Westcorp Reports Record Net Income in Second Quarter
IRVINE, Calif.--July 17, 2002--| -- | Second quarter net income rose 28% to a record $21.7 million |
| -- | Portfolio basis earnings grew 38% to a record $33 million |
| -- | Earnings per share were $0.55 on a GAAP basis and $0.83 on a portfolio basis |
| -- | Automobile contract purchases increased 16% to a record $1.5 billion |
| -- | Total revenues grew 24% to $168 million |
| -- | Issued $300 million of additional subordinated debentures |
Westcorp today reported record net income of $21.7 million for the second quarter of 2002, a 28% increase from the same period a year ago.
For the six months ended June 30, 2002, the company earned a record $38.6 million compared with $34.6 million for the same period a year earlier. Earnings per diluted share were $0.55 for the second quarter of 2002 compared with $0.50 for the same period a year ago. For the six months ended June 30, 2002, earnings per diluted share were $1 compared with $1.05 for the same period a year earlier.
Earnings on a portfolio basis grew 38% to a record $33 million for the second quarter of 2002 compared with $23.9 million for the same period a year earlier. For the six months ended June 30, 2002, earnings on a portfolio basis were up 43% to a record $65 million compared with $45.4 million for the comparable period in 2001.
Earnings per diluted share, on a portfolio basis, increased to $0.83 for the second quarter of 2002 compared with $0.71 for the same period a year earlier. For the six months ended June 30, 2002 earnings per diluted share, on a portfolio basis increased 22% to $1.69 compared with $1.38 for the same period a year ago.
Earnings per share for both the quarter and the year were impacted by the 19% increase in shares outstanding. This resulted 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.
"Our record net income for the first half of 2002 is the result of a business model that has been successful even during difficult economic periods," said Tom Wolfe, president of Westcorp. "Additionally, we achieved these record results even as we continue to strengthen our balance sheet by raising additional liquidity, reducing the level of residual interest assets and increasing our allowance for credit losses."
Balance Sheet Strength
During the second quarter, the company issued $300 million of subordinated debentures at its subsidiary, Western Financial Bank, for the purpose of increasing regulatory capital. "We believe that our recent subordinated debt and equity issuances provide us with a stronger balance sheet position to support the continued growth of our automobile contract portfolio," said Wolfe.
Reported earnings continued to be impacted by the elimination of off balance sheet accounting for new securitization transactions. This includes $10.5 million of non-cash, residual interest asset amortization expense and $22.5 million in provisions for credit losses in excess of chargeoffs due to the continued growth of the on balance sheet portfolio as the company eliminated gain on sale accounting.
The company has reduced its residual interest assets to $11.2 million as of June 30, 2002 and expects this asset to be fully amortized by the end of the year. The allowance for credit losses as a percentage of owned contracts outstanding increased to 2.4% at June 30, 2002 compared with 2.3% at Dec. 31, 2001.
Originations
Automobile contract purchases totaled a record $1.5 billion for the second quarter of 2002, a 16% increase from the same period a year earlier. For the six months ended June 30, 2002, automobile contract purchases increased 12% to $2.8 billion compared with the same period a year ago. As a result of higher contract originations, the company's portfolio of managed automobile contracts reached $8.9 billion at June 30, 2002, up from $8.2 billion at Dec. 31, 2001.
Income Statement Trends
Total revenues grew 24% for the three months ended June 30, 2002 to $168 million compared with $135 million for the same period a year earlier. For the six months ended June 30, 2002, total revenues grew 26% to $327 million compared with $259 million for the same period a year earlier.
Net interest income increased 35% to $147 million for the three months ended June 30, 2002 compared with $109 million for the same period a year earlier. Net interest margin for the three months ended June 30, 2002 was 5.16% compared with 4.79% for the same period a year earlier.
For the six months ended June 30, 2002, net interest income increased 43% to $289 million compared with $202 million for the same period a year earlier. Net interest margin for the six months ended June 30, 2002 was 5.39% compared with 4.65% for the same period a year ago.
