Westcorp Reports Third Quarter Net Income
IRVINE, Calif.--Oct. 16, 2001--Westcorp , the financial services holding company whose principal subsidiaries are WFS Financial Inc and Western Financial Bank, today reported net income of $8.2 million, or $0.23 per diluted share for the third quarter of 2001 compared with $18.2 million, or $0.57 per diluted share for the same period a year ago.For the nine months ended Sept. 30, 2001, the company recorded net income of $42.8 million, or $1.26 per diluted share compared with $55.8 million, or $1.95 per diluted share for the same period a year earlier. Earnings per share for both the three and nine months ended Sept. 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 of the year.
As previously announced, reported earnings in the third quarter were also affected by the company recording $27 million in provisions for credit losses in excess of chargeoffs as well as an additional $11 million in residual interest asset amortization expense. These non-cash charges impacted third quarter earnings by $0.62 per diluted share.
"We actively added provisions for credit losses and increased the rate of amortization on our residual interest assets," said Joy Schaefer, president of Westcorp. "These non-cash amounts ensure that we continue to maintain a strong balance sheet as we experience the effects of the continued weakness in the economy, which has been exacerbated by the tragic events of September 11th."
Earnings on a portfolio basis grew to $29.6 million, or $0.82 per diluted share for the third quarter of 2001 compared with $23.6 million, or $0.74 per diluted share for the same period a year earlier. For the nine months ended Sept. 30, 2001, the company earned $74.9 million, or $2.20 per diluted share compared with $67.5 million, or $2.35 per diluted share for the same period a year ago.
Ultimately, reported earnings will approach portfolio basis earnings as the company continues to treat future securitization transactions as secured financings.
"Portfolio basis earnings are not impacted by the non-cash amortization expense of the residual interest asset recorded on a GAAP basis nor are they impacted by the higher provision for credit losses resulting from the transitional effect of treating securitization transactions as secured financings rather than sales," said Schaefer. "Portfolio basis earnings are a very important performance measure of our operations while we continue to make this transition, as we believe they reflect the underlying economics of our entire portfolio, including our higher credit loss experience."
The weakness in the economy has led to higher credit losses due to a higher number of repossessions and bankruptcies as well as lower wholesale prices for automobiles at auction. As a result, annualized credit loss experience on automobile contracts for the third quarter increased 37 basis points to 2.30% of average managed automobile contracts compared with 1.93% for the same period a year ago.
For the nine months ended Sept. 30, 2001, credit loss experience increased 28 basis points to 2.04% compared with 1.76% a year earlier. The percentage of automobile contracts outstanding 30 days or more delinquent improved 12 basis points to 3.06% at Sept. 30, 2001 compared with 3.18% at Dec. 31, 2000.
"We anticipate automobile credit losses to be no more than 3.0% in the fourth quarter and then improve and stabilize in 2002," said Schaefer. "Our previously announced shift to a greater focus on prime credit quality automobile contracts and new originations based on lower car values will minimize the long-term effects of the slow-down on our portfolio going forward."
Automobile contract purchases totaled $1.3 billion for the third quarter of 2001, an 8% increase from the $1.2 billion of automobile contracts purchased during the third quarter of 2000. For the year to date, automobile contract purchases increased 16% to $3.7 billion when compared with the same period a year ago. As a result of higher contract originations, the company's portfolio of managed contracts reached $8 billion at Sept. 30, 2001, up from $6.8 billion at Dec. 31, 2000.
Total revenues grew 18% and 21%, respectively, for the three and nine months ended Sept. 30, 2001 to $136 million and $395 million compared with $115 million and $327 million for the same periods a year earlier.
Net interest income increased to $128 million and $330 million for the three and nine months ended Sept. 30, 2001 compared with $74 million and $184 million for the same periods a year earlier. The net interest spread for the last three securitization transactions issued by the company was more than 900 basis points, a full 170 basis points better than the average interest margins on securitization transactions issued last year.
Net interest margins for the three and nine months ended Sept. 30, 2001 were 5.15% and 4.74% compared with 4.34% and 4.27% for the same respective periods a year earlier.
"Net interest income continues to increase as more automobile contracts are held on the balance sheet and at significantly higher net interest margins," said Schaefer.
Total noninterest income declined to $8.3 million and $65.3 million for the three and nine months ended Sept. 30, 2001 compared with $41.2 million and $143 million for the same respective periods a year earlier. This decline was the result of no longer treating securitization transactions as sales. This decline was partially offset by a 7% increase in servicing fee income resulting from a higher level of automobile contracts serviced.
