United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
Commission File Number: 0-26412
UNION ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1908796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
250 N. Shadeland Avenue, Indianapolis, IN 46219
(Address of principal executive office) (Zip Code)
(317) 231-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at November 7, 1997
Class A Common Stock, without par value 4,031,482 Shares
- --------------------------------------- ----------------
Class B Common Stock, without par value 9,200,000 Shares
- --------------------------------------- ----------------
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) :
Consolidated Condensed Balance Sheets as of
September 30, 1997 and June 30, 1997 3
Consolidated Condensed Statements of Earnings
for the Three Months Ended
September 30, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. OTHER INFORMATION 16
Signatures 17
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
Dollars in thousands, except share data
September 30, June 30,
Assets 1997 1997
-------- --------
(Unaudited)
Cash $ 78,313 $ 58,801
Restricted cash 17,173 16,657
Loans, net 141,227 121,381
Accrued interest receivable 1,371 1,232
Property and equipment, net 4,196 2,150
Excess servicing 104,166 98,841
Spread accounts 69,914 71,744
Other assets 22,307 21,360
-------- --------
Total Assets $438,667 $392,166
======== ========
Liabilities
Amounts due under warehouse facilities 93,190 44,455
Long-term debt 221,000 221,000
Accrued interest payable 2,421 5,793
Amounts due to trusts 14,838 16,067
Dealer premiums payable 2,156 1,372
Other payables and accrued expenses 3,386 2,318
Deferred income tax payable 15,057 15,046
-------- --------
Total Liabilities 352,048 306,051
-------- --------
Shareholders' Equity
Preferred Stock, without par value, authorized
10,000,000shares; none issued and outstanding -- --
Class A Common Stock, without par value,
authorized 30,000,000 shares; 4,016,788
and 4,011,358 shares issued and
outstanding at September 30, 1997 and
June 30, 1997, respectively
58,270 58,270
Class B Common Stock, without par value,
authorized 20,000,000 shares; 9,200,000
shares issued and outstanding at September 30,
1997 and June 30, 1997, respectively -- --
Retained earnings 28,349 27,845
-------- --------
Total Shareholders' Equity 86,619 86,115
-------- --------
Total Liabilities and Shareholders' Equity $438,667 $392,166
======== ========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Earnings
Dollars in thousands, except share data
(Unaudited)
Three Months Ended
September 30,
-------------------------
1997 1996
----------- -----------
Interest on loans $ 6,648 $ 9,233
Interest on spread accounts and
restricted cash 1,725 1,510
----------- -----------
Total interest income 8,373 10,743
Interest expense 6,053 6,410
----------- -----------
Net interest margin 2,320 4,333
Provision for estimated credit losses 1,505 855
----------- -----------
Net interest margin
after provision 815 3,478
Gain on sales of loans, net 1,466 6,875
Servicing fees, net 6,192 5,826
Other 1,020 934
----------- -----------
Total revenues 9,493 17,113
----------- -----------
Salaries and benefits 4,610 3,632
Other 4,013 3,514
----------- -----------
Total operating expenses 8,623 7,146
----------- -----------
Earnings before provision for
income taxes 870 9,967
Provision for income taxes 366 4,049
----------- -----------
Net earnings $ 504 $ 5,918
=========== ===========
Net earnings per common share $ 0.04 $ 0.45
=========== ===========
Weighted average number of
common shares outstanding 13,216,788 13,211,358
=========== ===========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1997 1996
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 504 $ 5,918
Adjustments to reconcile net earnings
to net cash provided (used) by
operating activities:
Loan originations in excess of liquidations (239,015) (287,166)
Dealer premiums paid in excess of dealer premium
rebates received on loans held for sale (9,860) (14,185)
Securitization of loans held for sale 218,390 310,999
Gain on sales of loans (7,162) (9,756)
Proceeds on sale of interest-only strip 3,782 9,139
Return of excess servicing cash flows 3,892 9,869
Impairment of Excess Servicing 3,756 --
Provision for estimated credit losses 1,505 855
Amortization and depreciation 1,005 960
Spread accounts 1,830 (7,899)
Restricted cash (516) (1,330)
Other assets and accrued interest receivable (1,990) 492
Amounts due to trusts (1,229) 3,630
Other payables and accrued expenses (1,878) (1,628)
--------- ---------
Net cash provided (used) by operating activities (26,986) 19,898
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets (2,237) (297)
--------- ---------
Cash flows from financing activities:
Net change in warehouse credit facilities 48,735 (23,273)
--------- ---------
Change in cash 19,512 (3,672)
Cash, beginning of period 58,801 13,459
--------- ---------
Cash, end of period $ 78,313 $ 9,787
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid
$ 9 $--
========= =========
Interest paid $ 9,672 $ 9,880
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended September 30, 1997 and September 30, 1996
(Unaudited)
Note 1- Basis of Presentation
The forgoing consolidated condensed financial statements are unaudited.
However, in the opinion of management, all adjustments necessary for a fair
presentation of the results of the interim period presented have been included.
All adjustments are of a normal and recurring nature. Results for any interim
period are not necessarily indicative of results to be expected for the year.
The consolidated condensed financial statements include the accounts of Union
Acceptance Corporation and its subsidiaries.
In contemplation of a public offering to sell common stock, UAC was
formed as a wholly-owned subsidiary of Union Federal Savings Bank of
Indianapolis ("Union Federal") in December 1993. During fiscal 1995, Union
Acceptance Funding Corporation, UAC Securitization Corporation, Performance
Funding Corporation and Performance Securitization Corporation were formed as
wholly owned subsidiaries of UAC and selected assets and operations of the Union
Division were transferred to UAC. In August of 1995, the Company completed an
initial public offering simultaneously with a tax free spin-off from its parent,
Union Federal. During fiscal 1996, UAC Boat Funding Corp. was formed as a
wholly- owned subsidiary of UAC. In fiscal 1997, UAC Finance Corporation was
formed as a wholly-owned subsidiary of UAC. During the first quarter of fiscal
1998, Circle City Car Company was formed as a wholly-owned subsidiary of UAC.
The consolidated condensed interim financial statements have been
prepared in accordance with Form 10-Q specifications, and, therefore, do not
include all information and footnotes normally shown in full annual financial
statements. A summary of the Corporation's significant accounting policies is
set forth in "Note 1" of the "Notes to Consolidated Financial Statements" in the
Corporation's Annual Report on Form 10-K for the year ended June 30, 1997.
