<PAGE> 1
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 MARCH 31, 1996
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 0-26458
WFS FINANCIAL INC
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0291646
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16485 LAGUNA CANYON ROAD, IRVINE, CALIFORNIA 92713-9762
-------------------------------------------------------
(Address of principal executive offices)
(714) 753-3000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 such filing
requirements for the past 90 days. Yes x No
--- ---
As of April 30, 1996, the registrant had 23,349,250 shares outstanding of common
stock, no par value. The shares of common stock represent the only class of
common stock of the registrant.
The total number of sequentially numbered pages is 20.
<PAGE> 2
WFS FINANCIAL INC AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1996
TABLE OF CONTENTS
----------
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Short term investments $ 79,654,339 $ 65,019,858
Contracts receivable 83,241,111 103,914,277
Contracts held for sale 232,947,138 219,916,889
Allowance for credit losses (9,739,256) (7,794,974)
------------ ------------
Contracts receivable, net 306,448,993 316,036,192
Amounts due from trusts 124,957,849 109,774,811
Excess servicing receivable 85,747,849 78,045,241
Furniture, fixtures and equipment 1,889,928 4,282,614
Accrued interest receivable 1,424,808 1,927,979
Deferred taxes 8,231,281 5,054,931
Other 1,675,265 3,446,750
------------ ------------
$610,030,312 $583,588,376
============ ============
LIABILITIES
Senior note payable - parent $125,000,000 $125,000,000
Amounts held on behalf of trustee 351,362,472 341,692,369
Other liabilities 15,297,536 7,845,324
------------ ------------
491,660,008 474,537,693
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 50,000,000 shares;
issued and outstanding 23,349,250 shares in 1996 and 1995 73,123,190 73,123,190
Paid-in capital 4,000,000 4,000,000
Retained earnings 41,247,114 31,927,493
------------ ------------
118,370,304 109,050,683
------------ ------------
$610,030,312 $583,588,376
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1996 1995
----------------- ----------------
<S> <C> <C>
REVENUES
Interest income $ 14,336,920 $ 14,071,660
Interest expense - parent 2,696,016 4,379,854
----------------- ----------------
Net interest income 11,640,904 9,691,806
Servicing income 23,593,234 15,916,886
Gain on sale of contracts 12,287,362 1,125,503
----------------- ----------------
TOTAL REVENUES 47,521,500 26,734,195
EXPENSES
Provision for credit losses 5,187,000 131,518
Operating expenses:
Salaries and employee benefits 14,644,081 9,450,049
General and administrative costs paid to parent 4,398,097 2,867,647
Occupancy 1,561,714 1,214,267
Credit and collections 1,976,489 1,185,207
Telephone 764,867 498,661
Depreciation 166,918 279,068
Miscellaneous 2,666,922 1,449,009
----------------- ----------------
TOTAL OPERATING EXPENSES 26,179,088 16,943,908
----------------- ----------------
TOTAL EXPENSES 31,366,088 17,075,426
----------------- ----------------
INCOME BEFORE INCOME TAXES 16,155,412 9,658,769
Income taxes 6,835,791 4,056,683
----------------- ----------------
NET INCOME $ 9,319,621 $ 5,602,086
================= ================
NET INCOME PER COMMON SHARE $ 0.40 $ 0.30
================= ================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 23,349,250 18,749,250
================= ================
</TABLE>
- - ----------------------
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,319,621 $ 5,602,086
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for credit losses 5,187,000 131,518
Depreciation 166,918 279,068
Amortization of deferred fees (73,172) (65,353)
Decrease (increase) in interest receivable 503,171 (294,622)
Net change in other assets (1,404,865) 1,989,105
Net change in other liabilities 7,452,212 194,351
Origination of contracts (504,122,456) (336,049,944)
Proceeds from sale of contracts 485,000,000 190,000,000
Other change in contracts 23,595,827 42,557,996
------------------ -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 25,624,256 (95,655,795)
INVESTING ACTIVITIES
Sale (purchase) of furniture, fixtures and equipment 2,225,768 (527,550)
Net (increase) decrease in trust receivable (22,885,646) 851,175
------------------ -----------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (20,659,878) 323,625
FINANCING ACTIVITIES
Increase (decrease) in trustee accounts 9,670,103 (30,571,014)
Net increase in borrowings from parent 125,903,184
------------------ -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,670,103 95,332,170
------------------ -----------------
INCREASE IN CASH AND CASH EQUIVALENTS $ 14,634,481
Cash and equivalents at beginning of period 65,019,858
------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 79,654,339
================== =================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for:
Interest $ 3,431,123 $ 4,379,855
Income taxes 5,820,886
</TABLE>
- - -------------------
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
- - ------------------------------
The unaudited consolidated financial statements included herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and footnotes thereto for the year
ended December 31, 1995 included in the WFS Financial Inc ("WFS") Form 10-K.
