Springleaf Details Earnings, Asset Sale

Posted: Updated:

Evansville-based Springleaf Holdings Inc. (NYSE: LEAF) is reporting second quarter net income of $72 million, compared to a loss of $56 million during the same period the previous year. The lending company says the results include the sale of hundreds of millions of dollars in real estate assets last month. Wednesday, Springleaf announced to the state it plans to close a mortgage servicing center in Evansville, which will affect 170 workers. August 7, 2014

News Release

EVANSVILLE, Ind. - Springleaf Holdings, Inc. (LEAF), today reported net income of $72 million, or $0.63 per diluted share for the second quarter of 2014, compared with net income of $56 million or $0.56 per diluted share in the second quarter of 2013 (based on the pre-initial public offering share count of 100 million shares).

Net income in the second quarter of 2014 included a $35 million pretax net gain from the sale of approximately $500 million of real estate assets in June 2014, and net income in the prior year quarter included a $41 million pretax gain from the sale of previously charged-off receivables.

Core Earnings (a non-GAAP measure) for our Core Consumer Operations for the quarter were $59 million, versus $79 million in the prior year quarter, which included the $25 million pretax gain from the sale of previously charged-off receivables, and Core Earnings per diluted share (a non-GAAP measure) were $0.52 for the second quarter versus $0.79 in the prior year quarter3.

Second Quarter Highlights

-Branch consumer net finance receivables reached $3.4 billion at June 30, 2014, an increase of $565 million, or 20 percent from June 30, 2013, and up 7 percent from March 31, 2014.

-Consumer net finance receivables per branch were $4.1 million at June 30, 2014, up 21 percent from June 30, 2013 and 7 percent from March 31, 2014.

-Risk-adjusted yield for our Consumer segment in the quarter was 21.91 percent, essentially unchanged from the first quarter 2014.

Real Estate Sales

-In the third quarter, the company entered into a series of transactions involving the sale of its interests in approximately $7.2 billion of non-core real estate assets and related servicing, (including the $500 million sale in the second quarter referenced above), essentially completing the company's previously disclosed mortgage liquidation plan. The transactions, which are subject to certain closing conditions, are expected to generate a gain on sale of approximately $575 to $625 million, before one-time charges associated with transaction expenses and with closing certain locations and related staff reductions, as well as potential costs related to the early retirement of debt. Cash proceeds are anticipated to be approximately $3 billion, and the transactions are expected to close on or before September 30, 2014.

Springleafs results this quarter reflect continued strong customer demand for responsible loan products and the resulting strong growth in our receivables and earnings, said Jay Levine, President and CEO of Springleaf (SPLH).

Commenting on the $7.2 billion of real estate sale transactions, Levine added, These transactions represent a major milestone for Springleaf, bringing us to the point where we have effectively eliminated our exposure to mortgages. These sales give us tremendous flexibility to grow our business through organic and inorganic means. This will minimize our need to issue incremental debt, thus reducing balance sheet leverage, achieving another important objective.

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.)

Consumer & Insurance

Consumer and Insurance pretax income was $60 million in the quarter versus $79 million in the second quarter of 2013, and up from $49 million in the first quarter of 2014.

Consumer net finance receivables reached $3.4 billion at June 30, 2014, an increase of 20% from June 30, 2013 and 7 percent from March 31, 2014, driven by the companys focus on increasing personal loan originations through its branch network. Consumer net finance receivables per branch continued to grow, reaching $4.1 million at June 30, 2014, up from $3.8 million at March 31, 2014 and $3.4 million at June 30, 2013.

Net interest income of $179 million increased 33 percent from the prior year quarter, driven by 22 percent growth in average net receivables and yield expansion of 146 basis points to 27.03 percent. Net interest income increased 6 percent from the prior quarter. Yield in the current quarter continued to benefit 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 yield less net charge-off rate, was 21.91 percent in the quarter, down 49 basis points from the second quarter of 2013 and essentially unchanged from the first quarter of 2014.

The annualized gross charge-off ratio was 5.80 percent in the quarter, up 144 basis points from the prior year quarter and up 24 basis points from the first quarter 2014. Recoveries continued to normalize in the quarter at 68 basis points versus 55 basis points in the first quarter of 2014, following the sale of a pool of previously charged-off accounts in June 2013. The annualized net charge-off ratio was 5.12 percent in the quarter, versus 3.17 percent in the prior year quarter and 5.01 percent in the prior quarter.

The delinquency ratio was 2.28% at quarter end, an improvement of 17 basis points from the prior quarter end.

Acquisitions & Servicing

Springleafs portion of the Acquisitions and Servicing segment and related servicing contributed $34 million to the company's consolidated pretax income in the quarter8. The entire Acquisitions and Servicing segment generated pretax income of $64 million in the quarter, with net interest income of $119 million and yield of 24.22%. Actual net finance receivables at quarter-end were $2.2 billion, down from $2.3 billion at March 31, 2014. The principal balance of the portfolio was $2.9 billion at quarter-end versus $3.0 billion at March 31, 2014.

The delinquency ratio for the Acquisitions and Servicing segment was 5.04% at the end of the quarter, an improvement of 129 basis points from the prior quarter end, while the annualized net charge-off ratio was 7.07%, down 160 basis points from 8.67% in the first quarter 2014.

Legacy Real Estate and Other Non-Core

Excluding the recent sales, the Non-Core Portfolio (consisting of legacy real estate loans) and Other Non-Core activities generated a pretax loss of $7 million in the quarter, including pretax income of $0.4 million attributable to the legacy real estate loan portfolio. Other Non-Core activities resulted in a loss of $8 million in the quarter.

Liquidity and Capital Resources

As of June 30, 2014, the company had $891 million of cash and cash equivalents, in addition to $1.2 billion of cumulative available undrawn revolving loan capacity. The company had total outstanding debt of $11.3 billion at quarter-end, in a variety of debt instruments principally including $4.8 billion unsecured debt, $3.3 billion in mortgage securitizations and $3.2 billion in consumer loan securitizations.

Source: Springleaf Holdings Inc.