<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 28, 1998
UNITED COMPANIES FINANCIAL CORPORATION
(Exact name as specified in its charter)
Louisiana 1-7067 71-0430414
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
4041 Essen Lane, Baton Rouge Louisiana 70809
(Address of principal executive offices) ZipCode
Registrant's telephone number, including area code (225) 987-0000
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events.
The Registrant files herewith the exhibits listed in Item 7(c) below.
Item 7(c). Exhibits.
The following exhibits are furnished in accordance with Item 601 of
Regulation S-K:
99.1 Press Release dated October 28, 1998,
United Companies Reports Income of $23.9 Million
for the Third Quarter
99.2 Press Release dated October 28, 1998,
United Companies Announces Restructuring Plan
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED COMPANIES FINANCIAL CORPORATION
(Registrant)
Date: November 2, 1998 By: /s/ Dale E. Redman
---------------------------------------
Dale E. Redman, Executive Vice President and
Chief Financial Officer
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. EXHIBIT NUMBERED PAGE
- ------- ------- -------------
<S> <C> <C>
99.1 Press Release dated October 28, 1998,
United Companies Reports Income of $23.9 Million
for the Third Quarter
99.2 Press Release dated October 28, 1998,
United Companies Announces Restructuring Plan
</TABLE>
<PAGE> 1
EXHIBIT 99.1
NEWS RELEASE
[UNITED COMPANIES LOGO] FOR MORE INFORMATION, CONTACT:
Dale E. Redman
Executive Vice President &
Chief Financial Officer
504.987.2385 or 800.234.8232
RELEASE DATE: October 28, 1998
UNITED COMPANIES REPORTS INCOME OF
$23.9 MILLION FOR THE THIRD QUARTER
BATON ROUGE, LA - United Companies Financial Corporation (NYSE: UC)
announced today that net income for the quarter ended September 30, 1998 was
$23.9 million or $.74 per diluted share. This includes a $.23 non-recurring gain
per diluted share from the sale of a real estate property and a stock
investment. The reported net income is a 12% decrease compared to $27.0 million
or $.83 per diluted share for the three months ended September 30, 1997.
In a separate release, the Company announced it was unsuccessful in its
effort to find a potential strategic partnership and that the Company will
implement a restructuring plan that will focus on cost efficiencies and build on
the strengths of its flagship retail operation, UC Lending.
The Company also announced record total home equity loan production of $1.2
billion for the third quarter of 1998. This represents a 25% increase compared
to $969 million for the previous second quarter and a 59% increase compared to
$760 million for the third quarter of 1997.
The record volume was primarily driven by UC Lending, one of the most
recognized brands in the industry, which originated record loan volume of $552
million during the quarter. This represents a 13% increase compared to $488
million for the second quarter of 1998 and a 29% increase compared to $427
million for the third quarter of 1997.
"We are encouraged by the production levels achieved during the third
quarter and our ability to operate within our targeted cost of origination
levels," said J. Terrell Brown, President and Chief Executive Officer. "UC
Lending's net cost of production dropped below 1% during the third quarter,
<PAGE> 2
the lowest level in two years. We remain confident that we will continue to
bring the cost of production into a break-even range. "
Ginger Mae, operating through its relationships with financial institutions,
produced $109 million of home equity loans in the third quarter of 1998. This is
a 85% increase compared to $59 million for the same period in 1997 and a 21%
increase from $90 million for the second quarter of 1998.
The balance of the total loan production was originated by the Company's
wholesale operations, UNICOR and UC Acquisition.
SERVICING/CREDIT QUALITY:
During the third quarter of 1998, United Companies increased its total home
equity servicing portfolio to $6.4 billion. The percentage of home equity loans
thirty days plus delinquent or defaulted was at 10.82% as of September 30, 1998
compared to 10.35% at June 30, 1998 and 11.24% at September 30, 1997. Net
charge-offs on home equity loans were $14 million for the third quarter of 1998
compared to $10 million for the quarter ended June 30, 1998. The charge-off rate
on the average of home equity loans serviced for the last four quarters ended
September 30, 1998 was .80% compared to .65% for the year ended December 31,
1997. The reserve for loan losses on home equity loans totaled $139 million (or
2.1% of total loans serviced and REO properties) at September 30, 1998 compared
to $78 million (or 1.5% of total loans serviced and REO properties) at September
30, 1997.
SECURITIZATIONS:
The Company executed the largest securitization transactions in its history
during the third quarter, the sale of $1.3 billion of home equity loan
asset-backed securities. The Company also securitized $129 million of
manufactured housing contracts during the quarter using a senior subordinated
structure. Since 1993, the Company has issued over $11 billion of asset backed
securities backed primarily by first mortgage home equity loans.
INTEREST ONLY AND RESIDUAL ASSUMPTIONS:
The Company made no changes in its assumptions used in valuing its interest
only and residual certificates during the third quarter. Prepayment speeds were
relatively stable and while charge offs
<PAGE> 3
increased, the Company's reserve for loan losses as a percent of the serviced
loan portfolio increased to 2.1% from 1.8% at June 30, 1998.
