Union Acceptance Corporation Announces Results for the Quarter Ended June 30, 2002
INDIANAPOLIS--July 22, 2002--Union Acceptance Corporation ("UAC") today announced financial and operational results for the quarter ended June 30, 2002. Results reflect UAC's strategic initiatives which consist of a comprehensive expense reduction plan, extensive technology upgrades focused on improving efficiencies in the collections area, and a significant fee income program.The Company reported a net loss for the quarter ended June 30, 2002 of $3.3 million, or $0.11 per diluted share, compared to a net loss of $9.2 million, or $0.55 per diluted share, for the comparable period last year. Net earnings were $100,000 before giving effect to the earnings impact of derivative instruments on held for sale receivables for the quarter ended June 30, 2002. This compares to a net loss of $10.2 million, or $0.62 per diluted share, before giving effect to the earnings impact of derivative instruments on held for sale receivables for the quarter ended June 30, 2001.
"Due to lower acquisition volume, the best economic decision was to forego a securitization transaction in the June quarter," stated Rick Brown, Chief Financial Officer. "In addition, we are positioning the Company to move away from gain on sale accounting, and it is our goal to structure the next transaction as a secured financing and record it on balance sheet. We believe that by accounting for future securitization transactions in this manner our reported earnings will be less dependent on fundamental estimates and cash flow projections and we will be able to provide more readily understandable financial information about our operating results. We think this change is in the long term best interest of the Company."
The Company reported a net loss for the six months ended June 30, 2002 of $10.2 million, or $0.33 per diluted share, compared to a net loss of $2.6 million, or $0.18 per diluted share, for the comparable period last year. The net loss was $6.6 million, or $0.21 per diluted share, before giving effect to the earnings impact of derivative instruments on held for sale receivables for the six months ended June 30, 2002. This compares to a net loss of $5.7 million, or $0.38 per diluted share, before giving effect to the earnings impact of derivative instruments on held for sale receivables for the six months ended June 30, 2001.
Delinquency and Collections
Delinquency was 3.79% at June 30, 2002 compared to 3.91% at March 31, 2002. Delinquency totaled 3.57% at June 30, 2001. Total dollars in delinquency at June 30, 2002 were $102.8 million, which represents the lowest level since September 2000.
"The effectiveness of the numerous technological and operational enhancements implemented over the past nine months continues as delinquency as a percentage of the total servicing portfolio and annualized credit losses both decreased during the quarter," stated Lee Ervin, President and Chief Operating Officer. "This decline is in spite of the average servicing portfolio decreasing 15.4% since June 2001. A twelve month lagging delinquency ratio, which isolates the effect of the portfolio decline, was 3.20% at June 30, 2002 compared to 3.98% at June 30, 2001 and better illustrates the decline in delinquency dollars we have seen over the last six months."
Annualized credit losses totaled 4.08% for the quarter ended June 30, 2002. This compares with 4.73% for the quarter ended March 31, 2002 and 2.91% for the quarter ended June 30, 2001. Annualized credit losses totaled 4.41% for the six months ended June 30, 2002. This compares with 2.76% for the six months ended June 30, 2001. A lagging annualized credit loss ratio was 3.45% for the quarter ended June 30, 2002 compared to 3.37% for the quarter ended June 30, 2001.
The Company's allowance for estimated credit losses on securitized receivables was 5.26% at June 30, 2002. This compares to 5.67% at March 31, 2002 and 5.37% at June 30, 2001.
Recovery rates were 36.48% for the quarter ended June 30, 2002, a slight decrease from 37.17% for the quarter ended March 31, 2002. Recovery rates were 35.94% for the quarter ended June 30, 2001. For the six months ended June 30, 2002, recovery rates were 36.86%, a decrease from 39.14% for the same period last year.
