<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 JUNE 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 0-26458
------------------------------
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.)
23 PASTEUR, IRVINE, CALIFORNIA 92618-3816
-----------------------------------------
(Address of principal executive offices)
(949) 727-1000
----------------------------------------------------
(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 July 31, 1998, the registrant had 25,708,611 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 27.
<PAGE> 2
WFS FINANCIAL INC AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1998
TABLE OF CONTENTS
-------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss) for the Three and Six Months Ended
June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Short term investments $ 28,295 $ 143,815
Contracts receivable 37,219 52,596
Contracts held for sale 291,691 183,529
Allowance for credit losses (9,217) (6,787)
--------- ---------
Contracts receivable, net 319,693 229,338
Amounts due from trusts 326,751 295,123
Retained interest in securitized assets 179,069 181,177
Property, plant and equipment, net 24,375 21,406
Accrued interest receivable 1,877 1,867
Other assets 5,978 5,434
--------- ---------
$ 886,038 $ 878,160
========= =========
LIABILITIES
Notes payable - parent $ 175,000 $ 175,000
Amounts held on behalf of trustee 508,622 488,654
Other liabilities 35,609 34,613
--------- ---------
719,231 698,267
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 50,000,000 shares;
issued and outstanding 25,708,611 shares in 1998 and
in 1997 73,564 73,564
Additional paid-in capital 4,000 4,000
Retained earnings 88,832 101,882
Unrealized gain on retained interest in securitized assets,
net of tax 411 447
--------- ---------
166,807 179,893
--------- ---------
$ 886,038 $ 878,160
========= =========
</TABLE>
- ----------------------
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
WFS FINANCIAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES
Interest income $ 17,903 $ 16,299 $ 33,193 $ 30,591
Interest expense - parent 3,992 2,602 7,262 4,209
------------ ------------ ------------ ------------
Net interest income 13,911 13,697 25,931 26,382
Servicing income 18,724 42,582 36,149 81,229
Gain on sale of contracts 10,863 6,491 18,949 13,835
------------ ------------ ------------ ------------
TOTAL REVENUES 43,498 62,770 81,029 121,446
EXPENSES
Provision for credit losses 1,357 1,233 7,098 4,537
Operating expenses:
Salaries and employee benefits 23,679 26,396 51,249 50,177
Occupancy 2,441 3,182 5,258 6,341
Credit and collections 5,022 3,594 9,603 6,649
Telephone 2,355 1,785 4,529 3,698
Data processing 2,155 4,237 4,517 6,661
Miscellaneous 5,963 5,029 10,817 11,059
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 41,615 44,223 85,973 84,585
Restructuring charge -- -- 10,500 --
------------ ------------ ------------ ------------
TOTAL EXPENSES 42,972 45,456 103,571 89,122
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 526 17,314 (22,542) 32,324
Income tax expense (benefit) 234 7,364 (9,492) 13,742
------------ ------------ ------------ ------------
NET INCOME (LOSS) 292 9,950 (13,050) 18,582
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF INCOME TAXES
Change in unrealized gain/loss on retained
interest in securitized assets -- 583 (36) (35)
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ 292 $ 10,533 $ (13,086) $ 18,547
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ 0.01 $ 0.39 $ (0.51) $ 0.72
DILUTED 0.01 0.39 (0.51) 0.72
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC 25,708,611 25,684,168 25,708,611 25,684,168
DILUTED 25,709,228 25,684,168 25,708,611 25,684,168
</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>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (13,050) $ 18,582
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Provision for credit losses 7,098 4,537
Depreciation 4,307 4,330
Amortization of retained interest in securitized assets 57,103 13,431
Loss on disposal of assets 4,479 --
(Increase) decrease in assets:
Automobile contracts:
Purchase of contracts (1,322,540) (1,165,594)
Proceeds from sale of contracts 1,185,000 1,090,000
Other change in contracts 40,149 43,189
Other assets (614) (1,122)
Increase in liabilities:
Other liabilities 1,023 10,076
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (37,045) 17,429
INVESTING ACTIVITIES
Purchase of property, plant and equipment (11,756) (7,024)
Increase in trust receivable (31,629) (63,656)
Increase in retained interest in securitized asset (55,058) (51,382)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (98,443) (122,062)
FINANCING ACTIVITIES
Increase in trustee accounts 19,968 77,581
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,968 77,581
DECREASE IN CASH AND CASH EQUIVALENTS (115,520) (27,052)
Cash and cash equivalents at beginning of period 143,815 109,070
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,295 $ 82,018
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 6,302 $ 3,386
Income taxes -- 4,376
</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 (including normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
thereto for the year ended December 31, 1997 included in the WFS Financial Inc
("WFS" or the "Company") Form 10-K.
Certain amounts from the 1997 consolidated financial statement amounts have been
reclassified to conform to the 1998 presentation.
The Company has entered into or committed to two-year Treasury securities
forward agreements as hedges against market value changes in designated portions
of its contract portfolios. Recognition of unrealized gains or losses is
deferred until the sale of contracts. When the related contracts are sold, the
deferred gains or losses from these contracts are recognized in the consolidated
statement of income as a component of net gains or losses on sales of contracts.
NOTE B - NET CONTRACTS RECEIVABLE
Net contracts receivable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
--------- ---------
<S> <C> <C>
Contracts $ 349,174 $ 253,455
Unearned discounts (28,055) (22,226)
--------- ---------
321,119 231,229
Allowance for credit losses (9,217) (6,787)
Dealer participation, net of deferred contract fees 7,791 4,896
--------- ---------
Net contracts receivable $ 319,693 $ 229,338
========= =========
</TABLE>
6
<PAGE> 7
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the changes in amounts deferred and carried as
adjustments to the contract balance including contract fees and dealer
participation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
---------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 6,664 $ 6,495 $ 4,896 $ 5,643
New deferrals 19,898 17,057 36,101 33,316
Amortization (1,175) (1,126) (2,140) (2,167)
Sales (17,596) (16,221) (31,066) (30,587)
-------- -------- -------- --------
Balance at end of period $ 7,791 $ 6,205 $ 7,791 $ 6,205
======== ======== ======== ========
</TABLE>
WFS uses two-year Treasury securities forward agreements to minimize its
exposure to interest rate risk. The fair value of these instruments may vary
with changes in interest rates. At June 30, 1998, WFS had forward agreements
with a notional face amount outstanding of $205 million. The fair value of these
forward agreements was a loss of $160 thousand.
