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Executives

Caitlin DeYoung - VP of IR

Dan Berce - President and CEO

Chris Choate - CFO

Clifton Morris - Chairman

Steve Bowman - Chief Credit and Risk Officer

Mark Floyd - Co-Chief Operating Officer

Preston Miller - Co-Chief Operating Officer

Analysts

Bob Napoli - Piper Jaffray

David Hochstim - Bear Stearns

James Fotheringham - Goldman Sachs

Sameer Gokhale - KBW

John Hecht - JMP Securities

Carl Drake - SunTrust Robinson Humphrey

Chris Brendler - Stifel

Moshe Orenbuch - Credit Suisse

Dan Fannon - Jefferies

John Stilmar - FBR Capital Markets

AmeriCredit Corp. (ACF) F1Q08 Earnings Call October 24, 2007 5:30 PM ET

Operator

Good afternoon. My name is Keith Austin, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the AmeriCredit First Quarter of Fiscal Year 2008 Earnings Call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After management's remarks, there will be a question-and-answer period.

I will now turn the call over to Caitlin DeYoung, Vice President of Investor Relations. Please go ahead.

Caitlin DeYoung

Thank you. Good afternoon, and welcome to AmeriCredit's first quarter fiscal year 2008 earnings conference call. With me today for the prepared remarks are Dan Berce, President and CEO; and Chris Choate, Chief Financial Officer. Also joining us are Clifton Morris, Chairman of the Board; Steve Bowman, Chief Credit and Risk Officer and; and Co-Chief Operating Officers Mark Floyd and Preston Miller.

Before we proceed, I must remind everyone that the topics we will discuss during today's call will include forward-looking statements that involve risk and uncertainties detailed in the Company's filings and reports with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended June 30, 2007. Forward-looking statements are based on the beliefs of the Company's management, as well as assumptions made by and information currently available to the Company's management. Actual results and events may differ materially. We will be posting a transcript of the prepared remarks to our website shortly after we conclude today's call.

I will now turn the call over to Dan Berce. Dan?

Dan Berce

Thank you, Caitlin. As you read in our press release, we earned $62 million or $0.49 per share for the September quarter. We achieved our target for originations and we are particularly encouraged by our execution in the capital markets. However, we were somewhat disappointed with our credit results, particularly in our 2006 subprime origination vintage and the lower tiers of our Long Beach portfolio. We are anticipating slightly weaker credit performance in the calendar year 2008, and as a result have increased our provision for loan losses to $245 million for the quarter, which was approximately 10% higher than what we had expected.

During today's call, I will provide a more detailed discussion of originations and credit performance, including the steps we are taking to tighten our credit execution. After that, I will turn the call over to Chris for details on the key drivers of earnings, followed by an update on our funding and capital position. I will then conclude our prepared remarks with a summary of changes to our earnings guidance for fiscal year 2008.

During the September quarter, AmeriCredit originated $2.4 billion in new loans and leases, compared to $2.5 billion in the June quarter and $1.7 billion in the September 2006 quarter. The sequential decrease in origination volume resulted from normal seasonality, as well as our efforts to slow originations growth through more aggressive pricing strategies in light of the difficult credit markets.

During the September quarter, we successfully raised APRs on new loan originations by approximately 25 basis points across our platforms, and at an even greater rate in our core subprime business. Of our origination volume for the September quarter, $272 million were originated through our Long Beach platform, $251 million through our prime Bay View platform and $142 million through our leasing platform.

We conducted business with approximately 14,700 auto dealers, almost 1,000 more than this same time last year. In September, we launched a pilot program that allows dealers to submit applications across the credit spectrum to one single underwriting platform, instead of having to send prime, near-prime and subprime applications to our various underwriting platforms. The program is still relatively new, and is currently being tested in approximately 60 dealerships. We plan to begin rolling out our unified full-spectrum program to all our dealers by the end of this fiscal year.

Now turning to credit. For the September quarter, early and late stage delinquencies and net credit losses followed normal seasonal patterns, increasing from the June quarter. Portfolio net credit losses were 5.4% for the September quarter, compared to 3.3% in the June quarter. Excluding Long Beach, net credit losses increased to 5.7%, from 5.4% last September quarter.

We experienced higher-than-expected credit losses in lower credit tier loans from our Long Beach portfolio this quarter. These lower tier loans represent about 25% of the Long Beach portfolio. The strength of the Long Beach platform and their historical underwriting expertise has been in the higher tiers of near-prime lending, not in these lower tiers, which overlap with AmeriCredit's subprime underwriting expertise. We are not seeing the same deterioration in Long Beach's higher-end near-prime originations, nor are we seeing any spillover impact of subprime mortgages in our near-prime portfolio in general.

