<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): January 27, 1998
UNITED COMPANIES FINANCIAL CORPORATION
(Exact name as specified in its charter)
<TABLE>
<S> <C> <C>
Louisiana 1-7067 71-0430414
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
</TABLE>
4041 Essen Lane, Baton Rouge Louisiana 70809
--------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (504) 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 exhibit listed in Item 7(c) below.
Item 7(c). Exhibits.
The following exhibit is furnished in accordance with Item 601 of
Regulation S-K:
99 Press Release dated January 26, 1998
2
<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: January 26, 1998 By: /s/ Dale E. Redman
-------------------------------------------
Dale E. Redman, Executive Vice President and
Chief Financial Officer
3
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. EXHIBIT NUMBERED PAGE
- ------- ------- -------------
<S> <C> <C>
99 Press Release dated January 26, 1998
</TABLE>
4
<PAGE> 1
EXHIBIT 99
FOR MORE INFORMATION, PLEASE CONTACT:
Dale E. Redman
Executive Vice President &
Chief Financial Officer
504.987.2385 or 800.234.8232
FOR IMMEDIATE RELEASE: January 26, 1998
UNITED COMPANIES ANNOUNCES EARNINGS EXPECTED FOR THE
FOURTH QUARTER AND FORECASTS FUTURE PRODUCTION AND EARNINGS
BATON ROUGE, LA - United Companies Financial Corporation (NYSE: UC) today
announced that it expects to earn between $.20 and $.30 per share from
continuing operations for the fourth quarter of 1997. These expected earnings
are before the previously announced $.15 charge per share arising from the
settlement of a lawsuit related to the 1993 divestiture of Foster Mortgage and
a writeoff related to the 1996 sale of its former life insurance company.
J. Terrell Brown, Chairman and Chief Executive Officer of United Companies,
stated, "We accomplished our annual loan growth goal of 30% in 1997. Production
for the fourth quarter totaled $996 million, an increase of 28% over the same
period in 1996. However, widening of spreads to the U.S. treasuries by 17 to 26
basis points on the pass through certificates sold in our fourth quarter
securitizations, increased expenses related to the Company's entrance into the
Texas market and continued expansion of its retail infrastructure and an
adjustment to the prepayment rate assumption utilized in the loan sale gain
computation on our 3/27 hybrid loan product combined to negatively affect our
fourth quarter."
Brown added, "We estimate, based on what we know today, that our loan
production levels for 1998 will be approximately $3.6 billion: approximately $2
billion from UC Lending, $700 million from Unicor Mortgage, $300 million from
Ginger Mae, $200 million from UC Acquisition and $400 million from United
Companies Funding. I expect on the basis of our current information that we
will meet our loan production goal in 1998 and grow those levels approximately
20% in 1999."
The Company announced that beginning in the first quarter of 1998 and going
forward, it expects that the gain on sale will be in the range of 6% to 7% of
loans sold. "This gain approximates the "cash gain" we believe the Company
could receive in a whole loan secondary market sale at the present time," said
Dale E. Redman, Executive Vice President and Chief Financial Officer. The
anticipated lower gains are based on the Company's analysis of several factors,
including the continued use of the higher prepayment rate assumption on the
Company's 3/27 loan product which is now accounting for approximately 30% of
production and the Company's
-CONTINUED-
5
<PAGE> 2
UC ANNOUNCES EARNINGS EXPECTED FOR THE FOURTH QUARTER AND FORECASTS
FUTURE PRODUCTION AND EARNINGS - PAGE 2 OF 6
intent to use alternative securitization structures that focus on improving
cash flow. Also, the Company expects a proposed change in accounting rules by
the Financial Accounting Standards Board (FASB) to allow the classification of
interest only and residual certificates as "available for sale" assets will be
adopted in 1998, which will reduce the amount of earnings recorded at the time
of sale.