Contracts serviced by WFS for the benefit of others totaled approximately $3.7
billion at June 30, 1998 and $3.4 billion at December 31, 1997.
NOTE C - ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses for owned contracts were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 9,787 $ 8,261 $ 6,787 $ 7,648
Provision for credit losses 1,357 1,233 7,098 4,537
Charged off contracts (3,071) (3,023) (6,452) (6,808)
Recoveries 1,144 1,042 1,784 2,136
------- ------- ------- -------
Balance at end of period $ 9,217 $ 7,513 $ 9,217 $ 7,513
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D- SECURITIZED ASSETS
Retained interest in securitized assets ("RISA") capitalized upon securitization
of contracts represent the present value of the estimated future earnings to be
received by WFS from the excess spread created in securitization transactions.
Excess spread is calculated by taking the difference between the coupon rate of
the contracts sold and the certificate rate paid to the investors less
contractually specified servicing and guarantor fees.
Prepayment and credit loss assumptions are utilized to project future earnings
and are based upon historical experience. Credit losses are estimated using a
cumulative loss rate estimated by management to reduce the likelihood of asset
impairment. All assumptions used are evaluated each quarter and adjusted, if
appropriate, to reflect actual performance of the contracts.
Future earnings are discounted at a rate management believes to be
representative of the market at the time of securitization. The balance of the
RISA is amortized against actual excess spread income earned on a monthly basis
over the expected repayment life of the underlying contracts. RISAs are
classified in a manner similar to available for sale securities and as such are
marked to market each quarter. Market value changes are calculated by
discounting the excess spread using a current market discount rate. Any changes
in the market value of the RISA is reported as a separate component of other
comprehensive income (loss) on the Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) and shareholders' equity on the Consolidated
Statements of Financial Condition as an unrealized gain or loss, net of
applicable taxes.
WFS retains the rights to service all contracts it securitizes. Consumer
servicing rights assets ("CSRA") represent the present value of the estimated
future earnings to be received from servicing securitized contracts. These
earnings are calculated by estimating future servicing revenues, including
contractually specified servicing fee, late charges, other ancillary income, and
float benefit and netting them against the actual cost to service contracts. WFS
has not capitalized any servicing rights as of June 30, 1998.
The following table presents the activity of the RISA.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance $ 177,307 $ 135,113 $ 181,177 $ 121,597
Additions 31,670 29,597 55,058 51,382
Amortization (29,908) (6,229) (57,103) (13,431)
Change in unrealized gain/loss on securities
available for sale -- 1,006 (63) (61)
--------- --------- --------- ---------
Ending balance $ 179,069 $ 159,487 $ 179,069 $ 159,487
========= ========= ========= =========
</TABLE>
8
<PAGE> 9
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In initially valuing the RISA, WFS established an off balance sheet allowance
for expected future credit losses. The allowance is based upon historical
experience and management's estimate of future performance regarding credit
losses and includes an unallocated amount to reduce the likelihood of impairment
of the RISA. The amount is reviewed periodically and adjustments are made if
actual experience or other factors indicate that future performance may differ
from management's prior expectations.
The following table presents the estimated future undiscounted retained interest
earnings to be received from securitizations. Estimated future undiscounted RISA
earnings are calculated by taking the difference between the coupon rate of the
contracts sold and the certificate rate paid to the investors, less the
contractually specified servicing fee and guarantor fees, after giving effect to
estimated prepayments and assuming no losses. To arrive at the RISA, this amount
is reduced by the off balance sheet allowance established for potential future
losses and by discounting to present value.
The following table sets forth the components of the RISA:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Estimated net undiscounted RISA earnings $ 432,541 $ 438,190
Off balance sheet allowance for losses (228,911) (236,796)
Discount to present value (24,561) (20,217)
----------- -----------
Retained interest in securitized assets $ 179,069 $ 181,177
=========== ===========
Outstanding balance of contracts sold through securitizations $ 3,730,016 $ 3,449,590
Off balance sheet allowance for losses as a percent of contracts sold
through securitizations 6.14% 6.86%
</TABLE>
WFS believes that the off balance sheet allowance for losses is currently
adequate to absorb potential losses in the sold portfolio.
9
<PAGE> 10
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land $ 2,017 $ 2,017
Construction in progress 518 2,749
Buildings 8,222 --
Computers and software 23,861 29,446
Furniture, fixtures and leasehold improvements 4,421 3,993
Equipment 3,408 3,617
Automobiles 216 214
------- -------
42,663 42,036
Less accumulated depreciation 18,288 20,630
------- -------
$24,375 $21,406
======= =======
</TABLE>
NOTE F - INTERCOMPANY AGREEMENTS
WFS receives advances in the form of a warehouse line of credit ("Line of
Credit"), a senior note payable ("Senior Note") and an additional note payable
("Promissory Note") from its parent, Western Financial Bank (the "Bank") to fund
its operations.
The Line of Credit agreement permits WFS to draw up to $600 million to be used
in its operations. The interest rate was 5.71% and 5.66% for the six months
ended June 30, 1998 and 1997, respectively. Interest payments are calculated
based on the average amount outstanding. At June 30, 1998, 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.
Additionally, WFS borrowed $50 million from the Bank under the terms of the
Promissory Note, which is still outstanding. Interest is calculated at the rate
of 9.42% per annum.
WFS also invests its excess cash at the Bank under an Investment Agreement. The
Bank pays WFS an
10
<PAGE> 11
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest rate equal to the federal composite commercial paper rate on this
excess cash. The weighted average interest rate was 5.49% and 5.59% for the six
months ended June 30, 1998 and 1997, respectively. At June 30,1998, WFS held
$19.8 million of excess cash with the Bank under the Investment Agreement.
Under the terms of the WFS Reinvestment Contract ("RIC") with the Bank, WFS may
utilize principal and interest collections from contracts securitized. WFS may
use these collections without limitations in its operations until payments are
due to investors as long as they are deposited into a RIC at the Bank. Pursuant
to the RIC, WFS pays to the Bank a fee equal to 12.5 basis points of the amount
of collateral pledged by the Bank. The fee paid to the Bank for the second
quarter of 1998 was $0.2 million. During the six months ended June 30, 1998, the
average amount outstanding on the RIC was $543 million. At June 30, 1998, the
outstanding balance was $509 million.
