Oct 30, 2013
Executives
Garrett Edson – SVP, ICR Tom Fortin – CEO Don Thomas – CFO
Analysts
[Stephen Clough] – KBW John Hecht – Stephens, Inc. Tom Frick – FBR Capital Markets David Chiaverini – BMO Capital Markets Bill Dezellem – Tieton Capital Management.
Dan Furtado – Jefferies Eugene Fox – Cardinal Capital Management
Operator
Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 Regional Management Corporation Earnings Conference Call. My name is [Tony] and I will be your operator for today.
(Operator Instructions). I would now like to turn the conference over to Mr.
Garrett Edson, Senior Vice President of ICR. Please proceed.
Garrett Edson
Thank you, [Tony], and good afternoon. By now everyone should have access to our news 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, we need to remind everyone that part of our discussion today may include forward-looking statements which are based on expectations, estimates and projections of management as of today.
Forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.
We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of Regional Management 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. A reconciliation of these measures to the most comparable GAAP measure can be downloaded in 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
Well, thank you very much, Garrett, and good afternoon everyone. Welcome to our third quarter 2013 earnings conference call.
I'm joined here today by Executive Vice President and Chief Financial Officer, Don Thomas, who'll speak shortly about our third quarter financial results. Also in the room with me, I'm joined by other members of our executive leadership team.
Our third quarter was defined by double-digit top line and same-store sales growth, improved yields, and consistently sound portfolio quality. We recorded total revenues of $44.5 million, up 25% from the prior-year period, net income of $7.6 million, and diluted earnings per share of $0.59 which includes the impact of costs related to our recent secondary offering.
Excluding those offering costs, diluted earnings per share would have been $0.61. Same-store sales growth remained strong with a 16.1% increase in the third quarter.
Finance receivables as of September 30, 2013 were $512.1 million, up 29% from the prior-year period and up $51.6 million during the third quarter alone. From a customer account perspective, we now service over 308,000 active accounts as of September 30th, a solid increase from the approximately 265,000 accounts we serviced as of the end of June.
Now on our previous earnings call, I mentioned that we were focusing our efforts on originating higher yield loan products. We've continued to see the fruits of these efforts in the third quarter as our total yield improved some 80 basis points sequentially to 36.3%.
We still have a lot more work to do to get our yield closer to our historical levels, but we're very pleased that our shift in strategy is being borne out in our results. Also on last quarter's call I discussed the increase in our efficiency ratio in the first half of the year, which is primarily due to the lower-than-normal yield we experience.
As projected, with the gradual increase of our yield in the third quarter, we saw a corresponding decline in our efficiency ratio from the second quarter and the prior-year period. For the third quarter, our efficiency ratio dropped to 39.1% and, excluding the one-time costs related to the secondary offering that I reference earlier, our efficiency ratio improved to 38.1%.
Overall I'd say we're very pleased to see the improvements in both our total yield and efficiency ratio. Our direct mail campaigns continue to help drive our revenue performance and grow our business and our back-to-school campaigns were particularly successful in the third quarter.
As we mentioned last month, during the last week of June through the first week of August, we mailed out more than 1 million convenience checks to pre-screened individuals. And as we're -- and we're currently gearing up for and quite excited about our traditional holiday direct mail campaign.
I do want to mention our third quarter provision for credit losses which was higher than anticipated at $11.1 million. This is principally due to our strong growth in receivables which necessitated the higher provision.
However, despite the higher provision, our credit quality remains consistent with recent history, as you can see in our net charge-off rates. Turning attention to the regulatory landscape, while there are no major updates at the federal level, there have been some recent positive changes at the state level.
As you may know, North Carolina recently adopted a rate increase which went into effect in July for loans $10,000 and under, which allows lenders to charge 30% interest rates on the principal amount up to $4,000, and 24% interest rate on the principal amount between $4,000 and $8,000, and finally, 18% interest rate on the principal amount between $8,000 and $10,000. These changes affect our small and large loan categories and was effective for our new business transactions beginning in July.
As a result, any increase in yield will occur for us gradually over time. We implemented the rate changes in late July and the impact on revenue for the third quarter for Regional Management was de minimis.