Note 2- Earnings Per Share
Earnings per share for the three months ended September 30, 1997, and
September 30, 1996 were computed by dividing net earnings by the average common
shares outstanding during the period. The effect of unexercised stock options on
earnings per share is not or is less than three percent dilutive as of September
30, 1997 and September 30, 1996, respectively, and has not been included in the
earnings per share computations.
<PAGE>
Note 3 - Excess Servicing
Excess servicing is as follows (in thousands) at:
September 30, June 30,
1997 1997
----------- -----------
Estimated value of excess servicing cash
flows, net of estimated prepayments $ 153,006 $ 148,788
Allowance for estimated credit losses
(76,505) (79,013)
Estimated dealer premium rebates
27,541 28,175
Discount to present value
(12,909) (11,916)
----------- -----------
91,133 86,034
Accrued interest on securitized loans
13,033 12,807
----------- -----------
Excess Servicing $ 104,166 $ 98,841
=========== ===========
Outstanding balance of loans serviced
through securitized trusts $ 1,837,423 $ 1,818,363
Allowance for estimated credit losses as
a percentage of securitized loans serviced 4.16% 4.35%
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended September 30, 1997 and September 30, 1996
(Unaudited)
Note 4 -Current Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 provides computation, presentation, and disclosure requirements
for earnings per share. The traditional presentation of primary and fully
diluted earnings per share will be replaced with basic and diluted earnings per
share. The Statement is effective for financial statements for both interim and
annual periods ending after December 15, 1997, and earlier application is not
permitted. Management does not expect earnings per share to change materially as
a result of this pronouncement as the effect of unexercised stock options on
earnings per share is not dilutive, and has not been included in the earnings
per share computations for historical periods.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure" ("SFAS 129"). SFAS 129 provides guidance for disclosure
regarding dividend policies, voting rights, liquidation preferences and other
miscellaneous items related to capital structure. This Statement is effective
for reporting periods ending after December 15, 1997. There may be disclosure
requirements which apply to the Company as a result of this pronouncement for
the fiscal year ended June 30, 1998.
In June, 1997, The FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements.
Comprehensive income is the total of net income and all nonowner changes in
shareholders' equity. The Statement is effective for fiscal years beginning
after December 15, 1997, with earlier application permitted. The Statement will
require new disclosures by the Corporation, but is not expected to have an
impact on the financial statements or results of operations.
In June, 1997, The FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131"), which introduces new guidance
on segment reporting. The Statement is effective for fiscal years beginning
after December 15, 1997, with earlier application encouraged. The Statement is
not expected to have a material impact on the financial condition or results of
operations of the Corporation.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company derives substantially all of its earnings from the
acquisition, securitization and servicing of automobile loans originated by
dealerships affiliated with major domestic and foreign manufacturers. To fund
the acquisition of loans prior to securitization, the Company utilizes revolving
warehouse facilities, discussed in "Liquidity and Capital Resources." Through
securitizations, the Company periodically pools and sells loans to a trust which
issues Certificates to investors representing pro-rata interests in the loans
sold. When the Company sells loans in a securitization, it records a gain (or
loss) on sale of loans and establishes excess servicing as an asset. Excess
servicing cashflows are recorded against the excess servicing asset as received
over the life of the related securitization.
Acquisition Volume. The Company currently acquires loans in 51 major
metropolitan areas in 30 states from over 3,200 manufacturer-franchised auto
dealerships. The Company primarily acquires loans on automobiles made to
borrowers who exhibit a favorable credit profile ("Prime lending") and, since
October 1994, to borrowers with adequate credit quality who would not qualify
for a loan under the Company's Prime lending program ("Non-prime lending"). In
June 1996, the Company began acquiring loans under the Marine lending program
("Marine lending"). The Company continues to expand and is focusing on
penetrating the existing dealer base and on new high-quality dealers within the
existing markets. Over the last year the Company made some strategic decisions
with regard to pricing and underwriting with a view to improving the overall
credit quality of the portfolio over the long-term. These changes, coupled with
intense competition in the consumer finance markets, resulted in lower loan
acquisition volume in the third and fourth quarters of fiscal 1997. Because of
the competitive environment and tightened credit standards, the Company's loan
acquisitions for the first half of fiscal 1998 are expected to be lower than the
first half of fiscal 1997. Loan acquisition volume increased during the first
quarter of fiscal 1998 compared to the quarter ended June 30, 1997. Total loan
acquisitions were $252.9 million for the quarter ended September 30, 1997, up
from $238.4 million for the quarter ended June 30, 1997, and down from $296.6
million for the same quarter of last year. Prime loan acquisitions for the
quarter ended September 30, 1997 increased by 5.6% over the previous quarter,
but declined 14.0% over the same quarter of last year. Non-prime loan
acquisitions totaled $8.8 million for the quarter ended September 30, 1997, a
37.9% decrease over the same quarter of last year and a 53.3% increase over the
previous quarter. Loan acquisitions for the marine business increased 153.9% for
the first quarter ended over the same quarter of last year. However, due to the
seasonal nature of boats and personal watercraft, loan acquisitions have
decreased from the quarter ended June 30, 1997.
<PAGE>
Gross and Net Spreads. Market interest rates (i.e. treasury rates) on
the quarterly securitizations remained fairly constant over most of fiscal 1997,
increasing in the fourth quarter and declining slightly during the first quarter
ended September 30, 1997. The gross and net spreads on the first quarter
securitization of fiscal 1998 were 7.04% and 5.38% compared to 6.82% and 5.11%,
respectively over the same quarter of last year. Gross spread is defined as the
difference between the weighted average loan rate and the Certificate rate. Net
spread is defined as gross spread less servicing fees, upfront costs, ongoing
credit enhancement fees and trustee fees, and hedging gains or losses. Net
spreads increased during fiscal 1997, dropping in the fourth quarter and
rebounding in the first quarter of fiscal 1998. There tends to be a lag between
changes in market rates of interest and automobile loan rates. As previously
stated, market interest rates declined from the June quarter to the September
quarter securitization; however, contract rates on loans sold in September 1997
(acquired in June, July and August, 1997) increased, thereby effecting a higher
gross and net spread on the September securitization.
