Union Acceptance Reports Net Earnings for the Q3 of Fiscal 1999
20 April 1999
Union Acceptance Corporation Reports Net Earnings for the Third Quarter of Fiscal 1999
INDIANAPOLIS--April 20, 1999--Union Acceptance Corporation today reported net earnings of $4.3 million, or $0.32 per diluted share, for the third quarter ended March 31, 1999, compared to $917,000, or $0.07 per diluted share, reported in the comparable quarter of last year. Fiscal 1999 year-to-date earnings totaled $9.2 million, or $0.70 per diluted share, compared to a net loss of $4.7 million or $0.36 per diluted share.Receivable acquisitions for the third quarter were $321.9 million compared to $220.3 million acquired in the same quarter of last year. The Company securitized $320.5 million during the current quarter resulting in a gain on sale of $10.8 million compared to a securitization of $228.9 million and a gain on sale of $5.7 million in the same quarter of last year. At March 31, 1999, $170.4 million of warehouse capacity was utilized, and an additional $54.5 million was available to borrow based on the outstanding principal balance of eligible receivables.
Delinquency on the Tier I automobile portfolio was 2.63% at March 31, 1999, compared to 3.04% at December 31, 1998, representing an improvement of $7.3 million or 10.5% in absolute dollars delinquent. The March 31, 1999 delinquency figures also compared favorably to the 3.34% delinquency reported at March 31, 1998. Tier I credit losses totaled 1.97% for the quarter ended March 31, 1999, compared to 2.15% for the quarter ended December 31, 1998 and 2.61% for the quarter ended March 31, 1998. Recovery rates were 39.93% for the current quarter compared to 37.79% and 39.42% for the quarters ended December 31, and March 31, 1998, respectively.
"The validity of our earlier strategic decisions is being demonstrated this quarter in several key measurements. Most notable are the continued improvements in delinquency and credit losses," said, John Stainbrook, President and Chief Executive Officer. "While our portfolio continues to grow, dollars delinquent have actually declined. This certainly reinforces our commitment to maintaining a high level of credit quality. "
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 March 31, 1999 At December 31, 1998
-------------------- ----------------------
(Dollars in thousands)
Number of Number of
Loans Amount Loans Amount
-------- ---------- -------- ----------
Servicing portfolio 207,705 $2,355,418 202,890 $2,277,112
Delinquencies
30-59 days 3,650 37,890 4,379 44,626
60-89 days 1,633 17,279 1,682 17,475
90 days or more 646 6,818 694 7,161
-------- ---------- -------- ----------
Total delinquencies 5,929 61,987 6,755 69,262
-------- ---------- -------- ----------
-------- ---------- -------- ----------
Delinquency as a
percentage of
servicing portfolio 2.85% 2.63% 3.33% 3.04%
Delinquency Experience (continued)
At March 31, 1998
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(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%
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Credit Loss Experience
Three Months Ended
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(Dollars in thousands)
March 31, December 31, March 31,
1999 1998 1998
----------- ------------ ---------------
Average servicing
portfolio $2,329,127 $2,234,753 $1,924,930
Gross charge-offs 19,139 19,339 20,767
Recoveries 7,643 7,309 8,186
---------- ---------- ----------
Net charge-offs 11,496 12,030 12,581
Gross charge-offs
as a percentage
of average
servicing portfolio(1) 3.29% 3.46% 4.32%
Recoveries as a
percentage of
gross charge-offs 39.93% 37.79% 39.42%
Net charge-offs as
a percentage
of average servicing
portfolio(1) 1.97% 2.15% 2.61%
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(1) Annualized
Credit Loss Experience (Continued)
Nine Months Ended
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(Dollars in thousands)
March 31, March 31,
1999 1998
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Average servicing
portfolio $2,217,348 $1,907,770
Gross charge-offs 62,129 66,197
Recoveries 24,098 24,848
---------- ----------
Net charge-offs 38,031 41,349
Gross charge-offs
as a percentage
of average
servicing portfolio(1) 3.74% 4.63%
Recoveries as a
percentage of
gross charge-offs 38.79% 37.54%
Net charge-offs as
a percentage
of average servicing
portfolio(1) 2.29% 2.89%
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(1) Annualized
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Selected Third Quarter Results:
The Company's total servicing portfolio was $2.4 billion at March 31, 1999, 20.3% higher than the $2.0 billion at March 31, 1998.