The rate change, however, does provide welcome yield improvement in North Carolina which is our lowest yielding state in which we operate, and we're pleased to see positive changes coming from the regulatory environment. Also, as you may have heard or read recently, the states of Texas and Georgia both recently adopted an increase in the maximum administrative fee that can be charged per loan.
However, with only three branches in Georgia, the change in that state is not significant for us. In Texas, however, the maximum fee on small loans has increased to the lessor of 10% of the loan or $100.
We adopted the Texas fee increase in early October, so there was zero impact from it on our third quarter results. The Texas fee increase represents a potentially significant increase in our profitability in that state and we'll have to wait and see how the market adopts the increase over time.
Now moving on from regulatory matters, we were very pleased with our private equity sponsors, Palladium Equity Partners and Parallel Investment Partners, closed the secondary offering of just over 4 million shares of our common stock in the month of September. While we at Regional did not receive any proceeds from the offering, it has considerably enhanced the liquidity of our shares.
Also as a result of the offering, we are no longer a controlled company under New York Stock Exchange rules, meaning that we must transition to compliance with the standard New York Stock Exchange Director Independence rules by September of 2014. To that end, we're actively recruiting two new independent director candidates, and as we note in our press release, the board acted in October to fully outline a director compensation plan that is both commensurate with the quality of our current board members and sufficient to attract additional outstanding independent directors to our board.
Finally, we announced in today's press release that we signed a long-term agreement with GOLDPoint Systems for GOLDPoint to provide us with loan management software and related data processing services. As we have significantly grown our account base and footprint in recent years and expanded our product offerings beyond a traditional small loan category to automobile and retail loans, our software needs have changed considerably.
We believe the new system will make us even more efficient in processing and serving our product portfolio and in growing our account base. And we look forward to our new relationship with GOLDPoint.
This is a significant investment by us today that we believe will accommodate substantial growth for the coming decade and beyond. Now I would remiss if I did not thank Paradata for being our loan management system provider and for its valuable service to us over the last 15 years.
We do expect that expenses related to the transition from the Paradata system to GOLDPoint, a transition that should take approximately one year, will be dilutive to earnings by $0.02 per quarter or $0.08 in total. Ultimately we do expect that the new system's ongoing expenses will be comparable to our current system due in part to internal efficiencies created by the GOLDPoint platform.
With that, I'd now like to turn the call over to Don Thomas who will discuss our third quarter results. And then I'll return with some closing remarks.
Don?
Don Thomas
Thank you, Tom. Good evening everyone and thank you for being on the call with us.
Let's start with some top line discussion. Interest and fee income for the third quarter of 2013 was $39.7 million, a 28% increase from $31.1 million in the prior-year period, primarily due to a 29% increase in finance receivables.
While the largest increases in interest and fee income came from Alabama, Tennessee, Texas and North Carolina, all states had increased interest in fee income including our most mature state which is South Carolina. In addition, the 49 de novo branches added over the last 12 months contributed to the overall increase in interest and fee income, and as we grew, the de novo branches are on track to meet our expected year one ramp [grade].
As of September 30, 2013, about 58% of our branches are less than five years old and are in the steepest part of the growth curve. For the third quarter of 2013, our same-store revenue growth and same-store receivable growth was 16.1% and 16.5% respectively.
We do define same-store as stores open for at least 13 months. And just a quick reminder that our [backfill] de novos where we split accounts out of one branch to start another branch are [a leading] factor for this calculation.
As of September 30th, small installment loans made up 50% of our portfolio, large installment loans made up 8% of our portfolio, automobile purchase loans were 36%, and furniture and appliance purchase loans were 6%. The majority of our growth during the third quarter was in the small category, which increased from 45% of the mix to 50% of our portfolio.
Our direct mail campaigns were a significant driver of the increase. As a result of small loan growth and our dialing back of retail and indirect auto, the other three loan categories declined slightly in their percent of portfolio during the third quarter.
The provision for credit losses in the third quarter of 2013 was $11.1 million versus $7.4 million in the prior-year period. And as Tom mentioned, the increase was primarily due to the significant growth in the portfolio.
Credit quality remains good as annualized net charge-offs were 6.5% of average finance receivables for the third quarter of 2013, which is comparable with the prior-year period. The 6.5% rate is toward the lower end of our most recent historical range of 6.3% to 8.6%.