In conjunction with their integration efforts, AmeriCredit officers have assumed responsibilities for managing servicing activities for the Long Beach portfolio, as well as oversight for risk management, which includes portfolio performance analysis. We have also announced the relocation of Long Beach's collections and customer service operations from Orange, California to Arlington, Texas in January 2008.

We are experiencing a pull-forward of losses across the Long Beach portfolio, due to the implementation of AmeriCredit's historical servicing policies and procedures, in addition to the weaker performance on lower tier loans previously referred to. We anticipate that the distraction of migrating the near-prime servicing platform over the next few months may result in a continuing trend of weaker credit performance in the Long Beach portfolio through the December quarter, and we are working hard to mitigate any potential problems during the transition.

In looking at our core subprime portfolio, we continue to see pressure in both delinquencies and losses in our 2006 loan vintage. Further seasoning of the 2006 vintage has led us to conclude that cumulative net losses will be 100 to 150 basis points higher than our previous expectations. Our revised expectations result from two main factors.

First, we now believe that there will be a more prolonged timeframe before the bankruptcy substitution effect will normalize. While national bankruptcy filings have been increasing, our filing levels have not increased by the same magnitude. Further, we expect our filing rates to normalize at less than our pre-October 2005 levels. This behavioral shift has accelerated the timing of defaults we are seeing in our 2006 vintage, as well as increased the severity of these losses.

Second, for the past several years, in the midst of a strong economy, there has been an industry-wide expansion of risk, as AmeriCredit and other lenders have sought to grow at higher than overall market rates. We expected weaker credit results in such an environment, and actual credit performance has turned out to be slightly worse than our expectations.

As I mentioned earlier, we increased pricing during the quarter to better compensate for the risk we are taking. We are also taking steps to improve credit execution on loans we originate. For example, we are implementing tighter tolerances for loan-to-values in lower credit tier loans for new loan originations. We are lowering our originations target for the fiscal year to $9 billion to $9.5 billion as we approach a potentially softer economy and weaker consumer sector with more caution and focus on tighter credit and pricing execution.

Also, we are in the process of developing our six-generation credit scoring model that will incorporate data obtained through our acquisitions of Bay View and Long Beach, as well as our more recent subprime credit experience. This integrated suite of scorecards will enhance our assessment of default risk across our spectrum of lending products. We anticipate rolling the new scorecards out in early 2008.

Now to discuss the details of our September earnings and provide you with an update on our funding and capital position, I'll turn the call over to Chris Choate.

Chris Choate

Thanks, Dan. AmeriCredit reported net income of $62 million or $0.49 per share in the September quarter. Net interest margin of 10.8% represented a 30 basis points decline from the June quarter. The decline in net interest margin reflects an increase in funding costs for the quarter and an increase in leverage from 7.7 times assets to equity at June 30 to 8.2 times at September 30.

Additionally, we are also seeing the full impact of lower margin loans originated during the June quarter. At September 30, prime and near-prime loans represented 39% of our total portfolio, compared to 38% at June 30. With the increase in loan pricing during the quarter and a more constant credit mix, we anticipate the trend in portfolio net interest margin will stabilize in the 10.5% to 11% range.

Now turning to the provision for loan losses. For the September quarter, we recorded a provision for loan losses of $245 million or 6% of the average portfolio, compared to $190 million or 4.9% for the June quarter. Our provision for the quarter was approximately 10% higher than we expected, and approximately two-thirds of this miss resulted from the change in our cumulative loss expectations for the lower credit tier Long Beach loans. The remainder was related to our core 2006 origination vintage that Dan already discussed.

Allowance for loan losses was 5.2% of the portfolio at September 30. Excluding Long Beach, the allowance for loan losses was 5.5%, compared to 5.6% last quarter. The allowance for loan losses for Long Beach was 2.7% at September 30, compared to 2.2% at June 30.

Operating expenses for the September quarter decreased to $105 million or 2.6% of the average managed portfolio from 2.8% for the June quarter. The decrease in operating expenses resulted from a growing portfolio and from cost synergies now beginning to be realized from the integration of Long Beach. Based on our progress to-date on the integration, we are tightening our expectation for operating expenses for fiscal year 2008 to 2.5% to 2.7%, down from 2.6% to 3%.

