Union Acceptance Reports Reorganization Plans, Third Quarter 2002 Results
INDIANAPOLIS--Oct. 31, 2002--Union Acceptance Corporation ("UAC") today announced that it has filed a petition for reorganization under Chapter 11 of the Bankruptcy Code to facilitate a financial restructuring. The objective of the reorganization proceeding is to protect the enterprise and restructure obligations so that the Company will be able to continue as a going concern. Management believes that assets and future cash flows will be sufficient to pay all obligations, but has determined that the special remedies available through a bankruptcy proceeding are necessary to achieve that objective and maintain operations. The proceeding is in the U. S. Bankruptcy Court for the Southern District of Indiana, Indianapolis Division."We obviously regret that this measure has become necessary. We have been working to acquire additional long-term capital and to supplement our receivable acquisition funding. While our lenders have been working with us to meet our needs it has become apparent that supplemental arrangements will not be in place in time for us to continue as we have. We are suspending receivable acquisitions for the time being until new funding arrangements can be put in place," said Lee Ervin, president and chief executive officer. "We currently expect debtor-in-possession financing to be implemented in the next few days to permit us to continue receivable acquisitions. Our objective is to protect our enterprise, to position ourselves to fund all of our obligations, to preserve value for our shareholders, and to rebuild for the future."
Post-petition financing, which is subject to bankruptcy court approval, will be necessary for the company to continue to fund receivable acquisitions and the company is seeking approval by the Court to continue to fund payroll, pay key vendors and take other measures to maintain operations. "We believe the Chapter 11 process will enable us to address our liquidity issues with minimal disruption of operations," said Ervin.
UAC's current surety provider has not indicated a willingness to support future term securitizations in the present environment. Accordingly, management is exploring other arrangements for disposition of the held for sale portfolio.
The Chapter 11 proceeding does not include UAC's warehouse funding and securitization subsidiaries.
Discussion of Quarterly Results
The Company also reported a third quarter net loss of $35.5 million, or $1.14 per common share on a fully diluted basis. This compares with a loss of $23.8 million, or $0.77 per common share, for the same period last year and a loss of $3.3 million, or $0.11 per common share, in the second quarter of 2002. The net loss for the nine months ended September 30, 2002 was $45.7 million, or $1.47 per common share, compared with a net loss of $26.4 million, or $1.30 per common share on a fully diluted basis, in the comparable year-ago nine-month period.
Results for the quarter ended September 30 in both 2002 and 2001 include charges for the revaluation of retained interest in securitized assets. In the third quarter 2002, the charge was $29.7 million after-tax, or $0.96 per share, and $27.9 million after-tax, or $0.90 per share, in the year-ago quarter. Excluding the charges in both quarters, comparable net earnings (loss) would have totaled $(5.8) million, or $(0.18) per common share, in the most recent quarter and $4.1 million, or $0.13 per common share, for the year-ago quarter.
"The third quarter was important on a number of strategic fronts," said Ervin. "UAC continued to focus on disciplined pricing to achieve its 1.50% return on managed assets target for new receivable acquisitions, total dollars in delinquency are down 25% since December 2001, and we had been able to regain momentum in receivable acquisitions. Despite the many improvements that have occurred in our operations, the recessionary trends in the economy continue to negatively impact our earnings and challenged our financing relationships. Improved collection techniques have, however, greatly improved our effectiveness in this important aspect of our business. These efforts will continue, despite our reorganization filing, and our expense reduction plans will be accelerated."
"We believe the adjustment of credit loss assumptions we took during the most recent quarter reflects our best estimate of the impact that an extended recession will have on our retained interest in securitized assets," continued Ervin. "While the adjustment and its negative effect on short-term earnings were disappointing, we believe it is in the best long-term interest of the company to be proactive with these issues, and this action will provide shareholders with the most accurate financial picture possible. These results are presented based on the assumption that we will continue to service our securitized portfolio."
"Lastly, I believe we have a management team capable of rebuilding Union Acceptance. The risk adjusted spreads on recent new business cause us to believe the intense price competition that has so long been a problem for this industry has changed in a very positive way. We believe the primary driver of this change has been the capital markets' insistence on stronger capital ratios and investors' demand for higher returns. Our goal is to be positioned to meet the market's expectations when we emerge from Chapter 11 in the very near future."
Receivable Acquisitions
The quarterly volume of receivable acquisitions increased to $223.3 million, up 16% from the prior quarter and 24% from the December 2001 quarter, but down 14% from $258.4 million from the year-ago quarter. The average monthly FICO score was 703 during 2002; approximately 66% of accounts originated have a credit score of 675 or better, and less than one % of the accounts have a FICO score below 625.