NOTE G - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. SFAS 130 requires unrealized gains
or losses on the Company's available for sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
For the six months ended June 30, 1998, the Company had a pre-tax unrealized
loss on retained interest in securitized assets of $63 thousand and for the
three and six months ended June 30, 1997, a gain of $1.0 million and a loss of
$61 thousand, respectively.
NOTE H - EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
and does not include the impact of any potentially dilutive common stock
equivalents. The diluted earnings per share calculation method is similar to the
previously required fully diluted earnings per share method and is arrived at by
dividing net income by the weighted average number of shares outstanding,
adjusted for the dilutive effect of outstanding stock options. For purposes of
comparability, all prior period earnings per share data has been restated.
The following table sets forth the computation of basic and diluted earnings per
share:
11
<PAGE> 12
WFS FINANCIAL INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
BASIC
Net income (loss) $ 292 $ 9,950 $ (13,050) $ 18,582
Average common shares outstanding 25,708,611 25,684,168 25,708,611 25,684,168
Net income (loss) per common share - basic $ 0.01 $ 0.39 $ (0.51) $ 0.72
DILUTED
Net income (loss) $ 292 $ 9,950 $ (13,050) $ 18,582
Average common shares outstanding 25,708,611 25,684,168 25,708,611 25,684,168
Stock option adjustment 617 -- -- --
Average common shares outstanding 25,709,228 25,684,168 25,708,611 25,684,168
Net income (loss) per common share -
diluted $ 0.01 $ 0.39 $ (0.51) $ 0.72
</TABLE>
Options to purchase 793,791 and 529,067 shares of common stock were outstanding
at June 30, 1998 and 1997, respectively, but were not included in the
computation of diluted earnings because the Company had a loss or the options'
exercise price was greater than the average market price of the common shares,
and therefore, the effect would be antidilutive. The weighted average exercise
price at June 30, 1998 and 1997 was $15.89 and $18.00 respectively, for the
options outstanding.
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) retained
interest income and (iii) fee income such as late charges and dealer acquisition
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. Retained interest
income is the earnings 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 securitizations, adjusted for credit losses, administrative
expenses and contractual servicing fees. Late charges, deferment fees,
12
<PAGE> 13
documentation fees and other fees are also collected on 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
retained interest earnings to be received from such contracts using a market
discount rate. In order to determine the gain on sale, WFS also considers
prepaid dealer commissions, issuance costs and the effect of hedging activities.
RISA is capitalized upon securitization of contracts and represents the present
value of the estimated future earnings to be received by WFS from the excess
spread created in securitization transactions and is amortized against servicing
income over the life of the contracts.
WFS originated $717 million and $1.3 billion of contracts for the three and six
months ended June 30, 1998 compared to $613 million and $1.2 billion of
contracts for the same periods in 1997. This represents a 17% and 13% increase
in production for the respective periods. WFS securitized $660 million and $1.2
billion of contracts for the three and six months ended June 30, 1998 compared
with $590 million and $1.1 billion for the same periods in 1997.
The following table sets forth the contract origination, sale and principal
reduction activity of WFS for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTH ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance $ 287,579 $ 262,888 $ 231,229 $ 233,948
Originations 717,236 613,288 1,322,540 1,165,594
Sales (660,000) (590,000) (1,185,000) (1,090,000)
Principal reductions (1) (23,696) (24,956) (47,650) (48,322)
----------- ----------- ----------- -----------
Ending balance $ 321,119 $ 261,220 $ 321,119 $ 261,220
=========== =========== =========== ===========
</TABLE>
- -----------
(1) Includes scheduled payments, prepayments and charge offs.
RESULTS OF OPERATIONS
SERVICING INCOME
Total servicing income was $18.7 million and $36.1 million for the three and six
months ended June 30, 1998 compared to $42.6 million and $81.2 million for the
same periods in 1997. Servicing income
13
<PAGE> 14
declined due to lower retained interest income and higher amortization of
retained interest in securitized assets as a result of higher losses in the
three and six months ended June 30, 1998.
Retained interest income represents excess spread earned on securitized loans
less any losses not absorbed by the off balance sheet allowance for losses.
Changes in the amount of prepayments may also affect the amount and timing of
retained interest income. Retained interest income is dependent upon the average
excess spread on the contracts sold and the size of the serviced portfolio. The
decrease in retained interest income for the three and six months ended June 30,
1998 compared with the same periods a year earlier is due to increased losses
which reduced the amount of excess spread, as well as increased amortization of
the RISA as expectations of future income decreased. Contractual servicing
income is earned at rates ranging from 1% to 1.25% per annum on the outstanding
balance of contracts securitized. Other fee income, consisting primarily of
documentation fees, late charges and deferment fees also increased as a direct
result of 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.
Servicing income consists of the following components:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Retained interest income $ 319 $ 25,571 $ (429) $ 48,340
Contractual servicing income 9,286 7,825 17,874 14,505
Other fee income 9,119 9,186 18,704 18,384
-------- -------- -------- --------
Total servicing income $ 18,724 $ 42,582 $ 36,149 $ 81,229
======== ======== ======== ========
</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 totaled $13.9 million and $25.9 million for the three and six
months ended June 30, 1998 compared to $13.7 million $26.4 million for the same
periods in 1997. 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Yield on interest earning assets 14.19% 14.14% 13.75% 14.29%
Cost of borrowings 7.98 6.47 8.38 6.54
----- ----- ----- -----
Net interest rate spread 6.21% 7.67% 5.37% 7.75%
===== ===== ===== =====
</TABLE>
14
<PAGE> 15
The decrease in the net interest rate spread for the three and six months ended
June 30, 1998 compared to the same periods last year, is primarily due to a
decline in the yield on consumer contracts as WFS increases its relative amounts
of prime contracts and an increase in the cost of borrowings as a result of the
Promissory Note.
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 earnings are recorded as retained interest income. To
protect against changes in interest rates, WFS hedges contracts prior to their
securitization with two-year Treasury securities forward agreements. Gains or
losses on these forward agreements are deferred and included as part of the
basis of the underlying contracts and recognized when the contracts are
securitized.