CAPITAL RESOURCES:
The Company maintains credit facilities to fund its operations which include
an $850 million revolving credit facility committed to April of 2000, a $300
million warehouse facility committed to April of 2000, and a $850 million
short-term warehouse facility. The Company intends to establish other short-term
warehouse facilities as needed. The Company believes that its capital resources
are adequate to fund its operations.
DISCONTINUED OPERATIONS:
The Company's Board of Directors has approved a plan to sell or liquidate
its manufactured housing unit, UC Funding. Accordingly, the Company has recorded
UC Funding as a discontinued operation.
LEGAL DEVELOPMENTS:
The Company also announced that in a class action lawsuit pending in
Alabama, the Alabama Superior Court, acting on an interlocutory appeal by the
Company, upheld the prior ruling of the trial court on a pre-trial motion that
retroactive application of the 1996 amendments to the Alabama Mini Code would be
unconstitutional as applied to the plaintiff's class. The 1996 amendments, which
in general limited the remedy for finance charges in excess of the maximum
permitted by the Alabama Mini Code, were expressly made retroactive by the
Alabama Legislature. The Company strenuously disagreed with this holding and
sought a rehearing by the Alabama Supreme Court. The request for a rehearing has
been denied by the Alabama Supreme Court and the matter will be returned to the
trial court for a trial on the merits. The Company believes that the liability,
if any, should be limited to $495,000, the amount of the aggregated finance
charges allegedly exceeding the maximum permitted by the Alabama Mini Code, plus
interest thereon. The Company intends to continue its vigorous defense of this
matter. If unsuccessful in its defense at a trial on the merits and related
appeals, the Company presently estimates that the liability of its subsidiary
could be approximately $15 million.
<PAGE> 4
The U.S. Department of Justice ("DOJ") and the U.S. Department of Housing
and Urban Development ("HUD") recently issued a letter to the Company and its
subsidiary United Companies Lending Corporation notifying them that they were
initiating a joint investigation of their lending and pricing practices,
initially in the Philadelphia, PA-NJ PMSA. The investigation focuses on
compliance by the Company and its subsidiary with the federal Fair Housing Act
and Equal Credit Opportunity Act and the federal Real Estate Settlement
Procedures Act ("RESPA"). Specifically, DOJ seeks to determine whether the
lending and pricing practices of the Company and its subsidiary discriminate
against applicants based on race, national origin, sex, or age. The Company
believes this investigation by DOJ is part of the overall initiative by that
agency to review the practices of several large subprime lenders and does not
stem from any findings of wrongdoing by the Company. HUD will be investigating
whether relationships of the Company and its subsidiary with mortgage brokers,
home improvement dealers or other third parties may violate the anti-kickback
and anti-referral fee prohibitions of RESPA. The Company is cooperating with the
joint investigation and management of the Company believes that both agencies
should ultimately determine that no violations of law have occurred.
In October 1998, the Company reached a settlement in an enforcement action
pending in Massachusetts state court alleging violations by the Company of
certain regulations promulgated by the Massachusetts Attorney General relating
to, among other things, loan origination fees, also known as "points", with
respect to loans originated in Massachusetts. The settlement, involving payments
and other terms by the Company aggregating approximately $1.2 million, followed
a decision by a federal district court in Massachusetts upholding the validity
of the regulations and finding violations thereof by the Company's subsidiary.
The Company had maintained that the Massachusetts regulations were void because
they conflicted with the efforts of the Massachusetts Legislature to supplant
the strict regulation of points with disclosure requirements, and were
inconsistent with the policies and interpretations of the Federal Trade
Commission as to what constitutes unfair and deceptive trade practices. The
federal district court found that the Attorney General's regulations did not
contravene the intent of the Massachusetts Legislature and are not inconsistent
with applicable federal law.
RATINGS:
On October 7, 1998, Fitch IBCA lowered the rating of the Company's senior
notes to BB from BBB- at June 30, 1998, and its subordinated notes to BB- from
BB+ at June 30, 1998.
<PAGE> 5
On October 9, 1998, Moody's Investor Service ("Moody's") downgraded the
Company's senior unsecured debt rating to B3 from Ba3 at June 30, 1998, and its
subordinated debt to Caa2 from B2 at June 30, 1998. Moody's rating outlook
remained negative.
On October 23, 1998, Standard & Poor's ("S&P") lowered the counterparty
credit rating and senior unsecured debt rating to BB- from BB+ at June 30, 1998,
its subordinated debt to B from BB- at June 30, 1998, and its preferred stock to
B- from B+ at June 30, 1998. All ratings were removed from S&P's CreditWatch,
where they were placed with developing implications in August 1998 following the
Company's announcement that it had retained Salomon Smith Barney to explore
potential strategic alternatives.
CONFERENCE CALL:
The Company will further discuss its restructuring plan, expected future
production and earnings levels, as well as 1998 third quarter results of the
quarter, in a conference call scheduled for 9:00 a.m. Central, Wednesday,
October 28, 1998. To participate in the call, please dial (800) 288.8960 for
domestic calls and (612) 332.1020 for international calls. A replay of the
conference call will be available beginning Wednesday, October 28, 1998 at 12:00
p.m. Central, and will run through midnight on Friday, October 30, 1998. To
access the replay, please dial (800) 475.6701 for domestic calls and (320)
365.3844 for international calls. The access code for the replay is 412574.
