Springleaf Swings to Profit

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Evansville-based Springleaf Holdings Inc. (NYSE: LEAF) is reporting fourth quarter net income of $14 million, compared to a loss of $81 million during the same period the previous year. The company also reported a 2013 net loss of $32 million, which it says is largely attributable to expenses from its initial public offering.

March 11, 2014

News Release

Evansville, Ind. -- Springleaf Holdings, Inc. (NYSE:LEAF), today reported net income for the fourth quarter of 2013 of $14 million, or $0.12 per diluted share, compared with a net loss of $81 million in the fourth quarter of 2012, or $0.81 per diluted share (based on the pre-initial public offering share count of 100 million shares). Net loss for the full year 2013 was $32 million, or $0.31 per diluted share, largely attributable to expenses associated with the company’s initial public offering and early retirement of debt, which combined, totaled approximately $200 million pre-tax. The net loss in 2013 compared to a loss of $219 million, or $2.19 per diluted share for 2012.

Core Earnings (a non-GAAP measure) for our Core Consumer operations for the quarter were $48 million, versus $9 million in the prior year quarter, and Core Earnings per diluted share (a non-GAAP measure) were $0.42 for the fourth quarter versus $0.09 in the prior year quarter. Core Earnings for the year were $198 million, versus $55 million in the prior year, and Core Earnings per diluted share were $1.92 for the year versus $0.55 in the prior year.

Fourth Quarter Highlights

• Branch consumer net finance receivables reached $3.1 billion at December 31, 2013, an increase of $596 million, or 23% from a year ago, and up 6% from the third quarter.

• Average receivables per branch grew to $3.8 million at December 31, 2013, up 24% from the prior year and 6% from the third quarter.

• Risk-adjusted yield for our consumer finance portfolio in the quarter was 21.18%, an increase of 98 basis points from the prior year quarter and a decrease of 71 basis points from the third quarter.

Sale of Legacy Real Estate Portfolio

The company has agreed to sell to three different parties a total of approximately $1.0 billion of mortgage loans serviced by PennyMac. The sale is expected to generate a gain of approximately $55 million, with closing anticipated by March 31, 2014. This transaction reflects an acceleration of the liquidation of the legacy mortgage portfolio through continued organic runoff and opportunistic sales.

Commenting on Springleaf's fourth quarter results, Jay Levine, president and CEO of Springleaf said, "Our results in the fourth quarter reflect very solid performance across our Core Consumer operations, including continued growth in receivables per branch and further expansion in risk adjusted yield. We continue to place our primary emphasis on growing receivables per branch to take advantage of the benefits of scale. We remain very excited about the tremendous growth potential of our branch offices and the outlook for our Core Consumer operations. During the quarter we also made great progress on improving our funding profile and cost of funds, and gaining important ratings upgrades."

Levine added, "Looking ahead for 2014, we are establishing guidance ranges for a number of key metrics related to driving profitable growth in our Core Consumer business, and look forward to great success in our first full year as a public company."

Regarding the sale of a portion of its legacy real estate mortgage portfolio Levine said, "While we continue to manage the runoff of the portfolio, we will continue to consider opportunistic sales of additional portions of the portfolio as market conditions allow."

Core Consumer Operations: (Reported on a historical accounting basis, which is a non-GAAP measure. Refer to the reconciliation of non-GAAP to comparable GAAP measures, below.)

Branch Operations

Consumer & Insurance pre-tax earnings were $40 million in the quarter versus $15 million in the fourth quarter of 2012, and down from $42 million in the third quarter of 2013.

Net finance receivables reached $3.1 billion at the end of the quarter, an increase of 23% from the prior year and 6% quarter over quarter, driven by the company’s focus on increasing personal loan originations through its branch network.

Net interest income of $163 million increased 42% from the prior year quarter, driven by 22% growth in average net finance receivables for the quarter and gross yield expansion of 169 basis points to 26.34% in the current quarter. On a quarter over quarter basis, net interest income increased 9%. Gross yield benefited from the change in the state-by-state mix of loan originations, in addition to greater focus on risk-based pricing. Risk adjusted yield, representing gross yield less the charge-off rate, was 21.18% in the quarter, up 98 basis points from the fourth quarter of 2012 and down 71 basis points from the third quarter of 2013.

The delinquency ratio was 2.60% at quarter end, an improvement of 15 basis points from the prior year, and an increase of 28 basis points from the prior quarter. The annualized gross charge-off ratio was 5.49% in the quarter, down 14 basis points from the prior year and up 120 basis points from the third quarter, reflecting typical seasonal trends. Recoveries continued to be depressed in the quarter at 33 basis points versus 118 basis points in the prior year quarter, due to the impact of the sale of previously charged-off accounts in the second quarter of 2013. The annualized net charge-off ratio was 5.16% in the quarter, an increase of 71 basis points from the prior year and 113 basis points from the prior quarter. The net charge-off ratio in the quarter was also adversely affected by lower recoveries as the company sold a significant portion of previously charged-off accounts in June, 2013.

Acquisitions & Servicing (Results reflect the acquisition of the $3.9 billion SpringCastle portfolio in April 2013, and the initiation of servicing activities in September 2013.)

Our portion of the SpringCastle portfolio and related servicing contributed $36 million to the company’s consolidated pretax income in the quarter, after elimination of earnings attributable to the non-controlling interests. The entire SpringCastle portfolio generated pre-tax income of $63 million in the quarter, with net interest income of $136 million and yield of 24.63%. Actual net finance receivables at quarter-end were $2.5 billion, down from $2.7 billion at September 30. The principal balance of the portfolio was $3.2 billion at quarter-end versus $3.4 billion at September 30.

The delinquency ratio for the SpringCastle portfolio was 7.75% at the end of the quarter, an increase of 30 basis points from the third quarter, while the annualized net charge-off ratio was 8.46%, down 13 basis points from the prior quarter.

Legacy Real Estate and Other Non-Core

The Legacy Real Estate and Other Non-Core activities generated a pretax loss of $83 million in the quarter, including $64 million attributable to the legacy real estate portfolio. Other non-core activities resulted in a loss of $19 million in the quarter, including $14 million in non-cash compensation expenses associated with the company’s initial public offering and a $2 million loss (pretax) on the sale of our personal loan portfolio in Puerto Rico.

Liquidity and Capital Resources

As of December 31, 2013, the company had $431 million of cash and cash equivalents, in addition to $1 billion available undrawn revolving loan capacity. The company had total outstanding debt of $12.7 billion at quarter-end, in a variety of debt instruments principally including $4.7 billion unsecured debt, $4.0 billion in mortgage securitizations and $3.3 billion in consumer loan securitizations.