WFS Financial Reports Record Net Income in Third Quarter
IRVINE, Calif.--Oct. 16, 2002--| -- | Third quarter net income rose 150% to a record $23.3 million |
| -- | Earnings per share were $0.57 on a GAAP basis and $0.81 on a portfolio basis |
| -- | Automobile contract purchases increased 14% to $1.4 billion |
| -- | Total revenues grew 45% to $155 million |
WFS Financial Inc today reported record net income of $23.3 million for the third quarter of 2002, a 150% increase from the same period a year ago.
For the nine months ended Sept. 30, 2002, the company earned a record $64.1 million compared with $47.7 million for the same period a year earlier. Earnings per diluted share increased to $0.57 for the third quarter of 2002 compared with $0.27 for the same period a year ago. For the nine months ended Sept. 30, 2002, earnings per diluted share were $1.62 compared with $1.52 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 and CEO of WFS Financial. "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."
WFS' 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 $22.5 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 2.5% 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 45% for the three months ended Sept. 30, 2002 to $155 million compared with $107 million for the same period a year earlier. For the nine months ended Sept. 30, 2002, total revenues grew 32% to $429 million compared with $326 million for the same period a year earlier.
Net interest income increased 53% to $124 million for the three months ended Sept. 30, 2002 compared with $81.3 million for the same period a year earlier. For the nine months ended Sept. 30, 2002, net interest income increased 57% to $338 million compared with $216 million for the same period a year earlier.
Total servicing income, which includes income from off balance sheet securitization transactions, increased to $30.2 million for the three months ended Sept. 30, 2002 compared with $25.4 million for the same period a year earlier. The increase in the third quarter was the result of higher RISA amortization in the same quarter a year ago. For the nine months ended Sept. 30, 2002, total servicing income declined to $91 million compared with $104 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.
Operating expenses totaled $52.7 million or 2.3% of average managed contracts for the third quarter of 2002 compared with $50.1 million or 2.6% for the same period a year ago. For the nine months ended Sept. 30, 2002, operating expenses totaled $161 million or 2.5% of average managed contracts compared with $154 million or 2.8% for the same period a year earlier.
Provision for credit losses totaled $63.1 million for the three months ended Sept. 30, 2002 compared with $41.2 million for the same period a year ago. For the nine months ended Sept. 30, 2002, provision for credit losses totaled $163 million compared with $93.3 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 automobile contracts 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 whole loan sales and 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 increased 3% to $33.1 million for the third quarter of 2002 compared with $32.2 million for the same period a year earlier. For the nine months ended Sept. 30, 2002, earnings on a portfolio basis were up 16% to $96.4 million compared with $83.4 million for the comparable period in 2001.
Earnings per diluted share on a portfolio basis declined to $0.81 for the third quarter of 2002 compared with $0.92 for the same period a year earlier. For the nine months ended Sept. 30, 2002, earnings per diluted share on a portfolio basis decreased 8% to $2.43 compared with $2.65 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.
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, Oct. 17, 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 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, 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 chargeoffs on the automobile contracts that the
company originates; and
-- Other significant unexpected events.
If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. We do not undertake to update our forward-looking statements to reflect future events or circumstances.
