Its cross-holdings might be distantly similar to the Kairitsu system in Japan or the Chaebol industrial empire in South Korea, but whatever the case, Westcorp has posted recent growth that few mid-size and large banking institutions have been able to match.
Over the past three years, the Irvine-based commercial bank and auto lender grew its revenue at a compounded annual rate of 33%, overshadowing many other large financial institutions and holding companies in OC. Its revenue for the 12 months ended June 30 was $938 million vs. $447 million three years ago, a 110% overall growth for the period and good for No. 26 on the Business Journal’s list of fastest-growing OC public companies.
Growing even faster, percentage-wise, and pacing its parent’s growth was Westcorp’s 83%-owned subsidiary, WFS Financial, which has seen its revenue increase 197% over the three-year period, to $602.1 million. WFS, also publicly traded, came in at No. 12 on the list.
“Our growth is from further penetration of newer markets,” said Joy Schaefer, chief executive of WFS Financial and president of its parent, Westcorp. “We have bought more auto contracts in 42 states.”
WFS Financial is an auto loan company that focuses mainly on prime customers. In the past three years, the company gained market share and strengthened its relationship with more than 8,500 auto dealerships in the country. For its year ended Dec. 31, 2000, WFS Financial originated auto loans worth $4.2 billion, a 26% increase over 1999 figure of $3.3 billion.
Westcorp’s other,wholly owned,subsidiary, Western Financial Bank, is a retail and commercial bank that provides services mainly to customers in California. The bank saw its transaction accounts grew to approximately $900 million in 2000, up 29%. It’s total deposits stood at $2.5 billion on Dec. 31. The bank operates exclusively in California and has 25 branches.
“Almost all of our (Westcorp) growth was on account of WFS,” said Schaefer. But while there is “minimal growth in the assets of the bank, on its own, there is, however, a great synergy between Western Financial Bank and WFS, as Western Financial Bank provides capital, and significant and diverse funding sources for WFS,” said Schaefer. “Westcorp is successful because its two subsidiaries work hand-in-hand.”
Westcorp’s rapid growth in revenue generation has continued since June 30. For its third quarter ended Sept. 30, the firm had a 15% increase in its interest income, to $304 million. For the first nine months of this year, the company’s interest income was up almost 21%, to $885 million.
But like most lenders, Westcorp is seeing falling profits and more non-performing loans. For the third quarter, the company’s earnings fell 55%, to $8.2 million. The company provided $27 million for credit losses. In the third quarter, its annualized credit losses in automobile loans increased 37 basis points, to 2.3%. The company said it anticipates credit losses to rise to 3% in the fourth quarter but improve from there in 2002.
“We are experiencing some pressure due to recession,” Schaefer said. “Because we have been focusing on a greater concentration of prime borrowers and lower loan-to-value ratios, we are better positioned than much of the competition to withstand recessionary pressure on our portfolio.”
“The accounting treatment related to our transition to funding our auto loans through ‘financing’ instead of as ‘sales’ also contributed to lower net income,” she said. n