Provision for credit losses was $60.5 million and $127 million for the three and nine months ended Sept. 30, 2001 compared with $24.9 million and $52.1 million for the same periods a year ago. The significant increase in provision for credit losses was 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 and the slow-down in the economy. The allowance for credit losses as a percentage of owned loans outstanding was 2.1% at Sept. 30, 2001 compared with 2.1% at Dec. 31, 2000.
Noninterest expenses totaled $59.9 million and $184 million for the three and nine months ended Sept. 30, 2001 compared with $54.1 million and $166 million for the same respective periods a year ago. Noninterest expenses as a percent of total revenues improved to 44% for the third quarter of 2001 compared with 47% for the same period a year earlier. For the nine months ended Sept. 30, 2001, noninterest expenses as a percent of total revenues improved to 47% compared with 51% for the same period a year ago.
Westcorp will host a conference call for analysts and investors at 8 a.m. (PDT) on Wednesday, Oct. 17, 2001. As part of this conference call, Westcorp management will discuss, at greater length, earnings results for the third quarter as well as management's outlook for the rest of 2001 and 2002. 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 is a financial services holding company whose principal subsidiaries are WFS Financial Inc and Western Financial Bank. Westcorp is a publicly owned company whose common stock is traded on the New York Stock Exchange under the symbol WES. Information about Westcorp can be found at its Web site at http://westcorpinc.com.
Westcorp, through its subsidiary, WFS, is one of the nation's largest independent automobile finance companies. WFS specializes in originating, securitizing, and servicing new and pre-owned prime and non-prime credit quality automobile contracts through its nationwide relationships with automobile dealers. Information about WFS can be found at its Web site at http://www.wfsfinancial.com.
Westcorp, through its subsidiary, Western Financial Bank, operates 25 retail bank branches throughout California and provides commercial banking services in Southern California. Information on the products and services offered by the bank can be found at its Web site at http://www.wfb.com.
This news release contains forward-looking statements. These forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ significantly from historical results or from those anticipated by Westcorp. The most significant risks and uncertainties the company faces are the level of chargeoffs, as an increase in the level of chargeoffs will decrease its earnings; the Company's ability to originate new contracts in a sufficient amount to reach its needs, as a decrease in the amount of contracts it originates will decrease its earnings; a decrease in the difference between the average interest rate the company receives on contracts it originates and the rate of interest it must pay to fund such contracts, as a decrease will reduce its earnings; the continued availability of sources of funding for its operations, as a reduction in the availability of funding will reduce its ability to originate contracts; the level of notes treated as secured financings, as the level will impact the timing of revenue recognized; and the level of operating costs, as an increase in those costs will reduce its net earnings.
There are other risks and uncertainties the company faces, including the effect of world events or changes in general economic conditions and the effect of new laws, regulations and court decisions. You are cautioned not to place reliance on forward-looking statements. You should carefully review the factors referred to above and other documents we file from time to time with the Securities and Exchange Commission, including quarterly reports on Form 10-Q and annual reports on Form 10-K.
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30
2001 2000 2001 2000
(Dollars in thousands, except share and per share amounts)
Interest income:
Loans,
including
fees $ 218,910 $ 124,105 $ 590,284 $ 286,696
Other 34,131 40,640 111,024 104,890
TOTAL INTEREST
INCOME 253,041 164,655 701,308 391,586
Interest expense:
Deposits 26,370 35,604 92,123 95,418
Notes payable
on automobile
secured
financing 90,464 38,698 244,482 63,387
Other 8,564 16,396 34,871 48,287
TOTAL INTEREST
EXPENSE 125,398 90,698 371,476 207,092
NET INTEREST
INCOME 127,643 73,957 329,832 184,494
Provision
for credit
losses 60,501 24,906 127,124 52,097
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT
LOSSES 67,142 49,051 202,708 132,397
Noninterest income:
Automobile
lending 3,948 37,923 54,311 127,484
Other 4,378 3,256 10,956 15,214
TOTAL NONINTEREST
INCOME 8,326 41,179 65,267 142,698
Noninterest expenses:
Salaries and
associate
benefits 33,804 32,208 107,412 100,503