Geographically we have the largest increase in net charge-offs in North Carolina. Accounts that were over 30 days contractually delinquent were 7.3%, up from a rate of 6.4% as of September 30, 2012.
The sum of over 30-day accounts and the accounts 1 to 29 days past due equals what we call our slow file. A slow file is slightly lower at September 30, 2013 than it was at December 31, 2012.
That's good. When you look at these two categories at the end of Q3 2013, you will find that the accounts 1 to 29 days past due are lower and the over 30-day accounts are higher, with the biggest increase in the 30 to 59-day bucket.
And of course, we also review delinquencies by product category and it was auto delinquencies that increased more than the other categories in Q3. Just backing up and viewing this topic from a macro perspective, our delinquency trend is lowest just after income tax refunds are received and it does rise some throughout the rest of the year until the next year's tax refunds are processed.
So an increase in our delinquency rate at this time of the year is fairly normal and we believe our credit quality remains good as we move into Q4. Personnel costs for the third quarter of 2013 were $9.6 million, an increase of 12% from $8.6 million in the prior period.
We measure our labor productivity as accounts per employee. And our accounts per employee were higher in Q3 2013 than Q3 2012, and this helped to keep our personnel costs from moving higher.
Occupancy expense for the third quarter of 2013 was $3.2 million, an increase of 38% from $2.3 million in the prior-year period, primarily due to our recently opened stores, some phone system replacements and upgrades of some communication lines to improve customer service and system uptime. As I mentioned on the second quarter call, the phone system costs and communication lines will continue to push our occupancy a little higher moving forward.
Marketing costs for the third quarter of 2013 were $1 million, an increase of 56% from $0.6 million in the prior-year period. The increased costs are due to increases in our direct mail volume which is consistent with our 2013 plan.
Other expenses for the third quarter of 2013 were $3.6 million, a 29% increase from $2.8 million in the prior-year period. The increase was mainly driven by $0.4 million in costs related to the secondary offering.
Total G&A expenses for the third quarter of 2013 were $17.4 million, an increase of 21% from $14.3 million in the prior-year period, again primarily due to increased personnel and operating costs from opening and acquiring an additional 51 branches since September 30, 2012. Regional Management's sufficiency ratio, the percentage of G&A expenses compared to total revenue, in the third quarter of 2013 was 39.1%, 120 basis points below the 40.3% figure in the prior-year period.
As Tom noted in his comments, excluding costs related to the secondary offering, our efficiency ratio for the third quarter of 2013 would have been 38.1%. GAAP net income for the third quarter of 2013 was $7.6 million, a 9% increase compared to net income of $7 million in the prior-year period.
Diluted EPS for the third quarter of 2013 was $0.59, up from $0.55 in the prior-year quarter, and based on a diluted share count of 12.9 million shares. Excluding the costs related to the secondary offering, diluted EPS would have been $0.61.
As of September 30, 2013, Regional Management have finance receivables of $512.1 million, an outstanding debt of $347.7 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 toward the completion of an auto loan securitization which will provide fixed rate per match funding.
This will diversify our funding sources and provide additional room to grow. Since work on the securitization stalled while we completed the secondary offering, we now expect the securitization transaction to complete in Q1 2014.
Now I will turn the call back to Tom for closing remarks.
Tom Fortin
Well, thanks, Don. And to sum up, during the third quarter we certainly experienced attractive and sound growth from a finance receivables, revenue and a same-store perspective.
We're very pleased with the quality of the portfolio and our risk profile. Our focus right now is on our all-important holiday direct mail campaign as well as preparing for our slate of 2014 de novo branch expansion.
I believe we remain very well-positioned from a liquidity perspective and we're very pleased to see our yields to continuing to improve from their low point in April of 2013. Additionally, we've kept an excellent control on our cost structure.
Overall the Regional team continues to perform admirably and we're very excited about potential opportunities both in the near term and from a long-term perspective. And with that, I thank you very much for your time and interest today.
[Tony], we'd be happy to open up the lines for questions.
Operator
(Operator Instructions). Your first question comes from the line of Mr.
Sanjay Sakhrani of KBW. Please proceed.
