WFS Financial Reports Third Quarter Results
IRVINE, Calif.--Oct. 2, 20046, 2004--WFS Financial Inc today reported net income of $38.1 million or $0.93 per diluted share for the three months ended September 30, 2004, compared with $75.6 million or $1.84 per diluted share for the same period a year ago. The decline in third quarter net income in 2004 compared with 2003 is primarily the result of a $1.7 billion whole loan sale in automobile contracts and the commensurate gain on sale and reduction of allowance for credit losses in the third quarter a year ago. For the nine months ended September 30, 2004, net income increased to $139 million or $3.37 per diluted share compared with $134 million or $3.26 per diluted share for the same period a year earlier. Net income for the nine months ended September 30, 2004, was positively impacted by improving credit quality and the effects of a $1.5 billion whole loan sale in the first quarter of 2004 even as the Company's average portfolio of owned automobile contracts declined to $8.3 billion for the nine months ended September 30, 2004, compared with $8.8 billion for the same period a year earlier."One of the primary drivers of this quarter's results was the significant improvement in asset quality," said Tom Wolfe, CEO of WFS Financial. "Our emphasis on risk-focused underwriting, our shift to higher quality contracts, our effective servicing platform and an improving economy are producing continued improvement in our asset quality."
Annualized credit loss experience improved 63 basis points to 1.95% of average managed automobile contracts for the third quarter compared with 2.58% for the same period a year earlier. For the nine months ended September 30, 2004, credit loss experience improved 61 basis points to 1.98% compared with 2.59% for the same period a year earlier. The percentage of outstanding automobile contracts 30 days or more delinquent improved 46 basis points to 2.24% at September 30, 2004, compared with 2.70% a year ago.
The provision for credit losses increased to $60.0 million for the three months ended September 30, 2004, compared with $24.6 million for the same period a year earlier due primarily to the whole loan sale of automobile contracts in the third quarter of 2003. The provision for credit losses declined to $133 million for the nine months ended September 30, 2004, compared with $164 million for the same period a year ago primarily as a result of lower chargeoff experience and stronger portfolio characteristics. At September 30, 2004, the allowance for credit losses totaled $240 million or 2.6% of loans receivable compared with $240 million or 2.8% at December 31, 2003.
Automobile contract purchases totaled $1.8 billion for the third quarter of 2004, a 7% increase from the same period a year earlier. For the nine months ended September 30, 2004, automobile contract purchases totaled $5.1 billion, a 9% increase, compared with $4.6 billion a year ago. The Company's portfolio of managed automobile contracts grew to $11.4 billion at September 30, 2004, up from $10.5 billion a year earlier.
Net interest income declined to $149 million for the third quarter compared with $157 million for the same period a year earlier while noninterest income increased to $36.5 million for the third quarter compared with $31.1 million for the same respective periods excluding the cash gain on sale of $18.7 million. For the nine months ended September 30, 2004, net interest income declined to $425 million compared with $454 million for the same period a year earlier while noninterest income increased to $120 million compared with $111 million for the same respective period. The decline in net interest income and the corresponding increase in noninterest income are primarily the result of whole loan sales in the third quarter of 2003 and the first quarter of 2004. WFS receives a servicing fee for continuing to service these loans.
Noninterest expense increased to $62.2 million or 2.21% of average managed contracts for the third quarter compared with $57.6 million or 2.24% of average managed contracts for the same period a year earlier. For the nine months ended September 30, 2004, noninterest expense increased to $183 million or 2.22% of average managed contracts compared with $179 million or 2.41% of average managed contracts a year ago.
Earnings Conference Call
WFS Financial, along with its parent, Westcorp, will host a conference call for analysts and investors at 9:00 a.m. (PDT) on Wednesday, October 27, 2004. As part of this conference call, the Company's management will discuss earnings results for the quarter. For a live Internet broadcast of this conference call, please 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.