Credit and
collections 7,468 5,367 20,329 15,628
Data
processing 4,176 4,384 13,612 12,426
Other 14,432 12,129 42,809 37,809
TOTAL NONINTEREST
EXPENSES 59,880 54,088 184,162 166,366
INCOME BEFORE
INCOME TAXES 15,588 36,142 83,813 108,729
Income taxes 6,119 14,911 32,967 44,600
INCOME BEFORE MINORITY
INTEREST 9,469 21,231 50,846 64,129
Minority interest
in earnings of
subsidiaries 1,255 3,082 8,036 8,580
INCOME BEFORE EXTRAORDINARY
ITEM 8,214 18,149 42,810 55,549
Extraordinary
gain from early
extinguishment
of debt (net of
income taxes of
$12, $11 and $169,
respectively) 16 16 234
NET INCOME $ 8,214 $ 18,165 $ 42,826 $ 55,783
Net income per
common share -- basic:
Income before
extraordinary
item $ 0.23 $ 0.57 $ 1.27 $ 1.94
Extraordinary
item 0.00 0.00 0.00 0.01
Net income $ 0.23 $ 0.57 $ 1.27 $ 1.95
Net income per
common share -- diluted:
Income before
extraordinary
item $ 0.23 $ 0.57 $ 1.26 $ 1.94
Extraordinary
item 0.00 0.00 0.00 0.01
Net income $ 0.23 $ 0.57 $ 1.26 $ 1.94
Weighted average
number of common
shares outstanding:
Basic 35,792,418 31,922,008 33,765,085 28,677,101
Diluted 36,091,155 31,944,528 33,987,939 28,689,820
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
Sept. 30, 2001 Dec. 31, 2000
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 132,078 $ 128,763
Investment securities available for sale 10,752 10,734
Mortgage-backed securities available
for sale 2,220,637 2,230,448
Loans receivable 7,118,697 4,924,053
Allowance for credit losses (148,501) (104,006)
Loans receivable, net 6,970,196 4,820,047
Amounts due from trusts 168,989 357,051
Retained interest in securitized
assets 54,117 111,558
Premises and equipment, net 81,223 83,991
Other assets 264,086 125,318
TOTAL ASSETS $ 9,902,078 $ 7,867,910
LIABILITIES
Deposits $ 2,299,771 $ 2,478,487
Notes payable on automobile secured
financing 5,867,653 3,473,377
Securities sold under agreements to
repurchase 141,405 178,821
Federal Home Loan Bank advances 390,456 409,570
Amounts held on behalf of trustee 320,000 494,858
Subordinated debentures 147,779 189,962
Notes payable 5,177 27,802
Other liabilities 127,628 71,221
TOTAL LIABILITIES 9,299,869 7,324,098
Minority interest 75,925 56,644
SHAREHOLDERS' EQUITY:
Common stock, (par value $1.00 per
share; authorized 45,000,000 shares;
issued and outstanding 35,796,904
shares in 2001 and 31,931,826 shares
in 2000) 35,797 31,932
Paid-in capital 307,000 246,889
Retained earnings 254,927 223,163
Accumulated other comprehensive loss,
net of tax (71,440) (14,816)
TOTAL SHAREHOLDERS' EQUITY 526,284 487,168
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 9,902,078 $ 7,867,910
WESTCORP AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2001 2000 2001 2000
LOAN ORIGINATIONS
Consumer $ 1,265,209 $ 1,174,497 $ 3,741,076 $ 3,233,076
Real estate 3,442 11,082 18,328 24,024
Commercial 85,616 68,605 218,101 195,262
Total $ 1,354,267 $ 1,254,184 $ 3,977,505 $ 3,452,362
INTEREST RATE SPREAD -- OWNED LOANS
Yield on
interest-earning
assets 11.00% 10.94% 11.08% 10.45%
Cost of
interest-bearing
liabilities 5.85 6.60 6.34 6.18
Interest spread 5.15% 4.34% 4.74% 4.27%
OWNED LOAN LOSS EXPERIENCE
Consumer 2.13% 1.41% 1.88% 1.33%
Real estate 0.22 0.11 0.26 0.18
Total 1.98% 1.18% 1.72% 1.07%
Sept. 30, 2001 Dec. 31, 2000
Amount Percent Amount Percent
OWNED LOAN DELINQUENCY 60+
Consumer $ 50,145 0.8% $ 30,157 0.7%
Real estate 7,295 1.8 7,754 1.5
Commercial 4,362 4.6
Total $ 61,802 0.9% $ 37,911 0.8%
Sept. 30, Dec. 31,
2001 2000
MANAGED PORTFOLIO
Consumer $ 7,979,369 $ 6,822,167
Real estate 371,439 468,653
Commercial 138,603 165,709
Total $ 8,489,411 $ 7,456,529
WESTCORP AND SUBSIDIARIES
PORTFOLIO BASIS STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2001 2000 2001 2000
(Dollars in thousands, except per share amounts)
Interest
income $ 304,087 $ 266,541 $ 884,712 $ 731,508
Interest
expense 156,828 147,760 481,794 393,641
Net interest
income 147,259 118,781 402,918 337,867
Net
chargeoffs (1) 44,995 30,559 114,242 78,625
Provision for
growth (2) 5,725 6,122 18,524 18,528
Provision for
credit losses 50,720 36,681 132,766 97,153
Net interest
income after
provision for
credit losses 96,539 82,100 270,152 240,714
Noninterest
income 20,981 18,739 61,345 58,481
Noninterest
expense 59,902 53,936 184,235 166,867
Income before
income tax 57,618 46,903 147,262 132,328
Income tax (3) 22,619 19,351 57,813 54,161
Income before
minority
interest 34,999 27,552 89,449 78,167
Minority
interest (4) 5,432 3,992 14,541 10,861
Income before
extraordinary
item 29,567 23,560 74,908 67,306
Extraordinary
gain from early
extinguishment
of debt 16 16 234
Portfolio
basis net
income $ 29,567 $ 23,576 $ 74,924 $ 67,540
Portfolio basis
net income per
common share -- diluted:
Income before
extraordinary
item $ 0.82 $ 0.74 $ 2.20 $ 2.34
Extraordinary item 0.01
Net income $ 0.82 $ 0.74 $ 2.20 $ 2.35
(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.
