Westcorp Reports Second Quarter Earnings Results
IRVINE, Calif.--July 24, 2001--Westcorp , the financial services holding company whose principal subsidiaries are WFS Financial Inc and Western Financial Bank today reported earnings of $16.9 million, or $0.50 per diluted share for the second quarter of 2001 compared with $17.6 million, or $0.64 per diluted share for the same period a year earlier.For the six months ended June 30, 2001, the company recorded net income of $34.6 million, or $1.05 per diluted share compared with $37.6 million, or $1.39 per diluted share for the same period a year ago. Earnings per share for both the three and six months ended June 30, 2001 were impacted by the 12% dilution in shares outstanding resulting from the issuance of an additional 3.7 million shares through the successful completion of a rights offering by the company during the second quarter.
"This transaction was well received by our shareholders and was significantly oversubscribed, reflecting our shareholders' confidence in our company," said Joy Schaefer, president of Westcorp. "The additional capital is designed to enhance shareholder value by supporting the significant growth we continue to experience in our nationwide automobile finance business."
Automobile contract purchases totaled $1.3 billion for the second quarter of 2001, a 19% increase from the $1.1 billion of automobile contracts purchased during the second quarter of 2000. For the year to date, automobile contract purchases increased 20% to $2.5 billion when compared with the same period a year ago. As a result of higher contract originations, the company's portfolio of serviced automobile contracts reached $7.6 billion at June 30, 2001, up from $6.8 billion at Dec. 31, 2000.
Total revenues grew 28% and 22%, respectively for the three and six months ended June 30, 2001 to $135 million and $259 million compared with $105 million and $212 million for the same periods a year earlier.
Net interest income increased to $109 million and $202 million for the three and six months ended June 30, 2001 compared with $59.7 million and $111 million for the same periods a year earlier. Net interest income has significantly increased as the past six automobile asset-backed securitization transactions were accounted for as secured financings rather than sales and as the company originated automobile contracts at significantly higher net interest margins.
The net interest spread for Westcorp's owned portfolio increased 69 basis points to 4.79% for the second quarter compared with 4.10% for the same quarter a year ago. For the six months ended June 30, 2001, net interest margins increased 44 basis points to 4.65% compared with 4.21% a year earlier. During the quarter, the company exercised its option to redeem the remaining $41 million of 8.5% subordinated debentures outstanding.
Automobile lending income totaled $23.4 million and $50.4 million for the three and six months ended June 30, 2001 compared with $43.1 million and $89.6 million for the same respective periods a year earlier. The decline is the result of fewer contracts in securitization transactions treated as sales. This decline was partially offset by a 22% increase in servicing fee income resulting from a higher level of automobile contracts serviced.
Provision for credit losses was $39.6 million and $66.6 million for the three and six months ended June 30, 2001 compared with $15.2 million and $27.2 million for the same periods a year ago. The continued increase in provision for credit losses was primarily the result of a higher level of automobile contracts held on the balance sheet resulting from the company accounting for its securitization transactions as secured financings rather than sales. The allowance for credit losses as a percentage of owned loans outstanding was 1.9% at June 30, 2001 compared with 2.1% at Dec. 31, 2000.
Annualized credit loss experience for the second quarter increased nine basis points to 1.95% of average managed automobile contracts compared with 1.86% for the first quarter of 2001 and 1.35% for the second quarter of 2000. For the six months ended June 30, 2001, credit loss experience increased 23 basis points to 1.90% compared with 1.67% a year earlier. At the same time, the percentage of outstanding contracts 60 days or more delinquent improved slightly to 0.81% at June 30, 2001 compared with 0.86% at Dec. 31, 2000.
"The increase in credit loss experience is a natural result of a slowing economy," said Schaefer. "We are seeing higher level of repossessions, lower prices for automobiles at auction and a higher number of bankruptcies. As a result, we expect to continue to see somewhat higher levels of credit loss experience for the remainder of the year."