The company continues to focus on increasing the percentage of low-rate, checking and money market deposits from consumers and mid-market business accounts to reduce its overall costs of deposits. At June 30, 2002, checking and money market accounts increased to $839 million or 38% of total deposits compared with $710 million or 32% a year ago.
"During the quarter, we made a strategic decision to accelerate our efforts to enhance the franchise value of our retail banking operations by focusing our deposit gathering efforts in Southern California," said Wolfe. "We're on target to complete the sale of our Northern California offices by the end of the third quarter and are currently developing our future plans."
Total noninterest income, which includes income from off balance sheet securitization transactions, declined to $20.7 million for the three months ended June 30, 2002 compared with $26.5 million for the same period a year earlier.
For the six months ended June 30, 2002, total noninterest income declined to $37.9 million compared with $56.9 million for the same period a year earlier. This decline was the result of the company no longer engaging in securitization transactions accounted for as sales.
Noninterest expenses totaled $64.8 million or 39% of total revenues for the second quarter of 2002 compared with $63 million or 46% for the same period a year ago. For the six months ended June 30, 2002, operating expenses totaled $126 million or 38% of total revenues compared with $124 million or 48% for the same period a year earlier.
Provision for credit losses totaled $62.4 million for the three months ended June 30, 2002 compared with $39.6 million for the same period a year ago. For the six months ended June 30, 2002, provision for credit losses totaled $128 million compared with $66.6 million for the same period a year earlier as the company's on balance sheet portfolio continues to grow.
Portfolio Performance
Annualized credit loss experience for the second quarter increased 24 basis points to 2.19% of average managed automobile contracts compared with 1.95% for the same period a year ago. For the six months ended June 30, 2002, annualized credit loss experience was 2.47% compared with 1.90% for the same period a year ago. The percentage of outstanding contracts 30 days or more delinquent decreased 89 basis points to 2.83% at June 30, 2002 compared with 3.72% at Dec. 31, 2001.
"Our second quarter asset quality trends are in line with what we expected given the continued weakness of the economy," said Wolfe. "We experienced a higher frequency of bankruptcies and repossessions and lower resale prices at auctions and expect these trends to continue for the remainder of the year."
Earnings Conference Call
Westcorp, along with its subsidiary WFS Financial, will host a conference call for analysts and investors at 9 a.m. (PDT) on Thursday, July 18, 2002. As part of this conference call, the company's management will discuss earnings results for the year 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 statements are identified by use of terms and phrases such 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 we originate; 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 Six Months Ended