Management is currently targeting net spreads of 5.00% to 5.50% on
prime securitizations (assuming a pricing spread for asset-backed certificates
over the two-year treasury note of 50 basis points) for fiscal 1998. Management
believes that by targeting a spread of 7.00% to 7.50% between loan rates and the
two-year treasury rate that these net spreads can be achieved. Although
management believes these spreads can be achieved, material factors affecting
the net spreads are difficult to predict and could cause management's
projections to be materially inaccurate. These include current market conditions
with respect to market interest rates and demand for asset-backed securities
generally, and for Certificates representing interests in securitizations
sponsored by the Company. See - "Discussion of Forward-Looking Statements".
Gain on Sales of Loans. Gain on Sales of Loans can be a significant
element of the Company's net earnings. The gain on sales of loans is affected by
several factors, but is primarily affected by the amount of loans securitized,
the net spread, and the level of estimation for credit losses. The Company
adjusts its pricing frequently and employs a hedging strategy to help ensure an
adequate net spread in the ensuing securitization, while mitigating the risks of
increasing interest rates and the volatility in net spreads.
Portfolio Performance. There has been a general deterioration in the
consumer credit markets despite low unemployment and relatively good economic
conditions. UAC believes that this decline is due primarily to debtor over
extension, which results in higher consumer debt levels and the consumer's
increased readiness to declare bankruptcy. These factors have led to increased
delinquency and net credit losses, especially in the 1995 securitization pools.
According to industry loss curves, the losses on those loans acquired in 1995
should have peaked as they are currently in the 23rd to 32nd month of their
lives. However, delinquency and credit losses on these loan pools have remained
higher than expected. The delinquency and projected credit losses on those loans
acquired in 1996 are also higher than UAC expectations, however, the credit
quality on those loans appears stronger than on those loans acquired in 1995.
Moreover, the quality of loans acquired in 1997, to date, appears stronger than
the quality of loans acquired in 1996. UAC has and is continuing to address this
issue through tightened underwriting credit standards, forming collection teams
to specifically target problem accounts and utilizing new scoring tools that
allow UAC to focus its collection efforts in the most effective manner.
Recovery rates have continued to decline due to a soft used car market,
resulting from saturation of used leased vehicles and repossessed vehicles due
to bankruptcy. Recoveries as a percentage of gross charge-offs declined to
35.28% for the quarter ended September 30, 1997 from 43.00% and 40.36% for the
quarter ended June 30, 1997 and September 1996, respectively. Management
continues to look for ways to improve recovery rates. One step recently taken
was to increase tracking efforts on insurance and warranty refunds due to the
Company. Additionally, UAC has acquired a 6.5 acre property near its
Indianapolis headquarters for the purpose of expanding reconditioning and retail
remarketing operations which have outgrown their current facilities in
Indianapolis. See -"Other Matters"
<PAGE>
Provisions are made for estimated credit losses in conjunction with
each loan sale. Current assumptions in the calculation of the estimated credit
loss allowance for the first quarter securitization was 4.00% over the life of
the pool. Allowance related to credit loss on securitized loan losses (inherent
in the excess servicing asset) declined to 4.16% at September 30, 1997 compared
to 4.35% at June 30, 1997, but up from 3.27% at September 30, 1996. The decline
from June 30, 1997 to September 30, 1997 was expected as many previous pools are
expected to experience loss rates higher than 4.00% while loans acquired and
securitized in 1997 are expected to experience loss rates lower than 4.00%.
Prime Portfolio. Set forth below is certain information concerning the
experience of UAC pertaining to delinquencies, and net credit losses on the
Prime fixed rate retail automobile, light truck and van receivables serviced by
the Company. There can be no assurance that future delinquency and net credit
loss experience on receivables will be comparable to that set forth below. See
"Discussion of Forward-Looking Statements".
<TABLE>
<CAPTION>
Prime Delinquency Experience At
-------------------------------------------------------------------------------------
September 30, 1997 June 30, 1997 September 30, 1996
----------------------------- ------------------------ -------------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio 177,377 $1,896,748 173,693 $1,860,272 155,853 $1,648,523
Delinquencies
30-59 days 4,310 45,766 2,487 27,373 1,498 16,605
60-89 days 2,196 25,156 1,646 18,931 907 10,650
90 days or more 934 11,131 723 8,826 499 6,047
----------- ------------- ------- ---------- -------- ---------
Total delinquencies 7,440 82,053 4,856 55,130 2,904 33,302
Delinquency as a
percentage of
servicing portfolio 4.19% 4.33% 2.80% 2.96% 1.86% 2.02%
</TABLE>
As indicated in the above table, delinquency rates based upon
outstanding loan balances of accounts 30 days past due and over increased to
4.33% at September 30, 1997 from 2.96% and 2.02% at June 30, 1997 and September
30, 1996, respectively, for UAC's prime servicing portfolio. The increased
delinquency is primarily due to the deterioration of consumer credit trends,
especially in those loans originated and securitized in 1995.
<TABLE>
<CAPTION>
Prime Credit Loss Experience
For the Quarter Ended
--------------------------------------------------------------------------------------
September 30, 1997 June 30, 1997 September 30, 1996
------------------------ --------------------- -----------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Average servicing portfolio 175,920 $1,881,603 173,072 $1,855,488 153,203 $1,616,606
Gross charge-offs 2,054 23,056 1,887 21,907 986 10,751
Recoveries 8,134 9,421 4,339
---------- ---------- ----------
Net charge-offs 14,922 12,486 6,412
Gross charge-offs as a percentage
of average servicing portfolio 4.67%* 4.90%* 4.36%* 4.72%* 2.57%* 2.66%*
Recoveries as a percentage
of gross charge-offs 35.28% 43.00% 40.36%
Net charge-offs as a percentage
of average servicing portfolio 3.17%* 2.69%* 1.59%*
* Annualized
</TABLE>
<PAGE>
As indicated in the table above, credit losses on the prime auto
portfolio totaled $14.9 million for the quarter ended September 30, 1997, or
3.17% (annualized) as a percentage of the average servicing portfolio compared
to 2.69% and 1.59% for the quarter ended June 30, 1997 and September 30, 1996,
respectively. Increased credit losses are primarily a result of higher gross
charge-off rates (due to consumer credit trends, especially in the 1995
securitization pools), as well as a decline in recovery rates.
