Union Acceptance Corporation Reports 2Q Net Earnings
19 January 1999
Union Acceptance Corporation Reports Net Earnings for the Second Quarter of Fiscal 1999
INDIANAPOLIS--Jan. 19, 1999--Union Acceptance Corporation today reported net earnings of $2.9 million, or $0.22 per diluted share, for the second quarter ended December 31, 1998, compared to $1.2 million, or $0.09 per diluted share, reported in the comparable quarter of last year. Fiscal 1999 year-to-date earnings totaled $5.0 million, or $0.38 per diluted share, compared to a net loss of $5.7 million or $0.43 per diluted share.Loan acquisitions for the second quarter were $361.9 million compared to $227.4 million acquired in the same quarter of last year. At December 31, 1998, $174.8 million of warehouse capacity was utilized, and an additional $51.9 million was available to borrow based on the outstanding principal balance of eligible loans. The Company securitized $275.9 million during the current quarter resulting in a gain on sale of $5.8 million compared to a securitization of $204.1 million and a gain on sale of $3.4 million in the same quarter of last year.
Delinquency on the Tier I automobile portfolio was 3.04% at December 31, 1998, compared to 3.05% and 3.94% at September 30, 1998, and December 31, 1997, respectively. Tier I credit losses totaled 2.15% for the quarter ended December 31, 1998, compared to 2.78% for the quarter ended September 30, 1998 and 2.89% for the quarter ended December 31, 1997. Recovery rates were 37.79% for the current quarter compared to 38.67% for the quarter ended September 30, 1998, and 38.11% for the quarter ended December 31, 1997.
"We are very pleased with our second quarter results," said, John Stainbrook, President and Chief Executive Officer. "Credit losses on the Tier I portfolio are lower than they have been in two years. Our strong underwriting guidelines and the strategic direction of our collection efforts continue to pay off through stabilized delinquency and improved loss ratios. The industry in which we operate is complex and has seen many players come and go. Our experience and longevity have enabled us to strengthen our current position in the auto finance industry."
The following tables set forth delinquency and credit loss experience related to the Tier I (prime) auto portfolio:
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Delinquency Experience
______________________
At Dec. 31, 1998 At Sept. 30, 1998 At Dec. 31, 1997
________________ _________________ ________________
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
_____ ______ _____ ______ _____ ______
Servicing
portfolio 202,890 $2,277,112 194,882 $2,151,695 179,962 $1,920,930
Delinquencies
30-59 days 4,379 44,626 3,741 38,040 3,954 41,778
60-89 days 1,682 17,475 1,873 19,652 2,274 25,933
90 days or
more 694 7,161 793 7,966 688 8,048
_______ __________ _______ __________ _______ __________
Total
delinquencies 6,755 69,262 6,407 65,658 6,916 75,759
_______ __________ _______ __________ _______ __________
_______ __________ _______ __________ _______ __________
Delinquency as a
percentage of
servicing
portfolio 3.33% 3.04% 3.29% 3.05% 3.84% 3.94%
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_____________________________________________________________________
Credit Loss Experience
______________________
Three Months Ended Six Months Ended
________________________________ _____________________
(Dollars in thousands)
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
1998 1998 1997 1998 1997
__________ __________ __________ __________ __________
Average
servicing
portfolio $2,234,753 $2,088,163 $1,916,778 $2,161,458 $1,899,190
Gross charge-offs 19,339 23,651 22,373 42,990 45,429
Recoveries 7,309 9,146 8,527 16,453 16,661
__________ __________ __________ __________ __________
Net charge-offs 12,030 14,505 13,846 26,537 28,768
Gross charge-offs
as a percentage
of average
servicing
portfolio(1) 3.46% 4.53% 4.67% 3.98% 4.78%
Recoveries as a
percentage of
gross charge-offs 37.79% 38.67% 38.11% 38.28% 36.68%
Net charge-offs
as a percentage
of average
servicing
portfolio(1) 2.15% 2.78% 2.89% 2.46% 3.03%
_______________________________________________ _____________________
(1) Annualized
Selected Second Quarter Results:
The Company's total servicing portfolio was $2.3 billion at December 31, 1998, 17.2% higher than the $2.0 billion at December 31, 1997.
The allowance for estimated credit losses on securitized loans totaled $96.5 million, or 4.59%, at December 31, 1998, compared to 4.64% at September 30, 1998, and 5.06% at December 31, 1997.
