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, 1998
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 (I.R.S. Employer Identification
of incorporation or organization) 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 13,1998
Class A Common Stock, without par value 4,376,446 Shares
- --------------------------------------- ----------------
Class B Common Stock, without par value 8,855,036 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, 1998 and June 30, 1998 3
Consolidated Condensed Statements of Earnings (Loss) and
Comprehensive Earnings (Loss) for the Three Months Ended
September 30, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended September 30, 1998 and 1997 5
Consolidated Condensed Statement of Shareholder's Equity for
the Three Months Ended September 30, 1998 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures 18
Part II. OTHER INFORMATION 19
Signatures 20
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
Dollars in thousands, except share data
<TABLE>
<CAPTION>
September 30, June 30,
Assets 1998 1998
-------- --------
(Unaudited)
<S> <C> <C>
Cash $ 6,090 $ 75,612
Restricted cash 11,203 17,823
Receivables, net 165,268 118,259
Accrued interest receivable 1,255 1,045
Property, equipment, and leasehold improvements, net 8,294 7,921
Retained interest in securitized assets 192,321 171,593
Other assets 20,873 19,280
-------- --------
Total Assets $405,304 $411,533
======== ========
Liabilities
Amounts due under warehouse facilities $ 84,808 $ 73,123
Long-term debt 199,000 221,000
Accrued interest payable 1,616 6,280
Amounts due to trusts 11,967 15,510
Dealer premiums payable 4,209 1,374
Deferred income tax payable 12,779 9,573
Other payables and accrued expenses 3,264 2,200
-------- --------
Total Liabilities 317,643 329,060
-------- --------
Shareholders' Equity
Preferred Stock, without par value, authorized
10,000,000 shares; none issued and outstanding -- --
Class A Common Stock, without par value,
authorized 30,000,000 shares; 4,376,446 shares
issued and outstanding at September 30, 1998 and
June 30, 1998, respectively 58,360 58,360
Class B Common Stock, without par value,
authorized 20,000,000 shares; 8,855,036 shares
issued and outstanding at September 30, 1998 and
June 30, 1998, respectively -- --
Net unrealized gain on retained interest in securitized assets 10,740 7,609
Retained earnings 18,561 16,504
-------- --------
Total Shareholders' Equity 87,661 82,473
-------- --------
Total Liabilities and Shareholders' Equity $405,304 $411,533
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Earnings (Loss)
and Comprehensive Earnings (Loss)
Dollars in thousands, except share data
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Interest on receivables $ 8,251 $ 6,627
Other interest 5,479 3,113
------------ ------------
Total interest income 13,730 9,740
Interest expense 6,952 6,053
------------ ------------
Net interest margin 6,778 3,687
Provision for estimated credit losses 2,325 1,505
------------ ------------
Net interest margin
after provision 4,453 2,182
Gain (loss) on sales of receivables, net 2,706 (10,847)
Servicing fees, net 4,953 4,745
Other revenues 1,206 1,020
------------ ------------
Total revenues 13,318 (2,900)
------------ ------------
Salaries and benefits 5,670 4,610
Other expenses 4,321 4,013
------------ ------------
Total operating expenses 9,991 8,623
------------ ------------
Earnings (loss) before provision (benefit)
for income taxes 3,327 (11,523)
Provision (benefit) for income taxes 1,270 (4,656)
------------ ------------
Net earnings (loss) 2,057 (6,867)
------------ ------------
Other comprehensive earnings before taxes:
Net change in unrealized gain on retained
interest in securitized assets 5,066 4,312
Income taxes related to items of other
comprehensive earnings (1,935) (1,748)
------------ ------------
Other comprehensive earnings, net of taxes 3,131 2,564
------------ ------------
Comprehensive earnings (loss) $ 5,188 $ (4,303)
============ ============
Net earnings (loss) per share (basic & diluted) $ 0.16 $ (0.52)
============ ============
Weighted average number of
common shares outstanding 13,231,482 13,216,788
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Dollars in thousands
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1998 1997
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss) $ 2,057 $ (6,867)
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Receivable acquisitions in excess of liquidations (398,641) (239,015)
Dealer premiums paid in excess of dealer premium
rebates received on receivables held for (13,342) (9,860)
Securitization of receivables held for sale 351,379 218,390
Gain on sales of receivables (12,713) (7,489)
Proceeds on sale of interest-only strip -- 3,782
Return of excess and servicing asset cash flows,
net of present value effect 5,167 3,951
Impairment of retained interest in securitized assets 3,542 16,397
Provision for estimated credit losses 2,325 1,505
Amortization and depreciation 1,279 1,027
Spread accounts 2,018 1,830
Restricted cash 6,620 (517)
Other assets and accrued interest receivable (4,284) (3,678)
Amounts due to trusts (3,543) (1,229)
Other payables and accrued expenses (394) (5,213)
--------- ---------
Net cash used by operating activities (58,530) (26,986)
--------- ---------
Cash flows from investing activities:
Purchase of property, equipment, and leasehold improvements (677) (2,237)
--------- ---------
Cash flows from financing activities:
Principal payment on long-term debt (22,000) --
Net change in warehouse credit facilities 11,685 48,735
--------- ---------
Net cash provided (used) from financing activities (10,315) 48,735
Change in cash (69,522) 19,512
Cash, beginning of period 75,612 58,801
--------- ---------
Cash, end of period $ 6,090 $ 78,313
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid $ 1 $ 9
========= =========
Interest paid $ 12,172 $ 9,672
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Shareholders' Equity
For the Three Months Ended September 30, 1998
Dollars in thousands, except per share data
(Unaudited)
<TABLE>
<CAPTION>
Number of Common Stock Net Unrealized
Shares Outstanding Gain on Retained Total
--------------------------- Common Interest in Retained Shareholders'
Class A Class B Stock Securitized Earnings Equity
Assets
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 4,376,446 8,855,036 $58,360 $7,609 $16,504 $82,473
Net earnings - - - - 2,057 2,057
Net change in unrealized
gain on retained interest
in securitized assets - - - 3,131 - 3,131
-------------------------------------------------------------------------------------
Balance at September 30, 1998 4,376,446 8,855,036 $58,360 $10,740 $18,561 $87,661
=====================================================================================
</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, 1998 and 1997
(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.
