportunities to provide high upside if performance goals are exceeded, while paying low or no bonus amounts if goals are not achieved ✓ Granted long-term incentives, which include a significant portion that is contingent upon the achievement of rigorous and clearly-defined performance measures, to named executive officers and other key contributors, effectively aligning such individuals’ interests with the long-term interests of our stockholders P r o x y S t a t e m e n t Compensation Program “Best Practices” Summary ✓ Compensation program designed to closely align pay with performance ✓ Significant share ownership guidelines for executives (5x base salary for CEO, 2x for other executive officers) ✓ Significant share ownership guidelines for directors (5x annual cash retainer) ✓ Significant portion of compensation is variable and/or performance-based ✓ No excessive perquisites ✓ No excise tax gross-ups ✓ Formalized clawback policy ✓ Double-trigger change-in-control provisions ✓ Prohibition against hedging and pledging ✓ No re-pricing of equity incentive awards without stockholder approval ✓ Independent Compensation Committee ✓ Independent compensation consultant Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 3 Fiscal 2019 Compensation Summary The following table sets forth the cash and other compensation that we paid to our named executive officers or that was otherwise earned by our named executive officers for their services in all employment capacities during 2019. See the Summary Compensation Table of the Proxy Statement for additional information. Name and Principal Position Robert W. Beck, President and Chief Executive Officer (Former Executive Vice President and Chief Financial Officer) Salary ($) Bonus ($) 178,630 — Stock Awards ($) 224,981 Option Awards ($) 224,990 Non-Equity Incentive Plan Compensation ($) All Other Compensation ($) Total ($) 178,630 73,104 880,335 Peter R. Knitzer, 600,000 — 1,049,946 524,997 1,928,715 82,747 4,186,405 Former President and Chief Executive Officer John D. Schachtel, Executive Vice President and Chief Operating Officer 400,000 — 299,984 149,994 322,800 61,705 1,234,483 Donald E. Thomas, 266,301 200,000 — — 214,905 35,021 716,227 Former Executive Vice President and Chief Financial Officer Brian J. Fisher, Executive Vice President, General Counsel, and Secretary Daniel J. Taggart, Former Executive Vice President and Chief Credit Risk Officer 335,000 375,000 — — 2021 Annual Meeting of Stockholders 217,459 133,748 371,601 15,910 1,073,718 331,221 190,622 436,789 20,022 1,353,654 ▪ ▪ Stockholder proposals submitted pursuant to SEC Rule 14a-8 must be received by us no later than December 23, 2020. Notice of stockholder proposals outside of SEC Rule 14a-8 must be delivered to us not earlier than January 21, 2021 and not later than February 20, 2021. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 4 P r o x y S t a t e m e n t GENERAL INFORMATION AND FREQUENTLY ASKED QUESTIONS This proxy statement (the “Proxy Statement”) and the accompanying proxy card are first being sent on or about April 22, 2020, to the stockholders of Regional Management Corp., a Delaware corporation (“Regional,” the “Company,” “we,” “us,” and “our”), in connection with the solicitation of proxies by our Board of Directors (the “Board”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on May 21, 2020, at 3:00 p.m. Eastern Time and any postponement or adjournment thereof. Our Annual Report on Form 10-K, containing financial statements for the fiscal year ended December 31, 2019, is being mailed together with this Proxy Statement to all stockholders entitled to vote at the Annual Meeting. Why did I receive a proxy card and Proxy Statement? As a stockholder of record on April 7, 2020, you are entitled to vote at the Annual Meeting. The accompanying proxy card is for use at the Annual Meeting if a stockholder either will be unable to attend virtually on May 21, 2020 or will attend virtually but wishes to vote by proxy in advance of the Annual Meeting. Even if you plan to attend the virtual Annual Meeting, you are encouraged to vote by proxy in advance. Instructions as to how you may cast your vote by proxy are found on the proxy card. If you attend the virtual Annual Meeting, you may revoke your proxy and vote your shares electronically during the virtual Annual Meeting. The proxy card is solicited by mail by and on behalf of the Board, and the cost of soliciting proxies will be borne by us. In addition to solicitations by mail, proxies may be solicited in person, by telephone, or via the Internet by our directors and officers who will not receive additional compensation for such services. We will request banks, brokerage houses, and other institutions, nominees, and fiduciaries to forward the soliciting material to beneficial owners and to obtain authorization for the execution of proxies. We will, upon request, reimburse these parties for their reasonable expenses in forwarding proxy materials to our beneficial owners. Why is the Annual Meeting taking place virtually this year? We will host the Annual Meeting exclusively live online this year due to the circumstances surrounding the existence and spread of the novel coronavirus (“COVID-19”) pandemic. Federal, state, and local governments have encouraged, and in some instances ordered, businesses to restrict all unnecessary travel and limit the size of gatherings to avoid the spread of COVID-19. As a result, and in order to protect the health and well-being of our directors, team members, and stockholders, we have decided to hold the Annual Meeting exclusively online this year. At this time, we intend to resume holding in-person meetings beginning with the 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”). How do I attend and participate in the Annual Meeting online? We will host the Annual Meeting exclusively live online. Any stockholder can attend the Annual Meeting live online at www.virtualshareholdermeeting.com/RM2020. To enter the Annual Meeting, you will need to log in with the control number provided on your proxy card or voting instruction form. Once you are logged in to the Annual Meeting, instructions on how to participate, including how to submit questions and vote during the meeting, will be provided at www.virtualshareholdermeeting.com/RM2020. If you are not a stockholder or do not have a control number, you may still access the meeting as a guest, but you will not be able to participate. We are committed to ensuring that our stockholders have the same rights and opportunities to participate in the Annual Meeting as if it had been held in a physical location. If you have questions about accessing the website for the virtual Annual Meeting, please contact the Company’s Corporate Secretary by sending an email to investor.relations@regionalmanagement.com or calling (864) 448-7000 by May 18, 2020. If you encounter any technical difficulties with the log-in process or during the Annual Meeting, please call the technical support number that will be posted on the virtual Annual Meeting website. The virtual meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome, and Safari) and devices (desktops, laptops, tablets, and mobile phones) running the most updated version of applicable software and plugins. Stockholders (or their authorized representatives) should ensure that they have a strong Wi-Fi connection wherever they intend to participate in the meeting. Stockholders (or their authorized representatives) should also give themselves plenty of time to log in and ensure that they can hear streaming audio prior to the start of the meeting. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 5 What is the purpose of the Annual Meeting? The purpose of the Annual Meeting is: (i) (ii) to elect the nine nominees named in the Proxy Statement to serve as members of the Board until the next annual meeting of stockholders or until their successors are elected and qualified; to ratify the appointment of RSM US LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; (iii) to hold an advisory vote to approve executive compensation; and (iv) to transact such other business as may properly come before the Annual Meeting or any adjournments thereof. Who is entitled to vote? Only stockholders of record at the close of business on April 7, 2020 (the “Record Date”), will be entitled to receive notice of and to vote at the Annual Meeting. As of the Record Date, 11,175,028 shares of our common stock, $0.10 par value per share, were outstanding. The holders of common stock are entitled to one vote per share for each director nominee and to one vote per share on any other proposal presented at the Annual Meeting. Brokers that are members of certain securities exchanges and that hold shares of our common stock in “street name” on behalf of beneficial owners have authority to vote on certain items when they have not received instructions from beneficial owners. Under the New York Stock Exchange (“NYSE”) rules and regulations governing such brokers, the proposal to ratify the appointment of RSM US LLP as our independent registered public accounting firm is considered a “discretionary” item. This means that brokers may vote in their discretion on this proposal on behalf of beneficial owners who have not furnished voting instructions. In contrast, certain items are considered “non-discretionary,” and a “broker non-vote” occurs when a broker or other nominee holding shares for a beneficial owner votes on one proposal but does not vote on another proposal because, with respect to such other proposal, the nominee does not have discretionary voting power and has not received instructions from the beneficial owner. The proposals to elect directors and to approve executive compensation are considered “non-discretionary,” and therefore, brokers cannot vote your shares on these proposals when they do not receive voting instructions from you. What constitutes a quorum? The representation, virtually or by proxy, of at least a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum for the transaction of business. Votes withheld from any nominee, abstentions, and “broker non-votes” are counted as present or represented for purposes of determining the presence or absence of a quorum for the Annual Meeting. Virtual attendance at our Annual Meeting constitutes presence in person for purposes of determining whether there is a quorum at the meeting. Can I ask questions at the virtual Annual Meeting? Stockholders as of the Record Date who attend and participate in our virtual Annual Meeting at www.virtualshareholdermeeting.com/RM2020 will have an opportunity to submit questions about topics of importance to the Company’s business and affairs live via the Internet during a designated portion of the meeting. Instructions for submitting questions during the virtual Annual Meeting will be available at www.virtualshareholdermeeting.com/RM2020 during the meeting. Stockholders may also submit a question in advance of the Annual Meeting at www.proxyvote.com. In both cases, stockholders must have available their control number provided on their proxy card or voting instruction form. All questions from stockholders that are pertinent to Annual Meeting matters will be answered during the meeting, subject to time limitations. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 6 P r o x y S t a t e m e n t How do I vote? Stockholders may vote by proxy or by attending the virtual Annual Meeting online and voting electronically during the Annual Meeting. Instructions as to how you may cast your vote by proxy are set forth below and are found on the accompanying proxy card. Vote by Internet: Before the Meeting – Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on May 20, 2020. Have your proxy card in hand when you access the website, and follow the instructions to obtain your records and to create an electronic voting instruction form. During the Meeting – Go to www.virtualshareholdermeeting.com/RM2020 You may attend the meeting via the Internet and vote electronically during the meeting. Have your proxy card in hand when you access the website, and follow the instructions. Vote by Mail: Mark, sign, and date your proxy card and promptly return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Will other matters be voted on at the Annual Meeting? Aside from the three proposals described above, the Board knows of no other matters to be presented at the Annual Meeting. If any other matter should be presented at the Annual Meeting upon which a vote properly may be taken, shares represented by all proxies received by the Board will be voted with respect thereto in accordance with the best judgment of the persons named as proxy holders and attorneys-in-fact in the proxies. May I revoke my proxy instructions? Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted at the Annual Meeting. Proxies may be revoked by (i) filing with our Corporate Secretary, before the taking of the vote at the Annual Meeting, a written notice of revocation bearing a later date than the proxy; (ii) duly completing a later-dated proxy card relating to the same shares and delivering it to our Corporate Secretary before the taking of the vote at the Annual Meeting; or (iii) attending the virtual Annual Meeting and voting electronically (although attendance at the Annual Meeting will not in and of itself constitute a revocation of a proxy). Any written notice of revocation or subsequent proxy should be sent so as to be delivered to Regional Management Corp., 979 Batesville Road, Suite B, Greer, South Carolina 29651, Attention: Corporate Secretary, before the taking of the vote at the Annual Meeting. How many votes are required to approve each proposal? With respect to the proposal to elect directors (Proposal No. 1), the nine nominees receiving the highest number of affirmative votes of the shares present, virtually or represented by proxy, and entitled to vote at the Annual Meeting shall be elected as directors. Regarding the proposal to ratify the appointment of RSM US LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020 (Proposal No. 2), an affirmative vote of a majority of the shares present, virtually or represented by proxy, and voting on such matter is required for approval. Likewise, the compensation of executive officers (Proposal No. 3) will be approved, on an advisory basis, if a majority of the shares present, virtually or represented by proxy, and voting on such matter is cast in favor of the proposal. “Broker non-votes” are not considered voted for the particular matter, and for proposals subject to majority voting that are considered “non-discretionary” (Proposal No. 3), “broker non-votes” have the effect of reducing the number of affirmative votes required to achieve a majority for such matter by reducing the total number of shares from which the majority is calculated. For proposals subject to majority voting that are considered “discretionary” (Proposal No. 2), there will be no “broker non-votes” and brokers may vote in their discretion on behalf of beneficial owners who have not furnished voting instructions. Virtual attendance at our Annual Meeting constitutes presence for purposes of the vote required under our Amended and Restated Bylaws (the “Bylaws”). Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 7 Because your vote on Proposal No. 3 is advisory, it will not be binding on us, our Board, or our Compensation Committee. However, the Board and the Compensation Committee will consider the outcome of this vote when making future compensation decisions for our executive officers. The persons named as proxy holders and attorneys-in-fact in the proxy card, Robert W. Beck and Brian J. Fisher, were selected by the Board and are officers of the Company. All properly executed proxy cards returned in time to be counted at the Annual Meeting will be voted by such persons at the Annual Meeting. Where a choice has been specified on the proxy card with respect to the foregoing matters, the shares represented by the proxy will be voted in accordance with the specifications. If no such specifications are indicated, such shares will be voted “FOR” the election of all director nominees, “FOR” the ratification of the appointment of our independent registered public accounting firm, and “FOR” the advisory approval of executive compensation. How can I correspond directly with Regional Management Corp.? The address of our principal executive office is 979 Batesville Road, Suite B, Greer, South Carolina 29651, and our telephone number is (864) 448-7000. In addition, any person interested in communicating directly with the Chair of our Board or with any other Board member may address such communication to our Corporate Secretary, 979 Batesville Road, Suite B, Greer, South Carolina 29651, who will forward such communication to the appropriate party. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 8 P r o x y S t a t e m e n t BOARD OF DIRECTORS AND CORPORATE GOVERNANCE MATTERS The Board is responsible for directing and overseeing the management of our business and affairs in a manner consistent with the best interests of the Company and its stockholders. The Board has implemented written Corporate Governance Guidelines designed to assist the Board in fulfilling its duties and responsibilities. The Corporate Governance Guidelines address a number of matters applicable to directors, including Board composition, structure, and policies; director qualification standards; Board meetings; committees of the Board; roles and expectations of the Board and its directors; director compensation; management succession planning; and other matters. These Corporate Governance Guidelines are available on our Investor Relations website at www.regionalmanagement.com. A stockholder may request a copy of the Corporate Governance Guidelines by contacting our Corporate Secretary at 979 Batesville Road, Suite B, Greer, South Carolina 29651. Director Qualifications Our Corporate Governance and Nominating Committee (the “Nominating Committee”) is responsible for reviewing the qualifications of potential director candidates and recommending to the Board those candidates to be nominated for election to the Board. The Nominating Committee considers minimum individual qualifications, including relevant career experience, strength of character, mature judgment, familiarity with our business and industry, independence of thought, and an ability to work collegially with the other members of the Board, and all other factors it considers appropriate, which may include age, diversity of background, existing commitments to other businesses, potential conflicts of interest with other pursuits, legal considerations (such as antitrust issues), corporate governance background, financial and accounting background, executive compensation background, and the size, composition, and combined expertise of the existing Board. The Board and the Nominating Committee monitor the mix of specific experience, qualifications, and skills of the Company’s directors in order to ensure that the Board, as a whole, has the necessary tools to perform its oversight function effectively in light of our business and structure. Stockholders may also nominate directors for election at our annual stockholders’ meeting by following the provisions set forth in our Bylaws, and in such a case, the Nominating Committee will consider the qualifications of directors proposed by stockholders. When determining whether director nominees have the experience, qualifications, attributes, and professional and functional skills, taken as a whole, to enable our Board to satisfy its oversight responsibilities effectively in light of our business and structure, the Nominating Committee has focused primarily on the valuable contributions of incumbent directors to our success in recent years and on the skills, experience, and individual attributes that each director nominee brings to the Board, including those discussed in the biographical descriptions and matrix set forth below. Board Diversity The Board recognizes and embraces the value of a diverse board of directors in improving the quality of its performance and our success. Diversity promotes the inclusion of different perspectives and ideas, mitigates against groupthink, and ensures that the Board has the opportunity to benefit from all available talent. The Board also recognizes the need for its directors to understand and to be able to respond effectively to the financial needs of its diverse customer base. The promotion of a diverse Board makes prudent business sense and makes for better corporate governance. In February 2018, the Board approved its Board Diversity Policy (the “Diversity Policy”), which is available on our Investor Relations website at www.regionalmanagement.com. The Diversity Policy establishes the Board’s approach to achieving and maintaining diversity on the Board. The Board and the Nominating Committee are committed to actively seeking out highly qualified, diverse candidates to include in the pool from which Board nominees are chosen. The Board seeks to comprise itself of talented and dedicated directors with a diverse mix of expertise in areas needed to foster our business success, as well as a diversity of personal characteristics that include, but are not limited to, gender, race, ethnicity, national origin, sexual orientation, age, and geography. The Board and the Nominating Committee implement the Diversity Policy by maintaining a director candidate list comprised of individuals qualified to fill openings on the Board, which includes candidates with useful expertise who possess diverse personal backgrounds. When director openings occur, the list will be used to assist in selecting Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 9 new directors. Ultimately, the selection of new directors will be based on the Board’s judgment of the overall contributions that a candidate will bring to the Board, giving due weight to diverse personal characteristics that contribute to the Board achieving the objectives of the Diversity Policy. The Nominating Committee is charged with reviewing all steps taken pursuant to the Diversity Policy on an annual basis, assessing the Board’s progress in achieving diversity, and presenting its findings and assessment to the full Board for input. In 2019, the Board was awarded the Latino Corporate Directors Association 2019 Corporate Visionary Award in recognition of Regional’s commitment to an inclusive and diverse Board, which includes four Latino members. In addition, the Board was nominated for NACD NXT™ recognition by the National Association of Corporate Directors, which applauds exemplary board leadership practices that promote greater diversity and inclusion. Also in 2019, the Board commenced a search for a new independent director resulting in the appointment of Sandra K. Johnson, our second female director and first African American director, effective as of April 21, 2020. Following Dr. Johnson’s appointment, more than 50% of the Board is racially or ethnically diverse. The Nominating Committee and the Board are proud of the diverse characteristics of the Company’s directors and will continue to promote diversity initiatives at the Board level and throughout the Company. Current Directors and Director Nominees The Board has the discretion to determine the size of the Board, the members of which are elected at each year’s annual meeting of stockholders. Our Board currently consists of nine directors: Carlos Palomares, Robert W. Beck, Jonathan D. Brown, Roel C. Campos, Maria Contreras-Sweet, Michael R. Dunn, Steven J. Freiberg, Sandra K. Johnson, and Alvaro G. de Molina, with Mr. Palomares serving as Chair of the Board. Each of these individuals has also been nominated as a director candidate for election at the Annual Meeting. Biographical information of each of our directors is provided below. In addition, following the biographical information of our directors, we have provided a matrix summarizing the background, skills, experience, qualifications, and other attributes of our directors that led the Nominating Committee and the Board to conclude that such individuals would provide valuable contributions to our business and should therefore serve our company as its directors. CARLOS PALOMARES Age: 75 Director Since: 2012 Chair of the Board Member of the Audit Committee and Compensation Committee ROBERT W. BECK Age: 56 President and Chief Executive Officer Director Since: 2020 Mr. Palomares has been a director of Regional since March 2012 and currently serves as Chair of the Board. Since 2007, Mr. Palomares has been President and Chief Executive Officer of SMC Resources, a consulting practice that advises senior executives on business and marketing strategy. From 2001 to 2007, Mr. Palomares was Senior Vice President at Capital One Financial Corp., and he was Chief Operating Officer of Capital One Federal Savings Bank banking unit from 2004 to 2007. Prior to joining Capital One, Mr. Palomares held a number of senior positions with Citigroup Inc. and its affiliates, including Chief Operating Officer of Citibank Latin America Consumer Bank from 1998 to 2001, Chief Financial Officer of Citibank North America Consumer Bank from 1997 to 1998, Chairman and CEO of Citibank Italia from 1990 to 1992, and President and CEO of Citibank FSB Florida from 1992 to 1997. Mr. Palomares serves on the Boards of Directors of Pan American Life Insurance Group, Inc. and Banesco USA, a privately held financial institution. Mr. Palomares earned a B.S. degree in Quantitative Analysis from New York University. Mr. Beck has served as President and Chief Executive Officer and as a director of Regional since March 2020. From July 2019 until March 2020, Mr. Beck served as Executive Vice President and Chief Financial Officer of Regional. Prior to joining Regional as Chief Financial Officer in July 2019, he was Executive Vice President and Chief Operating Officer of the Leukemia and Lymphoma Society. Before that, he spent 29 years at Citibank, serving in various roles. Most recently, Mr. Beck was the Chief Operating Officer of Citibank’s US Retail Bank, after previously serving as Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 10 JONATHAN D. BROWN Age: 35 Director Since: 2018 ROEL C. CAMPOS Age: 71 Director Since: 2012 Chair of the Corporate Governance and Nominating Committee Member of the Compensation Committee P r o x y S t a t e m e n t Chief Financial Officer of Citibank’s US Consumer and Commercial Bank. Prior to that, Mr. Beck served in a number of different roles at Citibank, including head of Citigroup Corporate Finance, head of Citigroup Reengineering, and co-head of Citigroup Corporate M&A. Mr. Beck received his BS in Business Administration and Management from Washington University in St. Louis, and his MBA in Finance and International Business from New York University’s Stern School of Business. Mr. Brown has served as a director of Regional since January 2018. He is a partner with Basswood Capital Management L.L.C. (“Basswood”), an alternative asset manager. Mr. Brown joined Basswood in 2009. In his current role, Mr. Brown is responsible for the research and investment analysis of companies across a broad range of sectors, with a specialized focus on financial services. Prior to Basswood, Mr. Brown worked at Sandelman Partners and Goldman Sachs. Mr. Brown graduated from Emory University’s Goizueta School of Business in 2006 with a B.B.A., holding dual concentrations in Finance and Strategy & Management Consulting, as well as a minor in History. Mr. Brown is the representative of Basswood, our largest stockholder. For a description of our cooperation agreement with Basswood, pursuant to which Mr. Brown is nominated, see “Other Information – Certain Relationships and Related Person Transactions – Cooperation Agreement,” below. Mr. Campos has served as a director of Regional since March 2012. He has been a partner and currently serves as Senior Counsel with the law firm of Hughes Hubbard & Reed LLP since February 2016, where he practices in the areas of securities regulation, corporate governance, and securities enforcement and serves as Chair of the firm’s Securities Enforcement Practice. Prior to joining Hughes Hubbard & Reed LLP, Mr. Campos was a partner with Locke Lord LLP (April 2011 to February 2016) and Cooley LLP (September 2007 to April 2011). Prior to that, he received a presidential appointment and served as a Commissioner of the Securities and Exchange Commission (the “SEC”) from 2002 to 2007. Prior to serving with the SEC, Mr. Campos was a founding partner of a Houston-based radio broadcaster. Earlier in his career, he practiced corporate law and served as a federal prosecutor in Los Angeles, California. Mr. Campos also previously served from January 2013 to May 2017 on the board of directors of WellCare Health Plans, Inc., a publicly-held entity which provides managed care services targeted to government-sponsored health care programs. He is also a director of a private registered broker-dealer, Liquidnet Holdings, Inc. Mr. Campos also serves on the Board of Visitors to the United States Air Force Academy, and on various non-profit boards. From 2008 to 2013, Mr. Campos served by selection of President Barack Obama on the President’s citizen Presidential Intelligence Advisory Board. Mr. Campos earned a B.S. degree from the United States Air Force Academy, an M.B.A. degree from the University of California, Los Angeles, and a J.D. degree from Harvard Law School. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 11 MARIA CONTRERAS-SWEET Age: 64 Director Since: 2018 Member of the Corporate Governance and Nominating Committee and the Compensation Committee MICHAEL R. DUNN Age: 68 Director Since: 2014 STEVEN J. FREIBERG Age: 63 Director Since: 2014 Chair of the Compensation Committee Member of the Audit Committee Ms. Contreras-Sweet has been a director of Regional since January 2018. She is the Managing Partner of Rockway Equity Partners, and she previously served as a member of President Obama’s cabinet as the 24th Administrator of the U.S. Small Business Administration from April 2014 to January 2017. Since March 2017, Ms. Contreras-Sweet has served as a director and member of the audit committee of Sempra Energy, a publicly-traded energy- services company that invests in, develops, and operates energy infrastructure and provides electric and gas services to customers in North and South America. She was a founder of ProAmerica Bank, where she served as Executive Chairwoman from 2006 to 2014, and Co-Founder and Managing Partner of Fortius Holdings from 2003 to 2006. Prior to that, Ms. Contreras-Sweet served as the California cabinet Secretary of the Business, Transportation and Housing Agency from 1999 to 2003. Earlier in her career, she was a senior executive with Westinghouse Electric Company’s 7-Up/RC Bottling Company. Ms. Contreras-Sweet is also a Distinguished Fellow of the LARTA Institute and serves on the Board of Directors of the Bipartisan Policy Center. She has been bestowed with honorary doctorates from Tufts University, Whittier College, California State University, Los Angeles, and La Verne University. Mr. Dunn has been a director of Regional since July 2014. He previously served as Chief Executive Officer of Regional from October 2014 through July 2016 and as Executive Chairman of the Board from August 2016 through December 2016. Prior to joining Regional, Mr. Dunn was a partner at the private equity firm of Brysam Global Partners, a specialized firm focusing on investment in international banking and consumer lending companies, from 2007 through 2013. Mr. Dunn served as a board or alternate board member for all of Brysam’s portfolio companies. Prior to that, Mr. Dunn was with Citigroup for over 30 years, where he was the Chief Financial Officer of the Global Consumer Group from 1996 through 2007, adding the title of Chief Operating Officer of the Group in 2005. He was also a member of the Citigroup Management and Operating Committees. Mr. Dunn previously served on the boards of Banamex, a wholly-owned Mexican bank subsidiary of Citigroup, and on the U.S.