WFS' borrowings from the Bank consist of a $125 million unsecured Senior Note
with a fixed interest rate of 7.25% and maturing in 2003, a $50 million
Promissory Note with a fixed interest rate of 9.42% and maturing in 2002, and 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.
GAIN ON SALE OF CONTRACTS
WFS recorded a gain on sale of contracts of $10.9 million and $18.9 million for
the three and six months ended June 30, 1998 compared to $6.5 million and $13.8
million for the same periods of 1997. The increase in the gain on sale is
primarily the result of wider overall interest rate spreads with respect to
serviced contracts and an increase in contracts sold. Contracts sold during the
second quarter of 1998 totaled $660 million compared to $590 million during the
same period of 1997. Gross interest rate spread is affected by product mix,
general market conditions and overall market interest rates. The risks inherent
in interest rate fluctuation are 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
losses on the contracts held on balance sheet or by the reduction of the amount
of contracts held on balance sheet. The level of the allowance is based
principally on the outstanding balance of contracts held on balance sheet,
pending sales of contracts and historical loss trends. When WFS sells contracts
in a securitization transaction, it reduces its allowance for credit losses and
factors potential losses into its calculation of gain on sale. WFS believes that
the allowance for credit losses is currently adequate to absorb potential losses
in the on balance sheet portfolio. The provision for credit losses totaled $1.4
million and $7.1 million for the three and six months ended June 30, 1998
compared to $1.2 million and $4.5 million for the same periods in 1997. The
increase for the six months ended June 30, 1998, compared to the same period
last year, is the result of a $3.0 million increase in the on balance sheet
allowance for loan losses as a result of disruptions in the collections area
during the restructuring in the first quarter. The allowance for loan losses as
a percent of total on balance sheet contracts remained unchanged at 2.9%
compared to a year earlier.
15
<PAGE> 16
OPERATING EXPENSES
Total operating expenses were $41.6 million and $86.0 million for the three and
six months ended June 30, 1998 compared to $44.2 million and $84.6 million for
the same periods in 1997. The decrease in operating expenses for the three
months ended June 30, 1998 compared with June 30, 1997 was the result of the
elimination of 150 redundant positions related to the first quarter restructure.
The increase in total operating expenses for six months ended June 30, 1998 is
primarily attributable to $1.2 million in retention bonuses paid as part of the
Company's restructuring program and an increase in the number of contracts
serviced by WFS.
Salaries and employee benefits expense was $23.7 million and $51.2 million for
the three and six months ended June 30, 1998 compared to $26.4 million and $50.2
million for the same periods in 1997. Occupancy expense decreased to $2.4
million and $5.3 million for the three and six months ended June 30, 1998
compared to $3.2 million and $6.3 million for the same periods in 1997, as WFS
consolidated 31 offices in the first quarter restructure.
RESTRUCTURING
In July, the Company announced its plan to restructure operations in the central
and eastern United States patterned after the restructure of the western United
States during the first quarter of 1998. As a result, approximately 125
redundant positions will be eliminated. The restructuring will result in a
one-time pre-tax accounting charge for the third quarter of 1998 of
approximately $3.0 million.
INCOME TAXES
WFS files federal and certain state tax returns as part of a consolidated group
that includes the Bank and Westcorp. Other state tax returns are filed by WFS as
a separate entity. Tax liabilities from the consolidated returns are allocated
in accordance with a tax sharing agreement that is based on the relative income
or loss of each entity on a stand-alone basis. The effective tax rates for the
six months ended June 30, 1998 and 1997 were 42.1% and 42.5%, respectively.
16
<PAGE> 17
FINANCIAL CONDITION
CONTRACTS RECEIVABLE AND CONTRACTS HELD FOR SALE
WFS holds a portfolio of contracts on balance sheet for investment that totaled
$37.2 million at June 30, 1998 and $52.6 million at December 31, 1997. Contracts
held for sale totaled $292 million at June 30, 1998 compared to $184 million at
December 31, 1997. The balance in the held for sale portfolio is largely
dependent upon the timing of the origination and securitization of contracts.
WFS completed securitization transactions totalling $1.2 billion during the
first six months of 1998. WFS plans to continue to securitize contracts on a
regular basis.
The following table presents information on the volume of prime and non-prime
contracts and those secured by new and used autos for the periods indicated
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTH ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Prime contracts $ 498,075 $ 334,324 $ 859,945 $ 637,057
Non-prime contracts 219,161 278,964 462,595 528,537
---------- ---------- ---------- ----------
Total volume $ 717,236 $ 613,288 $1,322,540 $1,165,594
========== ========== ========== ==========
New vehicles $ 139,664 $ 108,665 $ 236,402 $ 209,348
Used vehicles 577,572 504,623 1,086,138 956,246
---------- ---------- ---------- ----------
Total volume $ 717,236 $ 613,288 $1,322,540 $1,165,594
========== ========== ========== ==========
</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 initially fund these spread accounts. These funds,
as well as the excess spread, are released 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 June 30, 1998 were $327 million as compared with $295 million at year-end
1997. As a result of increased delinquency and default rates on sold loans, WFS
has increased the amounts held in certain spread accounts in accordance with the
requirements contained within the respective securitization transaction
documents which, in turn, has increased the amounts due from trusts.
17
<PAGE> 18
ASSET QUALITY
WFS has automated and centralized several processes related to asset quality
which continues to be an area of significant focus. WFS utilizes an automated
telephone dialing system ("predictive dialer") to aid in the service and
collection process. The predictive dialer automatically dials the delinquent
obligor and transfers the call to an available collector located at one of the
two regional service centers. If the collection effort does not result in
satisfactory resolution, then the call is forwarded to a collection specialist
located in the appropriate office.
If satisfactory arrangements are not made to cure the past due account, the
automobile is generally repossessed within 60 to 90 days of the date of
delinquency. WFS writes down the value of the vehicle to fair value and
reclassifies the contract as a repossessed asset. WFS sells substantially all of
its repossessed automobiles through wholesale auto auctions and rarely provides
the financing for repossessions sold. WFS has centralized its remarketing
functions into a single department which is responsible for transportation of
the vehicle to wholesale auction houses, reconditioning and repairs, when
necessary, and tracking vehicles until they are sold. Once the vehicle is sold,
any deficiency balance is charged off.