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.
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. Circle City Car Company and Union Acceptance
Receivables Corporation were formed as wholly-owned subsidiaries of UAC during
the first and second quarters, respectively, of fiscal 1998.
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 Company's significant accounting policies is set
forth in "Note 1" of the "Notes to Consolidated Financial Statements" in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.
Note 2 - Reclassification
Certain amounts for the prior period have been reclassified to conform
to the current presentation.
Note 3 - Other Interest Income
Other interest income includes interest on cash collection accounts and
the accretion of discounted retained interest in securitized assets. Cash
collection accounts represent customer payments held in trust until disbursement
by the trustee. Interest is earned by the Company on these funds prior to
distribution of such funds to investors and the servicer. Beginning with the
implementation of Statement of Financial Accounting Standards No. 125 on January
1, 1997, the Company established a servicing asset for the expected collection
account interest. Other interest income includes collection account interest on
all securitization transactions before January 1, 1997, and includes the
accretion of the discount related to the servicing asset on all securitization
transactions after December 31, 1996.
Note 4 - Earnings Per Share
The Company has implemented Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (EPS) which is effective for interim and annual
periods ending after December 15, 1997, and requires the presentation of basic
and dilutive earnings per share. EPS have been computed on the basis of the
weighted average number of common shares outstanding. The effect of stock
options not exercised during the periods presented are anti-dilutive and
therefore not included in diluted earnings per share. The weighted average
number of shares used in the basic and diluted EPS computations for the three
months ended September 30, 1998 and 1997 were 13,231,482 and 13,216,788,
respectively.
Note 5 - Current Accounting Pronouncements
In June, 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information," 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 Company.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended September 30, 1998 and 1997
(Unaudited)
Note 5 - Current Accounting Pronouncements (continued)
In February 1998, Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits." The Statement does not alter the
measurement and recognition provisions currently outlined in generally accepted
accounting principles but merely standardizes the disclosure requirements. 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 Company when
adopted.
In June 1998, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement is effective for fiscal years beginning
after June 15, 1999, with earlier application allowed. Management is currently
assessing the impact of this Statement on the financial condition of operations
of the Company upon adoption.
Note 6 - Retained Interest in Securitized Assets
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
----------- -----------
Estimated fair value of excess servicing receivable,
<S> <C> <C>
net of estimated prepayments $ 198,795 $ 175,164
Allowance for estimated credit losses on securitized receivables (95,614) (90,203)
Estimated dealer premium rebates 26,036 25,718
Discount to present value (34,908) (33,117)
----------- -----------
94,309 77,562
Spread accounts 66,095 68,113
Accrued interest on securitized receivables 14,539 13,606
Unrealized gain 17,378 12,312
----------- -----------
Retained interest in securitized assets $ 192,321 $ 171,593
=========== ===========
Outstanding balance of receivables serviced
through securitized trusts $ 2,058,960 $ 1,929,981
Allowance for estimated credit losses as
a percentage of securitized receivables serviced 4.64% 4.67%
</TABLE>
Note 7 - Restatement of Consolidated Financial Statements
The Company determined in August 1998 that it should measure other than
temporary impairment of Retained Interest in Securitized Assets, previously
captioned Excess Servicing, on a disaggregate basis (the pool-by-pool method).
The adjustments resulting from the measurement of other than temporary
impairment on a disaggregate basis were of sufficient significance to require
restatement of the consolidated financial statements since the implementation of
Statement of Financial Accounting Standards No. 125. This restatement had the
effect of reducing earnings for the three months ended September 30, 1997 by
$7.5 million (net of income taxes of $5.1 million) or $0.57 per share. The
restatement had the effect of reducing shareholders' equity at September 30,
1997, by $4.1 million. In conjunction with the restatement, the Company made
other adjustments, which were not individually significant, that increased net
earnings for the three months ended September 30, 1997, by $147,000 (net of
income taxes of $100,000) or $0.01 per share. The necessary amended Form 10-K
and 10-Q's related to the restatement, are currently in the process of being
filed.
