Union Acceptance Corp Reports Net Earnings for the Q1 of Fiscal 1999
28 October 1998
Union Acceptance Corporation Reports Net Earnings for the First Quarter of Fiscal 1999
INDIANAPOLIS--Oct. 27, 1998--Union Acceptance Corporation today reported net earnings of $2.1 million, or $0.16 per diluted share, for the first quarter ended September 30, 1998, compared to a net loss of $6.9 million, or $0.52 per diluted share, reported in the comparable quarter of last year.Loan acquisitions for the first quarter were $404.5 million compared to $252.9 million acquired in the same quarter of last year. The Company securitized $351.4 million during the current quarter resulting in a gain on sale of $6.2 million compared to a securitization of $218.4 million and a gain on sale of $5.5 million in the same quarter of last year.
In September 1998, the Company established a new warehouse facility with its existing lender, which replaced two existing facilities. The new facility is wrapped by a monoline insurance company and has a 12 month term. The size increased from an aggregate capacity of $400 million to $450 million, and the pricing and advance rate improved. At September 30, 1998, $84.8 million of the capacity was utilized, and an additional $62.6 million was available to borrow based on the outstanding principal balance of eligible loans.
Delinquency on the Tier I automobile portfolio was 3.05% at September 30, 1998, compared to 3.07% and 4.33% at June 30, 1998, and September 30, 1997, respectively. Tier I credit losses totaled 2.78% for the quarter ended September 30, 1998, compared to 2.53% for the quarter ended June 30, 1998 and 3.17% for the quarter ended September 30, 1997. Recovery rates were 38.67% for the current quarter compared to 41.17% for the quarter ended June 30, 1998 and 35.28% for the quarter ended September 30, 1997.
"We are very pleased with the quantity, as well as quality of loan acquisitions during the first quarter. We attribute this to a focus on providing better dealer service as we strive to maintain a prime quality portfolio," said John Stainbrook, President and Chief Executive Officer. "The capacity and the terms of the new warehouse have improved our liquidity and demonstrate the confidence our lenders have in our Company."
The following tables set forth delinquency and credit loss experience related to the Tier I (prime) auto portfolio:
Delinquency Experience
______________________
At September 30, 1998 At June 30, 1998
_______________________ _______________________
(Dollars in thousands)
Number of Number of
Loans Amount Loans Amount
__________ ___________ __________ ___________
Servicing portfolio 194,882 $ 2,151,695 184,003 $ 1,978,920
Delinquencies
30-59 days 3,741 38,040 3,179 32,967
60-89 days 1,873 19,652 1,907 20,819
90 days or more 793 7,966 657 6,992
___________ ___________ _________ ___________
Total delinquencies 6,407 65,658 5,743 60,778
___________ ___________ _________ ___________
___________ ___________ _________ ___________
Delinquency as a
% of servicing
portfolio 3.29% 3.05% 3.12% 3.07%
_____________________________________________________________________
Delinquency Experience
___________________________
At September 30, 1997
___________________________
(Dollars in thousands)
Number of
Loans Amount
__________ _____________
Servicing portfolio 177,377 $ 1,896,748
Delinquencies
30-59 days 4,310 45,766
60-89 days 2,196 25,156
90 days or more 934 11,131
___________ _____________
Total delinquencies 7,440 82,053
___________ ______________
___________ ______________
Delinquency as a
% of servicing portfolio 4.19% 4.33%
_____________________________________________________________________
_____________________________________________________________________
Credit Loss Experience
Three Months Ended
________________________________________
(Dollars in thousands)
September 30, June 30, September 30,
1998 1998 1997
____________ ____________ ____________
Average servicing portfolio $ 2,088,163 $ 1,968,595 $ 1,881,603
Gross charge-offs 23,651 21,129 23,056
Recoveries 9,146 8,698 8,134
____________ ____________ ___________
Net charge-offs 14,505 12,431 14,922
Gross charge-offs as a percentage
of average servicing portfolio(1) 4.53% 4.29% 4.90%
Recoveries as a percentage of
gross charge-offs 38.67% 41.17% 35.28%
Net charge-offs as a percentage
of average servicing portfolio(1) 2.78% 2.53% 3.17%
______________________________________________________________________
(1) Annualized
Selected First Quarter Results:
As previously announced on August 27, 1998, Union Acceptance Corporation restated 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 was measured and presented in respect of Retained Interest in Securitized Assets ("Retained Interest") previously captioned Excess Servicing. The restatement had the effect of reducing net earnings for the three months ended September 30, 1997, by $7.4 million, or $0.56 per diluted share.
The Company's total servicing portfolio was $2.2 billion at September 30, 1998, 12.3% higher than the $2.0 billion at September 30, 1997.
