United PanAm Financial Corp. reports poor Q3 earnings
Shares of United PanAm Financial Corp. (Nasdaq: UPFC) sunk to a new 52 week low earlier today after the specialty finance company, which provides non-prime automobile finance reported lackluster third-quarter earnings below the consensus on Wall Street.
For the three months ended Sept. 30, the Irvine, Calif.-based company reported income from continuing operations of $2.6 million, or $0.16 per diluted share, while five analysts polled by Thomson were on average expecting earnings of $0.25 per share. The current quarter earnings represent a decrease of 36% from income of $4.5 million, or $0.25 per diluted share for the third quarter of 2006.
The small cap attributed the earnings decline to increases in interest income and expense as well as an increase in its provision for loan losses.
Interest income increased 17.5% to $59.7 million for the quarter from $50.8 million for the same period last year. The increase was due to an increase in average loans of $147.5 million as a result of additional automobile contracts purchased in existing and new markets.
Interest expense increased 28.9% to $12.5 million from $9.7 million last year on account of growth in the company’s loan portfolio and higher market interest rates. The pay down of lower priced securitizations of prior years also contributed. As a result, the company said its net interest margin decreased to 79% from 81% in the second quarter of 2006.
Provision for loan losses increased during the quarter due to a larger loan portfolio and an increase in the annualized charge-off rate to 6.66% from 5.43% for the same period last year. United PanAm said the two major factors that continued to impact its charge-off rate were general economic conditions, most notably including increased gasoline prices and tightened employment. United PanAm also noted it slowed down originations and modified its underwriting criteria.
“The plan the company should take to improve its financial position is already in place,” said Jefferies analyst Dan Fannon, who currently has a “hold” rating on the stock. “They are tightening underwriting and slowing growth, which is prudent in terms of the business cycle. Unfortunately, the macroeconomic conditions are against them and will continue to weigh on them.”
Fannon said that it will take several quarters for the company’s actions to flow through and have a positive impact, before investors see accelerated earnings growth.
The analyst says there’s not a lot of downside attached to the stock, but said that the stock will probably fluctuate with credit conditions.
Shares of United PanAm Financial (UPFC) slipped 7.51%, or $0.60, to $7.39 at 2:19 p.m. E.T. Shares of United PanAm Financial have been trading in the range of $7.30 to $16.44 for the past 52 weeks.