<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 retail installment sales contracts
originated by dealerships affiliated with major domestic and foreign
manufacturers. To fund the acquisition of receivables prior to securitization,
the Company utilizes a revolving warehouse facility, discussed in "Liquidity and
Capital Resources." Through securitizations, the Company periodically pools and
sells receivables to a trust which issues Certificates to investors representing
pro-rata interests in the receivables sold. When the Company sells receivables
in a securitization, it records a gain (or loss) on sale of receivables and
establishes Retained Interest in Securitized Assets ("Retained Interest") as an
asset. Excess cash flows are recorded against Retained Interest as received over
the life of the related securitization.
Acquisition Volume. The Company currently acquires receivables in 32
states from over 3,700 manufacturer-franchised auto dealerships. The Company
primarily acquires receivables on automobiles made to borrowers who exhibit a
favorable credit profile ("Tier I") and, since October 1994, to borrowers with
adequate credit quality who would not qualify for a receivable under the
Company's Tier I quality criteria ("Tier II").
Receivable acquisition volume increased for the quarter ended September
30, 1998, compared to the quarter ended June 30, 1998. Total receivable
acquisitions were $404.5 million for the three months ended September 30, 1998,
an increase from $270.7 and $252.9 million for the quarters ended June 30, 1998,
and September 30, 1997, respectively. Tier I receivable acquisitions were $397.0
million for the quarter ended September 30, 1998, compared to $242.3 million for
the same quarter of last year. Tier II receivable acquisitions were $7.5 million
for the quarter ended September 30, 1998, compared to $8.8 million for the
quarter ended September 30, 1997. The Company expects volume to decrease
slightly for the second quarter ending December 31, 1998, due to the expected
seasonal fluctuations during the winter months. See - "Discussion of
Forward-Looking Statements".
Gross and Net Spreads. The gross and net spreads on the first quarter
securitization of fiscal 1999 were 7.26% and 5.15% compared to 7.04% and 5.38%,
respectively over the same quarter of last year. Gross spread is defined as the
difference between the weighted average receivable rate and the certificate
rate. Net spread is defined as gross spread less servicing fees, upfront costs,
ongoing credit enhancement and trustee fees, and hedging gains or losses.
Although the net spread on the first quarter securitization of fiscal 1999 was
slightly lower compared to the first quarter securitization of fiscal 1998, net
spreads remain within management's expectations.
Management is currently targeting net spreads of 5.00% to 5.50% on
securitizations (assuming a pricing spread for asset-backed certificates over
the two-year treasury note of 100 basis points) for fiscal 1999. Management
believes that by targeting a spread of 7.50% to 8.00% between receivable 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 (loss) on Sales of Receivables, Net and Interest Rate Risk. Gain
(loss) on sales of receivables continues to be a significant element of the
Company's net earnings. The gain on sales of receivables is affected by several
factors but is primarily affected by the amount of receivables securitized, the
net spread, and the level of estimation for credit losses. Historically, the
Company has estimated the future servicing cash flows recognized as a component
of the gain on sale by discounting the projected future servicing cash flows
from the time they are received by the respective trust. However, management
implemented the "cash out" method during the fourth quarter of fiscal 1998 which
discounts the expected future servicing cash flows from the time they are
released from the spread account to the Company.
<PAGE>
The Company's sources for funds generally have variable rates of
interest and its receivable portfolio bears interest at fixed rates. The Company
therefore bears interest rate risk on receivables until they are securitized and
employs a hedging strategy to mitigate this risk. As a part of the hedging
strategy, the Company executes short sales of U.S. Treasury securities having a
maturity approximating the average maturity of receivables to be acquired during
the relevant period. There is no assurance that this strategy will completely
offset changes in interest rates. In particular, such strategy depends on
management's estimates of receivable acquisition volume. The Company realizes a
gain on its hedging transactions during periods of increasing interest rates and
realizes a loss on such transactions during periods of decreasing interest
rates. The hedging gain or loss will in part offset changes in interest rates as
seen by a lower or higher reported gain on sales of receivables, respectively.
Recognition of unrealized gains or losses is deferred until the sale of
receivables during the securitization. On the date of the sale, hedging deferred
gains and losses are recognized as a component of gain on sales of receivables.
Portfolio Performance. From September 30, 1997, to June 30, 1998, the
Company experienced steady improvement in both delinquency and net credit
losses, although, from June 30, 1998, to September 30, 1998, delinquencies
remained fairly stable while net credit losses increased slightly. The Company
attributes the improvement throughout fiscal 1998 to strategic changes in its
origination and collection departments. The Company believes that higher net
credit losses during the quarter ended September 30, 1998, are primarily a
result of depressed recovery rates. Recoveries as a percentage of gross
charge-offs dropped slightly to 38.67% for the three months ended September 30,
1998, compared to 41.17% for the quarter ended June 30, 1998, and 35.28% for the
same quarter of last year. In response to declining recovery rates, the Company
opened a new car franchised dealership in Indianapolis in July 1998 and is
retailing a portion of its repossessed automobiles through the dealership. The
Company anticipates that this method of disposing of repossessions along with
stricter monitoring of the repossession and resale process should increase the
recovery rate to management's expectations over time. Although the overall
recovery percentage remains below management's expectations, recovery rates for
repossessed automobiles sold by the Company's retail operation are significantly
higher than recovery rates on vehicles sold at auction. However, only a minimal
percentage of all repossessed automobiles sold during the quarter were sold
through its retail operation.
