Jul 31, 2013
Executives
Garrett Edson – IR, ICR Tom Fortin - Chief Executive Officer Don Thomas - Executive Vice President and Chief Financial Officer
Analysts
Bob Ramsey – FBR David Scharf - JMP Securities John Hecht - Stephens & Co. David Chiaverini - BMO Capital Markets Daniel Furtado - Jefferies & Co.
Bill Dezellem - Tieton Capital Management
Operator
Good day, ladies and gentlemen and welcome to the Quarter Two 2013 Regional Management Corp. Conference Call.
My name is Kathie and I will be your operator for today. At this time all participants are in a listen-only mode.
We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).
As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Mr.
Garrett Edson, Senior Vice President of ICR. Please proceed sir.
Garrett Edson
Thank you Kathie and good afternoon. By now everyone should have access to our earnings announcement which was released prior to this call.
These documents may also be found on our website at regionalmanagement.com. Before we begin our formal remarks I need to remind everyone that part of our discussion today may include forward-looking statements which are based on the expectations, estimates and projections of management as of today.
The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.
We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact the future operating results and financial conditions of Regional Management Corp. We disclaim any intentions or obligations to update or revise any forward-looking statements except to the extent required by applicable law.
Also our discussion today may include references to certain non-GAAP measures, reconciliations of these measures to the most comparable GAAP measure can be found within our earnings announcement and posted on our website at regionalmanagement.com. I would now like to introduce Tom Fortin, CEO of Regional Management Corp.
Tom Fortin
Thank you Garrett and good afternoon everyone. Welcome to our second-quarter 2013 earnings conference call.
I'm here with our Executive Vice President and chief financial officer Don Thomas who will speak with you shortly about our second-quarter financial results. We are also joined today by other members of our executive management team.
Our second-quarter performance saw us once again achieve strong topline and same-store sales growth. We recorded total revenue of $39.4 million, up 23% from the prior year, net income of $6.7 million and diluted earnings per share of $0.52.
Same-store sales growth remains strong as we recorded a 17% increase in the second quarter. Finance receivables as of June 30, 2013 were $460.4 million, up 33% from the prior year period end.
From a customer account perspective, we serviced over 265,000 active accounts as of June 30, a nice increase to the approximately 244,000 accounts we serviced as of March 31. Don’s going to expand on each of these numbers in his remarks shortly.
Aside from our solid financial results, the second quarter produced two significant accomplishments for Regional. First, as we previously reported in May, we completed a substantial increase in our credit facilities commitment from $325 million to $500 million with a $100 million accordion feature allowing for the expansion of the facility up to $600 million.
This increase is further evidence of Regional’s fiscal responsibility and overall strength, and we intend to use the additional monies from the facility to fund our various growth strategies. Secondly, in our prior remarks we've noted that we plan to open 35 to 45 de novo stores during fiscal 2013 with a bulk of those branches opening in the second quarter and about 9 to 10 expected to open in the early portion of the third quarter.
I'm very pleased today to report that the branch of them process moved very smoothly for us and we were able to complete the vast majority of our de novo branch expansion in the second quarter. As a result, we grew our branch count at the end of June 30, 2013 to 263 locations, having opened 29 de novo stores and acquired two branches in the second quarter.
Now since the end of the second quarter, during the month of July, we opened an additional de novo branch and we expect to open one more branch in the near future which would put us at a final total of 40 de novo branches for 2013 and at 6265 total locations across the eight states in which we operate. I will say that we are always assessing new markets for opportunistic expansion and we may well add additional de novo locations during the year but we’re pleased with the de novo slate we’ve delivered thus far.
I might add that further we will continue to watch for additional accretive small to midsize acquisition opportunities nationwide, both within our footprint and outside of it. And these accomplishments were tempered a bit on two fronts each of which had an impact our on bottom line results.
First, I will point out that with the acceleration in completion of the vast majority of our de Novo branch expansion plans in the second quarter, our expenses in the second quarter ticked higher than we had previously planned. Because we opened 17 more branches in the second quarter of 2013 as compared to the prior year period we experienced an incremental increase in our new store expenses of approximately $600,000 or about $0.03 per share impact on our EPS.