Considering the Company's loan production goals and the anticipated 6% to 7%
gains on the sale of those loans, Mr. Redman estimated earnings per share in
1998 would be in the approximate range of $1.25 to $1.75 per share, increasing
to approximately $2.50 to $3.00 per share in 1999. Both Mr. Brown and Mr.
Redman cautioned that their views on estimated future production and earnings
levels were subject to a number of risks and uncertainties as set forth in the
"safe harbor" statement below.
During 1997, United Companies increased its home equity servicing portfolio by
37% to a balance of $5.5 billion at year end. The percentage of home equity
loans thirty days or more delinquent decreased to 10.63% at December 31, 1997
compared to 11.24% at September 30, 1997. This percentage was 10.60% at
December 31, 1996. Net charge-offs on home equity loans were $9.3 million for
the fourth quarter compared to $7.6 million for the previous third quarter, and
were $31 million for the year of 1997 compared with $17.1 million for 1996. The
charge-off rate on the average home equity loans outstanding for the twelve
months ended December 31, 1997 and 1996 was 0.65% and 0.51%, respectively.
The Company also provided the following prepayment assumption information
relating to its loan sale gain computations:
o With its fixed rate product, the Company currently assumes a
life-to-date prepayment speed of 24% based on a seasoning curve that
begins at 9% in month one, increases to 27% in month twelve,
increases to 30% in month 20 and stays constant until month 36, ramps
down to 17% in month 53 and remains constant at this rate until
maturity. At December 31, 1997, the Company had $3.3 billion in fixed
rate home equity loans in its servicing portfolio.
o The Company currently assumes a life-to-date prepayment speed of 28%,
based on a seasoning curve, for its adjustable rate product ("ARMs").
The curve begins at 14% in month one, reaches 32% by month 12,
increases to 34% in month 18 and stays constant until month 28 when
it declines to 33% and remains at this rate until month 48, then
ramps down to 17% in month 56 and remains at 17% until maturity. At
December 31, 1997 the Company had $1.2 billion in ARMs in its
servicing portfolio.
- continued -
6
<PAGE> 3
UC ANNOUNCES EARNINGS EXPECTED FOR THE FOURTH QUARTER AND FORECASTS
FUTURE PRODUCTION AND EARNINGS - PAGE 3 OF 6
o The Company currently assumes a life-to-date prepayment speed of 24%,
based on a seasoning curve for its hybrid loan products. The curve
begins at 4% in month one, increases to 22% in month 12, continues to
increase to 30% in month 30 and stays constant until month 40, ramps
down to 20% by month 56 and remains constant at this rate until
maturity. At December 31, 1997 the Company had $1.0 billion in hybrid
loans in its servicing portfolio.
For each loan product type, the Company stated that the actual prepayment
performance of the loans closely matches the prepayment assumptions set forth
above.
In its loan sale gain calculation, the Company has historically used a discount
rate of approximately 10% and projected cumulative losses of approximately 250
basis points for its fixed rate and hybrid loan products and 200 basis points
for ARMs.
Mr. Redman commented, "It is quite apparent to us that the equity market
valuations for even the premier companies in this specialty lending industry
will continue to be impaired unless the "quality of earnings" issue is
addressed. Disclosure of our prepayment, loan loss and discount rate
assumptions and the related historical performance of our loan pools is
intended to further the goal of better investor understanding of the Company's
financial reporting. We are hopeful that others in the industry will follow our
lead." Mr. Redman continued, "Disclosure of this information is intended to
eliminate uncertainties concerning assumptions utilized by the Company in the
gain on sale accounting method and ultimately benefit our shareholders."
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 management'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 management.