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 Financial, is one of the nation's largest independent automobile finance companies. WFS Financial 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 Financial can be found at its web site at http://www.wfsfinancial.com.
Westcorp, through its subsidiary, Western Financial Bank, operates 20 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 press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are identified by the 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. Forward-looking statements in this press release relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. In addition, these statements relate to the Company's future prospects, developments and business strategies and include information regarding the Company's improved credit quality trends and higher automobile origination growth.
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.
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 the effect of hedging activities; the Company's financial condition and liquidity, as well as future cash flow and earnings and the level of operating expenses; competition; the effect, interpretation, or application of new or existing laws, regulations, court decisions and significant litigation; and the level of chargeoffs on the automobile contracts that the Company originates.
A further list of these risks, uncertainties and other matters can be found in the Company's filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the Company's actual results may vary materially from those expected, estimated or projected. The information contained in this press release is as of October 26, 2004. The Company assumes no obligation to update any forward-looking statements to reflect future events or circumstances.
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
(Dollars in thousands, except per share
amounts)
Interest income:
Loans, including fees $223,494 $251,477 $653,105 $750,577
Other 3,555 2,220 8,219 7,484
TOTAL INTEREST INCOME 227,049 253,697 661,324 758,061
Interest expense:
Notes payable on automobile
secured financing 68,586 85,830 203,755 272,678
Other 9,688 10,447 32,352 31,733
TOTAL INTEREST EXPENSE 78,274 96,277 236,107 304,411
NET INTEREST INCOME 148,775 157,420 425,217 453,650
Provision for credit losses 59,957 24,551 133,354 164,222
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT
LOSSES 88,818 132,869 291,863 289,428
Noninterest income:
Automobile servicing 35,205 29,982 104,468 88,062
Gain on sale of contracts 18,725 13,792 18,725
Other 1,312 1,148 2,134 3,899
TOTAL NONINTEREST
INCOME 36,517 49,855 120,394 110,686
Noninterest expense:
Salaries and associate
benefits 39,171 36,052 118,919 111,508
Credit and collections 7,989 8,618 24,054 26,515
Data processing 3,739 4,037 11,455 12,822
Occupancy 2,851 3,364 8,479 10,040
Telephone 1,151 1,229 3,330 3,688
Other 7,273 4,263 16,483 14,107
TOTAL NONINTEREST
EXPENSE 62,174 57,563 182,720 178,680
INCOME BEFORE INCOME TAX 63,161 125,161 229,537 221,434
Income tax 25,057 49,610 90,979 87,683
NET INCOME $38,104 $75,551 $138,558 $133,751
Earnings per common share:
Basic $0.93 $1.84 $3.38 $3.26
Diluted $0.93 $1.84 $3.37 $3.26
Weighted average number
of common shares
outstanding:
Basic 41,037,813 41,026,679 41,035,873 41,023,935
Diluted 41,080,978 41,076,405 41,078,722 41,069,573
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
2004 2003
(Dollars in thousands)
ASSETS
Cash $55,268 $79,314
Other short-term investments -- parent 199,146 763,921
Cash and due from banks 254,414 843,235
Restricted cash 332,086 245,399
Contracts receivable 9,105,779 8,716,268
Allowance for credit losses (240,392) (239,697)
Contracts receivable, net 8,865,387 8,476,571
Accrued interest receivable 50,584 55,275
Premises and equipment, net 31,883 29,206
Other 96,715 119,074
TOTAL ASSETS $9,631,069 $9,768,760
LIABILITIES
Lines of credit -- parent $43,108 $21,811
Notes payable on automobile secured
financing 7,948,890 8,157,601
Notes payable -- parent 300,000 400,820
Amounts held on behalf of trustee 209,310 243,072
Other 145,614 126,587