Non-Prime Portfolio. Set forth below is certain information concerning
the Company's experience pertaining to delinquencies and net credit losses on
the Non-prime portfolio. There can be no assurance that future delinquency and
net credit loss experience on receivables will be comparable to that set forth
below. See "Discussion of Forward-Looking Statements".
<TABLE>
<CAPTION>
Non-prime Delinquency Experience At
---------------------------------------------------------------------------------------------
September 30, 1997 June 30, 1997 September 30, 1996
----------------------- ------------------------ -----------------------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio 6,288 $70,760 6,056 $68,289 4,925 $57,603
Delinquencies
30-59 days 380 4,420 236 2,807 119 1,402
60-89 days 162 1,876 123 1,412 35 443
90 days or more -- -- -- -- -- --
----- ----------- ------- ------------ --------- --------
Total delinquencies 542 6,296 359 4,219 154 1,845
Delinquency as a
percentage of
servicing portfolio 8.62% 8.90% 5.93% 6.18% 3.13% 3.20%
</TABLE>
As indicated in the above table, Non-prime portfolio delinquency was
8.90% based on outstanding loan balances of accounts 30 days past due and over
at September 30, 1997, compared to 6.18% at June 30, 1997, and 3.20% at
September 30, 1996.
<TABLE>
<CAPTION>
Non-prime Credit Loss Experience
For the Quarter Ended
-------------------------------------------------------------------------
September 30, 1997 June 30, 1997 September 30, 1996
--------------------- -------------------- ---------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Average servicing portfolio 6,202 $69,825 6,041 $68,492 4,625 $53,908
Gross charge-offs 229 2,474 175 1,962 69 751
Recoveries 933 507 274
------- ------- -------
Net charge-offs 1,541 1,455 477
Gross charge-offs as a percentage
of average servicing portfolio 14.77%* 14.17%* 11.59%* 11.46%* 5.97%* 5.57%*
Recoveries as a percentage
of gross charge-offs 37.71% 25.84% 36.48%
Net charge-offs as a percentage
of average servicing portfolio 8.83%* 8.50%* 3.54%*
</TABLE>
* Annualized
<PAGE>
As indicated in the above table, credit losses for the three months
ended September 30, 1997 totaled approximately $1.5 million or 8.83%
(annualized) as a percentage of the average Non-prime servicing portfolio
compared to 8.50% and 3.54% for the quarter ended June 30,1997 and September 30,
1996, respectively. Recovery rates as a percentage of average servicing
portfolio for the quarter ended September 30, 1997 have improved over the
previous quarter. The Company has historically focused on the prime end of the
credit spectrum and will continue to do so.
Marine Portfolio. Delinquency related to the Marine portfolio based on
outstanding loan balances of accounts 30 days past due and over at September 30,
1997 was 1.46%, an increase over 0.10% at June 30, 1997. There were no credit
losses on the average marine servicing portfolio for the first quarter of fiscal
1998. Management expects increases in marine delinquency and credit losses as
the portfolio becomes seasoned.
Results of Operations
Net earnings for the quarter were $504,000 or $0.04 per share compared
to $5.9 million or $0.45 per share for the same quarter of last year. The
decrease in net earnings is primarily attributable to a decrease in net interest
margin after provision of $2.7 million as well as a $3.7 million ($2.2 million
after tax) charge for the impairment of excess servicing related to an increase
in the allowance for estimated credit losses on the securitized portfolio. The
charge was taken based on current trends with respect to credit loss and
delinquency, and their effects on the valuation of the excess servicing asset.
(See discussion below).
Net interest margin, after provision for September 30, 1997 was
$815,000, a 76.6% decrease from the net interest margin after provision of $3.5
million for the same period of last year. Interest on loans for the quarter
decreased 28.0% to $6.6 million compared to $9.2 million for the corresponding
quarter of last year. The decrease in the net interest margin is due to a
combination of a lower amount of loans held for sale at June 30, 1997 of $116.4
million compared to loans held for sale at June 30, 1996 of $244.0 million and
lower loan acquisitions during the first quarter of fiscal 1998 compared to
first quarter of fiscal 1997. Interest expense for the three months ended
September 30, 1997 was $6.1 million compared to $6.4 million for the same period
of last year. The decrease in interest expense is due primarily to lower average
borrowing needs for the quarter ended September 30, 1997 resulting from lower
loan acquisitions. This was partially offset by a higher effective interest cost
due to a greater percentage of the borrowing being from long-term debt. The
Company issued $65 million in Senior Notes during March 1997 resulting in
increased interest expense on long-term debt beginning with the third quarter of
fiscal 1997.
Gain on sales of loans totaled $5.2 million (before the effect of an
impairment of the excess servicing asset of $3.7 million) for the quarter ended
September 30, 1997 compared to $6.9 million for the same quarter of last year.
The decrease was due to loan acquisitions being down which resulted in a lower
securitization for the first quarter of fiscal 1998 compared to the first
quarter securitization of fiscal 1997. The loans sold in the securitization for
the three months ended September 30, 1997 were $218.4 million compared to nearly
$310.1 million for the three months ended September 30, 1996. This was offset,
somewhat, by the improvement of gross and net spreads on this quarter's
securitization of 7.04% and 5.38%, compared to 6.82% and 5.11%, respectively
over the securitization in the same quarter of last year. Included in the gain
on sale was an allowance for estimated credit loss of 4.00% and 3.00%,
respectively.
Servicing fees, net increased 6.3% to $6.2 million for the three months
ended September 30, 1997, compared to $5.8 million for the three months ended
September 30, 1996. Servicing fees consist of contractual servicing fees (1% on
prime securitizations), the scheduled accretion of discount established on the
excess servicing asset at the time of securitization, and rebates received in
excess of original estimates recorded inherent in the gain calculation. The
increase in servicing fees, net is primarily a result of the increase in average
securitized loans to nearly $1.8 billion for the first quarter of fiscal 1998,
compared to just over $1.4 billion for the first quarter of fiscal 1997.
Servicing fees are also impacted by the timing of excess servicing cashflows and
excess rebates. The Company's rebate receivable is marked to market as a
component of the excess servicing asset beginning with the fourth quarter of
fiscal 1997 and thus, the Company does not expect to receive excess rebates in
fiscal 1998. Prior to this, excess rebates received were included in servicing
fees, net and totaled $809,000 for the quarter ended September 30, 1996.
<PAGE>
Other revenues increased to $1.0 million for the three months ended
September 30, 1997, from $934,000 for the three months ended September 30, 1996.
