WFS Financial Reports Record Net Income in Second Quarter
IRVINE, Calif.--July 17, 2002--| -- | Second quarter net income rose 15% to a record $22.5 million |
| -- | Portfolio basis earnings grew 19% to a record $33.3 million |
| -- | Earnings per share were $0.55 on a GAAP basis and $0.81 on a portfolio basis |
| -- | Automobile contract purchases increased 16% to a record $1.5 billion |
| -- | Total revenues grew 21% to $143 million |
| -- | Issued $300 million of additional subordinated debentures |
WFS Financial Inc today reported record net income of $22.5 million for the second quarter of 2002, a 15% increase from the same period a year ago.
For the six months ended June 30, 2002, the company earned a record $40.7 million compared with $38.3 million for the same period a year earlier.
Earnings per diluted share declined to $0.55 for the second quarter of 2002 compared with $0.63 for the same period a year ago. For the six months ended June 30, 2002, earnings per diluted share were $1.05 compared with $1.28 for the same period a year earlier.
Earnings on a portfolio basis grew 19% to a record $33.3 million for the second quarter of 2002 compared with $27.9 million for the same period a year earlier. For the six months ended June 30, 2002, earnings on a portfolio basis were up 24% to a record $63.2 million compared with $51.2 million for the comparable period in 2001.
Earnings per diluted share, on a portfolio basis, declined to $0.81 for the second quarter of 2002 compared with $0.90 for the same period a year earlier. For the six months ended June 30, 2002, earnings per diluted share, on a portfolio basis, decreased 5% to $1.63 compared with $1.72 for the same period a year ago.
Earnings per share for both the quarter and the year were impacted by the 33% increase in shares outstanding. This resulted from the issuance of 6.4 million shares through a rights offering completed by the company during the second quarter of last year and the issuance of 6.1 million shares through a rights offering successfully completed in the first quarter of this year. The company raised a total of $226 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 and CEO of WFS Financial. "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 enhanced its liquidity through a $300 million borrowing arrangement with its parent, Western Financial Bank. Combined with the equity issued in the first quarter, the company has raised more than $410 million of additional liquidity in 2002.
"We believe that our recent capital raising initiatives and borrowing arrangement 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 was 2.5% at both June 30, 2002 and 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 21% for the three months ended June 30, 2002 to $143 million compared with $117 million for the same period a year earlier. For the six months ended June 30, 2002, total revenues grew 25% to $275 million compared with $220 million for the same period a year earlier.
Net interest income increased 61% to $111 million for the three months ended June 30, 2002 compared with $69 million for the same period a year earlier. For the six months ended June 30, 2002, net interest income increased 59% to $214 million compared with $134 million for the same period a year earlier.
Total servicing income, which includes income from off balance sheet securitization transactions, declined to $31.7 million for the three months ended June 30, 2002 compared with $41.8 million for the same period a year earlier. For the six months ended June 30, 2002, total servicing income declined to $60.8 million compared with $78.5 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.
Operating expenses totaled $56 million or 2.6% of average managed contracts for the second quarter of 2002 compared with $53 million or 2.9% for the same period a year ago. For the six months ended June 30, 2002, operating expenses totaled $108 million or 2.6% of average managed contracts compared with $104 million or 2.9% for the same period a year earlier.
Provision for credit losses totaled $50.7 million for the three months ended June 30, 2002 compared with $32 million for the same period a year ago. For the six months ended June 30, 2002, provision for credit losses totaled $100 million compared with $52.1 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
WFS, along with its parent company Westcorp, 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 at http://www.wfsfinancial.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.
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.
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 the company's 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 the company 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.