Second, our total yield of 35.5% for the quarter tracked below that of the prior year. Throughout the second quarter we maintained a sizable balance of loans in our portfolio from our direct mail campaigns occurring in late 2012 and early 2013, which included the testing of higher credit score consumers with lower interest rates and larger loan amounts.
As we discussed in our first-quarter earnings call, we’ve since refocused our efforts on originating higher-yielding loan products. And as a result, our total yield bottomed out in April and has since moved up nicely on a sequential basis in May, June and in July.
And in fact, as we sit here today as July comes to a close in the next couple of hours, we are ending this month July on a very positive note. We finished our first month of the third quarter on a strong footing.
In fact, our ledger for July has grown by more than $15 million over the previous month. We still have a couple of hours of daylight left for business today, and I would point out that similarly our yield for July continues an upward consistent and positive trajectory from our May and June results, indicating that our portfolio yield is trending in the right direction.
We continue to watch our yield closely and we continue to take disciplined steps to improve our portfolio yield going forward, but I would say as of this moment we’re quite pleased with the positive trajectory of our yield through the end of July. And in the last two quarters we saw our efficiency ratio increased by a couple hundred basis points as compared to the respective prior year periods.
I want to point out that this increase is in large part attributable to the lower than normal yield that I have just referenced rather than unexpected expenses. Now to put this in further perspective, with all other items remaining constant, if our yield in the second quarter had been equivalent to that of the prior year period, we would have experienced a lower efficiency ratio on a year-over-year basis.
And while we certainly don't want to imply that we expect a substantial increase in either yield or a decrease in our efficiency ratio to occur overnight, we do believe that as we continue to gradually improve our yield, our efficiency ratio will decline from its second-quarter 2013 level. Turning the other business lines, our RMC retail business unit continues to grow at store network and now partners with approximately 800 appliance and furniture stores as of the end of July 2013, and we continue to add new points of financing as opportunities present themselves.
As we said repeatedly in the past, while RMC retail is our lowest yielding business unit and product line, it provides numerous cross-selling opportunities for Regional. And while there remain vast financing opportunities across many retail verticals, we throttled down RMC retail growth in the second quarter and directed more of our capital allocation toward higher-yielding products in order to improve our overall yield.
We strongly believe that this rebalancing of our portfolio will have a positive impact on future operating results. Turning to the regulatory landscape, there are really no major updates at either the federal or the state level.
We've always been of a mind and have operated under the assumption that Richard Cordray would ultimately be confirmed as the director of the consumer financial protection bureau, and therefore nothing has really changed in our model. As such we continue to invest in our own internal compliance programs, our compliance and regulatory infrastructure and our resources and people so that we can continue to provide our customers with competitive, safe and transparent consumer finance products that are good economic value to their household.
Finally There's been recent discussion in the instalment lending industry on the appropriate accounting treatment of loan renewals and the documentation of policies and assumptions used to determine the allowance for loan losses. Regarding loan renewals, we here at Regional have reviewed our portfolio recently and have determined that less than 4% of our loan renewals require accounting treatment as modifications rather than as new loans.
We do not believe that the accounting treatment of loan renewals has a material impact on the results of our operations. In addition, we have a well-documented allowance policy that outlines the assumptions the management team uses in determining the allowance for loan losses.
Following management’s review we sit down and present our conclusions to our audit committee and our board on a quarterly basis which in consultation with our external auditors then reviews and approves the allowance. We continue to be mindful of the need for strong and appropriate internal controls and this year we expect to complete our Sarbanes-Oxley implementation by December 31 of this year.
With those preliminary comments, I would like to turn the call over to Don Thomas, our chief financial officer who is going to discuss our second-quarter results and then I will return to provide some closing comments. Don?
Don Thomas
Thank you, Tom. Good afternoon everyone and let’s go right into our second quarter results.