The average servicing portfolio was $2.6 billion for the September 30, 2002 quarter, down from $3.2 billion for the comparable year-ago quarter. Receivables held for sale increased to $488.0 million at September 30, 2002 compared with $38.3 million at September 30, 2001.
Revenues
As previously mentioned, UAC recorded a charge in the third quarter of 2002 of $29.7 million after-tax for the revaluation of the retained interest in its securitized assets. The majority of the revaluation is related to higher credit losses indicated by recent portfolio performance and an estimate of the impact of continued sluggish economic conditions, and to a lesser extent, an adjustment of the discount rates used in the valuation of the retained interest. The weighted average discount rate increased to 12.03% for the quarter ended September 30, 2002, up from 9.67% in the previous quarter, reflecting current market conditions.
The net interest margin after provision for estimated credit losses of $7.9 million for the quarter was negatively impacted by a higher provision, but still up from $4.6 million in the prior quarter and $6.1 million in the year-ago quarter. Before the provision, the net interest margin was $10.1 million, compared with $5.7 million in the prior quarter and $6.7 million for the same three-month period last year. The increase in the net interest margin, combined with servicing fee income of $5.8 million and other fee income of $2.5 million, offset the $10.8 million loss for the quarter on the interest rate derivatives on held for sale receivables.
Operating Expenses and Efficiency
Expenses for the third quarter 2002 were $12.8 million, or 1.93% of the servicing portfolio, compared with $13.3 million, or 1.68%, in the year-ago quarter. Operating expenses for the past three quarters have been at lower levels than the $13.6 million for the quarter ended December 2001, although expenses as a percentage of the servicing portfolio have not experienced a corresponding decline because of the reduced servicing portfolio. Operating expenses do not include the expenses related to the company's Circle City Car Company automobile dealership, which was classified as a discontinued operation in the third quarter and sold in October.
Delinquency and Credit Loss
In the third quarter, the company continued to experience increases in delinquency and credit losses, resulting primarily from the continued effects of the ongoing recession, continuing trends in bankruptcy filings and lower automobile auction values.
Delinquency was 4.22% at September 30, 2002, compared with 3.79% in the prior quarter and 3.73% a year ago. Total dollars delinquent for the quarter were $110.0 million, up $7.2 million from the prior quarter, but down from $116.6 million in the same period a year ago and down from $146.0 million at December 2001. UAC typically experiences higher delinquencies in the fourth quarter as a result of normal seasonal trends.
Annualized net credit losses totaled 4.50% for the quarter ended September 30, 2002, compared with 4.08% in the second quarter and 3.67% in the quarter ended September 30, 2001. The company's allowance for estimated credit losses on securitized receivables was 6.66% at September 30, 2002 compared with 5.26% in the second quarter and 5.87% in the same period a year ago.
Compared with the prior quarter, gross credit losses in the third quarter remained at a comparable level. The increase in net credit losses is primarily the result of lower recoveries on repossessed vehicles sold at auction, which can be attributed largely to lower prices for used vehicles created by the 0% financing and rebates offered by new vehicle manufacturers.