Noninterest expenses totaled $63.0 million and $124 million for the three and six months ended June 30, 2001 compared with $56.2 million and $112 million for the same respective periods a year ago. Noninterest expense as a percent of total revenues improved to 46% for the second quarter of 2001 compared with 53% for the same period a year earlier. For the six months ended June 30, 2001, noninterest expense as a percent of total revenues improved to 48% compared with 53% for the same period a year ago.
The financial schedules attached to this earnings release include tables presenting pro forma portfolio basis statements of income. These statements present the company's results under the assumption that all its securitization transactions were treated as secured financings rather than sales. The company believes that such a presentation is an important performance measure of its operations and believes that these portfolio basis statements assist in better understanding its business.
If treated as secured financings, no gain on sale or subsequent contractual servicing and retained interest income is recognized. Instead, the earnings of the contracts in the securitization trusts and related financing costs are reflected over the life of the underlying pool of contracts. On a portfolio basis, Westcorp earned $23.9 million, or $0.71 per diluted share for the second quarter of 2001 compared with $23.9 million, or $0.87 per diluted share for the same period a year earlier. For the six months ended June 30, 2001, Westcorp earned $45.4 million, or $1.38 per share compared with $43.9 million, or $1.62 per share for the same period a year ago.
"Differences between portfolio basis earnings and reported earnings during the years 2000 and 2001 represent the transitional effect of treating our newer securitization transactions as secured financings rather than sales," said Schaefer. "We expect that our reported earnings will ultimately rise up to our portfolio basis earnings as we continue to treat our future securitization transactions as secured financings."
Westcorp also announced the successful launching of its new, full service Internet banking Web site www.wfb.com by its subsidiary, Western Financial Bank. In its first quarter of operation, www.wfb.com generated more than 31,000 unique visitors to the site, resulting in more than $30.5 million in new deposits. "The results we experienced from the launching of our new Internet banking Web site significantly exceeded our growth expectations," said Schaefer.
Westcorp will host a conference call for analysts and investors at 8 a.m. (PDT) on Wednesday, July 25, 2001. As part of this conference call, Westcorp's management will discuss, at greater length, earnings results for the first quarter as well as management's outlook for the rest of 2001. For a live Internet broadcast of this conference call, go to the company's Web site to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call.
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30
2001 2000 2001 2000
(Dollars in thousands, except share and
per share amounts)
Interest income:
Loans, including
fees $ 198,731 $ 89,080 $ 371,374 $ 162,681
Other 36,869 36,962 76,893 64,250
TOTAL INTEREST
INCOME 235,600 126,042 448,267 226,931
Interest expense:
Deposits 32,247 31,000 65,752 59,813
Notes payable on
automobile
secured
financing 81,008 14,886 154,017 24,689
Other 13,395 20,444 26,308 31,892
TOTAL INTEREST
EXPENSE 126,650 66,330 246,077 116,394
NET INTEREST
INCOME 108,950 59,712 202,190 110,537
Provision for
credit losses 39,640 15,246 66,623 27,191
NET INTEREST INCOME
AFTER PROVISION
FOR CREDIT
LOSSES 69,310 44,466 135,567 83,346
Noninterest income:
Automobile
lending 23,428 43,062 50,363 89,561
Other 3,044 2,676 6,579 11,958
TOTAL NONINTEREST
INCOME 26,472 45,738 56,942 101,519
Noninterest expenses:
Salaries
and associate
benefits 37,931 34,109 73,608 68,296
Credit and
collections 6,443 4,796 12,861 10,261
Data
processing 4,947 4,050 9,436 8,042
Other 13,636 13,278 28,377 25,679
TOTAL NONINTEREST
EXPENSES 62,957 56,233 124,282 112,278
INCOME BEFORE
INCOME TAXES 32,825 33,971 68,227 72,587
Income taxes 12,515 13,541 26,848 29,689
INCOME BEFORE
MINORITY
INTEREST 20,310 20,430 41,379 42,898
Minority
interest in
earnings of
subsidiaries 3,421 2,873 6,782 5,499
INCOME BEFORE
EXTRAORDINARY
ITEM 16,889 17,557 34,597 37,399
Extraordinary
gain from early
extinguishment
of debt (net of
income taxes of
$6, $44, $11
and $158,
respectively) 8 61 16 218
NET INCOME $ 16,897 $ 17,618 $ 34,613 $ 37,617
Net income per
common share -- basic:
Income before
extraordinary
item $ 0.50 $ 0.64 $ 1.06 $ 1.38
Extraordinary
item 0.00 0.00 0.00 0.01
Net income $ 0.50 $ 0.64 $ 1.06 $ 1.39
Net income per
common share -- diluted:
Income before
extraordinary
item $ 0.50 $ 0.64 $ 1.05 $ 1.38
Extraordinary
item 0.00 0.00 0.00 0.01
Net income $ 0.50 $ 0.64 $ 1.05 $ 1.39
Weighted average
number of common
shares outstanding:
Basic 33,509,549 27,476,303 32,731,454 27,036,823
Diluted 33,753,794 27,478,055 32,920,043 27,044,660
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
June 30, 2001 Dec. 31, 2000
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 40,686 $ 128,763
Investment securities available for sale 9,953 10,734
Mortgage-backed securities available
for sale 2,386,345 2,230,448
Loans receivable 6,456,137 4,924,053
Allowance for credit losses (122,576) (104,006)
Loans receivable, net 6,333,561 4,820,047
Amounts due from trusts 231,426 357,051
Retained interest in securitized assets 80,602 111,558
Premises and equipment, net 83,055 83,991
Other assets 170,364 125,318
TOTAL ASSETS $ 9,335,992 $ 7,867,910
LIABILITIES
Deposits $ 2,248,173 $ 2,478,487
Notes payable on automobile
secured financing 5,198,550 3,473,377
Securities sold under agreements
to repurchase 157,761 178,821
Federal Home Loan Bank advances 391,492 409,570
Amounts held on behalf of trustee 386,558 494,858
Subordinated debentures 188,752 189,962
Notes payable 5,285 27,802
Other liabilities 108,971 71,221
TOTAL LIABILITIES 8,685,542 7,324,098
Minority interest 81,751 56,644
SHAREHOLDERS' EQUITY:
Common stock, (par value $1.00 per share;
authorized 45,000,000 shares; issued and
outstanding 35,777,703 shares in 2001 and
31,931,826 shares in 2000) 35,778 31,932
Paid-in capital 299,683 246,889
Retained earnings 250,652 223,163
Accumulated other comprehensive loss,
net of tax (17,414) (14,816)
TOTAL SHAREHOLDERS' EQUITY 568,699 487,168
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 9,335,992 $ 7,867,910
WESTCORP AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