Certain amounts from the 1995 consolidated financial statement amounts have been
reclassified to conform to the 1996 presentation.
6
<PAGE> 7
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - NET CONTRACTS RECEIVABLE
- - ---------------------------------
Net contracts receivable consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------------------- ---------------------
<S> <C> <C>
Consumer:
Indirect contracts $ 334,241,264 $ 329,863,227
Direct contracts 19,344,037 25,194,734
Unearned discounts (44,823,019) (38,627,941)
--------------------- ---------------------
308,762,282 316,430,020
Allowance for credit losses (9,739,256) (7,794,974)
Deferred contract fees (325,926) (443,462)
Dealer participation 7,751,893 7,844,608
--------------------- ---------------------
306,448,993 316,036,192
Less contracts held for sale 232,947,138 219,916,889
--------------------- ---------------------
Total $ 73,501,855 $ 96,119,303
===================== =====================
</TABLE>
The following table presents the changes in deferred contract fees and dealer
participations which are adjustments to the contract balance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
Balance at beginning of period $ 7,401,146 $ 10,085,951
Originations 15,415,479 9,516,137
Amortization (1,169,324) (919,804)
Sales (14,221,334) (6,503,383)
------------------ -----------------
Balance at end of period $ 7,425,967 $ 12,178,901
================== =================
</TABLE>
At March 31, 1996, WFS had forward agreements with a notional face amount
outstanding of $42 million with a fair value of $42 million.
Contracts serviced by WFS for the benefit of others totalled approximately $2.1
billion at March 31, 1996 and $1.9 billion at December 31, 1995.
7
<PAGE> 8
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - ALLOWANCE FOR CREDIT LOSSES
- - ------------------------------------
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
Balance at beginning of period $ 7,794,974 $ 9,576,041
Provision for credit losses 5,187,000 131,518
Charged off contracts (4,693,725) (2,310,734)
Recoveries 1,451,007 892,688
------------------ -----------------
Balance at end of period $ 9,739,256 $ 8,289,513
================== =================
</TABLE>
NOTE D - FURNITURE, FIXTURES AND EQUIPMENT
- - ------------------------------------------
Furniture, fixtures and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------------- -----------------
<S> <C> <C>
Computers and software $ 4,620,278
Furniture, fixtures and leasehold
improvements $ 1,399,676 1,327,706
Equipment 1,513,490 1,352,362
Automobiles 183,930 168,866
---------------- -----------------
3,097,096 7,469,212
Less accumulated depreciation 1,207,168 3,186,598
---------------- -----------------
$ 1,889,928 $ 4,282,614
================ =================
</TABLE>
8
<PAGE> 9
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - INTERCOMPANY ADVANCES
- - ------------------------------
WFS receives advances in the form of a warehouse line of credit ("Line of
Credit") and a senior note payable ("Senior Note") from its parent, Western
Financial Savings Bank, F.S.B. (the "Bank") to fund its operations.
The Line of Credit agreement permits WFS to draw up to $400 million to be used
in its operations. The interest rate for the three months ended March 31, 1996
was 5.48% . Interest payments are calculated based on the average amount
outstanding. At March 31, 1996 and December 31, 1995, WFS did not have any draws
outstanding on the Line of Credit.
