Good morning and welcome to the Santander Consumer USA Holdings Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Evan Black, from the SCUSA Investor Relations team. Evan, the floor is yours.
Good morning everyone, thank you for joining the call. On the call today we have Tom Dundon, Chairman and Chief Executive Officer; and Jason Kulas, President and Chief Financial Officer.
Before we begin, as you are aware, certain statements today such as projections for SCUSAs future performance are forward-looking statements. Actual results could be materially different from those projected. SCUSA has no obligation to update the information presented on the call. For further information concerning factors that could cause these results to differ, please refer to our public SEC filings. Also on todays call, our speakers will reference certain non-GAAP financial measures which we believe will provide useful information for investors. A reconciliation of those measures to US GAAP is included in the earnings release issued today, February 3rd, 2015.
For those of you listening to the webcast, there are few user-controlled slides to review as well as a 4Q company update on the Investor Relations website.
Now I will turn the call over to Tom Dundon. Tom?
Thank you and good morning everyone. I will discuss our fourth quarter highlights and ongoing strategic initiatives for 2015. Afterward Ill turn the discussions over to Jason for a detailed review of the quarters results. Well then open the call for any questions you may have.
Fourth quarter results are highlight by strong profitability, during the quarter SCUSA earned net income of $247 million or $0.69 per diluted common share compared to net income attributable to SCUSAs shareholders for the fourth quarter of 2013 of $114 million or $0.33 per diluted common share.
This represents net income growth of 117% from the prior year, driving a return on average equity of 29.1% and return on average assets of 3.1%. In the fourth quarter total originations were $6.1 billion including $565 million in facilitator originations. This compares to total originations of $7.4 billion in the third quarter including $604 million in facilitator origination.
Volumes were seasonally lower in the fourth quarter and we expect ebbs and flows in volume as we constantly seek to optimize origination. While fourth quarter originations decreased, total originations were $27.5 billion up from $20.7 billion in 2013 representing growth of 33%.
We also remained focused on our unsecured lending platform. Our unsecured portfolio balance as of yearend totaled $1.8 billion up from $1.3 billion in the prior quarter. Total originations of $562 million this quarter were approximately even between revolving and installment loans. As the revolving loan originations increased versus the prior quarter consistent with seasonal retailer patterns. We are excited about the opportunities in this space, as it aligns well with our core competencies and has attractive returns.
During the fourth quarter used car prices were covered from the declines earlier in the year as the Manheim index finished the year 2% higher than its lowest point during 2014 and 1.8% higher than in December, 2013. We also view the continued decrease in gas prices is a net positive for our consumers.
However as we stated during our recent Investor Day, we view both used car recoveries and gas prices as secondary factors to our business. While we monitor these trends closely we are focused on operating our business, originating attractive assets to enhance long-term profitability and optimizing the mix of retained assets versus assets sold in service for others.
As we continue to properly execute our strategic objective, we believe these secondary factors will have less than impact on our business and its profitability. In this market were finding that were able to acquire loans and leases with attractive risk adjusted returns and indication that the market is behaving rationally.
Id like to now turn the call over to Jason to review our financial results. Jason?
Thank you Tom and good morning everyone. Lets go to the fourth quarter results in more detail. As Tom mentioned net income for the quarter were strong at $247 million, this was driven by net finance and other interest income growth of 13% to $1.1 billion up from $953 million during the same period last year. Of this interest income from individually acquired retail installment contracts increased 14% to $1 billion up from $894 million during the same period last year due to significant growth in the portfolio.
Interest income from unsecured consumer loans grew 36% to $96 million this quarter up from $71 million during the same period last year. Net leased vehicle income increased to $60 million this quarter up from $22 million in the fourth quarter of 2013, as we continue to originate more lease volume as Chryslers preferred lender.
Moving to originations. . As Tom mentioned, we originated $6.1 billion in loans and leases this quarter. During the quarter we originated approximately $2.4 billion in Chrysler retail loans, $1.4 billion of which were prime loans and the remaining $1 billion non-prime.
We also originated $1.3 billion in Chrysler leases which includes $565 million in leases originated for an affiliate. The Chrysler penetration rate at the end of the fourth quarter was 27%, this is slightly below the prior quarter but in line with the same period last year. We remain confident about the ongoing success of our agreement with Chrysler as we strive to support Chryslers sales growth by originating attractive assets consistent with our strategy.