"As we expected, the lower delinquency in the March quarter translated into lower credit losses during the June quarter," stated Mr. Ervin. "The $6 million reduction in credit losses from the prior quarter is a direct result of the enhancements made in our collection efforts and our emphasis on technology. Although we expect credit losses to continue to decline in the third and fourth quarters, the effects of recent bankruptcy filing trends and new subvention programs being offered by the new car manufacturers' captive finance companies may impact the level of credit loss reduction achieved."
Receivable Acquisitions and Credit Quality
For the quarter ended June 30, 2002, receivable acquisitions were $193.2 million compared to $209.4 million for the quarter ended March 31, 2002 and $198.8 million for the quarter ended June 30, 2001. Management attributes the slight decline in volume since March to its pricing discipline. The Company's total servicing portfolio was $2.7 billion at June 30, 2002, compared with $3.2 billion at June 30, 2001. During the quarter ended June 30, 2002, the Company implemented an automated application process which allows the dealer to submit an application electronically instead of utilizing a facsimile machine. Management is pleased with the results as 32.2% of total applications received during the month of June 2002 were received utilizing the electronic submission process.
The Company continues to achieve pricing on receivable acquisitions which will support its return on managed asset target utilizing its risk-based pricing guidelines. The estimated return on asset (ROA) on receivables acquired during the June quarter was 1.89%.
The weighted average credit bureau score on receivable acquisitions was 702 for the quarter ended June 30, 2002, compared with 706, 699, 692, and 693 for the past four consecutive quarters. Credit bureau scores for receivables acquired earlier and securitized in the 1999-A through 2000-D securitizations (prior to the implementation of UAC's risk-based pricing model) averaged 661 for the 1999 pools and 672 for the 2000 pools.
"We are pleased with the pricing and quality of the receivables acquired during the June quarter," stated Mr. Ervin. "Although our volume is down slightly, we believe it is important for us to stay focused on achieving our pricing and quality targets. We are not looking to enhance quarterly results with volume that is not priced within those targets. We are looking to build a more valuable franchise over time and are therefore making decisions that are financially in our best interest in the long run."
Securitization and Gain on Sale
The Company did not effect a securitization during the quarter ended June 30, 2002, and as a result, did not record a corresponding gain on the sale of receivables. Receivables available for sale at June 30, 2002 were $282.5 million, and the Company reported a loss on interest rate derivatives related to these receivables of $5.3 million. During the quarter ended June 30, 2001, the Company securitized $293.0 million of receivables and reported a gain of $7.6 million (net of $2.4 million loss for interest rate derivatives) or 2.59% of the receivables sold.
During the quarter ended June 30, 2001, the Company had a net loss on the sale of receivables of $16.3 million (net of $2.4 million loss for interest rate derivatives used to hedge securitized receivables and a $23.7 million charge for the revaluation of retained interest). During the six months ended June 30, 2002, the Company has a net loss on the sale of receivables of $12.5 million (net of $1.0 million loss for interest rate derivatives used to hedge securitized receivables and an $18.8 million charge for the revaluation of retained interest). This compares to a net loss on the sale of receivables of $13.9 million (net of $12.8 million loss for interest rate derivatives used to hedge securitized receivables and a $26.5 million charge for the revaluation of retained interest) for the similar period last year.
"Our performance indicates that the charges taken over the last year were prudent," stated Mr. Brown. "Our models indicate that our estimates for prepayments, interest collections and reinvestment income are tracking within our expectations. In addition, our loss expectations are in line with the adjustment we made in March 2002."
Fee Income
Fees from new fee initiatives for the quarter ended June 30, 2002 totaled $1.3 million. The increase in fees is consistent with management's recent initiative to enhance revenues and reduce the volatility of earnings through predictable and stable fee income.
The fee program for payments made over the phone generated $0.6 million in fee income during the quarter ended June 30, 2002 and $1.2 million for the six months ended June 30, 2002. Origination and funding fees received on receivable acquisitions for the quarter ended June 30, 2002 totaled $0.6 million compared with $0.7 million for the quarter ended June 30, 2001. The slight decrease is due to a corresponding reduction in receivables acquired in the quarter ended June 30, 2002 compared with the June 2001 quarter. Origination and funding fees are deferred until the related receivables are sold in a securitization, and such fees are recognized as a component of gain on sale when sold, or in the case of on balance sheet financings are amortized over the life of the receivables acquired.