TOTAL LIABILITIES 8,646,922 8,949,891
SHAREHOLDERS' EQUITY
Common stock (no par value; authorized
50,000,000 shares; issued and
outstanding 41,038,003 shares at
September 30, 2004, and 41,033,901
shares at December 31, 2003) 338,328 338,291
Paid-in capital 6,280 6,280
Retained earnings 645,746 507,188
Accumulated other comprehensive loss,
net of tax (6,207) (32,890)
TOTAL SHAREHOLDERS' EQUITY 984,147 818,869
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $9,631,069 $9,768,760
The following table presents information relative to the average
balances and interest rates on an owned basis for the periods
indicated:
For the Three Months Ended September 30,
2004 2003
Average Interest Yield/ Average Interest Yield/
Balance Rate Balance Rate
(Dollars in thousands)
Interest
earning
assets:
Contracts
receivable
(a) $8,605,463 $223,494 10.33% $8,937,943 $251,477 11.16%
Investment
securities 955,623 3,555 1.48 818,003 2,220 1.08
Total
interest
earning
assets $9,561,086 227,049 9.45% $9,755,946 253,697 10.32%
Interest
bearing
liabilities:
Lines of
credit --
parent $43,008 463 4.28% $50,488 265 2.08%
Notes
payable --
parent 327,121 8,290 10.14 401,374 9,937 9.90
Notes
payable on
automobile
secured
financing 7,970,739 68,586 3.44 8,220,400 85,830 4.18
Other 300,948 935 1.24 206,450 245 0.47
Total
interest
bearing
liabilities $8,641,816 78,274 3.62% $8,878,712 96,277 4.34%
Net interest
income and
interest
rate spread $148,775 5.83% $157,420 5.98%
Net yield on
average
interest
earning
assets 6.17% 6.45%
(a) For the purpose of these computations, nonaccruing contracts
are included in the average amounts outstanding.
For the Nine Months Ended September 30,
2004 2003
Average Interest Yield/ Average Interest Yield/
Balance Rate Balance Rate
(Dollars in thousands)
Interest
earning
assets:
Contracts
receivable
(a) $8,259,679 $653,105 10.56% $8,823,266 $750,577 11.37%
Investment
securities 906,891 8,219 1.21 807,703 7,484 1.24
Total
interest
earning
assets $9,166,570 661,324 9.64% $9,630,969 758,061 10.52%
Interest
bearing
liabilities:
Lines of
credit --
parent $43,434 956 2.94% $50,471 868 2.30%
Notes
payable --
parent 374,950 28,052 9.98 403,664 29,963 9.90
Notes
payable on
automobile
secured
financing 7,560,837 203,755 3.59 8,333,795 272,678 4.36
Other 314,450 3,344 1.42 163,270 902 0.74
Total
interest
bearing
liabilities $8,293,671 236,107 3.80% $8,951,200 304,411 4.53%
Net interest
income and
interest
rate spread $425,217 5.84% $453,650 5.99%
Net yield on
average
interest
earning
assets 6.20% 6.28%
(a) For the purpose of these computations, nonaccruing contracts
are included in the average amounts outstanding.
WFS FINANCIAL AND SUBSIDIARIES
OTHER FINANCIAL DATA AND STATISTICAL SUMMARY
Q3 2004 Q2 2004 Q1 2004
(Dollars in thousands, except per share amounts)
Earnings:
Net interest
income $148,775 $136,000 $140,442
Provision for
credit losses 59,957 53,421 19,976
Noninterest
income 36,517 34,732 49,144
Noninterest
expense 62,174 61,630 58,916
Income before
taxes 63,161 55,681 110,694
Income taxes 25,057 22,135 43,786
Net income $38,104 $33,546 $66,908
Equity:
Earning per share
- basic $0.93 $0.82 $1.63
Earning per share
- diluted $0.93 $0.82 $1.63
Book value per
share (period
end) (a) $24.13 $23.20 $22.39
Stock price per
share (period
end) $46.55 $49.51 $43.32
Total equity to
assets (a) 10.28% 10.30% 10.62%
Return on average
equity (a) 15.69% 14.33% 30.21%
Average shares
outstanding -
diluted 41,080,978 41,079,727 41,078,787
Loan Portfolio:
Automobile
contracts
purchased $1,799,106 $1,666,842 $1,585,173
Automobile
contracts
managed (period
end) $11,440,353 $11,113,148 $10,850,314
Number of
accounts managed
(period end) 869,038 853,193 840,566
Average
automobile
contracts
managed $11,268,695 $10,946,273 $10,726,048
Credit Quality:
Delinquency rate
(30+ days) 2.24% 2.21% 1.91%
Repossessions to
total contracts 0.06% 0.06% 0.06%
Net chargeoffs
(annualized) 1.95% 1.73% 2.27%
Allowance to
automobile
contracts 2.64% 2.67% 2.70%
Operations:
Total assets $9,631,069 $9,245,683 $8,653,690
Noninterest
expense to
average
contracts 2.21% 2.25% 2.20%
(a) Excludes other comprehensive income.