Provisions are made for estimated credit losses in conjunction with
each receivable sale. Current assumptions in the calculation of the estimated
credit loss allowance for the first quarter securitization was 4.40% over the
life of the pool based on a combined sale of Tier I, Tier II and modified
receivables. Allowance related to credit loss on securitized receivable losses
(inherent in Retained Interest) declined to 4.64% at September 30, 1998,
compared to 4.67% and 5.33% at June 30, 1998, and September 30, 1997,
respectively.
Tier I Portfolio. Set forth below is certain information concerning the
Company's experience pertaining to delinquencies, and net credit losses on the
Tier I 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".
<PAGE>
<TABLE>
<CAPTION>
Tier I Delinquency Experience
--------------------------------------------------------------------------------------------
At September 30, 1998 At June 30, 1998 At September 30, 1997
----------------------------- ---------------------------- ----------------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio 194,882 $2,151,695 184,003 $1,978,920 177,377 $1,896,748
Delinquencies:
30-59 days 3,741 $ 38,040 3,179 $ 32,967 4,310 $ 45,766
60-89 days 1,873 19,652 1,907 20,819 2,196 25,156
90 days or more 793 7,966 657 6,992 934 11,131
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies 6,407 $ 65,658 5,743 $ 60,778 7,440 $ 82,053
========== ========== ========== ========== ========== ==========
Delinquency as a
percentage
of servicing portfolio 3.29% 3.05% 3.12% 3.07% 4.19% 4.33%
</TABLE>
As indicated in the above table, delinquency rates based upon
outstanding receivable balances of accounts 30 days past due were 3.05% at
September 30, 1998, compared to 3.07% and 4.33% at June 30, 1998, and September
30, 1997, respectively, for UAC's Tier I servicing portfolio.
<TABLE>
<CAPTION>
Tier I Credit Loss Experience
For the Three Months Ended
--------------------------------------------------------------------------------------------
September 30, 1998 June 30, 1998 September 30, 1997
-------------------------- -------------------------- -------------------------
(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 190,877 $2,088,163 183,402 $1,968,595 175,920 $1,881,603
Gross charge-offs 2,196 $ 23,651 1,992 $ 21,129 2,054 $ 23,056
Recoveries 9,146 8,698 8,134
---------- ---------- ----------
Net charge-offs $ 14,505 $ 12,431 $ 14,922
========== ========== ==========
Gross charge-offs as a percentage
of average servicing portfolio(1) 4.60% 4.53% 4.34% 4.29% 4.67% 4.90%
Recoveries as a percentage of
gross charge-offs 38.67% 41.17% 35.28%
Net charge-offs as a percentage
of average servicing portfolio(1) 2.78% 2.53% 3.17%
(1) Annualized
</TABLE>
As indicated in the table above, credit losses on the Tier I portfolio
totaled $14.5 million for the quarter ended September 30, 1998, or 2.78%
(annualized) as a percentage of the average servicing portfolio compared to
2.53% and 3.17% for the quarters ended June 30, 1998 and September 30, 1997,
respectively.
<PAGE>
Tier II Portfolio. Set forth below is certain information concerning
the Company's experience pertaining to delinquencies and net credit losses on
the Tier II 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>
Tier II Delinquency Experience
------------------------------------------------------------------------------
At September 30, 1998 At June 30, 1998 At September 30, 1997
---------------------- ---------------------- ----------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio 6,376 $67,685 6,385 $66,855 6,288 $70,760
Delinquencies:
30-59 days 359 $ 3,758 365 $ 4,023 380 $ 4,420
60-89 days 158 1,683 140 1,457 162 1,876
90 days or more 9 65 5 64 -- --
------- ------- ------- ------- ------- -------
Total delinquencies 526 $ 5,506 510 $ 5,544 542 $ 6,296
======= ======= ======= ======= ======= =======
Delinquency as a
percentage of
servicing portfolio 8.25% 8.14% 7.99% 8.29% 8.62% 8.90%
</TABLE>
As indicated in the above table, Tier II portfolio delinquency was
8.14% based on outstanding receivable balances of accounts 30 days past due and
over at September 30, 1998, compared to 8.29% at June 30, 1998, and 8.90% at
September 30, 1997.