The Company continues to progress with its intentions to further augment fee income through a third party servicing operation and completed all required licensing in May 2002 to initiate its third party servicing operations. The Company has an ongoing search for a candidate to market the third party servicing initiative and anticipates that revenues from the initiative will begin in 2003. In addition, the Company expects that insurance agency revenue will begin in the fourth quarter of 2002 instead of the third quarter as a result of delays in licensing and coordination with the insurance vendor.
Operating Expenses
Operating expenses were $13.3 million, or 1.94% of the $2.8 billion average servicing portfolio for the quarter ended June 30, 2002. This compares with $13.4 million, or 1.86% of an average servicing portfolio of $2.9 billion for the quarter ended March 31, 2002, and $14.5 million, or 1.78% of the average servicing portfolio of $3.3 billion for the quarter ended June 30, 2001. Total operating expenses were $26.7 million, or 1.90% of the $2.8 billion average servicing portfolio for the six months ended June 30, 2002. This compares with $29.3 million, or 1.77% of the average servicing portfolio of $3.3 billion for the similar period of last year.
The $1.2 million and $2.6 million reduction in total operating expenses from the quarter and six months ended June 30, 2002 compared to the same periods of last year were due to the expense reduction initiatives undertaken by management in the fourth quarter of 2001. Management expects further reduction in operating expenses throughout 2002. The Company recognized $0.5 million in non-recurring severance expense during the six months ended June 30, 2002. Absent this non-recurring item, the operating expense ratio would have been 1.87%.
Capital Resources
In May 2002, UAC took an additional step in its recapitalization strategy by closing $11 million of new senior debt, the proceeds of which will be utilized to repay existing debt maturities as they become due and to fund ongoing operations.
At June 30, 2002, $226.5 million of warehouse capacity was utilized out of a total capacity of $550 million, and an additional $46.4 million was available to borrow based on the outstanding principal balance of eligible receivables. The Company maintained cash on hand of $16.6 million at June 30, 2002 for total available cash of $63.0 million. Including net cash available through the residual funding facility, the Company maintained total available cash of $112.0 million at June 30, 2002. Total available cash was $118.4 million at June 30, 2001.
Delinquency and Credit Loss Data
The following tables set forth delinquency and credit loss experience related to the Company's servicing portfolio:
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Delinquency Experience
----------------------
At June 30, 2002 At March 31, 2002
------------------------ ------------------------
(Dollars in thousands)
Number of Number of
Receivables Amount Receivables Amount
----------- ---------- ----------- ----------
Servicing portfolio 221,884 $2,711,525 231,676 $2,838,139
Delinquencies
30-59 days 5,260 61,235 5,665 66,393
60-89 days 2,614 31,052 2,641 33,105
90 days or more 906 10,561 1,000 11,517
----------- ---------- ----------- ----------
Total delinquencies 8,780 $ 102,848 9,306 $ 111,015
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Delinquency as a
percentage of
servicing portfolio 3.96% 3.79% 4.02% 3.91%
Delinquency Experience
----------------------
At December 31, 2001 At June 30, 2001
------------------------ ------------------------
(Dollars in thousands)
Number of Number of
Receivables Amount Receivables Amount
----------- ---------- ----------- ----------
Servicing portfolio 241,178 $2,961,737 258,852 $3,210,336
Delinquencies
30-59 days 7,329 84,748 5,476 62,999
60-89 days 3,605 44,100 2,938 36,856
90 days or more 1,504 17,121 1,233 14,871
----------- ---------- ----------- ----------
Total delinquencies 12,438 $ 145,969 9,647 $ 114,726
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Delinquency as a
percentage of
servicing portfolio 5.16% 4.93% 3.73% 3.57%
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Credit Loss Experience
----------------------
Three Months Ended
-----------------------------------------
(Dollars in thousands)
June 30, March 31, December 31, June 30,
2002 2002 2001 2001
---------- ---------- ---------- ----------