[Stephen Clough] – KBW
Hi. This is actually [Stephen Clough] filling in for Sanjay.
Hi, how is it going guys?
Tom Fortin
Very well. Thanks.
[Stephen Clough] – KBW
The first question we have was around GOLDPoint, and could you talk about what are the differences between GOLDPoint and Paradata? Is there something that they offer that's different?
Just curious if you could provide some more color around that.
Tom Fortin
Sure. A little bit of background, [Steve], we have been using Paradata as our loan management system since late 1998.
And as you may recall from our corporate history, at that time we were singularly focused on the small installment loan category. Subsequent to 1998 we've obviously diversified substantially to encompass auto lending, retail lending.
As our geography, as our product offerings have expanded, so too has the level of complexity of the types of loans we offer, and of equal importance, the data that we try and derive from our portfolio. Particularly as we're looking forward in the very near term to -- in automobile securitization, we felt it was important for us to have a robust web-based loan management system that would be flexible enough for us to grow and expand our business perhaps in ways that we haven't even envisioned.
And, you know, we simply were not able to get that level of flexibility and responsiveness out of the incumbent system. About two years ago we started a very detailed market and technology-based search, and we determined after a considerable research that GOLDPoint would really meet all of our needs going forward.
I mentioned in my prepared comments, you know, we envision GOLDPoint being more than adequate to accommodate our growth for the coming decade-plus of expected growth and product offerings. Don, would you like to add anything from your perspective?
Don Thomas
Yeah. I'd just add that the way we do business today, we've had to pull together systems in a less-than-integrated fashion and I think the beauty that GOLDPoint brings forward is that we will have a very integrated solution for the vast majority of our needs.
[Stephen Clough] – KBW
Got it. Thanks.
And with regards to the loan compensation, how should we think about that going forward? When we look at the small installment loans, that's already about 50% of the portfolio.
Do you expect that composition to grow further from here?
Tom Fortin
I would expect that it would, [Steve]. I don't want to give a particular projection as to our mix, but there's no question that we've been making concerted efforts throughout fiscal 2013 to put more emphasis on the small loan product category, and that's in direct response to the declines in our overall portfolio yield that we had been experiencing since August of 2012 and which really corrected itself and turned around as we mentioned in April of this year.
By no means are we advocating any of our other product lines. In our commentary we mentioned that we're tempering some of the growth in indirect auto.
We're certainly seeing a maturing of our retail portfolio. The tempering of growth in indirect auto is really a continuation of the theme we've discussed now in four consecutive earnings calls, and that really is a reflection of the intense competition in the indirect auto lending space that continues today.
We're being I would say cautious and prudent in that market. On the retail side of business, we're certainly seeing a maturing in that portion of our business.
We're also seeing a relatively shorter tenure or maturity of that portfolio as customers pay down or pay off their furniture and appliance loans. So I think you're going to see a continued gradual proportionate increase in the small auto category as a percentage of our mix.
[Stephen Clough] – KBW
Got it. And then the final question that we had was around the efficiency ratio.
I mean it came at 39% when you include the offering cost and 38% without it. How should we think about the ratio going forward in fourth quarter and then perhaps in 2014?
Thanks.
Tom Fortin
Well, I would say generally, and I'll let Don deal with a more granular level, we were thrilled to see the efficiency ratio come in below 40%, even inclusive of the offering cost. And it's really performing the way we had hoped and expected.
After our first quarter earnings call, we noted during that Q1 call that we were taking focused strategic steps to improve our yield. We had noted during the Q1 call that we had seen pressure on our efficiency ratio as our yields had been declining.
Certainly with our Q2 call, we saw an upward trend in overall portfolio yields. That's a positive.
We're seeing some improvement in the efficiency ratio as a result of those overall improving yields. And when you look at Q3, [Steve], and you see the combination of strong improvement in overall revenues and a continued improvement and upward trend in yields, certainly speaks to us to a very positive story from a cost management perspective.
So I would say we're delighted being in the high 30% range, and I think it's certainly getting us back to an efficiency ratio that is much more reflective of our traditional model. Don, would you like to comment on that?