WFS also borrowed $125 million from the Bank under the terms of the Senior Note,
which is still outstanding. Interest is calculated at the rate of 7.25% per
annum.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The primary sources of revenue for WFS are servicing income and net interest
income. Servicing income is primarily generated following the securitization of
installment sales contracts and installment loans (collectively "contracts")
originated by WFS and consists of: (i) contractual servicing fees, (ii) excess
servicing income and (iii) fee income such as late charges and documentation
fees which are earned regardless of whether or not a securitization has
occurred. Contractual servicing is the servicing fee contractually due from a
trust for servicing contracts which have been securitized. Excess servicing is
the cash flow derived from the excess spread which is equal to the difference
between the stated interest rate on the contracts securitized and the interest
rate on the securities, adjusted for credit losses, administrative expenses and
contractual servicing fees. Late charges, deferment fees, documentation fees and
other fees are also collected on all contracts serviced and are retained by WFS.
Net interest income is the difference between the interest earned on contracts
not yet sold in securitization transactions and the interest paid on the
liabilities used to fund such contracts.
In addition to servicing income and net interest income, gain on sale of
contracts is also a source of revenue. WFS computes a gain on sale with respect
to contracts securitized based on the present value of the estimated future
excess cash flows to be received from such contracts using a market discount
rate. Gain on sale is recorded as excess servicing receivable on the balance
sheet and is amortized against servicing income over the life of the contracts.
The gain recorded in the income statement is adjusted for prepaid dealer
commissions, issuance costs and the effect of hedging activities.
WFS originated $504 million of contracts for the three months ended March 31,
1996 compared to $336 million of contracts for the same period in 1995. This
represents a 50% increase in production for the period. The company securitized
$485 million of contracts for the three months ended March 31, 1996 compared
with $190 million of contracts for the same period in 1995.
10
<PAGE> 11
The following table sets forth the loan origination, sale and principal
reduction activity of WFS for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1996 1995
------------------- -------------------
<S> <C> <C>
Beginning balance $ 316,430,020 $ 425,957,378
Originations 504,122,456 336,049,944
Sales (485,000,000) (190,000,000)
Principal reductions (1) (26,790,194) (46,003,639)
-------------- --------------
Ending balance $ 308,762,282 $ 526,003,683
============== ==============
</TABLE>
- - -------------------
(1) Includes scheduled payments, prepayments and charge offs.
RESULTS OF OPERATIONS
SERVICING INCOME
Total servicing income was $23.6 million for the three months ended March 31,
1996 compared to $15.9 million for the same period in 1995. This represents a
48% increase in servicing income and is due to an increased servicing portfolio.
WFS' serviced portfolio, including contracts held on balance sheet, increased to
$2.4 billion at March 31, 1996 from $1.7 billion at March 31, 1995.
Excess servicing income may be impacted by changes in the amount of credit
losses and amount of prepayments. One of the factors that will cause excess
servicing income to fluctuate is the amount and timing of credit losses. Changes
in the amount of prepayments may also affect the amount and timing of excess
servicing income. Excess servicing income is dependent upon the average excess
spread on the contracts sold and the size of the serviced portfolio. Contractual
servicing income is earned at a rate of 1% per annum on the outstanding balance
of contracts securitized and is consistent with industry standards.
Other fee income, consisting primarily of documentation fees, late charges and
deferment fees, also increased. The increase in other fee income is directly
related to the increase in the number of contracts originated and outstanding.
Increased competition may also affect the amount of other fee income that WFS
may earn when originating or servicing contracts.