WFS FINANCIAL INC 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)
REVENUES:
Interest income $197,867 $124,586 $369,298 $246,915
Interest expense 86,980 55,642 155,533 112,594
Net interest income 110,887 68,944 213,765 134,321
Servicing income 31,713 41,776 60,763 78,532
Gain on sale of
contracts 6,741 6,741
TOTAL REVENUES 142,600 117,461 274,528 219,594
EXPENSES:
Provision for
credit losses 50,680 32,026 100,388 52,093
Operating expenses:
Salaries and
associate benefits 32,620 34,150 64,243 65,450
Credit and
collections 10,078 6,394 18,107 12,797
Data processing 4,169 4,644 8,430 8,867
Other 9,088 7,796 17,184 16,561
TOTAL OPERATING
EXPENSES 55,955 52,984 107,964 103,675
TOTAL EXPENSES 106,635 85,010 208,352 155,768
INCOME BEFORE
INCOME TAX 35,965 32,451 66,176 63,826
Income tax 13,461 12,908 25,458 25,515
NET INCOME $ 22,504 $ 19,543 $ 40,718 $ 38,311
Net income per common share:
Basic $ 0.55 $ 0.63 $ 1.05 $ 1.29
Diluted $ 0.55 $ 0.63 $ 1.05 $ 1.28
Weighed average number of common shares outstanding:
Basic 41,009,797 31,044,368 38,852,848 29,757,246
Diluted 41,063,014 31,137,409 38,903,859 29,847,659
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2002 Dec. 31, 2001
(Unaudited)
(Dollars in thousands)
ASSETS
Cash and short-term investments $682,923 $ 30,100
Investment securities
available for sale 4,282 4,668
Contracts receivable 6,806,527 5,215,718
Allowance for credit losses (170,181) (131,827)
Contracts receivable, net 6,636,346 5,083,891
Amounts due from trusts 121,077 184,952
Retained interest in
securitized assets 11,183 37,392
Premises and equipment, net 31,085 33,826
Accrued interest receivable 46,366 37,100
Other assets 87,286 78,828
TOTAL ASSETS $7,620,548 $5,490,757
LIABILITIES
Lines of credit -- parent $ 71,100 $ 421,175
Notes payable on automobile
secured financing 6,062,797 4,005,925
Notes payable -- parent 450,000 67,500
Amounts held on behalf of trustee 372,234 476,910
Other liabilities 60,345 53,954
TOTAL LIABILITIES 7,016,476 5,025,464
SHAREHOLDERS' EQUITY
Common stock, (no par value;
authorized 50,000,000 shares;
issued and outstanding 41,019,365
shares in 2002 and 34,820,178
in 2001) 338,182 227,568
Paid-in capital 4,337 4,337
Retained earnings 303,428 262,710
Accumulated other comprehensive
loss, net of tax (41,875) (29,322)
TOTAL SHAREHOLDERS' EQUITY 604,072 465,293
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $7,620,548 $5,490,757
WFS FINANCIAL INC AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
CONTRACT ORIGINATIONS $1,495,007 $1,287,375 $2,760,533 $2,469,806
June 30, 2002 Dec. 31, 2001
MANAGED CONTRACTS Amount Percent Amount Percent
Owned contracts $6,682,126 74.98% $5,119,044 62.79%
Off balance sheet
securitizations 826,519 9.27 1,215,058 14.90
Whole loan sales
to parent 1,403,164 15.75 1,818,780 22.31
Total managed
contracts $8,911,809 100.00% $8,152,882 100.00%
MANAGED DELINQUENCY
AND June 30, 2002 Dec. 31, 2001
REPOSSESSIONS Amount Percent Amount Percent
Contracts managed
at end of period $8,911,809 $8,152,882
Period of delinquency
30-59 days $ 180,574 2.03% $ 217,873 2.67%
60 days or more 71,744 0.80 85,290 1.05
Total contracts
delinquent $ 252,318 2.83% $ 303,163 3.72%
Total repossessions $ 6,809 0.08% $ 7,553 0.09%
MANAGED CONTRACTS Three Months Ended Six Months Ended
LOSS EXPERIENCE June 30, June 30,
2002 2001 2002 2001
Contracts managed at
end of period $8,911,809 $7,617,921 $8,911,809 $7,617,921
Average contracts
managed during
the period $8,640,187 $7,408,488 $8,456,742 $7,203,585
Gross charge offs $ 68,508 $ 50,711 $ 148,300 $ 98,937
Recoveries 21,227 14,585 43,860 30,330
Net charge offs $ 47,281 $ 36,126 $ 104,440 $ 68,607
Net charge offs as
a percentage of
average managed
contracts outstanding
during period 2.19% 1.95% 2.47% 1.90%
WFS FINANCIAL INC 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 $ 274,921 $ 249,456 $ 534,717 $ 482,706
Interest expense 131,094 124,615 250,639 247,691
Net interest income 143,827 124,841 284,078 235,015
Net chargeoffs(a) 47,281 36,127 104,440 68,608
Provision for growth(b) 9,296 7,141 11,894 12,748
Provision for credit
losses 56,577 43,268 116,334 81,356
Net interest income after
provision for credit
losses 87,250 81,573 167,744 153,659
Other income 22,060 18,438 43,648 36,440
Operating expenses 56,076 53,657 108,509 104,836
Income before income tax 53,234 46,354 102,883 85,263
Income tax(c) 19,925 18,438 39,641 34,072
Portfolio basis net
income $ 33,309 $ 27,916 $ 63,242 $ 51,191
Portfolio basis net income
per common share --
diluted $ 0.81 $ 0.90 $ 1.63 $ 1.72
GAAP basis net income
per common share --
diluted $ 0.55 $ 0.63 $ 1.05 $ 1.28
(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 managed portfolio.