The allowance for estimated credit losses on securitized loans totaled $95.6 million, or 4.64%, at September 30, 1998, compared to 4.67% at June 30, 1998, and 5.33% at September 30, 1997.
Net earnings increased to $2.1 million, or $0.16 per diluted share, for the three months ended September 30, 1998, compared to a net loss of $6.9 million, or $0.52 per diluted share, for the three months ended September 30, 1997. The increase was primarily related to a higher gain on sale of loans, net, an increase in other interest income, and an increase in loan acquisitions, which led to a larger securitization for the three months ended September 30, 1998 compared to September 30, 1997. Included in gain on sale of loans, net were charges taken for pool by pool impairments of Retained Interest of $3.5 million pre-tax ($2.2 million net of tax) and $16.4 million pre-tax ($9.8 million net of tax) for the three months ended September 30, 1998, and 1997, respectively. Exclusive of the other than temporary Retained Interest impairment charges, net earnings would have been $4.3 million or $0.32 per diluted share, and $2.9 million or $0.22 per diluted share, for the three months ended September 30, 1998, and 1997, respectively.
The net interest margin after provision for September 30, 1998, was $4.5 million, a 104.0% increase over the net interest margin after provision of $2.2 million for the same period of last year. Interest on loans increased 24.5% to $8.3 million for the quarter ended September 30, 1998, compared to $6.6 million for the quarter ended September 30, 1997. The increase in interest on loans resulted from an increase in the average outstanding balance of loans held for sale to $221.4 million for the three months ended September 30, 1998, from $179.6 million for the three months ended September 30, 1997.
Other interest income increased 76.0% to $5.5 million for the three months ended September 30, 1998, compared to $3.1 million for the three months ended September 30, 1997. The increase related to the implementation of the "cash out" method of valuing Retained Interest in Securitized Assets at June 30, 1998, resulted in an increase in discount accretion, offset by lower collection and spread account interest. The other interest income related to discount accretion was $5.1 million for the quarter ended September 30, 1998, compared to $1.6 million for the same quarter of last year. The interest income related to the restricted cash accounts (collection and spread accounts) was $369,000 and $1.5 million for the three months ended September 30, 1998, and 1997, respectively.
Interest expense increased 14.9% to $7.0 million for the three months ended September 30, 1998, from $6.1 million for the three months ended September 30, 1997. The increase primarily related to higher average borrowing needs due to higher loan acquisitions for the three months ended September 30, 1998, compared to the three months ended September 30, 1997, but was offset by lower interest on long-term debt as a result of a principal payment made in August 1998.
Provision for estimated credit losses increased 54.5% to $2.3 million for the three months ended September 30, 1998, compared to $1.5 million for the three months ended September 30, 1997.
Gain on sale of loans, net totaled $2.7 million for the quarter ended September 30, 1998, compared to a loss on sale of loans, net of $10.8 million for the same quarter of last year. The gain (loss) for the quarters ended September 30, 1998, and 1997, consisted of gains on securitization transactions of $6.2 million and $5.5 million, (including $840,000 and $543,000 of Servicing Asset income), and charges for other than temporary impairments of Retained Interest of $3.5 million and $16.4 million, respectively. The increase in the securitization transaction gain relates to a higher volume of loans securitized, but was offset by a higher credit loss assumption of 4.40% for the fiscal 1999 first quarter securitization compared to 4.00% for the fiscal 1998 first quarter securitization. The increase was also offset by an increase in the discount of the estimated Retained Interest related to the implementation of the "cash out" method of valuing Retained Interest. The loans sold in the securitization for the period ended September 30, 1998, were $351.4 million compared to $218.4 million for the same quarter of last year. The gross and net spreads on this quarter's securitization were 7.26% and 5.15%, compared to 7.04% and 5.38%, for the same quarter of last year.
While the Company took charges to earnings for other than temporary impairments to Retained Interest, the net pre-tax unrealized gain increased to $17.4 million at September 30, 1998 compared to $12.3 million and $8.1 million at June 30, 1998, and September 30, 1997. The valuation of Retained Interest is based on a disaggregate basis (pool by pool). The unrealized gain primarily relates to the Company's 1997 and 1998 securitization pools which coincides with the Company's improvements made in the underwriting process.
Servicing fees for the quarter ended September 30, 1998, were $5.0 million, a 4.4% increase over $4.7 million for the same quarter of last year. The increase was a result of a higher securitized servicing portfolio at September 30, 1998, compared to September 30, 1997.
Operating expenses were $10.0 million for the first quarter of fiscal 1999, compared to $8.6 million for the first quarter of fiscal 1998. Operating expenses as a percentage of the average servicing portfolio increased to 1.85% for the quarter ended September 30, 1998, from 1.78% and 1.76% for the quarters ended June 30, 1998, and September 30, 1997, respectively.