After chargeoff, WFS will seek to collect on deficiency balances through its
centralized asset recovery center ("ARC"). The ARC will first attempt to collect
directly from the obligor with its in-house collection staff. If efforts are not
successful, the ARC will seek a deficiency judgment through a small claims court
procedure, where available, or an attorney retained by WFS will take more formal
judicial action against customers with deficiency balances in excess of that
which may be brought in small claims court proceedings.
WFS has centralized its credit risk management functions. This centralized area
is responsible for setting and monitoring credit policy, through reunderwriting,
for the entire organization and oversees the development and implementation of
WFS' computerized credit scoring system. This system will aid underwriters in
making contract decisions so that rate, term and loan to value ratio can be
adequately balanced against the assessed credit risk.
The following tables reflect WFS' delinquency, repossession and loss experience.
18
<PAGE> 19
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
----------------------- -----------------------
NUMBER NUMBER
OF OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Contracts serviced (1) 442,447 $4,051,134 408,958 $3,680,817
========== ========== ========== ==========
Period of delinquency (2)
31-59 days 10,469 $ 84,500 6,605 $ 54,450
60-89 days 2,995 24,529 2,161 18,652
90 days or more 1,338 11,173 918 7,762
---------- ---------- ---------- ----------
Total contracts delinquent 14,802 $ 120,202 9,684 $ 80,864
========== ========== ========== ==========
Delinquencies as a percentage of
number and amount of contracts
outstanding 3.35% 2.97% 2.37% 2.20%
========== ========== ========== ==========
</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.
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
-------------------- --------------------
NUMBER AMOUNT NUMBER AMOUNT
------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SERVICING PORTFOLIO (1) 442,447 $4,051,134 408,958 $3,680,817
======= ========== ======= ==========
Repossessed Assets 1,129 $ 6,621 1,554 $ 9,672
======= ========== ======= ==========
Repossessed assets as a
percentage of number and
amount of contracts
outstanding 0.26% 0.16% 0.38% 0.26%
======= ========== ======= ==========
</TABLE>
- -------------------
(1) Includes repossession information relating to contracts which are owned by
WFS and contracts which have been sold and securitized but are serviced by
WFS.
19
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Contracts serviced at end of period (1) $4,051,134 $3,421,213 $4,051,134 $3,421,213
========== ========== ========== ==========
Average during period $3,923,566 $3,303,619 $3,831,304 $3,207,651
========== ========== ========== ==========
Gross chargeoffs of contracts $ 39,140 $ 30,486 $ 80,912 $ 61,908
Recoveries of contracts 9,256 8,482 16,393 16,280
---------- ---------- ---------- ----------
Net chargeoffs $ 29,884 $ 22,004 $ 64,519 $ 45,628
========== ========== ========== ==========
Net chargeoffs as a percentage of contracts
outstanding during period (2) 3.05% 2.66% 3.37% 2.84%
========== ========== ========== ==========
</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 June 30, 1998 and 1997.
Loss experience was impacted by the disruption in collection efforts during the
first quarter restructuring, the shift to greater non-prime paper during 1996
and 1997, slower loan growth, the continued transitory effect of moving post
repossession collection efforts to the asset recovery and remarketing centers
and higher than expected bankruptcies.
The following table sets forth the cumulative static pool losses for all
outstanding securitized pools.
20
<PAGE> 21
CUMULATIVE STATIC POOL LOSS CURVES
AT JUNE 30, 1998
<TABLE>
<CAPTION>
PERIOD 1994-2 1994-3 1994-4 1995-1 1995-2 1995-3 1995-4 1995-5 1996-A 1996-B
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.03% 0.00% 0.00% 0.00% 0.03% 0.00% 0.00% 0.01% 0.00% 0.01%
2 0.10% 0.05% 0.06% 0.10% 0.15% 0.09% 0.06% 0.09% 0.06% 0.09%
3 0.20% 0.11% 0.18% 0.26% 0.23% 0.20% 0.16% 0.16% 0.17% 0.20%
4 0.31% 0.22% 0.34% 0.43% 0.43% 0.36% 0.31% 0.32% 0.29% 0.35%
5 0.40% 0.34% 0.49% 0.68% 0.58% 0.58% 0.52% 0.48% 0.48% 0.61%
6 0.52% 0.46% 0.66% 0.79% 0.77% 0.80% 0.70% 0.62% 0.63% 0.88%
7 0.69% 0.58% 0.77% 0.96% 0.95% 1.04% 0.86% 0.78% 0.81% 1.14%
8 0.79% 0.73% 0.95% 1.10% 1.09% 1.27% 1.02% 0.98% 1.08% 1.42%
9 0.90% 0.81% 1.10% 1.32% 1.28% 1.46% 1.13% 1.16% 1.35% 1.67%
10 1.06% 0.92% 1.21% 1.49% 1.49% 1.62% 1.26% 1.32% 1.63% 1.91%
11 1.17% 1.02% 1.37% 1.68% 1.64% 1.79% 1.41% 1.54% 1.87% 2.18%
12 1.22% 1.11% 1.50% 1.86% 1.81% 1.92% 1.52% 2.01% 2.06% 2.38%
13 1.28% 1.27% 1.64% 2.05% 1.94% 2.01% 1.66% 2.03% 2.28% 2.58%
14 1.34% 1.33% 1.74% 2.20% 2.09% 2.17% 1.86% 2.25% 2.47% 2.79%
15 1.43% 1.39% 1.91% 2.38% 2.16% 2.28% 2.07% 2.41% 2.63% 2.95%
16 1.53% 1.46% 2.06% 2.51% 2.24% 2.42% 2.26% 2.59% 2.79% 3.14%
17 1.58% 1.56% 2.13% 2.67% 2.36% 2.57% 2.47% 2.77% 2.97% 3.38%
18 1.67% 1.66% 2.26% 2.79% 2.46% 2.86% 2.59% 2.88% 3.12% 3.55%
19 1.73% 1.76% 2.34% 2.90% 2.55% 3.08% 2.72% 3.00% 3.31% 3.80%
20 1.76% 1.83% 2.43% 2.98% 2.69% 3.23% 2.88% 3.12% 3.49% 3.98%
