Union Acceptance Corporation Reports Year End Results
27 August 1998
Union Acceptance Corporation Reports Fiscal 1998 and Fiscal 1997 Restated Year End Results
INDIANAPOLIS--Aug. 27, 1998--As previously announced on August 17, 1998, Union Acceptance Corporation is restating its financial statements for fiscal June 30, 1997, as well as the first three quarters of fiscal 1998. The primary reason for the restatement relates to the way impairment is measured and presented in respect of Retained Interest on Securitized Assets "Retained Interest" previously captioned Excess Servicing. Historically, the Company has measured impairment of Retained Interest on an aggregate basis. As restated, its financial statements measure and present impairment of Retained Interest on a disaggregate basis (pool by pool). This restatement had the effect of reducing fiscal 1997 net earnings by $1.5 million, or $0.11 per share, and reducing net earnings for the nine months ended March 31, 1998, by $9.0 million, or $0.69 per share. Such reductions result from other-than-temporary pool by pool impairments (excluding unrealized pool by pool gains) being charged to earnings.These changes do not, however, affect shareholders' equity materially. The Company has, for all restated periods, classified the Retained Interest asset as available-for-sale and recorded other-than-temporary impairments to earnings and unrealized gains as a separate component of shareholders' equity. Such unrealized gains, net of income taxes were $7.6 million and $2.3 million as of June 30, 1998 and June 30, 1997, respectively.
As a result of the restatement and a change to the "cash out" method of valuing the Retained Interest asset (discussed later), Union Acceptance Corporation today reported a net loss of $ 9.8 million, or $0.74 per share, for the fiscal year ended June 30, 1998, compared to restated net earnings for fiscal 1997 of $5.9 million, or $0.45 per share. Net loss for the fourth quarter ended June 30, 1998, was $5.1 million, or $0.38 per share compared to a restated net loss of $3.8 million, or $0.29 per share for the fourth quarter ended June 30, 1997. Excluding the after tax other-than-temporary Retained Interest impairment charges of $11.4 million and $2.1 million recorded during fiscal 1998 and the quarter ended June 30, 1998, respectively, and the after tax "cash out" charge of $4.9 million during the fourth quarter of fiscal 1998, net earnings were $6.4 million or $0.49 per share for fiscal 1998, and $1.9 million or $0.15 per share for the quarter ended June 30, 1998.
The Company adopted Financial Accounting Standard No. 130 "Reporting Comprehensive Income" at June 30, 1998. Comprehensive income combines net earnings or loss and unrealized gain and losses included in shareholders' equity for reporting in the financial statements. Comprehensive net loss for the year ended June 30, 1998 was $ 4.5 million, consisting of a net loss of $9.8 million and a change in net unrealized gains of $5.4 million, compared to comprehensive income of $8.1 million, consisting of net earnings of $5.9 million and a change in net unrealized gains of $2.3 million, for the year ended June 30, 1997.
As previously discussed in the Company's Form 10-Q as filed with the SEC on May 13, 1998, the Company elected in the fourth quarter to change the method of valuing the Retained Interest asset from "cash in" to "cash out" which is classified as a change in accounting estimate. The Company believes the "cash out" method is a better valuation method as it more truly reflects the economic reality of the transaction. Historically, the Company has estimated the Retained Interest recognized as a component of the gain on sale and its subsequent fair value by discounting the projected future servicing cash flows from the time they are received by the respective trust, "cash in". The "cash out" method discounts the expected excess cash flows from the time they are released from the Spread Account to the Company. Use of the "cash out" method resulted in a larger discount of the Retained Interest asset due to the timing of expected excess cash flows released from the Spread Account. This change had the effect of reducing net earnings for the quarter and year ended June 30, 1998 by $4.9 million. It is important to note that this adjustment merely increases the discount to present value component of the Retained Interest asset, which will be accretive to income.
"These are changes in the way we apply certain technical and complex accounting rules, said Rick A. Brown, Chief Financial Officer. "While we believe accounting practice in the industry is not uniform on these issues, the "pool by pool" and "cash out" valuation methods are more conservative. While we wish it were not necessary to report these changes, we expect them to enhance the confidence of our investors."