One final comment related to our tax rate for the quarter, which was 28.4%. This lower tax rate arose from revised estimates of our deferred tax assets and liabilities relating to state income tax rates. Going forward, we expect our tax rate to be approximately 37%. Our unrestricted cash balance was $637 million at September 30, 2007, down from $910 million at June 30. The decrease in cash primarily resulted from the repurchase of $128 million of stock and the funding of $142 million of lease originations. We are working on a funding facility to finance lease originations, and anticipate this facility will be available for use in the near future.

Now turning to funding. In general, the credit market this quarter can be characterized as extraordinarily difficult and volatile. For AmeriCredit, it has been an exceptionally successful funding quarter. In August, we renewed our $500 million repurchase facility, with the same credit spread and a better advance rate matrix than the previous agreement.

Then in September, we completed a one-year, $1.5 billion prime/near-prime facility. This facility replaced our three separate prime and near-prime facilities totaling $1.45 billion. As of the end of the quarter, we have committed warehouse capacity totaling $5.4 billion, of which $3.25 billion is not scheduled to mature until October 2009, and the balance of which is not scheduled to mature until the summer of 2008.

Additionally, we were recently able to successfully execute two securitizations for a total of $2 billion. Our $1 billion 2007 D-F subprime securitization priced in September with a weighted-average coupon of 5.5% and target credit enhancement of 13%, both unchanged from our subprime transaction we completed in July. Then, earlier this month, we completed a $1 billion near-prime securitization with a weighted average coupon of 5.3%. The target credit enhancement in this deal was 7.75%, a level we considered appropriate given the collateral mix and structure of the transaction.

Now turning to equity. Shareholders' equity at September 30, 2007 totaled $2.010 billion. Book value per share increased to $17.61 per share. Tangible book value, excluding goodwill related to our acquisitions, was $15.78 per share at September 30. Return on equity was 12% for the September quarter, compared to 17.3% for the June 2007 quarter. There were 114 million shares outstanding at September 30.

Now I will return the call back to Dan to discuss our earnings guidance and make some closing remarks.

Dan Berce

We are updating our net income guidance for fiscal year 2008 to $295 million to $320 million and earnings per share guidance to $2.30 to $2.50 per share, to reflect changes in credit expectations for certain portions of our portfolio and the impact of lower originations on the provision for loan losses. Our earnings forecasts are based on the following revised factors; origination volume of $9 billion to $9.5 billion; net interest margin of 10.5% to 11% of average receivables; operating expenses, excluding depreciation on leased vehicles, of 2.5% to 2.7% of the portfolio; credit losses of between 4.5% and 5%; and provision for loan losses as a percent of average receivables of between 5% and 5.5%. These forecasts do not include any share repurchase activity subsequent to September 30.

To conclude, although somewhat disappointing, we still had a solid quarter on many fronts. Originations volume was $2.4 billion, even as we increased pricing to obtain higher margins. Operating expense declined to its lowest level in three years, as we obtained leverage from a growing portfolio in our integration of prime and near-prime acquisitions. And our funding platform has proven to be strong, as we completed over $3.5 billion of securitization and obtained $2 billion of warehouse commitments since July 1st.

Credit performance in our portfolio has become more challenging of late. We believe we have taken the appropriate steps to address the pressures we are seeing. We increased our provision for loan losses to cover higher levels of expected losses. We are surgically tightening our credit exposure on new loan originations, while continuing to focus on pricing execution.

As we enter into the seasonally weak December quarter, we will continue to vigilantly monitor changes in macroeconomic indicators and consumer trends and their potential impact on our portfolio. As you have seen today, we are committed to modifying our operating plans if economic or competitive factors change.

I will now turn the call back over to Caitlin.

Caitlin DeYoung

Thank you, Dan. As a reminder to everyone, we will be posting a transcript of the prepared remarks on our website shortly after the call. Operator, this concludes our prepared remarks, and we are ready to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We'll go first to Bob Napoli with Piper Jaffray.

Bob Napoli - Piper Jaffray

Thank you. Good afternoon. A couple of questions: Maybe, Dan, if you could, a little more color on the tweaks in underwriting. If we look at your origination plan, and you've taken $1 billion, about 10%, out of the plan, out of your forecast. And, I was wondering: is more of that coming out of Long Beach? Can you break down where the reduction is coming from?

Dan Berce

Bob, it's really across the board, with perhaps the exception of the Bay View platform. We're accomplishing it. First of all, when the credit market's disruption occurred a couple months ago, we began to slow originations, mainly through pricing means. We were pushing the pricing envelope pretty hard, and that of course reduced our closure rates.

We've also, more recently, approached it from a credit standpoint. I used the word surgically, meaning, we didn't make any broad across-the-board changes, but we have taken steps to tighten up on things like loan-to-value in lower credit tiers, fewer exceptions to underwriting policy. It's much more; I'd say a tightening of execution than anything.