The allowance for estimated credit losses on securitized receivables totaled $100.2 million, or 4.60%, at March 31, 1999, compared to 4.59% at December 31, 1998, and 4.86% at March 31, 1998.
Net earnings were $4.3 million, or $0.32 per diluted share, for the quarter ended March 31, 1999, compared to net earnings of $917,000, or $0.07 per diluted share, for the quarter ended March 31, 1998. The increase was related to a higher gain on sale of receivables, net, and an improved net interest margin after provision.
The net interest margin after provision for the quarter ended March 31, 1999, was $4.7 million, a 221.9% increase over the net interest margin after provision of $1.5 million for the same period of last year. Interest on receivables increased 13.4% to $8.1 million for the quarter ended March 31, 1999, compared to $7.1 million for the quarter ended March 31, 1998. The increase in interest on receivables resulted from an increase in the average outstanding balance of receivables held for sale to $231.0 million for the quarter ended March 31, 1999, from $211.5 million for the quarter ended March 31, 1998.
Other interest income increased 48.5% to $4.8 million for the quarter ended March 31, 1999, compared to $3.2 million for the quarter ended March 31, 1998. 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. This change 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 $4.4 million for the quarter ended March 31, 1999, 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 $353,000 and $1.4 million for the quarters ended March 31, 1999, and 1998, respectively.
Interest expense remained stable at $6.9 million for the quarter ended March 31, 1999, compared to $7.0 million for the quarter ended March 31, 1998.
Provision for estimated credit losses decreased 35.5% to $1.2 million for the quarter ended March 31, 1999, compared to $1.9 million for the quarter ended March 31, 1998. The decrease is related to continued improvement in the quality of the held for sale portfolio.
Gain on sale of receivables, net totaled $6.4 million for the quarter ended March 31, 1999 and compared favorably to a gain on sale of receivables, net of $3.1 million for the same quarter of last year. The gain on sale of receivables, net consisted primarily of gains on securitization transactions of $10.8 million and $5.7 million for the respective quarters, and charges for other than temporary impairments of Retained Interest of $4.3 million pre-tax and $2.6 million pre-tax for the quarters ended March 31, 1999 and 1998, respectively. The gain on sale of receivables represented 3.38% of the amount securitized during this quarter compared to 2.51% securitized during the comparable quarter of last year.
The increase in the securitization transaction gain relates to increased spreads and higher volume of receivables securitized. Gross and net spreads on this quarter's securitization were 7.19% and 6.16%, compared to 6.81% and 5.27% for the same quarter of last year. The net spread of 6.16% for this quarter's securitization was the highest ever recorded for the Company. Receivables sold in the securitization for the quarter ended March 31, 1999, were $320.5 million compared to $228.9 million for the same quarter of last year.
The securitization transaction gain was offset by a higher credit loss assumption of 4.50% for the fiscal 1999 third quarter securitization compared to 4.00% for the fiscal 1998 third 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 third quarter securitization compared to a securitization of only Tier I receivables in the fiscal 1998 third quarter. In addition, the securitization transaction gain 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 Company's net pre-tax unrealized gain on Retained Interest was $12.6 million at March 31, 1999, compared to $12.5 million at December 31, 1998, and $10.9 million at March 31, 1998. 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 in early 1997.
Servicing fees for the quarter ended March 31, 1999, were $5.6 million, an 18.1% increase over $4.7 million for the same quarter of last year. The increase was a result of a higher average securitized servicing portfolio at March 31, 1999, compared to March 31, 1998.