While total loan acquisitions decreased 13.5% to $971.3 million for fiscal 1998 compared to $1.1 billion for fiscal 1997, fiscal 1998 fourth quarter loan acquisitions increased 13.5% to $270.7 million compared to $238.4 million for the same quarter as last year. The Company securitized $296.6 million of prime and non-prime loans during the fourth quarter resulting in a gain on sale of $5.7 million.
For the third consecutive quarter, the Company has experienced improved performance in its servicing portfolio. Delinquency on the prime automobile portfolio was 3.07% at June 30, 1998, compared to 3.34% at March 31, 1998 and 2.96% at June 30, 1997. Prime credit losses totaled 2.53% for the quarter ended June 30, 1998 compared to 2.61% and 2.69% for the quarters ended March 31, 1998 and June 30, 1997, respectively. Recovery rates were 41.17% for the current quarter compared to 39.42% for the quarter ended March 31, 1998, and 43.01% for the quarter ended June 30, 1997. The steady improvement in portfolio performance is a direct result of UAC's continued focus on refining its collection practices and consistent application of conservative underwriting guidelines.
"We are encouraged with the consistent improvement in delinquency and credit losses we have seen over the past three quarters," said John Stainbrook, President and Chief Executive Officer. "Fiscal 1998 has been a year of operational restructuring with a focus on stabilizing our portfolio. We feel the improvement in our portfolio is a direct result of our enhanced underwriting policies and collection strategies. As we enter fiscal 1999, we are confident that our infrastructure is solid, operations have been streamlined, and we are prepared to grow our business with quality originations."
Selected Fourth Quarter Results:
The Company's total servicing portfolio was $2.0 billion at June 30, 1998, 5.7% higher than the $1.9 billion at June 30, 1997.
The allowance for estimated credit losses on securitized loans totaled $90.2 million, or 4.67%, at June 30, 1998, compared to 4.86% at March 31, 1998, and 4.40% at June 30, 1997.
Interest on loans was $7.6 million for the quarter ended June 30, 1998, compared to $8.0 million for the same quarter of last year. The net interest margin for the quarter ended June 30, 1998, was $2.1 million compared to $2.9 million for the same period of last year. Net interest margin decreased primarily due to lower interest rate yields on the held for sale portfolio. The provision for credit losses increased to $2.9 million for the quarter ended June 30, 1998, compared to $1.2 million for the same quarter of last year.
Gain on sales of loans totaled $5.7 million for the quarter ended June 30, 1998, compared to a $7.2 million gain on sale of loans for the same quarter of last year. The decrease for the quarter was due to a lower volume of prime loans securitized and a higher estimate for credit losses. Additionally, interest income earned on Spread Accounts and Restricted Cash became a component of the expected excess cash flows and will no longer be recognized as interest income in future periods. Offsetting the lower gain on sales and the reduction of interest income will be an increase in the accretion of discounted Retained Interest during future periods. The loans sold in the prime and non-prime securitizations for the quarter ended June 30, 1998, were $268.0 million and $28.7 million respectively, compared to $295.8 million for a prime securitization during the quarter ended June 30, 1997. The gross and net spreads on this quarter `s prime securitization of 6.50% and 5.06%, compared to 6.64% and 5.15%, respectively, were lower relative to the securitization in the same quarter of last year. The gross and net spreads on this quarter's non-prime securitization were 12.40% and 8.04%, respectively.
Servicing fees for the quarter ended June 30, 1998, were $6.8 million, a 6.0% increase over $6.4 million for the same quarter of last year. The increase is primarily a result of a higher securitized servicing portfolio at June 30, 1998, compared to June 30, 1997.
Operating expenses were $9.1 million for the fourth quarter of fiscal 1998, compared to $8.0 million for the fourth quarter of fiscal 1997. Operating expenses as a percentage of the average servicing portfolio was 1.78% for the quarter ended June 30, 1998, compared to 1.76% for the quarter ended March 31, 1998, and 1.65% for the quarter ended June 30,1997.
The Company remains in compliance with all applicable debt covenants.