(4) Adjusted to reflect reversal of purchase premium amortization
included in portfolio earnings results previously reported at WFS.
WESTCORP AND SUBSIDIARIES
RECONCILIATION OF GAAP BASIS NET INCOME TO PORTFOLIO BASIS NET INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2001 2000 2001 2000
(Dollars in thousands)
GAAP basis net
income $ 8,214 $ 18,165 $ 42,826 $ 55,783
Portfolio basis adjustments:
Gain on sales of contracts (7,719) (7,719)
Retained interest
income 17,867 (12,453) (18,712) (33,113)
Contractual
servicing
income (5,212) (9,986) 14,790 (43,385)
Net interest
income 19,616 45,021 73,086 153,821
Provision for
credit
losses 9,781 (11,775) (5,642) (45,056)
Operating
expenses (23) (46) (73) (950)
Minority
interest (4,177) (910) (6,505) (2,281)
Total portfolio
basis
adjustments 37,852 9,851 56,944 21,317
Net tax
effect (1) 16,499 4,440 24,846 9,560
Portfolio
basis net
income $ 29,567 $ 23,576 $ 74,924 $ 67,540
(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 SEPT. 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% 2.37%
18 3.55% 3.42% 2.98% 2.40% 2.07% 2.10% 2.30% 2.53% 2.52%
19 3.70% 3.50% 3.11% 2.55% 2.11% 2.24% 2.42% 2.67% 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% 3.10%
23 4.11% 3.96% 3.62% 2.89% 2.43% 2.63% 2.77% 3.28%
24 4.21% 4.10% 3.70% 2.92% 2.52% 2.71% 2.87% 3.38%
25 4.30% 4.23% 3.75% 2.97% 2.62% 2.77% 3.01%
26 4.44% 4.34% 3.80% 3.04% 2.71% 2.82% 3.14%
27 4.56% 4.44% 3.87% 3.13% 2.80% 2.89% 3.16%
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% 3.09%
31 4.83% 4.57% 4.11% 3.38% 3.00% 3.17%
32 4.86% 4.63% 4.17% 3.43% 3.02% 3.20%
33 4.88% 4.67% 4.22% 3.47% 3.08%
34 4.90% 4.71% 4.27% 3.48% 3.14%
35 4.92% 4.76% 4.32% 3.52% 3.15%
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% 3.63%
39 5.10% 4.92% 4.39% 3.66%
40 5.14% 4.92% 4.43% 3.65%
41 5.17% 4.93% 4.45%
42 5.17% 4.95% 4.50%
43 5.17% 4.97% 4.47%
44 5.17% 5.00%
45 5.19% 5.02%
46 5.20% 4.96%
47 5.22%
48 5.23%
49
50
Prime
Mix 53% 49% 57% 67% 70% 70% 70% 67% 69%
WESTCORP AND SUBSIDIARIES
CUMULATIVE STATIC POOL LOSS CURVES (UNAUDITED)
AT SEPT. 30, 2001
Period 2000-B 2000-C 2000-D 2001-A 2001-B 2001-C
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.02% 0.04% 0.04% 0.03% 0.03% 0.04%
3 0.09% 0.13% 0.11% 0.09% 0.10%
4 0.24% 0.27% 0.24% 0.20% 0.21%
5 0.39% 0.46% 0.39% 0.33% 0.33%
6 0.59% 0.65% 0.54% 0.50%
7 0.78% 0.81% 0.74% 0.70%
8 0.99% 0.93% 0.93% 0.84%
9 1.17% 1.07% 1.13%
10 1.33% 1.24% 1.34%
11 1.44% 1.41% 1.50%
12 1.57% 1.62%
13 1.72% 1.86%
14 1.86% 2.04%
15 2.04%
16 2.24%
17 2.39%
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Prime
Mix 69% 68% 70% 72% 73% 76%