<TABLE>
<CAPTION>
Tier II Credit Loss Experience
For the Three Months Ended
------------------------------------------------------------------------
September 30, 1998 June 30, 1998 September 30, 1997
-------------------- --------------------- ----------------------
(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 6,342 $67,319 6,324 $67,769 6,202 $69,825
Gross charge-offs 215 $ 2,118 165 $ 1,857 229 $ 2,474
Recoveries 741 694 933
------ ------ -------
Net charge-offs $ 1,377 $ 1,163 1,541
======= ======= =======
Gross charge-offs as a
percentage
of average servicing portfolio(1) 13.56% 12.58% 10.44% 10.96% 14.77% 14.17%
Recoveries as a percentage of
gross charge-offs 34.99% 37.37% 37.70%
Net charge-offs as a percentage
of average servicing portfolio(1) 8.18% 6.86% 8.83%
</TABLE>
(1) Annualized
As indicated in the above table, credit losses for the three months
ended September 30, 1998, totaled approximately $1.4 million or 8.18%
(annualized) as a percentage of the average Tier II servicing portfolio compared
to 6.86% and 8.83% for the quarter ended June 30, 1998, and September 30, 1997,
respectively.
<PAGE>
Results of Operations
Net earnings increased to $2.1 million or $0.16 per diluted share
compared to a net loss of $6.9 million or $0.52 per diluted share for the same
quarter of last year. The increase was primarily related to a higher gain on
sale of receivables, net, a lower charge for other than temporary impairment of
Retained Interest during the current quarter compared to the same quarter of
last year and an increase in other interest income. The higher gain was a result
of an increase in receivable acquisitions, which led to a larger securitization
for the three months ended September 30, 1998, compared to September 30, 1997.
Net interest margin after provision for September 30, 1998 was $4.5
million, a 104.1% increase over the net interest margin after provision of $2.2
million for the same period of last year.
Interest on receivables increased 24.5% to $8.3 million for the quarter
ended September 30, 1998, compared to $6.6 million for the quarter ended
September 30, 1997. The increase in interest on receivables resulted from an
increase in the average outstanding balance of receivables held for sale to
$221.1 million for the three months ended September 30, 1998, from $179.6
million for the three months ended September 30, 1997, offset by a lower average
contract rate for the quarter ended September 30, 1998, compared to the quarter
ended September 30, 1997.
Other interest income increased 76.0% to $5.5 million for the three
months ended September 30, 1998, compared to $3.1 million for the three months
ended September 30, 1997. The increase was a result of an increase in discount
accretion, offset by lower collection and spread account interest. The other
interest income related to discount accretion was $5.1 million for the quarter
ended September 30, 1998, compared to $1.6 million for the same quarter of last
year. The increase in discount accretion was primarily a result of the
implementation of the "cash out" method of valuing Retained Interest in
Securitized Assets at June 30, 1998. The interest income related to the
restricted cash accounts (collection and spread) decreased 75.9% to $369,000 for
the three months ended September 30, 1998, compared to $1.5 million for the
three months ended September 30, 1997, due to the establishment of the servicing
asset. The servicing asset was established as part of the implementation of
Statement of Financial Accounting Standards No. 125, and effectively had the
result of reducing interest on restricted cash accounts beginning with UACSC
1997-A and increasing the discount accretion.
Interest expense increased 14.9% to $7.0 million for the three months
ended September 30, 1998, from $6.1 million for the three months ended September
30, 1997. The increase primarily related to higher average borrowing needs due
to higher receivable acquisitions for the three months ended September 30, 1998,
compared to the three months ended September 30, 1997, but was offset by lower
interest on long-term debt as a result of a principal payment in August 1998.
Provision for estimated credit losses increased 54.5% to $2.3 million
for the three months ended September 30, 1998, compared to $1.5 million for the
three months ended September 30, 1997. The increase in the provision was related
to a higher average balance of receivables held for sale for the quarter ended
September 30, 1998, compared to September 30, 1997. Included in the held for
sale balance are modified loans which on an average were higher for the three
months ended September 30, 1998, compared to the three months ended September
30, 1997, resulting in a higher provision for the first quarter ended September
30, 1998. The provision is expected to decrease as fewer receivables are being
modified and the modified receivable portfolio continues to be included in the
quarterly securitizations.
Gain on sales of receivables, net totaled $2.7 million for the quarter
ended September 30, 1998, compared to a loss on sale of receivables, net of
$10.8 million for the same quarter of last year. The gain (loss) for the
quarters ended September 30, 1998, and 1997, consisted of gains on
securitization transactions of $6.2 million and $5.5 million (including $840,000
and $543,000 of servicing asset income) and charges for other than temporary
impairments of Retained Interest of $3.5 million and $16.4 million,
respectively. ("Unrealized gains in Retained Interest are not charged to income.
See - Financial Condition - Retained interest in securitized assets," below).
The increase in the securitization transaction gain relates to a higher volume
of receivables securitized but was offset by a higher credit loss assumption of
4.40% for the fiscal 1999 first quarter securitization compared to 4.00% for the
fiscal 1998 first quarter securitization. The increase was also offset by an
increase in the discount of the estimated Retained Interest related to the
implementation of the "cash out" method of valuing Retained Interest. The
receivables sold in the securitization for the period ended September 30, 1998,
were $351.4 million compared to $218.4 million for the same quarter of last
year. The increase in the credit loss assumption from 4.00% to 4.40% was related
to the combined securitization of Tier I, Tier II, and modified receivables in
the current quarter compared to the sale of only Tier I receivables in the
comparable quarter of last year. The annual prepayment estimate and discount
rate assumptions used for the fiscal 1999 and fiscal 1998 first quarter
securitizations were 25.00% and 9.58%, and 28.46% and 10.96%, respectively.