Corporate Description
UAC is one of the nation's largest independent, indirect automobile finance companies. The Company's primary business is acquiring, securitizing and servicing prime retail installment sales contracts (primarily automobiles). These contracts are originated by dealerships affiliated with major domestic and foreign automobile manufacturers. The Company is focused on the upper-end of the credit quality spectrum. Union Acceptance Corporation commenced business in 1986 and currently acquires loans from over 3,500 manufacturer-franchised dealerships in 32 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 delinquency and credit loss trends, recoveries of repossessed vehicles, 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 relative unpredictability of changes in delinquency and credit loss rates, changes in loan acquisition volume, 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 fiscal year ended June 30, 1997, which was filed with the Securities and Exchange Commission.
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The following tables set forth delinquency and credit loss experience
related to the prime auto portfolio:
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Delinquency Experience
______________________
At June 30, 1998
_____________________________
(Dollars in thousands)
Number of
Loans Amount
_____________ ____________
Servicing portfolio 184,003 $ 1,978,920
Delinquencies
30-59 days 3,179 32,967
60-89 days 1,907 20,819
90 days or more 657 6,992
_____________ _____________
Total delinquencies 5,743 60,778
Delinquency as a
percentage of servicing
portfolio 3.12% 3.07%
At March 31, 1998
_____________________________
(Dollars in thousands)
Number of
Loans Amount
_____________ ____________
Servicing portfolio 181,026 $ 1,929,151
Delinquencies
30-59 days 3,426 35,449
60-89 days 1,923 21,818
90 days or more 623 7,088
_____________ _____________
Total delinquencies 5,972 64,355
Delinquency as a
percentage of servicing
portfolio 3.30% 3.34%
At June 30, 1997
_____________________________
(Dollars in thousands)
Number of
Loans Amount
_____________ ____________
Servicing portfolio 173,693 $ 1,860,272
Delinquencies
30-59 days 2,487 27,373
60-89 days 1,646 18,931
90 days or more 723 8,826
_____________ _____________
Total delinquencies 4,856 55,130
Delinquency as a
percentage of servicing
portfolio 2.80% 2.96%
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Credit Loss Experience
______________________
Three Months Ended
_____________________________________________
(Dollars in thousands)
June 30, 1998 March 31, 1998 June 30, 1997
_____________ ______________ _____________
Average servicing
portfolio $ 1,968,595 $ 1,924,930 $ 1,855,488
Gross charge-offs 21,129 20,767 21,906
Recoveries 8,698 8,186 9,421
_____________ _____________ _____________
Net charge-offs 12,431 12,581 12,485
Gross charge-offs as a
percentage of average
servicing portfolio (1) 4.29% 4.32% 4.72%
Recoveries as a
percentage of
gross charge-offs 41.17% 39.42% 43.01%
Net charge-offs as
a percentage
of average servicing
portfolio (1) 2.53% 2.61% 2.69%
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(1) Annualized
Twelve Months Ended
______________________________
(Dollars in thousands)
June 30, 1998 June 30, 1997
_____________ _____________
Average servicing
portfolio $ 1,922,977 $ 1,759,666
Gross charge-offs 87,325 70,830
Recoveries 33,545 28,511
_____________ _____________
Net charge-offs 53,780 42,319
Gross charge-offs as a
percentage of average
servicing portfolio (1) 4.54% 4.03%
Recoveries as a
percentage of
gross charge-offs 38.41% 40.25%
Net charge-offs as
a percentage
of average servicing
portfolio (1) 2.80% 2.40%
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(1) Annualized
Union Acceptance Corporation
Selected Financial Data
(Dollars in thousands, except share data)
Restated
Balance Sheet Data at: June 30, 1998 June 30, 1997
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Cash $ 75,612 $ 58,801
Restricted cash 17,823 16,657
Loans, net 118,259 121,156
Accrued interest receivable 1,045 1,232
Retained interest on
securitized assets 171,593 170,791
Furniture and equipment, net 7,921 2,150
Other assets 17,703 14,746
_____________________________
Total assets $ 409,956 $ 385,533
_____________________________
_____________________________
Amounts due under warehouse
facilities $ 73,123 $ 44,455
Long-term debt 221,000 221,000
Accrued interest payable 6,280 5,793
Amounts due to trusts 15,510 16,067
Dealer premiums payable 1,374 1,372
Other payables and accrued
expenses 2,198 1,874
