Westcorp Reports Record Net Income in Third Quarter
IRVINE, Calif.--Oct. 16, 2002--| -- | Third quarter net income rose 164% to a record $21.7 million |
| -- | Earnings per share were $0.55 on a GAAP basis and $0.91 on a portfolio basis |
| -- | Automobile contract purchases increased 14% to a record $1.4 billion |
| -- | Total revenues grew 36% to $185 million |
Westcorp today reported record net income of $21.7 million for the third quarter of 2002, a 164% increase from the same period a year ago.
For the nine months ended Sept. 30, 2002, the company earned a record $60.2 million compared with $42.8 million for the same period a year earlier. Earnings per diluted share were $0.55 for the third quarter of 2002 compared with $0.23 for the same period a year ago. For the nine months ended Sept. 30, 2002, earnings per diluted share were $1.55 compared with $1.26 for the same period a year earlier.
"We achieved record earnings results despite the negative impacts of a difficult economic cycle. Lower used car prices have reduced our realization on sales of repossessed automobiles and we're experiencing somewhat higher loss frequency as well," said Tom Wolfe, president of Westcorp. "At the same time, we've continued to strengthen our balance sheet by increasing our allowance for credit losses, eliminating residual interest assets, and maintaining strong capital levels."
Westcorp's results continued to be impacted by the elimination of off balance sheet accounting for new securitization transactions. This included $7.7 million of non-cash, residual interest asset amortization expense and $25.9 million in provisions for credit losses in excess of chargeoffs due to the continued growth of the on balance sheet portfolio. The company has reduced its residual interest assets to $4 million as of Sept. 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 2.6% at Sept. 30, 2002 compared with 2.3% at Dec. 31, 2001.
Originations
Automobile contract purchases totaled $1.4 billion for the third quarter of 2002, a 14% increase from the same period a year earlier. For the nine months ended Sept. 30, 2002, automobile contract purchases increased 13% to $4.2 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 $9.3 billion at Sept. 30, 2002, up from $8.2 billion at Dec. 31, 2001.
Income Statement Trends
Total revenues grew 36% for the three months ended Sept. 30, 2002 to $185 million compared with $136 million for the same period a year earlier. For the nine months ended Sept. 30, 2002, total revenues grew 30% to $512 million compared with $395 million for the same period a year earlier.
Net interest income increased 25% to $159 million for the three months ended Sept. 30, 2002 compared with $128 million for the same period a year earlier. Net interest margin for the three months ended Sept. 30, 2002 was 5.21% compared with 5.15% for the same period a year earlier. For the nine months ended Sept. 30, 2002, net interest income increased 36% to $448 million compared with $330 million for the same period a year earlier. Net interest margin for the nine months ended Sept. 30, 2002 was 5.34% compared with 4.74% 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 Sept. 30, 2002, checking and money market accounts were $704 million or 38% of total deposits compared with $866 million or 38% a year ago. The decline in the dollars of checking and money market accounts was the result of the company selling its seven Northern California retail bank branches. The company now has 17 retail bank branches all located in Southern California.
"Last 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 completed the sale of our Northern California offices and are finalizing our future plans. These plans include opening additional retail bank branch locations in Southern California during 2003."
Total noninterest income, which includes income from off balance sheet securitization transactions, increased to $26.4 million for the three months ended Sept. 30, 2002 compared with $8.3 million for the same period a year earlier. The increase in the third quarter is primarily the result of a one-time gain of $6 million ($3.6 million net of tax), on the sale of the company's Northern California retail bank branches. For the nine months ended Sept. 30, 2002, total noninterest income declined to $64.2 million compared with $65.3 million for the same period a year earlier.
The increase in net interest income and the decline in total servicing income were impacted by the transitional effects related to the company's decision to eliminate gain on sale accounting on its automobile asset-backed securities.
Noninterest expense totaled $62.2 million or 34% of total revenues for the third quarter of 2002 compared with $59.9 million or 44% for the same period a year ago. For the nine months ended Sept. 30, 2002, operating expenses totaled $188 million or 37% of total revenues compared with $184 million or 47% for the same period a year earlier.
Provision for credit losses totaled $81 million for the three months ended Sept. 30, 2002 compared with $60.5 million for the same period a year ago. For the nine months ended Sept. 30, 2002, provision for credit losses totaled $209 million compared with $127 million for the same period a year earlier. The increase is the result of the company increasing the allowance for credit losses as a percent of loans and as a result of the growth in the on balance sheet portfolio and higher credit losses.
Portfolio Performance
Annualized credit loss experience for the third quarter increased 43 basis points to 2.73% of average managed automobile contracts compared with 2.30% for the same period a year ago. For the nine months ended Sept. 30, 2002, annualized credit loss experience was 2.56% compared with 2.04% for the same period a year ago. The percentage of outstanding contracts 30 days or more delinquent decreased 29 basis points to 3.43% at Sept. 30, 2002 compared with 3.72% at Dec. 31, 2001.