WFS FINANCIAL AND SUBSIDIARIES
OTHER FINANCIAL DATA AND STATISTICAL SUMMARY
Q4 2003 Q3 2003
(Dollars in thousands,
except per share amounts)
Earnings:
Net interest income $147,953 $157,420
Provision for credit losses 69,578 24,551
Noninterest income 31,812 49,855
Noninterest expense 62,714 57,563
Income before taxes 47,473 125,161
Income taxes 18,836 49,610
Net income $28,637 $75,551
Equity:
Earning per share - basic $0.70 $1.84
Earning per share - diluted $0.70 $1.84
Book value per share (period end) (a) $20.76 $20.04
Stock price per share (period end) $42.46 $37.03
Total equity to assets (a) 8.72% 8.86%
Return on average equity (a) 13.69% 38.45%
Average shares outstanding - diluted 41,078,684 41,076,405
Loan Portfolio:
Automobile contracts purchased $1,356,505 $1,683,402
Automobile contracts managed (period
end) $10,596,665 $10,475,948
Number of accounts managed (period
end) 826,122 818,125
Average automobile contracts managed $10,549,972 $10,284,067
Credit Quality:
Delinquency rate (30+ days) 2.90% 2.70%
Repossessions to total contracts 0.10% 0.11%
Net chargeoffs (annualized) 2.64% 2.58%
Allowance to automobile contracts 2.75% 2.75%
Operations:
Total assets $9,768,760 $9,276,534
Noninterest expense to average
contracts 2.38% 2.24%
(a) Excludes other comprehensive income.
WFS FINANCIAL INC AND SUBSIDIARIES
CUMULATIVE STATIC POOL LOSS CURVES (UNAUDITED)
AT September 30, 2004
Period
(a) 2000-D 2001-A 2001-B(c) 2001-C 2002-1 2002-2 2002-3
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.04% 0.03% 0.03% 0.04% 0.01% 0.00% 0.02%
3 0.11% 0.09% 0.10% 0.09% 0.06% 0.03% 0.06%
4 0.24% 0.20% 0.21% 0.20% 0.15% 0.10% 0.14%
5 0.39% 0.33% 0.33% 0.35% 0.29% 0.18% 0.27%
6 0.54% 0.50% 0.50% 0.49% 0.43% 0.32% 0.44%
7 0.74% 0.70% 0.69% 0.65% 0.60% 0.49% 0.57%
8 0.93% 0.84% 0.87% 0.81% 0.84% 0.66% 0.70%
9 1.13% 1.04% 1.05% 0.95% 1.06% 0.82% 0.82%
10 1.34% 1.24% 1.22% 1.07% 1.28% 0.96% 0.96%
11 1.50% 1.45% 1.36% 1.20% 1.48% 1.10% 1.10%
12 1.74% 1.67% 1.53% 1.37% 1.67% 1.26% 1.24%
13 1.95% 1.90% 1.67% 1.55% 1.82% 1.39% 1.38%
14 2.21% 2.09% 1.81% 1.74% 1.99% 1.51% 1.53%
