AmeriCredit Says It Has Rebuilt Originations Infrastructure
FORT WORTH, Texas — On Wednesday, AmeriCredit's president and chief executive officer announced that the company has "substantially completed the rebuild of our originations structure."
This included reopening one regional credit center and increasing staffing for sales, underwriting and funding areas. Dan Berce, AmeriCredit's CEO, also said AmeriCredit's number of producing dealers has grown to 6,700 for the fiscal second quarter of 2010 from 4,900 in the prior quarter.
"The competitive environment remains favorable," Berce said of second quarter fiscal results. "Competition, while rational, remains focused on the traditional competitive factors of pricing, loan structure and service levels. Despite the favorable competitive environment, depressed consumer demand continues to be a challenge relative to our goal to rebuild origination levels."
Overall, Berce explained, "We had a successful December quarter, with year-over-year improvements in all key components of our business: originations, credit performance and earnings. The favorable trend in credit performance for the quarter led to earnings of $46 million, or 33 cents a share.
"Originations increased sequentially to $379 million for the quarter, up from $229 million in the September quarter. With our strong balance sheet and liquidity and a more favorable capital markets' environment, we are well-positioned to continue rebuilding our business in calendar 2010," he continued.
Credit Results
Discussing credit, Berce went on to note that the company's quarterly net credit loss of 8.9 percent was better than the 9.5 percent experienced in the previous year.
"Additionally, we saw significant moderation in the rate of seasonal deterioration in credit performance from the September 2009 to the December 2009 quarter compared to the same periods in 2008 and 2007. Specifically, losses for the quarter increased 50 basis points from September to December 2009, compared to sequential increases of approximately 220 basis points in 2008 and 150 basis points in 2007. We are seeing similar positive year-over-year and sequential trends in our delinquency metrics," he pointed out during AmeriCredit's quarterly conference call.
Helping to bolster performance was the fact that job loss rates have moderated and economic conditions, as a whole, have stabilized, according to the company.
Furthermore, AmeriCredit's portfolio continues to move away from the weaker 2006 and 2007 vintages, with an increasing concentration of the "better performing" 2008 and 2009 loans, Berce highlighted.
Ultimately, he said the management team is "encouraged" by the improvements in the more recent vintages and "optimistic about our ongoing ability to add new loans in 2010 that will have similar as-originated credit characteristics as our 2008 and 2009 vintages."
Additionally, he indicated that the company has benefited from a relatively strong used-car wholesale market.
"The recovery rates on repossessed collateral were 42.2 percent for the December quarter, down slightly from September 2009, but up significantly from 37.1 percent last year," Berce said. "Although the March and June quarters are historically the strongest seasonal periods for used-car prices, we anticipate the increasing age of vehicles we repossess and sell will add some pressure to our recovery values over the next few months."
Reviewing the capital markets, the company found that these have continued to improve, leading to a more favorable cost of funds.
"Consequently, during the quarter we were able to lower APRs and fees while maintaining historically high net interest margins on new loans. APRs decreased to 17.9 percent for the December 2009 quarter from 19.1 percent for the September 2009 quarter and net acquisition fees received from dealers decreased to 1.6 percent for the December quarter from 3.1 percent last quarter," Berce said.
Continuing on, he explained, "We expect modest growth in originations for the next several quarters, which if achieved, will result in our portfolio 'troughing' in the $8 to $8.5 billion range in fiscal 2011."
Berce then turned the call over to Chris Choate, chief financial officer.
According to Choate, "Our strong earnings were primarily driven by the improved credit results that Dan discussed, which in turn, resulted in a reduction in our allowance for loan losses from 8.2 percent of ending receivables at Sept. 31, 2009 to 7.7 percent at Dec. 31, 2009. We expect to see incremental reductions in the allowance for loan losses in calendar 2010, consistent with sustained improvements in our overall credit metrics."
After discussing other results, Choate also noted that AmeriCredit anticipates executing a TALF-eligible AMCAR securitization before the program expires. He said this will be done even though the recent APART 2009-1 transaction had no TALF investors, which indicates that the government program is no longer really vital to the auto securitization marketplace.
He went on to say, "We believe there are opportunities to further leverage our securitization structure without adding unnecessary risks to our funding platform to generate higher returns. First, we expect credit enhancement requirements in future securitizations to gradually decrease based on the favorable performance of our 2008 and 2009 origination vintages.
"Second, we anticipate being able to sell further down the capital structure in future securitization transactions. Specifically, we are seeing interest from traditional investors in triple-B rated securitization bonds and are optimistic that we can issue these bonds at reasonable prices. Selling triple-B bonds in our future senior-subordinated securitizations could translate into a reduction of the overall target credit enhancement percent to the low-to-mid 20-percent range," he added.
Financial Specifics
On Wednesday, AmeriCredit announced net income of $46 million, or $0.33 per share, for its fiscal second quarter ended Dec. 31.
The company reported a net loss of $35 million, or $0.29 per share, for the same period a year earlier. For the six-month period, AmeriCredit reported net income of $72 million, or $0.52 per share, versus a net loss of $40 million, or $0.34 per share, in the previous fiscal year.
Net loss for the quarter and six months were revised from a net loss of $26 million, or $0.21 per share, and $27 million, or $0.23 per share, respectively, to reflect the retrospective adoption, on July 1, 2009, of a new accounting standard that changes the accounting for convertible bonds.
Originations were $379 million for the quarter, compared to $321 million for the same quarter last fiscal year. Originations for the six-month time frame were $608 million, compared to $900 million for the same period a year earlier. Finance receivables totaled $9.3 billion at Dec. 31, 2009, compared to $13.0 billion at Dec. 31, 2008.
Annualized net charge-offs were 8.9 percent of average finance receivables for the quarter, compared to 9.5 percent for the prior yeare. For the six-month period, annualized net charge-offs were 8.6 percent, compared to 8.3 percent for the same period last year.
Finance receivables 31-to-60 days delinquent were 7.7 percent of the portfolio, compared to 7.8 percent. Accounts more than 60 days delinquent were 3.7 percent of the portfolio, compared to 4.2 percent a year ago.
The allowance for loan losses as a percentage of finance receivables was 7.7 percent, compared to 8.2 percent at Sept. 30, 2009 and 7.1 percent at Dec. 31, 2008.
The company had total available liquidity of $750 million, consisting of $320 million of unrestricted cash and approximately $430 million of borrowing capacity on unpledged eligible receivables.
Finally, wrapping the call up, Berce said, "While we remain cautious about the economic recovery, our strong balance sheet and improving credit trends, combined with a more favorable capital markets environment position us well to move forward to rebuild our business in 2010."