Westcorp Reports First Quarter Earnings
IRVINE, Calif.--April 15, 2002--Westcorp , the financial services holding company whose principal subsidiaries are WFS Financial Inc and Western Financial Bank, today reported GAAP net income of $16.9 million, or $0.46 per diluted share for the first quarter of 2002 compared with $17.7 million, or $0.55 per diluted share for the same period a year ago.Earnings on a portfolio basis grew to $32.0 million, or $0.86 per diluted share for the first quarter of 2002 compared with $21.5 million, or $0.67 per diluted share for the same period a year earlier.
"Our strong first quarter results are indicative of our ability to successfully manage through various economic cycles such as the recent recession," said Tom Wolfe, President of Westcorp. "In addition, we achieved these results even as we strengthened our balance sheet by reducing the level of residual interest assets, increasing our allowance for credit losses and issuing additional equity."
Earnings per share for the quarter were also impacted by the 19% increase in shares outstanding resulting from the issuance of 3.8 million shares through a rights offering completed by the company during the second quarter of last year and the issuance of 3.3 million shares through a rights offering successfully completed in the first quarter of this year. The company raised a total of $112 million in additional capital from both of these offerings. This additional capital is designed to enhance shareholder value by supporting the growth the company continues to experience in its nationwide automobile finance business. For the quarter, total shareholders' equity increased by $71 million.
Automobile contract purchases totaled $1.3 billion for the first quarter of 2002, a 7% increase from the same period a year earlier. As a result of higher contract originations, the company's portfolio of automobile managed contracts reached $8.4 billion at March 31, 2002, up from $8.2 billion at Dec. 31, 2001.
Reported earnings also continued to be impacted by the transitional effects related to the elimination of off balance sheet accounting for securitization transactions. This includes $17 million in provisions for credit losses in excess of chargeoffs as the company continues to move its assets on balance sheet and $14 million of non-cash, residual interest asset amortization expense. The company has reduced its residual interest assets to $23 million at March 31, 2002 and expects this asset to be fully amortized no later than the end of the year.
Portfolio basis earnings treat all securitization transactions as on balance sheet transactions. Therefore, portfolio basis earnings are not impacted by the non-cash amortization expense of the residual interest asset recorded on a GAAP basis in connection with off balance sheet securitizations, nor are they impacted by higher provision for credit losses resulting from the transitional effect of treating newer securitization transactions as secured financings rather than sales.
Total revenues grew 29% for the three months ended March 31, 2002 to $159 million compared with $124 million for the same period a year earlier.
Net interest income increased 52% to $142 million for the three months ended March 31, 2002 compared with $93.2 million for the same period a year earlier. Net interest margin for the three months ended March 31, 2002 was 5.57% compared with 4.44% for the same period a year earlier. Net interest income increased as more automobile contracts were held on the balance sheet and higher net interest margins. Net interest margins also improved as the company was able to increase its percentage of low-rate, checking and money market amounts raised from consumers and mid-market business accounts. The percentage of low rate, checking and money market accounts to total deposits has increased to 40% at March 31, 2002 compared with 26% a year ago.
Total noninterest income, which includes income from off balance sheet securitization transactions, declined to $17.2 million for the three months ended March 31, 2002 compared with $30.5 million for the same period a year earlier. This decline was the result of the company no longer treating securitization transactions as sales.
Provision for credit losses totaled $65.7 million for the three months ended March 31, 2002 compared with $27.0 million for the same period 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 accounting for securitization transactions as secured financings rather than sales and the slowdown in the economy. The allowance for credit losses as a percentage of owned loans outstanding increased to 2.4% at March 31, 2002 compared with 2.3% at Dec. 31, 2001.
The percentage of outstanding contracts 30 days or more delinquent decreased 121 basis points to 2.51% at March 31, 2002 compared with 3.72% at Dec. 31, 2001. Annualized credit loss experience for the first quarter increased 90 basis points to 2.76% of average managed automobile contracts compared with 1.86% for the same period a year ago.
"We are beginning to see positive signs in our asset quality trends that suggest the worst part of the economic recession may be behind us," said Wolfe. "We experienced a lower than expected number of repossessions, higher resale prices at auctions and lower delinquencies in the portfolio for the first quarter. We expect to see further improvement in our asset quality trends during the rest of the year."
Noninterest expenses totaled $60.9 million for the three months ended March 31, 2002 compared with $61.3 million for the same period a year ago. Noninterest expenses as a percent of total revenues improved to 38% for the three months ended March 31, 2002 compared with 50% for the same period a year earlier.