The following tables summarize delinquency and credit loss experience related to UAC's servicing portfolio:
Delinquency Experience
---------------------------------------------
---------------------- ----------------------
At September 30, 2002 At June 30, 2002
---------------------- ----------------------
(Dollars in thousands)
Number of Number of
Receivables Amount Receivables Amount
----------- ---------- ----------- ----------
Servicing
portfolio 212,495 $2,608,748 221,884 $2,711,525
Delinquencies:
30-59 days 5,373 $ 63,036 5,260 $ 61,235
60-89 days 2,997 35,032 2,614 31,052
90 days or more 1,083 11,960 906 10,561
Total delinquencies 9,453 $ 110,028 8,780 $ 102,848
Delinquency as a
percentage of
servicing portfolio 4.45% 4.22% 3.96% 3.79%
Delinquency Experience
----------------------
----------------------
At March 31, 2002
----------------------
Number of
Receivables Amount
----------- ----------
Servicing portfolio 231,676 $2,838,139
Delinquencies:
30-59 days 5,665 $ 66,393
60-89 days 2,641 33,105
90 days or more 1,000 11,517
----------- ----------
Total delinquencies 9,306 $ 111,015
=========== ==========
Delinquency as a percentage
of servicing portfolio 4.02% 3.91%
Delinquency Experience
---------------------------------------------
---------------------- ----------------------
At December 31, 2001 At September 30, 2001
---------------------- ----------------------
(Dollars in thousands)
Number of Number of
Receivables Amount Receivables Amount
----------- ---------- ----------- ----------
Servicing portfolio 241,178 $2,961,737 252,638 $3,127,164
Delinquencies:
30-59 days 7,329 $ 84,748 5,879 $ 65,779
60-89 days 3,605 44,100 3,001 36,804
90 days or more 1,504 17,121 1,223 14,055
----------- ---------- ----------- ----------
Total delinquencies 12,438 $ 145,969 10,103 $ 116,638
=========== ========== =========== ==========
Delinquency as a
percentage of
servicing portfolio 5.16% 4.93% 4.00% 3.73%
Credit Loss Experience
---------------------------------------------
For the Quarter Ended
---------------------------------------------
September 30, 2002 June 30, 2002
---------------------- ----------------------
(Dollars in thousands)
Number of Number of
Receivables Amount Receivables Amount
----------- ---------- ----------- ----------
Average servicing
portfolio 215,850 $2,647,480 224,928 $2,750,719
Gross charge-offs 3,676 $ 44,134 3,584 $ 44,146
Recoveries 14,382 16,104
---------- ----------
Net charge-offs $ 29,752 $ 28,042
========== ==========
Gross charge-offs as a
percentage of average
servicing portfolio (1) 6.81% 6.67% 6.37% 6.42%
Recoveries as a
percentage of gross
charge-offs 32.59% 36.48%
Net charge-offs as a
percentage of average
servicing portfolio (1) 4.50% 4.08%
(1) Annualized
Credit Loss Experience
----------------------
For the Quarter Ended
----------------------
March 31, 2002
----------------------
Number of
Receivables Amount
----------- ----------
Average servicing portfolio 234,476 $2,871,966
Gross charge-offs 4,531 $ 54,075
Recoveries 20,101
----------
Net charge-offs $ 33,974
==========
Gross charge-offs as a
percentage of average
servicing portfolio (1) 7.73% 7.53%
Recoveries as a percentage
of gross charge-offs 37.17%
Net charge-offs as a
percentage of average
servicing portfolio (1) 4.73%
(1) Annualized
Credit Loss Experience
---------------------------------------------
For the Quarter Ended
---------------------------------------------
December 31, 2001 September 30, 2001
---------------------- ----------------------
(Dollars in thousands)
Number of Number of
Receivables Amount Receivables Amount
----------- ---------- ----------- ----------
Average servicing
portfolio 245,563 $3,027,302 253,491 $3,151,192
Gross charge-offs 4,169 $ 47,776 3,638 $ 46,652
Recoveries 14,600 17,704
---------- ----------
Net charge-offs $ 33,176 $ 28,948
========== ==========
Gross charge-offs as
a percentage of
average servicing
portfolio (1) 6.79% 6.31% 5.74% 5.92%
Recoveries as a
percentage of gross
charge-offs 30.56% 37.95%
Net charge-offs as a
percentage of average
servicing portfolio (1) 4.38% 3.67%
(1) Annualized
Credit Loss Experience
---------------------------------------------
For the Nine Months Ended
---------------------------------------------
September 30, 2002 September 30, 2001
---------------------- ----------------------
(Dollars in thousands)
Number of Number of
Receivables Amount Receivables Amount
----------- ---------- ----------- ----------
Average servicing
portfolio 225,085 $2,756,721 254,487 $3,260,658
Gross charge-offs 11,791 $ 142,354 9,692 $ 121,744
Recoveries 50,587 47,097
---------- ----------
Net charge-offs $ 91,767 $ 74,647
========== ==========
Gross charge-offs as a
percentage of average
servicing portfolio (1) 6.98% 6.89% 5.08% 4.98%
Recoveries as a
percentage of gross
charge-offs 35.54% 38.69%
Net charge-offs as a
percentage of average
servicing portfolio (1) 4.44% 3.05%
(1) Annualized
Liquidity
At September 30, 2002, $445.5 million of warehouse capacity was utilized out of a total capacity of $550 million, and an additional $22.1 million was available to borrow based on the outstanding principal balance of eligible receivables. The company maintained cash on hand of $14.5 million at September 30, 2002. At present there is no additional funding available under the company's warehouse facilities. The company will be dependent on debtor-in-possession financing to continue funding receivable acquisitions, as described above.