For the second quarter 2013 we recorded total revenue of 39.4 million, a 23% increase from 32 million in the prior year period. Interest and fee income for the second quarter of 2013 was 34.9 million, a 24% increase from 28.2 million in the prior year period, primarily due to a 33% increase in our finance receivables.
Insurance and other income for the second quarter of 2013 was 4.5 million, a 16% increase from the prior year period. Total yield for the second quarter of 2013 was very 35.5%, down from 38.9% in prior year period.
The total yield for the second quarter of 2013 increased 0.2% over the total yield for the first quarter of 2013 and as Tom noted earlier, we are making progress in restoring our yield to meet our overall strategy. As of June 30, 2013 about 58% of our branches are less than five years old and are on the steepest part of the growth curve.
Same-store revenue growth for the second quarter of 2013 was 17.3% and is a clear reflection of our immature store base. We define same-store as stores open for at least 13 months and keep in mind that our backfilled de novos where we split accounts out of one branch to start another one are in fact a depleting factor in this calculation.
Finance receivables outstanding at June 30, 2013 were 460.4 million, a 33% increase from 345.4 million in the prior year period. As of June 30, small instalment loans made up 45% of our portfolio.
Large instalment loans made up 10% of our portfolio. Automobile purchase loans were 39% and retail purchase loans were 7%.
In the small loan category, some of our states had an upper limit of $2000 and that was in consistent with our overall limit on small loan category of 2500. Therefore we increased the upper limit for small loans in those states to 2500 and about 8 million of the increase in small loans is due to this change.
Large loans were impacted in the opposite direction. We expect about 4 million of additional transition between large and small loans as this change is completed.
The small auto and retail categories of finance receivables increased from the prior year primarily due to addition of 57 de novo and acquired branches, successful direct mail campaigns and customer demand for our products. Our same-store finance receivables grew 22.4% in the second quarter of 2013.
Once again our same-store calculations of used stores that have been open at least 13 months and this calculation is also negatively impacted by backfilled de novos. The provision for credit losses in the second quarter of 2013 was 8.4 million versus 5.9 million in the prior year period, primarily due to growth in the portfolio.
Net charge-offs as a percentage of average finance receivables for the second quarter of 2013 was 6.7% on an annualized basis and increased from 6.1% in the prior year period. The company standard for our charge-off rate is 7.5%.
In our recent history we've been between 6% and 7%. The charge-off rate in the second quarter of 2013 increased primarily due to increases in wholesale and retail portfolios.
At this time last year RMC retail was still a very new business with only a small amount of charge-off experience. Geographically charge-offs ticked up in Texas a little more than other states.
Accounts that were over 30 days contractually delinquent was 6.3%, up from a rate of 6.1% as of June 30, 2012. We are cognizant that we have new personnel in our growing branch network.
If we see increased pressure on allowance for loan losses then we will increase the provision for loan losses accordingly. Personnel costs for Q2 2013 were 9.8 million, an increase of 18.3% from 8.3 million in the prior year period.
Productivity as measured in accounts per employee was higher in the current year period as labor dollars were well managed. Moving on to occupancy, our occupancy expense for Q2 2013 was 2.7 million, an increase of 29.3% from 2.1 million in the prior year period.
New store openings pushed the current quarter expenses higher for rent and depreciation and in addition to that, we incurred costs for system replacements and upgrades in communication lines to improve customer service and system uptime. The phone system costs in communication lines will continue to push our occupancy a little higher moving forward.
Advertising costs for Q2 2013 were $1.3 million, an increase of 213.3% from 632,000 in the prior year period. The increased costs are due to increases in our direct mail volume.
The June campaign was a large campaign and while it mailed in June and we recorded its costs in that month, the downstream check-cashing didn’t occur until early July. The increase in our direct mail campaign is consistent with our 2013 plan.
Other expenses for Q2 2013 were $3.2 million, a 38.5% increase from 2.3 million in the prior year period. Store opening expenses and increases in bank service charges and credit bureau reports drove the large part of the increase in other expenses.