"Our credit trends this quarter reflect the general weakness in the economy and we expect these negative trends to continue into 2003," said Wolfe. "As a result, we plan to further increase our allowance for credit losses in the fourth quarter. We also expect losses to trend higher next quarter due to our current economic outlook as well as seasonal trends."
Portfolio Basis Earnings
The financial schedules attached to this earnings release include tables presenting pro forma portfolio basis statements of income. These statements present the company's results under the assumption that all securitization transactions are treated as secured financings rather than sales. The company believes that such a presentation is an important performance measure of its operations and believes that these portfolio basis statements assist in better understanding its business. If treated as secured financings, no gain on sale or subsequent contractual servicing and retained interest income is recognized. Instead, the earnings of the securitization trusts and related financing costs are reflected over the life of the underlying pool of contracts.
Earnings on a portfolio basis grew 21% to a record $35.8 million for the third quarter of 2002 compared with $29.6 million for the same period a year earlier. For the nine months ended Sept. 30, 2002, earnings on a portfolio basis were up 35% to a record $101 million compared with $74.9 million for the comparable period in 2001. Earnings per diluted share, on a portfolio basis, increased to $0.91 for the third quarter of 2002 compared with $0.82 for the same period a year earlier. For the nine months ended Sept. 30, 2002 earnings per diluted share, on a portfolio basis increased 18% to $2.60 compared with $2.20 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.
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, Oct. 17, 2002. As part of this conference call, the company's management will further discuss earnings results. 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 17 retail bank branches 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 its 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, including hedging activities;
-- 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 charge-offs 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, our 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 Nine Months
Ended Ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
(Dollars in thousands, except share and per
share amounts)
Interest income:
Loans,
including
fees $265,814 $218,910 $748,589 $590,284
Mortgage-
backed
securities 30,808 32,116 86,534 104,242
Other 2,384 2,015 6,087 6,782
TOTAL INTEREST
INCOME 299,006 253,041 841,210 701,308
Interest expense:
Deposits 20,447 26,370 61,642 92,123
Notes
payable on
automobile
secured
financing 105,911 90,464 301,083 244,482
Other 13,618 8,564 30,431 34,871
TOTAL INTEREST
EXPENSE 139,976 125,398 393,156 371,476
NET INTEREST INCOME 159,030 127,643 448,054 329,832
Provision for credit
losses 80,996 60,501 209,043 127,124
NET INTEREST INCOME
AFTER
PROVISION
FOR CREDIT
LOSSES 78,034 67,142 239,011 202,708
Noninterest income:
Automobile
lending 15,985 3,948 43,740 54,311
Other 10,402 4,378 20,537 10,972
TOTAL
NONINTEREST
INCOME 26,387 8,326 64,277 65,283
Noninterest expenses:
Salaries and
associate
benefits 34,684 33,804 105,738 107,412
Credit and
collections 8,442 7,468 26,695 20,329
Data
processing 4,485 4,176 13,625 13,612
Other 14,596 14,432 41,783 42,809
TOTAL
NONINTEREST
EXPENSES 62,207 59,880 187,841 184,162
INCOME BEFORE INCOME
TAX 42,214 15,588 115,447 83,829
Income tax 16,801 6,119 44,950 32,967
INCOME BEFORE MINORITY
INTEREST 25,413 9,469 70,497 50,862
Minority interest in
earnings of
subsidiaries 3,740 1,255 10,263 8,036