The increase resulted primarily from increases in late charge fee income, offset
by a decrease in origination fee income.
Salaries and benefits increased to $4.6 million for the three months
ended September 30, 1997, from $3.6 million for the corresponding period ended
September 30, 1996. This increase resulted primarily from increased full-time
equivalent ("FTE") employees. Average FTE's for the three months ended September
30, 1997, were 420 compared to 347 for the comparable period ended September 30,
1996. The Company has experienced growth primarily in collections, but modestly
in other areas. These increases are primarily in response to a growing servicing
portfolio. Additional support staff has been added to ensure efficiency in
operations as the Company's servicing portfolio continues to grow.
Other operating expense increased 14.2% to $4.0 million for the three
months ended September 30, 1997, from $3.5 million for the three months ended
September 30, 1996. Operating expense as a percentage of average servicing
portfolio was 1.76% and 1.71% for the period ending September 30, 1997 and
September 30, 1996, respectively. Other operating expenses include occupancy and
equipment costs, outside and professional services, loan expenses, promotional
expenses, travel, office supplies and other. The increase resulted primarily
from an increase in consulting/professional fees for the Activity Based
Management ("ABM") project that began in July 1997, which will help the Company
identify costs of processes performed for use in pricing and improvement in
overall efficiency.
Financial Condition
Loans, net includes the principal balance of loans held for sale, net
of unearned discount and allowance for estimated credit losses, loans in
process, and prepaid dealer premiums. The Company's portfolio of loans, net
increased to $141.2 million at September 30, 1997, from $121.4 million at June
30, 1997. This increase was due to the net effect of higher loan originations in
the first quarter (over the previous quarter) and a lower securitization in the
first quarter (over the previous quarter).
Excess Servicing increased to $104.2 million as of September 30, 1997,
from $98.8 million as of June 30, 1997. This balance increased by the amount
capitalized upon consummation of the UACSC 1997-C Auto Trust ("1997-C") prime
securitization related to excess servicing and estimated dealer premium rebates.
Structuring of the securitization includes the sale of "interest only strips"
which generates more cash from the sale, but serves to reduce the initial excess
servicing asset recorded. The amount capitalized was offset by the return of
excess cashflows as received over the three months ended September 30, 1997,
related to all outstanding securitizations. The increase in excess servicing was
offset by the effect of the $3.7 million dollar impairment of the excess
servicing asset made during the current quarter. The provision was recorded as a
reduction of the gain recognized on the 1997-C securitization. Allowance for
estimated credit losses on securitized loans is included as a component of the
excess servicing asset. At September 30, 1997, the allowances related to both
prime and non-prime securitized loans totaled $76.5 million or 4.16% of the
total securitized loan portfolio compared to $79.0 million and 4.35% at June 30,
1997 and $48.7 million and 3.27% at September 30, 1996. Accrued interest due the
Company at the cutoff date on securitized loan pools is also included as a
component of Excess Servicing.
Spread Accounts decreased to $69.9 million at September 30, 1997, from
$71.7 million at June 30, 1997. These balances are increased by deposits made
monthly from excess servicing cashflows, and are reduced by any withdrawals of
funds from the Spread Accounts. Withdrawals of spread account funds are made
when the balance of the Spread Accounts is in excess of the requirements
stipulated in the servicing agreement or when a draw on the Spread Account is
required due to negative excess servicing.
The balance of the Revolving Warehouse Credit Facilities and the Senior
and Senior Subordinated Notes was $314.2 million at September 30, 1997, compared
to $265.5 million at June 30, 1997. The increase in total borrowings was
primarily related to the increase in first quarter loan acquisitions as compared
to the previous quarter ended June 30, 1997.
<PAGE>
The net deferred income taxes payable totaled $15.1 million at
September 30, 1997, compared to $15.0 million at June 30, 1997. This increase is
a result of the deferral of a portion of the gain on the sale of loans for the
securitization effected during the first quarter of fiscal 1998 in excess of
previously deferred income recognized currently for tax purposes.
Liquidity and Capital Resources
Sources and Uses of Cash in Operations. The Company's business requires
significant amounts of cash to support operations. Its primary uses of cash
include (i) purchases and financing of loans, (ii) payment of Dealer Premiums,
(iii) securitization costs including cash held in Spread Accounts and similar
cash collateral accounts under revolving Warehouse Credit Facilities, (iv)
servicer advances of payments on securitized loans pursuant to securitization
trusts, (v) losses on hedging transactions realized in connection with the
closing of securitization transactions where interest rates have declined during
the period covered by the hedge, (vi) operating expenses, (vii) payment of
income taxes, and (viii) interest expense. The Company's sources of cash from
operations include (i) standard servicing fees, generally 1.0% per annum of the
prime securitized portfolio, (ii) Excess Servicing Cash Flows, (iii) Dealer
Premium rebates, (iv) gains on hedging transactions realized in connection with
the closing of securitization transactions where interest rates have increased
during the periods covered by the hedge, (v) interest income and (vi) sales of
loans in securitization transactions and (vii) proceeds from sale of
interest-only strips in conjunction with securitization transactions. Net cash
used by operating activities decreased to $27.0 million for the three months
ended September 30, 1997, from net cash provided by operating activities of
$19.9 million for the three months ended September 30, 1996. This was primarily
attributable to a decrease in loans securitized relative to loans acquired. The
increase in cash used for investing activities was primarily due to the purchase
of property for the expansion of the retail remarketing operations in
Indianapolis. See - "Other Matters"
Hedging transactions may represent a source or a use of cash during a
given period depending on the change in interest rates. In the first quarter of
fiscal 1998, hedging transactions have required a use of cash of $1.1 million.
Financing Activities and Credit Facilities. The Company has substantial
capital requirements to support its ongoing operations and anticipated growth.
The Company's sources of liquidity are currently funds from operations,
securitizations and external financings including long-term debt and revolving
warehouse credit facilities. Historically, the Company has used the
securitization of loan pools as its primary source of long-term funding, and
currently intends to continue to do so. Securitization transactions enable the
Company to improve its liquidity, to recognize gains from the sales of the loan
pools while maintaining the servicing rights to the loans, and to control
interest rate risk by matching the repayment of amounts due to investors in the
securitizations with the actual cash flows from the securitized assets.