-based Student Loan Corporation, of which Citigroup owned a majority interest. He holds a B.S. degree from New York University and attended the University of Michigan Executive Program. He is a Certified Public Accountant in New York State. Mr. Freiberg has been a director of Regional since July 2014. He is the founder of Grand Vista Partners (a private investment office), a Senior Advisor to Towerbook Capital Partners (a private equity firm), and a Senior Advisor to The Boston Consulting Group. Previously, Mr. Freiberg served as Interim Chief Financial Officer of Social Finance, Inc. from May 2017 until April 2018, and as a director and the Chief Executive Officer of E*TRADE Financial Corporation from April 2010 until August 2012. Prior to joining E*TRADE, Mr. Freiberg spent 30 years at Citigroup and its predecessor companies and affiliates. Among his notable roles at Citigroup, Mr. Freiberg served as Co-Chairman/Chief Executive Officer of Citigroup’s Global Consumer Group, Chairman and Chief Executive Officer of Citi Cards— Citigroup’s leading global credit card business—and Chairman and Chief Executive Officer of Citigroup’s North American Investment Products Division. Additionally, he was a member of Citigroup’s Executive, Management, and Operating Committees, and he served on the board of Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 12 SANDRA K. JOHNSON, PH.D. Age: 59 Director Since: 2020 Member of the Corporate Governance and Nominating Committee P r o x y S t a t e m e n t directors of several of Citigroup’s affiliates, including Citibank N.A., Citicorp Credit Services Inc., Citicorp Investment Services, Citicorp Insurance Group, Citibank Trust N.A., Citibank FSB, and the Citigroup Foundation. Mr. Freiberg has served on the board of directors of MasterCard Incorporated, a publicly-traded multinational financial services corporation, since September 2006 and currently chairs its audit committee. He also served on the former U.S. region board of MasterCard from January 2001 until May 2006 and served as Chairman of MasterCard’s United States region board from 2004 until May 2006. In addition, Mr. Freiberg currently serves as Vice Chair of the board of directors of Social Finance, Inc., a private online personal finance company that provides student loan refinancing, mortgages, and personal loans. Mr. Freiberg also serves on the board of directors or equivalent governing body of Fair Square Financial, LLC (a private credit card issuer that provides credit cards to “near-prime” customers) and Purchasing Power, LLC (a private specialty e-retailer offering consumer products, vacations, and online education services through payment plans). Mr. Freiberg recently became the Chair of The Rewards Network, one of the largest merchant-funded, card-linked reward networks in the United States. Dr. Johnson has been a director of Regional since April 2020. She is the founder, Chief Executive Officer, and Chief Technology Officer of Global Mobile Finance, Inc., a fintech startup company based in Research Triangle Park, North Carolina. She is also the founder and Chief Executive Officer of SKJ Visioneering, LLC, a technology consulting company. From November 2012 to February 2014, Dr. Johnson served as the Chief Technology Officer for IBM Central, East and West Africa. Prior to 2014, she spent 11 years as a Senior Technical Staff Member of the IBM Systems and Technology Group, serving in various roles, including Business Development Executive for IBM Middle East and Africa, Chief Technology Officer for IBM’s Global Small and Medium Business, and the Linux Performance Architect. Dr. Johnson has conducted extensive research and published her findings in a number of computer-related and information technology areas, she has authored and co-authored over 80 publications, and she was part of the design team that developed the prototype for the IBM Scalable Parallel Processor (SP2), the base machine for “Deep Blue,” IBM’s world famous chess machine. Dr. Johnson was a member of the IBM Academy of Technology, a group consisting of the top 1% of IBM’s over 250,000 technical professionals. She has also received numerous technical and professional awards, and is an IBM Master Inventor with over 40 patents issued and pending. Dr. Johnson earned her B.S., M.S., and Ph.D. degrees in electrical engineering from Southern University, Stanford University, and Rice University, respectively. She is the first African-American woman to earn a Ph.D. in electrical engineering, with a concentration in computer engineering, in the United States. Dr. Johnson is a member of the Institute of Electrical and Electronics Engineers (“IEEE”) and the Association for Computing Machinery (“ACM”). She is also an IEEE Fellow and an ACM Distinguished Engineer. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 13 ALVARO G. DE MOLINA Age: 62 Director Since: 2012 Chair of the Audit Committee Member of the Corporate Governance and Nominating Committee Mr. de Molina has been a director of Regional since March 2012. Until 2009, Mr. de Molina was the Chief Executive Officer of GMAC LLC, which he originally joined as Chief Operating Officer in 2007. Since departing GMAC LLC, Mr. de Molina has been a private investor. He joined Cerberus Capital Management for a period during 2007 where he worked with the operations group, following a 17-year career at Bank of America, where he most recently served as its Chief Financial Officer from 2005 until 2007. During his tenure at Bank of America, Mr. de Molina also served as Chief Executive Officer of Banc of America Securities, President of Global Capital Markets and Investment Banking, head of Market Risk Management, and Corporate Treasurer. Previously, he also served in key roles at JPMorgan Chase Bank, N.A., Becton, Dickinson and Company, and PriceWaterhouse LLP (now PricewaterhouseCoopers LLP). From September 2012 until February 2018, Mr. de Molina served on the board of directors of Walter Investment Management Corp., a publicly-held entity which is an asset manager, mortgage servicer, and mortgage portfolio owner specializing in less-than- prime, non-conforming, and other credit-challenged mortgage assets. He holds a B.S. degree in Accounting from Fairleigh Dickinson University and an M.B.A. degree from Rutgers Business School and is a graduate of the Duke University Advanced Management Program. There are no family relationships among any of our directors or executive officers. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 14 P r o x y S t a t e m e n t Matrix of Director Skills, Experience, and Demographic Background The following table provides our stockholders and other interested parties with an overview of our directors’ skills, experience, and demographic background. These qualities are of particular value to our business and led the Nominating Committee and the Board to conclude that such individuals would provide valuable contributions to our company and should therefore serve our company as its directors. Robert W. Beck Jonathan D. Brown Roel C. Campos Maria Contreras -Sweet Michael R. Dunn Steven J. Freiberg Sandra K. Johnson Alvaro G. de Molina Carlos Palomares Skills and Experience Financial Services Industry Other Public Co. Board of Directors Executive Management Entrepreneurship/Business Operations Credit Risk Management Corporate Finance or Capital Allocation Marketing and/or Public Relations Marketing to Hispanic Population Mergers and Acquisitions Human Resources/Executive Comp Cybersecurity or Technology/Innovation Information Technology or Blockchain Corporate Governance Government Affairs Regulatory and/or SEC Compliance Audit Committee Financial Expert SOX and Internal Audit Risk Management Business Ethics Investor Relations Demographic Background Board Tenure and Independence Year First Appointed or Elected 2020 2018 2012 2018 2014 2014 2020 2012 2012 Board Independent Gender Male elameF Age dlOsraeY Race/Ethnicity White/Caucasian onitaL/cinapsiH naciremAnacirfA 65 53 17 46 86 36 95 26 57 Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 15 Board Independence Ms. Contreras-Sweet, Dr. Johnson, and Messrs. Brown, Campos, Freiberg, de Molina, and Palomares are each independent in accordance with the criteria established by the NYSE for independent board members. The Board performed a review to determine the independence of its members and made a subjective determination as to each of these independent directors that no transactions, relationships, or arrangements exist that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director of the Company. In making these determinations, the Board reviewed the information provided by the directors and the Company with regard to each director’s business and personal activities as they may relate to the Company and its management. We define an “independent” director in accordance with Section 303A.02 of the NYSE Rules. The categorical standards that the Board has established to assist it in making independence determinations can be found in our Corporate Governance Guidelines on our Investor Relations website at www.regionalmanagement.com. Leadership Structure As described in the Corporate Governance Guidelines, the Board may select its Chair and our Chief Executive Officer in any way that it considers to be in our best interests. Therefore, the Board does not have a policy on whether the roles of Chair and Chief Executive Officer should be separate or combined and, if they are to be separate, whether the Chair should be selected from the independent directors. Mr. Palomares was appointed to serve as Chair of our Board in July 2019, replacing Mr. de Molina who previously served as Chair. At this time, the Board believes that the separation of the roles of Chair and Chief Executive Officer promotes communication between the Board, the Chief Executive Officer, and other senior management, and enhances the Board’s oversight of management. We believe that our leadership structure provides increased accountability of our Chief Executive Officer to the Board and encourages balanced decision-making. We also separate the roles in recognition of the differences in the roles. While the Chief Executive Officer is responsible for day-to-day leadership of the Company and the setting of strategic direction, the Chair provides guidance to the Chief Executive Officer and coordinates and manages the operations of the Board and its committees. At this time, the Board believes that its current leadership structure, with an independent Chair, is appropriate for the Company and provides many advantages to the effective operation of the Board. The Board will periodically evaluate and reassess the effectiveness of this leadership structure. Meetings The Board held 13 meetings during the fiscal year ended December 31, 2019. During 2019, each current director then in office attended more than 75% of the total number of meetings of the Board and committees on which he or she served. In addition to formal Board meetings, our Board communicates from time to time via telephone, electronic mail, and informal meetings, and our Board and its committees may act by written consent in lieu of a formal meeting. Our non-employee directors met in executive session following each of our regular, quarterly Board meetings in 2019, and the independent members of our Board also periodically met in executive session in 2019. Mr. Palomares presides over each executive session of our non-employee directors and independent directors. Other than an expectation set forth in our Corporate Governance Guidelines that each director will make every effort to attend the annual meeting of stockholders, we do not have a formal policy regarding the directors’ attendance at annual meetings. All of our directors then in office attended our last annual meeting of stockholders held on April 25, 2019. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 16 P r o x y S t a t e m e n t Committees of the Board Our Board has three standing committees: the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our Board. Roel C. Campos Maria Contreras-Sweet Steven J. Freiberg Sandra K. Johnson Alvaro G. de Molina Carlos Palomares Number of Meetings Held in 2019: Audit Committee Audit ✓ Chair ✓ 6 Compensation ✓ ✓ Chair ✓ 6 Corporate Governance and Nominating Chair ✓ ✓ ✓ 3 The Audit Committee is a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee consists of Messrs. de Molina, Freiberg, and Palomares. Mr. de Molina was appointed as Chair of the Audit Committee in July 2019, replacing Mr. Palomares as Chair. In accordance with SEC rules and NYSE rules, each of the members of our Audit Committee is an independent director in accordance with the criteria established by the NYSE for the purpose of audit committee membership independence. In addition, the Board has examined the SEC’s definition of “audit committee financial expert” and has determined that Messrs. de Molina, Freiberg, and Palomares satisfy this definition. Pursuant to the Audit Committee’s written charter, our Audit Committee is responsible for, among other things: • • • • • • • • • selecting and hiring our independent registered public accounting firm, and pre-approving the audit and non-audit services to be performed by our independent auditors; discussing the scope and results of the audit with the independent registered public accounting firm; assisting the Board in evaluating the qualifications, performance, and independence of our independent auditors; assisting the Board in monitoring the quality and integrity of our financial statements and our accounting and financial reporting processes; assisting the Board in monitoring our compliance with legal and regulatory requirements; assisting the Board in reviewing the adequacy and effectiveness of our internal control over financial reporting processes; assisting the Board in monitoring the performance of our internal audit function; reviewing with management and our independent auditors our annual and quarterly financial statements; establishing procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters and the confidential, anonymous submission by our employees and others of concerns regarding questionable accounting or auditing matters; and • preparing the audit committee report that the SEC requires in our annual proxy statement. The Audit Committee Charter, which contains a more complete explanation of the roles and responsibilities of the Audit Committee, is posted on our Investor Relations website at www.regionalmanagement.com. A stockholder may request a copy of the Audit Committee Charter by contacting our Corporate Secretary at 979 Batesville Road, Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 17 Suite B, Greer, South Carolina 29651. The Audit Committee held six meetings during the fiscal year ended December 31, 2019. Compensation Committee Our Compensation Committee consists of Mr. Freiberg (Chair), Mr. Campos, Ms. Contreras-Sweet, and Mr. Palomares. In accordance with NYSE rules, each of the members of our Compensation Committee is an independent director in accordance with the criteria established by the NYSE for the purpose of compensation committee membership independence. Pursuant to the Compensation Committee’s written charter, our Compensation Committee is responsible for, among other things: • • • • • • reviewing and approving, or making recommendations to the Board with respect to, corporate goals and objectives relevant to the compensation of our Chief Executive Officer, evaluating our Chief Executive Officer’s performance in light of those goals and objectives, and either as a committee or together with the other independent directors (as directed by the Board), determining and approving our Chief Executive Officer’s compensation level based on such evaluation; reviewing and approving the compensation of our executive officers, including annual base salary, annual incentive bonuses, specific goals, equity compensation, employment agreements, severance and change-in-control arrangements, and any other benefits, compensation, or arrangements; reviewing and recommending the compensation of our directors; reviewing and discussing annually with management our “Compensation Discussion and Analysis”; preparing the Report of the Compensation Committee; and reviewing and making recommendations with respect to our equity compensation plans. The Compensation Committee is entitled to delegate any or all of its responsibilities to subcommittees of the Compensation Committee. Additionally, the Compensation Committee may delegate to one or more of our officers the authority to make grants and awards of cash or options or other equity securities to any of our non-Section 16 officers under our incentive-compensation or other equity-based plans, as the Compensation Committee deems appropriate and in accordance with the terms of such plans, provided that such delegation is in compliance with such plans and applicable law. The Compensation Committee has the authority to hire outside advisors and experts, including compensation consultants to assist it with director and executive officer compensation determinations. See “Compensation Discussion and Analysis – Compensation Objectives and Approaches – Compensation Determination Process” for information about our independent compensation consultant. The Compensation Committee Charter, which contains a more complete explanation of the roles and responsibilities of the Compensation Committee, is posted on our Investor Relations website at www.regionalmanagement.com. A stockholder may request a copy of the Compensation Committee Charter by contacting our Corporate Secretary at 979 Batesville Road, Suite B, Greer, South Carolina 29651. The Compensation Committee held six meetings during the fiscal year ended December 31, 2019. Corporate Governance and Nominating Committee Our Nominating Committee consists of Mr. Campos (Chair), Ms. Contreras-Sweet, Dr. Johnson, and Mr. de Molina. In accordance with NYSE rules, each of the members of our Nominating Committee is an independent director in accordance with the criteria established by the NYSE for the purpose of corporate governance and nominating committee membership independence. Pursuant to the Nominating Committee’s written charter, the Nominating Committee is responsible for, among other things: • • • assisting our Board in identifying prospective director nominees and recommending nominees to the Board; overseeing the evaluation of the Board; overseeing our guidelines and policies with respect to risk assessment and risk management; Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 18 P r o x y S t a t e m e n t • • reviewing developments in corporate governance practices and developing, recommending, and maintaining a set of corporate governance guidelines; and recommending members for each committee of our Board. The Nominating Committee will consider a candidate for director proposed by a stockholder. A candidate must be highly qualified and be both willing to serve and expressly interested in serving on the Board. A stockholder wishing to propose a candidate for the Nominating Committee’s consideration in connection with the 2021 Annual Meeting should forward the candidate’s name and information about the candidate’s qualifications to Regional Management Corp., 979 Batesville Road, Suite B, Greer, South Carolina 29651, Attn: Corporate Secretary, not earlier than January 21, 2021 nor later than February 20, 2021. The Nominating Committee will select individuals, including candidates proposed by stockholders, as director nominees who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment, and who will be most effective, in conjunction with the other nominees to the Board, in collectively serving the long-term interests of our stockholders. In evaluating nominees, the Nominating Committee will consider, among other things, the director qualifications described above and will apply the objectives outlined in the Diversity Policy. The Nominating Committee Charter, which contains a more complete explanation of the roles and responsibilities of the Nominating Committee, is posted on our Investor Relations website at www.regionalmanagement.com. A stockholder may request a copy of the Nominating Committee Charter by contacting our Corporate Secretary at 979 Batesville Road, Suite B, Greer, South Carolina 29651. The Nominating Committee held three meetings during the fiscal year ended December 31, 2019. Role in Risk Oversight As part of its role in risk oversight, our Nominating Committee is responsible for reviewing our risk assessment and risk management practices, and for discussing its findings with both management and our independent registered public accounting firm. The Board and the Nominating Committee periodically review the risks that may potentially affect us and management’s efforts to manage those risks, including risks reflected in our periodic filings. For example, on a periodic basis, members of the Board and the Nominating Committee engage with management and/or third-party consultants to assess the cyber threat landscape, to evaluate our information security program, to review the results of penetration testing, and to analyze the design, effectiveness, and ongoing enhancement of our capabilities to monitor, prevent, and respond to cyber threats and events. The Board may also request supplemental information and disclosure about any other specific area of interest and concern relevant to risks it believes are faced by us and our business. Finally, the Board may also consider emerging or evolving risks as they arise, such as risks related to the COVID-19 pandemic, and may either meet as a full Board or assign risks to a committee for continuing oversight. The Board believes that our current leadership structure enhances its oversight of risk management because our Chief Executive Officer, who is ultimately responsible for our risk management process, is in the best position to discuss with the Board these key risks and management’s response to them by also serving as a director of the Company. Code of Business Conduct and Ethics Our Board has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”). The Code of Ethics applies to all of our directors, officers, and employees and must be acknowledged in writing by our Chief Executive Officer and Chief Financial Officer. In February 2020, the Board approved certain amendments to the Code of Ethics, which were intended to update and bring the Code of Ethics more in line with current best practices. The Code of Ethics is posted on our Investor Relations website at www.regionalmanagement.com. A stockholder may request a copy of the Code of Ethics by contacting our Corporate Secretary at 979 Batesville Road, Suite B, Greer, South Carolina 29651. To the extent permissible under applicable law, the rules of the SEC, and NYSE listing standards, we intend to disclose on our website any amendment to our Code of Ethics, or any grant of a waiver from a provision of our Code of Ethics, that requires disclosure under applicable laws, the rules of the SEC, or NYSE listing standards. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 19 Compensation Committee Interlocks and Insider Participation During the fiscal year ended December 31, 2019, Mr. Campos, Ms. Contreras-Sweet, Mr. Freiberg, and Mr. Palomares served on our Compensation Committee. No member of the Compensation Committee has ever served as an officer or employee of the Company or any of its subsidiaries or had any relationship during the fiscal year ended December 31, 2019 that would be required to be disclosed pursuant to Item 404 of Regulation S-K. In addition, during the fiscal year ended December 31, 2019, none of our executive officers served on the compensation committee (or equivalent) or the board of directors of another entity whose executive officer(s) served on our Board or Compensation Committee. Communications with the Board Each member of the Board is receptive to and welcomes communications from our stockholders and other interested parties. Stockholders and other interested parties may contact any member (or all members) of the Board, including, without limitation, the Chair of the Board, any independent director, or the independent directors as a group, by addressing such communications or concerns to our Corporate Secretary, 979 Batesville Road, Suite B, Greer, South Carolina, 29651, who will forward such communications to the appropriate party. If a complaint or concern involves accounting, internal accounting controls, or auditing matters, the correspondence will be forwarded to the chair of the Audit Committee. If no particular director is named, such communication will be forwarded, depending on the subject matter, to the chair of the Audit Committee, Compensation Committee, or Nominating Committee, as appropriate. Anyone who has concerns regarding (i) questionable accounting, internal accounting controls, and auditing matters, including those regarding the circumvention or attempted circumvention of internal accounting controls or that would otherwise constitute a violation of our accounting policies, (ii) compliance with legal and regulatory requirements, or (iii) retaliation against employees who voice such concerns, may communicate these concerns by writing to the attention of the Audit Committee as set forth above, or by calling (800) 224-2330 at any time. Director Compensation Quality non-employee directors are critical to our success. We believe that the two primary duties of non-employee directors are to effectively represent the long-term interests of our stockholders and to provide guidance to management. As such, our compensation program for non-employee directors is designed to meet several key objectives: • • • • Adequately compensate directors for their responsibilities and time commitments and for the personal liabilities and risks that they face as directors of a public company; Attract the highest caliber non-employee directors by offering a compensation program consistent with those at companies of similar size, complexity, and business character; Align the interests of directors with our stockholders by providing a significant portion of compensation in equity and requiring directors to own our stock; and Provide compensation that is simple and transparent to stockholders and reflects corporate governance best practices. The Compensation Committee, with the assistance of the Compensation Committee’s executive compensation consultant, reviews the compensation of our non-employee directors. In benchmarking director compensation, we use the same compensation peer group that is used to benchmark compensation for our named executive officers (see “Compensation Discussion and Analysis – Compensation Objectives and Approaches – Compensation Determination Process” for information about the peer group). Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 20 Our employees who serve as directors receive no separate compensation for service on the Board or on committees of the Board. We maintain a non-employee director compensation program structured as follows: • • • • Board Cash Retainer: Each non-employee director receives an annual cash retainer of $70,000 payable in quarterly installments ($90,000 in the case of the chair or lead independent director, if applicable, of the Board). Committee Member Cash Retainer: Each member of the Audit Committee, Compensation Committee, and Nominating Committee receives an additional annual cash retainer of $8,750 payable in quarterly installments ($17,500 in the case of the chair of each committee). Board Equity-Based Award: Each non-employee director receives, on an annual basis, shares of restricted common stock with a value equal to $90,000 ($110,000 in the case of the chair or lead independent director, if applicable, of the Board). Committee Member Equity-Based Award: Each member of the Audit Committee, Compensation Committee, and Nominating Committee receives, on an annual basis, additional shares of restricted common stock with a value equal to $8,750 ($17,500 in the case of the chair of each committee). The restricted stock awards (each, an “RSA”) are granted on the fifth business day following the date of the annual stockholders’ meeting at which directors are elected. The number of shares subject to the RSA is determined by dividing the value of the award by the closing price per share of common stock on the grant date (rounded down to the nearest whole share). The RSA vests and becomes non-forfeitable as to 100% of the underlying shares on the earlier of the first anniversary of the grant date or the date of the next annual stockholders’ meeting, subject to the director’s continued service from the grant date until the vesting date, or upon the earlier occurrence of the director’s termination of service as a director by reason of death or disability or upon a change in control of the Company. In the event of the director’s termination of service for any other reason, the director forfeits the RSA immediately. The RSA is subject to the terms and conditions of the Regional Management Corp. 2015 Long-Term Incentive Plan (as amended and restated, effective April 27, 2017) (the “2015 Plan”) and an RSA agreement, the form of which was previously approved by the Compensation Committee and the Board and filed with the SEC. Under the 2015 Plan, the maximum number of shares of common stock subject to awards granted during any 12-month period to a non-employee director, taken together with any cash fees paid during such 12-month period to such non-employee director in respect of Board service, may not exceed $600,000 in total value (calculating the value of any such awards based on the fair market value per share of common stock on the grant date of the award). In the event that the service of a director as a director, committee member, or Board or committee chair commences or terminates during the director’s annual service to us, the director’s cash compensation will be adjusted on a pro-rata basis. Annual service relates to the approximately 12-month period between our annual meetings of stockholders. Each director is also reimbursed for reasonable out-of-pocket expenses incurred in connection with his or her service on our Board, including the cost of attending continuing education seminars related to corporate board of directors service and other topics relevant to the Company. P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 21 The following table provides information regarding the compensation paid to each of our non-employee directors for their service as non-employee directors during the fiscal year ended December 31, 2019. Name(1) Directors: Jonathan D. Brown Roel C. Campos Maria Contreras-Sweet Michael R. Dunn Steven J. Freiberg Sandra K. Johnson(3) Alvaro G. de Molina Carlos Palomares Fees Earned or Paid in Cash ($) Stock Awards ($)(2) Total ($) 70,000 96,250 87,500 70,000 96,250 N/A 102,204 101,624 90,000 116,250 107,500 90,000 116,250 160,000 212,500 195,000 160,000 212,500 N/A N/A 127,500 116,250 229,704 217,874 (1) The compensation shown in the table reflects pro-rated amounts based on the following: (a) in July 2019, Mr. Palomares succeeded Mr. de Molina as Chair of the Board, and (b) in July 2019, Mr. de Molina succeeded Mr. Palomares as Chair of the Audit Committee. (2) On May 2, 2019, in accordance with the non-employee director compensation program outlined above, we awarded all of the Company’s non-employee directors then in office shares of restricted common stock in the following amounts: Mr. Brown, 3,649 shares; Mr. Campos, 4,714 shares; Ms. Contreras-Sweet, 4,359 shares; Mr. Dunn, 3,649 shares; Mr. Freiberg, 4,714 shares; Mr. de Molina, 5,170 shares; and Mr. Palomares, 4,714 shares. These annual RSAs vest on the earlier of the first anniversary of the grant date or the date of the next annual stockholders’ meeting, subject to continued service of the director until the vesting date or as otherwise provided in the award agreement. Amounts shown are the aggregate grant date fair value of stock awards computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. (3) Dr. Johnson was appointed to the Board in April 2020 and, therefore, received no compensation for the fiscal year ended December 31, 2019. The total number of shares subject to RSAs held by each of our non-employee directors as of December 31, 2019 was: Mr. Brown, 3,649 shares; Mr. Campos, 4,714 shares; Ms. Contreras-Sweet, 4,359 shares; Mr. Dunn, 3,649 shares; Mr. Freiberg, 4,714 shares; Mr. de Molina, 5,170 shares; and Mr. Palomares, 4,714 shares. In addition, Mr. Dunn previously held a performance-contingent restricted stock unit (“RSU”) award granted to him during his service as our Chief Executive Officer, pursuant to which 10,166 target shares remained outstanding at the beginning of 2019. In March 2019, our Compensation Committee determined that 116.5% of the target shares were earned based upon our performance over a three-year performance period that began on January 1, 2016 and ended on December 31, 2018. The total number of shares subject to non-qualified stock options held by each of our non-employee directors as of December 31, 2019 was: Mr. Campos, 28,670 shares; Mr. Dunn, 148,866 shares; Mr. Freiberg, 17,941 shares; Mr. de Molina, 30,166 shares; and Mr. Palomares, 28,670 shares. As of December 31, 2019, Dr. Johnson held no shares subject to RSAs, and Mr. Brown, Ms. Contreras-Sweet, and Dr. Johnson had no option awards outstanding. The outstanding equity awards held by Mr. Beck as of December 31, 2019 are set forth in the Outstanding Equity Awards at Fiscal Year-End table that is presented elsewhere in this Proxy Statement. Currently, our director stock ownership requirement is 5x the annual cash retainer, placing the dollar value of the ownership requirement above the 75th percentile of our peer group. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 22 P r o x y S t a t e m e n t EXECUTIVE OFFICERS The following is a brief description of the background, business experience, and certain other information regarding each of our executive officers: Robert W. Beck (age 56) has served as President and Chief Executive Officer and as a director of Regional since March 2020. From July 2019 until March 2020, Mr. Beck served as Executive Vice President and Chief Financial Officer of Regional. Mr. Beck’s full biographical information is set forth above under “Board of Directors and Corporate Governance Matters – Current Directors and Director Nominees.” John D. Schachtel (age 58) has served as Executive Vice President and Chief Operating Officer of Regional since May 2017. Mr. Schachtel has more than 30 years of experience in consumer financial services. From 2013 until 2016, Mr. Schachtel was the Chief Operating Officer of OneMain Financial Holdings, Inc. (formerly known as CitiFinancial). As Chief Operating Officer of OneMain Financial, Mr. Schachtel’s responsibilities included management and oversight of sales, field operations, marketing, and collections. Prior to assuming the Chief Operating Officer role, Mr. Schachtel served for over 10 years as OneMain/CitiFinancial’s Executive Vice President, Northeast and Midwest Division. Mr. Schachtel also held various other positions at OneMain/ CitiFinancial during his 29-year career with the company, including Operations Director and Director of Field Compensation, New Branch Development, and Project Management, before becoming Senior Vice President of Corporate Marketing in 1999. Since March 2017, Mr. Schachtel has also served as a member of the Board of Directors of SilverSun Technologies, Inc., a publicly-traded business application, technology, and consulting company. He serves as the chairman of SilverSun’s compensation committee and as a member of its audit committee and its nominating and corporate governance committee. He received his M.B.A. in Finance from New York University and his B.S. degree in Industrial Engineering and Economics from Northwestern University. Brian J. Fisher (age 36) has served as Executive Vice President, General Counsel, and Secretary of Regional since February 2020. Prior to February 2020, Mr. Fisher served as Senior Vice President, General Counsel, and Secretary of Regional since February 2018. From January 2013 (when he joined Regional) until February 2018, he served as Vice President, General Counsel, and Secretary. Prior to joining Regional, Mr. Fisher was an attorney in the Corporate and Securities practice group of Womble Carlyle Sandridge and Rice, LLP (now known as Womble Bond Dickinson (US) LLP) from 2009 to 2013. Mr. Fisher holds a B.A. degree in Economics from Furman University and a J.D. degree from the University of South Carolina School of Law. Manish Parmar (age 42) has served as Executive Vice President and Chief Credit Risk Officer of Regional since January 2020. Mr. Parmar has nearly 20 years of credit and financial experience across a broad range of functions, including credit risk, analytics, financial partnerships, database marketing, and modeling. Prior to joining Regional, Mr. Parmar was Chief Credit and Analytics Officer at Conn’s, Inc. Prior to his tenure at Conn’s, Mr. Parmar held several senior management roles at Discover Financial Services, ultimately becoming its Head of Consumer Credit Risk Management. Mr. Parmar received a Bachelor of Chemical Engineering from the University of Mumbai in India, and his M.B.A. from Bauer College of Business at the University of Houston. Michael S. Dymski (age 48) has served as Vice President, interim Chief Financial Officer, and Chief Accounting Officer of Regional since March 2020. Mr. Dymski has over 25 years of financial services experience and is skilled in business strategy, operational analysis, budgeting and planning, SEC and GAAP reporting, and mergers and acquisitions. Prior to adding the role of interim Chief Financial Officer in 2020, Mr. Dymski served as the Company’s Chief Accounting Officer since 2016 and Corporate Controller from 2013 to 2016. From 2011 through 2013, he was the Director of Finance, South USA with TD Bank. From 2000 through 2010, Mr. Dymski was employed by The South Financial Group in varying roles, including Vice President and Controller of Finance and Accounting and Senior Vice President of Finance. Mr. Dymski, who earned a Bachelor of Business Administration degree from the University of Georgia, is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. There are no family relationships among any of our directors or executive officers. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 23 COMPENSATION DISCUSSION AND ANALYSIS The following discussion of the compensation arrangements of our executive officers should be read together with the compensation tables and related disclosures contained elsewhere in this Proxy Statement. Actual compensation programs that we adopt following the date of this Proxy Statement may differ materially from the existing and currently planned programs summarized in this discussion. Executive Summary of Compensation Programs Company Performance and Business Highlights in 2019 We produced another set of strong operating and financial results in 2019, including double-digit growth of our loan portfolio, total revenue, net income, and diluted earnings per share. • • • • Loan Portfolio Growth: In 2019, we crossed the $1.0 billion milestone for our loan portfolio, ending the year with total outstanding receivables of $1.1 billion, an increase of 19% from the prior year—our fifth consecutive year of double-digit portfolio growth. Our core portfolio of small and large installment loans grew by 22% year-over-year, led by continued, significant expansion in our large loan category. Increased Revenues and Improved Expense Management: Revenues of $356 million in 2019 were up 16% from 2018, while our operating expense ratio improved by 50 basis points and our efficiency ratio improved by 160 basis points, each from the prior-year. Increased Earnings: Net income for 2019 was $45 million and diluted EPS was $3.80, representing year-over-year increases of 27% and 30%, respectively. Long-Term Stock Price Growth and Return of Capital: Our stock price at the close of 2019 was $30.03, up from $24.05 at the end of 2018 and $15.49 at the end of 2014. In addition, in 2019, we repurchased approximately $25 million of our common stock at a weighted-average price of $26.65 per share. In 2019, we also achieved a number of other operating milestones. We continued to improve upon our new loan origination and servicing system, allowing for an increased number of electronic payments made by our customers, improved texting and imaging capabilities, and increased usage of our online customer portal. In addition, we completed the rollout of new custom credit scorecards and marketing risk and response models, which benefited our credit performance and improved our customer response to our marketing campaigns. From a human capital perspective, we introduced several talent development initiatives, including the implementation of company- wide district training branches designed to improve onsite training for our field personnel. In addition, in the second half of 2019, we continued to improve upon and diversify our funding sources by amending our senior revolving credit facility with improved terms in September and closing our third asset-backed securitization transaction in October. Finally, throughout 2019, we worked toward the implementation of the new accounting standard for current expected credit losses (“CECL”), and in late 2019, we were fully prepared for the January 1, 2020 implementation of CECL, resulting in a smooth transition. We were pleased with our 2019 results, and we believe that the compensation paid to our named executive officers (our “NEOs”) for 2019 appropriately reflects and rewards their contributions to our performance. Compensation Program Highlights in 2019 At our 2019 annual meeting of stockholders, we included a proposal that provided our stockholders with the opportunity to vote to approve, on an advisory basis, the compensation of our NEOs. Because we only ceased to be an emerging growth company under the Jumpstart Our Business Startups Act in 2018, this was our second annual meeting of stockholders that included such a “say-on-pay” proposal. We were pleased to report substantial stockholder approval of our NEOs’ compensation, with 96.24% of voted shares having been voted in favor of approval. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 24 P r o x y S t a t e m e n t In 2019, our Compensation Committee carefully reviewed our executive compensation program to ensure that it is designed to achieve its intended objectives and continues to reflect executive compensation “best practices.” To that end, the Compensation Committee made three changes to our compensation program in 2019: • • • Added restricted stock awards to long-term incentive program: The Compensation Committee added a restricted stock award to our long-term incentive program so that it now includes a balance of four types of incentive awards, which are split approximately equally between performance-based and service-based awards. Our Compensation Committee believes that the restricted stock award provides a strong incentive to participants to drive sustainable achievement of long-term financial goals that align with long-term stockholder interests. It is also utilized to attract, retain, and motivate executive talent. Included ROA as short-term incentive metric: In part based on suggestions from two of the Company’s largest stockholders, the Compensation Committee decided to change our short-term incentive program metrics to include a return on assets metric, replacing the previously utilized leverage ratio. Further, the Compensation Committee also feels that a return metric, such as return on assets, is more reflective of company performance and, thus, serves as a more appropriate metric in our incentive program. Reweighted short-term incentive metrics: Due to the use of the return on assets metric, the Compensation Committee re-weighted all short-term incentive program metrics in order to more appropriately incentivize executive performance. In making these determinations, our Compensation Committee received advice from its independent compensation consultant, Veritas Executive Compensation Consultants (“Veritas”). Compensation Program Best Practices The primary objectives of our executive compensation program are to attract and retain talented executives to effectively manage and lead our company and to create long-term stockholder value. We compensate our executive officers primarily through a mix of base salary, performance-based annual cash awards, and service- and performance-based long-term incentive awards. Consistent with our pay-for-performance philosophy, a substantial portion of our executives’ compensation is at risk and linked to the successful performance and management of our company, as measured against rigorous performance goals established by our Compensation Committee. Our 2019 executive compensation program continued to include a number of best compensation practices, including the following: ✓ Alignment of executive pay with company performance: O O 2019 incentives are largely performance-contingent, with long-term incentive awards roughly one-half performance-contingent and short-term incentive awards entirely performance-contingent Performance goals are rigorous and are based almost exclusively on objective, quantitative criteria ▪ Quantitative 2019 short-term incentive performance goals were largely achieved, resulting in annual bonus payments at 80.7% of target bonuses, when factoring in lack of payout for strategic objectives, as described in more detail below ▪ Our compound annual growth rates (“CAGR”) of net income and earnings per share between 2017 and 2019 ranked in the 60th and 70th percentile, respectively, of our peer group, contributing to the payment of 96.6% of target performance-contingent restricted stock units and 126.6% of target cash-settled performance units under the performance-contingent awards associated with the 2017 long-term incentive program ✓ Competitive compensation and incentive program target opportunities for our executives in order to continue to align their overall compensation with the market for executive talent ✓ Highly variable short-term incentive payout opportunities to provide high upside if performance goals are exceeded, while paying low or no bonus amounts if goals are not achieved ✓ Focus on long-term strategic goals through long-term incentive grants to NEOs and other key contributors, which include a significant portion that is contingent upon the achievement of rigorous and clearly-defined performance measures over a three-year period Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 25 ✓ No payment of excessive perquisites to any NEO or other key employee ✓ No excise tax gross-up payments to any NEO or other key employee ✓ Double-trigger change-in-control provisions included in all employment agreements and long-term incentive award agreements ✓ Prohibition against re-pricing of equity incentive awards without stockholder approval under our 2015 Plan ✓ Stock Ownership and Retention Policy for NEOs and directors (5x base salary for CEO, 2x base salary for other NEOs, and 5x annual cash retainer for directors) ✓ Compensation Recoupment Policy, or “clawback policy,” for NEOs and other key employees ✓ Prohibition against hedging and pledging, as set forth in our Code of Ethics and our Stock Ownership and Retention Policy ✓ Compensation program governed by an independent Compensation Committee with input from an independent compensation consultant Aligning Pay with Performance We believe that a substantial portion of our executive officers’ compensation should be tied to their performance and the short- and long-term financial and operating results of our company. We developed our long- term incentive program in 2014 in consultation with Veritas. We believe that the creation and evolution of our long- term incentive program since 2014 has been critical to our ability to link our executives’ pay with the performance of our company, to align our executives’ interests with those of our stockholders, and to remain competitive in the marketplace for executive talent. Our executive compensation program now embodies our pay-for-performance philosophy and closely ties the interests of our key executives to those of our stockholders. We heavily weight our executive officers’ compensation in performance-based short- and long-term incentive awards that are designed to reward exceptional performance. The following table describes the program design for each element of our incentive-based pay in 2019. Pay Elements Program Design Short-Term Incentive Program Long-Term Incentive Program • Consists entirely of performance-based awards: Metrics include net income from operations, average finance receivables, net credit losses as a percentage of average finance receivables, return on assets, total general and administrative expense as a percentage of total revenue, and an analysis by our Compensation Committee of our executives’ execution against short-term strategic objectives • Motivates our executives and brings total cash opportunities to competitive levels • Significant upside opportunity for high performance, but with a challenging threshold • Consists of performance-contingent RSUs, cash-settled performance units, non-qualified stock options, and restricted stock awards: Vesting of performance-contingent RSUs and cash-settled performance units is based primarily on the CAGRs of net income and basic earnings per share, respectively, compared to our peer group over a three-year performance period Roughly one-half of grant date fair value is in the form of performance-contingent awards • Provides strong incentive to meet or exceed pre-established long-term financial goals that align with long-term stockholder interests, and is utilized to attract, retain, and motivate executive talent Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 26 P r o x y S t a t e m e n t The compensation packages of our Chief Executive Officer and our other NEOs are closely aligned with performance. For 2019, the majority of compensation was variable and performance-based: Chief Executive Officer Target Pay Mix Base Salary 17% Other NEO Average Target Pay Mix Performance- Based LTI (Target) 19% Base Salary 29% Target STI 25% Variable Pay 72% Time-Vesting LTI (Target) 29% Time-Vesting LTI (Target) 24% Target STI 28% Performance- Based LTI (Target) 29% Variable Pay 83% Note: The Other NEO target pay mix set forth above is the average for Messrs. Schachtel, Taggart, and Fisher. The target pay for Messrs. Thomas and Beck is not included in light of the Chief Financial Officer transition that occurred in 2019. The presentation excludes perquisites, which are an immaterial component of our executives’ compensation. Results of Short- and Long-Term Incentive Programs Our short-term incentive program provides our executives with the opportunity to earn performance-based annual cash awards pursuant to our Annual Incentive Plan (as amended and restated, the “Annual Incentive Plan”). The achievement and payment of annual cash awards in 2019 was tied directly to our financial and operational performance, based primarily (85%) on clearly-defined, objective performance measures and, to a lesser extent (15%), on our Compensation Committee’s assessment of our executive team’s achievement of its short-term strategic objectives. For 2019, our executive officers were paid 80.7% of their target annual bonuses (out of a range of 0% to 150%) under our Annual Incentive Plan as a result of our strong financial and operating results. The strategic objective portion of the Annual Incentive Plan did not pay out in 2019 due to poor operational management of our information technology infrastructure, as described in more detail below. However, our executive officers demonstrated strong performance in the execution of various other key strategic objectives, including the successful completion of a $25 million stock repurchase program, the successful closing of a favorable amendment to the Company’s senior revolving credit facility, the successful extension of and amendment to the Company’s warehouse credit facility, the completion of the custom credit scorecard rollout, the completion and rollout of new marketing risk and response models, the introduction of several talent development initiatives, and the successful planning and implementation of the Company’s transition to the new accounting standard for CECL. In 2017, our long-term incentive program provided for the delivery of long-term incentive awards through a combination of three award vehicles: (i) non-qualified stock options, (ii) performance-contingent RSUs, and (iii) cash-settled performance units. Vesting of each of the performance-contingent awards was subject to, among other things, the achievement of performance objectives over a three-year performance period that began on January 1, 2017 and ended on December 31, 2019. Vesting of the performance-contingent RSUs and cash-settled performance units granted in 2017 was based primarily (90%) on our CAGRs of net income (in the case of the performance-contingent RSUs) and basic earnings per share (in the case of the cash-settled performance units) compared to our peer group over the three-year performance period, and to a lesser extent (10%) on our Compensation Committee’s assessment of our executive team’s achievement of its long-term strategic objectives over the same time period. In March 2020, as described in greater detail below, based upon results achieved during the performance period, our Compensation Committee determined that participants in the 2017 long-term incentive program earned 96.6% of their target performance-contingent RSUs and 126.6% of their target cash-settled performance units. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 27 Stockholder Outreach and Engagement Stockholder outreach is a central feature of our investor relations philosophy. We provide numerous opportunities for current and prospective stockholders to gain access to our management team through attendance at investor conferences, one-on-one in-person meetings, and telephone calls. Through these interactions, we are able to educate current and prospective investors about our company, learn about concerns of stockholders, and provide investors with a better understanding of our business model and philosophy. We also receive valuable feedback from investors on topics including strategy, corporate governance, and compensation, which the Board and management take into consideration in making future business and compensation decisions. Since our 2019 annual meeting of stockholders, we reached out to institutional investors owning more than 60% of our outstanding common stock (as of September 30, 2019), specifically for the purpose of receiving their feedback regarding executive compensation practices and corporate governance matters. Based on the feedback received, we have made and expect to continue to make certain changes to our compensation and corporate governance practices and disclosures. For example, in the past, certain investors requested that we increase the percentage of independent directors on our Board and improve the gender diversity of our Board. In response, in 2018, we added two new independent directors and adopted a Board Diversity Policy. See “Board of Directors and Corporate Governance Matters – Board Diversity.” Independent directors now hold 78% of our Board seats. In addition, since 2018, we added two female directors to our Board. Finally, in 2019, in part at the suggestion of our investors, we re-evaluated and adjusted the performance metrics and relative weightings within our short-term incentive program. In 2020 and beyond, we expect to continue our stockholder outreach, including by making ourselves available to hear stockholder feedback regarding executive compensation and corporate governance practices. Compensation Objectives and Approaches Compensation Program Objectives The primary objectives of our executive compensation program are to attract and retain talented executives to effectively manage and lead our company and to create long-term stockholder value. The compensation packages for our executive officers for 2019 generally included a base salary, performance-based annual cash awards, service- and performance-based long-term incentive awards, and other benefits. Our current compensation program for our executive officers has been designed based on our view that each component of executive compensation should be set at levels that are necessary, within reasonable parameters, to successfully attract and retain skilled executives and that are fair and equitable in light of market practices. Base salaries are intended to provide a minimum, fixed level of cash compensation sufficient to attract and retain an effective management team when considered in combination with other components of our executive compensation program. The base salary element is meant to provide our executive officers with a stable income stream that is commensurate with their responsibilities and to compensate them for services rendered during the fiscal year. Consistent with our pay-for-performance strategy, our performance-based annual cash incentive program is customized to achieve specific objectives, reward increased levels of operational success, and place emphasis on appropriate levels of performance measurement. The key goals addressed by our short-term incentive program include (1) achievement of short-term financial and operational objectives, (2) increased stockholder value, (3) motivation and attraction of key management talent, (4) rewarding key contributors for performance against established criteria, and (5) focusing on our pay-for-performance compensation strategy. Benefits earned under our short-term incentive program are paid under our Annual Incentive Plan. Our long-term incentive program, which for 2019 included non-qualified stock options, performance- contingent RSUs, cash-settled performance units, and restricted stock awards, operates in tandem with our short- term incentive program and is consistent with our pay-for-performance strategy. Performance-based long-term incentives and service-based option and restricted stock awards can provide significant benefits to both our employees and stockholders. These long-term incentives generally are intended to create (1) a strong sense of ownership, (2) focus on achievement of long-term, strategic business objectives, (3) an enhanced linkage between the interests of our executives and stockholders, (4) an enhanced relationship between pay and performance, and Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 28 P r o x y S t a t e m e n t (5) an incentive to attract and retain superior employees. Long-term incentive program benefits are issued under our 2015 Plan, which was approved by our stockholders at our 2015 annual meeting of stockholders and re-approved, as amended and restated, at our 2017 annual meeting of stockholders. The discussion below includes a review of our compensation program for 2019 and a preview of certain aspects of our compensation program for 2020. Our NEOs for 2019 were: Robert W. Beck President and Chief Executive Officer (Former EVP and Chief Financial Officer) Peter R. Knitzer Former President and Chief Executive Officer John D. Schachtel Executive Vice President and Chief Operating Officer Donald E. Thomas Former Executive Vice President and Chief Financial Officer Daniel J. Taggart Former Executive Vice President and Chief Credit Risk Officer Brian J. Fisher Executive Vice President, General Counsel, and Secretary Note: As described in more detail elsewhere in the Proxy Statement, in July 2019, Robert W. Beck succeeded Donald E. Thomas as the Company’s Executive Vice President and Chief Financial Officer. In addition, Daniel J. Taggart resigned as the Company’s Executive Vice President and Chief Credit Risk Officer in early 2020, and he was succeeded by Manish Parmar. Finally, in March 2020, Mr. Beck succeeded Peter R. Knitzer as the Company’s President and Chief Executive Officer. Currently, Mr. Beck serves as our President and Chief Executive Officer, and Michael S. Dymski serves as our Vice President, interim Chief Financial Officer, and Chief Accounting Officer. Compensation Determination Process The Compensation Committee reviews and approves the compensation determinations for all of our executive officers. In setting an executive officer’s compensation package and the relative allocation among different types of compensation, we consider the nature of the position, the scope of associated responsibilities, the individual’s prior experience and skills, and the individual’s compensation expectations, as well as the compensation of our existing executive officers and our general impressions of prevailing conditions in the market for executive talent. Engagement and Use of an Independent Compensation Consultant The Compensation Committee has the authority to hire outside advisors and experts, including compensation consultants, to assist it with director and executive officer compensation determinations. Since 2014, the Compensation Committee has retained the services of Veritas Executive Compensation Consultants, an independent compensation consultant, to better ensure that our compensation practices are appropriate for our industry, to review and to make recommendations with respect to executive officer and director cash and equity compensation, and to update our peer group, in each case for the Compensation Committee’s use in setting compensation. Veritas’ recommendations to the Compensation Committee were generally in the form of suggested ranges of compensation or descriptions of policies that Veritas currently considers “best practice” in our industry and for publicly-traded companies. The Compensation Committee used Veritas’ reports to further its understanding of executive officer cash and equity compensation practices in the market. During 2019, Veritas worked only for the Compensation Committee and performed no additional services for the Company or any of our executive officers. The Compensation Committee Chair approved all work performed by Veritas. During 2019, the Compensation Committee and the Company did not use the services of any other compensation consultant. The Compensation Committee has also engaged Veritas in 2020 to provide similar services. Our Compensation Committee has assessed the independence of Veritas, taking into account, among other things, the factors set forth in NYSE rules, and has concluded that no conflict of interest exists with respect to the work Veritas performed or performs for our Compensation Committee and that Veritas is independent under NYSE rules. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 29 Establishment and Use of a Peer Group We generally monitor compensation practices in the markets where we compete for executive talent to obtain an overview of market practices and to ensure that we make informed decisions on executive pay packages. For 2019 compensation decisions, to obtain a sense of the market and a general understanding of current compensation practices, we reviewed the compensation awarded by a peer group of publicly-traded companies. In addition, as described in greater detail below, the vesting of certain of our executives’ long-term incentive awards is determined based upon our financial performance compared to the financial performance of our peer group over a three-year performance period. At the outset of 2019, based upon prior peer group reviews conducted with the assistance of Veritas, our peer group consisted of the following companies: • America’s Car-Mart, Inc. • Atlanticus Holdings Corp. • B. Riley Financial, Inc. • Consumer Portfolio Services, Inc. • • • • Encore Capital Group, Inc. • Marlin Business Services Corp. Enova International, Inc. • Nicholas Financial, Inc. EZCORP, Inc. FirstCash, Inc. • On Deck Capital, Inc. • OneMain Holdings, Inc. • Credit Acceptance Corp. • Green Dot Corporation • PRA Group, Inc. • CYS Investments, Inc. • Elevate Credit, Inc. • • JMP Group LLC • World Acceptance Corporation LendingClub Corporation In the third quarter of 2019, with assistance from Veritas, we reviewed our peer group using a scorecard-based approach that involved applying several filters (e.g., strong financial health, positive shareholder standing, similar in size, similar in industry classification, presence of overlapping peers, identification as a peer by a proxy advisory firm) and selecting the most qualified peer companies from a broader list of candidates. Based on the evaluation, our Compensation Committee determined to remove B. Riley Financial Inc. and CYS Investments, Inc. from our peer group and to add CURO Group Holdings Corp. As a result, our new peer group for 2020 consists of the following companies. As of the time that the Compensation Committee approved our new peer group, we were in the 2nd quartile of the peer group based on revenue, market capitalization, and enterprise value. • America’s Car-Mart, Inc. • Atlanticus Holdings Corp. • Consumer Portfolio Services, Inc. • • • Enova International, Inc. • Nicholas Financial, Inc. EZCORP, Inc. FirstCash, Inc. • On Deck Capital, Inc. • OneMain Holdings, Inc. • Credit Acceptance Corp. • Green Dot Corporation • PRA Group, Inc. • CURO Group Holdings Corp. Elevate Credit, Inc. • • JMP Group LLC • World Acceptance Corporation LendingClub Corporation Encore Capital Group, Inc. • Marlin Business Services Corp. • • Proxy advisory firms Institutional Shareholder Services, Inc. and/or Glass, Lewis & Co. have identified fourteen of these companies (or 74% of our total peer group) as peers of Regional. These companies are largely within the consumer finance or specialty finance industries, are similar in size and/or scope to Regional, and/or are companies that Regional competes against for products, services, and human capital. Some companies included in our peer group will meet some, but not all, of these criteria. For example, OneMain Holdings, Inc. (doing business as OneMain Financial) is larger than us, but it competes directly with us in the consumer finance industry both for customers and for human capital. As a result, despite being a larger company, we believe it is important to include OneMain in our peer group to ensure that we maintain awareness of our direct competition, which will assist in our efforts to retain talented executives and other employees. However, in setting compensation levels for our executive officers, as noted below, our Compensation Committee remains cognizant that OneMain and certain other of our peer companies are larger than us. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 30 Consistent with our compensation objectives of attracting and retaining top executive talent, we believe that the base salaries and performance-based short- and long-term incentive compensation of our executive officers should be set at levels which are competitive with our peer group companies of comparable size, although we do not target any specific pay percentile for our executive officers. The peer group is used more as a general guide, being mindful of the following: • • • Appropriate base salaries for our executive officers should generally be in line with those paid by peer group companies of comparable size. Performance-based short- and long-term incentive awards should reward exceptional performance, which can result in overall compensation that can exceed those of peer group companies of comparable size. Total compensation for executive officers may approach the higher end of the compensation at such peer group companies of comparable size, but only if high levels of short- and long-term performance are reached. Elements of Compensation Each executive officer is eligible to receive a balance of variable and fixed compensation. The following table describes the various forms of compensation used in 2019: Pay Elements Component(s) Rationale for Form of Compensation • Cash • To attract and retain executive talent • To provide a fixed base of compensation generally aligned to peer group levels • Performance-based annual cash bonus • To drive the achievement of key business results on Base Salary Short-Term Incentive P r o x y S t a t e m e n t Long-Term Incentive • Performance-based long-term incentives: Performance-contingent RSUs Cash-settled performance units • Service-based long-term incentives: Non-qualified stock options Restricted stock awards an annual basis • To recognize individual executives based on their specific and measurable contributions • To structure a meaningful amount of at-risk, performance-based annual compensation • To drive the sustainable achievement of key long- term business results • To align the interests of executives with stockholders • To structure a meaningful amount of at-risk, performance-based long-term compensation • To attract, retain, and motivate executive talent Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 31 Base Salary Annual base salaries are established on the basis of market conditions at the time we hire an executive, as well as by taking into account the particular executive’s level of qualifications, experience, duties, and responsibilities. The Compensation Committee reviews the base salaries of our executive officers annually, and any subsequent modifications to annual base salaries are made in consideration of the appropriateness of each executive officer’s compensation, both individually and relative to the other executive officers, the individual performance of each executive officer, changes in duties and responsibilities, and any significant changes in market conditions. We do not apply specific formulas to determine increases. The Compensation Committee approved NEO annual base salaries for 2018, 2019, and 2020 as described in the following table. Annual base salaries are pro-rated for any partial year. Name 2018 Base Salary 2019 Base Salary 2020 Base Salary 2020 Base Salary Percentile Rank Relative to Peer Companies Robert W. Beck Peter R. Knitzer John D. Schachtel Donald E. Thomas Daniel J. Taggart Brian J. Fisher N/A $550,000 $360,000 $355,000 $330,000 $300,000 $400,000 $600,000 $400,000 $400,000 $375,000 $335,000 $600,000 N/A $415,000 N/A N/A $360,000 28th N/A 24th N/A N/A 21st In February 2019, following a total compensation analysis conducted by Veritas in late 2018, the Compensation Committee elected to increase each executive officer’s base salary in order to better align their base salaries with those paid by peer companies. Following these increases in 2019, our executive officers’ base salaries ranged between the 15th and 43rd percentile relative to comparable executive officers at peer companies. In February 2020, in recognition of his performance and service to our company, the Board promoted Mr. Fisher from Senior Vice President to Executive Vice President and increased his base salary accordingly. At the time of the increase in 2020, Mr. Fisher’s base salary remained below the 25th percentile relative to 4th-ranked NEOs in our peer group. In March 2020, Mr. Beck succeeded Mr. Knitzer as the Company’s President and Chief Executive Officer, and his salary was increased accordingly in recognition of his increased duties and responsibilities, and new position and title. Our Compensation Committee believes that it has set base salaries at appropriate levels to attract and retain effective executives and that base salaries, when combined with short- and long-term incentives, are an important component of a holistic compensation approach. Performance-Based Annual Cash Awards Our annual incentive program is designed to drive achievement of annual corporate goals, including key financial and operating results and strategic goals that create long-term stockholder value. Our executive officers are eligible for performance-based annual cash awards linked to performance targets set by our Compensation Committee. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 32 Components of Annual Incentive Program The awards for 2019 were based primarily (85%) on our performance with respect to the metrics in the following table. The metrics in the table below drive the overall performance of our business from year to year and are elements of our historical financial success. For 2019, the Compensation Committee decided to include a return on assets metric, replacing the previously utilized “Total Debt / EBITDA” (leverage) metric. The Compensation Committee views the return on assets metric as more reflective of company performance and believes that it serves as a more appropriate metric for our annual incentive program. Performance Metric What it Measures Rationale for Metric Net Income from Operations Profitability • Measures the effectiveness of our management team’s execution of our strategic and operational plans • Reflects business variables and factors that are within management’s control or are influenced by decisions made by executives Average Finance Receivables Loan growth • Measures our ability to grow our business • We establish annual growth objectives for our management team for loans that we originate and service Net Credit Losses as a Percentage of Average Finance Receivables Loan portfolio control Return on Assets Efficiency of Profitability Total General and Administrative Expense as a Percentage of Total Revenue Expense control • Measures the control our management team exerts on our loan portfolio • It is ultimately a measure of the quality of underwriting policies and decisions and the effectiveness of collection efforts • We guide our management team to specific aggregate net credit loss goals each year that, combined with our average finance receivables measure, attempt to balance attractive growth with effective portfolio control • Measures the effectiveness of our management team’s utilization of assets to generate earnings • Holds management accountable for growing the loan portfolio in a controlled and profitable manner • Measures the effectiveness with which our management team utilizes our corporate resources and minimizes our corporate expenses Our 2019 annual incentive awards were based to a lesser extent (15%) on our Compensation Committee’s assessment of our executive team’s achievement of its short-term strategic objectives, which are consistent with our Board-approved financial and business plans for the Company. In light of ongoing, significant strategic projects and initiatives, our Compensation Committee believes that it is important to appropriately incentivize the achievement of strategic objectives (which often cannot be measured quantitatively) by linking their achievement (and the quality thereof) to our executives’ compensation. P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 33 2019 Annual Incentive Program Performance Targets, Results, and Payouts The following table provides for 2019 detail regarding the threshold and target levels of performance set by the Compensation Committee for each performance metric, the weighting applied to each metric, our actual annual performance pursuant to each metric, and the percentage payout for each metric and in total. A threshold level of performance must be exceeded in order to earn any award, and each executive is eligible to earn up to 150% of his target award based upon the achievement of the performance goals established by the Compensation Committee. Performance Metric Threshold Performance Target Performance Maximum Performance Actual Performance Percentage Weight Percentage Payout Net Income from Operations $31,528,188 $45,040,269 $54,048,323 $44,732,102 25.0% Average Finance Receivables $896,263,923 $995,848,803 $1,095,433,683 $985,745,182 15.0% Net Credit Losses Percentage Total G&A Expense Percentage Return on Assets Achievement of Strategic Objectives 10.75% 46.95% 3.72% N/A 9.35% 43.67% 4.38% N/A 7.95% 40.39% 5.04% N/A 9.71% 44.13% 4.34% N/A 15.0% 10.0% 20.0% 15.0% 100% 24.7% 14.3% 13.1% 9.3% 19.3% 0% 80.7% As described above, 15% of the total annual incentive program award opportunity is linked to our Compensation Committee’s assessment of our executive team’s achievement of its short-term strategic objectives. For 2019, our Compensation Committee elected to pay 0% of this award opportunity due to poor operational management of our information technology infrastructure that led to an extended outage of our loan management system, as previously disclosed by the Company in February 2020. Target annual incentive levels and actual performance-based annual cash awards for each of our NEOs for 2019 are detailed below, based upon the 80.7% performance achievement detailed above, except as otherwise noted. Name Robert W. Beck Peter R. Knitzer John D. Schachtel Donald E. Thomas Daniel J. Taggart Brian J. Fisher 2019 Eligible Base Salary 2019 Target Award as % of Salary Target Award Actual Award $178,630 $600,000 $400,000 $266,301 $375,000 $335,000 100% 150% 100% 100% 100% 100% $178,630 $900,000 $400,000 $266,301 $375,000 $335,000 $178,630 $726,300 $322,800 $214,905 $302,625 $270,345 Note: Mr. Beck commenced employment with the Company on July 22, 2019, and his target bonus award was pro-rated. Due to the commencement of his service mid-year and his outstanding achievements thereafter, including a smooth CFO transition, the Compensation Committee determined to pay Mr. Beck 100% of his pro-rated target bonus. The target award percentages described above were determined by the Compensation Committee and are calibrated so that the total compensation opportunity for each executive officer is commensurate with that executive’s role and responsibilities with us. Generally, if an executive voluntarily terminates his employment during the performance year, he becomes ineligible to receive payment of a performance-based annual cash award. Pursuant to his retirement agreement, Mr. Thomas received a pro-rated, performance-based annual cash award based upon the number of days of service in 2019, subject to our achievement of the performance goals established by the Compensation Committee for 2019. See “Summary of Employment Arrangements with Executive Officers – Retirement Agreement with Former Chief Financial Officer.” Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 34 Annual Incentive Program Opportunities in 2020 Our Compensation Committee has not yet acted to establish the parameters of our annual incentive program for 2020. In light of the recent economic events resulting from the COVID-19 pandemic, the Compensation Committee, in conjunction with our independent compensation consultant, is currently evaluating an appropriate structure for the 2020 annual incentive program. However, once that structure is determined, we expect that the target 2020 incentive levels for each of our NEOs will be set at 150% of base salary in the case of Mr. Beck and 100% of base salary in the case of Messrs. Schachtel, Fisher, and Parmar. Our Compensation Committee’s goal is to implement a short-term incentive program that is effective in motivating our executives to achieve short-term financial and operational objectives, in furtherance of our pay-for-performance compensation strategy. Long-Term Incentive Awards Our long-term incentive award grants are intended to directly align the interests of our executive officers with those of our stockholders, to give our executive officers a strong incentive to maximize stockholder returns on a long-term basis, and to aid in our recruitment and retention of key executive talent necessary to ensure our continued success. Components of Long-Term Incentive Program In 2017 and 2018, our long-term incentive program provided for the delivery of long-term incentive awards through a combination of three award vehicles: (i) non-qualified stock options, (ii) performance-contingent RSUs, and (iii) cash-settled performance units. In 2019, a service-based restricted stock award was added as a fourth component of the program in order to strengthen the retentive nature of the program and to more appropriately balance the allocation of long-term incentive award opportunities between performance-based and service-based awards. The service-based non-qualified stock options and RSAs vest in three equal annual tranches over a three- year period, subject to continued employment through the respective vesting dates. Vesting of each of the performance-contingent awards is subject to, among other things, the achievement of performance objectives over a three-year performance period that begins on January 1st of the grant year. Long-term incentive awards are scheduled to be made in the first quarter of each year. 2017 Long-Term Incentive Program Performance Targets, Results, and Payouts In 2017, we granted our then-current executive officers non-qualified stock options, performance-contingent RSUs, and cash-settled performance units. Messrs. Knitzer, Thomas, Taggart, and Fisher were employed by us in 2017 and participated in the 2017 long-term incentive program. Mr. Thomas, however, forfeited his performance- contingent RSUs and cash-settled performance units due to his resignation in 2019. The three-year performance period established under the 2017 long-term incentive program ended on December 31, 2019. Vesting of the performance-contingent RSUs and cash-settled performance units granted in 2017 was based primarily (90%) on our CAGRs of net income (in the case of the performance-contingent RSUs) and basic earnings per share (in the case of the cash-settled performance units) compared to our 2017 peer group over the three-year performance period. We refer to this portion of the performance-contingent RSU and cash-settled performance unit award opportunities as the “Objective Criteria Units.” The Objective Criteria Units were eligible to vest based on our performance relative to our peer group as follows: P r o x y S t a t e m e n t Performance Relative to Peer Group % of Objective Criteria Units Vested 50th Percentile 50th Percentile 60th Percentile 75th Percentile 0% 50% 100% 150% Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 35 The percentage of the Objective Criteria Units vested for results between the performance levels stated above is calculated using linear interpolation. Our CAGRs of net income and earnings per share compared to our peer group over the performance period were as follows: Performance Measure CAGR of Net Income CAGR of Basic EPS Performance at 25th Percentile of Peer Group Performance at 50th Percentile of Peer Group Performance at 75th Percentile of Peer Group Performance of Regional (51.4%) (45.9%) 13.5% 16.2% 26.7% 28.0% 22.9% 24.4% In calculating the performance of peer companies, the Compensation Committee excluded discontinued operations and utilized pro-forma financial statements filed by any peer company having made a significant acquisition, in each case as disclosed by the peer companies in their public filings. Where a peer company was delisted following poor financial performance, the peer company was ranked at the bottom of the peer group. Where a peer company was acquired by another peer company, the acquired company was removed from the peer group, and where a peer company was acquired by a company outside of the peer group, the acquired company’s performance was calculated using available information. Our Compensation Committee adjusted the results of one peer to normalize for a large accrual adjustment to other income that is not indicative of normal operational activity. Our Compensation Committee also removed one peer company from the analysis due to significant governance failures, material weaknesses, and financial statement restatements during the performance period, which calls into question the quality and accuracy of its reported earnings. Finally, in calculating peer company performance and our performance, the Compensation Committee adjusted actual results to normalize for certain acquisition income and expenses incurred in 2019 and the impact of the tax benefit or deficiencies related to stock compensation. Our performance at the above levels resulted in the vesting of 100% of the Objective Criteria Units associated with the performance-contingent RSU awards and 133.3% of the Objective Criteria Units associated with the cash- settled performance unit awards. Our Compensation Committee believes that vesting at these levels appropriately reflects our strong operational and financial results, validates our pay-for-performance strategy, and is supported by our total shareholder return. Vesting of the performance-contingent RSUs and cash-settled performance units granted in 2017 was also based in small part (10%) on our Compensation Committee’s qualitative assessment of our executive team’s achievement of its long-term strategic objectives between 2017 and 2019. We refer to this portion of the performance-contingent RSU and cash-settled performance unit award opportunities as the “Qualitative Criteria Units.” Our Compensation Committee elected to pay 66% of the Qualitative Criteria Units in recognition of, among other achievements, the implementation of our new loan origination and servicing platform in each of our branches; the continued customization of the loan origination and servicing platform, including for electronic payments and the online customer portal; the development and completion of custom credit scorecards for marketing and branch underwriting; material improvements in our liquidity profile, including through a $55 million increase in capacity under our senior revolving credit facility, the closing of a $125 million revolving warehouse credit facility, and the closing of three asset-backed securitization transactions; completing a $25 million stock repurchase program; the expansion of our branch footprint to two new states; improvements to our compliance management system and enterprise risk management; the introduction of several talent development initiatives, including company-wide district training branches; and the successful planning and implementation of the Company’s transition to the new accounting standard for CECL. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 36 Based upon the above results, in March 2020, our Compensation Committee determined that Messrs. Knitzer, Taggart, and Fisher vested in and earned 96.6% of their total target performance-contingent RSUs and 126.6% of their total target cash-settled performance units under the 2017 long-term incentive program. The following table provides information regarding the percentage of the target performance-contingent RSUs and cash-settled performance units vested under our 2015, 2016, and 2017 long-term incentive programs, which were eligible to vest on December 31st of 2017, 2018, and 2019, respectively: Long-Term Incentive Program Award Component 2015 Grant Year 2016 Grant Year 2017 Grant Year Performance-Contingent RSUs Cash-Settled Performance Units 0% 0% 116.5% 116.5% 96.6% 126.6% Long-Term Incentive Awards in 2019 In 2019, as part of the long-term incentive program, we granted the following awards to Messrs. Beck, Knitzer, Schachtel, Taggart, Fisher, and other key employees: LTI Vehicle Principal Performance Metric Performance Period Weighting Recipients Performance- Contingent Restricted Stock Units CAGR of net income compared to a peer group Three years, from January 1, 2019 through December 31, 2021 One-fourth of total target award Cash-Settled Performance Units CAGR of basic earnings per share compared to a peer group Three years, from January 1, 2019 through December 31, 2021 One-fourth of total target award Non-Qualified Stock Options Built-in metric of stock price growth Restricted Stock Awards N/A N/A – Options vest in equal installments on December 31, 2019, 2020, and 2021, subject to continued employment N/A – Shares vest in equal installments on December 31, 2019, 2020, and 2021, subject to continued employment One-fourth of total target award One-fourth of total award Executive officers and several other key C-suite employees Executive officers and several other key C-suite employees Executive officers and several other key C-suite employees Executive officers and several other key C-suite employees P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 37 Vesting of the performance-contingent RSUs and cash-settled performance units is based primarily (90%) upon our performance over the three-year performance period compared to our peer group, as described in the table below. Failure to meet the threshold level of performance results in the forfeiture of the associated award. LTI Vehicle Principal Performance Metric Performance Level Required Performance % of Target Award Earned and Vested Performance- Contingent Restricted Stock Units CAGR of net income compared to our peer group for the period from January 1, 2019 through December 31, 2021 Cash-Settled Performance Units CAGR of basic earnings per share compared to our peer group for the period from January 1, 2019 through December 31, 2021 Threshold Performance Target Performance Maximum Performance Threshold Performance Target Performance Maximum Performance Meets or Exceeds Peer Group Performance at the 50th Percentile Meets or Exceeds Peer Group Performance at the 60th Percentile Meets or Exceeds Peer Group Performance at the 75th Percentile Meets or Exceeds Peer Group Performance at the 50th Percentile Meets or Exceeds Peer Group Performance at the 60th Percentile Meets or Exceeds Peer Group Performance at the 75th Percentile 50% 100% 150% 50% 100% 150% To a lesser extent (10%), vesting of the performance-contingent RSUs and cash-settled performance units is based on our Compensation Committee’s assessment of our executive team’s achievement of its long-term strategic objectives over the same performance period. In light of ongoing, significant strategic projects and initiatives, our Compensation Committee believes it is important to appropriately incentivize the achievement of strategic objectives (which often cannot be measured quantitatively) by linking their achievement (and the quality thereof) to our executives’ compensation. Mr. Beck became our Executive Vice President and Chief Financial Officer effective as of July 22, 2019. At the time, Mr. Beck’s employment agreement established his aggregate long-term incentive compensation opportunity level for 2019 and 2020, and provided that he would be granted long-term incentive award opportunities through a combination of the four award vehicles described above—non-qualified stock options, restricted stock award, performance-contingent RSUs, and cash-settled performance units. Under his 2019 employment agreement, the aggregate grant date target value of Mr. Beck’s 2019 and 2020 long-term incentive compensation opportunities was $900,000 (calculated as approximately $600,000 per year on an annualized basis for the period commencing on Mr. Beck’s first day of employment, July 22, 2019, through the end of 2020). Under his 2019 employment agreement, Mr. Beck’s long-term incentive compensation for 2019 and 2020 was split among non-qualified stock options, a restricted stock award, performance-contingent RSUs, and cash-settled performance units having a grant date target value of $225,000 each. Because Mr. Beck’s employment commenced after the beginning of the performance period associated with the performance-contingent RSUs and cash-settled performance units that we granted under our 2019 long-term incentive program, the Compensation Committee determined that the award of Mr. Beck’s performance-contingent RSUs and cash-settled performance units should occur as part of the 2020 long-term incentive program. The Compensation Committee approved Mr. Beck’s non-qualified stock option award and restricted stock award with a grant date of July 22, 2019, the date he commenced employment. See “Summary of Employment Arrangements with Executive Officers – Employment Agreements with Executive Officers” below for information regarding the new employment agreement that we entered into with Mr. Beck following his appointment as President and Chief Executive Officer. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 38 P r o x y S t a t e m e n t The grant date target values for awards granted to our NEOs in 2019 are detailed in the following table. For the performance-contingent RSUs and cash-settled performance units, a threshold level of performance must be exceeded for the awards to have any value, and participants are eligible to earn up to 150% of their target award based upon the achievement of the performance goals established by the Compensation Committee. For the non-qualified stock options, our stock price must exceed the exercise price (which is set at our closing stock price on the grant date) for the options to have any value. 2019 Target Grant Date Value Name Total Performance- Contingent RSUs Cash-Settled Performance Units Non-Qualified Stock Options Restricted Stock Robert W. Beck Peter R. Knitzer John D. Schachtel Daniel J. Taggart Brian J. Fisher $450,000 $2,100,000 $600,000 $662,500 $435,000 N/A $525,000 $150,000 $140,625 $83,750 N/A $525,000 $150,000 $140,625 $83,750 $225,000 $525,000 $150,000 $190,625 $133,750 $225,000 $525,000 $150,000 $190,625 $133,750 Note: For 2019, the Compensation Committee did not grant any long-term incentive awards to Mr. Thomas in light of his retirement, consistent with the terms of his retirement agreement. Long-Term Incentive Awards in 2020 Our Compensation Committee has not yet acted to establish all of the parameters of our long-term incentive program for 2020. Due to the recent economic impact of COVID-19, the Compensation Committee, in conjunction with our independent compensation consultant, is currently evaluating the overall structure of the 2020 long-term incentive program, including appropriate performance measures. It is the Compensation Committee’s goal to ensure that the 2020 structure continues to align with the overall objectives of the Company’s long-term incentive program in the wake of the COVID-19 global pandemic. At this time, the Compensation Committee has acted in 2020 to grant RSAs and non-qualified stock options in a manner consistent with the 2019 long-term incentive program. As the COVID-19 pandemic and its impact develops, the Compensation Committee will continue to work with Veritas to structure the remaining performance- based portions of the 2020 long-term incentive program to align the interests of our executive officers with those of our stockholders, to promote our pay-for-performance philosophy, to give our executive officers a strong incentive to maximize stockholder returns on a long-term basis, and to retain executive talent in order to promote our continued success. Our Compensation Committee continues to believe that our long-term incentive program furthers our pay-for-performance objectives, creates a compelling recruitment and retention tool, appropriately focuses our executives on the achievement of long-term financial and business goals, and strengthens the alignment of our executives’ interests with those of our stockholders. Completion Bonus Pursuant to Retirement Agreement with Former Chief Financial Officer Pursuant to his retirement agreement, Mr. Thomas earned a completion bonus of $200,000 following the completion of an orderly transition of duties and responsibilities to a new Chief Financial Officer in July 2019. See “Summary of Employment Arrangements with Executive Officers – Retirement Agreement with Former Chief Financial Officer.” Key Employee Retention Program In 2014, even when including the increased target value of the short- and long-term incentive awards, total compensation levels for our executive officers were below the median of our peer group. Further, the difficulties we faced in 2014 resulted in a significant deficit in terms of realized compensation. As a result, in 2015, our Compensation Committee, in consultation with Veritas, determined to implement a key employee retention program as an incentive and retention vehicle for certain critical executives. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 39 Pursuant to the key employee retention program, the Compensation Committee granted the following awards to certain executive officers in 2015: (i) non-qualified stock options, which are subject to the terms of the Regional Management Corp. 2011 Stock Incentive Plan (as amended, the “2011 Plan”), and (ii) a cash retention award. In March 2016, the Compensation Committee elected to continue the key employee retention program with grants of the following awards to certain executive officers: (i) RSAs, which are subject to the terms of the 2015 Plan, and (ii) cash retention awards. We have not granted any retention awards to our executive officers since 2016. Perquisites We also provide various other limited perquisites and other personal benefits to our executive officers that are intended to be part of a competitive compensation program. For 2019, these benefits included: • The ability to participate in a comprehensive voluntary annual health screening; • Monthly automobile allowance of $1,150 to Mr. Thomas until his retirement; • • • Payment of travel expenses on behalf of Mr. Knitzer and Mr. Schachtel for travel to and from their out-of-state personal residences; Payment of legal expenses on behalf of Mr. Knitzer and Mr. Beck in connection with the review of their employment agreements; Payment of relocation benefits for Mr. Beck; • Mobile phone allowance payments to Messrs. Knitzer, Schachtel, Thomas, and Taggart; and • Payment of supplemental long-term disability premiums and associated taxes, which is intended, in part, to insure against our severance obligations in the event of a disability termination event under an executive’s employment agreement. We also offer our executive officers benefits that are generally available to all of our employees, including 401(k) plan matching contributions, health insurance, disability insurance, dental insurance, vision insurance, life insurance, paid time off, and the reimbursement of qualified business expenses. The Compensation Committee believes that these benefits are comparable to those offered by other companies that compete with us for executive talent and are consistent with our overall compensation program. Perquisites are not a material part of our compensation program. Other Compensation Policies, Practices, and Matters Stock Ownership and Retention Policy The Compensation Committee believes that significant ownership of common stock by our executives and directors directly aligns their interests with those of our stockholders and also helps to balance the incentives for risk-taking inherent in equity-based awards made to executives. Under our Stock Ownership and Retention Policy, executives and directors are subject to the following ownership guidelines: Covered Person Chief Executive Officer Other covered employees (including NEOs) Directors Ownership Guideline 5x annual base salary 2x annual base salary 5x annual cash retainer Persons covered by the policy are expected to utilize grants under equity compensation plans to reach the levels of ownership expected by the policy. The policy also incorporates a retention element requiring such persons to retain 50% of the net shares resulting from the vesting or exercise of equity awards to obtain the required ownership under the policy. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 40 P r o x y S t a t e m e n t Clawback Policy We have also adopted a Compensation Recoupment Policy, or “clawback policy.” Under the clawback policy, the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer, any other person who is an executive officer, and such other persons as may be determined by the Board or the Compensation Committee, may be required to return to us and/or forfeit all or a portion of any cash-based incentive compensation and/or equity- based incentive compensation received by such covered person. Such a return or forfeit is required, unless the Compensation Committee determines otherwise, if (i) compensation is received based on financial statements that are subsequently restated in a way that would decrease the amount of the award to which such person was entitled and the restatement is based in whole or in part on the misconduct of the covered person, (ii) such compensation was received by the covered person and the Compensation Committee determines that such person has violated a non-competition, non-solicitation, confidentiality, or other restrictive covenant applicable to such person, or (iii) recoupment is otherwise required under applicable law. Prohibition Against Hedging and Pledging As stated in our Code of Conduct, directors, officers, employees, and their designees may not engage in activities that are designed to profit from trading activity or hedge against decreases in the value of our securities. This includes purchasing any financial instrument or contract, including prepaid variable forward contracts, equity swaps, collars, and exchange traded funds, which is designed to hedge or offset any risk of decrease in the market value of our common stock. These prohibitions apply regardless of whether the equity securities have been granted to the directors, executive officers, or other employees as part of their compensation or are held, directly or indirectly, by such persons or their designees. In addition, pursuant to our Stock Ownership and Retention Policy, shares subject to the retention requirements of the policy may not be pledged, hypothecated, or made subject to execution, attachment, or similar process. No Excise Tax Gross-Ups We did not provide any of our executive officers with a “gross-up” or other reimbursement payment for any tax liability that he might owe as a result of the application of Code Sections 280G, 4999, or 409A during 2019, and we have not agreed and are not otherwise obligated to provide any NEO with such a “gross-up” or other reimbursement. Deductibility of Executive Compensation Code Section 162(m) generally limits our ability to deduct for tax purposes compensation over $1,000,000 to our principal executive officer, principal financial officer, or any one of our other three highest paid executive officers. However, in the case of tax years commencing before 2018, Code Section 162(m) exempted qualifying performance-based compensation from the deduction limit if certain requirements were met. Code Section 162(m) was amended in December 2017 by the Tax Cuts and Jobs Act to eliminate the exemption for performance-based compensation (other than with respect to payments made pursuant to certain “grandfathered” arrangements entered into prior to November 2, 2017, that are not materially modified after that date and that would otherwise have been deductible under Code Section 162(m) prior to the changes made by the Tax Cuts and Jobs Act) and to expand the group of current and former executive officers who may be covered by the deduction limit under Code Section 162(m). As a result, compensation paid to certain of our executive officers in excess of $1,000,000 will no longer be deductible (other than with respect to certain “grandfathered” arrangements, as noted above). Notwithstanding the elimination of the exemption for performance-based compensation, because of the importance of linking pay and performance, our 2019 and 2020 executive compensation programs continue to impose performance conditions on a significant portion of awards to our executive officers. The Compensation Committee will review and consider the deductibility of executive compensation under Code Section 162(m) and may authorize certain payments that will be in excess of the $1,000,000 limitation. The Compensation Committee believes that it needs to balance the benefits of designing awards that are tax-deductible with the need to design awards that attract, retain, and reward executives responsible for our success. While mindful of the benefit to us of the full deductibility of compensation, the Compensation Committee believes that it should Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 41 not be constrained by the requirements of Code Section 162(m) where those requirements would impair flexibility in compensating our executive officers in a manner that can best promote our corporate objectives, which the Compensation Committee believes aligns our executive officers’ interests with our stockholders’ interests, and thus is in the best interests of our stockholders. Payments Upon Termination and Change-in-Control Pursuant to the terms of each of their employment agreements and certain long-term incentive award agreements, our NEOs are entitled to certain benefits upon the termination of their employment with us, the terms of which are described below under “Summary of Employment Arrangements with Executive Officers.” Risk Assessment of Compensation Policies and Practices We have assessed our compensation programs for all employees and have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on our company. We believe that our compensation programs reflect an appropriate mix of compensation elements and balance current and long-term performance objectives, cash and equity compensation, and risks and rewards. During 2019, the Compensation Committee reviewed our compensation policies and practices for all employees, including our NEOs, particularly as they relate to risk management practices and risk-taking incentives. As part of its review, the Compensation Committee discussed with management the ways in which risk is effectively managed or mitigated as it relates to our compensation programs and policies. Based on this review, the Compensation Committee believes that our compensation programs do not encourage excessive risk but instead encourage behaviors that support sustainable value creation. The following features of our executive compensation program illustrate this point. • Review by Independent Compensation Consultant. Our executive compensation programs have been reviewed and analyzed by an independent compensation consultant. • Compensation Committee Oversight. Our executive compensation programs are regularly reviewed and overseen by an independent Compensation Committee that retains the discretion to reduce compensation based on corporate and individual performance and other factors. • Mix of Incentives. Our compensation programs provide an appropriate mix of short-term and long-term incentives, as well as cash and equity opportunities. • Mix of Performance Metrics. The performance metrics associated with our incentive programs incorporate a variety of drivers of the business over both annual and three-year time horizons.They also include a qualitative component, providing the Compensation Committee with flexibility beyond its inherent negative discretion. • Strong Link to Stockholder Interests. Equity components and long-term performance metrics create a strong alignment between our executives’ interests and our stockholders’ interests. Because long-term incentives typically vest over a three-year period, our executives will always have unvested awards that could decrease in value if our business is not well-managed for the long term. • Alignment with Annual Budget and Long-Term Strategic Plan. Performance metrics in our short- and long-term incentive programs are aligned with both our annual budget and our long-term strategic plan. • Appropriate Policies. We have adopted a “clawback” policy, a stock ownership and retention policy, and prohibitions against hedging and pledging, thereby creating additional protections for our company and encouraging an alignment of our executives’ and stockholders’ interests. • Field Incentive Plan. Our operations field incentive plan is focused on growth, control, and profit—the three primary drivers of success in our branches. This creates appropriate alignment of employee incentive opportunities with company goals. • Administration and Disclosure. Administrative procedures, communication, and disclosure processes closely align with “best practices.” • Securities Trading Policy. Officers must obtain permission from the General Counsel before the purchase or sale of any shares, even during an open trading period. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 42 Based on the factors above, we believe that our NEOs and other employees are encouraged to manage our company in a prudent manner and that our incentive programs are not designed to encourage our NEOs or other employees to take excessive risks or risks that are inconsistent with the Company’s and our stockholders’ best interests. In addition, we have in place various controls and management processes that help mitigate the potential for incentive compensation plans to materially and adversely affect the Company. P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 43 COMPENSATION COMMITTEE REPORT The Compensation Committee has reviewed and discussed the foregoing “Compensation Discussion and Analysis” with management. Based upon such review, the related discussions, and such other matters deemed relevant and appropriate to the Compensation Committee, the Compensation Committee has recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 through incorporation by reference to this Proxy Statement. Members of the Compensation Committee: Steven J. Freiberg (Chair) Roel C. Campos Maria Contreras-Sweet Carlos Palomares The Compensation Committee report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate the Compensation Committee report by reference therein. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 44 P r o x y S t a t e m e n t Summary Compensation Table EXECUTIVE COMPENSATION TABLES The following table sets forth the cash and other compensation that we paid to our named executive officers or that was otherwise earned by our named executive officers for their services in all employment capacities during the fiscal years ended December 31, 2019, 2018, and 2017. Name and Principal Position(1) Robert W. Beck, President and Chief Executive Officer (Former Executive Vice President and Chief Financial Officer) Peter R. Knitzer,(2) Former President and Chief Executive Officer John D. Schachtel, Executive Vice President and Chief Operating Officer Donald E. Thomas, Former Executive Vice President and Chief Financial Officer Daniel J. Taggart, Former Executive Vice President and Chief Credit Risk Officer Brian J. Fisher, Executive Vice President, General Counsel, and Secretary Year 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 Salary ($)(3) Bonus ($)(4) Stock Awards ($)(5) Option Awards ($)(6) Non-Equity Incentive Plan Compensation ($)(7) All Other Compensation ($)(8) Total ($) 178,630 — — 600,000 550,000 530,000 400,000 360,000 207,123 266,301 355,000 342,000 375,000 330,000 318,000 335,000 300,000 240,000 — — — — — — — — — 200,000 — 66,667 — — — — — 50,000 224,981 — — 1,049,946 733,314 949,985 299,984 274,986 — — 177,495 170,994 331,221 109,977 105,987 217,459 99,977 80,000 224,990 — — 524,997 733,327 — 149,994 — 299,994 — 177,499 170,995 190,622 109,998 105,998 133,748 100,000 79,994 178,630 — — 1,928,715 548,350 522,580 322,800 358,920 204,224 214,905 547,375 337,212 436,789 448,648 313,548 371,601 410,774 236,640 73,104 — — 82,747 83,701 42,552 61,705 72,659 21,239 35,021 45,246 24,900 20,022 25,993 8,810 15,910 16,963 10,800 880,335 — — 4,186,405 2,648,692 2,045,117 1,234,483 1,066,565 732,580 716,227 1,302,615 1,112,768 1,353,654 1,024,616 852,343 1,073,718 927,714 697,434 (1) Messrs. Beck, Knitzer, Schachtel, Thomas, Taggart, and Fisher commenced employment effective as of July 22, 2019, August 1, 2016, May 30, 2017, January 2, 2013, January 5, 2015, and January 14, 2013, respectively. Mr. Knitzer, Mr. Thomas, and Mr. Taggart’s employment terminated on March 26, 2020, August 31, 2019, and February 14, 2020, respectively. Mr. Beck was promoted to President and Chief Executive Officer effective March 26, 2020. (2) (3) (4) Immediately prior to his appointment as our Chief Executive Officer, Mr. Knitzer served as a non-employee director on our Board, a role in which he had served since his initial appointment in July 2015. The table above reflects the compensation paid to Mr. Knitzer in his capacity as our Chief Executive Officer. Following the effectiveness of his appointment as our Chief Executive Officer, Mr. Knitzer was no longer entitled to receive separate compensation for his service on the Board. The amounts represent annual base salaries, pro-rated for any partial year. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Base Salary.” For 2019, Mr. Thomas received a completion bonus in the amount of $200,000 pursuant to the terms of his retirement agreement. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Completion Bonus Pursuant to Retirement Agreement with Former Chief Financial Officer.” For 2017, the amounts represent installment payments totaling two-thirds of cash retention awards granted to Mr. Thomas and Mr. Fisher in 2016 pursuant to our key employee retention program. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Key Employee Retention Program.” (5) Amounts shown are the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For a discussion of the assumptions made in such valuation, see note 16 of the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. In 2019, Messrs. Knitzer, Schachtel, Taggart, and Fisher were granted performance-contingent RSUs having the following grant date fair values: Mr. Knitzer, $524,973; Mr. Schachtel, $149,992; Mr. Taggart, $140,621; Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 45 and Mr. Fisher, $83,726 (and a maximum potential value of $787,446; $224,989; $210,932; and $125,589, respectively). The actual number of RSUs, if any, that may be earned may range from 0% to 150% of the target number of units, based primarily (90%) on our CAGR of net income compared to our peer group over the performance period, January 1, 2019 through December 31, 2021, and to a lesser extent (10%) on our Compensation Committee’s assessment of our executive team’s achievement of its long-term strategic objectives over the same time period. In 2019, Messrs. Beck, Knitzer, Schachtel, Taggart, and Fisher were granted RSAs having the following grant date fair values: Mr. Beck, $224,981; Mr. Knitzer, $524,973; Mr. Schachtel, $149,992; Mr. Taggart, $190,600; and Mr. Fisher, $133,733. One-third of the shares subject to the RSA granted to each of Messrs. Knitzer, Schachtel, Taggart, and Fisher vests on each of December 31, 2019, December 31, 2020, and December 31, 2021, so long as such employee’s employment continues (or is deemed to continue) from the grant date through the respective vesting dates or as otherwise provided in the applicable RSA agreement. The shares subject to the RSA granted to Mr. Beck vest on December 31, 2019 (20%), December 31, 2020 (40%), and December 31, 2021 (40%), so long as Mr. Beck’s employment continues (or is deemed to continue) from the grant date through the respective vesting dates or as otherwise provided in the RSA agreement. In 2018, Messrs. Knitzer, Schachtel, Thomas, Taggart, and Fisher were granted performance-contingent RSUs having the following grant date fair values: Mr. Knitzer, $733,314; Mr. Schachtel, $274,986; Mr. Thomas, $177,495; Mr. Taggart, $109,977; and Mr. Fisher, $99,977 (and a maximum potential value of $1,099,970; $412,478; $266,228; $164,952; and $149,951, respectively). The actual number of RSUs, if any, that may be earned may range from 0% to 150% of the target number of units, based primarily (90%) on our CAGR of net income compared to our peer group over the performance period, January 1, 2018 through December 31, 2020, and to a lesser extent (10%) on our Compensation Committee’s assessment of our executive team’s achievement of its long-term strategic objectives over the same time period. In 2017, Messrs. Knitzer, Thomas, Taggart, and Fisher were granted performance-contingent RSUs having the following grant date fair values: Mr. Knitzer, $949,985; Mr. Thomas, $170,994; Mr. Taggart, $105,987; and Mr. Fisher, $80,000 (and a maximum potential value of $1,424,967; $256,492; $158,980; and $120,000, respectively). The actual number of RSUs, if any, that may have been earned ranged from 0% to 150% of the target number of units, based primarily (90%) on our CAGR of net income compared to our peer group over the performance period, January 1, 2017 through December 31, 2019, and to a lesser extent (10%) on our Compensation Committee’s assessment of our executive team’s achievement of its long-term strategic objectives over the same time period. In March 2020, based upon results achieved during the performance period, our Compensation Committee determined that Messrs. Knitzer, Taggart, and Fisher earned 96.6% of their 2017 target RSUs. Mr. Thomas forfeited his 2017 RSUs due to his resignation in 2019. The performance-contingent RSUs and RSAs are subject to further terms and conditions, including as to vesting, as set forth in an award agreement. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Long-Term Incentive Awards.” (6) Amounts shown are the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For a discussion of the assumptions made in such valuation, see note 16 of the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. For 2019, the option awards granted to Messrs. Knitzer, Schachtel, Taggart, and Fisher vest in three equal installments on each of December 31, 2019, 2020, and 2021. The option award granted to Mr. Beck vests on December 31, 2019 (20%), December 31, 2020 (40%), and December 31, 2021 (40%). For 2018, the option awards granted to Messrs. Knitzer, Thomas, Taggart, and Fisher vest in three equal installments on each of December 31, 2018, 2019, and 2020. For 2017, the option awards granted to Messrs. Thomas, Taggart, and Fisher vest in three equal installments on each of December 31, 2017, 2018, and 2019. The option award granted to Mr. Schachtel vests on December 31, 2017 (20%), December 31, 2018 (40%), and December 31, 2019 (40%). The option awards are subject to further terms and conditions, including as to vesting, as set forth in an award agreement. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Long-Term Incentive Awards.” Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 46 (7) For 2019, the amounts for Messrs. Beck, Schachtel, and Thomas represent performance-based annual cash awards earned in 2019. For Messrs. Knitzer, Taggart, and Fisher, the amounts represent performance-based annual cash awards earned in 2019, and cash-settled performance units that were granted in 2017 and earned over a performance period of January 1, 2017 through December 31, 2019. In the case of the performance- based annual cash awards, Messrs. Knitzer, Taggart, and Fisher earned the following amounts: Mr. Knitzer, $726,300; Mr. Taggart, $302,625; and Mr. Fisher, $270,345. In the case of the cash-settled performance units, Messrs. Knitzer, Taggart, and Fisher earned the following amounts: Mr. Knitzer, $1,202,415; Mr. Taggart, $134,164; and Mr. Fisher, $101,256. We paid all such earned amounts in 2020. For 2018, the amounts for Messrs. Knitzer and Schachtel represent performance-based annual cash awards earned in 2018. For Messrs. Thomas, Taggart, and Fisher, the amounts represent performance-based annual cash awards earned in 2018, and cash-settled performance units that were granted in 2016 and earned over a performance period of January 1, 2016 through December 31, 2018. In the case of the performance-based annual cash awards, Messrs. Thomas, Taggart, and Fisher earned the following amounts: Mr. Thomas, $353,935; Mr. Taggart, $329,010; and Mr. Fisher, $299,100. In the case of the cash-settled performance units, Messrs. Thomas, Taggart, and Fisher earned the following amounts: Mr. Thomas, $193,440; Mr. Taggart, $119,638; and Mr. Fisher, $111,674. We paid all such earned amounts in 2019. For 2017, the amounts represent performance-based annual cash awards earned in each such year and paid in the following year. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Performance-Based Annual Cash Awards” and “Compensation Discussion and Analysis – Elements of Compensation – Long-Term Incentive Awards.” (8) The following table provides detail regarding the amounts in the “All Other Compensation” column. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Perquisites.” Name Robert W. Beck Peter R. Knitzer John D. Schachtel Donald E. Thomas Daniel J. Taggart Brian J. Fisher 401(k) Plan Match ($) — — — 11,200 11,000 8,969 11,200 11,000 — 11,200 11,000 10,800 11,200 11,000 6,605 11,200 11,000 10,800 Year 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 Travel Expense to/ from Personal Residence ($) Optional Annual Health Screening ($) Automobile Allowance ($) Mobile Phone Allowance ($) Legal Expenses ($) Travel with Spouse ($) Relocation Benefits ($) Long-Term Disability Insurance Benefits ($) — — — 30,088 39,551 32,683 26,097 33,088 18,327 — — — — — — — — — — — — — 3,546 — 2,686 3,966 — — — — — 4,563 — — — — — — — — — — — — — 9,200 13,800 13,800 — — — — — — — — — 1,085 900 900 900 900 525 600 900 300 900 900 900 — — — 7,500 — — 10,000 — — — — 2,387 — — — — — 1,305 — — — — — — — — — 5,669 3,271 — — — — — — — — — — 65,604 — — — — — — — — — — — — — — — — — — — — 30,374 28,704 — 15,153 20,434 — 14,021 19,546 — 7,922 9,530 — 4,710 5,963 — Total ($) 73,104 — — 82,747 83,701 42,552 61,705 72,659 21,239 35,021 45,246 24,900 20,022 25,993 8,810 15,910 16,963 10,800 P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 47 Grants of Plan-Based Awards The following table provides information concerning annual and long-term incentive awards granted in 2019 to each of our named executive officers pursuant to our Annual Incentive Plan and our 2015 Plan. Estimated Future Payouts Under Non-Equity Incentive Plan Awards Estimated Future Payouts Under Equity Incentive Plan Awards Name Award Type(1) Grant Date Threshold ($)(2) Target ($) Maximum ($) Threshold (#)(2) Target (#) Maximum (#) Robert W. Beck Annual 07/10/19 NQSO 07/22/19 RSA 07/22/19 Peter R. Knitzer Annual 07/10/19 NQSO 02/06/19 RSU 02/06/19 CSPU 02/06/19 RSA 02/06/19 John D. Schachtel Donald E. Thomas Annual 07/10/19 NQSO 02/06/19 RSU 02/06/19 CSPU 02/06/19 RSA 02/06/19 Annual 07/10/19 Daniel J. Taggart Annual 07/10/19 NQSO 02/06/19 RSU 02/06/19 CSPU 02/06/19 RSA 02/06/19 Brian J. Fisher Annual 07/10/19 NQSO 02/06/19 RSU 02/06/19 CSPU 02/06/19 RSA 02/06/19 — 178,630 267,945 — 900,000 1,350,000 236,250 525,000 787,500 8,470 18,823 28,234 — 400,000 600,000 67,500 150,000 225,000 — — 266,301 399,452 375,000 562,500 63,281 140,625 210,937 — 335,000 502,500 37,687 83,750 125,624 2,420 5,378 8,067 2,268 5,042 7,563 1,350 3,002 4,503 All Other Stock Awards: Number of Shares of Stock or Units (#) All Other Option Awards: Number of Securities Underlying Options (#) Exercise or Base Price of Option Awards ($/Sh) 21,489 25.35 43,496 27.89 12,427 27.89 15,793 27.89 11,081 27.89 8,875 18,823 5,378 6,834 4,795 Grant Date Fair Value of Stock and Option Awards ($)(3) 224,990 224,981 524,997 524,973 524,973 149,994 149,992 149,992 190,622 140,621 190,600 133,748 83,726 133,733 (1) “Annual” refers to performance-based annual cash incentive award opportunities granted under our Annual Incentive Plan. “NQSO” refers to non-qualified stock options, “RSU” refers to performance-contingent restricted stock units, “CSPU” refers to cash-settled performance units (with each unit’s target value denominated as $1.00), and “RSA” refers to restricted stock award, each granted under our 2015 Plan. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Performance-Based Annual Cash Awards” and “Compensation Discussion and Analysis – Elements of Compensation – Long-Term Incentive Awards.” (2) The threshold number of units indicated will be earned only if a threshold level of performance is achieved. (3) Amounts shown are the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For a discussion of the assumptions made in such valuation, see note 16 of the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. For performance-contingent RSUs, the grant date fair value is calculated using the target number of shares. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 48 Outstanding Equity Awards at Fiscal Year-End The following table provides information concerning equity awards that were outstanding as of December 31, 2019, for each of our named executive officers. Option Awards Stock Awards Name Robert W. Beck Peter R. Knitzer(10) John D. Schachtel Donald E. Thomas Daniel J. Taggart(11) Brian J. Fisher Number of Securities Underlying Unexercised Options (#) Exercisable 4,297 5,111 8,422 113,636 39,458 14,498 34,403 4,142 100,000 26,500 19,867 32,500 23,042 21,444 12,708 4,775 13,194 13,262 11,817 5,918 5,264 9,644 11,500 13,143 12,379 8,918 5,380 3,693 Number of Securities Underlying Unexercised Options (#) Unexercisable 17,192(2) — — — 19,729(3) 28,998(4) — 8,285(4) — — — — — — — — — — — 2,960(3) 10,529(4) — — — — — 2,691(3) 7,388(4) Option Exercise Price ($) Option Expiration Date 25.35 19.42 15.89 18.90 28.25 27.89 20.00 27.89 16.73 33.93 17.76 15.06 14.75 17.08 19.99 28.25 15.24 17.08 19.99 28.25 27.89 17.76 15.06 14.75 17.08 19.99 28.25 27.89 07/22/29 07/28/25 05/04/26 08/01/26 02/07/28 02/06/29 05/30/27 02/06/29 01/02/23 12/31/23 08/31/24 08/31/24 08/31/24 08/31/24 08/31/24 08/31/24 01/05/25 03/29/26 03/15/27 02/07/28 02/06/29 10/01/24 03/11/25 04/22/25 03/29/26 03/15/27 02/07/28 02/06/29 Number of Shares or Units of Stock that Have Not Vested (#) Market Value of Shares or Units of Stock that Have Not Vested ($)(1) 7,100(5) 12,549(6) 213,213 376,846 3,586(6) 107,688 — — 4,556(6) 136,817 3,197(6) 96,006 Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) — 45,906(7) 25,958(8) 18,823(9) 9,734(8) 5,378(9) — 5,121(7) 3,893(8) 5,042(9) 3,865(7) 3,539(8) 3,002(9) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($)(1) — 1,378,557 779,519 565,255 292,312 161,501 — 153,784 116,907 151,411 116,066 106,276 90,150 P r o x y S t a t e m e n t (1) Amounts are calculated based on the closing price ($30.03) of our common stock on December 31, 2019, the last trading day of 2019. (2) (3) (4) (5) (6) (7) This option vests on December 31, 2019 (20%), December 31, 2020 (40%), and December 31, 2021 (40%). This option vests in three equal annual installments on each of December 31, 2018, 2019, and 2020. This option vests in three equal annual installments on each of December 31, 2019, 2020, and 2021. This amount represents the unvested portion of a restricted stock award, which vests on December 31, 2019 (20%), December 31, 2020 (40%), and December 31, 2021 (40%). This amount represents the unvested portion of a restricted stock award, which vests in three equal annual installments on each of December 31, 2019, 2020, and 2021. This amount represents the earned portion of a performance-contingent RSU that became eligible to vest on December 31, 2019, subject to our Compensation Committee’s certification as to the achievement of certain Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 49 performance goals. The actual number of RSUs, if any, that may have been earned ranged from 0% to 150% of the target number of units, based primarily (90%) on our CAGR of net income compared to our peer group over the performance period, January 1, 2017 through December 31, 2019, and to a lesser extent (10%) on our Compensation Committee’s assessment of our executive team’s achievement of its long-term strategic objectives over the same time period. The number of target RSUs granted to Messrs. Knitzer, Taggart, and Fisher were as follows: Mr. Knitzer, 47,523 units; Mr. Taggart, 5,302 units; and Mr. Fisher, 4,002 units. Vesting was also contingent upon the continued employment of the executive through December 31, 2019. In March 2020, based upon results achieved during the performance period, our Compensation Committee determined that Messrs. Knitzer, Taggart, and Fisher earned 96.6% of their target RSUs. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Long-Term Incentive Awards.” This amount represents a performance-contingent RSU, assuming an achievement level at target. The actual number of RSUs, if any, that may be earned may range from 0% to 150% of the target number of units set forth in the table above, based primarily (90%) on our CAGR of net income compared to our peer group over the performance period, January 1, 2018 through December 31, 2020, and to a lesser extent (10%) on our Compensation Committee’s assessment of our executive team’s achievement of its long-term strategic objectives over the same time period. Vesting is also contingent upon the continued employment of the executive through December 31, 2020, or as otherwise provided in the applicable award agreement. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Long- Term Incentive Awards.” This amount represents a performance-contingent RSU, assuming an achievement level at target. The actual number of RSUs, if any, that may be earned may range from 0% to 150% of the target number of units set forth in the table above, based primarily (90%) on our CAGR of net income compared to our peer group over the performance period, January 1, 2019 through December 31, 2021, and to a lesser extent (10%) on our Compensation Committee’s assessment of our executive team’s achievement of its long-term strategic objectives over the same time period. Vesting is also contingent upon the continued employment of the executive through December 31, 2021, or as otherwise provided in the applicable award agreement. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Long- Term Incentive Awards.” (8) (9) (10) The Board terminated Mr. Knitzer’s employment without cause, effective March 26, 2020. Pursuant to the terms of his award agreements, a pro-rata portion of his option awards and RSAs vested as of the termination date, and Mr. Knitzer forfeited the remaining shares subject to the awards. In addition, pursuant to the terms of his award agreements, Mr. Knitzer remains eligible to vest in and earn a pro-rata portion of his performance-contingent RSUs, subject to our Compensation Committee’s certification as to the achievement of relevant performance goals over the associated performance period. (11) Mr. Taggart voluntarily terminated his employment, effective February 14, 2020. As a result, Mr. Taggart forfeited all unvested awards. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 50 Option Exercises and Stock Vested The following table summarizes the exercise of options and the vesting of stock awards by each of our named executive officers during the fiscal year ended December 31, 2019. Option Awards Stock Awards Number of Shares Acquired on Exercise (#) Value Realized on Exercise ($) — — — — — — — — — — — — Number of Shares Acquired on Vesting(1) (#) Value Realized on Vesting(2) ($) 1,775 53,303 52,180 1,566,965 1,792 — 7,399 5,463 53,814 — 222,192 164,054 Name Robert W. Beck Peter R. Knitzer John D. Schachtel Donald E. Thomas Daniel J. Taggart Brian J. Fisher (1) For Messrs. Beck, Knitzer, Schachtel, Taggart, and Fisher, the amounts represent the number of shares delivered following the vesting of restricted stock subject to RSAs on December 31, 2019. For Messrs. Knitzer, Taggart, and Fisher, the amounts also include the number of shares delivered following the vesting of performance-contingent RSUs on December 31, 2019, based upon results achieved during a performance period that began on January 1, 2017 and ended on December 31, 2019, as determined by our Compensation Committee in March 2020. For additional information, see “Compensation Discussion and Analysis – Elements of Compensation – Long-Term Incentive Awards.” (2) Amounts are calculated based on the closing price ($30.03) of our common stock on December 31, 2019, the last trading day of 2019. P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 51 Equity Compensation Plan Information The following table provides information concerning the common stock that may be issued upon the exercise of options, warrants, and rights under all of our existing equity compensation plans as of December 31, 2019. At that date, there were a total of 11,013,333 shares of our common stock outstanding. Plan Category Equity Compensation Plans Approved by Security Holders 2011 Stock Incentive Plan(1) 2015 Long-Term Incentive Plan(2) Equity Compensation Plans Not Approved by Security Holders Total: (a) Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (b) Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights ($) (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) 293,007(3) 1,108,638(4) — 1,401,645 17.87 20.27(5) — 19.61 — 802,710 — 802,710 (1) Regional Management Corp. 2011 Stock Incentive Plan. In 2015, our stockholders approved the 2015 Plan, at which time all shares then available for issuance under the 2011 Plan rolled over to the 2015 Plan. Awards may no longer be granted under the 2011 Plan. However, awards that are outstanding under the 2011 Plan will continue in accordance with their respective terms. (2) Regional Management Corp. 2015 Long-Term Incentive Plan. As of April 7, 2020, there were 767,881 shares that remained available for issuance under the 2015 Plan, which allows for grants of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), unrestricted shares, restricted shares, RSUs, phantom stock awards, and awards that are valued in whole or in part by reference to, or otherwise based on, the fair market value of shares, including performance-based awards. (3) (4) This amount represents shares of common stock underlying non-qualified stock option awards. This amount represents 774,084 shares of common stock underlying non-qualified stock option awards, 233,696 shares of common stock underlying performance-contingent RSU awards, and 100,858 restricted shares of common stock underlying and issuable pursuant to key team member incentive program award agreements. Share amounts are determined based upon the maximum number of shares that may be delivered pursuant to the performance-based awards. Under the key team member incentive program, each participant is eligible to earn an RSA, subject to the achievement of performance goals over a one-year period. If earned, the RSA is issued following the one-year performance period and vests ratably over a subsequent two-year period (subject to continued employment or as otherwise provided in the underlying award agreement). No executive officer participates in our key team member incentive program. There is no exercise price associated with the RSU awards or restricted shares. (5) Calculation excludes shares subject to RSU awards and shares underlying and issuable pursuant to key team member incentive program award agreements. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 52 P r o x y S t a t e m e n t CEO Pay Ratio The following table provides our calculation under applicable SEC regulations of the ratio of the annual total compensation of our Chief Executive Officer to the median of the annual total compensation of our other employees. Compensation Component Salary Stock Awards Option Awards Non-Equity Incentive Plan Compensation 1,928,715 All Other Compensation 82,747 Total Compensation: 4,186,405 CEO to Median Employee Pay Ratio: 100:1 CEO ($) Median Employee ($) 600,000 1,049,946 524,997 30,238 — — 5,989 5,455 41,682 We took the following steps in identifying the median of the annual total compensation of all of our employees: (1) We determined that, as of December 31, 2019, our employee population was equal to 1,618 individuals, all located in the United States. This number includes all the individuals determined to be employees for federal tax purposes, whether full-time, part-time, or temporary, as of that date. We chose December 31, 2019, which is within the last three months of our fiscal year as required by applicable SEC regulations, because it aligned with our calendar year payroll procedures. (2) We next identified the employee receiving the median amount of compensation in our employee population. To do this, we compared the amount of wages and other compensation received by each employee, other than Mr. Knitzer, as reflected in our payroll records and reported to the Internal Revenue Service in Box 5 of Form W-2 for the calendar year ended December 31, 2019. This compensation measure was annualized for permanent employees who were employed on the measurement date but who did not work for the full calendar year. The compensation measure was consistently applied to all of our employees. (3) Once we identified our median employee, we measured that employee’s annual total compensation for the 2019 fiscal year by adding together (a) the same elements of compensation that are included in Mr. Knitzer’s total fiscal 2019 compensation, as reported in our Summary Compensation Table above, and (b) non-discriminatory health and welfare benefits paid by Regional, which we have included as “All Other Compensation” in the table above. (4) For Mr. Knitzer, we used the amount reported in the “Total” column of our Summary Compensation Table above. Mr. Knitzer was eligible for but did not elect to participate in non-discretionary health and welfare benefit plans offered by Regional. The resulting pay ratio was calculated in a manner consistent with SEC regulations, and we believe that it constitutes a reasonable estimate. However, as contemplated by SEC regulations, we relied on methods and assumptions that we determined to be appropriate for calculating the Chief Executive Officer pay ratio at Regional. Other public companies will use methods and assumptions that differ from the ones we chose but are appropriate for their circumstances. It may therefore be difficult, for this and other reasons, to compare our reported pay ratio to pay ratios reported by other companies, including companies in our industry. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 53 SUMMARY OF EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS In 2019, the following individuals served as our executive officers: • Robert W. Beck, our current President and Chief Executive Officer and former Executive Vice President and Chief Financial Officer; • Peter R. Knitzer, our former President and Chief Executive Officer; • John D. Schachtel, our Executive Vice President and Chief Operating Officer; • Donald E. Thomas, our former Executive Vice President and Chief Financial Officer; • Daniel J. Taggart, our former Executive Vice President and Chief Credit Risk Officer; and • Brian J. Fisher, our Executive Vice President, General Counsel, and Secretary. Messrs. Knitzer, Schachtel, Thomas, Taggart, and Fisher served as executive officers at the beginning of 2019. Mr. Thomas resigned as Chief Financial Officer in July 2019, and Mr. Beck’s employment as our Chief Financial Officer commenced on July 22, 2019. Mr. Taggart resigned in early 2020, and Manish Parmar was appointed Executive Vice President and Chief Credit Risk Officer on January 6, 2020. Mr. Fisher assumed the title of Executive Vice President, General Counsel, and Secretary on February 6, 2020. Finally, Mr. Knitzer’s termination as President and Chief Executive Officer and as a director occurred in March 2020, and Mr. Beck assumed the title of President and Chief Executive Officer on March 26, 2020. Michael S. Dymski is currently serving as Vice President, interim Chief Financial Officer, and Chief Accounting Officer. We entered into employment agreements with Messrs. Knitzer and Schachtel shortly before each commenced employment with us in August 2016 and May 2017, respectively. Similarly, we entered into employment letter agreements with Messrs. Thomas, Taggart, and Fisher shortly before each commenced employment with us in January 2013, January 2015, and January 2013, respectively. In August 2017, we entered into employment agreements with Messrs. Thomas, Taggart, and Fisher that superseded each executive’s prior employment letter agreement. We amended the employment agreements of Messrs. Knitzer and Schachtel in August 2017, and in February 2019, we entered into a retirement agreement with Mr. Thomas that amended his employment agreement. In addition, in May 2019, we entered into an employment agreement with Mr. Knitzer that superseded his prior employment agreement, and in July 2019, we entered into an employment agreement with Mr. Beck. Finally, in March 2020, we entered into an employment agreement with Mr. Beck in connection with his assumption of the title of President and Chief Executive Officer, which superseded his prior employment agreement. We describe below the material terms of our executives’ current and prior employment agreements. We also describe the material terms of Mr. Thomas’ retirement agreement. Additional information regarding the compensation that our executive officers are eligible for, earned, and were paid is set forth elsewhere in this Proxy Statement, including in the Compensation Discussion and Analysis and the Executive Compensation Tables set forth above. Employment Agreements with Executive Officers Mr. Knitzer’s employment agreement was terminated effective March 26, 2020, and his termination was treated as a termination without cause under the terms of his employment agreement. As a result, Mr. Knitzer will receive severance and other benefits in accordance with the terms of his employment agreement, which is described in further detail below. Mr. Taggart resigned from the Company in early 2020, and his resignation was treated as a voluntary termination of employment pursuant to the terms of his employment agreement. Mr. Taggart is not eligible to receive severance under the terms of his employment agreement as a result of his resignation. Mr. Thomas’ employment agreement was amended by his retirement agreement, which is described in further detail below. The employment agreements of Messrs. Beck, Schachtel, and Fisher provide for a three-year term. The three- year term ends on March 25, 2023 in the case of Mr. Beck under his current employment agreement, and his prior employment agreement provided for a three-year term ending on July 21, 2022. The three-year term ends on May 30, 2020 and August 30, 2020, in the case of Messrs. Schachtel and Fisher, respectively. The employment agreements generally provide for compensation to our executives in the form of annual base salaries, annual cash incentive opportunities, long-term incentive opportunities, and various other limited perquisites and personal benefits. Our executives have also agreed to certain restrictive covenants set forth in the employment agreements, including a covenant not to compete. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 54 P r o x y S t a t e m e n t Pursuant to his current employment agreement, Mr. Beck is entitled to an annual base salary of no less than $600,000, pro-rated for any partial year, and his prior employment agreement provided for an annual base salary of no less than $400,000. Pursuant to their employment agreements, Messrs. Schachtel, Fisher, Knitzer, and Taggart are (or were) entitled to an annual base salary of no less than $350,000; $240,000; $600,000; and $318,000, respectively, pro-rated for any partial year. For each calendar year during the employment term under Mr. Beck’s current employment agreement and Mr. Knitzer’s former employment agreement, each of Messrs. Beck and Knitzer is (or was) also eligible to earn an annual bonus award under our Annual Incentive Plan based upon the achievement of performance targets established by our Compensation Committee, with a target bonus equal to no less than 150% of such executive’s base salary, pro-rated for any partial year. Mr. Beck’s current employment agreement provides that Mr. Beck’s target annual bonus award under our Annual Incentive Plan for 2020 will be $787,364. Under Mr. Beck’s prior employment agreement, Mr. Beck was eligible to earn an annual bonus with a target bonus equal to no less than 100% of Mr. Beck’s base salary, pro-rated for any partial year. For each calendar year during the employment term, Messrs. Schachtel, Fisher, and Taggart is (or was) also eligible to earn an annual bonus award under our Annual Incentive Plan based upon the achievement of performance targets established by our Compensation Committee, with a target bonus equal to no less than 100% of the executive’s base salary, in each case pro-rated for any partial year. The current employment agreement of Mr. Beck provides that he is entitled to receive a non-qualified stock option award, a restricted stock award, a performance-contingent RSU award, and a cash-settled performance unit award as soon as practicable after the effective date of his current employment agreement, with the vesting of each such award subject to continued employment through the vesting date and, in the case of the performance- contingent RSU award and the cash-settled performance unit award, the achievement of performance objectives established by our Compensation Committee. In addition, pursuant to Mr. Beck’s prior employment agreement, Mr. Beck received a non-qualified stock option award and restricted stock award shortly after the commencement of his employment as Chief Financial Officer. The employment agreement of Mr. Schachtel provides that Mr. Schachtel is entitled to receive a non-qualified stock option award, a performance-contingent RSU award, and a cash-settled performance unit award within his first year of employment, with the vesting of each such award subject to continued employment through the vesting date and, in the case of the performance-contingent RSU award and the cash-settled performance unit award, the achievement of performance objectives established by our Compensation Committee. Each executive is otherwise eligible to participate in our long-term incentive program at the sole discretion of our Compensation Committee and our Board. Commencing in 2021, Mr. Beck will be eligible to receive an annual base salary, annual cash incentive opportunity, and long-term incentive opportunity totaling in the aggregate at least $3,600,000 under his current employment agreement; his prior employment agreement provided for an annual base salary, annual cash incentive opportunity, and long-term incentive opportunity totaling in the aggregate at least $1,400,000. Commencing in 2018 (or 2019, in the case of Mr. Schachtel), Messrs. Schachtel, Fisher, and Taggart will be (or was) eligible to receive an annual base salary, annual cash incentive opportunity, and long-term incentive opportunity totaling in the aggregate at least $1,225,000; $720,000; and $954,000, respectively. Mr. Knitzer was eligible to receive an annual base salary, annual cash incentive opportunity, and long-term incentive opportunity totaling in the aggregate at least $3,600,000 in 2019. Each executive’s annual total compensation opportunity is subject to our Compensation Committee’s discretion to adjust base salary, determine allocations between cash and equity compensation opportunities, establish performance and/or multi-year service criteria, and determine if and to the extent any incentive compensation is earned and payable based on the attainment of performance criteria and other terms and conditions established by our Compensation Committee, and further subject to the terms and conditions of the applicable incentive plan and related award agreements (including, if applicable under any such plan or award agreement, multi-year vesting). Long-term incentive awards are subject to the terms of the 2015 Plan and the related award agreements. We also provide our executives with benefits generally available to our other employees, including medical and retirement plans. In addition, we provide our executives with the use of a mobile phone (or the provision of a stipend for a mobile phone), disability insurance policies, and reasonable travel expenses. In the case of Messrs. Schachtel and Knitzer, we pay (or paid) for reasonable expenses associated with their travel to and from their personal residences to our headquarters in South Carolina. Pursuant to Mr. Beck’s current employment agreement, in 2020 we will pay for reasonable expenses (not to exceed $5,000) associated with Mr. Beck’s travel to and from his additional Connecticut residence to our headquarters in South Carolina. In addition, pursuant to Mr. Beck’s prior Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 55 employment agreement, we provided relocation benefits to Mr. Beck to relocate to the Greenville, South Carolina area. Our executive employment agreements and long-term incentive award agreements also provide for certain severance benefits following an executive’s termination by us without cause, by the executive as a result of good reason, due to the executive’s disability, due to the executive’s death, or following a “double-trigger” change-in-control event. A “double-trigger” change-in-control event requires both (1) a change-in-control and (2) an executive’s termination by us without cause or by the executive as a result of good reason within certain timeframes. The terms “cause,” “good reason,” “disability,” and “change-in-control” are defined in the 2011 Plan, the 2015 Plan, and/or each executive’s employment agreement and/or long-term incentive award agreements, as applicable. The severance benefits are described in “Summary of Employment Arrangements with Executive Officers – Potential Payments Upon Termination or Change-in-Control,” below. An executive’s receipt of severance benefits will be subject to the executive’s execution of a release of claims within the time period specified in the employment agreement and the continued compliance with the restrictive covenants described below. Each executive is also subject to various restrictive covenants, and his entitlement to certain benefits is contingent upon his compliance with such covenants. Specifically, each executive is subject to a covenant not to disclose our confidential information during his employment and at all times thereafter, a covenant not to compete during his employment and for a period of one year (or two years, in the case of Mr. Beck under his current employment agreement and Mr. Knitzer) following his termination of employment, a covenant not to solicit competitive “business services” through or from “loan sources” (each as defined in the employment agreements) during his employment and for a period of one year (or two years, in the case of Mr. Beck under his current employment agreement and Mr. Knitzer) following his termination of employment, a covenant not to solicit or hire our employees during his employment and for a period of one year (or two years, in the case of Mr. Beck under his current employment agreement and Mr. Knitzer) following his termination of employment, and a non-disparagement covenant effective during the employment term and at all times thereafter. Each executive’s covenant not to compete is limited to an area within 25 miles of any of our branches or other offices. Each of Messrs. Knitzer, Thomas, and Taggart remains subject to the restrictive covenants described in such executive’s employment agreement. In addition, each executive must abide by any equity retention policy, compensation recovery policy, stock ownership guidelines, or other similar policies that we maintain. Retirement Agreement with Former Chief Financial Officer On February 12, 2019, Mr. Thomas notified the Company of his intent to retire from the Company following the transition of duties and responsibilities from Mr. Thomas to a new Chief Financial Officer. Mr. Thomas’ retirement was treated as a voluntary termination of employment pursuant to the terms of his employment agreement. The Compensation Committee approved a letter agreement (the “Retirement Agreement”), dated February 12, 2019, setting forth the terms of Mr. Thomas’ retirement. Pursuant to the Retirement Agreement, Mr. Thomas’ employment agreement was amended, among other items, to provide that the compensation terms found in the Retirement Agreement generally supersede those found in his employment agreement. During the transition period, Mr. Thomas was paid an annualized base salary of $400,000 (pro-rated for any partial year). He also generally continued to participate in those Company benefit plans and arrangements in which he was eligible at the time to participate. Mr. Thomas received a pro-rated annual cash incentive bonus for 2019 based on achievement of the performance goals as determined by the Compensation Committee, in the amount of $214,905. Mr. Thomas also earned a completion bonus of $200,000 following the completion of an orderly transition of duties and responsibilities to a new Chief Financial Officer. Following Mr. Thomas’ resignation in July 2019, the Retirement Agreement is no longer in effect. Mr. Thomas’ outstanding long-term incentive awards granted under the 2011 Plan and the 2015 Plan continue to be governed by the terms of the applicable stock plan and related award agreement(s). Consulting Agreement with Former Chief Credit Risk Officer The Compensation Committee approved a consulting agreement (the “Consulting Agreement”), dated April 13, 2020, with Mr. Taggart. Pursuant to the Consulting Agreement, Mr. Taggart will provide consulting and advisory services, including but not limited to services related to credit risk matters, in each calendar month during Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 56 the term of the Consulting Agreement ending on June 30, 2020. During the term, Mr. Taggart is entitled to receive a consulting fee equal to $25,000 per calendar month, plus an additional amount of $300 per hour for each hour of services that Mr. Taggart performs in excess of 85 hours in any calendar month. In addition, he is entitled to receive reimbursement for reasonable business expenses incurred in connection with those services. Pursuant to Mr. Taggart’s former employment agreement with the Company, Mr. Taggart remains subject to customary restrictive covenants following his termination of employment. Potential Payments Upon Termination or Change-in-Control Under their employment agreements and long-term incentive award agreements, our executive officers are entitled to certain severance benefits following termination by us without cause, by the executive as a result of good reason, due to the executive’s disability, due to the executive’s death, and following a “double-trigger” change-in-control. These benefits ensure that our executives are motivated primarily by the needs of our business, rather than circumstances that are outside of the ordinary course of business (such as circumstances that might lead to the termination of an executive’s employment or that might lead to a change-in-control). Severance benefits provide for a level of continued compensation if an executive’s employment is adversely affected in these circumstances, subject to certain conditions. We believe that these benefits enable executives to focus fully on their duties while employed by us, ensure that our executives act in the best interests of our stockholders, even if such actions are otherwise contrary to our executives’ personal interests, and alleviate concerns that may arise in the event of an executive’s separation from service with us. We believe that these severance benefits are in line with current market practices. P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 57 The rights to and level of benefits are determined by the type of termination event. Our executive employment agreements provide for the following cash and other benefits: Termination Event By the Company Without Cause or by the Executive for Good Reason “Double-Trigger” Change-in-Control Disability Severance Benefits (1) Payment in Lieu of 30 Days’ Notice. At our election, 30 days’ base salary in lieu of allowing the executive to work through any required 30-day termination notice period. (2) Base Salary Continuation. In the case of Mr. Beck under his current employment agreement and Mr. Knitzer under his former employment agreement, an amount equal to two times his salary in effect on the termination date, payable over a period of 24 months following his termination date, and in the case of each other executive subject to a current employment agreement, an amount equal to his salary in effect on the termination date, payable over a period of 12 months following his termination date. (3) Average Bonus. In the case of Mr. Beck under his current employment agreement and Mr. Knitzer under his former employment agreement, an amount equal to two times his average bonus determined as of the termination date, payable over a period of 24 months following his termination date, and in the case of each other executive subject to a current employment agreement, an amount equal to his average bonus determined as of the termination date, payable over a period of 12 months following his termination date. An executive’s “average bonus” is defined in his employment agreement, generally as the average annual bonus paid for the three fiscal years prior to the year of termination or such lesser number of full fiscal years that the executive has been employed. If employment is terminated before the last day of the executive’s first full fiscal year, the average bonus is calculated as the executive’s target bonus. (4) Annual Incentive Compensation. The pro-rata portion of any bonus for the year in which termination occurs, to the extent earned, plus, if termination occurs after year-end but before the bonus for the preceding year is paid, the bonus for the preceding year. (5) Health Benefits Continuation Coverage. Reimbursement of COBRA premiums for continuation coverage under our group medical plan for 24 months (in the case of Mr. Beck under his current employment agreement and Mr. Knitzer under his former employment agreement) or 12 months (in the case of each other executive subject to a current employment agreement) following his termination date, so long as he is not entitled to obtain insurance from a subsequent employer. (6) Outplacement Services. Reasonable outplacement service expenses for 24 months (in the case of Mr. Beck under his current employment agreement and Mr. Knitzer under his former employment agreement) or 12 months (in the case of each other executive subject to a current employment agreement) following the termination date, not exceeding $25,000 per year. For each executive other than Mr. Beck under his current employment agreement and Mr. Knitzer under his former employment agreement, if employment is terminated by us without cause or by the executive as a result of good reason, and such termination occurs within six months before or one year after the effective date of a change-in-control, then the executive is entitled to the benefits described immediately above, plus the additional benefit that the amounts described in items (2) and (3) will be increased by a factor of 100% (for a total of two times salary and average bonus). If employment is terminated due to the executive’s disability, he will be entitled to the same benefits as if employment were terminated by us without cause or by the executive as a result of good reason, except that he is not entitled to 30 days’ notice of termination (or payment in lieu thereof). The disability severance benefits will be reduced by the amount of any disability benefits paid to the executive pursuant to any disability insurance, plan, or policy provided by us to or for the benefit of the executive. If any disability benefits paid to an Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 58 P r o x y S t a t e m e n t Termination Event Severance Benefits executive pursuant to any disability insurance, plan, or policy provided by us are not subject to local, state, or federal taxation, then our severance obligations in the event of termination due to the executive’s disability will be reduced by an amount equal to the gross taxable amount that we would have been required to pay in order to yield the net, after-tax benefit that the executive actually received pursuant to such disability insurance, plan, or policy. Annual Incentive Compensation. The pro-rata portion of any bonus for the year in which death occurs, to the extent earned, plus, if death occurs after year-end but before the bonus for the preceding year is paid, the bonus for the preceding year (paid to the executive’s designated beneficiary or estate, as applicable). Annual Incentive Compensation. If termination occurs after year-end but before the bonus for the preceding year is paid, the bonus for the preceding year (the executive is not entitled to any bonus for the year during which voluntary termination occurs). Death Voluntary Termination Cause None. In addition to the benefits provided for under our executive employment agreements, our long-term incentive award agreements provide for the following treatment of awards following termination: Termination Event By the Company Without Cause, by the Executive for Good Reason, Due to Disability, or Due to Death “Double-Trigger” Change-in-Control Retirement • • • • • • • • Award Treatment Non-Qualified Stock Option Awards: Pro-rata accelerated vesting of any unvested shares. Restricted Stock Awards: Pro-rata accelerated vesting of any unvested shares. Performance-Contingent RSUs: Eligibility to vest in a pro-rata portion of the award, subject to actual performance over the full performance period. Cash-Settled Performance Units: Eligibility to vest in a pro-rata portion of the award, subject to actual performance over the full performance period. Non-Qualified Stock Option Awards: Full accelerated vesting in the event of a termination of employment by us without cause or by the executive as a result of good reason within six months before or one year after the effective date of a change-in-control. Restricted Stock Awards: Full accelerated vesting in the event of a termination of employment by us without cause or by the executive as a result of good reason within six months before or one year after the effective date of a change-in-control. Performance-Contingent RSUs: Full accelerated vesting at target in the event of a termination of employment by us without cause or by the executive as a result of good reason within six months before or one year after the effective date of a change-in-control. Cash-Settled Performance Units: Full accelerated vesting at target in the event of a termination of employment by us without cause or by the executive as a result of good reason within six months before or one year after the effective date of a change-in-control. • • • Non-Qualified Stock Option Awards: Continued vesting as if the executive remained employed. Restricted Stock Awards: Unvested shares are forfeited as of the termination date. Performance-Contingent RSUs: Eligibility to vest in a pro-rata portion of the award, subject to actual performance over the full performance period. Cash-Settled Performance Units: Eligibility to vest in a pro-rata portion of the award, subject to actual performance over the full performance period. An executive is generally eligible for “Retirement” when he (i) is 65 or older at the time of termination, or (ii) is 55 or older at the time of termination and has completed ten (10) years of service to Regional. • Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 59 The following table provides information concerning the payments and the value of other benefits that our NEOs would have been eligible to receive if their employment had been terminated under the described circumstances. Our obligation to provide the payments and other benefits described in the table are found in each NEO’s employment agreement and in long-term incentive award agreements, in each case as described above. In calculating the amounts included in the table below, we have assumed (i) that the termination event and/or change-in-control occurred on December 31, 2019, (ii) a share price of $30.03 (our closing share price on December 31, 2019), and (iii) the following: • • • • • “Payment in Lieu of 30 Days’ Notice”: We have assumed that we will elect to pay 30 days’ base salary in lieu of allowing the NEO to work through any required 30-day termination notice period. “Severance Payment”: The amount represents a combination of the “Base Salary Continuation” and “Average Bonus” payments described above. “Annual Incentive Compensation”: The amount is based upon the level of performance and percentage payout actually achieved, as determined by the Compensation Committee in March 2020. “Long-Term Incentive Award Vesting”: The value associated with accelerated non-qualified stock option awards has been calculated by multiplying the number of accelerated shares by the amount by which our stock price as of December 31, 2019 exceeded (if at all) the exercise price of the option. For any performance-contingent long-term incentive award where vesting remains subject to actual performance over a performance period, (1) we have calculated the value (if any) of awards associated with performance periods ending in 2019 based on actual performance, and (2) we have ascribed no value to awards associated with performance periods ending after 2019 because there is no guarantee that we will meet the threshold performance criteria required for these awards to vest and be paid. “Other Benefits”: The amount includes reimbursement of COBRA premiums for continuation coverage and the value of outplacement services. We have assumed (1) that the NEO will not become entitled to obtain insurance from a subsequent employer, and (2) that the NEO will receive the maximum value of outplacement services. Name Robert W. Beck Peter R. Knitzer(3) John D. Schachtel Daniel J. Taggart(3) Brian J. Fisher Type of Payment or Benefit Payment in Lieu of 30 Days’ Notice Severance Payment Annual Incentive Compensation Long-Term Incentive Award Vesting(2) Other Benefits Total Payment in Lieu of 30 Days’ Notice Severance Payment Annual Incentive Compensation Long-Term Incentive Award Vesting(2) Other Benefits Total Payment in Lieu of 30 Days’ Notice Severance Payment Annual Incentive Compensation Long-Term Incentive Award Vesting(2) Other Benefits Total Payment in Lieu of 30 Days’ Notice Severance Payment Annual Incentive Compensation Long-Term Incentive Award Vesting(2) Other Benefits Total Payment in Lieu of 30 Days’ Notice Severance Payment Annual Incentive Compensation Long-Term Incentive Award Vesting(2) Other Benefits Total Termination Event Termination by the Company Without Cause or by the Executive for Good Reason ($) 32,877 800,000 178,630 71,978 25,000 1,108,486 49,315 2,398,154 726,300 2,775,896 50,000 5,999,665 32,877 740,860 322,800 49,106 41,430 1,187,073 30,822 690,061 302,625 353,825 44,055 1,421,388 27,534 603,695 270,345 264,245 33,862 1,199,682 Termination by the Company Without Cause or by the Executive for Good Reason in Connection with a Change in Control ($) 32,877 1,600,000 178,630 293,672 25,000 2,130,179 49,315 2,398,154 726,300 5,454,243 50,000 8,678,012 32,877 1,481,720 322,800 1,004,231 41,430 2,883,058 30,822 1,380,122 302,625 948,780 44,055 2,706,404 27,534 1,207,390 270,345 696,962 33,862 2,236,093 Termination Due to Disability ($) — 800,000 178,630 71,978 25,000 1,075,609 — 2,398,154 726,300 2,775,896 50,000 5,950,350 — 740,860 322,800 49,106 41,430 1,154,196 — 690,061 302,625 353,825 44,055 1,390,566 — 603,695 270,345 264,245 33,862 1,172,148 Termination Due to Death ($) — — 178,630 71,978 — 250,608 — — 726,300 2,775,896 — 3,502,196 — — 322,800 49,106 — 371,906 — — 302,625 353,825 — 656,450 — — 270,345 264,245 — 534,590 Voluntary Termination by the Executive(1) ($) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 60 (1) A voluntary termination that is treated as a “retirement” may result in pro-rata or continued vesting of certain long-term incentive awards. None of our NEOs were eligible for “retirement” as of December 31, 2019. (2) See “Executive Compensation Tables – Outstanding Equity Awards at Fiscal Year-End” for a summary of equity-based long-term incentive awards outstanding as of December 31, 2019. As of December 31, 2019, in addition to equity-based long-term incentive awards, Messrs. Knitzer, Schachtel, Taggart, and Fisher held one or more cash-settled performance unit awards having an aggregate target value of $2,208,333; $425,000; $356,625; and $263,750, respectively. (3) Mr. Knitzer’s employment was terminated without cause, effective March 26, 2020. He is entitled to receive severance benefits pursuant to the terms of his employment agreement, calculated as of the effective date of his termination. Mr. Taggart resigned from the Company in early 2020. His resignation was treated as a voluntary termination of employment pursuant to the terms of his employment agreement. The amounts shown in the table do not include payments and benefits to the extent they are provided generally to all salaried employees upon termination of employment and do not discriminate