Average servicing
portfolio $2,750,719 $2,871,966 $3,027,302 $3,251,799
Gross charge-offs 44,146 54,075 47,776 36,888
Recoveries 16,104 20,101 14,600 13,256
---------- ---------- ---------- ----------
Net charge-offs $ 28,042 $ 33,974 $ 33,176 $ 23,632
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Gross charge-offs
as a percentage
of average servicing
portfolio(1) 6.42% 7.53% 6.31% 4.54%
Recoveries as a
percentage of
gross charge-offs 36.48% 37.17% 30.56% 35.94%
Net charge-offs
as a percentage
of average servicing
portfolio(1) 4.08% 4.73% 4.38% 2.91%
Six Months Ended
-----------------------------------------
(Dollars in thousands)
June 30, 2002 June 30, 2001
------------- -------------
Average servicing
portfolio $2,811,342 $3,315,391
Gross charge-offs 98,221 75,092
Recoveries 36,205 29,393
------------- -------------
Net charge-offs $ 62,016 $ 45,699
------------- -------------
------------- -------------
Gross charge-offs
as a percentage
of average servicing
portfolio(1) 6.99% 4.53%
Recoveries as a
percentage of
gross charge-offs 36.86% 39.14%
Net charge-offs
as a percentage
of average servicing
portfolio(1) 4.41% 2.76%
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(1) Annualized
Earnings Before the Impact of Derivative Instruments
In accordance with generally accepted accounting principles, ("GAAP"), the Company marks to market derivative instruments. These derivative instruments are only used to hedge receivable acquisitions prior to securitization. The Company is required to record adjustments to earnings every accounting period favorably or unfavorably, depending on changes in market interest rates, regardless of the offsetting effect that would normally only be recognized at the time the Company securitizes. Therefore, each quarter, in addition to GAAP earnings, the Company presents results of operations before giving effect to the earnings impact of the derivative instruments used to hedge held for sale receivables.
Pro Forma Portfolio-Based Financial Statements
In addition, the Company has elected to present, below, pro forma portfolio-based statements of operations which account for securitization transactions as secured financings rather than sales of receivables. In its consolidated financial statements prepared in accordance with GAAP, the Company records a gain on the sale of receivables in securitization transactions primarily representing the discounted estimated future servicing cash flows to be received by the Company related to the receivables sold. Future servicing cash flows are the projected cash flows resulting from the difference between the weighted average coupon rate of the receivables sold and the weighted average note rate paid to investors in the securitized trusts, less an allowance for estimated credit losses, the Company's contractual servicing fee of 1.00% and ongoing trust and credit enhancement fees.
The pro forma portfolio-based statements of earnings set forth below (following the presentation of the Company's historical selected financial data), present the Company's operating results under the assumption that securitization transactions are secured financings and no gain on sale, retained interest income, or servicing fee income is recognized. Instead, interest income, fee income, interest expense and other costs related to the asset-backed securities are recognized over the life of the securitized receivables. There is no provision or allowance for credit losses. Credit losses are recorded as incurred. The pro forma portfolio-based statements of operations and related data do not present the Company's operating results in accordance with GAAP. The pro forma portfolio-based data is presented solely for illustrative purposes to assist readers in their understanding of the Company's business and its financial performance. Such data is not intended to be an indication of any future results of operations of the Company and such data does not provide all information that would be provided with financial statements prepared in accordance with GAAP if the Company had accounted for its securitizations as secured financings.
Conference Call
Union Acceptance Corporation will host a conference call on July 23, 2002 at 12:00 p.m. Indianapolis time (1:00 p.m. EDST). The dial-in number for participation in this conference call is 877-407-9205. For a replay of the conference call, please go the Company's web site, www.unionacceptance.com.
