WFS Financial Reports Record Second Quarter Net Income
IRVINE, Calif.--July 24, 2001--WFS Financial Inc today reported record net income of $19.5 million, or $0.63 per diluted share for the second quarter of 2001 compared with $16.1 million, or $0.57 per diluted share for the same period a year earlier.On a comparative basis, net income increased 21% and earnings per share rose 11%. For the six months ended June 30, 2001, the company recorded net income of $38.3 million, or $1.28 per diluted share compared with $30.9 million, or $1.10 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 22% dilution in shares outstanding resulting from the issuance of an additional 6.4 million shares through the successful completion of a rights offering by WFS 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, chief executive officer of WFS. "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, WFS' portfolio of serviced contracts reached $7.6 billion at June 30, 2001, up from $6.8 billion at Dec. 31, 2000.
During the second quarter, WFS sold $1.4 billion of automobile contracts on a whole loan basis to an affiliate of WFS' ultimate parent, Westcorp. As a result of this transaction, WFS recorded a cash gain on sale of $6.7 million. WFS will continue to service these contracts.
"This transaction enhances the regulatory capital levels of our parent, Western Financial Bank, by efficiently utilizing additional capital raised by Westcorp through its rights offering completed this quarter. In turn, we will continue to have the regulatory capital and liquidity support needed for our continued origination growth," said Schaefer.
Total revenues grew 32% and 26%, respectively, for the three and six months ended June 30, 2001 to $117 million and $220 million compared with $89.1 million and $174 million for the same periods a year earlier.
Net interest income increased to $68.9 million and $134 million for the three and six months ended June 30, 2001 compared with $45 million and $82.3 million for the same periods a year earlier. With four of the past six securitization transactions accounted for as secured financings, net interest income has significantly increased as more automobile contracts are held on the balance sheet and as the company originated contracts at significantly higher net interest margins.
The net interest spread for the last two securitization transactions issued by the company was more than 970 basis points, a full 215 basis points better than the average interest margins on securitizations issued last year.
Total servicing income declined to $41.8 million and $78.5 million for the three and six months ended June 30, 2001 compared with $44.1 million and $83.8 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 contracts serviced.
For the six months ended June 30, 2001, cash gains totaled $6.7 million compared with $7.7 million of cash and non-cash gains during the same period a year earlier. Total gain on sale of contracts represented only 3% of total revenues compared with 4% a year earlier.
Provision for credit losses was $32 million and $52.1 million for the three and six months ended June 30, 2001 compared with $14.9 million and $26.5 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 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 contracts outstanding was 2.5% at June 30, 2001 compared with 2.3% 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."
Operating expenses totaled $53 million or 2.9% of average serviced contracts for the second quarter of 2001 compared with $47.4 million or 3.2% for the same period a year ago. For the six months ended June 30, 2001, operating expenses totaled $104 million or 2.9% compared with $95 million or 3.4% for the same period a year ago.
Operating expenses as a percent of total revenues improved to 45% for the second quarter of 2001 compared with 53% for the same period a year earlier. For the six months ended June 30, 2001, operating expenses as a percent of total revenue improved to 47% compared with 55% 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 whole loan sales and securitization transactions are 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 securitization trusts and related financing costs are reflected over the life of the underlying pool of contracts.
On a portfolio basis, WFS earned $27.9 million, or $0.90 per diluted share for the second quarter of 2001 compared with $23.7 million, or $0.83 per diluted share for the same period a year earlier. For the six months ended June 30, 2001, WFS earned $51.2 million, or $1.72 per diluted share compared with $39.6 million, or $1.41 per diluted 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 securitization transactions as secured financings rather than sales," said Schaefer. "Ultimately, our reported earnings will approach our portfolio basis earnings as we continue to treat future securitization transactions as secured financings."