<PAGE>
The Company has borrowing arrangements with an independent financial
institution for the Prime Warehouse Facility of up to $350.0 million and a
similar Non-prime Warehouse Facility of up to $50.0 million. Additionally, the
Company has a Marine Warehouse Facility of up to $50.0 million that was
established in April 1997. The Prime Warehouse Facility provides funding for
loan acquisitions at a purchase price of up to 100.0% of the outstanding
principal balance of eligible loans at the time of purchase to the extent
allocable to loans which, upon acquisition, provided for 72 monthly payments or
less. Additional funding is provided for eligible loans with greater than 72
monthly payments at a purchase price of up to 92.0% of the outstanding principal
balance. The advance rate is adjusted monthly based upon actual loss statistics
in order to maintain the necessary enhancement level. The Non-prime Warehouse
Facility provides funding for loan acquisitions at a purchase price of up to
87.0% of the outstanding principal balance of eligible loans at the time of
purchase. The Marine Warehouse Facility provides funding for loan acquisitions
at a purchase price of up to 88.0% for any boat loan, up to 65.0% for personal
watercraft loans with 49 - 60 scheduled monthly payments, and personal
watercraft loans with less than 49 monthly payments at a purchase price of up to
83.0%. The Company also issued $110.0 million in Senior Notes in connection with
the spin-off of the Company by Union Federal and the Company's initial public
offering, and completed a private placement of $46.0 million in Senior
Subordinated Notes in April 1996 and $65.0 million in Senior Notes in March
1997. Between securitization transactions, the Company relies primarily on the
Revolving Warehouse Credit Facilities to fund ongoing loan acquisitions (not
including Dealer Premiums). In addition to loan acquisition funding, the Company
also requires substantial capital on an ongoing basis to fund the advances of
Dealer Premiums, securitization costs, servicing obligations and other cash
requirements described above. The Company's ability to borrow under the Credit
Facilities is dependent upon its compliance with the terms and conditions
thereof. The Company's ability to obtain successor facilities or similar
financing will depend on, among other things, the willingness of financial
institutions to participate in funding automobile financing businesses and the
Company's financial condition and results of operations. Moreover, the Company's
growth may be inhibited, at least temporarily, if the Company is not able to
obtain additional funding through these or other facilities or if it is unable
to satisfy the conditions to borrowing under the Credit Facilities.
<PAGE>
Management believes that the proceeds from the Company's initial public
offering, the Senior Notes, the Senior Subordinated Notes, the Warehouse
Facilities described above, future earnings, and periodic securitization of
loans should provide the necessary capital and liquidity for its operations
during the remainder of fiscal 1998.
The period during which its existing capital resources will continue to
be sufficient will, however, be affected by the factors described above
affecting the Company's cash requirements. A number of these factors are
difficult to predict, particularly including the cash-effect of hedging
transactions, the availability of outside credit enhancement in securitizations
or other financing transactions and other factors affecting the net cash
provided by securitizations. Depending on the Company's ongoing cash and
liquidity requirements, market conditions and investor interest, the Company may
seek to issue additional debt or equity securities in the near term. The sale of
additional equity, including Class A Common Stock or preferred stock, would
dilute the interests of current shareholders.
Other Matters
Corporate Domicile. During the second quarter, the commercial domicile
of the funding and securitization subsidiaries will be moved from Indiana to
Florida. This physical separation from the Company's Indiana office contributes
to more defined boundaries between the operations of the Company and those of
its subsidiaries. This move will enhance the independence of the subsidiaries as
viewed by creditors and investors with no adverse impact on the daily operations
of the Company.
An additional benefit derived from relocating the commercial domicile
of the subsidiaries may be a reduction in the Company's effective tax rate. This
reduction should enhance the Company's earnings and position the Company to be
more comparable with that of its competitors who are domiciled in more favorable
state tax jurisdictions. The tax benefit of this change has not been fully
determined at this point, and hence, first quarter tax provisions were recorded
at the historical tax rate.
Dealership. During the first quarter the Company acquired a 6.5 acre
property near its Indianapolis headquarters for the purpose of expanding its
reconditioning and retail remarketing operations which have outgrown its current
facilities in Indianapolis. The Company is currently in the final stages of
negotiation to obtain a new car franchise agreement. This strategy is being
employed in efforts to improve the recovery rates on repossessed vehicles by
offering them for retail sale at a manufacturer-franchised dealership which
typically brings a higher price than an independent lot. Renovation of the
facility is underway, and operations are expected to commence in the third
quarter of fiscal 1998.
The Company has no plans to finance any of the vehicle sales in-house.
The dealership will operate similarly to other dealerships by utilizing indirect
financing sources available as well as regional banks to fund vehicle purchases.
Management believes that by improving recovery rates, UAC can improve the net
credit loss rate.
Ongoing Development. As a part of its ongoing development of its
business plan, the Company is researching the possibilities of engaging in other
finance-related businesses such as leasing, and other non-auto consumer lending.
Additionally, the Company is researching the possibility of expanding its dealer
base to include nationally-recognized used rental car outlets which are not
manufacturer-franchised dealerships. Based on this research, the Company may
expand its current operations to include some or all of the above
finance-related businesses. It is management's philosophy to continually search
for new products and markets to grow and expand the Company in order to maximize
profits and shareholder value.
<PAGE>
Discussion of Forward-Looking Information
The above discussions contain forward-looking statements made by the
Company regarding its results of operations, cash flow needs and liquidity, loan
acquisition volume, target spreads, potential credit losses, servicing income,
and other aspects of its business. Similar forward-looking statements may be
made by the Company from time to time. Such forward-looking statements are
subject to a number of important factors that cannot be predicted with certainty
and which could cause such forward-looking statements to be materially
inaccurate. See the "Discussion of Forward-Looking Information" under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for fiscal 1997 which is
incorporated herein by this reference.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits- Exhibits Index appears on Page E-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
<PAGE>
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 thereunto duly authorized.
Union Acceptance Corporation
November 13, 1997 By: /s/ John M. Stainbrook
--------------------------------
John M. Stainbrook
President
November 13, 1997 By: /s/ Rick A. Brown
--------------------------------
Rick A. Brown
Vice President, Treasurer and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
10.1 Annual Bonus Plan for Management Employees, dated
July 1, 1997
10.2 Annual Bonus and Deferral Plan for Senior Officers,
dated July 1, 1997
27 Financial Data Schedule
E-1
UNION ACCEPTANCE CORPORATION
ANNUAL BONUS PLAN FOR MANAGEMENT EMPLOYEES
1. Key employees of Union Acceptance Corporation (other than officers
participating in the Annual Bonus and Deferral Plan for Senior Officers)
selected by the Chairman, the President or the Compensation Committee shall be
eligible to participate in this plan.