Total G&A expenses for the second quarter of 2013 were $17.2 million, an increase of 29% from 13.3 million in the prior year period primarily due to increased personnel and operating costs from opening and acquiring an additional 57 branches since June 30, 2012, including opening and acquiring 31 new stores in the second quarter of 2013. Regional Management’s efficiency ratio, the percentage of G&A expenses compared to total revenue in the second quarter of 2013 was 43.6%, 240 basis points above the 41.4% figure in the prior year period.
As Tom mentioned in his opening remarks, the primary reason for the increase in efficiency ratio was the decline in our total yield as well as the upfront expense of opening 29 de novo branches in the quarter. Net income for the second quarter of 2013 was 6.7 million, a 1% increase compared to net income of 6.6 million in the prior year period.
Diluted earnings per share for the second quarter of 2013 was $0.52 compared with the prior year quarter and based on the diluted share count of 12.9 million comparable with the prior year quarter. As of June 30, 2013, Regional Management had financial receivables of 460.4 million and outstanding debt of 302.3 million on our $500 million senior revolving credit facility which has an expansion feature to grow to 600 million.
In addition, we continue to work towards the completion of an auto-loan securitization which will provide fixed rate term x funding. This will diversify our funding sources and provide additional room to grow.
That completes my remarks on our results. I will now turn the call back to Tom for closing remarks.
Tom Fortin
Well thanks Don and to sum up, our second quarter continued to see attractive and sound growth from both the revenue and same-store perspectives while we completed our de novo expansion plans ahead of schedule. And with those de novo expansion plans now largely complete, we will be concentrating on the back half of the year and our growth efforts will focus on back to school and holiday direct mail campaigns.
We remain very optimistic about our future. Further we remain on very solid footing from a liquidity perspective and we were very pleased to substantially increase our senior revolving credit facility during the quarter.
At the same time we recognized the increase in our efficiency ratio and pressures on our yield and we’re diligently working to bring both in line with historical levels. I’d say overall I'm quite pleased with how Regional Management is positioned for the second half of 2013.
And with that I appreciate your time and your interest in the call today and Kathie, we would He like to open up the line to questions please.
Operator
(Operator Instructions) Your first question comes from the line of Bob Ramsey of FBR.
Bob Ramsey – FBR
Don, you said that you all had slowed the retail growth in part to improve the portfolio yield. I was just curious if you had any thoughts on what is the optimal sort of mix or where you’re trying to drive the portfolio mix towards?
Don Thomas
I mean Bob, we've always said that we like to play football between the 40 yard lines and especially in the latter third of 2012 when we saw proportionately more growth in our auto and retail portfolio, and that's what led to the dampening of our yields in combination with the lower yielding large checks that we talked about the direct mail campaign. So as we came into the first quarter of 2013 we knew that we would have a dampening or downward impact on yields based on that performance in the latter part of ’12 and that's where we made those concerted efforts to really rebalance the portfolio.
There is no question that with 45% of the dollar asset base as of the end of this quarter in small loans were clawing back and regaining yield that we ceded in the back end of 2012. Whether over the fullness of time we will continue to that exact proportion, I can’t say with perfect clarity at this point, but I think the phenomenon that you saw in the second calendar quarter, fiscal quarter was very much by design namely -- we love the retail sector, we can grow that sector in leaps and bounds but we’re also cognizant that with 19% to 21% APRs, that tends to drag down the overall portfolio yield.
So by design and with the thought in mind of rebuilding that yield we put proportionately more effort and capital into the direct mail campaigns as we’ve discussed. In my -- in an ideal world I'd like to see a smoother balance of growth and mix, and I can't tell you with precision what that will look like in the future.
Bob Ramsey – FBR
And in terms of – it’s definitely helpful color that you all have seen the portfolio yield on a monthly basis sort of trending higher. I'm curious if you took mix shift out of the equation within the small instalment portfolio, are you seeing the same trend of stronger yield and if so, to what do you attribute that?
