CONTACT: Stuart Tashlik Embargo until
Senior V.P. 4:00 p.m. (E.D.T.)
480-636-5355
THE FINOVA GROUP INC.
ANNOUNCES EARNINGS FOR SECOND QUARTER OF 2000
SCOTTSDALE, ARIZ., JULY 26, 2000 -- The FINOVA Group Inc. (NYSE: FNV) today
announced net income of $42.9 million ($0.69 per diluted share) for the quarter
ended June 30, 2000, compared to $53.7 million ($0.83 per diluted share) for the
second quarter in 1999. The reduction in earnings was due primarily to higher
loss provisions related to increased write-offs and to a lower interest margin
percentage earned on its portfolio. FINOVA experienced increased cost of funds
following a reduction in credit ratings subsequent to special charges taken in
the first quarter, higher costs associated with borrowing under its domestic
commercial paper back-up bank facilities and an increase in non-earning accounts
during the second quarter of 2000. In addition, earnings were reduced by the
costs associated with FINOVA's exit from the Commercial Mortgage Backed
Securities (CMBS) market.
Net income for the six months ended June 30, 2000 was $53.3 million ($0.86
per diluted share) compared to $103.7 million ($1.66 per diluted share) for the
first six months of 1999.
Matt Breyne, president and chief executive officer of FINOVA, said, "We
continue to fund new business and meet our current obligations through cash
flow, available credit lines and asset sales. The demand for FINOVA's products
remains strong and our people continue to service our customers and have been
supportive while the company explores its strategic alternatives." Earlier this
year, FINOVA announced that it had retained Credit Suisse First Boston to assist
the company with a comprehensive evaluation of its strategic alternatives. "The
evaluation is continuing, with various forms of transactions under review,
including a sale of the company," Breyne added.
Interest margins earned in dollars increased slightly in the second quarter
of 2000 when compared to the second quarter of 1999 ($144.1 million vs. $140.0
million). The increase in interest margins was only 3%, notwithstanding
portfolio growth of 17.1%, due primarily to the higher cost of funds. As a
result, interest margins earned annualized as a percent of average earning
assets, declined to 4.6% for the second quarter of 2000 from 5.3% in the second
quarter of 1999 and 5.2% for the first quarter of 2000. The events of the second
quarter increased FINOVA's cost of funds applicable to approximately $4.5
billion of loans by 0.30% during the second quarter of 2000. Had the borrowings
from those back-up facilities been outstanding for the entire second quarter,
the cost of funds effect would have been 0.70%.
The growth in managed assets year over year was $2.0 billion (17.1%) and
was primarily driven by new business of $4.7 billion added during the last 12
months. New business for the second quarter of 2000 was $941.6 million, down
from $1.078 billion in the second quarter of 1999 and $984.4 million in the
first quarter of 2000. The annualized growth rate for the second quarter of 2000
<PAGE>
was 1%. The backlog of new business at June 30, 2000 was $2.1 billion, down from
$2.2 billion at June 30, 1999, but approximately the same as the backlog at
March 31, 2000.
On May 31, 2000, FINOVA announced the completion of a loan and lease
securitization with assets originated by its Commercial Equipment Finance
division, resulting in initial proceeds of $302 million. Deutsche Bank Alex
Brown acted as structuring agent for this transaction, which includes a 364-day
commitment to purchase up to $375 million of equipment loans and leases on a
revolving basis. During July, FINOVA completed two additional securitizations
with total commitments of $800 million. One securitization, with Chase
Securities acting as structuring agent, has been funded, resulting in initial
proceeds of $375 million. The structure includes a commitment to purchase up to
$500 million of loans on a revolving basis, subject to certain conditions, and
has been funded through a commercial paper conduit. The assets were originated
by FINOVA's Corporate Finance division. An additional $300 million
securitization, structured by Morgan Stanley Dean Witter, is available for
future funding. Assets for this securitization will originate through FINOVA's
Franchise Finance division.
Volume-based fees were slightly higher in the second quarter of 2000 at
$11.7 million vs. $11.3 million in the 1999 quarter, due to higher rates earned
on that volume in 2000 (0.93% vs. 0.73%). Fee-based volume for the second
quarter of 2000 was $1.262 billion, $281.7 million lower than the $1.544 billion
recorded in the second quarter of 1999.