Bob Napoli - Piper Jaffray

Well, the 25% of the Long Beach portfolio you sound disappointed, and: is more of it coming out of there on a relative basis?

Dan Berce

Well, that's a relatively small part of our total origination mix in the first place. But it's fair to say that we're clearly being more cautious in that segment.

Bob Napoli - Piper Jaffray

And, given this environment, and, looking at your stock trading at book value: will you continue buying back stock? Or:  will you pull back until you see how the economy shakes out?

Dan Berce

Well, of course, we have limits on what we can buy back. Going through today, we had bought back roughly 130 million in the quarter, and that was all we could buy back. So, with the release of earnings today, if you remember the formula, we can buy back half of net income, plus whatever equity was added to the Company through option or warrant exercises. So, our basket as of today is about $40 million. And so, it's likely we would use that, but that's the extent of buybacks that we can accomplish.

Bob Napoli - Piper Jaffray

What was average price of the buybacks in the quarter?

Dan Berce

It was 22-ish, I believe, because we did it mostly earlier in the quarter.

Bob Napoli - Piper Jaffray

Okay. And just last question on the leasing business. How do we think about the growth of that business, and is that business profitable?

Dan Berce

Let me give some parameters on what we're doing first. Number one, the average FICO on that is clearly a prime customer. It's in the mid-to-even high 700's range. And the collateral that we're doing leasing transactions on is 100% foreign manufacture, high-quality collateral.

That being said, we likely will not do as much leasing this quarter and through the rest of the fiscal year as we did in the first quarter. We probably did an overly good job of training our people to sell leasing, and it's a product that is needed by the dealers. But we will use it more strategically for the rest of the fiscal year.

Bob Napoli - Piper Jaffray

Thank you.

Operator

We'll go next to David Hochstim with Bear Stearns.

David Hochstim - Bear Stearns

Hi, thanks. I wonder: on the leasing, are those new cars, used cars or mix?

Dan Berce

I'm sorry, David, what?

David Hochstim - Bear Stearns

The leasing --?

Dan Berce

100% new car.

David Hochstim - Bear Stearns

100% new car. Okay. And then: can you give us an update on the fee income initiatives that you talked about earlier in the year?

Dan Berce

Sure. We implemented some payment-based fee products in the quarter, mid-quarter, and we were successful generating fee income and didn't have any reduction in our payment rates.

David Hochstim - Bear Stearns

Okay. And I mean: at one point, it seemed that could be a pretty meaningful contributor to --

Dan Berce

It wasn't meaningful in the quarter. I think it may give us $0.5 million a month, going forward.

David Hochstim - Bear Stearns

Okay. And then: could you just expand on some of the underwriting changes? Was there any change in the 72-month contracts?

Dan Berce

Well, not a change in 72's, because we haven't seen any frequency impact of 72's, negligible frequency impact. And the severity piece of it is again very easy to calculate and see and price for. So that wasn't an area we approached.

I mentioned loan-to-value as one area. On the lower credit tiers, we are not seeing a change in frequency for loan-to-value on better credit tiers, but it's all a matter of payment size in the lower credit tiers, whether payment is high because of loan-to-value or other reasons, that's an issue we are attacking.

David Hochstim - Bear Stearns

How much did you increase loan-to-values?

Dan Berce

LTVs this quarter were about the same as last quarter. But prospectively, we are taking measures in the lower credit tiers to mitigate our exposure to some of the high LTV loans.

David Hochstim - Bear Stearns

Okay. So: maybe you can give us an idea of how much would that change?

Dan Berce

I mean: it's not going to change a heck of a lot, because again, the Bay View loans, even though they are high LTV, they're performing exceptionally well. Long Beach loans that are high or near-prime are performing exceptionally well. Our core product for the upper credit scores on a loan-to-value basis are performing as expected. It's the lower tiers that we really need to get more diligent on.

David Hochstim - Bear Stearns

And: is it basically in the Long Beach lower tiers?

Dan Berce

And ours, and our core.

David Hochstim - Bear Stearns

But, I guess, I had the impression from what you said earlier, that when you looked at comparable loans from Long Beach and AmeriCredit, the AmeriCredit loans were performing better than Long Beach loans that were, I guess, similar borrowers. Is that not true? There's no overlap?

Dan Berce

Well, the bottom tier of Long Beach's portfolio is, again, probably outside a little bit of their sweet spot. I mean that type of loan is right in our alley of expertise. So those are loans we're good at, and perhaps their platform wasn't as good.

