T&W Reports Results for Second Quarter
29 July 1999
T&W Reports Results for Second Quarter; Company Did Not Sell Leases in Second Quarter to Accelerate Transition off Gain-On-Sale Accounting
TACOMA, Wash.--July 29, 1999--T&W Financial Corporation announced today that for the second quarter of 1999, the Company did not sell leases and therefore did not record a gain on sale as it has in subsequent quarters. Gain-on-sale accounting affects earnings both in the period of the sale, when the gain is recognized, and in future periods when earnings will be lower because of the prior recognition of gains at the time of sale. As a result, on an actual basis, the Company reported a loss for second quarter 1999 of $4.4 million or $0.53 fully diluted earnings per share. This compares with net income of $4.0 million or $0.48 fully diluted earnings per share for the same period a year ago. During second quarter 1998 the Company sold $109.2 million of leases and recorded a pre-tax gain on sale of $9.0 million.
Management decided not to sell leases in the second quarter to more quickly align the financial statements toward a portfolio basis. Under the portfolio method, earnings are generally recognized throughout the life of the lease. As previously announced, the Company is reducing its use of gain-on-sale accounting and plans to be off gain-on-sale accounting in 2001.
Lease originations for the second quarter rose 67 percent to $122.9 million, compared with lease originations of $73.4 million for the same quarter last year.
Lease Originations Data
Quarter Ended
($ in millions)
June 30, 1999 June 30, 1998
Lease Originations 122.9 73.4
Total Servicing Portfolio 765.8 403.3
Delinquencies (over 30 days) 50.7 25.8
Using gain-on-sale accounting, the Company had a loss for the six months ended June 30, 1999 of $1.3 million or $0.16 fully diluted earnings per share. This compares with net income of $7.9 million or $0.94 fully diluted earnings per share for the same period a year ago. For the first six months of 1999 the pre-tax gain on sale of leases was $9.1 million compared with $15.0 million for the same period in 1998.
T&W's serviced portfolio increased 90 percent to $765.8 million at June 30, 1999 from $403.3 million at June 30, 1998. Total assets increased to $344.9 million from $189.1 million at June 30, 1999 and 1998, respectively.
Chief Executive Officer Michael Price said, "T&W is making significant progress toward our goals as reflected in our growth in the servicing portfolio and improved credit quality. The growth in lease revenues remains fueled by increases in lease originations as we continue to expand our marketing programs and simplify the lease application process through our e-commerce Internet site. During the transition away from gain-on-sale accounting, we are expecting to see earnings impacted, but believe that over time, becoming a portfolio lender will benefit our shareholders."
Delinquencies over 30 days were 6.8 percent of the managed portfolio at June 30, 1999 compared with 8.0 percent at March 31, 1999 and 6.4 percent at June 30, 1998. Annualized net charge-offs as a percentage of the serviced portfolio were .78 percent for second quarter 1999, compared with 1.08 percent for first quarter 1999 and .53 percent for second quarter 1998.
Trends in delinquencies and charge-offs partially reflect a new policy. Beginning January 1, 1999, T&W adopted a formula-based nonaccrual and write-down policy. Under this more conservative policy, leases are placed on nonaccrual status at 150 days and are written down to net realizable value at 180 days. T&W believes that in the short term this policy may increase gross and net charge-offs, but in the long term should have no effect on net charge-offs.
Also beginning January 1, 1999, T&W increased its quarterly provision for credit losses. Previously the Company accrued for potential credit losses at the rate of one percent of lease originations. T&W is now accruing at the rate of two percent. For second quarter 1999 the provision for credit losses was $2.7 million compared with $1.0 million for second quarter last year.
To improve efficiency and enhance service to its equipment providers' sales force, T&W is using web-based leasing applications, approvals and document processing. Currently, two of the Company's equipment providers have online access to the new system through T&W's web site, and during second quarter almost seven percent of all new leases were processed through this channel. The Company said it anticipates that this capability will be expanded to significantly more of its equipment providers.