Loss provisions in the second quarter of 2000 were $39.8 million compared
to $17.0 million in the second quarter of 1999. The increased loss provisions
were primarily due to higher write-offs of $38.5 million in the second quarter
of 2000 compared to $16.2 million in the 1999 second quarter. The bulk of the
write-offs were in two businesses, Mezzanine Finance ($15.3 million) and
Corporate Finance ($14.2 million). Nonaccruing assets increased during the
second quarter to $421.5 million from $318.0 million at March 31, 2000. The
largest increases in nonaccruing assets during the second quarter of 2000
occurred in Corporate Finance ($50.6 million with $48.1 million representing
loans to two separate, but related companies) and Transportation Finance ($38.6
million representing one account). Earning impaired assets also increased during
the quarter to $251.4 million from $161.8 million at March 31, 2000, primarily
due to the addition of a $95.4 million loan to a Resort Finance customer. That
customer is a large timeshare developer that has filed for bankruptcy protection
under Chapter 11. FINOVA believes that the value of collateral in which it has a
security interest will enable it to recover its investment in the transaction.
The reserve for credit losses at June 30 was approximately 2% of managed assets,
but as a percent of nonaccruing assets declined to 64.2% from 84.7% at March 31,
2000 due to the increase in nonaccruing assets.
Breyne said, "On a regular basis, the Company monitors developments
affecting loans and leases in our portfolio, taking into account each borrower's
financial developments and prospects, the value of collateral, legal
developments and other available information. Based upon those developments, the
Company adjusts its loan loss reserve and when considered appropriate, writes
down the value of loans. Depending on developments, there is the possibility
that loan loss reserves and/or writedowns will increase in the future."
<PAGE>
Gains on disposal of assets were $12.7 million pre-tax during the second
quarter of 2000, down from $18.8 million pre-tax in the second quarter of 1999.
Gains during the second quarter of 2000 consisted of $4.1 million from lease
residual sales and $8.6 million from the sale of investments and loans. Included
in the latter amount was a gain from the sale of FINOVA's Harris Williams
division to its management.
Operating expenses were lower during the second quarter of 2000 when
compared to the 1999 quarter, ($60.7 million vs. $63.3 million), in spite of
adding personnel in connection with the Fremont Financial acquisition completed
in December 1999. The higher personnel costs were more than offset by the
reversal of management and sales incentive accruals in the second quarter of
2000. The efficiency ratio (operating expenses as a percent of operating margins
and gains), was 36.0%, compared to 37.3% in the second quarter of 1999.
As announced in the Company's first quarter earnings release, a decision
was made in April 2000 to exit the origination and sale of commercial real
estate loans to the CMBS market. The cost to exit this product, which consisted
of termination and severance charges, as well as the closing of numerous
offices, was $11.8 million pre-tax.
The FINOVA Group Inc., through its principal operating subsidiary, FINOVA
Capital Corporation, is one of the nation's leading financial services companies
focused on providing a broad range of capital solutions primarily to midsize
business. FINOVA is headquartered in Scottsdale with business development
offices throughout the U.S. and in London, U.K., and Toronto, Canada. For more
information, visit the company's website at www.finova.com.
THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS SUCH AS PREDICTIONS OR
FORECASTS. FINOVA ASSUMES NO OBLIGATION TO UPDATE THOSE STATEMENTS TO REFLECT
ACTUAL RESULTS, CHANGES IN ASSUMPTIONS OR OTHER FACTORS. THE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PREDICTED. THOSE FACTORS INCLUDE FINOVA'S ABILITY TO ADDRESS ITS FINANCING
REQUIREMENTS IN LIGHT OF ITS EXISTING DEBT OBLIGATIONS AND MARKET CONDITIONS;
PENDING AND POTENTIAL LITIGATION RELATED TO THE SPECIAL CHARGE TO EARNINGS
ANNOUNCED ON MARCH 27, 2000; THE RESULTS OF EFFORTS TO IMPLEMENT FINOVA'S
BUSINESS STRATEGY, INCLUDING THE EVALUATION OF STRATEGIC ALTERNATIVES; THE
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL AND CUSTOMERS; CONDITIONS THAT
ADVERSELY IMPACT FINOVA'S BORROWERS AND THEIR ABILITY TO MEET THEIR OBLIGATIONS
TO FINOVA; THE ADEQUACY OF FINOVA'S LOAN LOSS RESERVES AND OTHER RISKS DETAILED
IN FINOVA'S SEC REPORTS, INCLUDING PAGE 15 OF FINOVA'S 10-K FOR 1999.
