WFS Financial Inc reported that net income increased66% to $63.4 million for the three months ended September 30, 2005compared with $38.1 million for the same period a year ago. Earnings per diluted share increased 66% to $1.54 for the three months ended September 30, 2005 compared with $0.93 per diluted share for the same period a year earlier. For the nine months ended September 30, 2005,net income increased 26% to $174 million compared with $139 million for the same period a year earlier. Earnings per diluted share rose26% to $4.25 for the nine months ended September 30, 2005 compared with $3.37 for the same period a year ago.
"Our third quarter performance reflects our sustained growth in auto originations and the strength of our business model," said TomWolfe, President of Westcorp. "We continue to experience double digitorigination growth across the country. Additionally, our superior credit performance is the result of our ongoing commitment to credit quality and operational excellence."
Annualized credit loss experience improved 70 basis points to1.25% of average managed automobile contracts for the third quarter compared with 1.95% for the same period a year earlier. For the nine months ended September 30, 2005, credit loss experience improved 63basis points to 1.35% compared with 1.98% for the same period a year earlier. The improvement in credit loss experience reflects a 15%decrease in the annualized default rate for the quarter to 3.9%compared with 4.6% a year ago. In addition, the total recovery rate improved 20% to 74% for the quarter compared to 62% a year ago. This rate includes both the average realization on the collateral sold of53%, up from 49% a year ago, and the deficiency balance recoveries of21%, up from 13% a year ago. The increase in the deficiency balance recoveries was due primarily to the recognition of $7.3 million in sales tax refunds on charged off accounts due to a favorable tax authority ruling. Of the $7.3 million, $6.4 million relates to prior quarters. The amount that relates to prior quarters reduced the credit loss experience for the quarter by 20 basis points. The percentage of outstanding automobile contracts 30 days or more delinquent improved 9basis points to 2.15% at September 30, 2005 compared with 2.24% a year ago.
The provision for credit losses decreased to $42.5 million for the three months ended September 30, 2005, compared with $60.0 million for the same period a year earlier due to lower charge off experience, including the effect of sales tax refunds recognized during the quarter. For the nine months ended September 30, 2005, the provision for credit losses decreased to $132 million compared with $133 million for the same period a year ago. At September 30, 2005, the allowance for credit losses totaled $282 million or 2.4% of owned automobile contracts compared with $252 million or 2.6% at December 31, 2004.
Automobile contract purchases totaled $2.1 billion for the third quarter of 2005, a 15% increase from the same period a year earlier. For the nine months ended September 30, 2005, automobile contract purchases totaled $5.9 billion, a 16% increase compared with $5.1billion a year ago. As a result of higher contract originations, the Company's portfolio of managed automobile contracts grew 11% to $12.7billion at September 30, 2005, up from $11.4 billion a year earlier. Total average interest earning assets increased $2.6 billion to $12.2billion for the third quarter, up from $9.6 billion for the same period a year ago. As a result, net interest income grew 29% to $192million for the third quarter compared with $149 million for the same period a year earlier. Net interest margin was 5.82% for the third quarter compared with 5.83% for the same period a year ago. For the nine months ended September 30, 2005, net interest income grew 26% to$538 million compared with $425 million for the same period a year earlier. Net interest margin was 5.94% for the nine months ended September 30, 2005 compared with 5.84% for the same period a year ago.