<PAGE>
Servicing fees, net increased 4.4% to $5.0 million for the three months
ended September 30, 1998, compared to $4.7 million for the three months ended
September 30, 1997. The increase in servicing fees, net is a result of the
increase in average securitized receivables to $1.9 billion for the first
quarter of fiscal 1999, compared to $1.8 billion for the first quarter of fiscal
1998. Servicing fees consist of contractual servicing fees of 1.0% on Tier I
securitizations. Beginning with the quarter ended September 30, 1998, the
scheduled accretion of discount on excess servicing cash flows, previously a
component of servicing fees, net, was reclassified to other interest income.
Other revenues increased to $1.2 million for the three months ended
September 30, 1998, from $1.0 million for the three months ended September 30,
1997. Other revenues consist primarily of late charge income and origination fee
income. The increase is primarily related to an increase in late charge fee
income.
Salaries and benefits expense increased to $5.7 million for the three
months ended September 30, 1998, from $4.6 million for the corresponding period
ended September 30, 1997. The increase resulted primarily from increased
full-time equivalent ("FTE") employees. Average FTE's for the three months ended
September 30, 1998, were 540 compared to 420 for the comparable period ended
September 30, 1997. Since September 1998, the Company has experienced growth
primarily in collections, systems and remarketing, but modestly in other areas.
The increase in collections is primarily in response to a growing servicing
portfolio. The systems area increased because of a Company commitment to improve
internal analysis and reporting of corporate financial, acquisition and
collection data that will be used to improve operations. The increase in the
number of reconditioning and remarketing operations employees was due to the
opening of a new automotive dealership in July 1998 to facilitate remarketing of
repossessed vehicles.
Other operating expense increased 7.7% to $4.3 million for the three
months ended September 30, 1998, from $4.0 million for the three months ended
September 30, 1997. Other operating expense includes occupancy and equipment
costs, outside and professional services, receivable expenses, promotional
expenses, travel, office supplies and other. Total operating expense as a
percentage of the average servicing portfolio was 1.85% and 1.76% for the period
ending September 30, 1998, and September 30, 1997, respectively.
Financial Condition
Receivables, net and servicing portfolio. Receivables, net includes the
principal balance of receivables held for sale, net of unearned discount and
allowance for estimated credit losses, receivables in process, and prepaid
dealer premiums. The Company's portfolio of receivables, net increased to $165.3
million at September 30, 1998, from $118.3 million at June 30, 1998. The
increase was primarily due to a higher volume of Tier I receivables acquired
compared to Tier I receivables sold in the first quarter securitization of
approximately $58.2 million. The increase was offset by the sale of Tier II and
modified receivables in the first quarter securitization. The Tier II
receivables held for sale decreased $2.6 million as more receivables were
securitized than acquired during the first quarter ended September 30, 1998. The
modified receivable portfolio, included in receivables held for sale, decreased
approximately $2.7 million as a portion of the modified receivables were
included in the first quarter securitization. Allowance for credit losses on
receivables held for sale was $2.1 million at September 30, 1998, compared to
$1.9 million at June 30, 1998. The Company serviced $2.1 billion and $1.9
billion in securitized receivables, and the total servicing portfolio was $2.2
billion and $2.0 billion as of September 30, 1998, and June 30, 1998,
respectively.
Retained interest in securitized assets ("Retained Interest"). Retained
Interest increased to $192.3 million at of September 30, 1998, from $171.6
million at June 30, 1998. The Retained Interest balance increased by the amounts
capitalized upon consummation of the UACSC 1998-C Auto Trust ("1998-C") Tier I
securitization including estimated dealer premium rebates and unrealized gains
recognized on certain pools. Total amounts capitalized for the quarter ended
<PAGE>
September 30, 1998, were $25.1 million. Retained Interest also increased by an
additional pre-tax unrealized gain of $5.1 million and a $933,000 increase in
accrued interest. Additions to Retained Interest were offset by the return of
excess cash flows over the quarter ended September 30, 1998, related to all
securitizations of $4.8 million and by the effect of the $3.5 million impairment
of Retained Interest taken during the first quarter ended September 30, 1998.
Impairment of Retained Interest is measured on a disaggregate basis (pool by
pool) in accordance with SFAS 115. Additionally, Retained Interest decreased by
the net decrease in spread accounts of $2.0 million. Withdrawals of spread
account funds are made when the balance of the account is in excess of the
requirements stipulated in the servicing agreement (the Company's servicing
agreements are collectively referred to as the "Pooling and Servicing
Agreements"). Allowance for credit losses on securitized receivables is included
as a component of Retained Interest. At September 30, 1998, the allowance
related to both Tier I and Tier II securitized receivables totaled $95.6 million
or 4.64% of the total securitized receivable portfolio compared to $90.2 million
or 4.67% at June 30, 1998. The Company's assumptions for valuing Retained
Interest at September 30, 1998, include estimates for credit losses of 3.33% to
6.54% on Tier I receivables and 12.00% to 15.68% on Tier II receivables as a
percentage of original principal balance over the life of the receivables,
annual prepayment estimates ranging from 20.00% to 26.30% and discount rates
ranging from 8.31% and 10.46% in the valuation of Retained Interest at September
30, 1998. See - "Discussion of Forward-Looking Statements".