Don Thomas
I'll just add that we have a new branch opening cycle that tends to be front-end loaded. So certainly that and the fact that our loan originations are slightly backend-loaded contribute to a slightly higher efficiency ratio in the first few quarters of the year and slightly lower in the third and fourth.
But I agree with Tom, we're delighted to be where we are and continue work on it.
[Stephen Clough] – KBW
Great. Good quarter guys.
Thanks.
Tom Fortin
Thanks, [Steve].
Operator
Your next question comes from the line of Mr. John Hecht of Stephens.
Please proceed.
John Hecht – Stephens, Inc.
Afternoon, guys. Thanks for taking my questions.
First one is, understand you got a nice improvement in the consolidated yields. You know, was there anything worth mentioning at the product level, any yield changes during the quarter?
Don Thomas
You know, there's a good bit around mix, John, and when we look at the individual product categories, the way that they're grouped, a little improvement obviously in small. We've been doing really well with our direct mail yield, and that tends to pull it up.
But, you know, that's the category where we're seeing a little bit of improvement. The other categories are, you know, pretty flat in terms of yields.
So think about the small category as being where the yield improvement is coming from.
John Hecht – Stephens, Inc.
Okay.
Tom Fortin
And I want to say, John, just as a counterbalance to that improved yield, we have seen and we continue to see slight declines in our overall insurance yields. And that is a continuation of the theme we've talked about for some time as we continue to originate loans through our indirect channels be it auto or retail, as well as continue to drive growth through our convenience check programs.
Those are areas where we, in the case of indirect auto and retail, we simply don't have an opportunity to offer our optional credit and insurance products to the customer. And in the case of our convenience checks, we have a relatively low uptick, if you will, of optional credit insurance products.
We tend to see a counterbalancing decline of insurance come over time.
John Hecht – Stephens, Inc.
Okay. A second question, if I heard you right, Tom, you had a nice jump in total accounts from like, you know, I think it was 265 to 308, you know, whatever the number was, it would imply very strong growth.
And I'm wondering, can you tell us what channels you're getting these new customers from? Is it the mail campaigns, is it people walking at the branches, is it all of the above?
And maybe where the best kind of hit rate is.
Tom Fortin
Sure. So in the third quarter, as you know, John, it's really the second highest peak period for us, the holiday fourth quarter being obviously traditionally the busiest time.
But we've certainly demonstrated now for several years running that we're very adept at capturing back-to-school business and customers, predominantly through our convenience check programs. We mailed out during the first -- or excuse me, during the third quarter, in excess of 836,000 so-called convenience checks.
So that certainly contributed greatly to third quarter improvements in overall customer account. You know, I mentioned that there's been some maturing of our retail platform, but this continues to be a driver of what we call cross-sell opportunities.
So for every new customer that we bring in to the platform through now more than 900 separate retail point-of-sale partnerships we have, that gives us yet another opportunity to watch the customer's performance over time. And when we deem it as appropriate and prudent to offer that customer a second loan product separate from the retail loan that brought them in the door, we've noticed increasingly a very high uptake rate, if you will.
So I would say cross-selling, we're getting better at that and we're digging deeper into cross-sell opportunities. I'd say that's been a very solid contributor to our customer additions.
John Hecht – Stephens, Inc.
Okay, that's great. Thanks for the color.
Final question, you know, given the changes in some of the, you know, the fee structures in Texas, Georgia, North Carolina, can you give us a sense for how much of the, you know, receivables base is in each of those areas?
Don Thomas
Yes, I believe we can do that. Hold on a second.
In Georgia, a very small amount. I think, you know, we had just a couple of branches there.
We have one ACS branch there that's the bulk of the dollars. We have $541,000 in Georgia, so, very small and not going to be a significant change for us there.
North Carolina has $99 million in receivables. A significant portion of that is in auto.
But there's also a good chunk in small and large that would be subject to the North Carolina rate increase. That increase would be on any new business or on any renewals, and so it would only gradually come in over time.
And then as far as Texas goes, you know, we have about $102 million of receivables in the State of Texas at the end of September. It's about 20% of our portfolio.
Tremendous amount of retail loans there, certainly some small loans. And a couple of our largest ACS branches are there with a good bit of auto loans as well.
John Hecht – Stephens, Inc.
Okay. Well, that gives us -- kind of a clarifies or [preens] for us the opportunity.
