WFS Financial Inc. on Sept. 21 announced that its third quarter earnings on both a reported and portfolio basis will be less than previously forecast as a result of continued slowing in the economy.
Reported earnings are expected to be approximately $9.3 million or $0.26 per diluted share for the third quarter of 2001 compared with $17.3 million or $0.61 per diluted share for the same period a year earlier and $19.5 million or $0.63 per diluted share last quarter. The company is scheduled to report third quarter earnings results on Oct. 16, 2001.
According to WFS, the weakness in the economy has led to higher credit losses due to a higher number of repossessions and bankruptcies as well as lower wholesale prices for automobiles at auction. As a result, the company expects credit losses to be approximately 2.5 percent in the third quarter.
Forecasted results for the third quarter include $21 million in provisions for credit losses in excess of chargeoffs as well as an additional $11 million in residual interest asset amortization expense. These non-cash charges are expected to impact third quarter reported earnings by $0.55 per diluted share. WFS has not created any new residual interest assets since the first quarter of 2000 and expects its residual interest assets to represent just 9 percent of equity by the end of the year.
"In the face of continued weakness in the economy, exacerbated by the tragic events of last week, we are actively adding provisions for credit losses and increasing the rate of amortization on our residual interest assets," said Joy Schaefer, chief executive officer of WFS. "We expect credit losses to peak in the fourth quarter and then to begin to improve and stabilize in 2002. Our previously announced shift to a greater focus on prime credit quality contracts and new originations based on lower car values will minimize the long-term effects of the slowdown on our portfolio going forward."
Credit losses may increase to as much as 3.0 percent in the fourth quarter of this year as a result of seasonal factors and the continued economic slowdown. Credit losses are estimated to be in the 2.3 percent to 2.6 percent range for 2002. As a result, the company expects fourth quarter earnings to be approximately $14 million or $0.40 per diluted share and 2002 earnings to range from $2.70 to $2.90 per diluted share.
Portfolio basis earnings in the third quarter are expected to be $30 million or $0.87 per diluted share compared with $20.4 million or $0.72 per diluted share for the third quarter of last year and $27.9 million or $0.90 per diluted share reported in the second quarter of this year. WFS expects portfolio basis earnings to be approximately $26 million, or $0.75 per diluted share in the fourth quarter and increase to a range of $3.50 to $3.90 per share for 2002.
Portfolio basis earnings present the company's results under the assumption that all whole loan sales and securitization transactions are treated as secured financings rather than sales. The company said it believes that such a presentation is an important performance measure of its operations and believes that these managed basis statements assist in better understanding its business.
When securitizations are treated as secured financings, no gain on sale or subsequent contractual servicing and retained interest income is recognized. Instead, the earnings of the securitization trusts and related financing costs are reflected over the life of the underlying pool of contracts.
Conference Call Scheduled for Oct. 17
WFS will host a conference call for analysts and investors at 9 a.m. (PDT) on Wednesday, Oct. 17, 2001. As part of this conference call, WFS management will discuss, at greater length, earnings results for the third quarter as well as management's outlook for the rest of 2001 and 2002.
For a live Internet broadcast of this conference call, go to the company's Web site to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call.
About WFS Financial
WFS is one of the nation's largest independent automobile finance companies.
WFS specializes in originating, securitizing and servicing new and pre-owned prime and nonprime credit quality automobile contracts through its nationwide relationships with automobile dealers.
Information about WFS can be found at its Web site at www.wfsfinancial.com.