Amounts due under revolving warehouse credit facility and long-term
debt. The balance of the revolving warehouse credit facility and the Senior and
Senior Subordinated Notes was $283.8 million at September 30, 1998, compared to
$294.1 million at June 30, 1998. The decrease was due to a principal payment on
the Company's Senior Note in August 1998 of $22.0 million but was offset by
higher warehouse borrowings related to an increase in first quarter receivable
acquisitions as compared to the previous quarter ended June 30, 1998.
Net deferred income taxes. The net deferred income taxes payable
totaled $12.8 million at September 30, 1998, compared to $9.6 million at June
30, 1998. This increase is a result of the deferral of a portion of the gain on
the sale of receivables for the securitization effected during the first quarter
of fiscal 1999 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) acquisitions and financing of receivables, (ii) payment of dealer
premiums, (iii) securitization costs including cash held in spread accounts and
similar cash collateral accounts under the revolving warehouse credit facility,
(iv) servicer advances of payments on securitized receivables 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 Tier I securitized portfolio, (ii) future 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 receivables in securitization transactions and (vii) proceeds from
sale of interest-only strips in conjunction with securitization transactions.
Net cash used by operating activities increased to $58.5 million for the three
months ended September 30, 1998, from net cash used by operating activities of
$27.0 million for the three months ended September 30, 1997. The increase was
primarily attributable to a decrease in receivables securitized relative to
receivables acquired.
Hedging. 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 1999, hedging transactions required a use of cash of $5.2
million.
<PAGE>
Financing Activities. Net cash used by financing activities for the
quarter ended September 30, 1998, was $10.3 million compared to net cash
provided by financing activities of $48.7 million for the quarter ended
September 30, 1997. The decrease was a result of a lower increase in warehouse
borrowings at September 30, 1998, over June 30, 1998, relative to the same
period of last year but was offset by a principal payment on long-term debt. 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 financing including long-term debt
and the revolving warehouse credit facility. Historically, the Company has used
the securitization of receivable pools as its primary source of long-term
funding. Securitization transactions enable the Company to improve its
liquidity, to recognize gains from the sales of the receivable pools while
maintaining the servicing rights to the receivables, 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. Between
securitization transactions, the Company relies primarily on the revolving
warehouse credit facility to fund ongoing receivable acquisitions (not including
dealer premiums). In addition to receivable 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
revolving warehouse credit facility 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 business 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 revolving warehouse credit facility. The Company
consistently assesses its long-term receivable funding arrangements with a view
to optimizing cash flows and reducing costs.
Warehouse Facility. The Company has borrowing arrangements with an
independent financial institution for a $450.0 million revolving warehouse
credit facility that is insured by a surety bond provider to fund the purchase
of Tier I and Tier II receivable acquisitions. At September 30, 1998, $84.8
million of the capacity was utilized, and an additional $62.6 million was
available to borrow based on the outstanding principal balance of eligible
receivables.
Long-term debt. The Company issued $110.0 million of 8.53% Senior Notes
due August 1, 2002, in connection with the Company's initial public offering.
Interest on the Notes is payable semiannually, and principal payments began
August 1, 1998, and are due on each subsequent August 1, in the amount equal to
approximately 20% of the stated original principal balance. In April 1996, the
Company completed a private placement of $46.0 million of 9.99% Senior
Subordinated Notes due March 30, 2003, with interest payable quarterly and
principal due at maturity. In March 1997, the Company issued $65.0 million of
Senior Notes due December 27, 2002. The Notes were issued as "Series A" in the
principal amount of $50.0 million at 7.75% interest and "Series B" in the
principal amount of $15.0 million at 7.97% interest. Interest on the Notes is
payable semiannually and a principal payment is due March 15, 2002, in the
amount equal to approximately 33 1/3% of the stated original balance.
The Company's credit agreements, among other things, require compliance
with monthly and quarterly financial maintenance tests as well as restrict the
Company's ability to create liens, incur additional indebtedness, sell or merge
assets and make investments. The Company is in compliance with all covenants and
restrictions imposed by the terms of indebtedness.
Management believes that the Company's existing capital resources, the
revolving warehouse credit facility described above, future earnings, expected
growth in receivable acquisitions, and periodic securitization of receivables
should provide the necessary capital and liquidity for its operations through at
least the third quarter of fiscal 1999. 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.
<PAGE>
Discussion of Forward-Looking Information
The above discussions and notes to interim financial statements contain
forward-looking statements made by the Company regarding its results of
operations, effects of changes in accounting policies, cash flow needs and
liquidity, receivable acquisition volume, target spreads, potential credit
losses, recovery rates, prepayment rates, servicing income, Year 2000
compliance, 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. Such factors include, for example, demand for new and
used autos, competition, and consumer credit and delinquency trends. 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 1998 which is incorporated herein by this
reference.