Deferred income tax payable 7,998 8,124
_____________________________
Total liabilities 327,483 298,685
_____________________________
Common stock 58,360 58,270
Net unrealized gain on retained
interest on securitized assets 7,609 2,252
Retained earnings 16,504 26,326
_____________________________
Total shareholders' equity 82,473 86,848
_____________________________
Total liabilities and
shareholders' equity $ 409,956 $ 385,533
_____________________________
_____________________________
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30+ Delinquency at: June 30, 1998 March 31, 1998 June 30, 1997
_______________________________________________
Prime 3.07% 3.34% 2.96%
Non-prime 8.29% 7.95% 6.18%
Marine 0.00% 1.43% 0.10%
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Total 3.24% 3.49% 3.07%
_______________________________________________
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Reserve Data at:
Reserve on
securitized loans $ 90,203 $ 90,207 $ 79,923
Securitized loans
serviced $ 1,929,980 $ 1,856,746 $ 1,818,363
Reserve as a percentage
of securitized
loans serviced 4.67% 4.86% 4.40%
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Managed Loan Data at:
Loans held for sale
Prime $ 108,159 $ 107,404 $ 90,331
Non-prime 7,624 34,840 19,829
Marine - 7,563 6,227
Securitized
Prime 1,870,749 1,821,735 1,769,903
Non-prime 59,231 35,011 48,460
Loans serviced for others 1,654 1,734 2,526
_______________________________________________
Total Servicing
Portfolio $ 2,047,417 $ 2,008,287 $ 1,937,276
_______________________________________________
_______________________________________________
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Union Acceptance Corporation
Selected Financial Data
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended Twelve Months Ended
June 30, June 30,
Restated Restated
____________________ ____________________
Income Statement Data for
the Period: 1998 1997 1998 1997
_____________________________________________________________________
Interest on loans $ 7,638 $ 8,042 $ 27,871 $ 33,914
Interest on spread accounts
and restricted cash 1,380 1,713 5,856 6,385
Interest expense (6,897) (6,895) (26,107) (25,688)
____________________ ____________________
Net interest margin 2,121 2,860 7,620 14,611
Provision for estimated
credit losses (2,875) (1,160) (8,050) (4,188)
____________________ ____________________
Net interest margin after
provision (754) 1,700 (430) 10,423
Gain on sales of loans, net (6,212) (7,533) (11,926) 963
Servicing fees, net 6,789 6,405 26,137 25,344
Other 1,018 963 4,087 3,820
____________________ ____________________
Total revenues 841 1,535 17,868 40,550
____________________ ____________________
Salaries and benefits 5,130 4,077 19,427 15,673
Other 3,935 3,902 16,119 14,829
____________________ ____________________
Total operating expenses 9,065 7,979 35,546 30,502
____________________ ____________________
Earnings before provision
for income taxes (8,224) (6,444) (17,678) 10,048
Provision (benefit) for
income taxes (3,142) (2,613) (7,856) 4,166
____________________ ____________________
Net earnings (loss) $ (5,082) $ (3,831) $ (9,822)$ 5,882
____________________ ____________________
____________________ ____________________
_____________________________________________________________________
Per Common Share Data:
Earnings (diluted and
basic) $ (0.38) $ (0.29) $ (0.74)$ 0.45
Book Value $ 6.23 $ 6.57
Weighted average shares
outstanding 13,231,482 13,216,788 13,226,651 13,215,112
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Loan Acquisition Volume:
Prime $ 266,930 $ 229,421 $ 944,725 $1,076,064
Non-prime 3,738 5,772 24,027 39,610
Marine - 3,203 2,514 6,590
____________________ ____________________
Total $ 270,668 $ 238,396 $ 971,266 $1,122,264
____________________ ____________________
____________________ ____________________
_____________________________________________________________________
Ratios:
Return on average assets -4.14% -3.18% -2.11% 1.27%
Return on average
shareholders' equity -24.03% -17.02% -11.65% 6.62%
Operating expenses as a
percentage of average
servicing portfolio 1.78% 1.65% 1.78% 1.67%
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Portfolio Performance:
Net credit loss (Annualized
for the period ended:)
Prime 2.53% 2.69% 2.80% 2.40%
Non-prime 6.86% 8.50% 7.67% 5.18%
Marine 0.83% 0.46% 1.12% 0.25%
____________________ ____________________
Total 2.67% 2.89% 2.96% 2.50%
____________________ ____________________
____________________ ____________________
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