Operating expenses were $11.2 million for the third quarter of fiscal 1999, compared to $8.8 million for the third quarter of fiscal 1998. Operating expenses as a percentage of the average servicing portfolio were 1.88% for the quarter ended March 31, 1999, compared to 1.79% and 1.76% for the quarters ended December 31, and March 31, 1998, 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. 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 receivables from over 3,900 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: March 31, 1999 June 30, 1998
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Cash $ 9,237 $ 75,612
Restricted cash 12,384 17,823
Receivables, net 242,675 118,259
Accrued interest receivable 1,862 1,045
Retained interest in
securitized assets 201,984 171,593
Property, equipment, and
leasehold improvements, net 8,553 7,921
Other assets 26,706 19,280
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Total assets $503,401 $411,533
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------------------------
Amounts due under
warehouse facilities $170,376 $ 73,123
Long-term debt 199,000 221,000
Accrued interest payable 2,069 6,280
Amounts due to trusts 13,123 15,510
Dealer premiums payable 2,115 1,374
Income taxes payable 3,834 --
Deferred income tax payable 17,713 9,573
Other payables and
accrued expenses 3,211 2,200
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Total liabilities 411,441 329,060
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Common stock 58,450 58,360
Net unrealized gain on
retained interest in
securitized assets 7,762 7,609
Retained earnings 25,748 16,504
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Total shareholders' equity 91,960 82,473
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Total liabilities and
shareholders' equity $503,401 $411,533
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------------------------
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30+ Delinquency at: March 31, December 31, March 31,
1999 1998 1998
-----------------------------------
Tier I 2.63% 3.04% 3.34%
Tier II 8.28% 9.66% 7.95%
Marine -- -- 1.43%
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Total 2.77% 3.23% 3.49%
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-----------------------------------
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Allowance Data at:
Allowance for estimated
credit losses
on securitized receivables $ 100,208 $ 96,513 $ 90,207
Securitized receivables
serviced $2,178,751 $2,101,706 $1,856,746
Allowance as a percentage
of securitized
receivables serviced 4.60% 4.59% 4.86%
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Managed Receivable Data at:
Receivables held for sale
-------------------------
Tier I $ 235,751 $ 237,777 $ 107,404
Tier II 1,194 3,982 34,840
Marine -- -- 7,563
Securitized
-----------
Tier I 2,119,661 2,039,326 1,821,735
Tier II 59,090 62,380 35,011
Receivables serviced for others 1,028 1,156 1,734
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Total Servicing Portfolio $2,416,724 $2,344,621 $2,008,287
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Union Acceptance Corporation
Selected Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- --------------------------
Income Statement Data
for the Period: 1999 1998 1999 1998
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Interest on
receivables $ 8,087 $ 7,133 $ 23,276 $ 20,233
Other interest 4,798 3,230 15,314 9,534
Interest expense (6,919) (6,990) (20,209) (19,210)
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Net interest
margin 5,966 3,373 18,381 10,557
Provision for
estimated
credit losses (1,225) (1,900) (4,825) (5,175)
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Net interest
margin after
provision 4,741 1,473 13,556 5,382
Gain (loss) on sales
of receivables, net 6,386 3,113 13,179 (5,714)
Servicing fees, net 5,601 4,742 16,023 14,290
Other revenues 1,442 1,065 3,821 3,070
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Total revenues 18,170 10,393 46,579 17,028
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Salaries and benefits 6,328 4,815 17,451 14,296
Other expenses 4,913 4,007 14,090 12,185
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Total operating
expenses 11,241 8,822 31,541 26,481
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Earnings (loss)
before provision
(benefit) for
income taxes 6,929 1,571 15,038 (9,453)
Provision (benefit)
for income taxes 2,665 654 5,794 (4,713)
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Net earnings
(loss) $ 4,264 $ 917 $ 9,244 $ (4,740)
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Per Common Share Data:
Earnings(loss)
(diluted and
basic) $ 0.32 $ 0.07 $ 0.70 $ (0.36)
Book value at
March 31, $ 6.94 $ 6.55
Weighted average
shares
outstanding 13,249,260 13,231,482 13,238,944 13,225,047
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Receivable Acquisition
Volume:
Tier I $ 321,406 $ 214,407 $ 1,075,648 $ 677,795
Tier II 450 5,622 12,592 20,289
Marine -- 288 -- 2,514
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Total $ 321,856 $ 220,317 $ 1,088,240 $ 700,598
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Securitization
Volume: $ 320,545 $ 228,938 $ 947,838 $ 651,475
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Ratios:
Return on
average assets 3.39% 0.78% 2.50% -1.40%
Return on average
shareholders' equity 20.34% 4.64% 15.49% -7.91%
Operating expenses
as a percentage of
average servicing
portfolio 1.88% 1.76% 1.84% 1.78%
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Portfolio Performance:
Net credit loss
(annualized for the
period ended)
Tier I 1.97% 2.61% 2.29% 2.89%
Tier II 6.00% 6.70% 6.90% 7.92%
Marine -- 1.83% -- 1.18%
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Total 2.08% 2.75% 2.42% 3.06%
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