Earnings Before the Impact of Derivative Instruments
In the normal course of business, the value of the company's assets held for sale changes as interest rates change. To mitigate the economic impact of changing interest rates, the company uses interest rate derivatives to hedge the held for sale assets. According to generally accepted accounting principles ("GAAP"), UAC is required to mark these instruments to market and recognize corresponding gains and losses in the income statement during the period in which the changes in the market values occur. At the time of the securitization of the underlying assets, the interest rate derivative contracts are settled, and any resulting gains or losses are included on the income statement with the corresponding gains or losses on the receivables sold.
Pro Forma Portfolio-Based Financial Statements
Following are 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 for 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 Information
UAC's senior management will host a conference call on Friday, November 1, 2002 at 3:30 p.m. EST. The call may be accessed through a toll-free telephone number at (877) 313-0551. A telephone replay will be available two hours after the completion of the call through November, 15, 2002 at midnight at (800) 642-1687; conference ID 6496859.
About Union Acceptance
UAC is an independent, indirect provider of automobile financing and servicing. 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 more than 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 prospects for the company during and after completion of bankruptcy proceedings, profitability, delinquency and credit loss trends and estimates, recoveries of repossessed vehicles, receivable acquisitions, the impact of recent initiatives described on revenues and profits, efforts to address short-term and long-term capital needs, 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: September 30, 2002 December 31, 2001
----------------------------------------------------------------------
Assets
Cash and cash equivalents $ 14,485 $ 14,244
Restricted cash 9,382 4,650
Receivables held for sale, net 487,906 176,511
Retained interest in
securitized assets 141,527 198,251
Accrued interest receivable 2,736 1,323
Property, equipment, and
leasehold improvements, net 3,525 8,516
Held for sale assets 4,001 -
Refundable and deferred
income taxes 39,185 10,467
Other assets 17,676 23,194
-------------------------------------
Total Assets $ 720,423 $ 437,156
=====================================
Liabilities and Shareholders' Equity
Liabilities
Notes payable $ 445,483 $ 100,300
Term debt 100,333 133,000
Accrued interest payable 1,197 2,393
Amounts due to trusts 19,452 18,610
Dealer premiums payable - -
Other payables and accrued expenses 24,828 8,153
-------------------------------------
Total Liabilities 591,293 262,456
-------------------------------------
Shareholders' Equity
Common stock $ 145,900 $ 145,374
Accumulated other comprehensive
earnings, net of taxes 23 450
Retained earnings (deficit) (16,793) 28,876
-------------------------------------
Total Shareholders' Equity 129,130 174,700
-------------------------------------
Total Liabilities and
Shareholders' Equity $ 720,423 $ 437,156
=====================================
----------------------------------------------------------------------
30+ Delinquency at: Sept. 30, 2002 Dec. 31, 2001 Sept. 30, 2001
---------------------------------------------
4.22% 4.93% 3.73%
----------------------------------------------------------------------
Allowance Data at:
Allowance for estimated
credit losses on
securitized receivables $ 141,655 $ 152,985 $ 181,362
Securitized receivables
serviced $ 2,127,420 $ 2,788,006 $ 3,088,051
Allowance as a percentage
of securitized
receivables serviced 6.66% 5.49% 5.87%
----------------------------------------------------------------------
Managed Receivable Data at:
Receivables held for sale $ 481,328 $ 173,731 $ 39,113
Other 56 79 79
Securitized 2,127,420 2,788,006 3,088,051
Receivables serviced
for others 171 259 302
---------------------------------------------
Total Servicing
Portfolio $ 2,608,975 $ 2,962,075 $ 3,127,545
=============================================
----------------------------------------------------------------------
Union Acceptance Corporation
Selected Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
September 30,
-------------------------
Income Statement Data for the Period: 2002 2001
----------------------------------------------------------------------
Interest on receivables held for sale $ 10,892 $ 5,457
Retained interest and other 4,747 5,943
-------------------------
Total interest income 15,639 11,400
Interest expense 5,533 4,685
-------------------------
Net interest margin 10,106 6,715
Provision for estimated credit losses 2,195 650
-------------------------
Net interest margin after