David Hochstim - Bear Stearns

And so: the loans that AmeriCredit was making were performing better than the loans to similar borrowers at Long Beach. Is that what you're saying?

Dan Berce

That's a broad comparison, but certain tiers, yes.

David Hochstim - Bear Stearns

Okay. Great, thanks a lot.

Operator

We'll go next to James Fotheringham with Goldman Sachs.

James Fotheringham - Goldman Sachs

Thank you. I was just trying to understand the root causes of credit issues this quarter as well, so two questions. What was the key difference in the underwriting process at Long Beach relative to AmeriCredit? And: what do you intend to fix by relocating from California to Texas? And, incremental to the Long Beach issue: what inspired the credit result, if it's not an impact from the subprime housing predicament? Thanks.

Dan Berce

Well, first of all, if you look at the credit companywide, the losses were 5.4% this quarter. There were 5.4% a year ago. So, there isn't a quote credit issue of magnitude. There're pieces of our portfolio that we need to work on. The '06 vintages work is strong, as what we had hoped they would be, and as I pointed out, the lower tiers of Long Beach, especially the last half of '06 underperformed.

Now, if you look at Long Beach, why was that? AmeriCredit has done tens of billions of dollars of loans in that credit tier, and we've got very robust scoring models just to help us underwrite. Those underwriting models weren't utilized by Long Beach before we bought them, for instance. So, one of our plans is, shortly after the first of the calendar year, we will be migrating all the platforms onto a six generation scorecard, so that the core subprime loans, whichever platform they are on, will be underwritten by our more robust models.

James Fotheringham - Goldman Sachs

Understood. And incremental to the Long Beach issue, you have been cautious with the outlook for credit for some time. That's appreciated, and when I look at the strategic and operational overview presentation that you have on your website, I'm still seeing no difference in the delinquency rates for homeowners versus non-homeowners.

Dan Berce

And that's absolutely still the case. James, The '06, I mean I explained the Long Beach issue, it's just, they didn't have a robust dataset to underwrite those loans compared to what we have. Our '06 vintages, it's still largely a function of the bankruptcy substitution effect.

If you look at -- you have the presentation. There's a slide that says total bad rates in our '06 portfolio. And a bad rate is defined as either a repo, a bankrupt or a serious delinquent. Our '06 vintages, on that basis are performing just like '05. But the reality is that, out of those bad loans, many, many more are repos than bankrupts in '06 compared to '05. And we have a charge-off faster on a repo, and the amount of charge-off is higher than if the customer had gone bankrupt.

James Fotheringham - Goldman Sachs

Understood. No, thanks for that. And one last thing, Chris. Sorry we missed it here, but: what did you say the end-of-period shares were?

Chris Choate

114 million.

James Fotheringham - Goldman Sachs

Thanks very much.

Operator

We will go next to Sameer Gokhale with KBW.

Sameer Gokhale - KBW

Hi, good evening. I just had a question, Dan, about your earnings guidance. If you look at this quarter and you strip out the tax benefit, it looks like EPS would have been more like $0.42 or so a share. And, clearly, the run rate seems to be a lot lower than what it would take you guys to get to that midpoint of your $2.30 to $2.50 range for the year.

I know you have laid out for us all these different components of your guidance, but I think my question is: how much confidence would you have in these EPS numbers, given that the provisioning guidance -- and I'd like to specifically know: what have you guys baked in from an economic, from a macroeconomic standpoint, into the provisioning guidance? If you could talk about that, that would be helpful.

Dan Berce

Provisioning guidance is now in the -- we took the upper half of our previous guidance, and we did that for credit losses, too. Macroeconomic-wise, we're looking for same to softer type economy; we're not looking for things to go to heck. And, in fact, we have always said our biggest factor that correlates to our performance is the labor market, and, even if that started to weaken, it probably wouldn't affect our performance to a great degree this fiscal year.

Sameer Gokhale - KBW

So is it fair to say, given the concerns that people are having about the overall macro economy, that there could be more downward revisions to your earnings? It doesn't strike me, based on your commentary, that these are particularly conservative forecasts from an earnings standpoint.

Dan Berce

They are realistic forecasts. We make our best estimate of what we think the remainder of the fiscal year is in and go with that. I think the economic caution we are taking is more on the underwriting side. I'd say that that's where we are, I think, being particularly cautious on what we underwrite through the rest of the fiscal year.

Sameer Gokhale - KBW

Okay then could you perhaps parse for us and I think we could probably estimate this, but could you parse for us on the credit losses kind of overall guidance? Would you be able to tell us how much you are forecasting on the credit loss side for the prime/near-prime versus the core subprime?

