Union Acceptance Corporation Announces Results for the First Quarter of Fiscal 2001: Record Quarterly Volume represents 75% Increase
18 October 2000
Union Acceptance Corporation Announces Results for the First Quarter of Fiscal 2001: Record Quarterly Volume represents 75% Increase
INDIANAPOLIS--Oct. 18, 2000--Union Acceptance Corporation today announced financial and operational results for the first quarter ended September 30, 2000.Net earnings for the quarter totaled $4.6 million, or $0.34 per diluted share, before giving effect to the earnings impact of derivative instruments on held for sale receivables. This compares with net earnings of $5.4 million or $0.41 per diluted share, for the first quarter of fiscal 2000. Net earnings for the first quarter of fiscal 2001, after accounting for the earnings impact of derivative instruments on held for sale receivables, totaled $3.0 million, or $0.23 per diluted share.
"This was a remarkable quarter for UAC. Despite an overall higher level of interest rates and tighter margins, we posted another quarter of record volume, grew our dealer base by almost 300, and continued to maintain credit scores at the high end of our target range," commented John Stainbrook, Chief Executive Officer. "Going into the second quarter, we are optimistic that an improved interest rate environment will have a positive effect on our margins."
Selected Key Results for the Quarter Ended September 30, 2000
| -- | Receivable acquisitions were a record $576.4 million, a 75% increase over $330.3 million in the first quarter of fiscal 2000. |
| -- | Dealerships with which the Company does business grew to over 5,200 as of September 30, 2000, or 23% higher than 4,200 at September 30, 1999. |
| -- | In lieu of a public securitization, UAC Securitization Corporation ("UACSC"), a subsidiary of UAC, sold $500.0 million in receivables to Special Purpose Accounts Receivable Corporation ("SPARC"), a commercial paper conduit facility. Pricing received through the commercial paper facility was slightly better than what would have been received through the public asset-backed market. |
| -- | In connection with the $500.0 sale, the Company reported a gain on sale of $2.5 million (net of the loss on interest rate swaps on securitized receivables). This compares to $364.8 million securitized in the first quarter of fiscal 2000, for a net gain of $6.5 million, net of impairments. The decrease in gain is primarily due to a net spread (gross spread less servicing fees, upfront costs, ongoing credit enhancement and trustee fees, and hedging gains or losses) of 4.67% for this quarter's securitization, compared to 6.20% for the securitization in the first quarter of fiscal 2000. |
| -- | Gain on sales of receivables, net of hedging loss, totaled 8% of total revenues (before the impact of derivative instruments on held for sale receivables). This compares to 23% in the first quarter of fiscal 2000. |
| -- | Total revenues (before the impact of derivative instruments on held for sale receivables) increased 17% to $32.7 from $28.0 million in the first quarter of fiscal 2000. |
| -- | Operating expenses totaled $13.4 million or 1.75% of the average servicing portfolio. This compares to $11.8 million or 1.85% for the first quarter of fiscal 2000. |
| -- | Delinquency on the Tier I automobile portfolio was 3.13% at September 30, 2000, compared to 3.18% at September 30, 1999. |
| -- | Annualized Tier I credit losses totaled 2.11% for the quarter ended September 30, 2000, compared to 1.97% for the first quarter of fiscal 2000. |
| -- | Recovery rates on the Tier I automobile portfolio for the first quarter of fiscal 2001 were 41.00% compared to 41.12% in the first quarter of fiscal 2000. |
| -- | The Company's total servicing portfolio grew to $3.2 billion at September 30, 2000, or 23% higher than $2.6 billion at September 30, 1999. |
| -- | The Company's allowance for estimated credit losses on securitized receivables was 4.36% at September 30, 2000, compared to 4.57% at September 30, 1999. |
| -- | At September 30, 2000, $246.4 million of warehouse capacity was utilized, and an additional $21.3 million was available to borrow based on the outstanding principal balance of eligible receivables. In addition, the Company maintained cash on hand of $14.4 million for total available cash of $35.7 million as of September 30, 2000. Total available cash was $61.7 million at September 30, 1999. |
| -- | The Company made a principal payment on its Senior Debt of $22.0 million during August 2000. |
| -- | The Company diversified its funding sources by closing an additional warehouse facility with a capacity of $200 million in August 2000. |
| -- | The Company's net pre-tax unrealized gain included in Retained Interest was $6.5 million at September 30, 2000, compared to $5.0 million at September 30, 1999. Net of taxes, the unrealized gain included in Retained Interest totaled $4.0 million at September 30, 2000 and is reported as Accumulated Other Comprehensive Income. |
Implementation of SFAS No. 133
The first quarter of Fiscal 2001 marks the first quarter that UAC has implemented SFAS No. 133. This new accounting method will require the Company to mark derivative instruments to market each accounting period. The only derivative instruments the Company utilizes relate to interest rate swaps executed solely to hedge interest rate fluctuations on receivable acquisitions prior to securitization. Management believes that the interest rate swaps are effective in protecting the Company from interest rate fluctuations and that these transactions are typical in this industry. However, it has been determined that under SFAS No. 133, these transactions do not qualify for "hedge" accounting treatment. Therefore, the Company is required to mark these derivative instruments to market and record the adjustment to earnings every accounting period.