United Companies Financial Corporation is a specialty finance Company that
provides consumer loan products nationwide through its lending subsidiaries, UC
Lending(R) and Ginger Mae(R). The Company's Common and Preferred Stock trade on
the New York Stock Exchange under the symbols "UC" and "UCPRI" respectively.
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995: The statements contained in this release that are
not historical facts are forward-looking statements based on the Company's
current expectations and beliefs concerning future developments and their
potential effects on the Company. There can be no assurance that future
developments affecting the Company will be those anticipated by the Company.
Actual results may differ from those projected in the forward-looking
statements. These forward-looking statements involve significant risks and
uncertainties (some of which are beyond the control of the Company) and are
subject to change based upon various factors, including but not limited to the
following risks and uncertainties: changes in the asset securitization industry
and in performance of the financial markets, in the demand for and market
acceptance of United Companies' products, and in general economic conditions,
including interest rates; the presence of competitors with greater financial
resources and the impact of competitive products and pricing; the effect of the
Company's policies including the amount and rate of growth of Company expenses;
the continued availability to the Company of adequate funding sources; actual
prepayment rates and credit losses on loans sold as compared to prepayment rates
and credit losses assumed by the Company at the time of sale for purposes of its
gain on sale computations; the effect of changes in market interest rates on the
spread between the coupon rates on loans sold and the rates on securities backed
by such loans issued by the Company in securitization transactions and on the
discount rate assumed by the Company in its gain on sale computations; timing of
loan sales; the quality of the Company's owned and serviced loan portfolio
including levels of delinquencies, customer bankruptcies and charge-offs;
ratings; and various legal, regulatory and litigation risks. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as the result of new information, future events or
otherwise. For a more detailed discussion of some of the foregoing risks and
uncertainties, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Investment Considerations in the Company's
Annual Report on Form 10-K for the year ending December 31, 1997, as well as
other Company filings with the Securities and Exchange Commission.
###
<PAGE> 6
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
------------- ------------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 233,020 $ 582
Interest-only and residual certificates, net 1,010,023 882,116
Loans - net 161,490 172,207
Investment securities
Held to maturity 1,836 --
Available for sale 9,793 16,853
Accrued interest receivable 100,439 85,258
Property - net 60,829 62,050
Capitalized mortgage servicing rights 64,571 48,760
Other assets 106,192 65,993
Net assets from discontinued operations 2,441 5,282
-------------- --------------
Total assets $ 1,750,634 $ 1,339,101
============== ==============
Liabilities and Stockholders' Equity
- ------------------------------------
Notes payable $ 1,025,715 $ 691,826
Deferred income taxes payable 100,009 95,385
Managed cash overdraft -- 13,625
Other liabilities 120,090 57,636
-------------- --------------
Total liabilities 1,245,814 858,472
-------------- --------------
Stockholders' equity: 3,796 3,796
Preferred stock 59,977 59,943
Common stock 187,082 187,418
Additional paid-in capital 46 98
Net unrealized gain on securities 273,586 250,429
Retained earnings (7,409) (7,409)
Treasury stock (12,258) (13,646)
ESOP debt -------------- --------------
504,820 480,629
Total stockholders' equity -------------- --------------
$ 1,750,634 $ 1,339,101
Total liabilities and stockholders' equity ============== ==============
</TABLE>
<PAGE> 7
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited) (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Revenues: 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Loan sale gains $ 82,329 $ 74,759 $ 203,355 $ 175,113
Finance inc., fees earned & other loan inc. 30,788 41,321 81,220 121,304
Investment income 19,558 5,628 37,379 16,508
Other 1,742 1,388 6,211 4,440
--------- --------- --------- ---------
Total 134,417 123,096 328,165 317,365
--------- --------- --------- ---------
Expenses:
Personnel 37,466 32,742 105,867 86,789
Interest 18,978 15,595 53,155 39,764
Other operating 36,063 33,210 108,743 82,727
--------- --------- --------- ---------
Total 92,507 81,547 267,765 209,280
--------- --------- --------- ---------
Income before income taxes 41,910 41,549 60,400 108,085
Provision for income taxes 16,109 14,820 23,397 38,759
--------- --------- --------- ---------
Income from continuing operations 25,801 26,729 37,003 69,326
Loss from discontinued operations (1,914) 320 (2,841) 1,640
--------- --------- --------- ---------
