Arcadia Financial Reports Second Quarter Profit
27 July 1999
Arcadia Financial Reports Second Quarter Profit
Loan Losses Decline, Delinquencies Stable; Warehouse Facility Renewed
MINNEAPOLIS, July 27 -- Arcadia Financial Ltd.
today reported net income of $14,881,000, or $0.37 per diluted share, on total
record revenues of $70,930,000 for the second quarter ended June 30, 1999
compared to net income of $7.9 million, or $0.20 per diluted share, on total
revenues of $69,075,000 in the previous quarter.
For the six months ended June 30, 1999, Arcadia reported net income of
$22,755,000, or $0.57 per diluted share, on total revenues of $140,005,000.
Arcadia did not record a provision for income taxes in either of the
three- or six-month periods ending June 30, 1999 due to the utilization of net
operating loss carryforwards and related valuation allowances.
In the 1998 second quarter, Arcadia reported a net loss of $101,469,000,
or $2.60 per diluted share, reflecting the impact of special charges taken
during the quarter and totaling $125 million pretax. Total revenues for the
1998 period were not meaningful because of the effects of the special charges
on the gain on sale component of revenues.
For the first six months of 1998, Arcadia reported a net loss, after
special charges, of $96,513,000, or $2.48 per diluted share, on total revenues
of $20,470,000.
Richard A. Greenawalt, Arcadia's Chief Executive Officer, said the
company's continued efforts to improve its operations and portfolio
performance are reflected in the positive results for the second quarter.
"We're doing what we said we would do -- building processes, procedures and
systems that will enable us to convert our industry leadership into
predictable and sustainable financial results," said Greenawalt. "We are
right on track for expected loan purchases in 1999. As our more recent loan
purchases become the dominant driver of our loan portfolio performance, we
continue to see improvements in credit quality and risk-adjusted
profitability."
Greenawalt noted that through the end of the second quarter nearly all
significant measures of operating and financial performance showed favorable
trends. "Our loans delinquent more than 30 days were 3.71% of the total
servicing portfolio at June 30, 1999, compared to 3.79% one year ago and
nearly equal to the 1999 first quarter delinquency level of 3.64%. Even more
encouraging is the improving trend in our annualized loan losses, which were
4.17% for the June 1999 quarter, compared to 4.28% for the first quarter and
5.92% one year ago. However, we know there is still room for more
improvement," said Greenawalt.
During the 1999 second quarter, Arcadia purchased $629.7 million in
automobile loans, an increase from $582.5 million in the 1999 first quarter
and $572.9 million in the 1998 second quarter. The net interest rate spread
on the asset backed bonds sold during the 1999 second quarter was 10.21%
compared to a net interest rate spread of 10.34% on the bonds issued in the
1999 first quarter. "By improving our credit quality standards and loan
pricing, we were able to again achieve our targeted securitization spread of
10% during the quarter," said Greenawalt.
Greenawalt said Arcadia expects to implement further enhancements to its
credit and collection scoring models during the third quarter and to
incorporate these improvements into its risk-based pricing formula. "We
continue to fine-tune our underwriting, pricing and collections models and
practices to improve overall portfolio performance," said Greenawalt. "In
addition, we have become a more efficient company, as shown in our improving
operating expenses. We believe there is room for even more improvement in
these areas."
Three of Arcadia's gain on sale and valuation assumptions changed during
the second quarter. First, the discount rate used to calculate the present
value of the excess cash flows to be released out of the spread accounts was
increased to 15%. Next, loan default assumptions were increased based on
Arcadia's continued review of the risk component of its portfolio. Finally,
the assumed recovery rate on repossessed loans was increased to 48% from 45%.
The company has begun to recognize the gain on sale of its loans to trusts
upon physical settlement. The company previously recognized the gain on sale
of its loans upon receiving an irrevocable commitment and identification of
the specific loans. First quarter 1999 was amended to reflect this change.
This change had no cumulative effect on net income or shareholders' equity.
In July 1999, the company renewed its $400 million loan warehouse
facility, led by Banc of America Securities LLC and J.P. Morgan & Co. This
one-year facility was renewed for the third consecutive year.
Greenawalt also noted that while Arcadia was cash flow positive from
operations during the second quarter, it does not yet generate enough cash to
pay all of its obligations under financing agreements. "Until we can generate
positive cash flows consistently, we will continue to access the capital
markets periodically," said Greenawalt.
Second Quarter Highlights
-- Arcadia purchased $629.7 million in automobile loans during the 1999
second quarter, up from $582.5 million in the 1999 first quarter and
$572.9 million in the 1998 second quarter.
-- Loans delinquent more than 30 days were 3.71% of the loan servicing
portfolio at June 30, 1999, compared to 3.64 % at March 31, 1999 and
3.79% at June 30, 1998.
-- Annualized net losses as a percentage of the average servicing
portfolio were 4.17% for the quarter ended June 30, 1999 compared to
4.28% for the quarter ended March 31, 1999 and 5.92% for the quarter
ended June 30, 1998.