Net earnings were $2.9 million, or $0.22 per diluted share, for the quarter ended December 31, 1998, compared to net earnings of $1.2 million, or $0.09 per diluted share, for the quarter ended December 31, 1997. The increase was primarily related to a higher gain on sale of loans, net, and an increase in other interest income.
The net interest margin after provision for December 31, 1998, was $4.4 million, a 152.6% increase over the net interest margin after provision of $1.7 million for the same period of last year. Interest on loans increased 7.2% to $6.9 million for the quarter ended December 31, 1998, compared to $6.5 million for the quarter ended December 31, 1997. The increase in interest on loans resulted from an increase in the average outstanding balance of loans held for sale to $204.3 million for the quarter ended December 31, 1998, from $161.2 million for the quarter ended December 31, 1997.
Other interest income increased 57.9% to $5.0 million for the quarter ended December 31, 1998, compared to $3.2 million for the quarter ended December 31, 1997. The increase in other interest income relates primarily to the implementation of the "cash out" method of valuing Retained Interest in Securitized Assets ("Retained Interest") at June 30, 1998, which increased the discount resulting in a subsequent increase in discount accretion, but was offset by lower collection and spread account interest. Other interest income related to discount accretion was $4.7 million for the quarter ended December 31, 1998, compared to $1.8 million for the same quarter of last year. Other interest income related to the restricted cash accounts (collection and spread accounts) was $326,000 and $1.4 million for the quarter ended December 31, 1998, and 1997, respectively.
Interest expense increased 2.8% to $6.3 million for the quarter ended December 31, 1998, from $6.2 million for the quarter ended December 31, 1997. The increase primarily related to higher average borrowing needs due to higher loan acquisitions for the quarter ended December 31, 1998, compared to the quarter ended December 31, 1997, but was offset by lower interest on long-term debt as a result of a required principal payment made in August 1998.
Provision for estimated credit losses decreased 28.0% to $1.3 million for the quarter ended December 31, 1998, compared to $1.8 million for the quarter ended December 31, 1997. The decrease is primarily related to improvement in the quality of the held for sale portfolio.
Gain on sale of loans, net totaled $4.1 million for the quarter ended December 31, 1998, compared to a gain on sale of loans, net of $2.0 million for the same quarter of last year. The gain on sale of loans, net consisted primarily of gains on securitization transactions of $5.8 million and $3.4 million, and charges for other than temporary impairments of Retained Interest of $1.6 million pre-tax ($1.0 million net of tax) and $1.2 million pre-tax ($719,000 net of tax) for the quarters ended December 31, 1998 and 1997, 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 second quarter securitization compared to 4.00% for the fiscal 1998 second quarter securitization. The increase in credit loss assumption was due to the combined securitization of Tier I and Tier II receivables for the fiscal 1999 second quarter securitization compared to a securitization of only Tier I receivables in the fiscal 1998 second quarter. 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 quarter ended December 31, 1998, were $275.9 million compared to $204.1 million for the same quarter of last year. The gross and net spreads on this quarter's securitization were 6.89% and 5.25%, compared to 6.71% and 5.07% for the same quarter of last year.
The Company's net pre-tax unrealized gain on Retained Interest was $12.5 million at December 31, 1998, compared to $17.4 million at September 30, 1998, and $10.4 million at December 31, 1997. The valuation of Retained Interest is determined 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 December 31, 1998, were $5.5 million, a 13.9% increase over $4.8 million for the same quarter of last year. The increase was a result of a higher securitized servicing portfolio at December 31, 1998, compared to December 31, 1997.