in scope, terms, or operation in favor of our NEOs. Because the amounts in the table are calculated subject to the assumptions provided and on the basis of the occurrence of a termination as of a particular date and under a particular set of circumstances, the actual amount to be paid to each of our NEOs upon a termination or change in control may vary significantly from the amounts included in the table. Factors that could affect these amounts include the timing during the year of the termination event and the type of termination event that occurs. The following table provides information concerning the payments that Mr. Thomas received in 2019 pursuant to the Retirement Agreement. Name and Principal Position Donald E. Thomas, Salary During Transition ($) 2018 Annual Bonus ($) Completion Bonus ($) Former Executive Vice President and Chief Financial Officer 266,301 353,935 200,000 In addition, pursuant to our Annual Incentive Plan, Mr. Thomas was awarded a cash bonus opportunity based upon the Company’s and his performance in 2019, with a target bonus equal to one hundred percent (100%) of his base salary (the “2019 Annual Bonus”). In March 2020, the Compensation Committee determined that Mr. Thomas earned a pro-rated 2019 Annual Bonus of $214,905. P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 61 The discussion that follows describes certain material terms of our principal long-term incentive plans and our SUMMARY OF COMPANY INCENTIVE PLANS principal cash incentive plan. Long-Term Incentive Plans 2015 Long-Term Incentive Plan The 2015 Plan became effective April 22, 2015, and was amended and restated effective April 27, 2017. The purposes of the 2015 Plan are (i) to encourage and enable selected employees, directors, and consultants to acquire or increase their holdings of our common stock and other equity-based interests and/or to provide other incentive awards in order to promote a closer identification of their interests with our interests and those of our stockholders, and (ii) to provide us with flexibility to motivate, attract, and retain the services of participants upon whose judgment, interest, and special effort the successful conduct of our operation largely depends. Awards granted under the 2015 Plan may be in the form of incentive or non-qualified stock options, SARs (including related or freestanding SARs), RSAs, RSU awards, performance share awards, performance unit awards, phantom stock awards, other stock-based awards, and/or dividend equivalent awards. Awards may be granted under the 2015 Plan until April 21, 2025 or the plan’s earlier termination by the Board. The 2015 Plan is administered by the Compensation Committee, subject to Board oversight. The maximum aggregate number of shares of common stock that we may issue pursuant to awards granted under the 2015 Plan may not exceed the sum of (i) 1,550,000 shares, plus (ii) any shares (A) remaining available for grant as of the effective date of the 2015 Plan under any prior plan and/or (B) subject to an award granted under a prior plan, which award is forfeited, canceled, terminated, expires, or lapses for any reason without the issuance of shares or pursuant to which such shares are forfeited. In addition, shares subject to certain awards will again be available for issuance (or otherwise not counted against the maximum number of available shares) under the 2015 Plan, including unissued or forfeited shares subject to awards that are canceled, terminate, expire, are forfeited, or lapse for any reason; awards settled in cash; dividends (including dividends paid in shares) or dividend equivalents paid in cash in connection with outstanding awards; and shares subject to an award other than an option or SAR that are not issued for any reason (including failure to achieve maximum performance criteria). Further, the following will not reduce the maximum number of shares available under the 2015 Plan: (i) shares issued under the 2015 Plan through the settlement, assumption, or substitution of outstanding awards granted by another entity or obligations to grant future awards in connection with a merger or similar transaction that involves our acquisition of another entity, and (ii) available shares under a shareholder approved plan of an acquired company (as adjusted to reflect the transaction) that are used for awards under the 2015 Plan, in each case, subject to NYSE listing requirements. The maximum aggregate number of shares of common stock that may be issued under the 2015 Plan pursuant to the grant of incentive options may not exceed 1,550,000 shares. Further, under the 2015 Plan, in any 12-month period, (i) no participant may be granted options and SARs that are not related to an option for more than 450,000 shares of common stock (or the equivalent value thereof based on the fair market value per share of the common stock on the date of grant of an award); (ii) no participant may be granted awards other than options or SARs that are settled in shares of common stock for more than 450,000 shares of common stock; and (iii) the maximum amount of awards that are settled in cash that can be granted to any one participant is $2,500,000. Notwithstanding the foregoing, the maximum number of shares of common stock subject to awards granted during any 12-month period to a non-employee director, taken together with any cash fees paid during such 12-month period to such non-employee director in respect of Board service, may not exceed $600,000 in total value (calculating the value of any such awards based on the fair market value per share of common stock on the grant date of such award). The number of shares reserved for issuance under the 2015 Plan, the participant award limitations, and the terms of awards may be adjusted in the event of an adjustment in our capital structure (due to a merger, recapitalization, stock split, stock dividend, or similar event). 2011 Stock Incentive Plan The 2011 Plan provides for the issuance of a maximum of 950,000 shares of common stock pursuant to awards granted under the plan. Awards may include incentive or non-qualified stock options, SARs (including related or freestanding SARs), other stock-based awards (including shares of common stock, restricted shares, RSUs, and awards that are valued in whole or in part by reference to, or are otherwise based on, the fair market Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 62 value of our common stock), and/or performance-based awards to our and our subsidiaries’ key employees, directors, or other service providers. The number of shares reserved for issuance under the plan and the terms of awards may be adjusted upon certain events affecting our capitalization. The 2011 Plan is administered by the Compensation Committee and was replaced by the 2015 Plan. Awards may no longer be granted under the 2011 Plan, and any shares that remained available for grant have been rolled over to the 2015 Plan. However, awards that remain outstanding under the 2011 Plan will continue in accordance with their respective terms. Annual Incentive Plan The Annual Incentive Plan is administered by the Compensation Committee and provides for the payment of incentive bonuses based on the attainment of performance objectives in the form of cash or, at the discretion of the Compensation Committee, in awards of shares under the 2015 Plan. The purpose of the Annual Incentive Plan is to enable us to attract, retain, motivate, and reward selected officers and other employees by providing them with the opportunity to earn annual incentive compensation awards based on the attainment of certain performance objectives. The Compensation Committee will establish the performance periods over which performance objectives will be measured. A performance period may be for a fiscal year or a shorter period, as determined by the Compensation Committee, and performance periods may overlap. For a given performance period, the Compensation Committee will establish (i) the performance objective or objectives that must be achieved for a participant to be eligible to receive a bonus for such performance period, and (ii) the target incentive bonus for each participant. The Compensation Committee may adjust awards as appropriate for partial achievement of goals or other factors, and may interpret and make necessary and appropriate adjustments to performance goals and the manner in which goals are evaluated. The Compensation Committee has absolute discretion to reduce or eliminate the amount of an award granted to a participant, including an award otherwise earned and payable under the Annual Incentive Plan, and to establish rules or procedures that have the effect of limiting the amount payable to each participant to an amount that is less than the maximum amount otherwise authorized as that participant’s target incentive bonus. No participant may receive a bonus under the Annual Incentive Plan, with respect to any fiscal year, in excess of $2,500,000. P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 63 We are seeking stockholder action on the following three proposals, which are described in greater detail below: STOCKHOLDER PROPOSALS 1. The election of the nine nominees named in this Proxy Statement to serve as members of the Board until the next annual meeting of stockholders or until their successors are elected and qualified; 2. The ratification of the appointment of RSM US LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and 3. The approval, on an advisory basis, of our executive compensation. Proposal No. 1: Election of Directors Our Bylaws currently provide that the number of directors of the Company shall be fixed from time to time by resolution adopted by the Board. There are presently nine directors. The Nominating Committee evaluates the size and composition of the Board on at least an annual basis. In connection therewith, the Nominating Committee has nominated and recommends for election as directors the following nine nominees: Robert W. Beck, Jonathan D. Brown, Roel C. Campos, Maria Contreras-Sweet, Michael R. Dunn, Steven J. Freiberg, Sandra K. Johnson, Alvaro G. de Molina, and Carlos Palomares. Each nominee presently serves as a director. In recruiting Dr. Johnson in early 2020, the Board paid a fee to a third-party search firm to help identify director prospects and perform other related services. The Board appointed Dr. Johnson as a director effective as of April 21, 2020, and Dr. Johnson is standing for election as a director for the first time at the Annual Meeting. Directors shall be elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified or until their earlier resignation, removal, or death. A candidate for election as a director is nominated to stand for election based on his or her professional experience, recognized achievements in his or her respective fields, an ability to contribute to some aspect of our business, and the willingness to make the commitment of time and effort required of a director. A description of the background, business experience, skills, qualifications, attributes, and certain other information with respect to each of the nominees for election to the Board can be found above in the “Board of Directors and Corporate Governance Matters” section of this Proxy Statement. Each of the above-listed nominees has been identified as possessing an appropriate diversity of background and experience, good judgment, deep knowledge of our industry, strength of character, and an independent mind, as well as a reputation for integrity and high personal and professional ethics. Each nominee also brings a strong and unique background and set of skills to the Board, giving the Board, as a whole, competence and experience in a wide variety of areas. In selecting this slate of nominees for 2020, the Nominating Committee specifically considered the background and business experience of each of the nominees, along with the familiarity of the nominees with our business and prospects, which has been developed as a result of their service on our Board. The Nominating Committee believes that such familiarity will be helpful in addressing the opportunities and challenges that we face in the current business environment. Each of the nine nominees has consented to being named in this Proxy Statement and to serve as a director, if elected. In the event that any nominee withdraws, or for any reason is unable to serve as a director, the proxies will be voted for such other person as may be designated by the Nominating Committee as a substitute nominee, but in no event will proxies be voted for more than nine nominees. The Nominating Committee has no reason to believe that any nominee will not continue to be a candidate or will not serve if elected. The Board unanimously recommends a vote “FOR” the election of each of the nominees listed above. Proposal No. 2: Ratification of Appointment of Independent Registered Public Accounting Firm RSM US LLP has served as our independent registered public accounting firm since 2007. The Audit Committee has selected RSM US LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020, and the Audit Committee and the Board recommend that the stockholders ratify the appointment of RSM US LLP as our independent registered public accounting firm for fiscal 2020. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 64 P r o x y S t a t e m e n t A representative of RSM US LLP plans to attend the virtual Annual Meeting, will have the opportunity to make a statement, and will be available to respond to appropriate questions. Although ratification is not required, the Board is submitting the appointment of RSM US LLP to the stockholders for ratification as a matter of good corporate governance. In the event that the stockholders fail to ratify the appointment, the Audit Committee will consider whether to appoint another independent registered public accounting firm. The following table sets forth the aggregate fees billed to us by our independent registered public accounting firm, RSM US LLP, during the fiscal years ended December 31, 2019 and 2018. Audit Fees Audit-Related Fees Tax Fees All Other Fees Total Year Ended December 31, 2019 Year Ended December 31, 2018 $ $ 916,325 $ 19,688 — — 856,843 8,400 170,114 — 936,013 $ 1,035,357 In the above table, in accordance with applicable SEC rules: • • • • “Audit Fees” are fees billed for professional services rendered by the independent registered public accounting firm for the audit of our annual consolidated financial statements, review of consolidated financial statements included in our Forms 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements. “Audit-Related Fees” are fees billed for assurance and related services performed by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported above under “Audit Fees.” In 2019, these fees were for attest services performed by the independent registered public accounting firm related to financial reporting that are not required by statute or regulation. In 2018, these fees were for services performed by the independent registered public accounting firm for accounting consultation services. “Tax Fees” are fees billed for professional services rendered by the independent registered public accounting firm for tax compliance, tax advice, and tax planning. There were no such fees incurred in 2019. In 2018, these fees were for services performed for the filing of our 2017 tax returns and estimated payments for 2018. “All Other Fees” represent fees billed for ancillary professional services that are not reported above under “Audit Fees,” “Audit-Related Fees,” or “Tax Fees.” There were no such fees incurred in 2019 or 2018. It is the policy of the Audit Committee to pre-approve all audit and permitted non-audit services proposed to be performed by our independent registered public accounting firm. The Audit Committee reviewed and pre-approved all of the services performed by RSM US LLP. The process for such pre-approval is typically as follows: Audit Committee pre-approval is sought at one of the Audit Committee’s regularly scheduled meetings following the presentation of information at such meeting detailing the particular services proposed to be performed. The authority to pre-approve audit and non-audit services may be delegated by the Audit Committee to the Chair of the Audit Committee, who shall present any decision to pre-approve an activity to the full Audit Committee at the first regular meeting following such decision. None of the services described above were approved by the Audit Committee pursuant to the exception provided by Rule 2-01(c)(7)(i)(C) under Regulation S-X. The Audit Committee has reviewed the non-audit services provided by RSM US LLP and has determined that the provision of such services is compatible with maintaining RSM US LLP’s independence. The Board unanimously recommends a vote “FOR” the ratification of the appointment of RSM US LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 65 Proposal No. 3: Advisory Vote to Approve Executive Compensation In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our stockholders have the opportunity to cast an advisory vote to approve the compensation of our named executive officers as disclosed pursuant to the SEC’s compensation disclosure rules, including the Compensation Discussion and Analysis, the compensation tables, and the narrative disclosures that accompany the compensation tables in this Proxy Statement (a “Say-on-Pay Vote”). Taking into consideration the most recent voting results from our 2018 annual stockholders’ meeting concerning the frequency of the Say-on-Pay Vote, we determined that we will hold an annual advisory vote to approve the compensation of our named executive officers until the next required advisory vote on the frequency of such votes. The Compensation Committee oversees the development of a compensation program designed to attract, retain, and motivate executives who enable us to achieve our strategic and financial goals. The Compensation Discussion and Analysis, the compensation tables, and the accompanying narrative disclosure illustrate the trends in compensation and the application of our compensation philosophies and practices for the years presented. We encourage stockholders to read the Compensation Discussion and Analysis, which describes the details of our executive compensation program and the decisions made by the Compensation Committee in 2019. The Compensation Committee believes that our executive compensation program achieves an appropriate balance between fixed compensation and variable incentive compensation, pays for performance, and promotes an alignment between the interests of our named executive officers and our stockholders. Accordingly, we are asking our stockholders to vote “FOR” the non-binding advisory resolution approving the compensation of our named executive officers, including as described in the Compensation Discussion and Analysis, compensation tables, and the accompanying narrative discussion. Because your vote is advisory, it will not be binding upon us, the Compensation Committee, or the Board. However, the Compensation Committee and the Board value the opinions of our stockholders and will take the outcome of the vote into account when considering future executive compensation arrangements. The Board unanimously recommends a vote “FOR” the advisory approval of the compensation of our named executive officers. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 66 P r o x y S t a t e m e n t Audit Committee Report OTHER INFORMATION The Audit Committee oversees our financial reporting process on behalf of the Board of Directors. The Audit Committee operates under a written charter, a copy of which is available on our Investor Relations website, www.regionalmanagement.com. This report reviews the actions taken by the Audit Committee with regard to our financial reporting process during the fiscal year ended December 31, 2019, and particularly with regard to the audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018, and 2017. The Audit Committee is composed solely of independent directors under existing NYSE listing standards and SEC requirements. None of the committee members is or has been an officer or employee of the Company or any of our subsidiaries or has engaged in any business transaction or has any business or family relationship with the Company or any of our subsidiaries or affiliates. In addition, the Board of Directors has determined that Messrs. Steven J. Freiberg, Alvaro G. de Molina, and Carlos Palomares are “audit committee financial experts,” as defined by SEC rules. Our management has the primary responsibility for our financial statements and reporting process, including the systems of internal controls. The independent auditors are responsible for performing an independent audit of our consolidated financial statements in accordance with auditing standards generally accepted in the United States and issuing a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes and to select annually the accountants to serve as our independent auditors for the coming year. The Audit Committee has implemented procedures to ensure that during the course of each fiscal year it devotes the attention that it deems necessary or appropriate to fulfill its oversight responsibilities under the Audit Committee’s charter. To carry out its responsibilities, the Audit Committee met six times during the fiscal year ended December 31, 2019. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, including a discussion of the quality, rather than just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee also discussed our audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited consolidated financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, rather than just the acceptability, of our accounting principles, and has discussed with the independent auditors the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC. In addition, the Audit Committee discussed with the auditors their independence from management and the Company, including the matters in the written disclosures and the letter required by the PCAOB regarding the independent auditors’ communications with the Audit Committee regarding independence. The Audit Committee also considered whether the provision of services during the fiscal year ended December 31, 2019, by the auditors that were unrelated to their audit of the consolidated financial statements referred to above and to their reviews of our interim consolidated financial statements during the fiscal year is compatible with maintaining their independence. Additionally, the Audit Committee discussed with the independent auditors the overall scope and plan for their audit. The Audit Committee met with the independent auditors, with and without management present, to discuss the results of their examination, their evaluation of our internal controls, and the overall quality of our financial reporting. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for filing with the SEC. This report of the Audit Committee has been prepared by members of the Audit Committee. Members of the Audit Committee: Alvaro G. de Molina (Chair) Steven J. Freiberg Carlos Palomares Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 67 Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding the beneficial ownership of our common stock as of the close of trading on April 7, 2020, of: (i) each person known by us to beneficially own more than five percent of our common stock; (ii) each of our directors; (iii) each of our executive officers, including our named executive officers; and (iv) all of our directors and executive officers, as a group. For purposes of the following and the accompanying footnotes, references to “executive officers” include our named executive officers. Shares Beneficially Owned(1) Name Basswood Capital Management, L.L.C.(2) Wellington Management Group LLP and affiliates(3) Dimensional Fund Advisors LP(4) BlackRock, Inc.(5) Gregory L. Summe(6) Renaissance Technologies LLC(7) Jonathan D. Brown(8) Roel C. Campos(9) Maria Contreras-Sweet Michael R. Dunn(10) Steven J. Freiberg(11) Sandra K. Johnson Alvaro G. de Molina(12) Carlos Palomares(13) Robert W. Beck(14) Peter R. Knitzer(15) John D. Schachtel(16) Donald E. Thomas(17) Daniel J. Taggart(18) Brian J. Fisher(19) Manish Parmar Michael S. Dymski(20) All directors and executive officers, as a group (16 persons) Number 1,401,931 1,082,286 961,337 900,201 622,313 556,437 7,056 68,007 8,109 212,522 164,187 — 65,467 65,360 46,624 262,721 73,702 248,609 64,648 90,627 5,059 46,811 1,429,509 Percentage 12.5% 9.7% 8.6% 8.1% 5.6% 5.0% * * * 1.9% 1.5% — * * * 2.3% * 2.2% * * * * 11.9% Amount represents less than 1.0% * (1) Applicable percentage of ownership is based upon 11,175,028 shares of our common stock outstanding on (2) April 7, 2020. Beneficial ownership is determined in accordance with SEC rules and includes voting and investment power with respect to shares shown as beneficially owned. Shares of common stock subject to options currently exercisable or exercisable within 60 days are deemed outstanding for computing the shares and percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other person or entity. Except as otherwise indicated, the persons or entities listed in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them. The address for all directors and officers listed in the table is c/o Regional Management Corp., 979 Batesville Road, Suite B, Greer, SC 29651. The information reported is based on a Form 4 filed with the SEC on December 12, 2019, reporting (i) shared power of Basswood Capital Management, L.L.C. (“Basswood”) to vote or direct the vote and to dispose or direct the disposition of 1,401,931 shares; (ii) shared power of Basswood Opportunity Partners, LP (“BOP”) to vote or direct the vote and to dispose of or direct the disposition of 311,635 shares; (iii) shared power of Basswood Opportunity Fund, Inc. (“BOF”) to vote or direct the vote and to dispose of or direct the disposition of 41,186 shares; (iv) shared power of Basswood Financial Fund, LP (“BFF”) to vote or direct the vote and to dispose of or direct the disposition of 129,289 shares; (v) shared power of Basswood Financial Fund, Inc. (“BFF, Inc.”) to vote or direct the vote and to dispose of or direct the disposition of 22,390 shares; (vi) shared power of Basswood Financial Long Only Fund, LP (“BFLOF”) to vote or direct the vote and to dispose of or direct the disposition of 47,109 shares; (vii) shared power of Basswood Enhanced Long Short Fund, L.P. (“BELS”) to vote or direct the vote and to dispose of or direct the disposition of 40,662 shares; (viii) shared power of Basswood, BFF, BOF, BFLOF, BFF, Inc., BELS, and BOP (collectively, the “Managed Accounts”) to vote or direct the vote and to dispose of or direct the disposition of 802,604 shares; (ix) shared power of Matthew Lindenbaum to vote or direct the vote and to dispose of or direct the disposition of 1,401,931 shares; and (x) shared power of Bennett Lindenbaum to vote or direct the vote and to dispose of or direct the Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 68 P r o x y S t a t e m e n t disposition of 1,401,931 shares. Matthew Lindenbaum and Bennett Lindenbaum are the Managing Members of Basswood and may be deemed to have a pecuniary interest in the shares held directly or indirectly by the Managed Accounts. The information also includes 7,056 shares held by Mr. Brown, a partner at Basswood, who serves on the Board pursuant to the Cooperation Agreement described in detail below in the section entitled “Other Information – Certain Relationships and Related Person Transactions.” As a result, Basswood is a “director-by-deputization” solely for the purposes of Section 16 of the Exchange Act. Pursuant to Rule 16a-1 of the Exchange Act, Basswood may be deemed to be a beneficial owner of the shares of common stock issued to Mr. Brown. The business address of Basswood is 645 Madison Avenue, 10th Floor, New York, NY 10022. The information reported is based on two Schedules 13G/A, filed with the SEC on January 28, 2020 and January 29, 2020, respectively, reporting: (i) shared power of Wellington Management Group LLP (“WMG”) to vote or direct the vote and to dispose or direct the disposition of 1,082,286 shares; (ii) shared power of Wellington Group Holdings LLP (“WGH”) to vote or direct the vote and to dispose or direct the disposition of 1,082,286 shares; (iii) shared power of Wellington Investment Advisors Holdings LLP (“WIAH”) to vote or direct the vote and to dispose or direct the disposition of 1,082,286 shares; (iv) shared power of Wellington Management Company LLP (“WMC”) to vote or direct the vote and to dispose or direct the disposition of 1,059,432 shares; and (v) shared power of Wellington Trust Company, NA (“WTC”) to vote or direct the vote and to dispose or direct the disposition of 989,098 shares. The business address of WMG, WGH, WIAH, WMC, and WTC is 280 Congress Street, Boston, MA 02210. The information reported is based on a Schedule 13G/A filed with the SEC on February 12, 2020, reporting the sole power of Dimensional Fund Advisors LP (“Dimensional”) to vote or direct the vote of 928,466 shares and the sole power of Dimensional to dispose or direct the disposition of 961,337 shares. The business address of Dimensional is Building One, 6300 Bee Cave Road, Austin, TX 78746. The information reported is based on a Schedule 13G/A filed with the SEC on February 6, 2020, reporting the sole power of BlackRock, Inc. (“BlackRock”) to vote or direct the vote of 841,420 shares and the sole power of BlackRock to dispose or direct the disposition of 900,201 shares. The business address of BlackRock is 55 East 52nd Street, New York, NY 10055. The information reported is based on a Schedule 13G/A filed with the SEC on February 12, 2020, reporting the shared power of Gregory L. Summe to vote or direct the vote and to dispose or direct the disposition of 622,313 shares. This number includes shares held by members of Mr. Summe’s family where he shares voting and investment control. Mr. Summe is the sole member of Glen Capital Partners LLC and Glen Capital Partners GP LLC, which is the general partner of Glen Capital Partners Focus Fund, L.P. These entities each report shared power to vote or direct the vote or dispose or direct the disposition of 532,313 shares. The business address of Mr. Summe is 4851 Tamiami Trail N. Suite 200, Naples, FL 34103. The information reported is based on a Schedule 13G filed with the SEC on February 12, 2020, reporting: (i) sole power of Renaissance Technologies LLC (“RTC”) and Renaissance Technologies Holdings Corporation (“RTHC”) to vote or direct the vote of 484,118 shares; (ii) sole power of RTC and RTHC to dispose or to direct the disposition of 552,908 shares; and (iii) shared power of RTC and RTHC to dispose or direct the disposition of 3,529 shares. RTHC is the majority owner of RTC; as a result, RTHC may be considered the beneficial owner of shares held by RTC. The business address of RTC and RTHC is 800 Third Avenue, New York, NY 10022. (3) (4) (5) (6) (7) (8) Mr. Brown is a partner at Basswood, serving on the Board pursuant to the Cooperation Agreement described in detail below in the section entitled “Other Information – Certain Relationships and Related Person Transactions.” As a result, Basswood is a “director-by-deputization” solely for the purposes of Section 16 of the Exchange Act. Pursuant to Rule 16a-1 of the Exchange Act, Basswood may be deemed to be a beneficial owner of the shares of common stock issued to Mr. Brown. The amount stated includes 28,670 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Campos will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Campos and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (9) (10) The amount stated includes 148,866 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Dunn will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Dunn and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (11) Mr. Freiberg holds 91,392 shares directly. Additional shares stated are owned by (i) Neena Freiberg (Mr. Freiberg’s wife) (30,000 shares), and (ii) the Neena Freiberg Irrevocable Trust, of which Mr. Freiberg is trustee (24,854 shares). The amount stated also includes 17,941 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Freiberg will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 69 outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Freiberg and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (12) The amount stated includes 30,166 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. de Molina will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. de Molina and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (13) The amount stated includes 28,670 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Palomares will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Palomares and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (14) The amount stated includes 4,297 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Beck will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Beck and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (15) The amount stated includes 209,970 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Knitzer will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Knitzer and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (16) The amount stated includes 38,545 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Schachtel will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Schachtel and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (17) The amount stated includes 7,773 shares owned by The Donald Eugene Thomas and Jeanine Leigh Thomas Joint Revocable Living Trust. Mr. Thomas and his wife, Jeanine Leigh Thomas, are the trustees of The Donald Eugene Thomas and Jeanine Leigh Thomas Joint Revocable Living Trust. The amount stated also includes 240,836 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Thomas will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Thomas and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (18) The amount stated includes 49,455 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Taggart will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Taggart and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (19) The amount stated includes 64,657 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Fisher will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Fisher and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. (20) The amount stated includes 12,693 shares subject to options either currently exercisable or exercisable within 60 days of April 7, 2020, over which Mr. Dymski will not have voting or investment power until the options are exercised. The option shares described in this footnote are considered outstanding for the purpose of computing the percentage of outstanding stock owned by Mr. Dymski and by directors and executive officers as a group, but not for the purpose of computing the percentage ownership of any other person. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than ten percent of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and our other equity securities. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2019, all Section 16(a) filing requirements applicable to directors, executive Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 70 P r o x y S t a t e m e n t officers, and greater than ten percent beneficial owners were timely complied with by such persons, with the exception of one Form 4 that was not timely filed for one transaction for each of Michael R. Dunn, Michael S. Dymski, and Donald E. Thomas. In each case, the transaction was not timely reported due to an administrative error, but was reported promptly on a Form 4 after the oversight was discovered. Certain Relationships and Related Person Transactions Cooperation Agreement On January 26, 2018, we entered into a Cooperation Agreement (the “Cooperation Agreement”) with Basswood, pursuant to which we appointed Jonathan D. Brown to the Board, effective January 26, 2018. Pursuant to the Cooperation Agreement, Mr. Brown is required to, at all times while serving as a member of the Board, comply with all policies, procedures, processes, codes, rules, standards, and guidelines applicable to non-employee Board members. In addition, the Cooperation Agreement provides that Mr. Brown must offer to resign from the Board if (i) Basswood and its affiliates, collectively, no longer beneficially own an aggregate “net long position” of at least 874,705 shares of our common stock (subject to adjustment for stock splits, reverse stock splits, stock dividends, and similar adjustments), or (ii) Basswood fails to comply with or breaches any of the terms of the Cooperation Agreement in any material respect and, if capable of being cured, such material breach or failure has not been cured within 15 days after receipt by Basswood of written notice from us specifying such material breach or failure, provided that we are not in material breach of the Cooperation Agreement at such time. The Cooperation Agreement also provides that, if requested by Basswood, we are obligated to appoint Mr. Brown to any existing or newly created committee of the Board that may be designated to oversee or review strategic alternatives (including an extraordinary transaction). In the Cooperation Agreement, in addition to certain confidentiality and non-disparagement provisions, Basswood has agreed to various customary standstill provisions for the duration of the Standstill Period (as defined below), which provide, among other things, that Basswood and its affiliates will not (i) acquire beneficial ownership of 19.9% or more of the outstanding shares of our common stock; (ii) participate in a proxy solicitation with respect to the voting of any shares of our common stock; (iii) submit a proposal for or offer of any extraordinary transaction or propose a change in the structure, size, or composition of the Board or executive officers of the Company; or (iv) subject to certain exceptions for open market and underwritten transactions, sell shares of our common stock to a third party or group that to Basswood’s knowledge would result in such third party or group owning 5% or more of the outstanding shares of our common stock. Basswood has also agreed that, during the Standstill Period, it shall cause the shares of our common stock beneficially owned by it and its affiliates to be voted (i) in favor of each director nominated by the Board for election, and (ii) in accordance with the Board’s recommendations on all other matters; provided that Basswood and its affiliates may vote their shares of our common stock in their sole discretion with respect to (a) a proposal to authorize or approve an extraordinary transaction, (b) matters related to the implementation of takeover defenses, (c) new or amended incentive compensation plans submitted for stockholder approval, or (d) any other proposal if either Institutional Shareholder Services Inc. or Glass Lewis & Co., LLC do not recommend voting in accordance with the Board’s recommendation with respect to such proposal (other than with respect to the election or removal of directors) at any annual or special meeting of stockholders. Pursuant to the Cooperation Agreement, the “Standstill Period” was initially defined to mean the period commencing on January 26, 2018 and ending on the earliest of (i) 12:01 a.m. (New York time) on the date that is 20 days prior to the nomination deadline for the 2019 annual meeting of stockholders (the “2019 Annual Meeting”), (ii) if we fail to comply with or breach any of the terms of the Cooperation Agreement in any material respect and, if capable of being cured, such material breach or failure has not been cured within 15 days after receipt by us of written notice from Basswood specifying such material breach or failure, provided that Basswood is not in material breach of the Cooperation Agreement at such time, (iii) the consummation of an extraordinary transaction following which consummation the director designated by Basswood no longer serves on the Board, and (iv) a reorganization of the Company under any federal or state law relating to bankruptcy or insolvency. However, the Cooperation Agreement provides that if we provide written notice to Basswood that we will nominate a director designated by Basswood for election to the Board at the 2019 Annual Meeting or for any annual meeting of stockholders of the Company subsequent thereto (each, an “Applicable Meeting”) at least 20 days prior to the nomination deadline for Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 71 such Applicable Meeting and Basswood has agreed in advance to such nomination, then the Standstill Period will be automatically extended until the date that is 20 days prior to the nomination deadline for the annual stockholders meeting subsequent to such Applicable Meeting. Accordingly, we have provided timely written notice to Basswood that we would nominate a director designated by Basswood for election to the Board at each Applicable Meeting to date, which currently has extended the Standstill Period until the date that is 20 days prior to the nomination deadline for the 2021 Annual Meeting. The Cooperation Agreement terminates upon the expiration of the Standstill Period (subject to any extensions as provided in the Cooperation Agreement), provided that the confidentiality provisions of the Cooperation Agreement will survive for a period of 18 months following the date upon which no director designated by Basswood serves as a director of the Company. Consulting Agreement See “Summary of Employment Arrangements with Executive Officers – Consulting Agreement with Former Chief Credit Risk Officer” in this Proxy Statement for information regarding a consulting agreement that we entered into with Daniel J. Taggart, our former Chief Credit Risk Officer. Statement of Policy Regarding Transactions with Related Persons Our Board has adopted a written statement of policy regarding transactions with related persons, which we refer to as our “related person policy.” Our related person policy requires that a “related person” (as defined in paragraph (a) of Item 404 of Regulation S-K) must promptly disclose to our general counsel, or other person designated by our Board, any “related person transaction” (defined as any transaction that is anticipated and would be reportable by us under Item 404(a) of Regulation S-K, which includes transactions in which we were or are to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest) and all material facts with respect thereto. The general counsel, or such other person, will then promptly communicate that information to our Board. No related person transaction will be executed without the approval or ratification of our Board or a committee of the Board. It is our policy that directors interested in a related person transaction will recuse themselves from any vote of a related person transaction in which they have an interest and provide all material information he or she has concerning the related person transaction to the Board. Our policy does not specify the standards to be applied by directors in determining whether or not to approve or ratify a related person transaction, and we accordingly anticipate that these determinations will be made in accordance with principles of Delaware law generally applicable to directors of a Delaware corporation. In determining whether to approve or ratify a related person transaction, the Board may consider such facts and circumstances as it deems appropriate, including (1) the benefits to us; (2) the availability of other sources for comparable products or services; (3) the terms of the proposed related person transaction; and (4) the terms available to unrelated third parties or to employees generally in an arms-length negotiation. Indemnification of Directors and Officers Our Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law (the “DGCL”). In addition, our Amended and Restated Certificate of Incorporation provides that our directors will not be liable for monetary damages for breach of fiduciary duty to the fullest extent permitted by the DGCL. There is no pending litigation or proceeding naming any of our directors or officers to which indemnification is being sought, and we are not aware of any pending or threatened litigation that may result in claims for indemnification by any director, officer, or other party. Proposals by Stockholders Under certain conditions, stockholders may request that we include a proposal at a forthcoming meeting of our stockholders in our proxy materials for such meeting. Under SEC Rule 14a-8, any stockholder desiring to present such a proposal to be acted upon at the 2021 Annual Meeting and included in the proxy materials for such meeting must ensure that we receive the proposal at our principal executive office in Greer, South Carolina by December 23, 2020, in order for the proposal to be eligible for inclusion in our proxy statement and proxy card relating to such meeting. Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 72 If a stockholder desires to propose any business at an annual meeting of stockholders, even if the proposal or proposed director candidate is not to be included in our proxy statement, our Bylaws provide that the stockholder must deliver or mail timely advance written notice of such business to our principal executive office. Under our Bylaws, to be timely, a stockholder’s notice generally must be delivered to our Corporate Secretary at our principal executive offices not later than the 90th day before the first anniversary of the date of the preceding year’s annual meeting and not earlier than the 120th day prior to such anniversary. However, in the event that the date of the annual meeting is advanced by more than 20 days or delayed by more than 70 days from such anniversary date, notice by the stockholder to be timely must be delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Each item of business must be made in accordance with, and must include the information required by, our Bylaws, our Corporate Governance Guidelines, and any other applicable law, rule, or regulation. Assuming that the date of the 2021 Annual Meeting is not advanced or delayed in the manner described above, the required notice for the 2021 Annual Meeting would need to be provided to us not earlier than January 21, 2021 and not later than February 20, 2021. Householding of Annual Meeting Materials Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” annual reports and proxy statements. This means that only one copy of our Annual Report on Form 10-K and Proxy Statement, as applicable, may have been sent to multiple stockholders in the same household. We will promptly deliver a separate copy of our Annual Report on Form 10-K and Proxy Statement, as applicable, to any stockholder upon request submitted in writing to us at the following address: Regional Management Corp., 979 Batesville Road, Suite B, Greer, South Carolina, 29651, Attention: Corporate Secretary, or by calling (864) 448-7000. Any stockholder who wants to receive separate copies of our Annual Report on Form 10-K and Proxy Statement in the future, or who is currently receiving multiple copies and would like to receive only one copy for his or her household, should contact his or her bank, broker, or other nominee record holder, or contact us at the above address and telephone number. Other Business The Board is not aware of any matters, other than those specified above, to come before the Annual Meeting for action by the stockholders. However, if any matter requiring a vote of the stockholders should be duly presented for a vote at the Annual Meeting, then the persons named in the proxy card intend to vote such proxy in accordance with their best judgment. P r o x y S t a t e m e n t Regional Management Corp. | Proxy Statement for 2020 Annual Meeting | 73 QUICK FACTS (as of December 31, 2019) $1.1 billion (cid:4)(cid:4)(cid:77)(cid:82)(cid:4)(cid:444)(cid:82)(cid:69)(cid:82)(cid:71)(cid:73)(cid:4)(cid:86)(cid:73)(cid:71)(cid:73)(cid:77)(cid:90)(cid:69)(cid:70)(cid:80)(cid:73)(cid:87) 366 branches 11 states AL • GA • MO • NM • NC OK • SC • TX • TN • VA • WI MANAGEMENT TEAM Robert W. Beck President and (cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:41)(cid:92)(cid:73)(cid:71)(cid:89)(cid:88)(cid:77)(cid:90)(cid:73)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86) Michael S. Dymski Vice President, Interim Chief (cid:42)(cid:77)(cid:82)(cid:69)(cid:82)(cid:71)(cid:77)(cid:69)(cid:80)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86)(cid:16)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4) (cid:37)(cid:71)(cid:71)(cid:83)(cid:89)(cid:82)(cid:88)(cid:77)(cid:82)(cid:75)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86)(cid:4)(cid:4) John D. Schachtel (cid:41)(cid:92)(cid:73)(cid:71)(cid:89)(cid:88)(cid:77)(cid:90)(cid:73)(cid:4)(cid:58)(cid:77)(cid:71)(cid:73)(cid:4)(cid:52)(cid:86)(cid:73)(cid:87)(cid:77)(cid:72)(cid:73)(cid:82)(cid:88)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4) (cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:51)(cid:84)(cid:73)(cid:86)(cid:69)(cid:88)(cid:77)(cid:82)(cid:75)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86) Manish Parmar (cid:41)(cid:92)(cid:73)(cid:71)(cid:89)(cid:88)(cid:77)(cid:90)(cid:73)(cid:4)(cid:58)(cid:77)(cid:71)(cid:73)(cid:4)(cid:52)(cid:86)(cid:73)(cid:87)(cid:77)(cid:72)(cid:73)(cid:82)(cid:88)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4) (cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:39)(cid:86)(cid:73)(cid:72)(cid:77)(cid:88)(cid:4)(cid:54)(cid:77)(cid:87)(cid:79)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86) Brian J. Fisher (cid:41)(cid:92)(cid:73)(cid:71)(cid:89)(cid:88)(cid:77)(cid:90)(cid:73)(cid:4)(cid:58)(cid:77)(cid:71)(cid:73)(cid:4)(cid:52)(cid:86)(cid:73)(cid:87)(cid:77)(cid:72)(cid:73)(cid:82)(cid:88)(cid:16)(cid:4) General Counsel, and Secretary CONTACT INFORMATION Regional Management Corp. (cid:29)(cid:27)(cid:29)(cid:4)(cid:38)(cid:69)(cid:88)(cid:73)(cid:87)(cid:90)(cid:77)(cid:80)(cid:80)(cid:73)(cid:4)(cid:54)(cid:83)(cid:69)(cid:72)(cid:16)(cid:4)(cid:55)(cid:89)(cid:77)(cid:88)(cid:73)(cid:4)(cid:38) Greer, SC 29651 Telephone: (864) 448-7000 RegionalManagement.com COMPANY OVERVIEW (cid:54)(cid:73)(cid:75)(cid:77)(cid:83)(cid:82)(cid:69)(cid:80)(cid:4)(cid:49)(cid:69)(cid:82)(cid:69)(cid:75)(cid:73)(cid:81)(cid:73)(cid:82)(cid:88)(cid:4)(cid:39)(cid:83)(cid:86)(cid:84)(cid:18)(cid:4)(cid:12)(cid:50)(cid:61)(cid:55)(cid:41)(cid:30)(cid:4)(cid:54)(cid:49)(cid:13)(cid:4)(cid:77)(cid:87)(cid:4)(cid:69)(cid:4)(cid:72)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:77)(cid:444)(cid:73)(cid:72)(cid:4)(cid:71)(cid:83)(cid:82)(cid:87)(cid:89)(cid:81)(cid:73)(cid:86)(cid:4)(cid:444)(cid:82)(cid:69)(cid:82)(cid:71)(cid:73)(cid:4)(cid:71)(cid:83)(cid:81)(cid:84)(cid:69)(cid:82)(cid:93)(cid:4)(cid:74)(cid:83)(cid:71)(cid:89)(cid:87)(cid:73)(cid:72)(cid:4)(cid:83)(cid:82) (cid:86)(cid:73)(cid:80)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:87)(cid:76)(cid:77)(cid:84)(cid:17)(cid:70)(cid:69)(cid:87)(cid:73)(cid:72)(cid:4)(cid:80)(cid:73)(cid:82)(cid:72)(cid:77)(cid:82)(cid:75)(cid:18)(cid:4)(cid:59)(cid:73)(cid:4)(cid:84)(cid:86)(cid:83)(cid:90)(cid:77)(cid:72)(cid:73)(cid:4)(cid:445)(cid:73)(cid:92)(cid:77)(cid:70)(cid:80)(cid:73)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:69)(cid:74)(cid:74)(cid:83)(cid:86)(cid:72)(cid:69)(cid:70)(cid:80)(cid:73)(cid:4)(cid:77)(cid:82)(cid:87)(cid:88)(cid:69)(cid:80)(cid:80)(cid:81)(cid:73)(cid:82)(cid:88)(cid:4)(cid:80)(cid:83)(cid:69)(cid:82)(cid:4)(cid:84)(cid:86)(cid:83)(cid:72)(cid:89)(cid:71)(cid:88)(cid:87)(cid:4)(cid:84)(cid:86)(cid:77)(cid:81)(cid:69)(cid:86)(cid:77)(cid:80)(cid:93)(cid:4)(cid:88)(cid:83) customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. As of December 31, 2019, we had approximately 432,200 accounts and $1.1 billion in outstanding (cid:444)(cid:82)(cid:69)(cid:82)(cid:71)(cid:73)(cid:4)(cid:86)(cid:73)(cid:71)(cid:73)(cid:77)(cid:90)(cid:69)(cid:70)(cid:80)(cid:73)(cid:87)(cid:18) BRANCH NETWORK & ORIGINATION CHANNELS We operate under the name “Regional Finance” in 366 branches across 11 states as of the end of 2019. Our integrated branch model is the foundation of our multi-channel origination strategy, with nearly all loans, (cid:86)(cid:73)(cid:75)(cid:69)(cid:86)(cid:72)(cid:80)(cid:73)(cid:87)(cid:87)(cid:4)(cid:83)(cid:74)(cid:4)(cid:83)(cid:86)(cid:77)(cid:75)(cid:77)(cid:82)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:4)(cid:71)(cid:76)(cid:69)(cid:82)(cid:82)(cid:73)(cid:80)(cid:16)(cid:4)(cid:87)(cid:73)(cid:86)(cid:90)(cid:77)(cid:71)(cid:73)(cid:72)(cid:4)(cid:88)(cid:76)(cid:86)(cid:83)(cid:89)(cid:75)(cid:76)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:70)(cid:86)(cid:69)(cid:82)(cid:71)(cid:76)(cid:4)(cid:82)(cid:73)(cid:88)(cid:91)(cid:83)(cid:86)(cid:79)(cid:18)(cid:4)(cid:59)(cid:73)(cid:4)(cid:70)(cid:73)(cid:80)(cid:77)(cid:73)(cid:90)(cid:73)(cid:4)(cid:88)(cid:76)(cid:69)(cid:88)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:74)(cid:86)(cid:73)(cid:85)(cid:89)(cid:73)(cid:82)(cid:88)(cid:16)(cid:4)(cid:77)(cid:82)(cid:17)(cid:84)(cid:73)(cid:86)(cid:87)(cid:83)(cid:82) (cid:71)(cid:83)(cid:82)(cid:88)(cid:69)(cid:71)(cid:88)(cid:4)(cid:91)(cid:77)(cid:88)(cid:76)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:71)(cid:89)(cid:87)(cid:88)(cid:83)(cid:81)(cid:73)(cid:86)(cid:87)(cid:4)(cid:70)(cid:89)(cid:77)(cid:80)(cid:72)(cid:87)(cid:4)(cid:87)(cid:88)(cid:86)(cid:83)(cid:82)(cid:75)(cid:4)(cid:86)(cid:73)(cid:80)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:87)(cid:76)(cid:77)(cid:84)(cid:87)(cid:16)(cid:4)(cid:74)(cid:83)(cid:87)(cid:88)(cid:73)(cid:86)(cid:87)(cid:4)(cid:71)(cid:89)(cid:87)(cid:88)(cid:83)(cid:81)(cid:73)(cid:86)(cid:4)(cid:80)(cid:83)(cid:93)(cid:69)(cid:80)(cid:88)(cid:93)(cid:16)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:77)(cid:81)(cid:84)(cid:86)(cid:83)(cid:90)(cid:73)(cid:87)(cid:4)(cid:71)(cid:86)(cid:73)(cid:72)(cid:77)(cid:88)(cid:4)(cid:84)(cid:73)(cid:86)(cid:74)(cid:83)(cid:86)(cid:81)(cid:69)(cid:82)(cid:71)(cid:73)(cid:18) In addition to our branch network, we promote our products and facilitate loan applications and originations through direct mail campaigns, digital partners, retailers, and our consumer website. LOAN PRODUCTS We underwrite our loans based on our customers’ ability to make monthly payments out of their discretionary (cid:77)(cid:82)(cid:71)(cid:83)(cid:81)(cid:73)(cid:16)(cid:4)(cid:91)(cid:77)(cid:88)(cid:76)(cid:4)(cid:88)(cid:76)(cid:73)(cid:4)(cid:90)(cid:69)(cid:80)(cid:89)(cid:73)(cid:4)(cid:83)(cid:74)(cid:4)(cid:69)(cid:82)(cid:93)(cid:4)(cid:84)(cid:80)(cid:73)(cid:72)(cid:75)(cid:73)(cid:72)(cid:4)(cid:71)(cid:83)(cid:80)(cid:80)(cid:69)(cid:88)(cid:73)(cid:86)(cid:69)(cid:80)(cid:4)(cid:87)(cid:73)(cid:86)(cid:90)(cid:77)(cid:82)(cid:75)(cid:4)(cid:69)(cid:87)(cid:4)(cid:69)(cid:4)(cid:71)(cid:86)(cid:73)(cid:72)(cid:77)(cid:88)(cid:4)(cid:73)(cid:82)(cid:76)(cid:69)(cid:82)(cid:71)(cid:73)(cid:81)(cid:73)(cid:82)(cid:88)(cid:4)(cid:86)(cid:69)(cid:88)(cid:76)(cid:73)(cid:86)(cid:4)(cid:88)(cid:76)(cid:69)(cid:82)(cid:4)(cid:88)(cid:76)(cid:73)(cid:4)(cid:84)(cid:86)(cid:77)(cid:81)(cid:69)(cid:86)(cid:93) (cid:89)(cid:82)(cid:72)(cid:73)(cid:86)(cid:91)(cid:86)(cid:77)(cid:88)(cid:77)(cid:82)(cid:75)(cid:4)(cid:71)(cid:86)(cid:77)(cid:88)(cid:73)(cid:86)(cid:77)(cid:83)(cid:82)(cid:18)(cid:4)(cid:51)(cid:89)(cid:86)(cid:4)(cid:80)(cid:83)(cid:69)(cid:82)(cid:4)(cid:84)(cid:86)(cid:83)(cid:72)(cid:89)(cid:71)(cid:88)(cid:87)(cid:4)(cid:69)(cid:86)(cid:73)(cid:4)(cid:81)(cid:83)(cid:86)(cid:73)(cid:4)(cid:69)(cid:74)(cid:74)(cid:83)(cid:86)(cid:72)(cid:69)(cid:70)(cid:80)(cid:73)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:445)(cid:73)(cid:92)(cid:77)(cid:70)(cid:80)(cid:73)(cid:4)(cid:88)(cid:76)(cid:69)(cid:82)(cid:4)(cid:88)(cid:76)(cid:83)(cid:87)(cid:73)(cid:4)(cid:83)(cid:74)(cid:74)(cid:73)(cid:86)(cid:73)(cid:72)(cid:4)(cid:70)(cid:93)(cid:4)(cid:69)(cid:80)(cid:88)(cid:73)(cid:86)(cid:82)(cid:69)(cid:88)(cid:77)(cid:90)(cid:73) (cid:444)(cid:82)(cid:69)(cid:82)(cid:71)(cid:77)(cid:69)(cid:80)(cid:4)(cid:87)(cid:73)(cid:86)(cid:90)(cid:77)(cid:71)(cid:73)(cid:4)(cid:84)(cid:86)(cid:83)(cid:90)(cid:77)(cid:72)(cid:73)(cid:86)(cid:87)(cid:16)(cid:4)(cid:87)(cid:89)(cid:71)(cid:76)(cid:4)(cid:69)(cid:87)(cid:4)(cid:84)(cid:69)(cid:93)(cid:72)(cid:69)(cid:93)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:88)(cid:77)(cid:88)(cid:80)(cid:73)(cid:4)(cid:80)(cid:73)(cid:82)(cid:72)(cid:73)(cid:86)(cid:87)(cid:18)(cid:4)(cid:59)(cid:73)(cid:4)(cid:69)(cid:80)(cid:87)(cid:83)(cid:4)(cid:86)(cid:73)(cid:84)(cid:83)(cid:86)(cid:88)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:71)(cid:89)(cid:87)(cid:88)(cid:83)(cid:81)(cid:73)(cid:86)(cid:87)(cid:389)(cid:4)(cid:84)(cid:69)(cid:93)(cid:81)(cid:73)(cid:82)(cid:88) performance to national credit reporting agencies, allowing our customers the opportunity to establish or (cid:86)(cid:73)(cid:84)(cid:69)(cid:77)(cid:86)(cid:4)(cid:88)(cid:76)(cid:73)(cid:77)(cid:86)(cid:4)(cid:71)(cid:86)(cid:73)(cid:72)(cid:77)(cid:88)(cid:4)(cid:76)(cid:77)(cid:87)(cid:88)(cid:83)(cid:86)(cid:93)(cid:18)(cid:4)(cid:51)(cid:89)(cid:86)(cid:4)(cid:75)(cid:83)(cid:69)(cid:80)(cid:4)(cid:77)(cid:87)(cid:4)(cid:88)(cid:83)(cid:4)(cid:71)(cid:83)(cid:82)(cid:87)(cid:77)(cid:87)(cid:88)(cid:73)(cid:82)(cid:88)(cid:80)(cid:93)(cid:4)(cid:75)(cid:86)(cid:83)(cid:91)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:444)(cid:82)(cid:69)(cid:82)(cid:71)(cid:73)(cid:4)(cid:86)(cid:73)(cid:71)(cid:73)(cid:77)(cid:90)(cid:69)(cid:70)(cid:80)(cid:73)(cid:87)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:88)(cid:83)(cid:4)(cid:87)(cid:83)(cid:89)(cid:82)(cid:72)(cid:80)(cid:93)(cid:4)(cid:81)(cid:69)(cid:82)(cid:69)(cid:75)(cid:73)(cid:4)(cid:83)(cid:89)(cid:86) (cid:84)(cid:83)(cid:86)(cid:88)(cid:74)(cid:83)(cid:80)(cid:77)(cid:83)(cid:4)(cid:86)(cid:77)(cid:87)(cid:79)(cid:16)(cid:4)(cid:91)(cid:76)(cid:77)(cid:80)(cid:73)(cid:4)(cid:84)(cid:86)(cid:83)(cid:90)(cid:77)(cid:72)(cid:77)(cid:82)(cid:75)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:71)(cid:89)(cid:87)(cid:88)(cid:83)(cid:81)(cid:73)(cid:86)(cid:87)(cid:4)(cid:91)(cid:77)(cid:88)(cid:76)(cid:4)(cid:69)(cid:88)(cid:88)(cid:86)(cid:69)(cid:71)(cid:88)(cid:77)(cid:90)(cid:73)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:73)(cid:69)(cid:87)(cid:93)(cid:17)(cid:88)(cid:83)(cid:17)(cid:89)(cid:82)(cid:72)(cid:73)(cid:86)(cid:87)(cid:88)(cid:69)(cid:82)(cid:72)(cid:4)(cid:80)(cid:83)(cid:69)(cid:82)(cid:4)(cid:84)(cid:86)(cid:83)(cid:72)(cid:89)(cid:71)(cid:88)(cid:87)(cid:4)(cid:88)(cid:76)(cid:69)(cid:88)(cid:4)(cid:87)(cid:73)(cid:86)(cid:90)(cid:73) (cid:88)(cid:76)(cid:73)(cid:77)(cid:86)(cid:4)(cid:90)(cid:69)(cid:86)(cid:77)(cid:73)(cid:72)(cid:4)(cid:444)(cid:82)(cid:69)(cid:82)(cid:71)(cid:77)(cid:69)(cid:80)(cid:4)(cid:82)(cid:73)(cid:73)(cid:72)(cid:87)(cid:18) LOAN FEATURES • Fixed Rate • Fixed Term (cid:397)(cid:4)(cid:41)(cid:85)(cid:89)(cid:69)(cid:80)(cid:4)(cid:49)(cid:83)(cid:82)(cid:88)(cid:76)(cid:80)(cid:93)(cid:4)(cid:52)(cid:69)(cid:93)(cid:81)(cid:73)(cid:82)(cid:88)(cid:87) (cid:397)(cid:4)(cid:42)(cid:89)(cid:80)(cid:80)(cid:93)(cid:17)(cid:37)(cid:81)(cid:83)(cid:86)(cid:88)(cid:77)(cid:94)(cid:77)(cid:82)(cid:75) (cid:397)(cid:4)(cid:42)(cid:80)(cid:73)(cid:92)(cid:77)(cid:70)(cid:80)(cid:73)(cid:4)(cid:48)(cid:83)(cid:69)(cid:82)(cid:4)(cid:55)(cid:77)(cid:94)(cid:73)(cid:87)(cid:4)(cid:10)(cid:4)(cid:49)(cid:69)(cid:88)(cid:89)(cid:86)(cid:77)(cid:88)(cid:77)(cid:73)(cid:87) • No Pre-Payment Penalties Loan Products Size Term Small Installment Loans Large Installment Loans Retail Purchase Loans Range: $500 – $2,500 (cid:37)(cid:90)(cid:73)(cid:86)(cid:69)(cid:75)(cid:73)(cid:4)(cid:80)(cid:83)(cid:69)(cid:82)(cid:4)(cid:87)(cid:77)(cid:94)(cid:73)(cid:30)(cid:4)(cid:8)(cid:21)(cid:16)(cid:29)(cid:20)(cid:20) Range: $2,501 – $12,000 (cid:37)(cid:90)(cid:73)(cid:86)(cid:69)(cid:75)(cid:73)(cid:4)(cid:80)(cid:83)(cid:69)(cid:82)(cid:4)(cid:87)(cid:77)(cid:94)(cid:73)(cid:30)(cid:4)(cid:8)(cid:25)(cid:16)(cid:23)(cid:20)(cid:20) Range: Up to $7,500 (cid:37)(cid:90)(cid:73)(cid:86)(cid:69)(cid:75)(cid:73)(cid:4)(cid:80)(cid:83)(cid:69)(cid:82)(cid:4)(cid:87)(cid:77)(cid:94)(cid:73)(cid:30)(cid:4)(cid:8)(cid:22)(cid:16)(cid:21)(cid:20)(cid:20) Up to 48 months 18 to 60 months 6 to 48 months OPPORTUNITY FOR GROWTH (cid:59)(cid:73)(cid:4)(cid:87)(cid:73)(cid:86)(cid:90)(cid:73)(cid:4)(cid:69)(cid:4)(cid:80)(cid:69)(cid:86)(cid:75)(cid:73)(cid:16)(cid:4)(cid:69)(cid:72)(cid:72)(cid:86)(cid:73)(cid:87)(cid:87)(cid:69)(cid:70)(cid:80)(cid:73)(cid:4)(cid:81)(cid:69)(cid:86)(cid:79)(cid:73)(cid:88)(cid:4)(cid:83)(cid:74)(cid:4)(cid:89)(cid:82)(cid:72)(cid:73)(cid:86)(cid:70)(cid:69)(cid:82)(cid:79)(cid:73)(cid:72)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:82)(cid:83)(cid:82)(cid:17)(cid:84)(cid:86)(cid:77)(cid:81)(cid:73)(cid:4)(cid:71)(cid:83)(cid:82)(cid:87)(cid:89)(cid:81)(cid:73)(cid:86)(cid:87)(cid:18)(cid:4)(cid:59)(cid:73)(cid:4)(cid:84)(cid:80)(cid:69)(cid:82)(cid:4)(cid:88)(cid:83)(cid:4)(cid:71)(cid:83)(cid:82)(cid:88)(cid:77)(cid:82)(cid:89)(cid:73)(cid:4)(cid:88)(cid:83)(cid:4)(cid:77)(cid:82)(cid:71)(cid:86)(cid:73)(cid:69)(cid:87)(cid:73)(cid:4)(cid:88)(cid:76)(cid:73)(cid:4)(cid:87)(cid:77)(cid:94)(cid:73)(cid:4)(cid:83)(cid:74)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:83)(cid:90)(cid:73)(cid:86)(cid:69)(cid:80)(cid:80)(cid:4)(cid:80)(cid:83)(cid:69)(cid:82)(cid:4)(cid:86)(cid:73)(cid:71)(cid:73)(cid:77)(cid:90)(cid:69)(cid:70)(cid:80)(cid:73)(cid:87)(cid:4)(cid:70)(cid:93)(cid:4) focusing on the growth of our core small and large installment loan portfolios within our existing branches, by expanding our branch network in our current (cid:74)(cid:83)(cid:83)(cid:88)(cid:84)(cid:86)(cid:77)(cid:82)(cid:88)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:77)(cid:82)(cid:4)(cid:82)(cid:73)(cid:69)(cid:86)(cid:70)(cid:93)(cid:4)(cid:87)(cid:88)(cid:69)(cid:88)(cid:73)(cid:87)(cid:16)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:70)(cid:93)(cid:4)(cid:74)(cid:89)(cid:86)(cid:88)(cid:76)(cid:73)(cid:86)(cid:4)(cid:80)(cid:73)(cid:90)(cid:73)(cid:86)(cid:69)(cid:75)(cid:77)(cid:82)(cid:75)(cid:4)(cid:72)(cid:77)(cid:75)(cid:77)(cid:88)(cid:69)(cid:80)(cid:4)(cid:83)(cid:86)(cid:77)(cid:75)(cid:77)(cid:82)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:4)(cid:71)(cid:76)(cid:69)(cid:82)(cid:82)(cid:73)(cid:80)(cid:87)(cid:18)(cid:4)(cid:59)(cid:73)(cid:4)(cid:70)(cid:73)(cid:80)(cid:77)(cid:73)(cid:90)(cid:73)(cid:4)(cid:88)(cid:76)(cid:69)(cid:88)(cid:4)(cid:70)(cid:93)(cid:4)(cid:70)(cid:86)(cid:83)(cid:69)(cid:72)(cid:73)(cid:82)(cid:77)(cid:82)(cid:75)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:83)(cid:86)(cid:77)(cid:75)(cid:77)(cid:82)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:4)(cid:71)(cid:76)(cid:69)(cid:82)(cid:82)(cid:73)(cid:80)(cid:87)(cid:16)(cid:4)(cid:91)(cid:73)(cid:4)(cid:91)(cid:77)(cid:80)(cid:80)(cid:4)(cid:76)(cid:69)(cid:90)(cid:73)(cid:4)(cid:88)(cid:76)(cid:73)(cid:4) (cid:83)(cid:84)(cid:84)(cid:83)(cid:86)(cid:88)(cid:89)(cid:82)(cid:77)(cid:88)(cid:93)(cid:4)(cid:88)(cid:83)(cid:4)(cid:86)(cid:73)(cid:69)(cid:71)(cid:76)(cid:4)(cid:82)(cid:73)(cid:91)(cid:4)(cid:71)(cid:89)(cid:87)(cid:88)(cid:83)(cid:81)(cid:73)(cid:86)(cid:87)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:88)(cid:83)(cid:4)(cid:83)(cid:74)(cid:74)(cid:73)(cid:86)(cid:4)(cid:82)(cid:73)(cid:91)(cid:4)(cid:84)(cid:86)(cid:83)(cid:72)(cid:89)(cid:71)(cid:88)(cid:87)(cid:4)(cid:88)(cid:83)(cid:4)(cid:73)(cid:92)(cid:77)(cid:87)(cid:88)(cid:77)(cid:82)(cid:75)(cid:4)(cid:71)(cid:89)(cid:87)(cid:88)(cid:83)(cid:81)(cid:73)(cid:86)(cid:87)(cid:4)(cid:69)(cid:87)(cid:4)(cid:88)(cid:76)(cid:73)(cid:77)(cid:86)(cid:4)(cid:71)(cid:86)(cid:73)(cid:72)(cid:77)(cid:88)(cid:4)(cid:84)(cid:86)(cid:83)(cid:444)(cid:80)(cid:73)(cid:87)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:82)(cid:73)(cid:73)(cid:72)(cid:87)(cid:4)(cid:73)(cid:90)(cid:83)(cid:80)(cid:90)(cid:73)(cid:18) BUSINESS & FINANCIAL HIGHLIGHTS • R(cid:73)(cid:90)(cid:73)(cid:82)(cid:89)(cid:73)(cid:4)(cid:75)(cid:86)(cid:83)(cid:91)(cid:88)(cid:76)(cid:4)(cid:69)(cid:88)(cid:4)(cid:69)(cid:4)(cid:25)(cid:17)(cid:93)(cid:73)(cid:69)(cid:86)(cid:4)(cid:39)(cid:37)(cid:43)(cid:54)(cid:4)(cid:83)(cid:74)(cid:4)(cid:21)(cid:21)(cid:18)(cid:27)(cid:9)(cid:16)(cid:4)(cid:74)(cid:86)(cid:83)(cid:81)(cid:4)(cid:8)(cid:22)(cid:20)(cid:24)(cid:18)(cid:27)(cid:4)(cid:81)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:4)(cid:77)(cid:82)(cid:4)(cid:22)(cid:20)(cid:21)(cid:24)(cid:4)(cid:88)(cid:83)(cid:4)(cid:8)(cid:23)(cid:25)(cid:25)(cid:18)(cid:27)(cid:4)(cid:81)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:4)(cid:77)(cid:82)(cid:4)(cid:22)(cid:20)(cid:21)(cid:29) • 2019 net income of $44.7 million • 2019 diluted earnings per share of $3.80 • (cid:37)(cid:75)(cid:75)(cid:86)(cid:73)(cid:75)(cid:69)(cid:88)(cid:73)(cid:4)(cid:86)(cid:73)(cid:71)(cid:73)(cid:77)(cid:90)(cid:69)(cid:70)(cid:80)(cid:73)(cid:87)(cid:4)(cid:75)(cid:86)(cid:83)(cid:91)(cid:88)(cid:76)(cid:4)(cid:69)(cid:88)(cid:4)(cid:69)(cid:4)(cid:25)(cid:17)(cid:93)(cid:73)(cid:69)(cid:86)(cid:4)(cid:39)(cid:37)(cid:43)(cid:54)(cid:4)(cid:83)(cid:74)(cid:4)(cid:21)(cid:25)(cid:18)(cid:21)(cid:9)(cid:16)(cid:4)(cid:74)(cid:86)(cid:83)(cid:81)(cid:4)(cid:8)(cid:25)(cid:24)(cid:26)(cid:18)(cid:22)(cid:4)(cid:81)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:4)(cid:77)(cid:82)(cid:4)(cid:22)(cid:20)(cid:21)(cid:24)(cid:4)(cid:88)(cid:83)(cid:4)(cid:8)(cid:21)(cid:18)(cid:21)(cid:4)(cid:70)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:4)(cid:77)(cid:82)(cid:4)(cid:22)(cid:20)(cid:21)(cid:29) INVESTOR INQUIRIES (cid:43)(cid:69)(cid:86)(cid:86)(cid:73)(cid:88)(cid:88)(cid:4)(cid:41)(cid:72)(cid:87)(cid:83)(cid:82)(cid:16)(cid:4)(cid:45)(cid:39)(cid:54)(cid:4)(cid:4)(cid:397)(cid:4)(cid:4)(cid:12)(cid:22)(cid:20)(cid:23)(cid:13)(cid:4)(cid:26)(cid:28)(cid:22)(cid:17)(cid:28)(cid:23)(cid:23)(cid:21)(cid:4)(cid:4)(cid:397)(cid:4)(cid:4)(cid:77)(cid:82)(cid:90)(cid:73)(cid:87)(cid:88)(cid:83)(cid:86)(cid:18)(cid:86)(cid:73)(cid:80)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:87)(cid:36)(cid:86)(cid:73)(cid:75)(cid:77)(cid:83)(cid:82)(cid:69)(cid:80)(cid:81)(cid:69)(cid:82)(cid:69)(cid:75)(cid:73)(cid:81)(cid:73)(cid:82)(cid:88)(cid:18)(cid:71)(cid:83)(cid:81) Regional Management Corp. (cid:29)(cid:27)(cid:29)(cid:4)(cid:38)(cid:69)(cid:88)(cid:73)(cid:87)(cid:90)(cid:77)(cid:80)(cid:80)(cid:73)(cid:4)(cid:54)(cid:83)(cid:69)(cid:72)(cid:16)(cid:4)(cid:55)(cid:89)(cid:77)(cid:88)(cid:73)(cid:4)(cid:38)(cid:4)(cid:397)(cid:4)(cid:43)(cid:86)(cid:73)(cid:73)(cid:86)(cid:16)(cid:4)(cid:55)(cid:39)(cid:4)(cid:22)(cid:29)(cid:26)(cid:25)(cid:21) 

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