Net income $ 23,887 $ 27,049 $ 34,162 $ 70,966
========= ========= ========= =========
Per share data:
Income from continuing operations $ 0.80 $ 0.82 $ 1.15 $ 2.13
Loss from discontinued operations (0.06) 0.01 (0.09) 0.05
--------- --------- --------- ---------
Net income $ 0.74 $ 0.83 $ 1.06 $ 2.18
========= ========= ========= =========
Weighted average shares outstanding 32,314 32,620 32,364 32,519
========= ========= ========= =========
Cash dividends per common share $ 0.08 $ 0.08 $ 0.24 $ 0.24
========= ========= ========= =========
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
TOTAL TOTAL
1995 1996 1997 Q1 1997 Q2 1997 Q3
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LOAN PRODUCTION
- ---------------
HOME EQUITY
UC Lending
Fixed-rate $ 740,707 $ 680,481 $ 179,337 $ 145,377 $ 174,129
Arm 198,369 430,374 115,279 224,944 248,290
----------- ----------- ----------- ----------- -----------
Total UC Lending 939,076 1,110,855 294,616 370,321 422,419
----------- ----------- ----------- ----------- -----------
Unicor
Fixed-rate 337,802 542,845 132,065 108,230 102,569
Arm 85,208 27,259 3,666 21,155 50,101
----------- ----------- ----------- ----------- -----------
Total Unicor 423,010 570,104 135,731 129,385 152,670
----------- ----------- ----------- ----------- -----------
Ginger Mae
Fixed-rate 44,497 115,079 33,121 41,286 37,897
Arm 6,351 3,805 46 10,786 20,842
----------- ----------- ----------- ----------- -----------
Total Ginger Mae 50,848 118,884 33,167 52,072 58,739
----------- ----------- ----------- ----------- -----------
Sub total 1,412,934 1,799,843 463,514 551,778 633,828
----------- ----------- ----------- ----------- -----------
UCFI
Fixed-rate -- 3,170 6,419 7,078 16,693
----------- ----------- ----------- ----------- -----------
Asset Acquisition
Fixed-rate 7,709 42,139 6,905 3,926 6,821
Arm 120,894 399,306 66,633 140,635 41,590
----------- ----------- ----------- ----------- -----------
Total Asset Acq 128,603 441,445 73,538 144,561 48,411
----------- ----------- ----------- ----------- -----------
Total home equity
loans 1,541,537 2,244,458 543,471 703,417 698,932
=========== =========== =========== =========== ===========
MANUFACTURED HOUSING
UC Lending -- 1,289 2,690 3,243 4,755
Unicor -- -- -- -- --
Ginger Mae -- -- 25 43 6
UCFI 887 115,631 38,910 50,154 56,343
----------- ----------- ----------- ----------- -----------
Total manufactured housing 887 116,920 41,625 53,440 61,104
----------- ----------- ----------- ----------- -----------
Total $ 1,542,424 $ 2,361,378 $ 585,096 $ 756,857 $ 760,036
=========== =========== =========== =========== ===========
LOANS SOLD:
- ----------
HOME EQUITY
Loans Sold $ 1,471,868 $ 2,245,406 $ 517,391 $ 642,296 $ 667,670
Spread Retained 4.98% 4.80% 4.65% 4.90% 4.76%
Gain on sale-$ 142,156 187,029 40,765 59,589 74,759
Gain on sale-% 9.66% 8.33% 7.88% 9.28% 11.20%
MANUFACTURED HOUSING
Loans Sold -- $ 163,999 $ 70,803 $ 73,783 $ 81,388
Spread Retained -- 3.55% 3.54% 3.81% 3.54%
Gain on sale - $ -- 12,001 6,431 4,135 4,877
Gain on sale - % -- 7.32% 9.08% 5.60% 5.99%
<CAPTION>
TOTAL TOTAL
1997 Q4 1997 1998 Q1 1998 Q2 1998 Q3 1998
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LOAN PRODUCTION
- ---------------
HOME EQUITY
UC Lending
Fixed-rate $ 182,556 $ 681,399 $ 225,335 $ 253,489 $ 322,811 $ 801,635
Arm 243,118 831,631 217,593 234,416 229,648 681,657
----------- ----------- ----------- ----------- ----------- -----------
Total UC Lending 425,674 1,513,030 442,928 487,905 552,459 1,483,292
----------- ----------- ----------- ----------- ----------- -----------
Unicor
Fixed-rate 96,771 439,635 98,922 116,949 98,051 313,922
Arm 52,292 127,214 73,891 106,752 100,668 281,311
----------- ----------- ----------- ----------- ----------- -----------
Total Unicor 149,063 566,849 172,813 223,701 198,719 595,233
----------- ----------- ----------- ----------- ----------- -----------
Ginger Mae
Fixed-rate 34,223 146,527 29,250 41,047 47,491 117,788
Arm 33,196 64,870 34,606 49,145 61,353 145,104
----------- ----------- ----------- ----------- ----------- -----------
Total Ginger Mae 67,419 211,397 63,856 90,192 108,844 262,892
----------- ----------- ----------- ----------- ----------- -----------
Sub total 642,156 2,291,276 679,597 801,798 860,022 2,341,417
----------- ----------- ----------- ----------- ----------- -----------
UCFI
Fixed-rate 25,966 56,156 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Asset Acquisition
Fixed-rate 32,615 50,267 3,111 248 121,385 124,744
Arm 241,094 489,952 53,516 439 75,968 129,923
----------- ----------- ----------- ----------- ----------- -----------
Total Asset Acq 273,709 540,219 56,627 687 197,353 254,667
----------- ----------- ----------- ----------- ----------- -----------
Total home equity 941,831 2,887,651 736,224 802,485 1,057,375 2,596,084
loans =========== =========== =========== =========== =========== ===========
MANUFACTURED HOUSING
UC Lending 3,841 14,529 1,410 303 -- 1,713
Unicor -- -- 2,260 2,897 10,246 15,403
Ginger Mae -- 74 -- 24 12 36
UCFI 50,191 195,598 87,313 162,928 140,650 390,891