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
(Dollars in thousands, except share and per
share amounts)
REVENUES:
Interest
income $220,285 $139,731 $589,583 $386,646
Interest
expense 95,849 58,445 251,382 171,039
Net
interest
income 124,436 81,286 338,201 215,607
Servicing
income 30,193 25,368 90,956 103,900
Gain on sale
of contracts 6,741
TOTAL
REVENUES 154,629 106,654 429,157 326,248
EXPENSES:
Provision for
credit
losses 63,098 41,179 163,486 93,272
Operating
expenses:
Salaries and
associate
benefits 31,038 29,860 95,282 95,310
Credit and
collections 8,312 7,411 26,419 20,208
Data
processing 4,182 3,879 12,612 12,746
Other 9,153 8,960 26,338 25,521
TOTAL
OPERATING
EXPENSES 52,685 50,110 160,651 153,785
TOTAL
EXPENSES 115,783 91,289 324,137 247,057
INCOME BEFORE INCOME
TAX 38,846 15,365 105,020 79,191
Income tax 15,505 6,024 40,963 31,539
NET INCOME $23,341 $9,341 $64,057 $47,652
Net income per common
share:
Basic $0.57 $0.27 $1.62 $1.52
Diluted $0.57 $0.27 $1.62 $1.52
Weighed average number
of common shares
outstanding:
Basic 41,019,800 34,817,974 39,583,103 31,322,213
Diluted 41,065,805 34,913,874 39,632,361 31,413,509
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
Sept. 30, Dec. 31,
2002 2001
(Dollars in thousands)
ASSETS
Cash and short-term investments $633,461 $30,100
Investment securities available for sale 3,962 4,668
Contracts receivable 7,517,170 5,215,718
Allowance for credit losses (192,220) (131,827)
Contracts
receivable, net 7,324,950 5,083,891
Amounts due from trusts 116,386 184,952
Retained interest in securitized assets 4,027 37,392
Premises and equipment, net 30,481 33,826
Accrued interest receivable 48,964 37,100
Other assets 118,898 78,828
TOTAL ASSETS $8,281,129 $5,490,757
LIABILITIES
Lines of credit -- parent $63,568 $421,175
Notes payable on automobile secured
financing 6,742,670 4,005,925
Notes payable -- parent 436,910 67,500
Amounts held on behalf of trustee 349,234 476,910
Other liabilities 75,755 53,954
TOTAL
LIABILITIES 7,668,137 5,025,464
SHAREHOLDERS' EQUITY
Common stock, (no par value; authorized
60,000,000 shares; issued and outstanding
41,019,899 shares in 2002 and 34,820,178 in
2001) 338,185 227,568
Paid-in capital 4,759 4,337
Retained earnings 326,767 262,710
Accumulated other comprehensive loss, net
of tax (56,719) (29,322)
TOTAL SHAREHOLDERS' EQUITY 612,992 465,293
TOTAL
LIABILITIES
AND
SHAREHOLDERS'
EQUITY $8,281,129 $5,490,757
WFS FINANCIAL INC AND SUBSIDIARIES
OTHER SELECTED FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
CONTRACT
ORIGINATIONS $1,444,185 $1,264,891 $4,204,718 $3,735,689
Sept. 30, 2002 Dec. 31, 2001
MANAGED Amount Percent Amount Percent
CONTRACTS
Owned contracts $7,380,920 79.63% $5,119,044 62.79%
Off balance
sheet
securitizations 668,166 7.21 1,215,058 14.90
Whole loan sales
to parent 1,220,179 13.16 1,818,780 22.31
Total managed
contracts $9,269,265 100.00% $8,152,882 100.00%
MANAGED Sept. 30, 2002 Dec. 31, 2001
DELINQUENCY AND
REPOSSESSIONS Amount Percent Amount Percent
Contracts
managed at end
of period $9,269,265 $8,152,882
Period of
delinquency
30-59 days $225,912 2.44% $217,873 2.67%
60 days or
more 92,381 0.99 85,290 1.05
Total contracts
delinquent $318,293 3.43% $303,163 3.72%
Total
repossessions $10,557 0.11% $7,553 0.09%
MANAGED Three Months Ended Nine Months Ended
CONTRACTS Sept. 30, Sept. 30,
LOSS EXPERIENCE 2002 2001 2002 2001
Contracts
managed at end
of period $9,269,265 $7,978,837 $9,269,265 $7,978,837
Average
contracts
managed during
The period $ 9,102,663 $ 7,801,032 $ 8,672,049 $ 7,403,432
Gross charge
offs $80,916 $63,810 $229,216 $162,747
Recoveries 18,688 19,045 62,548 49,375
Net charge offs $62,228 $44,765 $166,668 $113,372
Net charge offs
as a percentage
of