I really appreciate the color. Thanks for that.
Don Thomas
Very welcome.
Operator
Your next question comes from the line of Mr. Bob Ramsey of FBR.
Please proceed.
Tom Frick – FBR Capital Markets
Good evening, gentlemen. This is Tom Frick for Bob.
How is it going?
Tom Fortin
Very well. How are you?
Tom Frick – FBR Capital Markets
Hey. I'm doing all right.
You know, my first question is, on the new Texas fee increase, have you implemented the full 10% in Texas or are you thinking about doing something similar to one of your competitors where they implemented just a portion of the fee increase to renewal customers?
Don Thomas
We've implemented the full increase and are simply watching the market and trying to understand where everybody is going to go.
Tom Frick – FBR Capital Markets
Okay, great. And then, yeah, I wanted to talk about growth.
Your growth obviously has been positively impacted by the live check campaigns and the opening of new stores. But I was wondering if you could talk a little bit about kind of what you're seeing in terms of growth from your more seasoned stores, those open longer than five years, and kind of what the dynamic is for demand in those stores.
Tom Fortin
Sure. Tom, this is Tom speaking.
Buried in the bowels of our press release was a somewhat obscure but I think really impressive statistic which shows that even in including the dampening effect of all of the de novo stores we have brought on this year. We've actually seen the overall average receivable per branch grow across the platform, 264 locations.
So that tells me that what we're seeing is we're seeing what I would call a tail effect that's very positive from even our oldest stores. Now we don't report either by geography or maturity bucket our growth, but we do review this monthly on an internal basis.
And we're seeing in the high single digits same-store receivables growth for stores that are greater than five years in maturity. So we're getting lift off of even our oldest stores.
And I think in large part that is an outcome, if you will, of the breadth of our product set. When you can bring new car dealers and new retailers to older stores, it helps them grow.
Particularly when you think about the work and the investment we've put in to our marketing analytics through our convenience check programs, as we continue to refine the ways that we pre-screen potential customers, even in these older markets, it can provide positive lift. So I am extremely encouraged by what we're seeing internally with respect to the older stores.
And when you combine that with what Don described, some 58% of our store fronts being less than five years in [NH], we've very clearly positioned the portfolio on the steepest part of the growth curve.
Tom Frick – FBR Capital Markets
That's great color. And then just kind of one last modeling question.
On your advertising expense, heading into the fourth quarter where you generally have a robust convenience campaign, I was wondering if you could help us think about that line item in 4Q and what that might grow to.
Don Thomas
Yes. You know, in 2013 we have been sending our convenience checks on a monthly basis in addition to sending out our four major campaigns.
And so you should think about it in terms of being certainly just a little more than what we've seen in the fourth quarter of last year. I don't know that we'll hit quite as high as we had in the third quarter, but it's a substantial amount of convenience checks that will go out primarily during the holiday time period.
Tom Frick – FBR Capital Markets
Okay. Great guys.
Thanks for taking my questions.
Don Thomas
Welcome.
Operator
Your next question will come from the line of Mr. David Chiaverini of BMO Capital Markets.
Please proceed.
David Chiaverini – BMO Capital Markets
Hey guys. How is it going?
Tom Fortin
Hi, Dave.
Don Thomas
Hi, Dave.
David Chiaverini – BMO Capital Markets
So, wanted to touch on credit quality. So you mentioned about how typically a seasonal increase heading into yearend.
But looking at year-over-year number, so the September quarter last year versus September of this year, it looks like there was a little bit of a, you know, blip-up on the delinquency. So I was wondering, is that solely due to the loan mix, i.e.
smaller loans which require more provisioning and of course you would expect a higher loss rate on those higher yielding loans? Or was there something else contributing to that such as the government shutdown or anything going on there?
Don Thomas
I think there's any number of things, Dave, that we could probably interject in that conversation. We certainly have 49 de novo branches with new branch managers operating and, you know, teaching and training them and getting them to do things the way we want is one exercise, the -- you mentioned the government shutdown and the debt conversations.
We don't know. I mean we wonder, was there anything around that?