Under previous accounting standards, these derivatives qualified as hedges and accordingly, the market value was not accounted for in the financial statements until the corresponding receivables were securitized and the derivatives terminated. At that time, the gain or loss on the interest rate swaps was included in the net gain on sales of receivables. This amount will now be classified as a separate line item on the income statement titled "Gain/(Loss) on interest rate swaps on securitized receivables".
SFAS No. 133 adjustments may affect the Company's results of operations each accounting period favorably or unfavorably, depending on changes in market interest rates, regardless of the offsetting effect that would normally only be recognized at the time the Company securitizes. Accordingly, management believes that it is more meaningful to analyze operating results before the impact on earnings attributable to the market value adjustment. Therefore, each quarter, in addition to GAAP earnings, the Company will present the results of operations before giving effect to the earnings impact of derivative instruments relating to held for sale receivables. As of September 30, 2000, the earnings impact of hedging instruments was a pre-tax loss of $2.4 million ($1.6 million after tax), or $0.11 per diluted share. This amount is reported on the Income Statement as "Loss on interest rate swaps on held for sale receivables".
"We want to be very clear in explaining that the adoption of SFAS No. 133 has absolutely no cash effect on our business," stated Rick Brown, Chief Financial Officer. "Interest rate movements will cause the market value of our derivative instruments to fluctuate. This is expected given that we utilize these instruments strictly to hedge the interest rate risk associated with the receivables yet to be securitized. The change in the market value of our hedging instruments is helpful information; however, it is not meaningful until the securitization transaction is completed and the offsetting change in the market value of the receivables is reported."
The following tables set forth delinquency and credit loss experience related to the Tier I (prime) automobile portfolio:
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Delinquency Experience
At September 30, 2000 At June 30, 2000
--------------------- ----------------
(Dollars in thousands)
Number of Number of
Receivables Amount Receivables Amount
Servicing
portfolio 252,293 $ 3,133,025 235,732 $ 2,848,150
Delinquencies
30-59 days 5,120 56,184 4,204 45,442
60-89 days 2,482 29,062 2,176 25,250
90 days or more 1,158 12,918 886 9,710
----------- ----------- ----------- -----------
Total
delinquencies 8,760 98,164 7,266 80,402
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Delinquency as a
percentage of
servicing
portfolio 3.47% 3.13% 3.08% 2.82%
At September 30, 1999
---------------------
(Dollars in thousands)
Number of
Receivables Amount
----------- ------
Servicing portfolio 217,296 $ 2,530,654
Delinquencies
30-59 days 4,714 50,734
60-89 days 1,955 20,439
90 days or more 875 9,291
----------- -----------
Total delinquencies 7,544 80,464
----------- -----------
----------- -----------
Delinquency as a percentage
of servicing portfolio 3.47% 3.18%
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Credit Loss Experience
Three Months Ended
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(Dollars in thousands)
September 30, 2000 June 30, 2000 September 30, 1999
------------------ ------------- ------------------
Average servicing
portfolio $ 3,031,640 $ 2,610,803 $ 2,515,461
Gross charge-offs 27,103 24,311 21,088
Recoveries 11,112 10,076 8,671
----------- ----------- -----------
Net charge-offs 15,991 14,235 12,417
Gross charge-offs
as a percentage
of average servicing
portfolio (1) 3.58% 3.72% 3.35%
Recoveries as a
percentage of
gross charge-offs 41.00% 41.45% 41.12%
Net charge-offs as a
percentage of
average servicing
portfolio (1) 2.11% 2.18% 1.97%
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(1) Annualized
Union Acceptance Corporation will host a conference call at 1:00 p.m. Eastern Time on Wednesday, October 18, 2000. For an Internet replay of the conference call, please go the Company's web site, www.unionacceptance.com.