15 2.48% 2.25% 2.00% 1.97% 2.14% 1.68% 1.70%
16 2.71% 2.41% 2.19% 2.16% 2.27% 1.83% 1.88%
17 2.89% 2.54% 2.37% 2.36% 2.45% 1.99% 2.03%
18 3.08% 2.73% 2.60% 2.59% 2.62% 2.16% 2.15%
19 3.22% 2.93% 2.80% 2.78% 2.80% 2.31% 2.28%
20 3.40% 3.11% 3.01% 2.95% 2.99% 2.46% 2.41%
21 3.59% 3.34% 3.19% 3.14% 3.15% 2.60% 2.52%
22 3.78% 3.54% 3.34% 3.29% 3.31% 2.72% 2.62%
23 3.96% 3.72% 3.49% 3.41% 3.45% 2.86% 2.74%
24 4.18% 3.92% 3.62% 3.57% 3.58% 2.95% 2.83%
25 4.41% 4.10% 3.75% 3.73% 3.69% 3.03% 2.96%
26 4.58% 4.23% 3.87% 3.88% 3.80% 3.13% 3.08%
27 4.79% 4.36% 4.00% 4.04% 3.92% 3.22%
28 4.96% 4.47% 4.15% 4.20% 4.02% 3.33%
29 5.08% 4.56% 4.28% 4.35% 4.12% 3.41%
30 5.22% 4.67% 4.40% 4.46% 4.22%
31 5.34% 4.81% 4.52% 4.57% 4.30%
32 5.44% 4.92% 4.64% 4.69%
33 5.54% 5.04% 4.73% 4.77%
34 5.66% 5.13% 4.83% 4.85%
35 5.76% 5.24% 4.93% 4.92%
36 5.86% 5.31% 4.99% 5.01%
37 5.97% 5.39% 5.05% 5.09%
38 6.04% 5.45% 5.11% 5.16%
39 6.12% 5.50% 5.17%
40 6.19% 5.56% 5.24%
41 6.25% 5.61% 5.29%
42 6.28% 5.66%
43 6.32% 5.70%
44 6.36% 5.75%
45 6.40%
46 6.43%
47 6.46%
Prime
Mix (b) 68% 71% 71% 76% 70% 87% 85%
Period
(a) 2002-4 2003-1 2003-2 2003-3(c) 2003-4 2004-1(c) 2004-2 2004-3
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.02% 0.01% 0.00% 0.00% 0.01% 0.00% 0.00% 0.02%
3 0.07% 0.04% 0.02% 0.02% 0.03% 0.02% 0.03%
4 0.16% 0.11% 0.06% 0.06% 0.08% 0.06% 0.07%
5 0.26% 0.18% 0.14% 0.13% 0.14% 0.11% 0.15%
6 0.38% 0.29% 0.25% 0.23% 0.21% 0.19%
7 0.50% 0.41% 0.36% 0.32% 0.28% 0.27%
8 0.61% 0.53% 0.48% 0.40% 0.35% 0.34%
9 0.78% 0.66% 0.59% 0.47% 0.44%
10 0.94% 0.80% 0.70% 0.55% 0.54%
11 1.08% 0.93% 0.80% 0.62% 0.61%
12 1.28% 1.06% 0.89% 0.71%
13 1.43% 1.21% 0.98% 0.80%
14 1.59% 1.31% 1.08% 0.88%
15 1.77% 1.40% 1.20%
16 1.92% 1.50% 1.31%
17 2.05% 1.60% 1.41%
18 2.16% 1.70%
19 2.25% 1.85%
20 2.37% 1.99%
21 2.49%
22 2.62%
23 2.73%
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
Prime
Mix (b) 80% 80% 82% 84% 82% 82% 82% 81%
(a) Represents the number of months since 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. WFS manages these contracts
pursuant to an agreement with Westcorp and the securitization trust.