21 1.83% 1.89% 2.49% 3.08% 2.83% 3.38% 2.95% 3.24% 3.63% 4.14%
22 1.89% 1.94% 2.56% 3.21% 2.96% 3.49% 3.04% 3.39% 3.80% 4.31%
23 1.90% 1.98% 2.61% 3.27% 3.06% 3.59% 3.13% 3.53% 3.95% 4.46%
24 1.92% 2.09% 2.68% 3.41% 3.17% 3.68% 3.22% 3.64% 4.10% 4.58%
25 1.96% 2.13% 2.78% 3.53% 3.24% 3.74% 3.30% 3.72% 4.22% 4.74%
26 1.98% 2.18% 2.89% 3.59% 3.28% 3.81% 3.37% 3.83% 4.33%
27 2.01% 2.26% 2.97% 3.68% 3.33% 3.88% 3.47% 3.95% 4.41%
28 2.01% 2.36% 3.05% 3.72% 3.42% 3.97% 3.50% 4.08% 4.51%
29 2.03% 2.41% 3.07% 3.77% 3.46% 4.01% 3.58% 4.16%
30 2.07% 2.46% 3.12% 3.82% 3.49% 4.06% 3.65% 4.25%
31 2.11% 2.50% 3.18% 3.87% 3.52% 4.07% 3.75% 4.31%
32 2.15% 2.54% 3.21% 3.91% 3.56% 4.14% 3.80%
33 2.17% 2.59% 3.25% 3.95% 3.55% 4.20% 3.83%
34 2.19% 2.61% 3.26% 3.99% 3.60% 4.26% 3.87%
35 2.20% 2.63% 3.28% 4.02% 3.62% 4.31%
36 2.21% 2.62% 3.29% 4.00% 3.67% 4.34%
37 2.21% 2.62% 3.31% 4.05% 3.70% 4.38%
38 2.21% 2.64% 3.33% 4.06% 3.73%
39 2.22% 2.66% 3.34% 4.10% 3.74%
40 2.21% 2.66% 3.35% 4.14%
41 2.21% 2.64% 3.38% 4.15%
42 2.22% 2.66% 3.41% 4.16%
43 2.20% 2.68% 3.42%
44 2.20% 2.69% 3.44%
45 2.20% 2.69% 3.44%
46 2.20% 2.69%
47 2.20% 2.71%
48 2.20%
49 2.19%
</TABLE>
21
<PAGE> 22
CUMULATIVE STATIC POOL LOSS CURVES
AT JUNE 30, 1998
<TABLE>
<CAPTION>
PERIOD 1996-C 1996-D 1997-A 1997-B 1997-C 1997-D 1998-A 1998-B
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0
1 0.00% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.09% 0.10% 0.08% 0.07% 0.06% 0.05% 0.04%
3 0.22% 0.24% 0.20% 0.18% 0.15% 0.14% 0.11%
4 0.52% 0.44% 0.36% 0.33% 0.29% 0.31% 0.25%
5 0.74% 0.71% 0.62% 0.56% 0.46% 0.56%
6 0.98% 0.93% 0.85% 0.77% 0.67% 0.75%
7 1.27% 1.16% 1.12% 1.10% 0.93% 0.99%
8 1.52% 1.43% 1.45% 1.40% 1.16%
9 1.77% 1.72% 1.70% 1.70% 1.37%
10 1.98% 2.03% 2.02% 2.00% 1.66%
11 2.21% 2.34% 2.32% 2.22%
12 2.49% 2.62% 2.61% 2.43%
13 2.73% 2.97% 2.92% 2.66%
14 2.99% 3.27% 3.14%
15 3.21% 3.53% 3.30%
16 3.47% 3.79% 3.55%
17 3.70% 4.02%
18 3.94% 4.19%
19 4.18% 4.43%
20 4.36%
21 4.53%
22 4.67%
23
24
25
26
27
28
</TABLE>
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 expanding purchases of contracts. It is
anticipated that the purchase of contracts will continue to be the major use of
cash for WFS.
Although WFS does not have publicly rated debt, its parent, Western Financial
Bank, receives senior and subordinated debt ratings. In April 1998, Standard &
Poor's and Fitch IBCA lowered the outstanding ratings of the Bank's senior and
subordinated debt. Although these downgrades did not have a material impact on
current funding sources, results of operations or liquidity, future downgrades
could materially affect WFS' future financing costs.
The cash flows from operating activities of WFS primarily relates to the
purchase, securitization and principal receipts of contracts. The major
components of cash flows related to operating activities are
22
<PAGE> 23
cash needed to purchase contracts which totaled $1.3 billion for the six months
ended June 30, 1998, compared to $1.2 billion for the same period in 1997.
Operating activities also generated cash flows through securitizations and
principal receipts on contracts. WFS securitized $1.2 billion and $1.1 billion
for the six months ended June 30, 1998 and 1997 respectively.
The cash flows from investing activities of WFS primarily relates to amounts due
from trusts and retained interest in securitized asset accounts. At the time a
securitization transaction closes, WFS is required to advance monies to
initially fund spread accounts. The Company funds these spread accounts by
foregoing receipt of excess cash flow until these accounts exceed predetermined
levels. The amounts due from trusts represent funds due to WFS which have not
yet been disbursed from the spread accounts. Retained interest in securitized
assets represents the present value of the estimated future cash flows to be
received by WFS from the excess spread created in securitizations. Excess spread
is calculated by taking the difference between the coupon rate of the contract
sold and the certificate rate paid to investors less contractually specified
servicing and guarantor fees.
The cash flows from financing activities primarily relates to amounts held on
behalf of trustee and borrowings from parent. These cash flows historically have
provided a consistent source of cash for WFS. Pursuant to the reinvestment
contract with the Bank, WFS is able to utilize principal and interest
collections on contracts sold in its day to day operations until payments are
due to the investors. These principal and interest collections represent amounts
held on behalf of trustee. As the Company continues to increase the size of its
servicing portfolio, WFS expects such amounts to increase. Additional financing
sources include a $125 million Senior Note, a $50 million Promissory Note and a
$600 million Line of Credit. The Senior Note is unsecured and has a fixed
interest rate of 7.25% and a final maturity in 2003. The Promissory Note has a
fixed interest rate of 9.42% and a final maturity in 2002. The Line of Credit
had interest rates of 5.71% and 5.66% for the six months ended June 30, 1998 and
1997, respectively. At June 30, 1998, WFS did not have any draws outstanding on
the Line of Credit.