NET INCOME $21,673 $8,214 $60,234 $42,826
Net income per common
share:
Basic $0.55 $0.23 $1.57 $1.27
Diluted $0.55 $0.23 $1.55 $1.26
Weighted average number
of common shares
outstanding:
Basic 39,189,744 35,792,418 38,382,794 33,765,085
Diluted 39,506,307 36,091,155 38,751,631 33,987,939
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
September 30, December 31,
2002 2001
(Dollars in thousands)
ASSETS
Cash and cash equivalents $289,793 $104,327
Investment securities available for sale 11,299 10,511
Mortgage-backed securities available for sale 2,489,300 2,092,225
Loans receivable 9,145,593 7,533,150
Allowance for credit losses (235,709) (171,432)
Loans receivable, net 8,909,884 7,361,718
Amounts due from trusts 116,149 136,131
Retained interest in securitized assets 4,027 37,392
Premises and equipment, net 78,612 79,258
Other assets 281,650 250,835
TOTAL ASSETS $12,180,714 $10,072,397
LIABILITIES
Deposits $1,871,791 $2,329,326
Notes payable on automobile secured financing 8,015,546 5,886,227
Securities sold under agreements to
repurchase 323,755 155,190
Federal Home Loan Bank advances 445,810 543,417
Amounts held on behalf of trustee 213,283 280,496
Subordinated debentures 428,899 147,714
Other borrowings 8,296 25,068
Other liabilities 188,411 85,994
TOTAL LIABILITIES 11,495,791 9,453,432
Minority interest 98,214 78,261
SHAREHOLDERS' EQUITY
Common stock, (par value $1.00 per share;
authorized 65,000,000
Shares; issued and outstanding
39,192,789 shares in September 2002 and
35,802,491 shares in December 2001) 39,193 35,802
Paid-in capital 349,356 301,955
Retained earnings 310,749 263,853
Accumulated other comprehensive loss, net of
tax (112,589) (60,906)
TOTAL SHAREHOLDERS' EQUITY 586,709 540,704
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $12,180,714 $10,072,397
WESTCORP AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
LOAN ORIGINATIONS
Consumer $1,445,948 $1,265,209 $4,207,743 $3,741,076
Real estate 2,071 3,442 23,535 18,328
Commercial 66,351 85,616 196,525 218,101
Total $1,514,370 $1,354,267 $4,427,803 $3,977,505
INTEREST RATE SPREAD --
OWNED LOANS
Yield on interest-
earning assets 10.34% 11.00% 10.54% 11.08%
Cost of interest-
bearing liabilities 5.13 5.85 5.20 6.34
Interest spread 5.21% 5.15% 5.34% 4.74%
OWNED LOAN LOSS
EXPERIENCE
Consumer 2.63% 2.13% 2.46% 1.88%
Real estate 0.13 0.22 0.07 0.26
Total 2.51% 1.98% 2.33% 1.72%
Sept. 30, 2002 December 31, 2001
Amount Percent Amount Percent
OWNED LOAN DELINQUENCY
60+
Consumer $81,102 0.9% $66,380 1.0%
Real estate 4,446 1.4 7,109 1.9
Commercial 1,362 1.6
Total $85,548 1.0% $74,851 1.0%
September December
30, 31,
2002 2001
MANAGED PORTFOLIO
Consumer $9,269,401 $8,153,317
Real estate 263,920 340,710
Commercial 133,311 132,939
Total $9,666,632 $8,626,966
WESTCORP AND SUBSIDIARIES
PORTFOLIO BASIS STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
(Dollars in thousands, except per share
amounts)
Interest income $322,366 $304,087 $926,801 $884,712
Interest expense 154,789 156,828 447,021 481,794
Net interest income 167,577 147,259 479,780 402,918
Net charge-offs(a) 62,330 44,995 166,797 114,242
Provision for growth (b) 5,337 5,725 15,225 18,524
Provision for credit
losses 67,667 50,720 182,022 132,766
Net interest income
after provision for
credit losses 99,910 96,539 297,758 270,152
Noninterest income 30,594 20,981 80,696 61,361
Noninterest expense 62,213 59,902 187,903 184,235
Income before income
tax 68,291 57,618 190,551 147,278
Income tax(c) 27,180 22,619 74,307 57,813
Income before minority
interest 41,111 34,999 116,244 89,465
Minority interest in
earnings 5,309 5,432 15,429 14,541
Portfolio basis net
income $35,802 $29,567 $100,815 $74,924
Portfolio basis net
income per common share
-- diluted $ 0.91 $ 0.82 $ 2.60 $ 2.20
GAAP basis net income per
common share -- diluted $ 0.55 $ 0.23 $ 1.55 $ 1.26