(c) Such tax effect is based upon the company's 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,
2002(a) 2001(a) 2002(a) 2001(a)
Interest income 12.8% 13.5% 12.6% 13.4%
Interest expense 6.1 6.8 5.9 6.9
Net interest income 6.7 6.7 6.7 6.5
Net chargeoffs 2.2 2.0 2.4 1.9
Provision for growth 0.4 0.4 0.3 0.4
Provision for credit
losses 2.6 2.4 2.7 2.3
Net interest income
after provision for
credit losses 4.1 4.3 4.0 4.2
Other income 1.0 1.0 1.0 1.0
Operating expenses 2.6 2.9 2.6 2.9
Income before income tax 2.5 2.4 2.4 2.3
Income tax 0.9 1.0 0.9 1.0
Portfolio basis net income 1.6% 1.4% 1.5% 1.3%
Average managed
contracts $8,640,187 $7,408,488 $8,456,742 $7,203,585
(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,
2002 2001 2002 2001
(Dollars in thousands)
GAAP basis net income $22,504 $19,543 $40,718 $38,311
Portfolio basis adjustments:
Gain on sales of contracts (6,741) (6,741)
Retained interest
expense (income) 7,015 (241) 18,664 (3,077)
Contractual servicing
income (16,574) (23,098) (35,686) (39,015)
Net interest income 32,940 55,897 70,313 100,693
Provision for credit losses (5,897) (11,242) (15,946) (29,262)
Operating expenses (215) (672) (638) (1,161)
Total portfolio basis
adjustments 17,269 13,903 36,707 21,437
Net tax effect(a) 6,464 5,530 14,183 8,557
Portfolio basis net income $33,309 $27,916 $63,242 $51,191
(a) Such tax is based on the company's tax rate for the respective
period.
WFS FINANCIAL INC 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(a) 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% 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 57% 67% 70% 70% 70% 67% 68% 69%
(b)
Period(a) 2000-C(c) 2000-D 2001-A 2001-B(c) 2001-C 2002-1 2002-2
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% ------------
2 0.04% 0.04% 0.03% 0.03% 0.04% 0.01% 0.00% (1) Represents the number of months since the inception of the securitization.
3 0.13% 0.11% 0.09% 0.10% 0.09% 0.06% (2) Represents the original percentage of prime automobile contracts securitized within each pool.
4 0.27% 0.24% 0.20% 0.21% 0.20% 0.15% (3) Represents loans sold to Westcorp in whole loan sales and subsequently securitized by Westcorp. We
5 0.46% 0.39% 0.33% 0.33% 0.35% manage these contracts pursuant to an agreement with Westcorp and the securitization trust.
6 0.65% 0.54% 0.50% 0.50% 0.49%
7 0.81% 0.74% 0.70% 0.69% 0.65%
8 0.93% 0.93% 0.84% 0.87% 0.81%
9 1.07% 1.13% 1.04% 1.05% 0.95% Lisa Capps
10 1.24% 1.34% 1.24% 1.22% 1.07% Investor Relations
11 1.41% 1.50% 1.45% 1.36% 1.20% WFS Financial
12 1.62% 1.74% 1.67% 1.53% Phone: (949) 727-1002
13 1.86% 1.95% 1.90% 1.67% Email: Investor_Relations@WFSFinancial.com
14 2.04% 2.21% 2.09% 1.81%
15 2.25% 2.48% 2.25%
16 2.45% 2.71% 2.41%
17 2.68% 2.89% 2.54%
18 2.88% 3.08%
19 3.08% 3.22%
20 3.23% 3.40%
21 3.38%
22 3.54%
23 3.67%
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
45
46
47
48
49
50
51
52
Prime Mix 68% 68% 71% 71% 76% 70% 87%
(b)
(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.
(c) Represents loans sold to Westcorp in whole loan sales and
subsequently securitized by Westcorp. The company manages these
contracts pursuant to an agreement with Westcorp and the
securitization trust.