June 30, June 30,
2002 2001 2002 2001
(Dollars in thousands, except share and
per share amounts)
Interest income:
Loans,
including
fees $ 249,863 $ 198,731 $ 482,776 $ 371,374
Other 30,145 36,869 59,428 76,893
TOTAL
INTEREST
INCOME 280,008 235,600 542,204 448,267
Interest expense:
Deposits 20,186 32,247 41,196 65,752
Notes payable on
automobile secured
financing 103,155 81,008 195,172 154,017
Other 9,770 13,395 16,812 26,308
TOTAL
INTEREST
EXPENSE 133,111 126,650 253,180 246,077
NET INTEREST
INCOME 146,897 108,950 289,024 202,190
Provision for
credit losses 62,350 39,640 128,048 66,623
NET INTEREST
INCOME AFTER
PROVISION FOR
CREDIT LOSSES 84,547 69,310 160,976 135,567
Noninterest income:
Automobile
lending 16,080 23,428 27,755 50,363
Other 4,652 3,044 10,137 6,579
TOTAL
NONINTEREST
INCOME 20,732 26,472 37,892 56,942
Noninterest expenses:
Salaries and
associate
benefits 36,184 37,931 71,055 73,608
Credit and
collections 10,175 6,443 18,253 12,861
Data processing 4,560 4,947 9,139 9,436
Other 13,855 13,636 27,187 28,377
TOTAL
NONINTEREST
EXPENSES 64,774 62,957 125,634 124,282
INCOME BEFORE
INCOME TAX 40,505 32,825 73,234 68,227
Income tax 15,185 12,515 28,149 26,848
INCOME BEFORE
MINORITY INTEREST 25,320 20,310 45,085 41,379
Minority interest
in earnings of
subsidiaries 3,612 3,421 6,523 6,782
INCOME BEFORE
EXTRAORDINARY
ITEM 21,708 16,889 38,562 34,597
Extraordinary
gain from early
extinguishment of
debt (net of
income taxes of
$6 and $11,
respectively) 8 16
NET INCOME $ 21,708 $ 16,897 $ 38,562 $ 34,613
Net income per
common share -- basic:
Income before
extraordinary
item $ 0.55 $ 0.50 $ 1.02 $ 1.06
Extraordinary
item 0.00 0.00 0.00 0.00
Net income $ 0.55 $ 0.50 $ 1.02 $ 1.06
Net income per
common share -- diluted:
Income before
extraordinary
item $ 0.55 $ 0.50 $ 1.00 $ 1.05
Extraordinary
item 0.00 0.00 0.00 0.00
Net income $ 0.55 $ 0.50 $ 1.00 $ 1.05
Weighted average number of common shares
outstanding:
Basic 39,140,543 33,509,549 37,972,632 32,731,454
Diluted 39,691,778 33,753,794 37,381,102 32,920,043
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2002 Dec. 31, 2001
(Unaudited)
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 333,133 $ 104,327
Investment securities
available for sale 11,900 10,511
Mortgage-backed securities
available for sale 2,072,794 2,092,225
Loans receivable 8,634,516 7,533,150
Allowance for credit losses (210,273) (171,432)
Loans receivable, net 8,424,243 7,361,718
Amounts due from trusts 121,077 136,131
Retained interest in securitized assets 11,183 37,392
Premises and equipment, net 80,385 79,258
Other assets 244,096 250,835
TOTAL ASSETS $ 11,298,811 $ 10,072,397
LIABILITIES
Deposits $ 2,187,880 $ 2,329,326
Notes payable on automobile
secured financing 7,513,136 5,886,227
Securities sold under
agreements to repurchase 123,708 155,190
Federal Home Loan Bank advances 2,847 543,417
Amounts held on behalf of trustee 232,482 280,496
Subordinated debentures 441,070 147,714
Other borrowings 8,470 25,068
Other liabilities 90,654 85,994
TOTAL LIABILITIES 10,600,247 9,453,432
Minority interest 96,778 78,261
SHAREHOLDERS' EQUITY
Common stock, (par value
$1.00 per share; authorized
65,000,000 Shares; issued
and outstanding 39,171,833
shares in June 2002 and