11
<PAGE> 12
The following table summarizes servicing income for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
Excess servicing income $ 11,286,072 $ 7,682,334
Contractual servicing income 5,226,607 3,514,757
Other fee income 7,080,555 4,719,795
------------------ -----------------
Total servicing income $ 23,593,234 $ 15,916,886
================== =================
</TABLE>
NET INTEREST INCOME
- - -------------------
Net interest income is the difference between the rate earned on contracts held
on balance sheet and the interest costs associated with WFS' borrowings. Net
interest income totalled $11.6 million for the three months ended March 31, 1996
compared to $9.7 million for the same period in 1995. The following table shows
the average rate earned on contracts and the average rate paid on borrowings,
consisting primarily of advances from the Bank, together with the corresponding
net interest rate spread for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
Yield on interest earning assets 13.99% 15.14%
Cost of borrowings 6.47% 5.68%
------------------ -----------------
Net interest rate spread 7.52% 9.46%
================== =================
</TABLE>
Prior to securitizing contracts, WFS earns interest income on its contracts,
pays interest expense to fund the contracts and absorbs any credit losses. After
securitization, the net cash flows are recorded as servicing income. To protect
against changes in interest rates, WFS hedges contracts prior to their
securitization with forward agreements. The gain or loss on these forward
agreements is deferred and included as part of the basis of the underlying
contracts and recognized when the contracts are securitized.
WFS' borrowings with the Bank consist of a $125 million unsecured Senior Note
with a fixed interest rate of 7.25% and with a final maturity in 2003 and
borrowings under a Line of Credit agreement at a variable rate of interest based
upon the Federal composite commercial paper rate. WFS is not aware of any facts
which would preclude it from continuing to borrow from the Bank under the Line
of Credit.
GAIN ON SALE OF CONTRACTS
- - -------------------------
WFS recorded a gain on sale of contracts of $12.3 million for the three months
ended March 31, 1996 compared to $1.1 million for the same period of 1995. The
increase in gain on sale reported in 1996 is
12
<PAGE> 13
primarily the result of wider locked-in gross interest spread of 946 basis
points for the securitization in the first quarter of 1996 compared to 753
basis points for the securitization in the first quarter of 1995, as well as a
149% increase in the amounts of auto contracts securitized. Contracts sold
during the first three months of 1996 totalled $485 million compared to $190
million during the same period of 1995.
While the assumptions used in determining gain on sale of contracts have not
materially changed during the last three years, gain on sale of contracts has
fluctuated as a result of changes in the gross interest rate spread of contracts
securitized. Gross interest rate spread is affected by general market conditions
and overall market interest rates. The risks inherent in interest rate
fluctuation are substantially reduced through hedging activities.
PROVISION FOR CREDIT LOSSES
- - ---------------------------
The Company maintains an allowance for credit losses to cover anticipated losses
for contracts held on balance sheet. The allowance for credit losses is
increased by charging the provision for credit losses and decreased by actual
net losses on the contracts held on balance sheet or by the reduction of
contracts held on balance sheet. The level of the allowance is determined based
principally on the outstanding balance of contracts held on balance sheet,
pending sales of contracts and historical loss trends. WFS believes that the
allowance for credit losses is currently adequate to absorb potential losses in
the owned portfolio.
The provision for credit losses totalled $5.2 million for the three months ended
March 31, 1996 compared to $0.1 million for the same period in 1995. The
increase in the provision for credit losses is attributable to two factors. WFS
has expanded aggressively into other states and increased its production in the
lower end of the prime credit quality spectrum resulting in an increase in
chargeoffs for on-balance sheet contracts to 3.63% for the three months ended
March 31, 1996 from 1.56% for the same period in 1995. Additionally, at the end
of the first quarter of 1995, WFS had committed to sell $190 million of
contracts. Since the loans had already been committed for sale, WFS did not set
aside reserves for this portfolio.
OPERATING EXPENSES
- - ------------------
Total operating expenses were $26.2 million for the three months ended March 31,
1996 compared to $16.9 million for the same period in 1995. The increase in
total operating expenses is primarily attributable to an increase in the number
of contracts serviced and expansion into additional states. At March 31, 1996,
WFS operated in 97 offices in 18 states compared to 71 offices in 9 states at
March 31, 1995.
Salaries and employee benefits expense increased to $14.6 million for the three
months ended March 31, 1996 compared to $9.5 million for the same period in
1995. Occupancy expense increased to $1.6 million for the three months ended
March 31, 1996 compared to $1.2 million for the same period in 1995.