Actual results may differ from those projected in the forward looking
statements. These forward looking statements involve risks and uncertainties,
including but not limited to the following risks: changes in the performance of
the financial markets, in the demand for and market acceptance of United
Companies' products, and in general economic conditions, including interest
rates; presence of competitors with greater financial resources and the impact
of competitive products and pricing; the effect of the Company's policies; the
continued availability to the Company of adequate funding sources; actual
prepayment rates and credit losses of 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 rate on loans sold and the pass through
rate on securities backed by such loans issued by the Company in securitzation
transactions and on the discount rate assumed by the Company in its gain on
sale
-continued-
7
<PAGE> 4
UC ANNOUNCES EARNINGS EXPECTED FOR THE FOURTH QUARTER AND FORECASTS
FUTURE PRODUCTION AND EARNINGS - PAGE 4 OF 6
computations; and various legal, regulatory and litigation risks. Investors are
also directed to other risks discussed in documents filed by the Company with
the Securities and Exchange Commission including without limitation "Investment
Considerations" in the prospectus supplement of the Company dated June 17,
1997, relating to the sale of the subordinated notes described therein. The
Company assumes no obligation to update the information included in this press
release.
CONFERENCE CALL:
The Company will further discuss the expected results of operations and
expected future production and earnings levels on a conference call set for
8:30 a.m. EST Tuesday, January 27, 1998. To participate in the conference call,
please dial (800) 553-0318 for domestic calls and (612) 332-1025 for
international calls. A replay of the conference call will be available
beginning January 27, 1998 at 12:30 p.m. EST and the call will run through
midnight, Thursday, January 29, 1998. To access the replay, please dial (800)
475-6701 for domestic calls and (320) 365-3844 for international. The access
code is 375066.
United Companies is one of the leading originators of non-traditional mortgage
loan products throughout the United States. Through its five channels of
origination, the Company lends to a customer base of homeowners with consumer
borrowing needs who are not able to access conventional credit. The Company's
Common and Preferred stock trade on the New York Stock Exchange under the
symbols "UC" and "UCPRI" respectively.
*See the following pages for additional information.
8
<PAGE> 5
The following table provides certain contractual delinquency and
default information for home equity loans serviced as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------- ------------------------- ---------------------------
% OF % OF % OF
CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL
BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Home equity loans
serviced.................. $5,528,923 $5,001,501 $4,040,138
========== ==========
Delinquency
30-59 days ............... $ 176,882 3.20% $ 185,426 3.71% $ 136,976 3.39%
60-89 days ............... 57,975 1.05 47,602 0.95 53,124 1.31
90+ days ................. 46,873 0.85 24,911 0.50 28,663 0.71
---------- ----- ---------- ----- ---------- -----
281,730 5.10 257,939 5.16 218,763 5.41
---------- ----- ---------- ----- ---------- -----
Defaults
Foreclosures in process .. 189,801 3.43 190,743 3.81 135,779 3.36
Bankruptcy ............... 115,856 2.10 113,673 2.27 73,887 1.83
---------- ----- ---------- ----- ---------- -----
305,657 5.53 304,416 6.08 209,666 5.19
---------- ----- ---------- ----- ---------- -----
Total delinquency