Tom Fortin
The answer is yes, we are seeing an upward trend and we principally attributed, Bob, to pricing power that we have in our direct mail campaigns. As you know, a good portion of those holiday 2012 direct mail pieces were sent out at lower APRs in certain instances as low as 29% APR to the end consumer and higher denominations.
What we have seen and we’ve really demonstrated this statistical sampling and modeling of our mail programs is that we see very little degradation in response to those checks from consumers at higher APRs. The factor that’s most relevant and most important to the consumer is not so much the APR or the yield as it is the size of the monthly payment.
So to answer your question we do have pricing power and latitude in the small instalment category and it’s principally driven by direct mail.
Operator
The next question comes from David Scharf of JMP Securities.
David Scharf - JMP Securities
Couple things, Tom, I'll actually like to – maybe just stay on the topic be of yield and understand a little more I guess strategically what the thinking is surrounding mix, because we've known for a couple quarters now just based on the mix, how the math works that, that average would come down. But I believe you positioned some of the higher quality lower yielding products either on the direct mail side or on the RMC side.
On a net basis and from an ROE standpoint they're very attractive product. So other than the math surrounding, getting the gross yield up on the portfolio, what strategically has kind of turned you away from concentrating as much on those products?
Tom Fortin
No, David, I think it relates back to my previous question which is what we have seen, and we've been testing this through various recent direct mail campaigns is there appears to be no a degradation of any meaningful amount in response rates to our direct mail campaigns as we increased the APRs and I am looking at some statistics here, internal reports. We’ve actually been improving -- maintaining and improving our FICO scores in these direct mail campaigns throughout fiscal ’13.
So all things being equal from a strategic perspective, if we can improve yields, if people are taking the offers and we’re actually improving our credit quality of the respondents to those offers, it makes a lot of sense to us to shift more of the capital allocation to the small instalment loan category, that in no way says we’re not attracted to or pursuing retail or auto. As I said in my previous comments, we’re looking to strategically rebalance the portfolio to get more in line with our historical yields overall.
So I would submit that in an ideal world, if you can improve yield, if you can improve yield by on boarding a good quality and improving quality customer from a credit profile perspective, that’s ultimately a good thing in terms of running the business.
David Scharf - JMP Securities
I know it’s just one month into the quarter, are you willing to give us a little sense for how the yields have trended? You mentioned directionally they have improved over the last three months, just trying to get a sense for maybe how to think about modelling the second half of the year?
Tom Fortin
Well I can’t give you any specifics obviously for July, David, given that we still have a bit of sunlight left here on the day. So it’s never over until it's over but as Don and I indicated in our comments the yield bottomed out in April.
We saw a notable rebuild in May and June and what we find to be very promising is the continuation of that rebuild and upward trajectory in July. I won't get into specifics simply because the month of July is in close but I'll be vague and opaque and say that it is continuing in the right direction, that’s a positive from our perspective.
I do want to temper some enthusiasm on this yield trajectory. I specifically commented in my earlier statement that we do not anticipate this yield recovery to occur overnight.
This will take a period of time, we anticipate toward the end of the year we should be approximating more historical yields but it takes time and average yields are going to take some time to regain that ground.
David Scharf - JMP Securities
And switching gears on the direct mail front, obviously you have got the back to school and holiday mailing coming up which has been annual staple, you did experiment a little bit at the beginning of the year with the January mailing. Are there any other further experiments, additional mailings you’re going to be planning on over the next few quarters just to test out different patterns?
Tom Fortin
Yes, there are, David and we continued what we would call off-cycle mailings throughout the first and the second quarter. These would be continual mailings each month in varying amounts and pool sizes so that each month we’re in the market.
And I think you'll see in the second half of the year a continuation of that pattern. So the net result of all of that is going to be -- you will see at the end of fiscal ‘13 a considerable increase in the mail volume that we have sent out and while we wouldn't make any predictions on specific response rates, I think it stands to reason that we’re encouraged to continue increasing mail volumes in the latter half of the year due to strong results shall we say in the first half of year with respect to response rates.