-- Reserves for loan losses totaled $397.9 million, or 7.93% of the
securitized servicing portfolio, at June 30, 1999, compared to
$399.0 million, or 8.05% of the securitized servicing portfolio at
March 31, 1999 and $429.2 million, or 8.46% of the securitized
servicing portfolio at June 30, 1998.
-- The net interest rate spread on the loans securitized in the 1999
second quarter was 10.21% compared to 10.34% on the loans securitized
in the 1999 first quarter and 9.85% on the loans securitized in the
1998 second quarter.
-- Operating expenses as a percentage of the average servicing portfolio
were 3.27% in the 1999 second quarter compared to 3.42% in the 1999
first quarter and 4.33% in the 1998 second quarter.
-- Cash released from restricted spread accounts totaled approximately
$45 million in the 1999 second quarter compared to $45 million in the
1999 first quarter and $35 million in the 1998 second quarter.
-- Arcadia's servicing portfolio at June 30, 1999 totaled $5.2 billion
compared to $5.1 billion at March 31, 1999 and $5.1 billion at
June 30, 1998.
Arcadia Financial Ltd. is a Minneapolis-based consumer financial services
company specializing in purchasing, selling and servicing retail installment
contracts for new and used automobiles originated in 45 states. The company,
founded in 1990, is the nation's largest independent provider of automobile
financing. Its 18 Regional Buying Centers are located in Arizona; northern
and southern California; Colorado; Florida; Georgia; Maryland; Massachusetts;
Minnesota; Missouri; New York; North Carolina; Ohio; Tennessee; north, south
and west Texas; and Washington.
This news release contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical results of those results currently anticipated or
projected. Such factors include, among other things, the following: increased
delinquency and loan loss rates; accounting changes; regulatory changes;
interest rate fluctuations; difficulties or delays in the securitization of
automobile loans; availability of adequate debt and equity financing; general
economic and business conditions; and other matters set forth under the
caption "Cautionary Statements" in exhibit 99.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
Arcadia Financial LTD
Selected Financial and Other Operating Data
June 30, 1999
Three months ended Six months ended
June 30, June 30, June 30, June 30,
Dollars in thousands,
except per share data 1999 1998 1999 1998
REVENUES:
Net interest margin $22,322 $20,971 $43,611 $40,918
Gain on sale of loans 27,533 (87,298) 53,504 (60,298)
Servicing fee income 21,075 20,184 42,890 39,850
Total revenues 70,930 (46,143) 140,005 20,470
EXPENSES:
Operating expenses 42,392 54,691 86,151 100,525
Long term debt and
other interest
expense 13,657 12,908 27,123 25,693
Total expenses 56,049 67,599 113,274 126,218
Operating income
before income taxes 14,881 (113,742) 26,731 (105,748)
Income tax expense -- (12,273) -- (9,235)
Net income before
cumulative effect $14,881 $(101,469) $26,731 $(96,513)
Cumulative effect
of change
in accounting
net of taxes of $0 -- -- (3,976) --
Net income after
cumulative effect $ 14,881 $ (101,469) $ 22,755 $ (96,513)
Basic Earnings per Share:
Operating income
per share before
cumulative
effect-basic $0.38 $(2.60) $0.68 $(2.48)
Cumulative effect
per share-basic $ -- $ -- $(0.10) $ --
Net income
per share-basic $0.38 $(2.60) $0.58 $(2.48)
Diluted Earnings
per Share
Operating income
per share before
cumulative
effect-diluted $0.37 $(2.60) $0.67 $(2.48)
Cumulative effect
per share-diluted $ -- $ -- $(0.10) $ --
Net income per
share-diluted $0.37 $(2.60) $0.57 $(2.48)
Weighted average
shares outstanding:
Basic 39,260,938 38,966,697 39,260,938 38,965,549
Diluted 40,261,159 38,966,697 39,754,181 38,965,549
Number of buying centers 18 18
Servicing portfolio
(in millions) $5,223.6 $5,085.6
Delinquencies as a
percentage of
servicing portfolio 3.71% 3.79%
Book value per
common share $5.81 $6.29
Automobile loan
purchases (in millions)$629.7 $572.9 $1,212.2 $1,156.9
Annualized net losses
as a percentage of
average servicing
portfolio 4.17% 5.92% 4.23% 4.92%
June 30, December 31,
Dollars in thousands 1999 1998
ASSETS
Cash and cash equivalents $11,432 $10,827
Due from securitization trust -- 62,081
Auto loans held for sale 208,717 17,899
Finance income receivable (a) 577,134 587,946
Other assets 45,188 48,930
Total assets $842,471 $727,683
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts due under warehouse facilities $137,287 $ --
Senior term notes 367,166 366,657
Subordinated notes 69,738 51,898
Capital lease obligations 2,820 3,384
Deferred income taxes -- --
Accounts payable and accrued liabilities 37,390 36,935
Total liabilities 614,401 458,874
Shareholders' equity 228,070 268,809
Total liabilities and
shareholders' equity $842,471 $727,683
(a) Includes restricted cash deposits in spread accounts of $260.7 million
and $227.7 million at June 30, 1999 and December 31, 1998,
respectively.