The provision for loan losses decreased to $560 million this quarter down from $770 million last quarter and down from $629 million in the fourth quarter of 2013. The decrease from prior quarter was driven by positive provision model impacts as the forward looking model is no longer capturing two seasonally worse fourth quarters. The provision decrease was also impacted by reduction in allowance for loan loss months coverage.
The overall provision decrease was partially offset by seasonal higher charge-offs as performance deteriorates in the fourth quarter in a pattern consistent with our normal seasonal expectations. The net effect of these factors resulted in a decrease in the allowance to loans ration to 11.5% this quarter from 12.1% last quarter.
The decrease in months coverage also resulted in a positive EPS impact of approximately 11%, however excluding the change in months coverage we are still ahead of our objective for the year.
Turning to credit performance SCUSAs quarterly net charge-off ratio increased to 8.6% from 8.4% last quarter. And from 8.1% during the same quarter last year. The fourth quarter delinquency ratio increased to 4.5% from 4.1% last quarter and remained flat over the same quarter last year, the increase in both ratios quarter-over-quarter follows normal seasonal patterns.
Moving onto expenses during the fourth quarter operating expenses increased 14% to 230 million from 203 million during the fourth quarter of 2013, as we continue to grow our asset base and increased headcount to dedicate additional resources to our regulatory and compliance teams.
Despite these increased cost we continue to demonstrate industry leading efficiency as our efficiency ratio decreased slightly to 19.1% from 19.2% during the same period last year. This is further evidenced by revenue versus expense growth for the full year of 2014 versus 2013.
On a GAAP basis revenue growth lagged expense growth due to one-time IPO cost however excluding costs revenue growth outpaced expense growth. It is important to note as weve discussed in prior quarters, as we continue to focus on growing the capital-light higher ROE serviced for others platform.
We will see an increase in the efficiency ratio. While the ratio will increase overtime we remain very positive about the service for this platform because it drives higher ROEs despite lower margins due to limited credit exposure. We believe this is a business that will enhance our ability to create shareholder value.
Turning now to liquidity, SCUSA demonstrated consistent access to liquidity during the fourth quarter, the execution of $1 billion securitization from our core non prime securitization platform SDOT and a $700 million, also $700 million of additional liquidity from private term amortizing for facilities and an incremental 500 million in warehouse borrowing capacity.
During the quarter asset sales total $1.1 billion down from $2.4 billion last quarter driven by the timing of asset sales. And as previously mentioned we continue to focus on balance sheet management and growth in our serviced for others portfolio going forward.
The portfolio of loans and leases serviced for others totaled $10.3 billion at year-end up from $4.5 billion at prior year-end representing growth of 126%. Investment gains for the quarter which primarily comprise of gains on sale totaled $21 million down from $32 million in the same quarter last year as we did not execute the SDART securitization in the fourth quarter of 2014.
Servicing fee income totaled $20 million for the quarter an increase from $4 million in the fourth quarter last year. Before we begin Qamp;A i would like to turn the call back over to Tom. Tom?
Thanks. Looking back over our first year as a public company in consistent with historical performance, we were able to originate attractive assets and produce strong net income in a competitive environment with increasing regulatory scrutiny. As this regulatory environment becomes more challenging we believe this will continue to brighten a line between us and our competition, as we continue to leverage our compliance Damp;A at approximately 14 years of big bank ownership to further enhance processes related to risk management, governance and internal control.
Core net income for the full year totaled $842 million representing growth of 21% from the prior year. We also exceeded our financial objective for the year as core EPS growth totaled 18%. Total 2014 originations were $27.5 billion representing 33% growth from 2013. Consistent with our strategy to service more assets for others we were able to generate a $189 million of gain on sale and servicing income from this platform, representing growth of 186% versus the prior year.
Managed assets including our serviced for others portfolio totaled $41.2 billion at year-end an increase of 37% from prior year. Looking ahead to 2015 we remain focused on delivering attractive risk adjusted returns. Were excited about the continued opportunities across our franchise including our core nonprime platform, Chrysler relationship, servicing business and unsecured lending platform.
We are determined to make the best use of our capital, allocating resources towards the greatest ROA opportunities or generating recurring fee income via our serviced for others platform.
We are in active discussions with various entities that have expressed interest in our assets and based on this demand were optimistic regarding our serviced for others platform.
With that Id like to open the call for questions. Operator?