So we’re seeing very good trends, very good uptick and it's a very encouraging as we look at the last half of the year.
David Scharf - JMP Securities
And one last question, you highlighted kind of the improving productivity for employee in terms of originations. I have written down in old notes, Tom, that excluding auto that roughly about maybe 40% of walk-in traffic ultimately has improved to be 50% of those that are funded, are those still kind of in the ballpark ranges or are you – the indicative of all of kind of how market share is trending?
Tom Fortin
I think those are certainly consistent with our history, Dave, in terms of walk through the door business. You are right, so the look to book or the ultimate sell-through for the walk-through the door business is about 25%.
By product category that varies considerably and as we said in previous earnings calls, that so called look to book metric for our auto sector is significantly lower. That's really attributed in my view to be intense competition in the automobile sector that we've seen over the last year or so.
But I wouldn't say that we've seen any dramatic shift one way or another to the positive or the negative in terms of ultimate look to book across the portfolio or in any product line. It’s been relatively consistent sequentially.
Operator
The next question comes from the line of John Hecht, Stephens.
John Hecht - Stephens & Co.
Most of my questions have been asked. But Tom, I wondered if you could characterize the store buildout last quarter from – couple comments on the timing of it was a balance of geographic concentration and how many of the stores would you define as backfilled de novo stores?
Tom Fortin
John, thanks for your question. I would say – I would echo what I said in my prepared comments which is we were both opportunistic in terms of opening markets as well as I think very precise in terms of our execution.
With regard to your question on backfills, approximately a third of the quarter’s de novos were the so-called backfills and just to define that generally. Again that’s an existing marketplace and an existing branch where we will strip out current customer accounts and relocate them to an adjacent backfilled de novo literally self-cannibalizing ourselves or our existing store rather.
And that’s a tribute to bustling and busy stores that we've been building up especially in some of our local points in Metro markets, such as Houston, Dallas, Charlotte, North Carolina, El Paso, Texas and the like. In terms of geography during Q2 builds really were focused on Oklahoma, 14 of our second-quarter de novos were in Oklahoma.
We had another eight de novo locations in Texas during the second quarter. We had three in Alabama, two in New Mexico, one in North Carolina and one in Tennessee during the second quarter.
So really a focal point, John, geographically with certainly Oklahoma and Texas for Q2. The 264th location that we mentioned that opened during the month of July is in Texas and the 265th which has yet to open will be in Texas as well.
John Hecht - Stephens & Co.
Is it accurate for me to say that the backfill denovos –
Tom Fortin
John, I think we are losing you a little bit.
Don Thomas
But I think the question was on a backfill de novo, the earnings drag is it lesser more than on a greenfield de novo and it would be impacted a little bit less.
John Hecht - Stephens & Co.
One final question, do you guys have the yields by product available?
Don Thomas
We do and we have not put that into the press release I think for a few quarters. But we have been providing it when asked.
And how do we break it down here? John, hold on, we'll get back to you separately, I am not finding it right here on my –
Operator
Your next question comes from the line of David Chiaverini, BMO Capital Markets.
David Chiaverini - BMO Capital Markets
A couple questions. First, on the growth plans looking out, I think last quarter you were talking about how you do your planning session.
I think you mentioned over the summer, maybe it’s into the fall time but have you guys sat down and start thinking about 2014 growth plans?
Tom Fortin
We have indeed and we’re not prepared at this point in time to offer concrete guidance, David but my expectation is that we will follow the pattern from this past fiscal year where we will make a forward-looking statement and guide as to the number of anticipated de novos and storefronts. I would expect as well that we will have specific guidance as to the breakdown between greenfield de novos and so-called backfills but we’re simply not prepared to release that information at this point.
David Chiaverini - BMO Capital Markets
And then shifting gears to credit quality, looks like it was very good in the quarter, any sort of trends you are seeing or can you just update us on what you are seeing with the –
Tom Fortin
I think we’re seeing generally from our customer bases across product lines, really across geographies, resilience strong performance, our slow file remains well below our historical averages. The delinquencies and charge-offs that we reported, while a slight uptick to the prior year period, again remain well below our 26 year historical standards.