LOAN ORIGINATIONS
Consumer $ 1,291,174 $ 1,085,832 $ 2,475,867 $ 2,058,579
Real estate 3,038 5,640 14,885 12,942
Commercial 80,718 68,970 132,486 126,657
Total $ 1,374,930 $ 1,160,442 $ 2,623,238 $ 2,198,178
INTEREST RATE SPREAD -- OWNED LOANS
Yield on
interest-earning
assets 11.12% 10.18% 11.11% 10.11%
Cost of
interest-bearing
liabilities 6.33 6.08 6.46 5.90
Interest spread 4.79% 4.10% 4.65% 4.21%
OWNED LOAN LOSS EXPERIENCE
Consumer 1.75% 1.18% 1.73% 1.27%
Real estate 0.43 0.10 0.27 0.21
Total 1.62% 0.92% 1.57% 0.99%
June 30, 2001 Dec. 31, 2000
Amount Percent Amount Percent
OWNED LOAN DELINQUENCY 60+
Consumer $ 40,443 0.7% $ 30,157 0.7%
Real estate 8,276 1.9 7,754 1.5
Commercial 3,178 3.6
Total $ 51,897 0.8% $ 37,911 0.8%
June 30, Dec. 31,
2001 2000
MANAGED PORTFOLIO
Consumer $ 7,618,913 $ 6,822,167
Real estate 402,989 468,653
Commercial 134,746 165,709
Total $ 8,156,648 $ 7,456,529
WESTCORP AND SUBSIDIARIES
PORTFOLIO BASIS STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
(Dollars in thousands, except per share amounts)
Interest
income $ 295,845 $ 244,633 $ 580,625 $ 464,967
Interest
expense 162,663 132,818 324,966 245,881
Net interest
income 133,182 111,815 255,659 219,086
Net
chargeoffs (1) 36,580 19,978 69,247 48,066
Provision for
growth (2) 7,192 7,595 12,799 12,406
Provision for
credit losses 43,772 27,573 82,046 60,472
Net interest
income after
provision for
credit losses 89,410 84,242 173,613 158,614
Noninterest
income 20,097 16,678 40,365 39,742
Noninterest
expense 62,988 54,305 124,333 112,930
Income before
income tax 46,519 46,615 89,645 85,426
Income tax (3) 17,735 18,581 35,195 34,810
Income before
minority
interest 28,784 28,034 54,450 50,616
Minority
interest 4,942 4,222 9,109 6,907
Income before
extraordinary
item 23,842 23,812 45,341 43,709
Extraordinary
gain from early
extinguishment
of debt 8 61 16 218
Portfolio basis
net income $ 23,850 $ 23,873 $ 45,357 $ 43,927
Portfolio basis
net income per
common share -- diluted:
Income before
extraordinary
item $ 0.71 $ 0.87 $ 1.38 $ 1.61
Extraordinary
item 0.00 0.00 0.00 0.01
Net income $ 0.71 $ 0.87 $ 1.38 $ 1.62
(1) Represents actual chargeoffs incurred during the period, net of
recoveries.
(2) Represents additional allowance for credit losses the company
would set aside due to an increase in the managed contract
portfolio.
(3) Such tax effect is based upon the company's tax rate for the
respective period.
WESTCORP AND SUBSIDIARIES
RECONCILIATION OF GAAP BASIS NET INCOME TO PORTFOLIO BASIS NET INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
(Dollars in thousands)
GAAP basis net
income $ 16,897 $ 17,618 $ 34,613 $ 37,617
Portfolio basis adjustments:
Gain on sales of contracts (7,719)
Retained interest
income (241) (17,616) (13,500) (30,932)
Contractual
servicing
income (6,135) (11,444) (3,077) (23,127)
Net interest
income 24,232 52,307 53,469 108,800
Provision for
credit losses (4,131) (12,329) (15,423) (33,281)
Operating
expenses (31) 1,723 (51) (905)
Minority
interest (1,521) (1,346) (2,327) (1,405)
Total portfolio
basis
adjustments 12,173 11,295 19,091 11,431
Net tax
effect (1) 5,220 5,040 8,347 5,121
Portfolio basis
net income $ 23,850 $ 23,873 $ 45,357 $ 43,927
(1) Such tax effect is based upon the company's tax rate for the
respective period.