These financing sources are expected to provide adequate funding of the
Company's operations and, while no assurance can be given, the Company believes
that its sources of liquidity are sufficient to meet its short and long term
cash requirements.
ASSET/LIABILITY MANAGEMENT
Asset/liability management is the process of measuring and controlling interest
rate risk through matching the maturity and repricing characteristics of
interest earning assets with those of interest bearing liabilities.
The contracts originated and held by WFS are all fixed rate and accordingly WFS
has exposure to changes in interest rates. WFS' prepayment experience on
contracts has not been historically sensitive to changes in interest rates and
WFS therefore believes it is not expected to be exposed to significant
prepayment risk relative to changes in interest rates. As a result of this
approach to interest rate management, combined with the Company's hedging
strategies, WFS does not anticipate that changes in
23
<PAGE> 24
interest rates will materially affect the Company's results of operations or
liquidity, although no assurance can be given in this regard.
WFS' hedging strategy includes the use of two-year Treasury securities forward
agreements. Generally, these agreements are entered into by WFS in amounts which
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.
YEAR 2000
The Company continues to assess its exposure related to the impact of the Year
2000 data issue which is attributable to the fact that many computer programs
use only two digits to identify a year in a date field. Based on the information
obtained to date, management does not expect that the cost of conversion will
have a material adverse impact on the Company's financial position, results of
operations or cash flows. There has been no material change in the expected
level of preparedness by the Company since December 31, 1997.
FORWARD-LOOKING STATEMENTS
The preceding Management's Discussion and Analysis of Financial Condition and
Results of Operations section contains certain "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
provides a new "safe harbor" for these types of statements. This Quarterly
Report on Form 10-Q contains forward-looking statements which reflect WFS'
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The forward-looking
terminology such as "believe," "expect," "design," "anticipate," "intend,"
"may," "will," "should," "estimate," "continue," and/or the negative thereof or
other comparable expressions which indicate future events and trends identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. WFS
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors could cause actual results to differ materially from
historical results or those anticipated: (1) the level of demand for auto
contracts, which is affected by such external factors as the level of interest
rates, the strength of the various segments of the economy, debt burden held by
the consumer and demographics of WFS' lending markets; (2) continued dealer
relationships; (3) fluctuations between auto interest rates and the cost of
funds; (4) federal and state regulation of WFS' auto lending operations; (5)
competition within the auto lending industry; (6) the availability and cost of
securitization transactions and (7) the impact of the restructuring of WFS'
operations.
24
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
WFS is involved as a party 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
On April 29, 1998, the Company held its annual
shareholders' meeting. There were 25,708,611 shares of
common stock outstanding entitled to vote, and a total
of 25,131,570 shares (97.76%) were represented at the
meeting in person or by proxy. The following
summarizes vote results of proposals submitted to the
Company's shareholders.
1. Proposal to elect directors, each for a two-year
term.
<TABLE>
<CAPTION>
FOR WITHHELD
---------- ------
<S> <C> <C>
Bernard E. Fipp 25,120,914 10,656
Stanley E. Foster 25,121,114 10,456
Duane A. Nelles 25,120,914 10,656
</TABLE>
2. Proposal to adopt the Company's Amended and
Restated 1996 Stock Option Plan.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD BROKER NON-VOTE
--- ------- -------- ---------------
<S> <C> <C> <C>
25,108,542 17,396 5,632
</TABLE>
3. Proposal to ratify the appointment of Ernst & Young
LLP as independent auditors for the fiscal year ending
December 31, 1998.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD BROKER NON-VOTE
--- ------- -------- ---------------
<S> <C> <C> <C>
25,126,897 1,841 2,832
</TABLE>
25
<PAGE> 26
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule for the Six
Months Ended June 30, 1998
Exhibit 27.1 Restated Financial Data Schedule for
the Year Ended December 31, 1996
Exhibit 27.2 Restated Financial Data Schedule for
the Nine Months Ended September 30, 1997
Exhibit 27.3 Restated Financial Data Schedule for
the Six Months Ended June 30, 1997
Exhibit 27.4 Restated Financial Data Schedule for
the Three Months Ended March 31, 1997
Exhibit 27.5 Restated Financial Data Schedule for
the Nine Months Ended September 30, 1996
Exhibit 27.6 Restated Financial Data Schedule for
the Six Months Ended June 30, 1996
Exhibit 27.7 Restated Financial Data Schedule for
the Three Months Ended March 31, 1996
(b) REPORTS ON FORM 8-K
None
26
<PAGE> 27
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: August 12, 1998 By:/s/JOY SCHAEFER
-------------------- -----------------------------------------
Joy Schaefer
Jice Chairman, President, Chief Executive
Vfficer and Chief Operating Officer
Date: August 12, 1998 By: /s/LEE A. WHATCOTT
-------------------- -----------------------------------------
Lee A. Whatcott
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
27
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
27 Financial Data Schedule for the Six Months Ended June 30, 1998
27.1 Restated Financial Data Schedule for the Year Ended December 31,
1996
27.2 Restated Financial Data Schedule for the Nine Months Ended
September 30, 1997
27.3 Restated Financial Data Schedule for the Six Months Ended June
30, 1997
27.4 Restated Financial Data Schedule for the Three Months Ended
March 31, 1997
27.5 Restated Financial Data Schedule for the Nine Months Ended
September 30, 1996
27.6 Restated Financial Data Schedule for the Six Months Ended June
30, 1996
27.7 Restated Financial Data Schedule for the Three Months Ended
March 31, 1996
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 28,295
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 328,910
<ALLOWANCE> 9,217