provision for estimated credit losses 7,911 6,065
Gain (loss) on sales of receivables - 7,962
Revaluation of retained interest (46,764) (44,000)
Gain (loss) on interest rate derivatives
on securitized receivables - (2,584)
Gain (loss) on interest rate derivatives
on held for sale receivables (10,805) -
Servicing fee income 5,818 7,610
Late charges and other fees 2,477 1,505
-------------------------
Other revenues (49,274) (29,507)
-------------------------
Salaries and benefits 7,537 7,761
Other expenses 5,268 5,504
-------------------------
Total operating expenses 12,805 13,265
-------------------------
Loss before income tax benefit (54,168) (36,707)
Income tax benefit (19,750) (13,375)
-------------------------
Net earnings (loss) before discontinued
operations and cumulative effect of change
in accounting principal $ (34,418) $ (23,332)
Discontinued Operations, net of tax 1,033 465
-------------------------
Net loss $ (35,451) $ (23,797)
=========================
----------------------------------------------------------------------
Per Common Share Data:
Loss before discontinued operations and
cumulative effect of change in
accounting principal (basic and diluted) $ (1.11) $ (0.75)
Discontinued operations (basic and diluted) (0.03) (0.02)
Cumulative effect of change
in accounting principal (basic and diluted) - -
-------------------------
Net loss (basic and diluted) $ (1.14) $ (0.77)
=========================
Book value $ 4.16 $ 5.62
Weighted average shares outstanding 31,019,150 30,910,074
----------------------------------------------------------------------
Receivable Acquisitions: $ 223,270 $ 258,424
Receivables Sold: $ - $ 270,001
----------------------------------------------------------------------
Ratios:
Return on average managed assets -4.91% -2.75%
Return on average shareholders' equity -100.86% -50.39%
Operating expenses as a percentage
of average servicing portfolio 1.93% 1.68%
----------------------------------------------------------------------
Portfolio Performance:
Net credit loss (annualized
for the period ended) 4.50% 3.67%
----------------------------------------------------------------------
Pro forma information for the earnings impact
of derivative instruments on held for sale
receivables related to FAS 133:
Total revenues $ (33,635) $ (18,107)
Pro forma adjustment 10,805 -
-------------------------
Pro forma total revenues $ (22,830) $ (18,107)
=========================
Pro forma net loss before discontinued
operations and cumulative effect of
change in accounting principal $ (27,557) $ (23,332)
Pro forma net loss $ (28,590) $ (23,797)
Pro forma loss per common share before
discontinued operations and cumulative
effect of change in accounting
principal (diluted and basic) $ (0.89) $ (0.75)
Pro forma loss per common share (diluted
and basic) $ (0.92) $ (0.77)
Pro forma return on average managed assets -3.96% -2.75%
Pro forma return on
average shareholders' equity -81.34% -50.39%
----------------------------------------------------------------------
Union Acceptance Corporation
Selected Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Nine Months Ended
September 30,
-------------------------
Income Statement Data for the Period: 2002 2001
----------------------------------------------------------------------
Interest on receivables held for sale $ 21,825 $ 20,028
Retained interest and other 15,669 23,243
-------------------------
Total interest income 37,494 43,271
Interest expense 14,351 18,960
-------------------------
Net interest margin 23,143 24,311
Provision for estimated credit losses 4,309 1,665
-------------------------
Net interest margin after
provision for estimated credit losses 18,834 22,646
Gain (loss) on sales of receivables 7,283 33,406
Revaluation of retained interest (65,600) (70,496)
Gain (loss) on interest rate derivatives
on securitized receivables (976) (15,412)
Gain (loss) on interest rate derivatives
on held for sale receivables (16,546) 4,769
Servicing fee income 19,221 23,464
Late charges and other fees 6,649 4,669
-------------------------
Other revenues (49,969) (19,600)
-------------------------
Salaries and benefits 22,020 24,131
Other expenses 16,186 16,492
-------------------------
Total operating expenses 38,206 40,623
-------------------------
Loss before income tax benefit (69,341) (37,577)
Income tax benefit (25,255) (13,647)
-------------------------
Net earnings (loss) before discontinued
operations and cumulative effect of change
in accounting principal $ (44,086) $ (23,930)
Discontinued Operations, net of tax 1,583 1,507
Cumulative effect of change in accounting
principal, net of tax - 989
-------------------------
Net loss $ (45,669) $ (26,426)
=========================
----------------------------------------------------------------------
Per Common Share Data:
Loss before discontinued operations and
cumulative effect of change in