So we’ve made no changes to our underwriting parameters. So what this tells us is we’re seeing a customer that’s managing its household balance sheet and obligations reasonably.
Don, do you want to make any broader comments on that?
Don Thomas
Yeah I think we touched on it little bit in the prepared remarks, we had little bit of tick up in charge offs and taxes and a little bit more in auto and retail, but it doesn’t take a lot of dollars to drive a percent up a couple ticks. So I don’t look at it as major change.
David Chiaverini - BMO Capital Markets
And then the last one from me is you mentioned about putting 15 million on the ledger in July in terms of loans. What were you referring to with the 15 million, is that incremental growth that – instead of 460 or 475 or what was that?
Don Thomas
Yes, that was $15 million of incremental growth relative to June 30. So 460 and change going to 475 and change.
So this is a good pattern, David and it’s one that we've historically seen and expect and tracking to plan an expectation.
Operator
Your next question comes from the line of Daniel Furtado of Jefferies.
Daniel Furtado - Jefferies & Co.
The first is the comment that you made about the M&A environment, would you say that the M&A environment is changing or was that just kind of more boilerplate from the standpoint that the de novo growth for this year looks like it’s in the bag and if anything happened it’s from the M&A perspective?
Tom Fortin
Dan, hi, we obviously continue to keep an aura in the water with respect to M&A opportunities. As you know there are relatively few major properties out there of scale, at least from our perspective.
We really concentrated our M&A efforts on the medium sized deals at the middle of the pyramid and primarily smaller operators the mom-and-pop local operators. And I would say to answer your question, the only change we’re seeing or sensing from the marketplace is that the smaller operators are increasingly becoming wary of the sector of consumer financial protection bureau mandates and rules.
What we're hearing smaller operators tell us is that they don’t -- they can’t understand how they can possibly afford to comply with a new rulemaking and new standards for a regulatory scrutiny. And as a result they are looking to exit the business.
So I can't make any predictions other than I can tell you in broad terms, we see this as a positive opportunity. It certainly was the case for us in our small acquisition that we closed during the quarter for two branches in Georgia and we’re very aggressively marketing to that decks of the pyramid is for the latter half of the year.
That said, I would say the opportunistic part is we are always keeping our eyes and ears open not simply for acquisition opportunities but also potential de novo market expansion.
Daniel Furtado - Jefferies & Co.
And then the other question that I was just – are you seeing any changes in your borrowers’ use of funds?
Tom Fortin
As to how they are using the funds, not particularly in the auto space demand for used vehicles remains very robust. New vehicle purchases as you perhaps know continue to tick up, that remains a very strong component of the economy.
In the aggregate as we stated in previous earnings calls nationally speaking both furniture and appliance markets are comping down. We’re not seeing huge groundswell in the purchase of refrigerators and sofas.
What we’re seeing in our model is really a lack of competition in the so-called secondary or second look financing market. We think we’re gaining local market share just due to lack of financing alternatives, but I don't think that the US consumer is clamouring to buy furniture and appliances per se.
With respect to the smaller loan categories, I would say we're seeing very strong demand there and I think a lot of that mirrors our historical seasonal patterns. We do have – we’re on the cusp now of the tax free shopping weekends in all eight of the states in which we operate and we’re really setting ourselves up for the holiday shopping season.
The one mitigating factor that I would say about back to school is not relevant for this year but over the weekend the state of North Carolina announced that it would -- starting in August of 2014 no longer allow for a tax-free shopping weekend, there's been somewhat of an uproar in the state of North Carolina with that announcement. We will see if that actually sticks but we’re going to start modeling in a smaller live check or direct mail campaign for North Carolina one year hence.
Just to reconfirm though for this year we have mailed in North Carolina, the tax-free shopping weekend occurs I believe it’s the first full weekend of August and we’ve seen good uptick in the product response.