Average
managed
contracts
outstanding
during
period 2.73% 2.30% 2.56% 2.04%
WFS FINANCIAL INC 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 $286,473 $262,698 $821,190 $745,404
Interest expense 133,510 126,790 384,149 374,481
Net interest income 152,963 135,908 437,041 370,923
Net chargeoffs (a) 62,227 44,765 166,667 113,373
Provision for growth (b) 5,463 5,533 17,357 18,281
Provision for credit losses 67,690 50,298 184,024 131,654
Net interest income after
provision for credit losses 85,273 85,610 253,017 239,269
Other income 22,742 18,198 66,390 54,638
Operating expenses 52,864 50,828 161,373 155,664
Income before income tax 55,151 52,980 158,034 138,243
Income tax (c) 22,014 20,771 61,655 54,843
Portfolio basis net income $33,137 $32,209 $96,379 $83,400
Portfolio basis net income per
common share -- diluted $0.81 $0.92 $2.43 $2.65
GAAP basis net income per
common share -- diluted $ 0.57 $ 0.27 $ 1.62 $ 1.52
(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 Nine Months Ended
Sept. 30, Sept. 30,
2002 (a) 2001 (a) 2002 (a) 2001 (a)
Interest income 12.5% 13.4% 12.6% 13.4%
Interest expense 5.8 6.5 5.9 6.7
Net interest income 6.7 6.9 6.7 6.7
Net chargeoffs 2.7 2.2 2.5 2.1
Provision for growth 0.3 0.3 0.3 0.3
Provision for
credit losses 3.0 2.5 2.8 2.4
Net interest income
after provision
for credit losses 3.7 4.4 3.9 4.3
Other income 1.0 0.9 1.0 1.0
Operating expenses 2.3 2.6 2.5 2.8
Income before
income tax 2.4 2.7 2.4 2.5
Income tax 1.0 1.1 0.9 1.0
Portfolio basis net
income 1.4% 1.6% 1.5% 1.5%
Average managed
contracts $9,102,663 $7,801,032 $8,672,049 $7,403,432
(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 Nine Months
Ended Ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
(Dollars in thousands)
GAAP basis net income $23,341 $9,341 $64,057 $47,652
Portfolio basis adjustments:
Gain on sales of contracts (6,741)
Retained interest expense 6,903 17,867 25,567 14,790
Contractual servicing income (14,349) (24,948) (50,035) (63,962)
Net interest income 28,527 54,622 98,840 155,316
Provision for credit losses (4,592) (9,119) (20,538) (38,382)
Operating expenses (184) (807) (820) (1,969)
Total portfolio basis adjustments 16,305 37,615 53,014 59,052
Net tax effect (a) 6,509 14,747 20,692 23,304
Portfolio basis net income $33,137 $32,209 $96,379 $83,400
(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 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 2000-A 2000-B
(a)
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% 3.84%
28 3.92% 3.18% 2.87% 2.96% 3.29% 3.98% 3.97% 3.97%
29 3.98% 3.24% 2.90% 3.02% 3.40% 4.14% 4.09% 4.11%
30 4.06% 3.32% 2.95% 3.09% 3.50% 4.19% 4.21%
31 4.11% 3.38% 3.00% 3.17% 3.61% 4.30% 4.33%
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% 68% 69%
Period 2000-C 2000-D 2001-A 2001-B 2001-C 2002-1 2002-2 2002-3
(a) (c) (c)
1 0.00% 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% 0.02%
3 0.13% 0.11% 0.09% 0.10% 0.09% 0.06% 0.03%
4 0.27% 0.24% 0.20% 0.21% 0.20% 0.15% 0.10%
5 0.46% 0.39% 0.33% 0.33% 0.35% 0.29% 0.18%
6 0.65% 0.54% 0.50% 0.50% 0.49% 0.43%
7 0.81% 0.74% 0.70% 0.69% 0.65% 0.60%
8 0.93% 0.93% 0.84% 0.87% 0.81%
9 1.07% 1.13% 1.04% 1.05% 0.95%
10 1.24% 1.34% 1.24% 1.22% 1.07%
11 1.41% 1.50% 1.45% 1.36% 1.20%
12 1.62% 1.74% 1.67% 1.53% 1.37%
13 1.86% 1.95% 1.90% 1.67% 1.55%
14 2.04% 2.21% 2.09% 1.81% 1.74%
15 2.25% 2.48% 2.25% 2.00%
16 2.45% 2.71% 2.41% 2.19%
17 2.68% 2.89% 2.54% 2.37%
18 2.88% 3.08% 2.73%
19 3.08% 3.22% 2.93%
20 3.23% 3.40% 3.11%
21 3.38% 3.59%
22 3.54% 3.78%
23 3.67% 3.96%
24 3.83%
25 4.00%
26 4.16%
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
53
54
55
Prime Mix
(b) 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.
(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.