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Non-Tech : Union Acceptance Corp. UACA
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To: Carey Thompson who wrote (12)7/31/1997 2:31:00 PM
From: Banjoman   of 39
 
Here's my read on 97 earnings:
reserve on securitized loans is now 4.35% of loans outstanding. This is up from time of write-off. Net charge-offs are running at 2.7% annualized rate. Is reserve sufficient given 2+year loan life on average? Note that gross and net charge-offs are less than in 3rd qtr - so trend is good. And the 3.5% loss reserve on new securitization suggests they are confident new loans will have substantially better loss experience.

June securitzation booked 7M in earnings using 3.5% loss reserve. This seems low to me, but the presumably are assuming a positive impact from credit tightening. However, cumulative net losses through March on 95 securitization was 4% (with nearly 1/2 still outstanding) - so I would have rather they been more conservative. And S&P's news release on June securitzation indicated expected net losses of 4.5-5.5% (that is, expected by S&P).

Big news is that loan acquisitions were down substantially vs. year previous quarter, and were 85% of acquisitions in Q3. That suggests that they will not do as much volume next year as this, though they seem to be expecting a better credit loss experience on the lower volume, which may offset somewhat.

Crudely, if I assume lower loan volume (based on current qtr), staticservicing portfolio, and that the 3.5% is fair for loss experience on new loands - company could earn $1.60 next year (large size of servicing portfolio offsets the reduced gain on securitizations.). Current book is $6.6/share. Looks cheap to me.
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