Operating expenses were $10.3 million for the second quarter of fiscal 1999, compared to $9.0 million for the second quarter of fiscal 1998. Operating expenses as a percentage of the average servicing portfolio was 1.79% for the quarter ended December 31, 1998, compared to 1.85% and 1.81% for the quarters ended September 30, 1998, and December 31, 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 3,800 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
(Unaudited)
(Dollars in thousands, except per share data)
Balance Sheet Data at: Dec. 31, 1998 June 30, 1998
_____________________________________________________________________
Cash $ 7,690 $ 75,612
Restricted cash 12,535 17,823
Receivables, net 249,483 118,259
Accrued interest receivable 2,086 1,045
Retained interest in securitized assets 198,146 171,593
Property, equipment, and leasehold
improvements, net 8,519 7,921
Other assets 20,207 19,280
____________ ____________
Total assets $ 498,666 $ 411,533
____________ ____________
____________ ____________
Amounts due under warehouse facilities $ 174,831 $ 73,123
Long-term debt 199,000 221,000
Accrued interest payable 5,275 6,280
Amounts due to trusts 12,854 15,510
Dealer premiums payable 3,412 1,374
Deferred income tax payable 12,781 9,573
Other payables and accrued expenses 2,835 2,200
____________ ____________
Total liabilities 410,988 329,060
____________ ____________
Common stock 58,450 58,360
Net unrealized gain on retained interest
in securitized assets 7,744 7,609
Retained earnings 21,484 16,504
____________ ____________
Total shareholders' equity 87,678 82,473
____________ ____________
Total liabilities and shareholders'
equity $ 498,666 $ 411,533
____________ ____________
____________ ____________
_____________________________________________________________________
30+ Delinquency at: Dec. 31, 1998 Sept. 30, 1998 Dec. 31, 1997
____________________________________________
Tier I 3.04% 3.05% 3.94%
Tier II 9.66% 8.14% 9.05%
Marine - - 1.60%
____________________________________________
Total 3.23% 3.21% 4.11%
____________________________________________
____________________________________________
_____________________________________________________________________
Reserve Data at:
Reserve on securitized
receivables $ 96,512 $ 95,614 $ 92,512
Securitized receivables
serviced $ 2,101,706 $ 2,058,960 $ 1,829,869
Reserve as a percentage
of securitized receivables
serviced 4.59% 4.64% 5.06%
_____________________________________________________________________
Managed Receivable Data at:
Receivables held for sale
Tier I $ 237,777 $ 155,414 $ 129,956
Tier II 3,982 4,997 31,522
Marine - - 7,761
Securitized
Tier I 2,039,326 1,996,272 1,790,953
Tier II 62,380 62,688 38,916
Receivables serviced for
others 1,156 1,286 2,003
____________________________________________
Total Servicing
Portfolio $ 2,344,621 $ 2,220,657 $ 2,001,111
____________________________________________
____________________________________________
_____________________________________________________________________
Union Acceptance Corporation
Selected Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
___________________________________________
Income Statement Data
for the Period: 1998 1997 1998 1997
_____________________________________________________________________
Interest on receivables $ 6,939 $ 6,473 $ 15,189 $ 13,100
Other interest 5,037 3,191 10,516 6,304
Interest expense (6,338) (6,167) (13,290) (12,220)
___________________________________________
Net interest margin 5,638 3,497 12,415 7,184
Provision for estimated
credit losses (1,275) (1,770) (3,600) (3,275)
___________________________________________
Net interest margin
after provision 4,363 1,727 8,815 3,909
Gain (loss) on sales of
receivables, net 4,086 2,020 6,793 (8,827)
Servicing fees, net 5,469 4,803 10,422 9,548
Other revenues 1,173 985 2,379 2,005
___________________________________________
Total revenues 15,091 9,535 28,409 6,635
___________________________________________
Salaries and benefits 5,453 4,871 11,123 9,481
Other expenses 4,856 4,165 9,177 8,178
___________________________________________
Total operating expenses 10,309 9,036 20,300 17,659
___________________________________________
Earnings (loss) before
provision (benefit) for
income taxes 4,782 499 8,109 (11,024)
Provision (benefit) for income
taxes 1,859 (711) 3,129 (5,367)
___________________________________________
Net earnings (loss) $ 2,923 $ 1,210 $ 4,980 $ (5,657)
___________________________________________
___________________________________________
_____________________________________________________________________
Per Common Share Data:
Earnings (loss) (diluted
and basic) $ 0.22 $ 0.09 $ 0.38 $ (0.43)
Book value $ 6.62 $ 6.46 $ 6.62 $ 6.46
Weighted average shares
outstanding 13,236,313 13,227,010 13,233,897 13,221,899
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Receivable Acquisition Volume:
Tier I $ 357,262 $ 221,072 $ 754,242 $ 463,389
Tier II 4,629 5,821 12,142 14,667
Marine - 512 - 2,226
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Total $ 361,891 $ 227,405 $ 766,384 $ 480,282
___________________________________________
___________________________________________
_____________________________________________________________________
Ratios:
Return on average assets 2.39% 1.11% 2.04% -2.55%
Return on average
shareholders' equity 13.13% 5.76% 11.84% -13.20%
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Portfolio Performance:
Net credit loss (annualized for the period ended)
Tier I 2.15% 2.89% 2.46% 3.03%
Tier II 6.45% 8.25% 7.32% 8.54%
Marine - 1.64% - 0.85%
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Total 2.28% 3.13% 2.60% 3.22%
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