accounting principal (basic and diluted) $ (1.42) $ (1.18)
Discontinued operations (basic and diluted) (0.05) (0.07)
Cumulative effect of change
in accounting principal (basic and diluted) - (0.05)
-------------------------
Net loss (basic and diluted) $ (1.47) $ (1.30)
=========================
Book value $ 4.03 $ 5.62
Weighted average shares outstanding 30,975,995 20,326,958
----------------------------------------------------------------------
Receivable Acquisitions: $ 625,928 $ 793,865
Receivables Sold: $ 300,000 $ 993,021
----------------------------------------------------------------------
Ratios:
Return on average managed assets -1.17% -0.98%
Return on average shareholders' equity -22.12% -23.36%
Operating expenses as a percentage
of average servicing portfolio 1.85% 1.66%
----------------------------------------------------------------------
Portfolio Performance:
Net credit loss (annualized
for the period ended) 4.44% 3.05%
----------------------------------------------------------------------
Pro forma information for the earnings impact
of derivative instruments on held for sale
receivables related to FAS 133:
Total revenues $ (12,475) $ 23,671
Pro forma adjustment 16,546 (4,769)
-------------------------
Pro forma total revenues $ 4,071 $ 18,902
=========================
Pro forma net earnings (loss) before
discontinued operations and cumulative
effect of change in accounting principal $ (33,579) $ (26,958)
Pro forma net earnings (loss) $ (35,162) $ (29,454)
Pro forma earnings (loss) per common share
before discontinued operations and
cumulative effect of change in
accounting principal (diluted and basic) $ (1.08) $ (1.33)
Pro forma earnings (loss)
per common share (diluted and basic) $ (1.14) $ (1.45)
Pro forma return on average managed assets -1.56% -1.10%
Pro forma return on
average shareholders' equity -29.44% -26.04%
----------------------------------------------------------------------
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 Nine Months Ended
September 30 September 30
------------------------- -------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Interest income,
fee and
other income $ 81,164 $ 100,347 $ 255,233 $ 315,477
Funding costs (43,480) (58,031) (140,701) (186,231)
------------ ------------ ------------ ------------
Net margin 37,684 42,316 114,532 129,246
Operating expenses (12,805) (13,265) (38,206) (40,623)
Credit losses (29,767) (28,948) (91,783) (74,647)
------------ ------------ ------------ ------------
Pre-tax
portfolio-based
earnings (loss) (4,888) 103 (15,457) 13,976
Income taxes(2) 1,804 (37) 5,704 (5,156)
------------ ------------ ------------ ------------
Net portfolio-based
earnings (loss) $ (3,084) $ 66 $ (9,753) $ 8,820
============ ============ ============ ============
Portfolio-based
earnings (loss)
per share $ (0.10) $ - $ (0.31) $ 0.43
============ ============ ============ ============
----------------------------------------------------------------------
The pro forma return on average managed receivables was as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Interest income,
fee and
other income 12.26% 12.74% 12.34% 12.90%
Funding costs -6.57% -7.37% -6.81% -7.62%
------------ ------------ ------------ ------------
Net margin 5.69% 5.37% 5.53% 5.28%
Operating expenses -1.93% -1.68% -1.85% -1.66%
Credit losses -4.50% -3.67% -4.44% -3.05%
------------ ------------ ------------ ------------
Pre-tax
portfolio-based
earnings (loss) -0.74% 0.02% -0.76% 0.57%
Income taxes 0.27% 0.00% 0.28% -0.21%
------------ ------------ ------------ ------------
Net portfolio-based
earnings (loss) -0.47% 0.02% -0.48% 0.36%
============ ============ ============ ============
Average Managed
Receivables $ 2,647,529 $ 3,151,256 $ 2,756,779 $ 3,260,722
----------------------------------------------------------------------
The following is a reconciliation of the pro forma portfolio-based net
earnings to GAAP net earnings:
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
GAAP Net
income (loss) $ (35,451) $ (23,797) $ (45,669) $ (26,426)
Gain on sales of
receivables, net 46,947 36,093 58,732 38,133
Retained interest
and other (4,025) (4,374) (13,426) (17,566)
Servicing fee (5,818) (7,610) (19,221) (23,464)
Net margin 28,944 38,414 97,753 117,778
Credit losses (29,767) (28,948) (91,783) (74,647)
Provision for
estimated credit
losses 2,195 650 4,309 1,665
Gain (loss) on
interest rate
derivatives 10,805 2,584 17,523 10,644
Discontinued
Operations 1,033 465 1,583 1,507
------------ ------------ ------------ ------------
Net adjustments 50,314 37,274 55,470 54,050
Tax effect
of adjustments (17,947) (13,411) (19,554) (18,804)
------------ ------------ ------------ ------------
Net portfolio-based
earnings (loss) $ (3,084) $ 66 $ (9,753) $ 8,820
============ ============ ============ ============
(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.