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 3,700 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, 1998, which was filed with the Securities and Exchange Commission.
Union Acceptance Corporation
Selected Financial Data
(Dollars in thousands, except share data)
Balance Sheet Data at: September 30, June 30,
1998 1998
_____________________________________________________________________
Cash $ 6,090 $ 75,612
Restricted cash 11,203 17,823
Loans, net 165,268 118,259
Accrued interest receivable 1,255 1,045
Retained interest in securitized assets 192,320 171,593
Property, equipment, and leasehold
improvements, net 8,294 7,921
Other assets 20,874 19,280
_________________________
Total assets $ 405,304 $ 411,533
_________________________
_________________________
Amounts due under warehouse facilities $ 84,808 $ 73,123
Long-term debt 199,000 221,000
Accrued interest payable 1,616 6,280
Amounts due to trusts 11,967 15,510
Dealer premiums payable 4,209 1,374
Deferred income tax payable 12,779 9,573
Other payables and accrued expenses 3,264 2,200
_________________________
Total liabilities 317,643 329,060
_________________________
Common stock 58,360 58,360
Net unrealized gain on retained
interest in securitized assets 10,740 7,609
Retained earnings 18,561 16,504
_________________________
Total shareholders' equity 87,661 82,473
_________________________
Total liabilities and
shareholders' equity $ 405,304 $ 411,533
_________________________
_________________________
______________________________________________________________________
30+ Delinquency at: September 30, June 30, September 30,
1998 1998 1997
__________________________________________
Tier I 3.05% 3.07% 4.33%
Tier II 8.14% 8.29% 8.90%
Marine - - 1.46%
_______________________________________
Total 3.21% 3.24% 4.48%
_______________________________________
_______________________________________
_____________________________________________________________________
Reserve Data at:
Reserve on securitized
loans $ 95,614 $ 90,203 $ 97,871
Securitized loans serviced $ 2,058,960 $ 1,929,981 $ 1,837,423
Reserve as a percentage
of securitized loans
serviced 4.64% 4.67% 5.33%
_____________________________________________________________________
Managed Loan Data at:
Loans held for sale
Tier I $ 155,414 $ 108,159 $ 102,594
Tier II 4,997 7,624 27,463
Marine - - 7,647
Securitized
Tier I 1,996,272 1,870,750 1,794,126
Tier II 62,688 59,231 43,297
Loans serviced for others 1,286 1,653 2,241
______________________________________
Total Servicing Portfolio $ 2,220,657 $ 2,047,417 $ 1,977,368
______________________________________
______________________________________
_____________________________________________________________________
Union Acceptance Corporation
Selected Financial Data
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended
September 30,
Restated
___________________________
Income Statement Data for the Period: 1998 1997
______________________________________________________________________
Interest on loans $ 8,250 $ 6,627
Other interest 5,479 3,113
Interest expense (6,952) (6,053)
____________________________
Net interest margin 6,777 3,687
Provision for estimated credit losses (2,325) (1,505)
____________________________
Net interest margin after provision 4,452 2,182
Gain (loss) on sales of loans, net 2,707 (10,847)
Servicing fees, net 4,953 4,745
Other 1,206 1,020
____________________________
Total revenues 13,318 (2,900)
____________________________
Salaries and benefits 5,670 4,610
Other 4,321 4,013
____________________________
Total operating expenses 9,991 8,623
____________________________
Earnings before provision for
income taxes 3,327 (11,523)
Provision (benefit) for income taxes 1,270 (4,656)
____________________________
Net earnings (loss) $ 2,057 $ (6,867)
____________________________
____________________________
_____________________________________________________________________
Per Common Share Data:
Earnings (loss) (diluted and basic) $ 0.16 $ (0.52)
Book Value $ 6.63 $ 6.24
Weighted average shares outstanding 13,231,482 13,216,788
_____________________________________________________________________
Loan Acquisition Volume:
Tier I $ 396,980 $ 242,317
Tier II 7,513 8,846
Marine - 1,714
____________________________
Total $ 404,493 $ 252,877
____________________________
____________________________
_____________________________________________________________________
Ratios:
Return on average assets 1.69% -6.11%
Return on average shareholders' equity 10.39% -32.43%
Operating expenses as a percentage of
average servicing portfolio 1.85% 1.76%
_____________________________________________________________________
Portfolio Performance:
Net credit loss (Annualized for the period ended:)
Tier I 2.78% 3.17%
Tier II 8.19% 8.83%
Marine - 0.00%
____________________________
Total 2.95% 3.36%
____________________________
____________________________
_____________________________________________________________________