Don Thomas
We also have down the missing schedule with category yields, so we can’t respond to John Hecht’s question about that. So the interest and fee income yield for small instalment loans for the second quarter is 43.8, similar item for large is 29.8, automobile at 20.7 and retail at 18.1.
Operator
Our next question comes from Bill Dezellemn, Tieton Capital Management.
Bill Dezellem - Tieton Capital Management
Couple of questions. Want to make sure that I understand your broad characterization of working to get yield to match last year’s level.
So in essence by doing that we should be working to a position where your fee and interest growth ties in, and it is very close to your receivable growth. Is that correct way to be thinking about that?
Don Thomas
Generally speaking, Bill, this is Don, yes, that is a way to think about it although I'm not certain that we will push the yield all the way back fully -- three years ago or even two years ago, but it will be up and yes we are capable on interest should grow at approximately the same rate.
Bill Dezellem - Tieton Capital Management
Even as we just lapped, and annualized the fall-off that you had last year, those two numbers should be converging, correct?
Don Thomas
Yes, and that is an appropriate expectation.
Bill Dezellem - Tieton Capital Management
And then in addition to that if we heard you correctly, as that happens you’re anticipating that you will get SG&A a leverage whereas you have had decremental margins with SG&A at this point?
Tom Fortin
Bill, and the example that I alluded to in my comments is on a pro forma basis, had we used the yield even from last year and applied it to this quarter’s SG&A we would have ended up on a pro forma basis with a so called efficiency ratio lower than last year. That's good because what that tells us is in the absolute sense we’re doing a good job of managing our expenses, the challenge in the uphill battle we've been fighting this year is with respect to yield.
So we think the remedial action of shifting mix to higher-yielding products which will take place during the course of the year is the right strategic move.
Bill Dezellem - Tieton Capital Management
In addition to that, you also have pointed out that you will have virtually no new office openings and therefore you won’t have those expenses in the second half of the year, which will also contribute to that SG&A leverage?
Tom Fortin
I think that's a fair assessment, Bill, to the extent that we would opportunistically open a market it would be probably at most a market or I would add an extreme a couple markets but we have no plans beyond the 265. So I think your statement is quite accurate.
Bill Dezellem - Tieton Capital Management
So where I am actually driving with all of this is to make sure that I understand from a bottom-line perspective that not only should your net income also start to grow in line with receivables and fee income but possibly you will actually have leverage and net income growth should be greater than that topline growth?
Don Thomas
Bill, this is Don again. I agree with you again, as Tom said earlier that's not an overnight thing.
So it will take a little time to restore yields where we believe it should be.
Bill Dezellem - Tieton Capital Management
But since we are annualizing that lower yield we're over the next 1 to three quarters we should start to see a pretty meaningful change in the relationship between net income growth and interest growth relative to what we have been seeing the last few quarters?
Don Thomas
Yes.
Operator
Thank you. I would now like to turn the call over to Mr.
Tom Fortin, chief executive officer for closing remarks.
Tom Fortin
Well Kathie, thank you very much and for those of you on the call we do appreciate your time and your support for Regional. Just to sum up, the second-quarter produced attractive and sound growth from both the revenue and same-store perspective.
We were absolutely delighted with our de novo expansion and implementation which was ahead of schedule and under budget. With all of that complete we’re really concentrating on our all-important back-to-school and holiday season the latter half of the year, which we remain optimistic about which should yield attractive growth.
We’re on a strong footing from a balance sheet and liquidity perspective, thrilled to have increased our bank line to support all of our anticipated growth. We really appreciate the support of our banks and our syndicate.
At the same time we are keeping a very watchful eye on yields as we have discussed, as well as our overall expense structure and our risk management profile. So I would say in summary that I'm personally very pleased with how Regional Management is positioned for the balance of ‘13.
With that, we thank you for your time. We look forward to speaking to you next quarter.
Thanks Kathie.
Operator
Thank you for your participation in today’s conference. This concludes the presentation.
You may now disconnect. Good day.