Dan Berce

No, we wouldn't be able to delineate it like that.

Sameer Gokhale - KBW

Okay. And then, just my last question on the OpEx ratio, it looks like, relative to the current quarter, the guidance for the rest of the year is somewhat in line with the current quarter, somewhat flat. So you mentioned, you talked about it a little bit in your commentary, but shouldn't we be -- are you factoring in here increased collections expenses into your OpEx ratio, which is offsetting, maybe, some scale economies as you grow the portfolio?

Dan Berce

Not really. We don't expect much incremental servicing cost throughout the rest of the year.

Operator

We'll go next to John Hecht with JMP Securities.

John Hecht - JMP Securities

Good afternoon, guys. Thanks for taking my questions. Not to beat a dead horse on credit, but I guess two quick questions, in addition on that is. One is: you talked about an increase in the cumulative loss expectations in the '06 pools. How are the early '07 pools ramping up? And do you -- are you applying the same cumulative loss expectations to the '07 pools?

Dan Berce

Good question, John. The '07 pools are performing better out the gate than the '06, partly because I think earlier in the year, we had already taken some small steps to manage credit. But they are performing better, and as a result, we would expect -- our cumulative loss expectation for those is lower than when we are now seeing for '06.

John Hecht - JMP Securities

Okay. And now, looking at the losses for the quarter of 5.4% -- and Dan, you suggest we should, from a seasonal perspective as well as some of the cleanup in Long Beach, expect higher in Q4. But then in the guidance, it's a 4.5% to 5.0%. So at this point, based on, it sounds like, everything you're seeing in terms of your, we'll call it: “core products” and the seasonality effect that we would expect, Q1 calendar quarter and Q2 calendar quarters next year to show a normal type of recovery?

Dan Berce

That's right. We would expect, just like we did this year, to see particularly Q2 calendar year, June quarter, to have much, much lower losses than any other quarter in the year.

John Hecht - JMP Securities

Okay. And then, looking at the guidance also with respect to margin, it looks like you're modeling the lower half, you're forecasting in the lower half of the margin range relative to the last time. So, I guess, this is more of a follow-up from what you were considering in the macro backdrop from the last question. I was wondering: are you anticipating any Fed reductions in that, in terms of interest rates? And on offsetting that, given some of the pressure that the grantors or insurance companies are seeing right now: are you assuming that you have to go to a senior sub-type structure? That the cost of funds are going to go up in some other fashion, given the funding state of the economy?

Chris Choate

John, this is Chris. We really model the funding piece of our net interest margin forecasts just off of our outlook throughout the fiscal year, off of forward curve and when we expect to enter the market and what kind of pricing and spread expectations we may have. And obviously, the forward curve is going to have whatever the market expects, related to what the Fed is going to do.

Second part of the question -- on the bond insurance piece, we still believe there's plenty of appetite out there for bond insurers to wrap our transactions. We would, as we stated before, prefer to do our apart transactions in a senior subordinated structure. We did do our last apart transactions wrapped to give us a little boost with execution, but we really don't foresee there being any change overall in our general approach to wrapped versus unwrapped deals under either one of our securitization platforms.

John Hecht - JMP Securities

Okay. Thanks very much. The kind of last question is the other income was up a little bit this quarter is this: a) can you give us, I guess, the construct of that? And: are there any “one-time items” in there? Or: is this a decent base against assets going forward? And thank you very much for taking my questions.

Chris Choate

Yeah. The other income is leasing, really, finance charge income and fees off the leasing product. And that ought to stay fairly stable. Dan mentioned that leasing volumes will come down, but that ought to stay relatively stable over the next several quarters.

Operator

We'll go next to Carl Drake with SunTrust Robinson Humphrey.

Carl Drake - SunTrust Robinson Humphrey

Good afternoon. Expanding a little bit on the net interest margin -- Chris, you were just discussing -- could you talk a little bit about your assumptions in terms of mix shift? Also: have you been able to continue to increase price? I think you mentioned 25 basis points across the platform. Is that a stable price at this point, going forward?

Chris Choate

Yeah, we really haven’t. Dan mentioned, with our volume forecast changes, that we're really seeing that mix shift staying pretty constant. So there's really nothing we're trying to do there, again, with the exception that, because of the performance at Bay View and the rollout there, that one may have relatively a little more rapid growth rate. Pricing-wise, as I believe we mentioned in our comments, we did have a successful quarter and pushing the envelope on pricing to capture 25, 30 basis points. Again, we're going to continue to focus on pricing, but look towards a little bit more surgical tightening on credit execution.