Non interest income decreased $15.6 million to $20.9 million for the three months ended September 30, 2005 compared with $36.5 million for the same period a year earlier. For the nine months ended September 30, 2005, non interest income decreased $55.6 million to$64.5 million compared with $120 million for the same period a year ago. Non interest income was reduced by $18.1 million and $49.3 million of loan origination fees that were deferred during the three and nine months ended September 30, 2005, respectively. Non interest expense increased to $64.7 million or 2.06% of average managed contracts for the third quarter compared with $62.2 million or 2.21% of average managed contracts for the same period a year earlier. For the nine months ended September 30, 2005, non interest expense decreased to $182million or 2.00% of average managed contracts compared with $183million or 2.22% of average managed contracts a year ago. Included in non interest expense is $3.3 million of transaction expenses related to the previously proposed merger of the Company into Western Financial Bank as part of the acquisition of the Company's minority interest and the recently announced merger agreement entered into among Wachovia, Westcorp, Western Financial Bank and the Company. Non interest expense was reduced by $7.3 million and $20.7 million of direct origination costs that were deferred during the three and nine months ended September 30, 2005, respectively. Historically, the Company performed analysis on the fees and direct costs related to its origination of automobile loans and elected not to defer and amortize such amounts as the net effect was not material to its financial statements in accordance with Statement of Financial Accounting Standard No. 91 and SEC Staff Accounting Bulletin No. 99. Due to continuing improvements in operating efficiencies and the higher amount of documentation fee searned, the difference between the amount of fees received and the direct costs incurred has gradually increased. The Company decided to defer and amortize these amounts to interest income prospectively beginning in the first quarter of this year.
The Company issued $2.7 billion of automobile receivable asset-backed securities during the quarter in its largest transaction to date. The Company and its ultimate parent, Westcorp, continue to be the largest non-captive issuer of automobile asset-backed securities in the U.S. having issued a total of $46 billion of such securities in68 transactions to date.
The Company expects to recognize additional transaction related expenses associated with the proposed merger with Wachovia through the consummation of the transaction.
Due to the pending merger with Wachovia, there will be no scheduled investor conference call to discuss the third quarter results.
Westcorp is a financial services holding company whose principal subsidiaries are WFS Financial Inc and Western Financial Bank. Westcorp is a publicly owned company whose common stock is traded on the New York Stock Exchange under the symbol WES.
Westcorp, through its subsidiary, WFS Financial, is one of the nation's largest independent automobile finance companies. WFS Financial specializes in originating, securitizing, and servicing new and pre-owned prime and non-prime credit quality automobile contracts through its nationwide relationships with automobile dealers. WFSF inancial is a publicly owned company whose common stock is traded on the Nasdaq under the symbol WFSI.
Westcorp, through its subsidiary, Western Financial Bank, operates retail bank branches and provides commercial banking services in Southern California.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are identified by the use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," and similar terms and phrases, including references to assumptions. Forward-looking statements in this press release relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. In addition, these statements relate to the Company's future prospects, developments and business strategies and include information regarding the Company's improved credit quality trends and higher automobile origination growth. In addition, forward-looking statements include statements regarding the proposed merger with Wachovia.
These statements are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond its control that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements. In particular, there can be no assurances that improved credit quality trends ororigination growth identified in this press release will continue in future periods.
The following factors are among those that may cause actual results to differ materially from the forward-looking statements: changes in general economic and business conditions; interest rate fluctuations, including the effect of hedging activities; the Company's financial condition and liquidity, as well as future cash flow and earnings and the level of operating expenses; competition; the effect, interpretation, or application of new or existing laws, regulations, court decisions and significant litigation; the exercise of discretionary authority by regulatory agencies; a decision to change the Company's corporate structure; the availability of sources of funding; and the level of charge offs on the automobile contracts that the Company originates. In addition, the Company can provide no assurances that the merger with Wachovia will close when expected, if at all. The merger of Westcorp and Wachovia is subject to there quisite approval of Westcorp's shareholders, and the merger of the Company and Wachovia is subject to the requisite approval of the Company's shareholders (including the approval of a majority of shares of the Company's common stock represented and voting at the Company's meeting, excluding shares of the Company's common stock held by Westcorp and its affiliates). Additionally, each of the mergers are subject to receipt of requisite regulatory approvals, including the approval of applicable federal and state banking regulators, receipt of tax opinions and other closing conditions.
A further list of these risks, uncertainties and other matters can be found in the Company's filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the Company's actual results may vary materially from those expected, estimated or projected. The information contained in this press release is as of October 25, 2005. The Company assumes no obligationto update any forward-looking statements to reflect future events orcircumstances.
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