2. Each year, the Chairman or the President shall determine a targeted
bonus for each officer or group of officers or key employees ("officers")
selected for participation during the ensuing fiscal year, expressed as a
percentage of base salary. Each officer's base salary multiplied by such
percentage is such officer's "Targeted Bonus."
3. The Chairman, the President or the Compensation Committee shall
determine a threshold level of return on beginning capital expressed as a
percentage ("ROBC") for the ensuing fiscal year and a targeted level of ROBC for
such fiscal year. If actual ROBC for the fiscal year does not exceed the
threshold level, no bonus will be paid for such year.
4. Each officer's Targeted Bonus shall be divided by the difference
between the targeted and threshold ROBC (e.g. 12% - 8% = 4), to determine the
bonus to be earned by such officer for each percentage point by which actual
ROBC exceeds the threshold ROBC (the "ROBC Bonus Multiple").
5. Each officer's bonus for a fiscal year will be determined by
multiplying such officer's ROBC Bonus Multiple by the difference between the
actual ROBC for the fiscal year and the threshold ROBC (e.g. 20% - 8% = 12). The
Targeted Bonus will be fully earned if the targeted ROBC is attained. If actual
ROBC exceeds targeted ROBC, no bonus in excess of Targeted Bonus will be earned,
unless such additional bonus is specifically approved with respect to an officer
or group of officers by the Chairman, President or Compensation Committee.
6. Bonus payments pursuant to this Plan shall be determined and paid
with respect to a fiscal year on or before the date 90 days after the end of
such fiscal year. The Corporation may make quarterly installments of bonus
payments based on annualized ROBC for the fiscal year to date, subject to final
determination and adjustment after the end of the fiscal year. If quarterly
bonus payments are made for the first three quarters of a fiscal year and such
payments exceed the bonus, if any, finally determined to be due, the Corporation
may off-set the excess payments against future bonus payments or salary.
7. This Plan may be terminated or amended by the Board of Directors or
the Compensation Committee at any time. This Plan does not provide any person
with any rights to continued employment nor does this Plan provide any person
with any vested rights to any compensation unless and until such compensation
has been paid to such person and the bonus, if any, payable in respect of a full
fiscal year is finally determined.
EFFECTIVE: July 1, 1997 /s/ Jerry D. Von Deylen
-------------------------------
Jerry D. Von Deylen, Chairman
1
UNION ACCEPTANCE CORPORATION
ANNUAL BONUS AND DEFERRAL PLAN FOR SENIOR OFFICERS
This is the Annual Bonus and Deferral Plan for Senior Officers ("Plan")
approved by the Compensation Committee of the Board of Directors July 7, 1997,
to be effective July 1, 1997.
1. Only executive and other senior officers of Union Acceptance
Corporation ("Corporation") named below or hereafter specifically selected by
the Compensation Committee for participation shall be eligible to participate in
this Plan:
John M. Stainbrook
Rick A. Brown
David Nash
Maureen Schoch
Cynthia F. Whitaker
As a condition to participation in the Plan and prior to becoming entitled to
any benefit under this Plan, each participant shall be required to execute and
deliver to the Corporation a Participation Agreement in substantially the form
of Exhibit A hereto.
2. The Compensation Committee shall annually determine a threshold
level of return on beginning capital ("ROBC") for the ensuing fiscal year. If
actual ROBC for the fiscal year does not exceed the threshold level, no bonus
will be accrued for such year. The amount by which actual ROBC exceeds threshold
ROBC is referred to as "Excess ROBC".
3. Each year, the Compensation Committee shall determine a bonus
multiplier percentage for each officer participating in the Plan for such year.
Such bonus multiplier percentage shall represent the percentage of Excess ROBC
that shall be accrued for the officer as bonus for such fiscal year.
4. The Corporation shall accrue installments of bonus quarterly, after
the end of each fiscal quarter, to the extent appropriate based on annualized
Excess ROBC for the fiscal year to date, subject to adjustment following the end
of each subsequent fiscal quarter and final determination and adjustment after
the end of the fiscal year. Final bonus accruals pursuant to this Plan for the
full fiscal year shall be determined on or before the date 90 days after the end
of such fiscal year.
5. The Corporation shall establish and maintain for each participant in
the Plan an unfunded account reflecting the balance (positive or negative) of
bonus payments accrued for such participant together with interest accruing
thereon. The Corporation shall add to the balance accrued to each participant's
account the following:
a. For the first three quarters of each fiscal year quarterly
accruals of bonus, if any, based on annualized Excess ROBC in
accordance with paragraph 4 for
1
<PAGE>
the fiscal year to date (only to the extent that the bonus that would
be accrued for the year to date exceeds the bonus accrued for the
preceding quarters of the fiscal year).
b. For the full fiscal year, an accrual of bonus, if any,
based on actual Excess ROBC in accordance with paragraph 4 for the
fiscal year (only to the extent that the bonus that would be accrued
for the full year exceeds the bonus accrued for the preceding quarters
of the fiscal year).
c. Interest, accrued quarterly, on the positive balance of the
participant's account, at the rate of 7% per annum.
6. The Corporation shall deduct from the balance accrued to each
participant's account, the following:
a. Unearned bonus previously paid to the participant under any
Corporation compensation Plan. Without limiting the forgoing, each of
the initial participants shall commence participation in this Plan with
a negative account balance in an amount equal to bonus paid to such
participant for fiscal 1997 that was not fully earned by such
participant under the Union Acceptance Corporation Annual Bonus Plan
for Senior Officers, as heretofore in effect.
b. If the bonus that should be accrued for a participant for
the year to date after any fiscal quarter, if any, is less than the
bonus amount accrued for the participant after the preceding quarter of
such year, the amount of such difference.
c. If the final bonus that should be accrued for a participant
for the full fiscal year after the end of the fiscal year, if any, is
less than the net bonus amount accrued for the participant after the
preceding quarters of such year, the amount of such difference.
d. The amount of any payment made to the participant pursuant
to this Plan.