Corporate Description
UAC is one of the nation's largest independent, indirect automobile finance companies. The Company's primary business is purchasing and servicing prime automobile retail installment sales contracts. These contracts are originated by dealerships affiliated with major domestic and foreign manufacturers, nationally recognized rental car outlets, and used car superstores. UAC focuses on acquiring receivables related to late model used and, to a lesser extent, new automobiles purchased by customers who exhibit favorable credit profiles. Union Acceptance Corporation commenced business in 1986 and currently acquires receivables from over 5,900 manufacturer-franchised dealerships in 39 states. By using state-of-the-art technology in a highly centralized underwriting and servicing environment, Union Acceptance Corporation enjoys one of the lowest cost operating structures in the independent prime automobile finance industry.
Forward Looking Information
This news release contains forward-looking statements regarding matters such as profitability, delinquency and credit loss trends and estimates, recoveries of repossessed vehicles, receivable acquisitions, the impact of recent initiatives described on revenues and profits, and other issues. Readers are cautioned that actual results may differ materially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, the difficulty inherent in predicting changes in delinquency and credit loss rates, changes in acquisition volume, the ability of the Company to collect newly implemented fees, limited availability of financing and other capital resources, general economic conditions that affect consumer loan performance and consumer borrowing practices and other important factors detailed in the Company's annual report on Form 10-K for the six months ended December 31, 2001 which was filed with the Securities and Exchange Commission.
Union Acceptance Corporation
Selected Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Balance Sheet Data at: June 30, December 31,
2002 2001
----------------------------------------------------------------------
Assets
Cash and cash equivalents $ 16,626 $ 14,244
Restricted cash 5,696 4,650
Receivables held for sale, net 286,533 176,511
Retained interest in securitized assets 193,113 198,251
Accrued interest receivable 1,653 1,323
Property, equipment, and
leasehold improvements, net 8,045 8,516
Other assets 36,534 33,661
-----------------------
Total Assets $ 548,200 $ 437,156
-----------------------
-----------------------
Liabilities and Shareholders' Equity
Liabilities
Notes payable $ 226,516 $ 100,300
Term debt 122,333 133,000
Accrued interest payable 3,417 2,393
Amounts due to trusts 18,989 18,610
Dealer premiums payable -- --
Other payables and accrued expenses 12,429 8,153
-----------------------
Total Liabilities 383,684 262,456
-----------------------
Shareholders' Equity
Common stock $ 145,900 $ 145,374
Accumulated other comprehensive
earnings (loss), net of taxes (42) 450
Retained earnings 18,658 28,876
-----------------------
Total Shareholders' Equity 164,516 174,700
-----------------------
Total Liabilities and Shareholders' Equity $ 548,200 $ 437,156
-----------------------
-----------------------
----------------------------------------------------------------------
30+ Delinquency at: June 30, December 31, June 30,
2002 2001 2001
------------------------------------
3.79% 4.93% 3.57%
----------------------------------------------------------------------
Allowance Data at:
Allowance for estimated credit
losses on securitized receivables $ 127,880 $ 152,985 $ 170,151
Securitized receivables serviced $2,429,066 $2,788,006 $3,166,542
Allowance as a percentage
of securitized receivables serviced 5.26% 5.49% 5.37%
----------------------------------------------------------------------
Managed Receivable Data at:
Receivables held for sale $ 282,459 $ 173,731 $ 43,793
Other 77 79 80
Securitized 2,429,066 2,788,006 3,166,542
Receivables serviced for others 201 259 340
------------------------------------