T&W and its Board of Directors also took steps to strengthen the senior management team and to even more closely align the economic incentives of the team with the interests of the shareholders. In July, Tom Virgin, 44, joined T&W as Senior Vice President and Chief Financial Officer. He brings extensive finance and banking experience and was previously Senior Vice President with Seafirst Bank, a division of Bank of America. Also in July, the Board of Directors approved a new incentive plan for senior officers. Under the new plan, a bonus pool of 8.5 percent of after-tax earnings is created when return on managed assets exceeds 1.5 percent. This bonus plan replaces the previous plan that granted a bonus equal to 35 percent of the Company's annual audited after-tax return on equity in excess of 20 percent. With the move off of gain-on-sale accounting it is anticipated that no bonus will be accrued for the second half of 1999.
Based in Tacoma, Washington, and founded in 1976, T&W Financial Corporation is a specialty commercial finance company. It provides equipment leasing, focusing primarily on the "small ticket" sector of the market, which are leases less than $250,000. Its customers are small-to medium-sized independent businesses throughout the U.S. and Canada.
This release contains forward-looking statements including statements regarding Management's expectations and goals in future periods. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements including the Company's ability to reduce its use of gain on sale accounting, to manage growth and credit risk, and to retain and integrate key personnel. Readers should not place undue reliance on the forward-looking statements, which reflect the management's view only as of the date hereof. T&W undertakes no obligations to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Readers should not place undue reliance on proforma results, which are not based on generally accepted accounting principles. Readers should also carefully review the risk factors described in documents T&W files from time to time with the Securities and Exchange Commission.
T&W FINANCIAL CORPORATION AND AFFILIATES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(000's, Except per share data)
Three Months Ended (Unaudited) (Unaudited)
June 30, 1999 June 30, 1998
Income Statement Data:
Revenues:
Lease contract revenue $ 8,107 $ 3,585
Gain on sale of leases (600) 8,997
Fee income 1,002 473
Servicing and other income 823 1,589
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Total revenues 9,332 14,644
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Expenses:
Interest expense 4,570 1,473
Compensation and related expenses 5,514 1,162
Amortization of initial
direct costs 701 1,102
Provision for credit losses 2,652 1,038
Other general and
administrative expenses 3,663 2,446
------- -------
Total expenses 17,100 7,221
------ -------
Income before minority interest
and income taxes (7,768) 7,423
Minority interest 1,203 (1,113)
-------- -------
Income before income taxes (6,565) 6,310
Income taxes 2,205 (2,272)
-------- -------
Income available for Preferred
Dividends (4,360)
Preferred Stock Dividends (88) --
----------- -----------
Net income (loss) $ (4,448) $ 4,038
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Earnings (Loss) Per Share
Basic and Diluted $ (0.53) $ 0.48
Weighted Average Number of Shares
of Common Stock and Common Stock
Equivalent Shares Outstanding 8,408 8,400
T&W FINANCIAL CORPORATION AND AFFILIATES
FINANCIAL DATA
June 30, 1999 June 30, 1998
Balance Sheet Data:
Cash and cash equivalents $ 8,455 $ 14,530
Net investment in leases 231,406 113,309
Total assets 344,853 189,064
Notes payable - recourse 174,744 47,623
Notes payable - non-recourse 55,240 42,683
Total liabilities 273,869 130,924
Minority interest 10,180 9,368
Preferred Stock 4,342 0
Shareholders' equity 56,462 48,772
Operating Data:
Lease financing
receivables originated:
Number of contracts 3,160 871
Lease originations(a) 122,900 73,400
Leases serviced:
Number of contracts 19,137 10,521
Portfolio of leases serviced(b) 765,771 403,348
Average portfolio yield(c) 12.9% 13.3%
Credit quality
statistics:
Delinquencies as a percentage of
portfolio of leases serviced
31-60 days 2.8% 2.0%
61-90 days 1.3 1.6
91-120 days .7 1.9
Over 120 days 2.0 .9
--- ---
Total 6.8% 6.4%
Net charge-offs(d) .78 .53
(a) - Represents the equipment costs for leases originated during the
period.
(b) - Represents the aggregate of minimum lease payments, under all
leases serviced by the Company held as direct-financing leases
and leases sold to special purpose entities.
(c) - Represents the average yield recognized during the period for
the portfolio of leases serviced.
(d) - Represents charge-offs (reduced by recoveries), divided by the
respective period's average net investment, under all leases
serviced by the Company held as direct-financing leases and
leases sold to special purpose entities.
SOURCE: T&W Financial Corporation