WFS Financial Reports Second Quarter Results

Business Wire, July 26, 2005

--  Second quarter net income increased 77% to $59 million
--  Earnings per share increased 76% to $1.44 per share
--  Contract originations grew 21% to $2.0 billion
--  Second quarter annualized credit losses on contracts improved
    58 basis points to 1.15%
--  Delinquencies improved 41 basis points year over year to 1.80%

WFS Financial Inc (Nasdaq:WFSI) reported that net income increased 77% to $59.3 million for the three months ended June 30, 2005 compared with $33.5 million for the same period a year ago. Earnings per diluted share increased 76% to $1.44 for the three months ended June 30, 2005 compared with $0.82 per diluted share for the same period a year earlier. For the six months ended June 30, 2005, net income increased 11% to $111 million compared with $100 million for the same period a year earlier. Earnings per diluted share rose 10% to $2.70 for the six months ended June 30, 2005 compared with $2.45 for the same period a year ago.

"Our second quarter performance reflects our superior growth in auto originations as well as our continued commitment to quality credit," said Tom Wolfe, CEO of WFS Financial. "Our double digit origination growth in our established western markets complemented by over 20% growth in our newer markets in the east demonstrates the portability of our business model across the country. In addition, our record credit performance is the result of our dramatic decrease in default rates and our increase in recovery rates, resulting in our credit losses being the lowest in 10 years."

Annualized credit loss experience improved 58 basis points to 1.15% of average managed automobile contracts for the second quarter compared with 1.73% for the same period a year earlier. For the six months ended June 30, 2005, credit loss experience improved 59 basis points to 1.40% compared with 1.99% for the same period a year ago. The decrease in credit loss experience was a result of the annualized default rate decreasing to 3.4% for the quarter compared to 4.3% a year ago, a 20% decrease. In addition, the total recovery rate improved 12% to 70.8% for the quarter compared to 63.2% a year ago. The percentage of outstanding automobile contracts 30 days or more delinquent improved 41 basis points to 1.80% at June 30, 2005 compared with 2.21% a year ago.

The provision for credit losses decreased to $40.2 million for the three months ended June 30, 2005, compared with $53.4 million for the same period a year earlier due to lower chargeoff experience. For the six months ended June 30, 2005, the provision for credit losses increased to $89.5 million compared with $73.4 million for the same period a year ago due primarily to the whole loan sale of automobile contracts in the first quarter of 2004. At June 30, 2005, the allowance for credit losses totaled $273 million or 2.5% of owned automobile contracts compared with $252 million or 2.6% at December 31, 2004.

Automobile contract purchases totaled $2.0 billion for the second quarter of 2005, a 21% increase from the same period a year earlier. For the six months ended June 30, 2005, automobile contract purchases totaled $3.8 billion, a 17% increase compared with $3.3 billion a year ago. As a result of higher contract originations, the Company's portfolio of managed automobile contracts grew 11% to $12.3 billion at June 30, 2005, up from $11.1 billion a year earlier. Total average interest earning assets increased $2.5 billion to $11.3 billion for the second quarter, up from $8.8 billion for the same period a year ago. As a result, net interest income grew 30% to $176 million for the second quarter compared with $136 million for the same period a year earlier. Net interest margin was 5.85% for the second quarter compared with 5.88% for the same period a year ago. For the six months ended June 30, 2005, net interest income grew 25% to $345 million compared with $276 million for the same period a year earlier. Net interest margin was 6.00% for the six months ended June 30, 2005 compared with 5.85% for the same period a year ago.

Noninterest income decreased to $20.6 million for the three months ended June 30, 2005 compared with $34.7 million for the same period a year earlier. For the six months ended June 30, 2005, noninterest income decreased to $43.5 compared with $83.9 million for the same period a year ago. Noninterest income was reduced by $16.5 million and $31.2 million of loan origination fees that were deferred during the three and six months ended June 30, 2005, respectively. Noninterest expense decreased to $58.7 million or 1.95% of average managed contracts for the second quarter compared with $61.6 million or 2.25% of average managed contracts for the same period a year earlier. For the six months ended June 30, 2005, noninterest expense decreased to $117 million or 1.97% of average managed contracts compared with $121 million or 2.22% of average managed contracts a year ago. Noninterest expense was reduced by $7.0 million and $13.4 million of direct origination costs that were deferred during the three and six months ended June 30, 2005, respectively. Historically, the Company performed analysis on the fees and direct costs related to its origination of automobile loans and elected not to defer and amortize such amounts as the net effect was not material to its financial statements in accordance with Statement of Financial Accounting Standard No. 91 and SEC Staff Accounting Bulletin No. 99. Due to continuing improvements in operating efficiencies and the higher amount of documentation fees earned, the difference between the amount of fees received and the direct costs incurred has gradually increased. The Company decided to defer and amortize these amounts prospectively beginning last quarter. These deferred amounts are being amortized to interest income using the interest method.