----------- ----------- ----------- ----------- ----------- -----------
Total manufactured housing 54,032 210,201 90,983 166,152 150,908 408,043
----------- ----------- ----------- ----------- ----------- -----------
Total $ 995,863 $ 3,097,852 $ 827,207 $ 968,637 $ 1,208,283 $ 3,004,127
=========== =========== =========== =========== =========== ===========
LOANS SOLD:
- ----------
HOME EQUITY
Loans Sold $ 882,963 $ 2,710,320 $ 698,322 $ 850,147 $ 1,080,482 $ 2,628,951
Spread Retained 4.62% 4.73% 4.67% 4.61% 4.57% 4.61%
Gain on sale-$ 71,616 246,729 53,594 67,459 82,650 203,703
Gain on sale-% 8.11% 9.10% 7.67% 7.93% 7.65% 7.75%
MANUFACTURED HOUSING
Loans Sold $ 77,191 $ 303,165 $ 85,960 $ 99,419 $ 152,793 $ 338,172
Spread Retained 2.62% 3.37% 2.27% 2.12% 1.82% 2.02%
Gain on sale - $ 2,950 18,393 1,499 1,061 (877) 1,683
Gain on sale - % 3.82% 6.07% 1.74% 1.07% -0.57% 0.50%
</TABLE>
<PAGE> 9
The following tables provide certain contractual delinquency and
default data with respect to the Company's home equity loans serviced, by year
of loan origination, as of the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------------------------------------------
CONTRACTUAL DELINQUENCY
------------ -------------------------------------------------------------
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1992 & prior ....... $ 84,247 4.06% 1.14% 1.52% 6.72%
1993 ............... 98,770 3.86% 1.25% 1.19% 6.30%
1994 ............... 222,672 3.30% 0.96% 1.53% 5.79%
1995 ............... 512,807 4.09% 1.76% 1.55% 7.40%
1996 ............... 1,047,924 4.12% 1.57% 1.49% 7.18%
1997 ............... 2,031,815 3.22% 1.21% 1.03% 5.46%
1998 ............... 2,433,642 0.95% 0.36% 0.21% 1.52%
------------
Total .......... $ 6,431,877 2.60% 0.98% 0.86% 4.44%
============
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------------------------
DEFAULTS
---------------------------------------------
TOTAL
FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ------------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1992 & prior ....... 5.68% 5.69% 11.37% 18.09%
1993 ............... 5.60% 6.14% 11.74% 18.04%
1994 ............... 7.05% 7.72% 14.77% 20.56%
1995 ............... 9.63% 7.18% 16.81% 24.21%
1996 ............... 8.97% 4.25% 13.22% 20.40%
1997 ............... 4.35% 1.36% 5.71% 11.17%
1998 ............... 0.51% 0.12% 0.63% 2.15%
Total .......... 4.20% 2.18% 6.38% 10.82%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------
DELINQUENCY
CONTRACTUAL -----------------------------------------------------------
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL
- ------------------- ------------ ------------ ------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1991 & prior ....... $ 75,114 4.79% 1.06% 1.56% 7.41%
1992 ............... 43,134 5.21% 1.72% 2.28% 9.21%
1993 ............... 135,399 4.59% 1.12% 1.01% 6.72%
1994 ............... 302,819 4.95% 1.54% 1.47% 7.96%
1995 ............... 710,685 5.04% 1.59% 1.46% 8.09%
1996 ............... 1,544,278 4.54% 1.50% 1.22% 7.26%
1997 ............... 2,717,494 1.62% 0.58% 0.35% 2.55%
------------
Total .......... $ 5,528,923 3.20% 1.05% 0.85% 5.10%
============
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------
DEFAULTS
------------------------------------------
TOTAL
FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION IN PROCESS RUPTCY TOTAL & DEFAULTS
------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1991 & prior ....... 4.92% 5.72% 10.64% 18.05%
1992 ............... 4.82% 5.23% 10.05% 19.26%
1993 ............... 4.79% 5.30% 10.09% 16.81%
1994 ............... 6.17% 6.79% 12.96% 20.92%
1995 ............... 7.80% 5.66% 13.46% 21.55%
1996 ............... 5.39% 2.28% 7.67% 14.93%
1997 ............... 0.74% 0.23% 0.97% 3.52%
Total .......... 3.43% 2.10% 5.53% 10.63%
</TABLE>
<PAGE> 10
The following table reflects certain charge-off information with
respect to the Company's home equity loans serviced for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------
1996 1997 1998
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net loans charged-off ...................................... $ 17,113 $ 31,047 $ 36,198
============ ============ ============
Net losses for the last four quarters as a percentage of
average amount outstanding ............................ 0.51% 0.65% 0.80%
============ ============ ============
</TABLE>
The following table provides certain pool factors and cumulative losses
with respect to the Company's home equity loans by year of production for the
periods indicated:
<TABLE>
<CAPTION>
CUMULATIVE
YEAR HOME-EQUITY NET LOSSES AS
OF LOAN POOL % OF
PRODUCTION PRODUCTION FACTOR(1) PRODUCTION
- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FIXED
1993 $ 500,900 18.64% 2.30%
1994 $ 837,901 25.59% 2.86%
1995 $ 1,130,715 34.34% 2.11%
1996 $ 1,383,714 49.23% 0.51%
1997 $ 1,373,984 67.96% 0.02%
1998 $ 1,358,089 93.87% 0.00%
ARM
1993 $ 38,968 13.92% 1.73%
1994 $ 70,920 11.58% 0.90%
1995 $ 410,922 30.30% 1.35%
1996 $ 860,744 42.61% 0.38%
1997 $ 1,513,667 72.55% 0.02%
1998 $ 1,237,995 93.60% 0.00%
</TABLE>
(1) Pool Factor - Percentage of the year's production remaining outstanding at
September 30, 1998.