Westcorp, along with its second tier subsidiary, WFS Financial will host a conference call for analysts and investors at 8 a.m. (PDT) on Tuesday, April 16, 2002. As part of this conference call, the company's management will discuss, at greater length, earnings results for the quarter as well as management's outlook for the remainder of 2002. For a live Internet broadcast of this conference call, go to the company's Web site http://www.westcorpinc.com 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.
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 24 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 within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to the company's future prospects, developments and business strategies. These statements are subject to uncertainties and factors relating to the company's operations and business environment, all of which are difficult to predict and many of which are beyond its control, that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements.
These forward-looking statement are identified by their use of terms and phrases as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," and similar terms and phrases, including references to assumptions.
The following factors are among those that may cause actual results to differ materially from the forward-looking statements:
| -- | Changes in general economic and business conditions; |
| -- | Interest rate fluctuations; |
| -- | The company's financial condition and liquidity, as well as future cash flow earnings; |
| -- | Competition; |
| -- | The company's level of operating expenses; |
| -- | The effect of new laws, regulations, court decisions or significant litigation; |
| -- | The availability of sources of funding; |
| -- | The level of chargeoffs on the automobile contracts that the company originates; and |
| -- | Other significant unexpected events. |
If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the company's actual results may vary materially from those expected, estimated or projected. The company does not undertake to update its forward-looking statements to reflect future events or circumstances.
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
2002 2001
(Dollars in thousands, except
per share amounts)
Interest income:
Loans, including fees $ 232,912 $ 172,642
Mortgage-back securities 28,013 37,352
Investment securities 88 121
Other 1,183 2,552
TOTAL INTEREST INCOME 262,196 212,667
Interest expense:
Deposits 21,010 33,506
Notes payable on automobile secured
financing and other 95,710 77,640
Short-term borrowings 3,350 8,281
TOTAL INTEREST EXPENSE 120,070 119,427
NET INTEREST INCOME 142,126 93,240
Provision for credit losses 65,698 26,982
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 76,428 66,258
Noninterest income:
Automobile lending 11,674 26,934
Mortgage banking 489 531
Insurance income 2,933 2,097
Miscellaneous 2,063 906
TOTAL NONINTEREST INCOME 17,159 30,468
Noninterest expenses:
Salaries and associate benefits 34,871 35,677
Credit and collections 8,077 6,418
Data processing 4,580 4,490
Occupancy 3,761 3,250
Telephone 1,507 1,466
Miscellaneous 8,063 10,024
TOTAL NONINTEREST EXPENSES 60,859 61,325
INCOME BEFORE INCOME TAXES 32,728 35,401
Income taxes 12,964 14,333
INCOME BEFORE MINORITY INTEREST 19,764 21,068
Minority interest in earnings of
subsidiaries 2,911 3,360
INCOME BEFORE EXTRAORDINARY ITEM 16,853 17,708
Extraordinary gain from early
extinguishment of debt
(net of income taxes of $6) 8
NET INCOME $ 16,853 $ 17,716
Net income per common share -- basic:
Income before extraordinary item $ 0.46 $ 0.55
Extraordinary item 0.00 0.00
Net income $ 0.46 $ 0.55