Carl Drake - SunTrust Robinson Humphrey

Okay. So there's not a potential upward movement in margins, based on pushing the envelope on pricing and you got your warehouse funding costs coming down somewhat?

Chris Choate

No, as I said, we really expect our stabilization in net interest margin going forward.

Carl Drake - SunTrust Robinson Humphrey

Okay. And on the disruption in the Long Beach, the consolidation of those platforms, could you expand a little bit on the comments -- what is going on there? What processes you're employing that are causing some temporary disruptions in the credit metrics there?

Dan Berce

Sure. As I said in the prepared remarks, our collections officers have assumed management of their portfolio. And we're actually moving the collections platform into our own. It will still be a separate unit that collects the portfolio, but it will be located in Arlington.

Some of the things that we do different than perhaps what they had done historically is simple things like contact patterns, our dialing technology, for instance, is better. Days to repo would be quicker, clearing out of repo cues would be quicker. Just those types of things accelerate the timeframe in which a charge-off takes place.

Carl Drake - SunTrust Robinson Humphrey

Do you feel like, over time, that that's a temporary blip in that lower tier?

Dan Berce

Yes, absolutely temporary blip. It's just a matter of moving losses forward temporarily, and then it will normalize.

Carl Drake - SunTrust Robinson Humphrey

Okay. And last question Dan: what is your view on used car values? I know we're going into a seasonal difficult period, but: has there been any change in your views on used car pricing and inventory levels, et cetera?

Dan Berce

Yeah, other than the seasonality, the weakness we will see between now and into the early part of next calendar year, we're not seeing anything that concerns us from a used car valuation standpoint. All the factors we look at and everything we read leads us to believe that it should be a reasonably stable market.

Carl Drake - SunTrust Robinson Humphrey

Okay. Thank you.

Operator

We'll go next to Chris Brendler with Stifel

Chris Brendler - Stifel

Hi. Thanks, good afternoon. On the margin, you had mentioned higher funding costs in the quarter, was that more the LIBOR-based, since your securitization was sort of priced in line with your last deal?

Chris Choate

Well, the securitizations we did in the September quarter were both at 5.5%, which -- we're still experiencing the phenomenon of higher securitization costs on new deals as older cheaper deals roll off. And I also mentioned the fact that we had higher leverage; that's due in large part to the fact that we did a high-yield deal towards the end of June and had the full impact of that from a funding cost in our numbers for September. Warehouse costs were somewhat of a push, they've -- up and down with the way LIBOR moved throughout the quarter.

Chris Brendler - Stifel

Okay. So, I guess, next quarter, both those trends probably continue, or LIBOR maybe eases a little bit?

Chris Choate

It’s not possibly. Of late it has.

Chris Brendler - Stifel

Okay. I'm not sure this has been asked. I think it may have been, sort of in a roundabout way, but are you seeing -- how did the pricing increase go? What do you see on the competitive front? And I think, maybe you also could opine on the stretching that took place in '06, I don't think you are alone; I know CapitalOne has talked about problems they are seeing from that vintage. Are you seeing competitors be a little more rational in this environment?

Dan Berce

Well, from a purely pricing standpoint, I think we were among only a few players that were moving up pricing. I think most of the market stayed where they were, which is one of the reasons our closure rates have begun to suffer a bit.

I think the extent of our price increases is done now. I think we pushed it as far as we could. Of course, the funding environment has changed, too. So perhaps funding will be, net-net, cheaper going forward. So the need to raise pricing doesn't exist today as much as it did three months ago.

Competitively, outside pricing, we are seeing some tightening. Again, nothing across the board, nothing dramatic, but we're just hearing overtones that some players are getting more cautious, just like we are.

Chris Brendler - Stifel

Okay. And then you mentioned tightening in subprime, nothing like cutting out the lower FICO, the lower custom score business, like you did in the last recession, but just tightening up on LTV's, which had gotten probably a little too aggressive. Anything else you can point to, like 72-month is still looking good. Is it really just the LTV's that got out of whack from your perspective, in terms of what is wrong with the '06 vintage?

Dan Berce

Well, it -- and again, it's not kind of across the board, all the '06 loans. We can pinpoint a few areas that we would have more vulnerability in. And I mentioned loan to value being one. We wanted to look closer at payment to income type ratios. We've done some scorecard recalibration, to make sure all of our scorecards are working to the maximum effectiveness.

Chris Brendler - Stifel

What about the [STIF] waivers? Has that been an area of weakness?

Dan Berce

No.

Chris Brendler - Stifel

Okay. And then you said 150 basis point increase in cumulative loss. I wasn't sure exactly the base of the bankruptcy effect. Are you saying that -- I know you charged off sooner, but: why would that affect the cumulative loss?