The following tables reflect, as of the periods indicated, the
allowance for loan losses for loans owned by the Company and loans serviced for
third parties. These allowance accounts are deducted in the Company's balance
sheet from the asset to which they apply.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------
OWNED SERVICED TOTAL
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Allowance for loan losses, beginning of period .................. $ 3,691 $ 106,563 $ 110,254
Provision for loan losses ....................................... 3,780 100,898 104,678
Net loans charged off ........................................... (3,157) (37,394) (40,551)
---------- ---------- ----------
Allowance for loan losses, end of period ........................ $ 4,314 $ 170,067 $ 174,381
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------
OWNED SERVICED TOTAL
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Allowance for loan losses, beginning of period .................. $ 6,484 $ 44,970 $ 51,454
Provision for loan losses ....................................... (178) 30,362 30,184
Net loans charged off ........................................... (3,482) (9,750) (13,232)
Reserve reclassification ........................................ 2,241 -- 2,241
---------- ---------- ----------
Allowance for loan losses, end of period ........................ $ 5,065 $ 65,582 $ 70,647
========== ========== ==========
</TABLE>
<PAGE> 11
The following table provides life-to-date prepayment rates and pool
factors as of September 30, 1998, with respect to the Company's home equity loan
securitizations by year of securitization for the years indicated:
<TABLE>
<CAPTION>
Fixed ARM Hybrid
------------------------------- ------------------------------ -----------------------------------
Life- Life- Life-
Year of Original to-Date Pool Original to-Date Pool Original to-Date Pool
Securitization Balance CPR Factor(1) Balance CPR Factor(1) Balance CPR Factor(1)
- -------------- ----------- --------- --------- --------- --------- --------- ----------- ------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $ 415,525 27% 16.98% $ 34,990 37% 9.96% -- -- --
1994 935,568 26% 26.56% 74,987 38% 14.85% -- -- --
1995 1,030,698 26% 35.87% 391,652 31% 32.63% -- -- --
1996 1,350,058 25% 52.31% 732,762 33% 44.83% 142,308 33% 41.29%
1997 1,224,998 23% 74.14% 479,294 36% 63.83% 1,020,707 21% 79.70%
1998 699,984 14% 94.67% 71,474 24% 88.99% 228,525 17% 92.53%
</TABLE>
(1) Pool Factor - Percentage of the securitization remaining outstanding at
September 30, 1998.
The following table provides life-to-date prepayment rates and pool
factors as of September 30, 1998, with respect to the Company's manufactured
housing contract securitizations by year of securitization for the years
indicated:
<TABLE>
<CAPTION>
Real Estate Chattel
--------------------------------------------- ---------------------------------------------
Year of Original Life-to-Date Pool Original Life-to-Date Pool
Securitization Balance CPR Factor(1) Balance CPR Factor(1)
- --------------- ------------ ------------ ------------- ------------- -------------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1996 $ 55,031 21% 62.04% $ 109,968 8% 83.52%
1997 100,403 17% 83.36% 204,573 7% 91.47%
1998 71,576 4% 98.58% 138,423 7% 97.97%
</TABLE>
(1) Pool Factor - Percentage of the securitization remaining outstanding at
September 30, 1998.
