Union Acceptance Corporation Reports Net Earnings for the First Quarter of Fiscal 1998
INDIANAPOLIS--(BUSINESS WIRE)--Oct. 28, 1997--Union Acceptance Corporation (NASDAQ:UACA) today reported net earnings of $504,000 or $0.04 per share for the fiscal first quarter ended September 30, 1997, down from $5.9 million, or $0.45 per share reported in the comparable quarter of last year. Net earnings included a $3.7 million charge ($2.2 million after-tax, or $0.17 per share) to increase the allowance for estimated credit losses on securitized loans.
Revenues for the first quarter of fiscal 1998 totaled $9.5 million, down from the same quarter of last year's $17.1 million. Loan acquisitions for the first quarter totaled $252.9 million, down from the $296.6 million acquired in the same quarter of last year, but up from the $238.4 million in the previous quarter. The Company securitized $218.4 million during the first quarter, resulting in a gain on sale of $5.2 million before the $3.7 million charge discussed above.
Delinquency on the prime automobile portfolio reached 4.33% at September 30, 1997, compared to 2.96% at June 30, 1997, and 2.02% at September 30, 1996. Prime credit losses totaled 3.17% for the quarter ended September 30, 1997, up from 2.69% for the quarter ended June 30, 1997, and 1.59% for the quarter ended September 30, 1996. Recovery rates were 35.28% during the current quarter, compared to 43.01% for the quarter ended June 30, 1997, and 40.36% for the quarter ended September 30, 1996.
Management believes there has been a general deterioration in the consumer credit markets despite low unemployment and relatively good economic conditions. UAC believes that this decline is due primarily to debtor over extension, which results in higher consumer debt levels and the consumer's increased readiness to declare bankruptcy. These factors have led to increased delinquency and net credit losses, especially in the 1995 securitization pools. According to industry loss curves, the losses on those loans acquired in 1995 should have peaked as they are currently in the 23rd to 32nd month of their lives. However, delinquency and losses on these loan pools have remained higher than expected. The delinquency and projected credit losses on the loans acquired in 1996 are also higher than UAC expectations, however, the credit quality on those loans appears stronger than those loans acquired in 1995. Moreover, the quality of loan acquisitions in 1997, to date, appears stronger than the quality of those loans acquired in 1996. UAC has and is continuing to address this issue through tightened underwriting credit standards, and by forming collection teams to specifically target problem accounts. Additionally, UAC is utilizing new scoring tools that allow UAC to focus its collection efforts in the most effective manner.
Recovery rates are at historic lows due to a soft used car market, resulting from saturation of used leased vehicles and repossessed vehicles due to bankruptcy. Management continues to look for ways to improve recovery rates. One step recently taken was to increase tracking efforts on insurance and warranty refunds due to the Company. Additionally, we have acquired a 6.5 acre property near our Indianapolis headquarters for the purpose of expanding our reconditioning and retail remarketing operations which have outgrown their current facilities in Indianapolis.
The following tables set forth delinquency and credit loss experience related to the prime auto portfolio:
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Delinquency Experience
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At September 30, 1997 At September 30, 1996
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Number Number
of Loans Dollars of Loans Dollars
________ _______ ________ _______
Servicing Portfolio 177,377 $1,896,748 155,853 $1,648,523
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Delinquencies
30-59 days 4,310 45,766 1,498 16,605
60-89 days 2,196 25,156 907 10,650
90+ days 934 11,131 499 6,047
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Total delinquencies 7,440 $ 82,053 2,904 $ 33,302
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Total delinquencies
as a % of servicing
portfolio 4.19% 4.33% 1.86% 2.02%
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Credit Loss Experience
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Three Months Ended
September 30,
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1997 1996
____ ____
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Ave. servicing portfolio $1,881,603 $1,616,606
Gross charge-off 23,056 10,751
Recoveries 8,134 4,339
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Net charge-offs 14,922 6,412
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Gross charge-offs as a % of
ave. servicing portfolio (1) 4.90% 2.66%
Recoveries as a % of gross
charge-offs 35.28% 40.36%
Net charge-offs as a % of
ave. servicing portfolio (1) 3.17% 1.59%
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(1) Annualized.
Selected First Quarter Results:
The Company's total servicing portfolio was $2.0 billion at September 30, 1997, 16% higher than the $1.7 billion at September 30, 1996.
The allowance for estimated credit losses on securitized loans totaled $76.5 million, or 4.16% at September 30, 1997, compared to 4.35% at June 30, 1997 and 3.27% at September 30, 1996.
Interest on loans was $6.6 million for the quarter ended September 30, 1997 compared to $9.2 million for the same quarter of last year. The net interest margin after provision for September 30, 1997 was $815,000, a 76.6% decrease over the net interest margin after provision of $3.5 million for the same period of last year. The decrease in the net interest margin is due primarily to the average principal amount of loans held for sale being less for the quarter ended September 30, 1997 compared to the quarter ended September 30, 1996. This is a direct result of loan acquisitions being lower this quarter than the same quarter last year. Additionally, the provision for credit losses on loans held for sale was increased in response to the trend of increasing charge-off and delinquencies.
Gain on sales of loans totaled $5.2 million (before the effect of a reserve adjustment in the amount of $3.7 million) for the quarter ended September 30,1997 compared to $6.9 million for the same quarter of last year. The decrease was due to loan acquisitions being down which resulted in a lower securitization for the first quarter of fiscal 1998 compared to the first quarter securitization of fiscal 1997. The loans sold in the securitization for the period ended September 30, 1997 were $218.3 million compared to $310.1 million for the same quarter of last year. This was offset, somewhat, by the improvement of gross and net spreads on this quarter's securitization of 7.04% and 5.38%, compared to 6.82% and 5.11%, respectively over the securitization in the same quarter of last year.
Servicing fees for the quarter ended September 30, 1997 were $6.2 million, a 6.3% increase over $5.8 million for the same quarter of last year.
Operating expenses were $8.6 million for the first quarter ended of fiscal 1998, compared to $7.1 million for the first quarter of fiscal 1997. Operating expenses as a percentage of the average servicing portfolio increased slightly to 1.76% for the first quarter, up from 1.71% in the same quarter of last year.
''Losses on loans acquired in 1995 and 1996 have been higher than we expected, however, the credit quality of the 1996 loans has shown improvement over quality of loans acquired in 1995. Early performance results of loans acquired in 1997 indicate an even higher credit quality and we are optimistic about their performance. We will continue to intensify the coverage of delinquent accounts and to make improvements in collection strategies as well as maintain our tightened credit underwriting standards. The winter months and holiday season traditionally result in declines in portfolio performance. We are, however, conservatively optimistic that the spring months of the coming year will bring performance improvements based on the stronger quality of loans acquired in 1996 and 1997.'' -- John Stainbrook, UAC President. |