The general and administrative costs paid to parent are based upon the actual
costs incurred and estimates of actual usage. WFS believes that these costs
approximate the cost to perform these services on its own behalf or acquire them
from third parties. WFS has the option, under management agreements, to procure
these services on its own should it be more economically beneficial for WFS to
do so. In 1996, the general and administrative costs paid to parent were $4.4
million for the three months ended March 31, 1996 compared to $2.9 million for
the same period in 1995.
13
<PAGE> 14
Other operating expenses include credit and collections costs, telephone and
other miscellaneous expenses. Credit and collections expense increased to $2.0
million for the three months ended March 31, 1996 compared to $1.2 million for
the same period in 1995. Telephone expense totalled $0.8 million for the three
months ended March 31, 1996 compared to $0.5 million for the same period in
1995. Miscellaneous expenses, which include travel, marketing, stationery,
supplies, postage, legal, professional fees and other ancillary costs, increased
to $2.7 million for the three months ended March 31, 1996 compared to $1.4
million for the same period in 1995.
INCOME TAXES
- - ------------
WFS files consolidated federal and state tax returns as part of a consolidated
group that includes the Bank and Westcorp, the holding company parent of the
Bank. Taxes are paid in accordance with a tax sharing agreement that allocates
taxes based on the relative income or loss of each entity on a stand-alone
basis. The effective tax rates for the three months ended March 31, 1996 and
1995 were 42.3% and 42.0%, respectively.
FINANCIAL CONDITION
CONTRACTS RECEIVABLE AND CONTRACTS HELD FOR SALE
- - ------------------------------------------------
WFS holds a portfolio of contracts on balance sheet for investment that totalled
$83.2 million at March 31, 1996 and $104 million at December 31, 1995. Contracts
held for sale totalled $233 million at March 31, 1996 compared to $220 million
at December 31, 1995. The balance in this portfolio is largely dependent upon
the timing of the origination and securitization of contracts. WFS completed
securitization transactions of $485 million during the first three months of
1996. WFS plans to continue to securitize contracts on a regular basis.
The following table presents information on the value of the contracts purchased
from dealers ("indirect contracts"), or originated directly from consumers
("direct contracts"), as well as the value of contracts secured by new and used
autos for the periods indicated below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1996 1995
-------------------- -------------------
<S> <C> <C>
Indirect contracts $ 488,489,134 $ 316,663,442
Direct contracts 15,633,322 19,386,502
-------------------- -------------------
Total volume $ 504,122,456 $ 336,049,944
==================== ===================
New autos $ 113,655,265 $ 77,423,160
Used autos 390,467,191 258,626,784
-------------------- -------------------
Total volume $ 504,122,456 $ 336,049,944
==================== ===================
</TABLE>
14
<PAGE> 15
WFS is consistently expanding it operations to meet the needs of dealers in the
auto finance market. WFS is dedicated to developing and maintaining strong
relationships with its network of dealers used during the first three months of
1996. These relationships contribute to successful geographic expansion and
increased originations of contracts as shown in the table below.
<TABLE>
<CAPTION>
CONTRACTS ORIGINATED
-----------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
# OF YEAR -------------------------------------- --------------------------------------
STATE OFFICES BEGUN DOLLARS DEALERS DOLLARS DEALERS
- - -------------------------------------------- ------------------- ----------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
California 39 1973 $292,614,163 2,496 $262,329,066 2,277
Oregon 5 1992 29,369,499 370 14,756,476 285
Nevada 3 1993 30,013,871 118 13,121,719 89
Arizona 3 1993 25,212,828 220 7,643,142 108
Texas 18 1994 49,018,691 794 31,337,775 520
Washington 4 1994 18,640,266 229 3,320,648 104
New Mexico 1 1994 5,427,503 72 1,946,546 42
Idaho 1 1994 5,143,205 86 965,551 35
Utah 1 1995 4,177,621 82 494,016 21
Oklahoma 1 1995 2,441,123 64 135,005 6
Colorado 1 1995 13,237,723 109
Missouri 1 1995 9,786,145 101
Florida 1 1995 6,053,317 96
North Carolina 1 1995 3,315,461 59
Georgia 1 1995 3,187,893 53
Kansas 1 1995 1,756,756 25
Illinois 1 1996 2,199,001 32
Hawaii 1 1996 1,609,038 3
Indiana 1 1996 918,352 14
------------ ----- ------------ -----
Total $504,122,456 5,023 $336,049,944 3,487
============ ===== ============ =====
</TABLE>
AMOUNTS DUE FROM TRUSTS
- - -----------------------
The excess cash flow generated by contracts sold to trusts is deposited into
spread accounts by the trustee under the terms of the securitization
transactions. In addition, at the time a securitization transaction closes, WFS
advances additional monies to these accounts. These funds, as well as the excess
spread, are paid to WFS after the spread accounts reach a predetermined funding
level. Amounts due from trusts represent funds due to WFS not yet disbursed from
the spread accounts. The amounts due from trusts at March 31, 1996 were $125
million as compared with $110 million at year-end 1995. The increase from the
year-end amount is a result of the increase in total contracts securitized and
outstanding.