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 5,200 manufacturer-franchised dealerships in 40 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, receivable acquisitions 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 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, 2000, 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: September 30, 2000 June 30, 2000
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Cash and cash equivalents $ 14,425 $ 14,792
Restricted cash 10,377 13,010
Receivables held for sale, net 271,023 206,701
Retained interest in securitized assets 225,859 208,431
Accrued interest receivable 2,293 1,727
Property, equipment, and leasehold
improvements, net 9,319 9,494
Other assets 24,393 23,983
-------- --------
Total assets $ 557,689 $ 478,138
-------- --------
-------- --------
Amounts due under warehouse facilities $ 246,394 $ 152,235
Long-term debt 155,000 177,000
Accrued interest payable 4,100 5,408
Amounts due to trusts 16,523 14,487
Dealer premiums payable 4,682 3,663
Current and deferred income taxes payable 11,613 9,740
Other payables and accrued expenses 5,900 5,576
-------- --------
Total liabilities 444,212 368,109
-------- --------
Common stock 58,632 58,632
Accumulated other comprehensive earnings,
net of taxes 4,003 3,564
Retained earnings 50,842 47,833
-------- --------
Total shareholders' equity 113,477 110,029
-------- --------
Total liabilities and shareholders'
equity $ 557,689 $ 478,138
-------- --------
-------- --------
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30+ Delinquency at:
September 30, 2000 June 30, 2000 September 30, 1999
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Tier I 3.13% 2.82% 3.18%
Tier II 13.72% 11.26% 10.99%
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Total 3.23% 2.92% 3.32%
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Allowance Data at:
Allowance for
estimated credit
losses on
securitized
receivables $ 126,250 $ 119,003 $ 107,422
Securitized
receivables
serviced $ 2,895,305 $ 2,676,655 $ 2,351,269
Allowance as a
percentage
of securitized
receivables
serviced 4.36% 4.45% 4.57%
----------------------------------------------------------------------
Managed Receivable Data at:
Receivables held
for sale
-----------------
Tier I $ 261,546 $ 202,167 $ 226,505
Tier II 4,407 1,656 694
Securitized
-----------
Tier I 2,871,479 2,645,983 2,304,146
Tier II 23,826 30,672 47,123
Receivables serviced
for others 575 637 836
-----------------------------------------------------
Total Servicing
Portfolio $ 3,161,833 $ 2,881,115 $ 2,579,304
-----------------------------------------------------
-----------------------------------------------------
Union Acceptance Corporation
Selected Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
September 30,
Income Statement Data for the Period: 2000 1999
----------------------------------------------------------------------
Interest on receivables held for sale $ 14,371 $ 8,145
Retained interest and other 7,300 5,728
--------------------------
Total interest income 21,671 13,873
Interest expense 11,041 6,564
--------------------------
Net interest margin 10,630 7,309
Provision for estimated credit losses 975 750
--------------------------
Net interest margin after provision
for estimated credit losses 9,655 6,559
Gain on sales of receivables, net 7,867 6,530
Loss on interest rate swaps on securitized
receivables (5,350) -
Loss on interest rate swaps on held for
sale receivables (2,440) -
Servicing fees 6,719 6,068
Late charges and other fees 1,755 1,505
--------------------------
Other revenues 8,551 14,103
--------------------------
Salaries and benefits 7,918 6,927
Other general and administrative fees 5,512 4,914
--------------------------
Total operating expenses 13,430 11,841
--------------------------
Earnings before provision for income taxes 4,776 8,821
Provision for income taxes 1,767 3,402
--------------------------
Net earnings $ 3,009 $ 5,419
--------------------------
--------------------------
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Per Common Share Data:
Earnings (diluted and basic) $ 0.23 $ 0.41
Book value $ 8.55 $ 7.38
Weighted average shares outstanding 13,277,632 13,250,660
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Receivable Acquisition Volume: $ 576,414 $ 330,282
Securitization Volume: $ 500,000 $ 364,792
----------------------------------------------------------------------
Ratios:
Return on average managed assets 0.36% 0.77%
Return on average shareholders' equity 11.25% 23.25%
Operating expenses as a percentage of
average servicing portfolio 1.75% 1.85%
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Portfolio Performance:
Net credit loss (annualized for the period ended)
Tier I 2.11% 1.97%
Tier II 6.27% 8.64%
--------------------------
Total 2.15% 2.10%
--------------------------
--------------------------
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Pro forma information for the earnings impact of derivative
instruments on held for sale receivables related to FAS 133:
Total revenues $ 30,222 $ 27,976
Pro forma adjustment 2,440 -
--------------------------
Pro forma total revenues $ 32,662 $ 27,976
--------------------------
--------------------------
Pro forma net earnings $ 4,558 $ 5,419
Pro forma earnings per common share
(diluted and basic) $ 0.34 $ 0.41
Pro forma return on average managed assets 0.54% 0.77%
Pro forma return on average shareholders'
equity 16.76% 23.25%