and defaults ........... $ 587,387 10.63% $ 562,355 11.24% $ 428,429 10.60%
========== ===== ========== ===== ========== =====
</TABLE>
The following table provides certain contractual delinquency and default
data with respect to the Company's home equity loans serviced, by year of
production, as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------
DEFAULTS
-------------------------------
DELINQUENCY FORECLOSURES TOTAL
CONTRACTUAL ------------------------------------ IN BANK- DELINQUENCY
YEAR OF PRODUCTION BALANCE 30-59 60-89 90+ TOTAL PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------ ------------ ----- ----- ------- --------- ------------ -------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 & prior .. $ 75,114 4.79% 1.06% 1.56% 7.41% 4.92% 5.72% 10.64% 18.05%
1992 .......... 43,134 5.21% 1.72% 2.28% 9.21% 4.82% 5.23% 10.05% 19.26%
1993 .......... 135,399 4.59% 1.12% 1.01% 6.72% 4.79% 5.30% 10.09% 16.81%
1994 .......... 302,819 4.95% 1.54% 1.47% 7.96% 6.17% 6.79% 12.96% 20.92%
1995 .......... 710,685 5.04% 1.59% 1.46% 8.09% 7.80% 5.66% 13.46% 21.55%
1996 .......... 1,544,278 4.54% 1.50% 1.22% 7.26% 5.39% 2.28% 7.67% 14.93%
1997 .......... 2,717,494 1.62% 0.58% 0.35% 2.55% 0.74% 0.23% 0.97% 3.52%
----------
Total ..... $5,528,923 3.20% 1.05% 0.85% 5.10% 3.43% 2.10% 5.53% 10.63%
==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------------------------------
DEFAULTS
-------------------------------
DELINQUENCY FORECLOSURES TOTAL
CONTRACTUAL ------------------------------------ IN BANK- DELINQUENCY
YEAR OF PRODUCTION BALANCE 30-59 60-89 90+ TOTAL PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------ ------------ ----- ----- ------- --------- ------------ -------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 & prior... $ 75,252 5.12% 1.20% 1.22% 7.54% 5.97% 4.85% 10.82% 18.36%
1991........... 38,114 5.26% 0.97% 0.83% 7.06% 5.45% 6.59% 12.04% 19.10%
1992........... 63,842 4.74% 1.74% 1.97% 8.45% 5.87% 5.40% 11.27% 19.72%
1993........... 199,037 4.39% 1.28% 1.07% 6.74% 4.94% 5.05% 9.99% 16.73%
1994........... 451,224 5.15% 1.58% 0.92% 7.65% 4.70% 6.37% 11.07% 18.72%
1995........... 1,069,818 4.75% 2.12% 1.17% 8.04% 2.64% 6.26% 8.90% 16.94%
1996........... 2,142,851 2.11% 0.86% 0.35% 3.32% 0.20% 0.95% 1.15% 4.47%
------------
Total...... $ 4,040,138 3.39% 1.31% 0.71% 5.41% 3.36% 1.83% 5.19% 10.60%
============
</TABLE>
9
<PAGE> 6
The following table provides certain pool factors and cumulative losses
with respect to the Company's home-equity loans by year of production:
<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 0.2542 1.98%
1994 $ 837,901 0.3469 2.01%
1995 $ 1,130,715 0.4727 1.03%
1996 $ 1,383,714 0.7128 0.11%
1997 $ 1,373,984 0.9342 0.00%
ARM
- ---
1993 $ 38,968 0.2065 1.64%
1994 $ 70,920 0.1716 0.55%
1995 $ 410,922 0.4289 0.58%
1996 $ 860,744 0.6482 0.05%
1997 $ 1,513,667 0.9473 0.00%
</TABLE>
(1) Pool Factor - Percentage of the year's production remaining outstanding at
December 31, 1997.
<PAGE> 7
UNITED COMPANIES FINANCIAL CORPORATION
<TABLE>
<CAPTION>
TOTAL TOTAL
1994 1995 1996 Q1 1996 Q2 1996 Q3 1996 Q4
-------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LOAN PRODUCTION
- ---------------
HOME EQUITY
UC Lending
Fixed-rate $ 679,466 $ 740,707 $ 183,552 $ 153,725 $ 147,271 $ 195,933
Arm 11,560 198,369 80,020 126,908 127,862 95,584
---------- ---------- ---------- ---------- ---------- ----------
Total UC Lending 691,026 939,076 263,572 280,633 275,133 291,517
---------- ---------- ---------- ---------- ---------- ----------
Unicor
Fixed-rate 146,832 337,802 95,141 163,057 142,025 142,622
Arm 45,248 85,208 6,805 4,502 10,242 5,710
---------- ---------- ---------- ---------- ---------- ----------
Total Unicor 192,080 423,010 101,946 167,559 152,267 148,332