Certainly, you know, we look at our slow file and we're encouraged by the fact that the total slow file is actually down a little bit even though timing inside of our delinquencies is a little different. So we still think we've got a very good credit quality portfolio and, you know, inside of the categories, I did mention that, you know, when you look at them, there's a little bit higher delinquency that popped up around auto more so than any other product categories.
But if there's any movement, it's there, as opposed to the other categories.
David Chiaverini – BMO Capital Markets
Got it. That's all I had.
Thanks.
Don Thomas
You're welcome.
Operator
Your next question comes from the line of Mr. Bill Dezellem of [Title] Capital Management.
Please proceed.
Bill Dezellem – Tieton Capital Management.
Actually it's Tieton Capital Management. First of all, would you please quantify in a bit more detail the benefit that you see coming from Texas and South Carolina rate changes please?
Tom Fortin
There was no rate change in South Carolina, Bill. It was Texas, Georgia and North Carolina.
Don Thomas
Right.
Bill Dezellem – Tieton Capital Management.
Sorry. Totally my error.
Texas and North Carolina. And Georgia is irrelevant so I just want to focus on the other two.
Don Thomas
Yeah. You know, we have, you know, obviously not had any impact yet from Texas because the implementation, the adoption was actually early October for us.
So, you know, we've made our own internal calculations, but I don't know that we were prepared to put them out as part of the conversation today.
Tom Fortin
Yes. And Bill, this is Tom, I mentioned in my prepared comments that the impact for us in Q3 in North Carolina was de minimis, and that's really a function of the product mix we have in North Carolina.
We tend to be a large loan participant in that state, so those changes were written into law, signed into law in late July. Our implementation of those to the extent we have smaller loans in North Carolina occurred approximately mid-August.
So we would have received at most perhaps five weeks of potential yield lift on a portion of our North Carolina portfolio. So as such, it was not meaningful in the grand scheme, and I'll stand by how I characterize the Q3 North Carolina impact as de minimis.
On a go-forward basis, I don't think at this point we're prepared to make any forward-looking statements about potential revenue impact from either of those states.
Bill Dezellem – Tieton Capital Management.
Okay. Well, when you are prepared to make those comments, we'll be prepared to listen.
Tom Fortin
Very well.
Bill Dezellem – Tieton Capital Management.
And next question, relative to the increase in the director's compensation, who is responsible for that decision?
Tom Fortin
It is the board. And as I mentioned in my commentary, with the secondary offering, we've now officially made the transition from a controlled company under New York Stock Exchange rules to one that is not controlled.
Nevertheless, we have five of our nine directors, myself included, being deemed as non-independent directors. So it's a board decision.
Don Thomas
Yes, I think it went through all the process that you would expect the comp committee working with experts, and making recommendations. And the board acted and moved forward with an appropriate measure to keep us in the market for great independent directors to add to the board.
Tom Fortin
Bill, I want to apologize, it's six of nine directors, myself included, are non-independent. I mentioned five.
It's actually six of nine. My apologies.
Bill Dezellem – Tieton Capital Management.
Thank you. And we can take that offline further.
The securitization, when you do get to the point that you have completed that -- the first securitization, what impact if any do you anticipate that that will have on future auto loan originations?
Tom Fortin
Well, you know, it's somewhat independent of the origination side of things, Bill. Today, as you perhaps can appreciate, we fund all of our auto loans out of the very same senior line that we fund every other type of loan.
It doesn't impact our approach to the auto business in a positive or negative way. I would say simply, the benefits to regional are as follows.
One, it helps us diversify our funding base, which is a positive. Two it's fixed rate.
Three, it's term-matched. And four, you know, there's approximately 100 -- currently 100 to 110 basis point differential between the cost all in of our senior revolving facility today and the current market today for securitization.
So it won't impact our approach from a business perspective to how we go after auto loans. But it does have derivative benefits in other aspects of the business.
Bill Dezellem – Tieton Capital Management.
All right. So you don't see with the securitization that you will -- naturally the increasing originations on either the indirect or the direct side because you have that mechanism to move the loans out?
Tom Fortin
That's correct, Bill. I think that's, you know, it's a great way of phrasing it.
Certainly how we think about that opportunity here internally. We react to local market conditions and opportunities and it's really de-coupled from the availability of funding.
So we think that's both prudent and conservative way to run our business.