<TOTAL-ASSETS> 886,038
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 544,231
<LONG-TERM> 175,000
0
0
<COMMON> 73,564
<OTHER-SE> 93,243
<TOTAL-LIABILITIES-AND-EQUITY> 886,038
<INTEREST-LOAN> 33,193
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 33,193
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 7,262
<INTEREST-INCOME-NET> 25,931
<LOAN-LOSSES> 7,098
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 96,473
<INCOME-PRETAX> (22,542)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,050)
<EPS-PRIMARY> (.51)<F1>
<EPS-DILUTED> (.51)
<YIELD-ACTUAL> 10.87
<LOANS-NON> 0
<LOANS-PAST> 684
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,787
<CHARGE-OFFS> 6,452
<RECOVERIES> 1,784
<ALLOWANCE-CLOSE> 9,217
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 109,237
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 239,590
<ALLOWANCE> 7,648
<TOTAL-ASSETS> 675,572
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 402,880
<LONG-TERM> 125,000
0
0
<COMMON> 73,123
<OTHER-SE> 74,568
<TOTAL-LIABILITIES-AND-EQUITY> 675,572
<INTEREST-LOAN> 63,300
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 63,300
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 9,273
<INTEREST-INCOME-NET> 54,027
<LOAN-LOSSES> 10,275
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 130,819
<INCOME-PRETAX> 66,420
<INCOME-PRE-EXTRAORDINARY> 38,641
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,641
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
<YIELD-ACTUAL> 12.60
<LOANS-NON> 0
<LOANS-PAST> 617
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,795
<CHARGE-OFFS> 15,580
<RECOVERIES> 5,158
<ALLOWANCE-CLOSE> 7,648
<ALLOWANCE-DOMESTIC> 7,648
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 208,617
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 234,243
<ALLOWANCE> 6,602
<TOTAL-ASSETS> 892,939
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 544,633
<LONG-TERM> 175,000
0
0
<COMMON> 73,469
<OTHER-SE> 99,837
<TOTAL-LIABILITIES-AND-EQUITY> 892,939
<INTEREST-LOAN> 47,636
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 47,636
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 6,399
<INTEREST-INCOME-NET> 41,237
<LOAN-LOSSES> 5,748
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 128,202
<INCOME-PRETAX> 43,064
<INCOME-PRE-EXTRAORDINARY> 43,064
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,952
<EPS-PRIMARY> 0.97<F1>
<EPS-DILUTED> 0.97
<YIELD-ACTUAL> 12.15
<LOANS-NON> 0
<LOANS-PAST> 560
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,648
<CHARGE-OFFS> 9,947
<RECOVERIES> 3,153
<ALLOWANCE-CLOSE> 6,602
<ALLOWANCE-DOMESTIC> 6,602
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 82,390
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 267,424
<ALLOWANCE> 7,513
<TOTAL-ASSETS> 781,623
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 490,387
<LONG-TERM> 125,000
0
0
<COMMON> 73,123
<OTHER-SE> 93,113
<TOTAL-LIABILITIES-AND-EQUITY> 781,623
<INTEREST-LOAN> 30,591
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 30,591
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 3,896
<INTEREST-INCOME-NET> 26,695
<LOAN-LOSSES> 4,537
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 84,898
<INCOME-PRETAX> 32,324
<INCOME-PRE-EXTRAORDINARY> 32,324
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,582
<EPS-PRIMARY> .72<F1>
<EPS-DILUTED> .72
<YIELD-ACTUAL> 12.61
<LOANS-NON> 0
<LOANS-PAST> 574
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,648
<CHARGE-OFFS> 6,808
<RECOVERIES> 2,136
<ALLOWANCE-CLOSE> 7,513
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 134,240
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 269,382
<ALLOWANCE> 8,261
<TOTAL-ASSETS> 771,120
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 490,415
<LONG-TERM> 125,000
0
0
<COMMON> 73,123
<OTHER-SE> 82,582
<TOTAL-LIABILITIES-AND-EQUITY> 771,120
<INTEREST-LOAN> 14,292
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,292
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 1,465
<INTEREST-INCOME-NET> 12,827
<LOAN-LOSSES> 3,304
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 40,505
<INCOME-PRETAX> 15,009
<INCOME-PRE-EXTRAORDINARY> 15,009
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,632
<EPS-PRIMARY> .34<F1>
<EPS-DILUTED> .34
<YIELD-ACTUAL> 12.91
<LOANS-NON> 0
<LOANS-PAST> 622
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,648
<CHARGE-OFFS> 3,785
<RECOVERIES> 1,094
<ALLOWANCE-CLOSE> 8,251
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-01-1996
<CASH> 116,348
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 276,976
<ALLOWANCE> 8,388
<TOTAL-ASSETS> 671,582
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 408,306
<LONG-TERM> 125,000
0
0
<COMMON> 73,123
<OTHER-SE> 65,153
<TOTAL-LIABILITIES-AND-EQUITY> 671,382
<INTEREST-LOAN> 46,816
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 46,816
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 7,100
<INTEREST-INCOME-NET> 39,716
<LOAN-LOSSES> 7,933
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 91,701
<INCOME-PRETAX> 50,712
<INCOME-PRE-EXTRAORDINARY> 29,226
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,226
<EPS-PRIMARY> 1.14<F1>
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 12.47
<LOANS-NON> 0
<LOANS-PAST> 859
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,795
<CHARGE-OFFS> 11,322
<RECOVERIES> 3,982
<ALLOWANCE-CLOSE> 8,388
<ALLOWANCE-DOMESTIC> 8,388
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 111,073
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 275,055
<ALLOWANCE> 8,575
<TOTAL-ASSETS> 632,537
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 379,454
<LONG-TERM> 125,000
0
0
<COMMON> 73,123
<OTHER-SE> 54,960
<TOTAL-LIABILITIES-AND-EQUITY> 632,537
<INTEREST-LOAN> 30,663
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 30,663
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 5,189
<INTEREST-INCOME-NET> 25,474
<LOAN-LOSSES> 6,015
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 58,513
<INCOME-PRETAX> 32,895
<INCOME-PRE-EXTRAORDINARY> 19,033
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,033
<EPS-PRIMARY> 0.74<F1>
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 11.93
<LOANS-NON> 0
<LOANS-PAST> 784
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,795
<CHARGE-OFFS> 8,029
<RECOVERIES> 2,795
<ALLOWANCE-CLOSE> 8,575
<ALLOWANCE-DOMESTIC> 8,575
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 79,554
<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> 0.36<F1>
<EPS-DILUTED> 0.36
<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
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