Net income per common share -- diluted:
Income before extraordinary item $ 0.46 $ 0.55
Extraordinary item 0.00 0.00
Net income $ 0.46 $ 0.55
Weighted average number of
common shares outstanding:
Basic 36,791,744 31,949,647
Diluted 36,980,861 32,120,274
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2002 Dec. 31, 2001
(Unaudited)
(Dollars in thousands)
ASSETS
Cash $ 53,963 $ 68,607
Interest bearing deposits with
other financial institutions 1,643 720
Other short-term investments 299,000 35,000
Cash and due from banks 354,606 104,327
Investment securities available
for sale 10,682 10,511
Mortgage-backed securities available
for sale 2,182,105 2,092,225
Loans receivable 7,976,152 7,533,150
Allowance for credit losses (188,263) (171,432)
Loans receivable, net 7,787,889 7,361,718
Amounts due from trusts 127,851 136,131
Retained interest in securitized
assets 22,536 37,392
Premises and equipment, net 82,569 79,258
Other assets 244,295 250,835
TOTAL ASSETS $10,812,533 $10,072,397
LIABILITIES
Deposits $ 2,252,441 $ 2,329,326
Notes payable on automobile
secured financing 7,211,910 5,886,227
Securities sold under agreements
to repurchase 136,365 155,190
Federal Home Loan Bank advances 2,881 543,417
Amounts held on behalf of trustee 262,214 280,496
Subordinated debentures 147,850 147,714
Other short-term borrowings 8,700 25,068
Other liabilities 83,075 85,994
TOTAL LIABILITIES 10,105,436 9,453,432
Minority interest 95,423 78,261
SHAREHOLDERS' EQUITY:
Common stock, (par value $1.00 per
share; authorized 45,000,000
Shares; issued and outstanding
39,113,618 shares in March 2002
and 35,802,491 shares in
December 2001) 39,114 35,802
Paid-in capital 348,082 301,955
Retained earnings 276,768 263,853
Accumulated other comprehensive loss,
net of tax (52,290) (60,906)
TOTAL SHAREHOLDERS' EQUITY 611,674 540,704
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $10,812,533 $10,072,397
WESTCORP AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands)
Three Months Ended
March 31,
2002 2001
LOAN ORIGINATIONS
Consumer $ 1,266,189 $ 1,184,692
Real estate 9,139 11,848
Commercial 61,628 51,768
Total $ 1,336,596 $ 1,248,308
INTEREST RATE SPREAD --
OWNED LOANS
Yield on interest-earning
assets 10.73% 11.09%
Cost of interest-bearing
liabilities 5.16 6.65
Interest spread 5.57% 4.44%
OWNED LOAN LOSS EXPERIENCE
Consumer 2.65% 1.71%
Real estate 0.08 0.13
Total 2.49% 1.52%
March 31, Dec. 31,
2002 2001
Amount Percent Amount Percent
OWNED LOAN DELINQUENCY 60+
Consumer $ 50,590 0.7% $ 66,380 1.0%
Real estate 5,972 1.7 7,109 1.9
Commercial 11 0.0 1,362 1.6
Total $ 56,573 0.7% $ 74,851 1.0%
March 31, Dec. 31,
2002 2001
MANAGED PORTFOLIO
Consumer $ 8,405,971 $ 8,153,317
Real estate 316,110 340,710
Commercial 130,303 132,939
Total $ 8,852,384 $ 8,626,966
WESTCORP AND SUBSIDIARIES
PORTFOLIO BASIS STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
2002 2001
(Dollars in thousands, except
per share amounts)
Interest income $ 296,076 $ 284,780
Interest expense 141,307 162,303
Net interest income 154,769 122,477
Net chargeoffs (a) 57,230 32,667
Provision for growth (b) 1,023 5,607
Provision for credit losses 58,253 38,274
Net interest income after
provision for credit losses 96,516 84,203
Noninterest income 25,269 20,267
Noninterest expense 60,897 61,345
Income before income tax 60,888 43,125
Income tax (c) 24,119 17,460
Income before minority interest 36,769 25,665
Minority interest 4,784 4,167
Income before extraordinary item 31,985 21,498
Extraordinary gain from early
extinguishment of debt 8
Portfolio basis net income $ 31,985 $ 21,506
Portfolio basis net income per common share -- diluted:
Income before extraordinary item $ 0.86 $ 0.67
Extraordinary item