---------- ---------- ---------- ---------- ---------- ----------
Ginger Mae
Fixed-rate 9,864 44,497 16,650 32,423 28,400 37,606
Arm 201 6,351 722 888 1,375 820
---------- ---------- ---------- ---------- ---------- ----------
Total Ginger Mae 10,065 50,848 17,372 33,311 29,775 38,426
---------- ---------- ---------- ---------- ---------- ----------
Sub total 893,171 1,412,934 382,890 481,503 457,175 478,275
---------- ---------- ---------- ---------- ---------- ----------
UCFI
Fixed-rate - - - - - 3,170
---------- ---------- ---------- ---------- ---------- ----------
Asset Acquisition
Fixed-rate 1,739 7,709 8,392 8,674 4,963 20,110
Arm 13,911 120,894 3,382 141,074 5,922 248,928
---------- ---------- ---------- ---------- ---------- ----------
Total Asset Acq 15,650 128,603 11,774 149,748 10,885 269,038
---------- ---------- ---------- ---------- ---------- ----------
Total home equity loans 908,821 1,541,537 394,664 631,251 468,060 750,483
---------- ---------- ---------- ---------- ---------- ----------
CHATTEL
UC Lending - - - - - 1,289
Ginger Mae - - - - - -
UCFI - 887 14,903 37,299 34,026 29,403
---------- ---------- ---------- ---------- ---------- ----------
Total chattel loans - 887 14,903 37,299 34,026 30,692
---------- ---------- ---------- ---------- ---------- ----------
Total $ 908,821 $1,542,424 $ 409,567 $ 668,550 $ 502,086 $ 781,175
========== ========== ========== ========== ========== ==========
<CAPTION>
Total Total
1996 1997 Q1 1997 Q2 1997 Q3 1997 Q4 1997
-------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
LOAN PRODUCTION
- ---------------
HOME EQUITY
UC Lending
Fixed-rate $ 680,481 $ 179,337 $ 145,377 $ 174,129 $ 182,556 $ 681,399
Arm 430,374 115,279 224,944 248,290 243,118 831,631
---------- ---------- ---------- ---------- ---------- ----------
Total UC Lending 1,110,855 294,616 370,321 422,419 425,674 1,513,030
---------- ---------- ---------- ---------- ---------- ----------
Unicor
Fixed-rate 542,845 132,065 108,230 102,569 96,771 439,635
Arm 27,259 3,666 21,155 50,101 52,292 127,214
---------- ---------- ---------- ---------- ---------- ----------
Total Unicor 570,104 135,731 129,385 152,670 149,063 566,849
---------- ---------- ---------- ---------- ---------- ----------
Ginger Mae
Fixed-rate 115,079 33,121 41,286 37,897 34,223 146,527
Arm 3,805 46 10,786 20,842 33,196 64,870
---------- ---------- ---------- ---------- ---------- ----------
Total Ginger Mae 118,884 33,167 52,072 58,739 67,419 211,397
---------- ---------- ---------- ---------- ---------- ----------
Sub total 1,799,843 463,514 551,778 633,828 642,156 2,291,276
---------- ---------- ---------- ---------- ---------- ----------
UCFI
Fixed-rate 3,170 6,419 7,078 16,693 25,966 56,156
---------- ---------- ---------- ---------- ---------- ----------
Asset Acquisition
Fixed-rate 42,139 6,905 3,926 6,821 32,615 50,267
Arm 399,306 66,633 140,635 41,590 241,094 489,952
---------- ---------- ---------- ---------- ---------- ----------
Total Asset Acq 441,445 73,538 144,561 48,411 273,709 540,219
---------- ---------- ---------- ---------- ---------- ----------
Total home equity loans 2,244,458 543,471 703,417 698,932 941,831 2,887,651
---------- ---------- ---------- ---------- ---------- ----------
CHATTEL
UC Lending 1,289 2,690 3,243 4,755 3,841 14,529
Ginger Mae - 25 43 6 - 74
UCFI 115,631 38,910 50,154 56,343 50,191 195,598
---------- ---------- ---------- ---------- ---------- ----------
Total chattel loans 116,920 41,625 53,440 61,104 54,032 210,201
---------- ---------- ---------- ---------- ---------- ----------
Total $2,361,378 $ 585,096 $ 756,857 $ 760,036 $ 995,863 $3,097,852
========== ========== ========== ========== ========== ==========
</TABLE>