WFS will host a conference call for analysts and investors at 9 a.m. (PDT) on Wednesday, July 25, 2001. As part of this conference call, WFS management will discuss, at greater length, earnings results for the second quarter as well as management's outlook for the rest of 2001.
WFS FINANCIAL INC 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)
REVENUES:
Interest income $ 124,586 $ 76,289 $ 246,915 $ 137,314
Interest expense 55,642 31,301 112,594 55,013
Net interest income 68,944 44,988 134,321 82,301
Servicing income 41,776 44,128 78,532 83,818
Gain on sale of contracts 6,741 6,741 7,719
TOTAL REVENUES 117,461 89,116 219,594 173,838
EXPENSES:
Provision for credit losses 32,026 14,857 52,093 26,534
Operating expenses:
Salaries and associate
benefits 34,150 30,116 65,450 60,719
Credit and collections 6,394 4,760 12,797 10,169
Data processing 4,644 3,823 8,867 7,668
Miscellaneous 7,796 8,654 16,561 16,493
TOTAL OPERATING EXPENSES 52,984 47,353 103,675 95,049
TOTAL EXPENSES 85,010 62,210 155,768 121,583
INCOME BEFORE INCOME TAX 32,451 26,906 63,826 52,255
Income tax 12,908 10,759 25,515 21,342
NET INCOME $ 19,543 $ 16,147 $ 38,311 $ 30,913
Net income per common share:
Basic $ 0.63 $ 0.57 $ 1.29 $ 1.11
Diluted $ 0.63 $ 0.57 $ 1.28 $ 1.10
Weighted average number of
common shares outstanding:
Basic 31,044,368 28,423,382 29,757,246 27,923,931
Diluted 31,137,409 28,550,750 29,847,659 28,048,805
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
June 30, 2001 Dec. 31, 2000
(Dollars in thousands)
ASSETS
Cash and short-term investments $ 154,460 $ 25,296
Investment securities available for sale 5,513 6,517
Contracts receivable 3,603,285 3,049,475
Allowance for credit losses (90,775) (71,308)
Contracts receivable, net 3,512,510 2,978,167
Amounts due from trusts 256,184 366,125
Retained interest in securitized assets 80,602 111,558
Premises and equipment, net 36,277 36,526
Accrued interest receivable 25,538 23,116
Other assets 27,689 27,832
TOTAL ASSETS $ 4,098,773 $ 3,575,137
LIABILITIES
Secured lines of credit -- parent $ 235,984
Notes payable on automobile secured
financing $ 2,826,729 2,249,363
Notes payable -- parent 146,219 146,219
Amounts held on behalf of trustee 611,034 590,715
Other liabilities 52,963 35,651
TOTAL LIABILITIES 3,636,945 3,257,932
SHAREHOLDERS' EQUITY
Common stock, (no par value; authorized
50 million shares; issued and
outstanding 34,816,270 shares
in 2001 and 28,446,837 in 2000) 227,536 112,070
Paid-in capital 4,337 4,337
Retained earnings 239,373 201,062
Accumulated other comprehensive loss,
net of tax (9,418) (264)
TOTAL SHAREHOLDERS' EQUITY 461,828 317,205
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 4,098,773 $ 3,575,137
WFS FINANCIAL INC AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
CONTRACT ORIGINATIONS $1,287,375 $1,081,865 $2,469,806 $2,052,346
Contract sales $1,370,000 $1,370,000 $ 660,000
Secured financing $1,000,000 1,000,000 1,540,000
CONTRACT SALES AND
SECURITIZATIONS $1,370,000 $1,000,000 $2,370,000 $2,200,000
MANAGED DELINQUENCY June 30, 2001 Dec. 31, 2000
Amount Percent Amount Percent
Contracts managed at
end of period $7,617,921 $6,818,182
Total contracts 60 days
or more delinquent $ 62,160 0.81% $ 59,166 0.86%
MANAGED CONTRACTS Three Months Ended Six Months Ended