Net income $ 0.86 $ 0.67
(a) Represents actual chargeoffs incurred during the period, net of
recoveries.
(b) Represents additional allowance for credit losses the company
would set aside due to an increase in the managed contract
portfolio.
(c) 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
March 31,
2002 2001
(Dollars in thousands)
GAAP basis net income $ 16,853 $ 17,716
Portfolio basis adjustments:
Retained interest expense (income) 11,649 (2,836)
Contractual servicing income (3,539) (7,365)
Net interest income 12,643 29,268
Provision for credit losses 7,445 (11,292)
Operating expenses (38) (51)
Minority interest (1,873) (807)
Total portfolio basis adjustments 26,287 6,917
Net tax effect (a) 11,155 3,127
Portfolio basis net income $ 31,985 $ 21,506
(a) 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 MARCH 31, 2002
Period 1998-A 1998-B 1998-C 1999-A 1999-B 1999-C 2000-A 2000-B
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.04% 0.02% 0.04% 0.04% 0.04% 0.02% 0.03% 0.02%
3 0.11% 0.08% 0.11% 0.11% 0.11% 0.10% 0.10% 0.09%
4 0.25% 0.18% 0.23% 0.20% 0.26% 0.25% 0.20% 0.24%
5 0.44% 0.38% 0.39% 0.33% 0.47% 0.40% 0.36% 0.39%
6 0.66% 0.59% 0.50% 0.46% 0.66% 0.56% 0.55% 0.59%
7 0.95% 0.83% 0.61% 0.62% 0.87% 0.71% 0.71% 0.78%
8 1.23% 1.03% 0.75% 0.76% 1.00% 0.86% 0.91% 0.99%
9 1.50% 1.21% 0.86% 0.92% 1.13% 1.01% 1.10% 1.17%
10 1.79% 1.40% 1.00% 1.11% 1.24% 1.14% 1.27% 1.33%
11 2.03% 1.53% 1.17% 1.30% 1.35% 1.34% 1.45% 1.44%
12 2.21% 1.62% 1.32% 1.47% 1.44% 1.52% 1.58% 1.57%
13 2.39% 1.74% 1.48% 1.61% 1.58% 1.74% 1.73% 1.72%
14 2.49% 1.84% 1.66% 1.73% 1.74% 1.94% 1.85% 1.86%
15 2.60% 1.96% 1.79% 1.81% 1.85% 2.09% 2.00% 2.04%
16 2.72% 2.10% 1.91% 1.89% 2.03% 2.27% 2.15% 2.24%
17 2.85% 2.22% 2.01% 2.00% 2.16% 2.39% 2.37% 2.39%
18 2.98% 2.40% 2.07% 2.10% 2.30% 2.53% 2.52% 2.55%
19 3.11% 2.55% 2.11 2.24% 2.42% 2.67% 2.67% 2.73%
20 3.25% 2.69% 2.17% 2.35% 2.50% 2.81% 2.83% 2.93%
21 3.35% 2.79% 2.24% 2.46% 2.58% 2.92% 2.99% 3.12%
22 3.48% 2.85% 2.34% 2.55% 2.67% 3.10% 3.16% 3.27%
23 3.62% 2.89% 2.43% 2.63% 2.77% 3.28% 3.34% 3.38%
24 3.70% 2.92% 2.52% 2.71% 2.87% 3.38% 3.49%
25 3.75% 2.97% 2.62% 2.77% 3.01% 3.55% 3.63%
26 3.80% 3.04% 2.71% 2.82% 3.14% 3.68%
27 3.87% 3.13% 2.80% 2.89% 3.16% 3.84%
28 3.92% 3.18% 2.87% 2.96% 3.29% 3.98%
29 3.98% 3.24% 2.90% 3.02% 3.40% 4.14%
30 4.06% 3.32% 2.95% 3.09% 3.50% 4.19%
31 4.11% 3.38% 3.00% 3.17% 3.61%
32 4.17% 3.43% 3.02% 3.20% 3.68%
33 4.22% 3.47% 3.08% 3.27% 3.74%
34 4.27% 3.48% 3.14% 3.35%
35 4.32% 3.52% 3.15% 3.41%
36 4.34% 3.54% 3.21% 3.47%
37 4.35% 3.58% 3.25% 3.52%
38 4.38% 3.63% 3.30% 3.55%
39 4.39% 3.66% 3.35%
40 4.43% 3.65% 3.39%
41 4.45% 3.69% 3.39%
42 4.50% 3.73%
43 4.47% 3.75%
44 4.50% 3.79%
45 4.52% 3.81%
46 4.55% 3.81%
47 4.56%
48 4.56%
49 4.56%
Prime
Mix 57% 67% 70% 70% 70% 67% 68% 69%
WESTCORP AND SUBSIDIARIES
CUMULATIVE STATIC POOL LOSS CURVES (UNAUDITED)
AT MARCH 31, 2002
Period 2000-C 2000-D
1 0.00% 0.00%
2 0.04% 0.04%
3 0.13% 0.11%
4 0.27% 0.24%
5 0.46% 0.39%
6 0.65% 0.54%
7 0.81% 0.74%
8 0.93% 0.93%
9 1.07% 1.13%
10 1.24% 1.34%
11 1.41% 1.50%
12 1.62% 1.74%
13 1.86% 1.95%
14 2.04% 2.21%
15 2.25% 2.48%
16 2.45% 2.71%
17 2.68% 2.89%
18 2.88%
19 3.08%
20 3.23%
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
Prime
Mix 68% 68%
WESTCORP AND SUBSIDIARIES
CUMULATIVE STATIC POOL LOSS CURVES (UNAUDITED)
At March 31, 2002
Period 2001-A 2001-B 2001-C 2002-1
1 0.00% 0.00% 0.00% 0.00%
2 0.03% 0.03% 0.04%
3 0.09% 0.10% 0.09%
4 0.20% 0.21% 0.20%
5 0.33% 0.33% 0.35%
6 0.50% 0.50% 0.49%
7 0.70% 0.69% 0.65%
8 0.84% 0.87% 0.81%
9 1.04% 1.05%
10 1.24% 1.22%
11 1.45% 1.36%
12 1.67%
13 1.90%
14 2.09%
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Prime Mix 71% 71% 76% 70%