Finance income, fees earned and other loan income, which constitutes
the second largest component of the Company's revenues, was comprised of the
following items for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(in thousands)
<S> <C> <C>
Servicing fees and excess interest collected .................... $ 192,159 $ 141,075
Loan origination fees ........................................... 109,080 79,343
Loan interest ................................................... 2,549 14,980
Other loan income ............................................... 11,581 10,465
Amortization of Interest-only and residual certificates ......... (176,553) (115,062)
Amortization of Capitalized mortgage servicing rights ........... (11,930) (6,305)
Provision for losses on serviced loans .......................... (45,746) (3,192)
--------- ---------
Total ................................................. $ 81,140 $ 121,304
========= =========
</TABLE>
<PAGE> 12
A summary analysis of the changes in the Company's Interest-only and
residual certificates for the periods indicated is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- ---------------
(in thousands)
<S> <C> <C>
Balance, beginning of period .................................... $ 882,116 $ 604,474
Interest-only and residual certificates on loans sold ........... 307,204 355,743
Net increase in allowance for losses on loans sold .............. (63,504) (33,462)
Net increase in reserve accounts ................................ 61,026 138,070
Amortization of Interest-only and residual certificates ......... (176,819) (182,709)
--------------- ---------------
Balance, end of period .......................................... $ 1,010,023 $ 882,116
=============== ===============
</TABLE>
The following table sets forth the components of the Interest-only and
residual certificates owned by the Company, which are recorded at fair value, at
September 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Certificated interests .......................................... $ 729,811 $ 599,426
Temporary investments - reserve accounts ........................ 450,279 389,253
Allowance for losses on loans serviced .......................... (170,067) (106,563)
--------------- ---------------
Total ................................................. $ 1,010,023 $ 882,116
=============== ===============
</TABLE>
<PAGE> 1
Exhibit 99.2
NEWS RELEASE
[UNITED COMPANIES LOGO] FOR MORE INFORMATION, CONTACT:
Dale E. Redman
Executive Vice President &
Chief Financial Officer
504.987.2385 or 800.234.8232
RELEASE DATE: October 28, 1998
UNITED COMPANIES ANNOUNCES RESTRUCTURING PLAN
BATON ROUGE, LA - United Companies Financial Corporation (NYSE: UC)
announced today that it will implement a restructuring plan that will focus on
its most cost efficient and profitable business units while reducing the Company
to a size which can be supported by its existing capital and funding base. The
Company separately announced 1998 third quarter financial results.
The Company previously announced it was seeking a potential strategic
partnership to improve its access to capital and accelerate its growth, but
efforts to date have been unsuccessful. After a thorough analysis of the current
circumstances, the Board of Directors of the Company has determined that it is
necessary and advisable to move forward at this time on a new business plan
intended to create a streamlined, more focused Company. The objectives of the
restructuring will be to: 1) generate positive cash flow and earnings; 2)
maintain a sound capital base; and 3) compete in the market place through its
most competitive and cost efficient production and servicing systems. "We intend
to maximize our current resources and concentrate on cost efficiencies and cash
flow," said J. Terrell Brown, President and Chief Executive Officer. "You should
see a Company that is extremely focused, and that is profitable and cash flow
positive from operations in 1999."
Mr. Brown stated, "We believe that the $200 billion annual consumer demand
for subprime loans has not been affected by the recent changes in the financial
market place. United Companies has just completed a quarter in which production
was at record levels.
<PAGE> 2
However, the Board recognized that the Company could not continue under its
prior business plan which was focused on growth. Without additional capital
through a potential strategic partnership or our historical sources through the
corporate debt and equity markets, which are unavailable under current market
conditions, it is necessary for us to modify our business plan."
RESTRUCTURING PLAN:
Under the plan approved by the Board yesterday, the Company will immediately
take steps to sell or close down its wholesale brokerage, manufactured housing
and credit card units, which will result in a reduction of Company personnel and
overhead expenses by more than 30%. Nationwide employee levels will be reduced
from approximately 3,350 to 2,280. "The decision to reduce personnel levels
significantly was extremely difficult for us as those employees have served the
Company very well," Brown said. Ginger Mae(R), Inc., which operates through
relationships with financial institutions, will be restructured to serve its
most profitable lines of business and accounts. UC Lending will close 32
underperforming retail locations and emphasis will be placed on increasing the
production levels of the remaining 200 higher performing branches. The branch
locations being closed contributed less than 10% of the Company's total retail
loan volume in 1998. The Company estimates that the costs of the downsizing will
range from $4 million to $6 million.
The new plan approved by the Board is designed to achieve an annual home
equity loan production level of approximately $2.4 billion. "We believe this
level of production will replace the run-off in our $6.5 billion servicing
portfolio and thereby stabilize the dollar amount of our loans serviced in the
$6.5 to $7.0 billion range. The plan is intended to make the Company cash flow
positive from operations by the first quarter of 1999 and to maintain
profitability in 1999 at a level which approximates 1998. This will be achieved
through a reduction of expenses of approximately $100 million, by reducing
production levels, and by focusing on our most profitable line of business, our
retail operation," Brown said.
<PAGE> 3
The plan also provides that future dividends on the Company's common and
preferred stock will be suspended indefinitely. In addition to the sale or
closing of the three business units, approximately $150 million of non-core
assets of the Company will be sold, including the sale of the Company's real
estate investment properties.
"The members of the Company's management team believe that the restructuring
plan is achievable and we are committed to working hard to make it a success. We
are encouraged by the production levels achieved during the third quarter,"
Brown commented. "None of the economic forces at play in the industry have
impacted the consumer demand for our services. We believe the Company's core
competencies of marketing, underwriting and servicing will allow it to continue
to capitalize on that opportunity," he added.
Factors that will affect the Company's ability to accomplish the
restructuring plan include its ability to: (i) generate and maintain adequate
liquidity for a sufficient period of time to execute the plan; (ii) complete the
new proposed restructured primary bank credit facility (discussed below); (iii)
maintain compliance with the financial covenants under the Company's primary
bank credit facility and public unsecured notes; (iv) continue to securitize on
a quarterly basis its home equity loan production in which the asset-backed
securities are insured by third-party certificate insurers; (v) achieve the loan
production levels projected by the plan; and (vi) timely implement the
downsizing and other requirements of the plan. In addition, increases in
prepayment rates and loan losses above historical levels could adversely affect
the Company's ability to implement the plan.
