Enova Sees Subprime Borrowers Driving Strong Loan Growth

Enova International’s third quarter results, released Thursday (Oct. 23) after the market closed, showed that consumers, including subprime consumers, are managing their finances with aplomb, and that loan demand is strong.

The company’s presentation materials and management commentary pointed towards strong credit metrics, as well.

David Fisher, CEO, told analysts on the conference call that the company’s quarter was marked by “solid loan growth and strong credit metrics across our portfolios, driven by our nimble online-only business model … supported by stable credit and significant operating leverage.”

Third quarter loan originations were up 22% year on year to about $2 billion, and in terms of the end markets, small business products represented 66% of the total portfolio and consumer 34%. Revenue increased 16% on a consolidated basis to $803 million in the third quarter. SMB revenue increased an 29% year-over-year to a record $348 million. Consumer revenue increased 8% year-over-year  to $443 million.

“Credit quality is solid across the portfolio,” said Fisher, who noted that the consolidated net charge-off ratio for the quarter was 8.5% compared to 8.1% last quarter and 8.4% in Q3 of last year.

Consumers are Managing Finances Well

“Despite some noise in the macro environment, the underlying trends for our customers continues to be positive. The job market remains healthy with unemployment rates staying historically low at 4.3% as of August, and wage growth continues to outpace inflation for our target customers,” the CEO said.

“In addition, August consumer spending data showed a meaningful uptick, reinforcing steady household demand,” he said during the remarks. The consumer base has proven to be adept at managing variabilities in their finances, and “these customers tend to have jobs with more fungibility in terms of being able to move between companies. This can lead to less volatility in their earnings over time,” said Fisher.

Looking ahead, the company expects to see consumer origination growth rates accelerate sequentially and credit metrics continue to improve, Fisher continued.

Shares in Enova were up 8% in intraday trading on Friday.

And approximately 3/4 of small business activity from the company were from non-bank lenders with nearly 40% of SMB clients reporting being denied by traditional banks, said Fisher.

Steven Cunningham, Chief Financial Officer, said in his own remarks that fourth quarter revenues will be up by 10% to 15% compared to a year ago.

“Consumer credit also remained solid. Following our typical seasonality, the consumer net charge-off ratio rose sequentially to 16.1% for the third quarter and while higher than the year ago quarter, remained in our expected range,” said the CFO.  “Additionally, during the quarter, year-over-year consumer installment originations grew at the fastest rate that we’ve seen in several years as we saw higher demand from existing customers for refinancing and debt consolidation.”

Solid Subprime Business

During the question and answer session, Fisher said that “our subprime business has some of the best credit metrics we’ve seen in a long, long time. And our near prime book business has like some of the best credit metrics we’ve seen in a long, long time … we are seeing top to bottom consumer and small business [marked by] incredibly good credit…[there are] no areas that we’re really concerned about at all right now.”