(a) Represents actual charge-offs 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 Nine Months
Ended Ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
(Dollars in thousands)
GAAP net income $21,673 $8,214 $60,234 $42,826
Portfolio basis adjustments:
Retained interest expense 6,588 17,867 25,252 14,790
Contractual servicing income (2,380) (5,212) (8,833) (18,712)
Net interest income 8,547 19,616 31,726 73,086
Provision for credit losses 13,329 9,781 27,021 (5,642)
Operating expenses (7) (23) (62) (73)
Minority interest (1,569) (4,177) (5,166) (6,505)
Total portfolio basis
adjustments 24,508 37,852 69,938 56,944
Net tax effect(a) 10,379 16,499 29,357 24,846
Portfolio basis net income $35,802 $29,567 $100,815 $74,924
(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 Sept. 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
(a)
1 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%
3 0.11% 0.08% 0.11% 0.11% 0.11% 0.10%
4 0.25% 0.18% 0.23% 0.20% 0.26% 0.25%
5 0.44% 0.38% 0.39% 0.33% 0.47% 0.40%
6 0.66% 0.59% 0.50% 0.46% 0.66% 0.56%
7 0.95% 0.83% 0.61% 0.62% 0.87% 0.71%
8 1.23% 1.03% 0.75% 0.76% 1.00% 0.86%
9 1.50% 1.21% 0.86% 0.92% 1.13% 1.01%
10 1.79% 1.40% 1.00% 1.11% 1.24% 1.14%
11 2.03% 1.53% 1.17% 1.30% 1.35% 1.34%
12 2.21% 1.62% 1.32% 1.47% 1.44% 1.52%
13 2.39% 1.74% 1.48% 1.61% 1.58% 1.74%
14 2.49% 1.84% 1.66% 1.73% 1.74% 1.94%
15 2.60% 1.96% 1.79% 1.81% 1.85% 2.09%
16 2.72% 2.10% 1.91% 1.89% 2.03% 2.27%
17 2.85% 2.22% 2.01% 2.00% 2.16% 2.39%
18 2.98% 2.40% 2.07% 2.10% 2.30% 2.53%
19 3.11% 2.55% 2.11% 2.24% 2.42% 2.67%
20 3.25% 2.69% 2.17% 2.35% 2.50% 2.81%
21 3.35% 2.79% 2.24% 2.46% 2.58% 2.92%
22 3.48% 2.85% 2.34% 2.55% 2.67% 3.10%
23 3.62% 2.89% 2.43% 2.63% 2.77% 3.28%
24 3.70% 2.92% 2.52% 2.71% 2.87% 3.38%
25 3.75% 2.97% 2.62% 2.77% 3.01% 3.55%
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% 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% 4.57%
35 4.32% 3.52% 3.15% 3.41% 3.87% 4.66%
36 4.34% 3.54% 3.21% 3.47% 3.91% 4.76%
37 4.35% 3.58% 3.25% 3.52% 3.97%
38 4.38% 3.63% 3.30% 3.55% 4.03%
39 4.39% 3.66% 3.35% 3.58% 4.09%
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% 3.66%
43 4.47% 3.75% 3.45% 3.68%
44 4.50% 3.79% 3.47% 3.72%
45 4.52% 3.81% 3.48%
46 4.55% 3.81% 3.50%
47 4.56% 3.83% 3.52%
48 4.56% 3.84%
49 4.56% 3.85%
50 4.56% 3.86%
51 4.57% 3.87%
52 4.57% 3.88%
53 4.57%
54 4.57%
55 4.57%
Prime
Mix
(b) 57% 67% 70% 70% 70% 67%
Period 2000 2000 2000 2000 2001 2001- 2001- 2002- 2002- 2002-
(a) -A -B -C -D -A B C 1 2 3
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.03% 0.02% 0.04% 0.04% 0.03% 0.03% 0.04% 0.01% 0.00% 0.02%
3 0.10% 0.09% 0.13% 0.11% 0.09% 0.10% 0.09% 0.06% 0.03%
4 0.20% 0.24% 0.27% 0.24% 0.20% 0.21% 0.20% 0.15% 0.10%
5 0.36% 0.39% 0.46% 0.39% 0.33% 0.33% 0.35% 0.29% 0.18%
6 0.55% 0.59% 0.65% 0.54% 0.50% 0.50% 0.49% 0.43%
7 0.71% 0.78% 0.81% 0.74% 0.70% 0.69% 0.65% 0.60%
8 0.91% 0.99% 0.93% 0.93% 0.84% 0.87% 0.81%
9 1.10% 1.17% 1.07% 1.13% 1.04% 1.05% 0.95%
10 1.27% 1.33% 1.24% 1.34% 1.24% 1.22% 1.07%
11 1.45% 1.44% 1.41% 1.50% 1.45% 1.36% 1.20%
12 1.58% 1.57% 1.62% 1.74% 1.67% 1.53% 1.37%
13 1.73% 1.72% 1.86% 1.95% 1.90% 1.67% 1.55%
14 1.85% 1.86% 2.04% 2.21% 2.09% 1.81% 1.74%
15 2.00% 2.04% 2.25% 2.48% 2.25% 2.00%
16 2.15% 2.24% 2.45% 2.71% 2.41% 2.19%
17 2.37% 2.39% 2.68% 2.89% 2.54% 2.37%
18 2.52% 2.55% 2.88% 3.08% 2.73%
19 2.67% 2.73% 3.08% 3.22% 2.93%
20 2.83% 2.93% 3.23% 3.40% 3.11%
21 2.99% 3.12% 3.38% 3.59%
22 3.16% 3.27% 3.54% 3.78%
23 3.34% 3.38% 3.67% 3.96%
24 3.49% 3.52% 3.83%
25 3.63% 3.63% 4.00%
26 3.75% 3.73% 4.16%
27 3.86% 3.84%
28 3.97% 3.97%
29 4.09% 4.11%
30 4.21%
31 4.33%
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
Prime
Mix
(b) 68% 69% 68% 68% 71% 71% 76% 70% 87% 85%
(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.