Asset Sale Propels Springleaf to Profit

Posted: Updated:

Evansville-based Springleaf Holdings Inc. (NYSE: LEAF) is reporting third quarter net income of $427 million, compared to a loss of $93 million during the same period the previous year. The lending company says the bottom line was boosted by a multi-billion dollar real estate asset sale. November 14, 2014

News Release

EVANSVILLE, Ind - Springleaf Holdings, Inc. (NYSE:LEAF), today reported net income of $427 million, or $3.70 per diluted share for the third quarter of 2014, compared with a net loss of $93 million or $0.93 per diluted share in the third quarter of 2013 (based on the pre-initial public offering share count of 100 million shares).

Net income in the third quarter of 2014 included an approximately $610 million pretax net gain from the sale of approximately $6.0 billion of real estate assets.

Core Earnings (a non-GAAP measure) for our Core Consumer Operations for the quarter was $64 million, versus $45 million in the prior year quarter, and Core Earnings per diluted share (a non-GAAP measure) was $0.55 for the third quarter versus $0.45 in the prior year quarter.

Third Quarter Highlights

Branch consumer net finance receivables reached $3.6 billion at September 30, 2014, an increase of $610 million, or 21% from September 30, 2013, and up 6% from June 30, 2014.

Consumer net finance receivables per branch were $4.3 million at September 30, 2014, up 21% from September 30, 2013 and 6% from June 30, 2014.

Risk-adjusted yield for our Consumer segment in the quarter was 22.34%, up 45 basis points from the third quarter 2013.

The company closed on the sale of its interests in approximately $6.0 billion of non-core real estate assets and related servicing, essentially completing the company’s previously disclosed mortgage liquidation plan. The transactions generated a pretax gain of approximately $610 million.

“Continued execution of our strategy to drive profitable growth in our Core Consumer business led to another quarter of outstanding results,” said Jay Levine, President and CEO of Springleaf. “Our principal objective in the consumer lending business has been to realize the benefits of scale in our branch operations by continuing to grow receivables per branch, and we reached that objective again this quarter, helping to drive Core Earnings up 42% from last year. The combination of solid performance in our branches and our very strong cash position leaves us well-positioned to continue to grow.”

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 $63 million in the quarter versus $45 million in the third quarter of 2013, and up from $60 million in the second quarter of 2014.

Consumer net finance receivables reached $3.6 billion at September 30, 2014, an increase of 21% from September 30, 2013 and 6% from June 30, 2014, driven by the company’s focus on increasing personal loan originations through its branch network and diversifying its product offerings. Consumer net finance receivables per branch continued to grow, reaching $4.3 million at September 30, 2014, up from $4.1 million at June 30, 2014 and $3.6 million at September 30, 2013.

Net interest income of $196 million increased 30% from the prior year quarter, driven by 20% growth in average net receivables and strength in consumer yield of 27.02%. Net interest income increased 9% from the prior quarter. Yield in the current quarter continued to benefit from the change in the state-by-state mix of loan originations. Risk adjusted yield, representing yield less net charge-off rate, was 22.34% in the quarter, up 45 basis points from the third quarter of 2013 and 43 basis points from the second quarter of 2014.

The annualized net charge-off ratio was 4.68% in the quarter, versus 4.03% in the prior year quarter and 5.12% in the prior quarter.

The annualized gross charge-off ratio was 5.46% in the quarter, up 117 basis points from the prior year quarter and down 34 basis points from the second quarter 2014. Recoveries continued to normalize in the quarter at 78 basis points versus 26 basis points in the third quarter of 2013, following the sale of a pool of previously charged-off accounts in June 2013.

The 60+ delinquency ratio was 2.55% at quarter end, versus 2.32% in the prior year quarter and 2.28% in the prior quarter.

Acquisitions and Servicing

The Acquisitions and Servicing segment contributed $39 million to the company’s consolidated pretax income in the quarter. The entire Acquisitions and Servicing segment generated pretax income of $74 million in the quarter, with net interest income of $113 million and yield of 24.26%. Actual net finance receivables at quarter-end were $2.1 billion, down from $2.2 billion at June 30, 2014. The principal balance of the portfolio was $2.7 billion at quarter-end versus $2.9 billion at June 30, 2014.

The annualized net charge-off ratio was 5.31% in the quarter, versus 8.58% in the prior year quarter and 7.07% in the prior quarter.

The annualized gross charge-off ratio was 5.83% in the quarter, down 307 basis points from the prior year quarter and down 195 basis points from the second quarter 2014, largely due to the slower pace of portfolio run-off. Recoveries continued to improve in the quarter at 52 basis points versus 32 basis points in the third quarter of 2013.

The delinquency ratio for the Acquisitions and Servicing segment was 5.11% at the end of the quarter, an increase of 7 basis points from the prior quarter end.

Legacy Real Estate and Other Non-Core

Excluding gains from the recent sales10, the Non-Core Portfolio (consisting of legacy real estate loans) and Other Non-Core activities generated a pretax loss of $50 million in the quarter, including a pretax loss of $48 million attributable to the legacy real estate loan portfolio. Other Non-Core activities resulted in a loss of $2 million in the quarter.

Liquidity and Capital Resources

As of September 30, 2014, the company had $2.8 billion of cash and highly liquid investment securities. The company had total outstanding debt of $7.9 billion at quarter-end, in a variety of debt instruments.

Source: Springleaf Holdings Inc.