Total Servicing Portfolio $2,711,803 $2,962,075 $3,210,755
------------------------------------
------------------------------------
Union Acceptance Corporation
Selected Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ------------------------
Income Statement Data
for the Period: 2002 2001 2002 2001
---------------------------------------------- -----------------------
Interest on receivables
held for sale $ 5,162 $ 3,844 $ 10,933 $ 14,571
Retained interest and
other 5,072 8,934 10,928 17,313
------------------------ ----------------------
Total interest income 10,234 12,778 21,861 31,884
Interest expense 4,517 5,372 8,818 14,275
------------------------ ----------------------
Net interest margin 5,717 7,406 13,043 17,609
Provision for estimated
credit losses 1,152 715 2,114 1,015
------------------------ ----------------------
Net interest margin
after provision for
estimated credit losses 4,565 6,691 10,929 16,594
Gain (loss) on sales of
receivables, net - (13,932) (11,553) (1,052)
Gain (loss) on interest
rate derivatives on
securitized receivables - (2,353) (976) (12,828)
Gain (loss) on interest
rate derivatives on
held for sale receivables (5,339) 1,647 (5,743) 4,769
Servicing fee income 6,601 8,049 13,403 15,854
Late charges and
other fees 2,360 1,557 4,622 3,481
------------------------ ----------------------
Other revenues 3,622 (5,032) (247) 10,224
------------------------ ----------------------
Salaries and benefits 7,746 8,646 15,153 17,460
Other expenses 5,581 5,849 11,553 11,866
------------------------ ----------------------
Total operating expenses 13,327 14,495 26,706 29,326
------------------------ ----------------------
Earnings (loss) before
provision for income
taxes (5,140) (12,836) (16,024) (2,508)
Provision (benefit) for
income taxes (1,849) (4,662) (5,806) (868)
------------------------ ----------------------
Net earnings (loss)
before cumulative
effect of change in
accounting principal $ (3,291)$ (8,174)$ (10,218)$ (1,640)
Cumulative effect of
change in accounting
principal, less
applicable taxes
of $568 - 989 - 989
------------------------ ----------------------
Net earnings (loss) $ (3,291)$ (9,163)$ (10,218)$ (2,629)
------------------------ ----------------------
------------------------ ----------------------
----------------------------------------------- ----------------------
Per Common Share Data:
Earnings (loss) before
cumulative effect of
change in accounting
principal (basic and
diluted) $ (0.11) $ (0.49) $ (0.33) $ (0.11)
Cumulative effect of
change in accounting
principal (basic and
diluted) - (0.06) - (0.07)
------------------------ ----------------------
Net earnings (loss)
(basic and diluted) $ (0.11) $ (0.55) $ (0.33) $ (0.18)
------------------------ ----------------------
------------------------ ----------------------
Book value $ 5.30 $ 6.47 $ 5.30 $ 6.47
Weighted average shares
outstanding 30,981,211 16,582,568 30,954,059 14,947,695
----------------------------------------------- ----------------------
Receivable
Acquisitions: $ 193,160 $ 198,811 $ 402,558 $ 535,441
Receivables Sold: $ - $ 293,017 $ 300,000 $ 723,020
----------------------------------------------- ----------------------
Ratios:
Return on average
managed assets -0.44% -1.02% -0.66% -0.14%
Return on average
shareholders' equity -7.91% -24.95% -12.07% -3.99%
Operating expenses as
a percentage of average
servicing portfolio 1.94% 1.78% 1.90% 1.77%
----------------------------------------------- ----------------------
Portfolio Performance:
Net credit loss
(annualized for the
period ended) 4.08% 2.91% 4.41% 2.76%
----------------------------------------------- ----------------------
Pro forma information for the earnings impact
of derivative instruments on held for
sale receivables related to FAS 133:
Total revenues $ 13,856 $ 7,746 $ 21,614 $ 42,108
Pro forma adjustment 5,339 (1,647) 5,743 (4,769)
------------------------ ----------------------
Pro forma total
revenues $ 19,195 $ 6,099 $ 27,357 $ 37,339
------------------------ ----------------------
------------------------ ----------------------
Pro forma net earnings