7. The Corporation shall make payments of the participant's adjusted
account balance to each participant as follows:
a. After each fiscal quarter, including the last fiscal
quarter of each year, following any accrual to or deduction from the
account balance for such quarter, the year to date or full year
required by the Plan, an amount equal to 25% of the positive balance,
if any, of such participant's account.
b. On or before the date 90 days after the termination of
participant's employment with the Corporation, and following any final
accrual to or deduction
2
<PAGE>
from the participant's account balance, 100% of the participant's
positive account balance, if any; provided, that no final payment shall
be made to the participant and any remaining balance of the
participant's account shall be nullified and forfeited in the event the
participant (i) is terminated by the Corporation for Cause (as defined
below) or (ii) the participant terminates his employment with the
Corporation under Competitive Conditions (as defined below).
c. "Cause" means personal dishonesty, willful misconduct,
breach of fiduciary duty or duty of loyalty involving personal profit,
intentional failure to perform stated duties, conviction of a violation
of any criminal law, rule, or regulation (other than minor traffic
violations or similar offenses) or cease-and-desist order, or moral
turpitude reflecting adversely on the reputation of the Corporation.
d. "Competitive Conditions" exist in connection with a
participant's termination of his or her employment if (i) the
participant fails to execute and deliver to the Corporation within 90
days following termination the Noncompetition Certificate and Covenant
in the form attached hereto as Exhibit B or (ii) within such 90 day
period the Corporation ascertains facts that enable it to reasonably
conclude that the participant has been employed or agreed to become
employed or is engaged in competition with the Corporation.
e. "Competition" means to compete, directly or indirectly,
with the consumer lending business of the Corporation as conducted on
the date of termination of employment in any state or metropolitan area
in which the Corporation accepts consumer loans on such date, or to
have any interest as owner, partner, member, shareholder, director,
officer, employee, agent, consultant or advisor (other than merely
holding less than five percent of a class of equity securities of a
competitor) in or of any person or entity that competes with the
Corporation in the consumer lending business in any state in which the
Corporation accepts consumer loans on such date of termination.
8. This Plan may be terminated or amended by the Board of Directors or
the Compensation Committee at any time. This Plan does not provide any person
with any rights to continued employment nor does this Plan provide any person
with any vested rights to any compensation (including any account balance)
unless and until such compensation has been properly paid to such person
pursuant to the Plan.
3
<PAGE>
EXHIBIT A
PARTICIPATION AGREEMENT
The undersigned is executing this Agreement in order to become entitled
to the benefits of participation in the Union Acceptance Corporation
("Corporation") Annual Bonus and Deferral Plan For Senior Officers ("Plan") and
agrees as follows:
1. I will be bound by all terms of the Plan. The account established
for my participation under the Plan will not be funded and merely constitutes a
record keeping mechanism for potential future benefits to which I may become
entitled in accordance with the Plan. I will not be entitled to any bonus
accrued in respect of my account under the Plan except in the limited
circumstances in which the Plan provides for payment to me of such amounts.
2. As of June 30, 1997, I acknowledge I received unearned bonus
payments for 1997 in the amount of $____________. Such amount is subject to
offset by the Corporation in respect of my future compensation and, accordingly,
my participation account in the Plan will initially be established with a
negative balance of such amount.
3. I acknowledge and agree that any remaining positive balance in my
account at the time of my termination of employment will be nullified and
forfeited if my employment is terminated for Cause (as defined in the Plan) or
if I voluntarily terminate my employment with the Company under Competitive
Conditions (as defined in the Plan). In particular, I agree that if I terminate
my employment voluntarily, before I will be entitled to receive any distribution
of my account balance I will be required to certify that I am not engaged in
Competition (as defined in the Plan) with the Corporation and agree not to
engage in Competition with the Corporation for one year after termination.
4. In the event of my death before receiving all payments to which I
may become entitled under the Plan, I designate the following beneficiary to
receive any such remaining payments:
- ------------------------------------------
Name
- -------------------------------------------
Address
Soc. Sec. No.______________________________
If no beneficiary is named above, such amounts will be paid to my estate.
Executed this ___day of ___________, 1997.
PARTICIPANT: UNION ACCEPTANCE CORPORATION
BY:
ITS:
PRINTED
4
<PAGE>
EXHIBIT B
NONCOMPETITION CERTIFICATE AND COVENANT
Pursuant to the Union Acceptance Corporation Annual Bonus and Deferral
Plan for Senior Officers ("Plan"), I hereby acknowledge that I have terminated
my employment with the Corporation voluntarily and certify that I am not engaged
in Competition with the Corporation and agree and covenant that for a period of
one year following the date of termination of my employment, I shall not engage
in Competition with the Corporation. As used herein, "Competition" has the
meaning set forth in the Plan.
I acknowledge that this certificate and covenant is provided in
exchange for good and valuable consideration, the adequacy of which is hereby
acknowledged, including, without limitation, the payment of any account balance
to which I may hereby become entitled under the Plan. The duration and
geographic scope if this covenant is reasonable and appropriate in view of my
role as a senior executive officer of the Corporation with responsibility for
substantial aspects of its overall operations. My violation of this covenant
would irreparably harm the Corporation and any remedies at law available to the
Corporation in that event would be inadequate. Accordingly, I agree that the
Corporation will be entitled to equitable remedies including temporary and
permanent injunctive relief and specific performance in the event that I violate
this covenant.
This covenant is governed by Indiana law, regardless of the principles
of conflicts of laws.
EXECUTED as of this ___ day of _________,____.
PARTICIPANT
- --------------------------
- --------------------------
Printed
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000927790
<NAME> Union Acceptance Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 165,400
<SECURITIES> 0
<RECEIVABLES> 143,417
<ALLOWANCES> (819)
<INVENTORY> 0
<CURRENT-ASSETS> 307
<PP&E> 6,960
<DEPRECIATION> (2,764)
<TOTAL-ASSETS> 438,667
<CURRENT-LIABILITIES> 22,801
<BONDS> 329,247
<COMMON> 58,270
0
0
<OTHER-SE> 28,349
<TOTAL-LIABILITY-AND-EQUITY> 438,667
<SALES> 0
<TOTAL-REVENUES> 17,051
<CGS> 0
<TOTAL-COSTS> 8,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,505
<INTEREST-EXPENSE> 6,053
<INCOME-PRETAX> 870
<INCOME-TAX> 366
<INCOME-CONTINUING> 504
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</TABLE>