Year 2000 Compliance
During the year ended June 30, 1997, the Company began a risk
evaluation of potential Year 2000 issues. The outcome of this evaluation was the
formation of a Year 2000 Committee that consists of directors, officers and
employees of the Company. The purpose of this committee is to assess all risks,
analyze current systems, coordinate upgrades and replacements, and report
current and projected status of all known Year 2000 compliance issues.
During the assessment phase, over thirty service bureaus and system
vendors were identified that performed or supplied potential Year 2000
compliance issues. The list included eight service bureaus, seven software
vendors, seven hardware vendors, one electric company, six maintenance and
supplies companies and four telecommunications companies. Once the systems were
identified, an immediate correspondence was established for the purpose of
educating the Company on known Year 2000 issues or Year 2000 compliance
certification.
The systems identified were put through one of two possible phases. If
the vendor provided proof that the system in question had proper Year 2000
compliance certification and a testing cycle was possible, an appropriate
testing cycle was performed. If the testing cycle failed or the system had known
Year 2000 issues, a mission critical evaluation and replacement recommendations
were performed.
The Company has three known mission critical systems that are not in
Year 2000 compliance. All three of the systems have Year 2000 compliance
certified replacement products that are scheduled for implementation in November
1998, February 1999 and March 1999, respectively.
The replacement or remediation costs for year 2000 compliance issues
with the Company is estimated to be less than $100,000, which the Company
recognizes as incurred. This estimated cost is mostly due to software upgrades
that include new features which are combined with Year 2000 corrections.
The Company estimates that the worst case Year 2000 issue scenario
would be discontinuance of electrical power. Although the Company has numerous
power backup devices, a long-term power outage would bring the Company to a
standstill. Because of this potentially crippling effect, the Company has been
examining the potential of installing a complete electrical backup generator at
a cost of approximately $400,000.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company bears the primary risk of loss due to defaults in its
servicing portfolio. Default and credit loss rates are impacted by general
economic factors that affect borrowers' ability to continue to make timely
payments on their indebtedness. Prepayments on receivables in the servicing
portfolio reduce the size of the portfolio and reduce the Company's servicing
income. The gain on sales of receivables in connection with each securitization
transaction and the amount of Retained Interest recognized in each transaction
reflect deductions for estimates of future defaults and prepayments. The
carrying value of Retained Interest may be adjusted periodically to reflect
differences between estimated and actual credit losses and prepayments on past
securitizations. For example, if credit losses increased or decreased by 1.00%,
the gain on sale of a $300.0 million securitization would result in a reduction
or an increase of the gain (loss) on sales of receivables by $3.0 million
pre-tax. The same 1.00% increase or decrease would result in a reduction or an
increase of the Retained Interest of approximately $20.6 million as of September
30, 1998. The Company does not believe fluctuations in interest rates materially
affect the rate of prepayments on receivables.
The Company's sources of funds generally have variable rates of
interest, and its receivable portfolio bears interest at fixed rates. The
Company therefore bears interest rate risk on receivables until they are
securitized and employs a hedging strategy to mitigate this risk. As a part of
the hedging strategy, the Company executes short sales of U.S. Treasury
securities having a maturity approximating the average maturity of receivables
to be acquired during the relevant period. There is no assurance that this
strategy will completely offset changes in interest rates. In particular, such
strategy depends on management's estimates of receivable acquisition volume. The
Company realizes a gain on its hedging transactions during periods of increasing
interest rates and realizes a loss on such transactions during periods of
decreasing interest rates. The hedging gain or loss will substantially offset
changes in interest rates as seen by a lower or higher reported gain on sales of
receivables, respectively. Recognition of unrealized gains or losses is deferred
until the sale of receivables during the securitization. On the date of the
sale, hedging deferred gains and losses are recognized as a component of gain
(loss) on sales of receivables. Increases or decreases in interest rates reduce
or increase the fair value of long-term debt, respectively.
<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
The Registrant filed a current report on Form 8-K on August
17, 1998, relating to the restatement of it's financial
statements for fiscal June 30, 1997, as well as the first
three quarters of fiscal 1998.
<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, 1998 By: /S/ John M. Stainbrook
-------------------------
John M. Stainbrook
President, and Chief Executive Officer
November 13, 1998 By: /S/ Rick A. Brown
-------------------
Rick A. Brown
Treasurer and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
27 Financial Data Schedule
<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, 1998 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-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 17,293
<SECURITIES> 0
<RECEIVABLES> 168,576
<ALLOWANCES> (2,053)
<INVENTORY> 0
<CURRENT-ASSETS> 183,816
<PP&E> 12,011
<DEPRECIATION> (3,717)
<TOTAL-ASSETS> 405,304
<CURRENT-LIABILITIES> 21,056
<BONDS> 296,587
<COMMON> 58,360
0
0
<OTHER-SE> 29,301
<TOTAL-LIABILITY-AND-EQUITY> 405,304
<SALES> 0
<TOTAL-REVENUES> 22,595
<CGS> 0
<TOTAL-COSTS> 9,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,325
<INTEREST-EXPENSE> 6,952
<INCOME-PRETAX> 3,327
<INCOME-TAX> 1,270
<INCOME-CONTINUING> 2,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,057
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