35,802,491 shares in
December 2001) 39,172 35,802
Paid-in capital 348,688 301,955
Retained earnings 293,780 263,853
Accumulated other comprehensive
loss, net of tax (79,854) (60,906)
TOTAL SHAREHOLDERS' EQUITY 601,786 540,704
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 11,298,811 $ 10,072,397
WESTCORP AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
LOAN ORIGINATIONS
Consumer $ 1,495,606 $ 1,291,174 $ 2,761,795 $ 2,475,867
Real estate 12,325 3,038 21,464 14,885
Commercial 68,907 80,718 130,175 132,486
Total $ 1,576,838 $ 1,374,930 $ 2,913,434 $ 2,623,238
INTEREST RATE SPREAD -- OWNED LOANS
Yield on
interest-earning
assets 10.55% 11.12% 10.64% 11.11%
Cost of
interest-bearing
liabilities 5.39 6.33 5.25 6.46
Interest
spread 5.16% 4.79% 5.39% 4.65%
OWNED LOAN LOSS EXPERIENCE
Consumer 2.09% 1.75% 2.36% 1.73%
Real estate 0.43 0.04 0.27
Total 1.98% 1.62% 2.23% 1.57%
June 30, 2002 Dec. 31, 2001
Amount Percent Amount Percent
OWNED LOAN DELINQUENCY 60+
Consumer $ 60,999 0.8% $ 66,380 1.0%
Real estate 5,819 1.7 7,109 1.9
Commercial 1,362 1.6
Total $ 66,818 0.8% $ 74,851 1.0%
June 30, Dec. 31,
2002 2001
MANAGED PORTFOLIO
Consumer $ 8,911,992 $ 8,153,317
Real estate 286,506 340,710
Commercial 122,966 132,939
Total $ 9,321,464 $ 8,626,966
WESTCORP AND SUBSIDIARIES
PORTFOLIO BASIS STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
(Dollars in thousands, except per share amounts)
Interest income $ 308,359 $ 295,845 $ 604,435 $ 580,625
Interest expense 150,925 162,663 292,232 324,966
Net interest
income 157,434 133,182 312,203 255,659
Net chargeoffs (a) 47,237 36,580 104,467 69,247
Provision for
growth (b) 8,865 7,192 9,888 12,799
Provision for
credit losses 56,102 43,772 114,355 82,046
Net interest
income after
provision for
credit losses 101,332 89,410 197,848 173,613
Noninterest income 24,833 20,097 50,102 40,365
Noninterest expense 64,793 62,988 125,690 124,333
Income before
income tax 61,372 46,519 122,260 89,645
Income tax (c) 23,008 17,735 47,127 35,195
Income before
minority interest 38,364 28,784 75,133 54,450
Minority interest
in earnings 5,336 4,942 10,120 9,109
Income before
extraordinary
item 33,028 23,842 65,013 45,341
Extraordinary gain
from early
extinguishment of
debt 8 16
Portfolio basis
net income $ 33,028 $ 23,850 $ 65,013 $ 45,357
Portfolio basis
net income per
common share --
diluted $ 0.83 $ 0.71 $ 1.69 $ 1.38
GAAP basis net
income per common
share -- diluted $ 0.55 $ 0.50 $ 1.00 $ 1.05
(a) Represents actual chargeoffs incurred during the period, net
of recoveries.
(b) Represents additional allowance for credit losses we 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 Six Months Ended
June 30, June 30,
2002 2001 2002 2001
(Dollars in thousands)
GAAP net
income $ 21,708 $ 16,897 $ 38,562 34,613
Portfolio basis adjustments:
Retained
interest
expense
(income) 7,015 (241) 18,664 (3,077)
Contractual
servicing
income (2,914) (6,135) (6,452) (13,500)
Net interest
income 10,537 24,232 23,179 53,469
Provision for
credit losses 6,248 (4,131) 13,693 (15,423)
Operating
expenses (19) (31) (58) (51)
Minority
interest (1,724) (1,521) (3,597) (2,327)
Total
portfolio
basis
adjustments 19,143 12,173 45,429 19,091
Net tax
effect (a) 7,823 5,220 18,978 8,347
Portfolio
basis net