(loss) before
cumulative effect of
change in accounting
principal $ 100 $ (9,220)$ (6,571)$ (4,668)
Pro forma net earnings
(loss) $ 100 $ (10,209)$ (6,571)$ (5,657)
Pro forma earnings
(loss) per common
share before cumulative
effect of change in
accounting principal
(diluted and basic) $ 0.00 $ (0.56) $ (0.21) $ (0.31)
Pro forma earnings
(loss) per common
share (diluted and
basic) $ 0.00 $ (0.62) $ (0.21) $ (0.38)
Pro forma return on
average managed assets 0.01% -1.14% -0.43% -0.31%
Pro forma return on average
shareholders' equity 0.24% -27.81% -7.74% -8.59%
Union Acceptance Corporation
Pro Forma Portfolio-Based Financial Data(1)
(Dollars in thousands)
(Unaudited)
----------------------------------------------------------------------
The pro forma portfolio-based statements of earnings were as follows:
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2002 2001 2002 2001
----------------------- -----------------------
Interest income, fee
and other income $ 85,035 $ 104,871 $ 174,517 $ 215,447
Funding costs (47,376) (62,530) (97,213) (128,200)
----------------------- -----------------------
Net margin 37,659 42,341 77,304 87,247
Operating expenses (13,327) (14,494) (26,708) (29,325)
Credit losses (28,042) (23,632) (62,016) (45,699)
----------------------- -----------------------
Pre-tax portfolio-based
earnings (3,710) 4,215 (11,420) 12,223
Income taxes(2) 1,369 (1,555) 4,215 (4,510)
----------------------- -----------------------
Net portfolio-based
earnings $ (2,341) $ 2,660 $ (7,205) $ 7,713
----------------------- -----------------------
----------------------- -----------------------
Portfolio-based
earnings per share $ (0.08) $ 0.16 $ (0.23) $ 0.52
----------------------- -----------------------
----------------------- -----------------------
----------------------------------------------------------------------
The pro forma return on average managed receivables was as follows:
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2002 2001 2002 2001
----------------------- -----------------------
Interest income, fee
and other income 12.37% 12.90% 12.41% 13.00%
Funding costs -6.89% -7.69% -6.92% -7.73%
----------------------- -----------------------
Net margin 5.48% 5.21% 5.49% 5.27%
Operating expenses -1.94% -1.78% -1.90% -1.77%
Credit losses -4.08% -2.91% -4.41% -2.76%
----------------------- -----------------------
Pre-tax portfolio-based
earnings -0.54% 0.52% -0.82% 0.74%
Income taxes 0.20% -0.19% 0.30% -0.27%
----------------------- -----------------------
Net portfolio-based
earnings -0.34% 0.33% -0.52% 0.47%
----------------------- -----------------------
----------------------- -----------------------
Average Managed
Receivables $2,750,781 $3,251,864 $2,811,405 $3,315,455
----------------------------------------------------------------------
The following is a reconciliation of the pro forma portfolio-based net
earnings to GAAP net earnings:
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2002 2001 2002 2001
----------------------- -----------------------
GAAP Net income $ (3,291) $ (9,163) $ (10,218) $ (2,629)
Gain on sales of
receivables, net 128 14,920 11,784 2,040
Retained interest
and other (4,300) (7,000) (9,409) (13,206)
Servicing fee (6,601) (8,049) (13,403) (15,854)
Net margin 33,754 40,379 68,818 79,364
Credit losses (28,042) (23,632) (62,016) (45,699)
Provision for estimated
credit losses 1,152 715 2,114 1,015
Gain (loss) on interest
rate derivatives 5,339 707 6,718 8,060
----------------------- -----------------------
Net adjustments 1,430 18,040 4,606 15,720
Tax effect of
adjustments (480) (6,217) (1,593) (5,378)
----------------------- -----------------------
Net portfolio-based
earnings $ (2,341) $ 2,660 $ (7,205) $ 7,713
----------------------- -----------------------
----------------------- -----------------------
(1) These portfolio-based financial statements do not present the
Company's results of operations in accordance with GAAP and are
provided for illustrative purposes only.
(2) Tax effect is based upon the Company's effective tax rate for the
respective period.