WFS Financial Reports Third Quarter Results

Business Wire, Oct 25, 2005

IRVINE, Calif. -- WFS Financial Inc:

--  Third quarter net income increased 66% to $63 million
--  Earnings per share increased 66% to $1.54 per share
--  Contract originations grew 15% to $2.1 billion

WFS Financial Inc (Nasdaq:WFSI) reported that net income increased 66% to $63.4 million for the three months ended September 30, 2005 compared with $38.1 million for the same period a year ago. Earnings per diluted share increased 66% to $1.54 for the three months ended September 30, 2005 compared with $0.93 per diluted share for the same period a year earlier. For the nine months ended September 30, 2005, net income increased 26% to $174 million compared with $139 million for the same period a year earlier. Earnings per diluted share rose 26% to $4.25 for the nine months ended September 30, 2005 compared with $3.37 for the same period a year ago.

"Our third quarter performance reflects our sustained growth in auto originations and the strength of our business model," said Tom Wolfe, President of Westcorp. "We continue to experience double digit origination growth across the country. Additionally, our superior credit performance is the result of our ongoing commitment to credit quality and operational excellence."

Annualized credit loss experience improved 70 basis points to 1.25% of average managed automobile contracts for the third quarter compared with 1.95% for the same period a year earlier. For the nine months ended September 30, 2005, credit loss experience improved 63 basis points to 1.35% compared with 1.98% for the same period a year earlier. The improvement in credit loss experience reflects a 15% decrease in the annualized default rate for the quarter to 3.9% compared with 4.6% a year ago. In addition, the total recovery rate improved 20% to 74% for the quarter compared to 62% a year ago. This rate includes both the average realization on the collateral sold of 53%, up from 49% a year ago, and the deficiency balance recoveries of 21%, up from 13% a year ago. The increase in the deficiency balance recoveries was due primarily to the recognition of $7.3 million in sales tax refunds on charged off accounts due to a favorable tax authority ruling. Of the $7.3 million, $6.4 million relates to prior quarters. The amount that relates to prior quarters reduced the credit loss experience for the quarter by 20 basis points. The percentage of outstanding automobile contracts 30 days or more delinquent improved 9 basis points to 2.15% at September 30, 2005 compared with 2.24% a year ago.

The provision for credit losses decreased to $42.5 million for the three months ended September 30, 2005, compared with $60.0 million for the same period a year earlier due to lower chargeoff experience, including the effect of sales tax refunds recognized during the quarter. For the nine months ended September 30, 2005, the provision for credit losses decreased to $132 million compared with $133 million for the same period a year ago. At September 30, 2005, the allowance for credit losses totaled $282 million or 2.4% of owned automobile contracts compared with $252 million or 2.6% at December 31, 2004.

Automobile contract purchases totaled $2.1 billion for the third quarter of 2005, a 15% increase from the same period a year earlier. For the nine months ended September 30, 2005, automobile contract purchases totaled $5.9 billion, a 16% increase compared with $5.1 billion a year ago. As a result of higher contract originations, the Company's portfolio of managed automobile contracts grew 11% to $12.7 billion at September 30, 2005, up from $11.4 billion a year earlier. Total average interest earning assets increased $2.6 billion to $12.2 billion for the third quarter, up from $9.6 billion for the same period a year ago. As a result, net interest income grew 29% to $192 million for the third quarter compared with $149 million for the same period a year earlier. Net interest margin was 5.82% for the third quarter compared with 5.83% for the same period a year ago. For the nine months ended September 30, 2005, net interest income grew 26% to $538 million compared with $425 million for the same period a year earlier. Net interest margin was 5.94% for the nine months ended September 30, 2005 compared with 5.84% for the same period a year ago.

Noninterest income decreased $15.6 million to $20.9 million for the three months ended September 30, 2005 compared with $36.5 million for the same period a year earlier. For the nine months ended September 30, 2005, noninterest income decreased $55.6 million to $64.5 million compared with $120 million for the same period a year ago. Noninterest income was reduced by $18.1 million and $49.3 million of loan origination fees that were deferred during the three and nine months ended September 30, 2005, respectively. Noninterest expense increased to $64.7 million or 2.06% of average managed contracts for the third quarter compared with $62.2 million or 2.21% of average managed contracts for the same period a year earlier. For the nine months ended September 30, 2005, noninterest expense decreased to $182 million or 2.00% of average managed contracts compared with $183 million or 2.22% of average managed contracts a year ago. Included in noninterest expense is $3.3 million of transaction expenses related to the previously proposed merger of the Company into Western Financial Bank as part of the acquisition of the Company's minority interest and the recently announced merger agreement entered into among Wachovia, Westcorp, Western Financial Bank and the Company. Noninterest expense was reduced by $7.3 million and $20.7 million of direct origination costs that were deferred during the three and nine months ended September 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 to interest income prospectively beginning in the first quarter of this year.