###
<PAGE>
The FINOVA Group Inc.
and Consolidated Subsidiaries
Summary of Consolidated Income
(Unaudited)
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest earned from financing transactions $ 338,706 $ 266,978 $ 677,899 $ 512,201
Operating lease income 27,200 28,868 54,532 56,721
Interest expense (204,479) (139,153) (393,561) (270,336)
Operating lease depreciation (17,285) (16,720) (33,161) (33,947)
------------ ------------ ------------ ------------
Interest margins earned 144,142 139,973 305,709 264,639
Volume-based fees 11,678 11,264 24,276 23,999
------------ ------------ ------------ ------------
Operating margin 155,820 151,237 329,985 288,638
Provision for credit losses (39,800) (17,000) (137,800) (26,500)
Gains on disposal of assets 12,651 18,760 33,681 31,130
Operating expenses (60,720) (63,339) (139,787) (120,839)
------------ ------------ ------------ ------------
Income before income taxes 67,951 89,658 86,079 172,429
Income taxes (24,073) (35,050) (30,843) (66,819)
------------ ------------ ------------ ------------
Income before preferred dividends 43,878 54,608 55,236 105,610
Preferred dividends, net of tax (945) (945) (1,891) (1,891)
------------ ------------ ------------ ------------
Net Income $ 42,933 $ 53,663 $ 53,345 $ 103,719
============ ============ ============ ============
Basic earnings per share $ 0.70 $ 0.87 $ 0.88 $ 1.76
============ ============ ============ ============
Basic average shares outstanding 61,000,000 61,412,000 60,955,000 58,869,000
============ ============ ============ ============
Diluted earnings per share $ 0.69 $ 0.83 $ 0.86 $ 1.66
============ ============ ============ ============
Average shares outstanding assuming dilution 63,938,000 66,042,000 64,243,000 63,693,000
============ ============ ============ ============
Dividends declared per common share $ 0.18 $ 0.16 $ 0.36 $ 0.32
============ ============ ============ ============
</TABLE>
<PAGE>
The FINOVA Group Inc.
Selected Consolidated Financial Data and Ratios (Unaudited) (A)
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of June 30 As of December 31
-------------------------- -----------------
FINANCIAL POSITION: 2000 1999 1999
----------- ----------- -----------------
<S> <C> <C> <C>
Ending funds employed $13,216,266 $11,195,666 $13,121,977
Securitizations and participations sold (B) 492,283 512,382 483,397
----------- ----------- -----------
Total managed assets 13,708,549 11,708,048 13,605,374
Reserve for credit losses 270,572 237,602 264,983
Nonaccruing assets 421,492 249,607 295,123
Nonaccruing assets as % of managed assets (C) 3.1% 2.1% 2.2%
Reserve for credit losses as a % of:
Ending managed assets (C) 2.0% 2.1% 2.0%
Nonaccruing assets 64.2% 95.2% 89.8%
Total assets $14,490,482 $11,856,532 $14,050,293
Total debt 11,873,157 9,523,630 11,407,767
Preferred securities 111,550 111,550 111,550
Common shareowners' equity 1,665,601 1,552,927 1,663,381
Backlog 2,104,499 2,223,421 2,025,867
Common shares repurchased 1,525,000 1,833,241
Leverage (debt to common and preferred equity) 6.7x 5.7x 6.4x
For the Quarter Ended For the Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
PERFORMANCE HIGHLIGHTS: 2000 1999 2000 1999
------------ ------------ ------------ ------------
Average managed assets (C) $ 13,640,695 $ 11,506,634 $ 13,588,095 $ 11,121,718
Average earning assets (D) 12,556,381 10,497,813 12,523,042 10,135,121
New business 941,623 1,078,047 1,926,072 2,139,535
Fee-based volume 1,262,387 1,544,062 2,652,259 3,016,759
Net write-offs 38,482 16,249 132,352 24,652
Net write-offs (annualized) as a % of
average managed assets (C) 1.13% 0.56% 1.95% 0.44%
Operating margin (annualized) as
a % of average earning assets 5.0% 5.8% 5.3% 5.7%
Interest margins earned (annualized)
as a % of average earning assets 4.6% 5.3% 4.9% 5.2%
Operating expenses as a % of operating margin 39.0% 41.9% 42.4% 41.9%
Operating expenses as a % of operating margin
plus gains 36.0% 37.3% 38.4% 37.8%
Return (annualized) on average common equity 10.3% 13.8% 6.4% 14.8%
</TABLE>
----------
(A) Averages for the periods presented are based on month-end balances except
for the weighting of acquisitions, which are based on days outstanding.
(B) Securitizations are assets sold under securitization agreements and managed
by the Company.
(C) Excludes participations sold in which the Company has transferred credit
risk.
(D) Average earning assets equal average funds employed less average deferred
taxes on leveraged leases and average nonaccruing assets.