The Company also announced that the Board had named James J. Bailey, III, an
independent director, as Chairman, a position previously held by Mr. Brown, so
that Mr. Brown could concentrate on implementation of the plan. Mr. Brown will
continue as Chief Executive Officer and also serve as President and John D.
Dienes, previously President and Chief Operating Officer, will continue as Chief
Operating Officer and as an Executive Vice President. Further, Harris J. Chustz,
Jr., a director, has resigned.
<PAGE> 4
FINANCIAL AGREEMENTS:
The Company reported that at September 30, 1998, it was in compliance with
the covenants of all of its credit facilities, including its $850 million
revolving credit facility provided by a group of 22 banks and by its $375
million of publicly held unsecured senior and subordinated notes. The revolving
credit facility matures in April 2000, and $125 million of senior notes are due
November 1999. The Company also stated that, in order to help maintain a
continuing source of commercial bank credit for its lending operations, it had
reached agreement with the agent bank for the bank group on the terms of a
restructure of the presently unsecured revolving credit facility into a secured
warehouse/interest receivable warehouse facility, to mature in two years, and a
secured residual-financing credit facility, to mature in April 2000, aggregating
$850 million. The terms are subject to the approval of all of the participating
banks and preparation and completion of acceptable definitive documents. The
plan provides that the $125 million senior notes due November 1999 will be paid
from internally generated cash flows. Although management of the Company is
optimistic that the restructure of the bank credit facility will be consummated
pursuant to the terms agreed upon by it and the agent bank, there can be no
assurance as to this outcome.
STATUS OF SEARCH FOR A STRATEGIC PARTNER:
The Company reported that, although it will be primarily focused on
implementation of its restructuring plan, its efforts to find a potential
strategic partner will continue with the assistance of its financial adviser,
Salomon Smith Barney. Although a number of major financial institutions
initially expressed interest in a possible transaction and undertook detailed
due diligence of the Company, only two proposals were forthcoming. While
discussion with these two parties may continue, the Board is not optimistic that
they will result in an agreement being reached on acceptable terms. "We believe
events occurring during our search process, including declines in the market
prices of financial stocks, adverse developments in the capital markets and
criticism directed to subprime lenders generally have contributed to the
Company's lack of success to date in our finding a strategic partner on
acceptable terms," said Mr. Brown. "We also believe these parties had difficulty
with the
<PAGE> 5
gain on sale accounting treatment utilized by the Company and other
subprime lenders, and in valuing our `interest only' residual asset," he added.
There can be no assurance that the Company's continuing efforts to find a
strategic partner on acceptable terms will be successful.
CONFERENCE CALL:
The Company will further discuss its restructuring plan, expected future
production and earnings levels, as well as 1998 third quarter results on a
conference call set for 9:00 a.m. Central, Wednesday, October 28, 1998. To
participate in the conference call, please dial (800) 288.8960 for domestic
calls and (612) 332.1020 for international calls. A replay of the conference
call will be available beginning October 28, 1998 at 12:00 p.m. Central and will
run through midnight on Friday, October 30, 1998. To access the replay, please
dial (800) 475.6701 for domestic calls and (320) 365.3844 for international
calls. The access code for the replay is 412574.
United Companies Financial Corporation is a specialty finance company that
provides consumer loan products nationwide through its lending subsidiaries, UC
Lending(R) and Ginger Mae(R), Inc. The Company's Common and Preferred Stock
trade on the New York Stock Exchange under the symbols "UC" and "UCPRI"
respectively.
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995: The statements contained in this release that are
not historical facts are forward-looking statements based on the Company's
current expectations and beliefs concerning future developments and their
potential effects on the Company. There can be no assurance that future
developments affecting the Company will be those anticipated by the Company.
Actual results may differ from those projected in the forward-looking
statements. These forward-looking statements involve significant risks and
uncertainties (some of which are beyond the control of the Company) and are
subject to change based upon various factors, including but not limited to the
following risks and uncertainties: changes in the asset securitization industry
and in performance of the financial markets, in the demand for and market
acceptance of United Companies' products, and in general economic conditions,
including interest rates; the presence of competitors with greater financial
resources and the impact of competitive products and pricing; the effect of the
Company's policies including the amount and rate of growth of Company expenses;
the continued availability to the Company of adequate funding sources; actual
prepayment rates and credit losses on loans sold as compared to prepayment rates
and credit losses assumed by the Company at the time of sale for purposes of its
gain on sale computations; the effect of changes in market interest rates on the
spread between the coupon rates on loans sold and the rates on securities backed
by such loans issued by the Company in securitization transactions and on the
discount rate assumed by the Company in its gain on sale computations; timing of
loan sales; the quality of the Company's owned and serviced loan portfolio
including levels of delinquencies, customer bankruptcies and charge-offs;
ratings; and various legal, regulatory and litigation risks. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as the result of new information, future events or
otherwise. For a more detailed discussion of some of the foregoing risks and
uncertainties, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Investment Considerations in the Company's
Annual Report on Form 10-K for the year ending December 31, 1997, as well as
other Company filings with the Securities and Exchange Commission.
###