income $ 33,028 $ 23,850 $ 65,013 $ 45,357
(a) Such tax is based on the company's tax rate for the respective
period.
WESTCORP AND SUBSIDIARIES
CUMULATIVE STATIC POOL LOSS CURVES (UNAUDITED)
At June 30, 2002
The following table sets forth the cumulative static pool losses
by month for all outstanding public securitized pools:
Period 1998-A 1998-B 1998-C 1999-A 1999-B 1999-C 2000-A 2000-B 2000-C
(a)
1 0.00% 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% 0.04%
3 0.11% 0.08% 0.11% 0.11% 0.11% 0.10% 0.10% 0.09% 0.13%
4 0.25% 0.18% 0.23% 0.20% 0.26% 0.25% 0.20% 0.24% 0.27%
5 0.44% 0.38% 0.39% 0.33% 0.47% 0.40% 0.36% 0.39% 0.46%
6 0.66% 0.59% 0.50% 0.46% 0.66% 0.56% 0.55% 0.59% 0.65%
7 0.95% 0.83% 0.61% 0.62% 0.87% 0.71% 0.71% 0.78% 0.81%
8 1.23% 1.03% 0.75% 0.76% 1.00% 0.86% 0.91% 0.99% 0.93%
9 1.50% 1.21% 0.86% 0.92% 1.13% 1.01% 1.10% 1.17% 1.07%
10 1.79% 1.40% 1.00% 1.11% 1.24% 1.14% 1.27% 1.33% 1.24%
11 2.03% 1.53% 1.17% 1.30% 1.35% 1.34% 1.45% 1.44% 1.41%
12 2.21% 1.62% 1.32% 1.47% 1.44% 1.52% 1.58% 1.57% 1.62%
13 2.39% 1.74% 1.48% 1.61% 1.58% 1.74% 1.73% 1.72% 1.86%
14 2.49% 1.84% 1.66% 1.73% 1.74% 1.94% 1.85% 1.86% 2.04%
15 2.60% 1.96% 1.79% 1.81% 1.85% 2.09% 2.00% 2.04% 2.25%
16 2.72% 2.10% 1.91% 1.89% 2.03% 2.27% 2.15% 2.24% 2.45%
17 2.85% 2.22% 2.01% 2.00% 2.16% 2.39% 2.37% 2.39% 2.68%
18 2.98% 2.40% 2.07% 2.10% 2.30% 2.53% 2.52% 2.55% 2.88%
19 3.11% 2.55% 2.11% 2.24% 2.42% 2.67% 2.67% 2.73% 3.08%
20 3.25% 2.69% 2.17% 2.35% 2.50% 2.81% 2.83% 2.93% 3.23%
21 3.35% 2.79% 2.24% 2.46% 2.58% 2.92% 2.99% 3.12% 3.38%
22 3.48% 2.85% 2.34% 2.55% 2.67% 3.10% 3.16% 3.27% 3.54%
23 3.62% 2.89% 2.43% 2.63% 2.77% 3.28% 3.34% 3.38% 3.67%
24 3.70% 2.92% 2.52% 2.71% 2.87% 3.38% 3.49% 3.52%
25 3.75% 2.97% 2.62% 2.77% 3.01% 3.55% 3.63% 3.63%
26 3.80% 3.04% 2.71% 2.82% 3.14% 3.68% 3.75% 3.73%
27 3.87% 3.13% 2.80% 2.89% 3.16% 3.84% 3.86%
28 3.92% 3.18% 2.87% 2.96% 3.29% 3.98% 3.97%
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% 4.30%
32 4.17% 3.43% 3.02% 3.20% 3.68% 4.38%
33 4.22% 3.47% 3.08% 3.27% 3.74% 4.46%
34 4.27% 3.48% 3.14% 3.35% 3.81%
35 4.32% 3.52% 3.15% 3.41% 3.87%
36 4.34% 3.54% 3.21% 3.47% 3.91%
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% 3.58%
40 4.43% 3.65% 3.39% 3.61%
41 4.45% 3.69% 3.39% 3.63%
42 4.50% 3.73% 3.42%
43 4.47% 3.75% 3.45%
44 4.50% 3.79% 3.47%
45 4.52% 3.81%
46 4.55% 3.81%
47 4.56% 3.83%
48 4.56% 3.84%
49 4.56% 3.85%
50 4.56%
51 4.57%
52 4.57%
Prime
Mix
(b) 57% 67% 70% 70% 70% 67% 68% 69% 68%
Period 2000-D 2001-A 2001-B 2001-C 2002-1 2002-2
(a)
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.04% 0.03% 0.03% 0.04% 0.01% 0.00%
3 0.11% 0.09% 0.10% 0.09% 0.06%
4 0.24% 0.20% 0.21% 0.20% 0.15%
5 0.39% 0.33% 0.33% 0.35%
6 0.54% 0.50% 0.50% 0.49%
7 0.74% 0.70% 0.69% 0.65%
8 0.93% 0.84% 0.87% 0.81%
9 1.13% 1.04% 1.05% 0.95%
10 1.34% 1.24% 1.22% 1.07%
11 1.50% 1.45% 1.36% 1.20%
12 1.74% 1.67% 1.53%
13 1.95% 1.90% 1.67%
14 2.21% 2.09% 1.81%
15 2.48% 2.25%
16 2.71% 2.41%
17 2.89% 2.54%
18 3.08%
19 3.22%
20 3.40%
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
50
51
52
Prime
Mix
(b) 68% 71% 71% 76% 70% 87%
(a) Represents the number of months since the inception of the
securitization.
(b) Represents the original percentage of prime automobile
contracts securitized within each pool.