LOSS EXPERIENCE June 30, June 30,
2001 2000 2001 2000
Contracts managed at end
of period $7,617,921 $6,071,044 $7,617,921 $6,071,044
Average contracts managed
during the period $7,408,488 $5,842,731 $7,203,585 $5,661,430
Gross charge offs $ 50,711 $ 31,747 $ 98,937 $ 72,699
Recoveries 14,585 11,987 30,330 25,475
Net charge offs $ 36,126 $ 19,760 $ 68,607 $ 47,224
Net charge offs as a
percentage of average
managed contracts
outstanding during
period 1.95% 1.35% 1.90% 1.67%
WFS FINANCIAL INC 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 $ 249,456 $ 194,881 $ 482,706 $ 375,351
Interest expense 124,615 97,720 247,691 184,596
Net interest income 124,841 97,161 235,015 190,755
Net chargeoffs (a) 36,127 19,760 68,608 47,226
Provision for growth (b) 7,141 7,424 12,748 12,589
Provision for credit losses 43,268 27,184 81,356 59,815
Net interest income after
provision for credit losses 81,573 69,977 153,659 130,940
Other income 18,438 15,068 36,440 29,760
Operating expenses 53,657 45,496 104,836 94,608
Income before income tax 46,354 39,549 85,263 66,092
Income tax (c) 18,438 15,815 34,072 26,480
Portfolio basis net income$ 27,916 $ 23,734 $ 51,191 $ 39,612
Portfolio basis net income
per common share --
diluted $ 0.90 $ 0.83 $ 1.72 $ 1.41
(a) Represents actual chargeoffs incurred during the period, net
of recoveries.
(b) Represents additional allowance for credit losses that would
be set aside due to an increase in the serviced portfolio.
(c) Such tax effect is based upon our tax rate for the respective
period.
WFS FINANCIAL INC AND SUBSIDIARIES
PORTFOLIO BASIS YIELD TABLE
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2001(a) 2000(a) 2001(a) 2000(a)
Interest income 13.5% 13.3% 13.4% 13.3%
Interest expense 6.8 6.7 6.9 6.5
Net interest income 6.7 6.6 6.5 6.8
Net chargeoffs 2.0 1.4 1.9 1.7
Provision for growth 0.4 0.5 0.4 0.4
Provision for credit losses 2.4 1.9 2.3 2.1
Net interest income after
provision for credit losses 4.3 4.7 4.2 4.7
Other income 1.0 1.0 1.0 1.1
Operating expenses 2.9 3.1 2.9 3.4
Income before income tax 2.4 2.6 2.3 2.4
Income tax 1.0 1.1 1.0 0.9
Portfolio basis net income 1.4% 1.5% 1.3% 1.5%
Average managed contracts $7,408,488 $5,842,731 $7,203,585 $5,661,430
(a) Rates are calculated by dividing amounts by average managed
contracts for the respective periods.
WFS FINANCIAL INC 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 $ 19,543 $ 16,147 $ 38,311 $ 30,913
Portfolio basis adjustments:
Gain on sales of contracts (6,741) (6,741) (7,719)
Retained interest income (241) (17,616) (39,015) (30,932)
Contractual servicing
income (23,098) (11,444) (3,077) (23,127)
Net interest income 55,897 52,307 100,693 108,604
Provision for credit losses(11,242) (12,327) (29,262) (33,281)
Operating expenses (672) 1,723 (1,161) 291
Total portfolio basis
adjustments 13,903 12,643 21,437 13,836
Net tax effect (a) 5,530 5,056 8,557 5,137
Portfolio basis net
income $ 27,916 $ 23,734 $ 51,191 $ 39,612
(a) Such tax is based on our tax rate for the respective period.
WFS FINANCIAL INC 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
Mix 53% 49% 57% 67% 70% 70% 70% 67% 69%
WFS FINANCIAL INC 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
Mix 69% 68% 70% 72% 73%