FORT WORTH, Texas — Dan Berce, AmeriCredit chief executive officer and president, explained Wednesday that now is the optimal period of time to produce new-loan originations since the economic conditions have begun to stabilize and improve.

And as such, the company originated $624 million in loans for its third-fiscal quarter, compared with $379 million for the period ending Dec. 31 and $210 million for the quarter that ended March 31, 2009.

"As with other economic cycles that we have weathered, the optimal period for new-loan originations is at the inflection point where the economic conditions begin to stabilize and improve," Berce explained during a conference call Wednesday. "We believe we are at that inflection point and thus have a unique opportunity to originate highly profitable loans that will generate solid returns in future years."

Overall, he said, "Our March quarter proved to be exceptionally strong on many fronts: Originations grew to $624 million, credit performance continued to improve and we earned $63 million, or 45 cents a share. While some of the strength in our key metrics can be attributed to favorable seasonal trends and an improving economic environment, we are also benefiting from the steps we have taken since early 2008 to improve the overall economics of new-loan originations."

For the period, net credit losses came in at 7.6 percent, down from 8.9 percent in the prior quarter and 7.8 percent a year ago.

Berce said the company witnessed "significant improvements" in its delinquency metrics, as 31-60 day delinquencies dropped to 5.3 percent, down from 7.7 percent as of Dec. 31 and 6 percent a year ago. Meanwhile, accounts greater than 60 days delinquent dropped to 2.2 percent, compared with 3.7 percent in the previous quarter and 3 percent a year ago.

"Our strong portfolio credit performance reflected a confluence of positive factors," Berce said. "First, we benefited from normal seasonal improvements and higher tax refunds to consumers. Second, and more significantly, our portfolio continues to shift away from the weaker 2006 and 2007 originations to an increasing concentration of more recent vintages.

"Loans that we have originated since our credit tightening in the spring of 2008 are performing much better than our initial expectations, and may ultimately perform in line with or better than our 2003 production, which was the best in our history. Finally, we are seeing exceptionally strong used-vehicle pricing for our repossessed vehicles. Recovery rates on reposed collateral were 44.9 percent for the March quarter, compared with 42.2 percent last quarter and 39 percent a year ago," he continued.

While Berce said that the company had anticipated an uplift in recovery rates, apparently, imbalanced supply-demand dynamics, as he describes it, continued to help drive up used-vehicle pricing.

"However, with an increase in manufacturer incentives on new cars, expected stabilization in demand-supply dynamics, and the adverse effect of the increasing age of vehicles we repossess and sell, we expect to see a moderation in recovery rates for the remainder of the calendar year," he pointed out.

On the other hand, when it comes to credit trends, the CEO said his team anticipates sustained year-over-year improvements for the rest of 2010 and into 2011.

Looking at average APRs on new originations, Berce indicated that this figure dropped to 17.1 percent for the period from 17.9 percent in the December quarter. Furthermore, net acquisition fees were down to 1 percent from 1.6 percent in the previous quarter.

Berce also went on to note, "During the quarter we selectively expanded our credit appetite in certain geographic regions where credit performance and economic conditions showed strength and stability. We will continue to monitor regional performance and economic conditions for further opportunities to increase our approval rates in specific geographic regions."

Continuing on, the number of AmeriCredit's producing dealers climbed to 8,100 for the quarter, compared with 6,700 for the December period.

Berce also highlighted the fact that, "Our subprime subvention program with General Motors continues to be a solid channel for loan originations and made up approximately 10 percent of our overall originations for the quarter."

Though the company significantly grew originations quarter-over-quarter and year-over-year, Berce indicated that he is foreseeing a more modest rate of growth in the June quarter and only slightly higher origination levels for the rest of 2010. He says this is primarily due to seasonal factors.

"Accordingly, we anticipate that our portfolio will trough in the $8.5 billion range later this calendar year," he suggested.

He then turned the conference call over to Chris Choate, chief financial officer, who reviewed liquidity.

Liquidity

According to Choate, the company had $748 million available at the end of the quarter, consisting of $497 million in unrestricted cash and about $251 million in borrowing capacity on unpledged eligible loan receivables. The CFO also noted that AmeriCredit repurchased $21 million of unsecured senior notes at a 3-percent discount and recognized a small pre-tax gain of $283,000.

"Given strong returns from our 2008 and 2009 vintages and the return of capital from the runoff of our 2006 and 2007 vintages, we expect to generate a significant amount of excess cash over the next 12 to 18 months. Our priority will be to redeploy this cash into new-loan originations, especially when we are able to do so while achieving the historically high loan level returns we are currently seeing," he explained.

Discussing the capital markets, Choate pointed out that "the retail auto securitization environment is favorable."

In fact, during the quarter, the company executed two subprime securitization transactions. For the first time in more than two years, Choate said the company successfully sold bonds down to the triple-B rating level.

"And all series of bonds, including the triple-B bonds, were oversubscribed," he reported. "As a result of selling the triple-B bonds, initial credit enhancement on the transaction improved to 15 percent, and will build to a target of 23.25 percent," he explained.

Moreover, he noted that the second securitization was a $200 million transaction insured by Assured Guaranty.

"This 2010-A transaction was the first insured securitization that we have executed since May 2008. This relatively small transaction provided us insight into investor appetite for bond-insured transactions. We are hopeful that over time, demand for bond-insured transactions will improve and provide us with a viable alternative to senior-subordinated securitization structures. In the meantime, we anticipate that the majority of our securitizations will be structured as senior-subordinated transactions," Choate said.

The CFO also pointed out that the company's "standstill agreement" with Leucadia expired during the mark quarter.

"Leucadia holds approximately 25 percent of our outstanding shares and remains one of our two largest shareholders. They hold two seats on our board of directors and we have frequent and ongoing dialog with them. At this point, we are unaware of any plans by Leucadia to change their ownership position," Choate said.

Operating Results

The company announced net income of $63 million, or $0.45 per share, for its fiscal-third quarter. AmeriCredit reported a net loss of $2 million, or $0.02 per share, for the same period a year earlier.

For the nine-month time frame, AmeriCredit reported net income of $135 million, or $0.98 per share, versus a net loss of $43 million, or $0.35 per share.

Results, for the three and nine months were revised, from net income of $10 million, or $0.07 per share, and a net loss of $17 million, or $0.14 per share, respectively, to reflect the retrospective adoption, on July 1, 2009, of a new accounting standard that changed the accounting for convertible bonds.

Originations for the nine months were $1.2 billion, compared to $1.1 billion for the same period a year earlier. Finance receivables totaled $8.8 billion at March 31, compared to $11.9 billion at March 31, 2009.

Annualized net charge-offs were 7.6 percent of average finance receivables for the quarter, compared with 7.8 percent in the previous year. For the nine-month period, annualized net charge-offs were 8.3 percent, compared with 8.2 percent for the same period last year.

The allowance for loan losses as a percentage of finance receivables was 7.1 percent, compared with 7.7 percent in the prior quarter and last year.

AmeriCredit had total available liquidity of $748 million, consisting of $497 million of unrestricted cash and approximately $251 million of borrowing capacity on unpledged eligible receivables.

Wrapping things up, Berce said, "We had an exceptional March quarter on many fronts. The steps we have taken since early 2008 to reposition our loan portfolio for higher profitability are beginning to surface in many of our key metrics, from sustained improvements in credit performance to higher portfolio net interest margin to historically high loan-level returns.

"Current favorable market conditions provide us with a unique opportunity to originate highly profitable loans that will generate solid returns in future years," he concluded.