WESTCORP AND SUBSIDIARIES
CUMULATIVE STATIC POOL LOSS CURVES (UNAUDITED)
AT JUNE 30, 2001
Period 1997-C 1997-D 1998-A 1998-B 1998-C 1999-A 1999-B 1999-C 2000-A
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.05% 0.05% 0.04% 0.02% 0.04% 0.04% 0.04% 0.02% 0.03%
3 0.12% 0.14% 0.11% 0.08% 0.11% 0.11% 0.11% 0.10% 0.10%
4 0.29% 0.31% 0.25% 0.18% 0.23% 0.20% 0.26% 0.25% 0.20%
5 0.46% 0.56% 0.44% 0.38% 0.39% 0.33% 0.47% 0.40% 0.36%
6 0.67% 0.75% 0.66% 0.59% 0.50% 0.46% 0.66% 0.56% 0.55%
7 0.93% 0.99% 0.95% 0.83% 0.61% 0.62% 0.87% 0.71% 0.71%
8 1.16% 1.24% 1.23% 1.03% 0.75% 0.76% 1.00% 0.86% 0.91%
9 1.37% 1.47% 1.50% 1.21% 0.86% 0.92% 1.13% 1.01% 1.10%
10 1.66% 1.75% 1.79% 1.40% 1.00% 1.11% 1.24% 1.14% 1.27%
11 1.94% 2.06% 2.03% 1.53% 1.17% 1.30% 1.35% 1.34% 1.45%
12 2.16% 2.35% 2.21% 1.62% 1.32% 1.47% 1.44% 1.52% 1.58%
13 2.40% 2.63% 2.39% 1.74% 1.48% 1.61% 1.58% 1.74% 1.73%
14 2.65% 2.86% 2.49% 1.84% 1.66% 1.73% 1.74% 1.94% 1.85%
15 2.90% 3.05% 2.60% 1.96% 1.79% 1.81% 1.85% 2.09% 2.00%
16 3.15% 3.19% 2.72% 2.10% 1.91% 1.89% 2.03% 2.27% 2.15%
17 3.36% 3.32% 2.85% 2.22% 2.01% 2.00% 2.16% 2.39%
18 3.55% 3.42% 2.98% 2.40% 2.07% 2.10% 2.30% 2.53%
19 3.70% 3.50% 3.11% 2.55% 2.11% 2.24% 2.42% 2.67%
20 3.81% 3.60% 3.25% 2.69% 2.17% 2.35% 2.50% 2.81%
21 3.91% 3.69% 3.35% 2.79% 2.24% 2.46% 2.58% 2.92%
22 4.00% 3.81% 3.48% 2.85% 2.34% 2.55% 2.67%
23 4.11% 3.96% 3.62% 2.89% 2.43% 2.63% 2.77%
24 4.21% 4.10% 3.70% 2.92% 2.52% 2.71% 2.87%
25 4.30% 4.23% 3.75% 2.97% 2.62% 2.77%
26 4.44% 4.34% 3.80% 3.04% 2.71% 2.82%
27 4.56% 4.44% 3.87% 3.13% 2.80% 2.89%
28 4.66% 4.51% 3.92% 3.18% 2.87% 2.96%
29 4.77% 4.54% 3.98% 3.24% 2.90% 3.02%
30 4.79% 4.56% 4.06% 3.32% 2.95%
31 4.83% 4.57% 4.11% 3.38% 2.30%
32 4.86% 4.63% 4.17% 3.43% 2.32%
33 4.88% 4.67% 4.22% 3.47%
34 4.90% 4.71% 4.27% 3.48%
35 4.92% 4.76% 4.32% 3.52%
36 4.98% 4.80% 4.34% 3.54%
37 5.01% 4.84% 4.35% 3.58%
38 5.06% 4.89% 4.38%
39 5.10% 4.92% 4.39%
40 5.14% 4.92% 4.43%
41 5.17% 4.93%
42 5.17% 4.95%
43 5.17% 4.97%
44 5.17%
45 5.19%
46 5.20%
47
48
49
50
51
52
53
54
55
Prime 53% 49% 57% 67% 70% 70% 70% 67% 69%
WESTCORP AND SUBSIDIARIES
CUMULATIVE STATIC POOL LOSS CURVES (UNAUDITED)
AT JUNE 30, 2001
Period 2000-B 2000-C 2000-D 2001-A 2001-B
1 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.02% 0.04% 0.04% 0.03% 0.03%
3 0.09% 0.13% 0.11% 0.09%
4 0.24% 0.27% 0.24% 0.20%
5 0.39% 0.46% 0.39% 0.33%
6 0.59% 0.65% 0.54%
7 0.78% 0.81% 0.74%
8 0.99% 0.93% 0.93%
9 1.17% 1.07%
10 1.33% 1.24%
11 1.44% 1.41%
12 1.57%
13 1.72%
14 1.86%
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Prime 69% 68% 70% 72% 73%