EXCESS SERVICING RECEIVABLE
- - ---------------------------
Excess servicing receivable consists of the estimated present value of future
excess cash flows from the excess spread. Future cash flows are computed by
taking into account certain assumptions principally regarding prepayments,
losses and servicing costs. These cash flows are then discounted at a
market-based rate. The balance is then amortized against actual servicing income
on a monthly basis. The assumptions
15
<PAGE> 16
and discount rates used are reviewed each quarter and adjusted, if appropriate,
to reflect actual performance of the contracts. The following table provides a
rollforward of the excess servicing receivable.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
Beginning balance $ 78,045,241 $ 43,425,826
Additions 23,732,905 7,587,495
Amortization (16,030,297) (9,159,535)
------------------ -----------------
Ending balance $ 85,747,849 $ 41,853,786
================== =================
</TABLE>
Additions to excess servicing receivable result from new securitizations and
reflect the estimated present value of the future cash flows of the contracts
securitized. The amortization of excess servicing receivable presented above
represents the scheduled amortization based upon the assumptions underlying the
calculation of the estimated present value of the remaining future cash flows.
ASSET QUALITY
- - -------------
Servicing income is affected by the quality of the underlying contracts
originated and securitized by WFS. Servicing contracts includes managing
delinquent contracts, repossessing and selling autos, securing defaulted
contracts and recovering deficiency balances. A delinquent contract is one on
which payment has not been made by the due date on which such payment was
contractually due. WFS monitors and attempts to minimize delinquencies and
losses through an online collections system. At March 31, 1996, delinquency for
the serviced portfolio was 0.99% based on the dollar amount of contracts
outstanding compared to 1.24% at December 31, 1995, as shown in the table below.
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
---------------------------------------- -----------------------------------------
NUMBER NUMBER
OF OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
----------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Contracts serviced (1) 279,164 $ 2,426,638,209 258,665 $ 2,209,594,002
================= ================== ================== ===================
Period of delinquency (2)
31-59 days 1,771 $ 14,923,885 2,180 $ 18,557,510
60-89 days 670 6,127,408 690 6,142,551
90 days or more 363 3,093,641 308 2,701,084
----------------- ------------------ ------------------ -------------------
Total contracts delinquent 2,804 $ 24,144,934 3,178 $ 27,401,145
================= ================== ================== ===================
Delinquencies as a percentage of
number and amount of contracts
outstanding 1.00% 0.99% 1.23% 1.24%
================= ================== ================== ===================
</TABLE>
- - -------------------
(1) Includes delinquency information relating to contracts which are owned by
WFS and contracts which have been sold and securitized but are serviced by
WFS.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
16
<PAGE> 17
LOSSES
- - ------
WFS has continued its aggressive geographic expansion, and has increased its
purchase of contracts in the lower end of the prime credit quality spectrum.
This growth has led to higher yielding loans and higher loss experience.