Bill Dezellem – Tieton Capital Management.
Thank you both.
Tom Fortin
You're very welcome.
Operator
Your next question comes from the line of Mr. Dan Furtado of Jefferies.
Please proceed.
Dan Furtado – Jefferies
Good evening everyone. Thank you for the opportunity.
Tom Fortin
Hello, Dan.
Don Thomas
Hi, Dan.
Dan Furtado – Jefferies
Hello. I just had a question, do you have the contractual delinquency number available?
Tom Fortin
We do.
Don Thomas
We do. We had disclosed 7.3% --
Dan Furtado – Jefferies
Oh no. I'm sorry.
I must be using the wrong term, like for instance the accounts that are not current. I guess that would include the slow file, is that how to --
Tom Fortin
So, Dan, just to use our phraseology, that's what we call the slow file. And for everybody on the line, the definition of the slow file is any account that is one or more days past due.
As of September 30, 2013 the slow file, Dan, was 22.0%. And just to frame that in its proper historical context, over the 26-year history of the business, we've generally seen the slow file approximately 28%.
So this is good news.
Dan Furtado – Jefferies
Yeah, I was going to say that compares to 24.7 in the prior quarter and 27 from the year ago, just so that I'm on the right -- using the right metrics. Correct?
Don Thomas
Dan, I think I've got a better number and may have given Tom [a bad start] point. So here's what I have for December of '12, was a 25.1, and September '13 to 24.9 for our slow file.
Dan Furtado – Jefferies
Okay. So -- okay.
Got you. So basically flat from the two -- or maybe up 20 basis points from the 2Q period.
I guess the question is, you know, it seems like, because the delinquency statistics in the press release are, and I don’t mean this on the negative, but they are misleading in the standpoint that it looks like delinquencies aren't getting substantially worse considering growth in the portfolio. But when you look at the higher contractual delinquencies of the entire slow file, it paints a much different picture.
So I would just highlight that, you know, in terms of releasing that data -- I know you put in the Q, but that might help going forward because I think there's a little bit of concern there. But that's kind of besides the point.
The one thing I did want to touch on is, how should investors think about the provision or really the allowance for loan loss as a percent of the portfolio balance? You know, my guess is that there's going to be a high correlation to some or all the delinquency metrics, but, you know, how would you -- how do you in this business think about that and how should investors think about that going forward?
Because, you know, the allowance/provision is just a big expense and I just want to make sure people have the correct expectations.
Don Thomas
Yeah, it's a great question, Dan, and appreciate the input on what might be helpful around the delinquencies as well. You know, we have four loan categories.
So when you look at this, it's complex just because we have four buckets instead of single bucket. And we're looking out into the future, you know, eight months for small and 12 months for large automobile and retail.
So you have some different time periods that also lead to the complexity and understanding relationships. But you've seen for probably a few quarters now that we've been in the mid 5% range, like 5.5%, 5.6%, 5.7%, and, you know, as a percentage of receivables, that's not a too bad a place to be.
But inside of our allowance, we have two pieces that you need to be mindful of. One is our general reserve.
And by general, I mean that it's computed on trailing 12 months of losses, applied against your current receivables. We also have some specific reserves that are at 100% level.
One hundred and eighty day plus accounts are 100% reserved. And bankruptcy accounts are 100% reserved.
So we do see some fluctuation in those buckets from time to time as well. And so, you know, when you look at it as a percentage of receivables, it's been running 5.5, 5.6 as the portfolio swings a little bit more towards small, you could see a small increase over time.
Dan Furtado – Jefferies
Understood. Thank you for the insight there everybody.
Take care.
Don Thomas
Thank you.
Operator
Your next question will come from the line of Mr. Eugene Fox of Cardinal Capital Management LLC.
Please proceed.
Eugene Fox – Cardinal Capital Management
My questions were answered. Thank you.
Operator
Gentlemen, there are no further questions in the queue. I would now like to turn the call over to Mr.
Thomas Fortin for closing remarks.
Tom Fortin
Well, thank you very much, [Tony]. And for those of you still on the line, we do as always appreciate your continued support for Regional Management.
We look forward to delivering good news to you in the future and well beyond. Thanks and have a good evening.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Have a good day.