Management believes the benefit of higher yielding loans more than offsets the
increase in loan loss experience; however, management continues to monitor the
level of charge offs and collection activities to ensure strong asset quality.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
-------------------- ------------------
<S> <C> <C>
Contracts serviced (1)
At end of period $2,426,638,209 $1,749,901,235
============== ==============
Average during period $2,297,590,290 $1,677,197,140
============== ==============
Gross charge offs of contracts during period $ 18,424,666 $ 9,434,144
Recoveries of contracts during period 5,942,772 3,648,237
-------------- --------------
Net chargeoffs $ 12,481,894 $ 5,785,907
============== ==============
Net chargeoffs as a percentage of contracts
outstanding during period (2) 2.17% 1.38%
</TABLE>
- - -----------------
(1) Includes loan loss information relating to contracts which are owned by WFS
and contracts which have been sold and securitized but are serviced by WFS,
and is net of unearned add-on interest.
(2) Annualized based on net chargeoffs as a percentage of average contracts
outstanding during the three months ended March 31, 1996.
CAPITAL RESOURCES AND LIQUIDITY
- - -------------------------------
WFS requires substantial capital resources to operate its business. The
resources available to WFS include contract securitizations, collections of
principal and interest from contracts and borrowings from its parent. These
sources provide capital to fund originations of contracts. It is anticipated
that contracts purchased will continue to be the major cash need of WFS.
Operating activities generate cash flows through securitizations and principal
receipts on contracts. WFS' financing is provided by the Bank under the terms of
its $125 million Senior Note and a $400 million Line of Credit. These sources of
capital are expected to provide adequate funding of WFS' operations and WFS
believes that its sources of liquidity are sufficient to meet its short and long
term cash requirements.
17
<PAGE> 18
WFS' hedging strategy includes the use of two-year treasury securities forward
agreements. These agreements are entered into by WFS in amounts which generally
correspond to the principal amount of the securitization transactions. The
market value of these forward agreements responds inversely to the market value
changes of the underlying contracts. Because of this inverse relationship, WFS
can effectively lock in its gross interest rate spread at the time of entering
into the hedge transaction. Gains and losses relative to these agreements are
deferred and recognized in full at the time of securitization as an adjustment
to the gain or loss on the sale of the contracts. WFS uses only highly rated
counterparties and further reduces its risk by avoiding any material
concentration with a single counterparty. Credit exposure is limited to those
agreements with a positive fair value and only to the extent of that fair value.
WFS hedges substantially all of its contracts pending securitization.
18
<PAGE> 19
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
On March 29, 1996, the court issued its order approving
settlement and its final judgement for the class action
lawsuit, relating to WFS' collateral protection insurance
program and the court found that the settlement was fair,
reasonable and adequate. There were no modifications from
the preliminary approval order dated December 22, 1995. The
court retains jurisdiction over the settlement
administration.
WFS is involved as parties to certain legal proceedings
incidental to its business. WFS believes that the outcome
of such proceedings will not have a material effect upon
its business or financial condition.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
19
<PAGE> 20
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.
WFS FINANCIAL INC
- - --------------------------------------------------------------------------------
(Registrant)
Date: May 13, 1996 By: /s/JOY SCHAEFER
------------------ ------------------------------------
Joy Schaefer
Vice Chairman, President
and Chief Operating Officer
Date: May 13, 1996 By: /s/LEE A. WHATCOTT
------------------ ------------------------------------
Lee A. Whatcott
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 79,654
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 316,188
<ALLOWANCE> 9,739
<TOTAL-ASSETS> 601,374
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 358,004
<LONG-TERM> 125,000
0
0
<COMMON> 73,123
<OTHER-SE> 45,247
<TOTAL-LIABILITIES-AND-EQUITY> 601,374
<INTEREST-LOAN> 14,337
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,337
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 2,696
<INTEREST-INCOME-NET> 11,641
<LOAN-LOSSES> 5,187
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 26,179
<INCOME-PRETAX> 16,155
<INCOME-PRE-EXTRAORDINARY> 9,320
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,320
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 11.28
<LOANS-NON> 0
<LOANS-PAST> 704
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,795
<CHARGE-OFFS> 4,694
<RECOVERIES> 1,451
<ALLOWANCE-CLOSE> 9,739
<ALLOWANCE-DOMESTIC> 9,739
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