Dan Berce

Well, its again, I talked about bad rates for '06 being the same as '05, but there's just a lot more repos than bankrupts. So that's the substitution.

Historically, on a bankruptcy, we ended up charging off only 75% of them instead of 100%. So you've got that other 25% that, even though they declared bankruptcy, they end up, through discharge or payments under a bankruptcy plan, paying for their loan. The other 75% that end up charging off, we end up receiving a pretty good payment stream before they end up actually giving up. So the size of charge-off on a bankruptcy account in general is just much less than on a repo, notwithstanding the fact that the repo half of the charge-off happens much sooner.

The reason we didn't recognize this cumulative loss change until now is that we kept anticipating, I think, just like many players in the business, that bankruptcies would come back to near levels of what they were a couple years ago. And especially for our portfolio that's just hasn't happened. I mentioned that our filing rates haven't budged much at all, even though national filing rates are coming back a little bit. So the fact that that trend of bankruptcy substitution has just been sustained and prolonged made us just change our loss assumptions.

Chris Brendler - Stifel

Got you. And one more question would be the comment about homeowners and renters still maintaining that gap. On the other side of that equation: are you seeing any unusual weakness in some of the formerly hot housing markets -- California, Florida, in particular where you maybe seeing greater impact from the mortgage meltdown and potential job losses there?

Dan Berce

Not really, and part of it is that we just don't have much exposure in those areas. But we are not seeing any meaningful shift in losses.

Chris Brendler - Stifel

Okay. Great, thanks for your answers.

Operator

We will go next to Moshe Orenbuch with Credit Suisse

Moshe Orenbuch - Credit Suisse

Yeah, thanks. Actually, my questions were just answered in that last credit discussion.

Operator

We will go next to Dan Fannon with Jefferies.

Dan Fannon - Jefferies

Thanks. Most of my questions have been answered. But, Dan, given where your stock is trading, I was wondering: if, hypothetically, you could kind of walk through the factors where we, or give a scenario where book value actually gets impacted or you see book value eroded, what type of stress levels you guys have, obviously, various models that you run. What are the scenarios or factors that have to happen for that to impact book value?

Dan Berce

Well, first of all have pretty robust reserves against the portfolio, 5.2% at September 30th. But we also have a -- we did make $60 million in the quarter. So, between the buffer of the allowance and our earnings streams, losses would have to be considerably higher than they are now for us to erode book value.

I'm sorry, Dan, I don't have a, kind of a point estimate of where losses could be, would have to be for book value to be affected. But it's a long way from here.

Dan Fannon - Jefferies

Okay. And you have managed this company through previous cycles, and we're potentially at the early stages of the beginning of a weakening credit cycle. Are you seeing signs that are familiar to you, in terms of things getting materially worse from here? Or, just kind of from a historical perspective, kind of give us a thought process of how you're looking at this business potentially from a credit perspective, longer-term?

Dan Berce

Well, by analogy, I can talk about what we saw in 2002, in particular, and into early '03. We are not seeing any such thing now. We saw pretty meaningful deterioration in delinquencies during those periods. Of course, that period was accompanied by a large decline in used car values. We are not seeing any of that now. Of course, back then, 2001, the labor market had eroded throughout the last half of '01. And I think that precipitated a lot of the things we saw in 2002.

We are just externally, we're just not seeing the same things now that caused the problems in '02, credit problems, that is. And our numbers are fairly stable. There's some areas of the portfolio we need to work on, but as I said, stripping out Long Beach comparable numbers, losses were 5.4% a year ago, 5.7% this year. Delinquencies are -- 60-day are up a little bit. But it's not anything that's alarming us, but it's something we are paying attention to.

Dan Fannon - Jefferies

Okay. Thank you.

Operator

We'll go next to John Stilmar with FBR Capital Markets

John Stilmar - FBR Capital Markets

Hi, guys. Thank you for taking my questions. And most of my questions, as well, have been answered. With regards to reserves: how should we be thinking about that in terms of a coverage ratio? Is it 12 months, 14 months? How is it that you look at it, and how should we be thinking about it?

Chris Choate

We have been very consistently looking at a range of 15 to 18 months' coverage, really across our portfolio.

John Stilmar - FBR Capital Markets

Okay. Great, thank you very much.

Operator

(Operator Instructions) We will go next to Bob Napoli with Piper Jaffray.

Bob Napoli - Piper Jaffray

Dan, I was just wondering if you guys might want to give a little color on where you would expect charge-offs to come out in the fourth quarter, understanding that would probably be the peak charge-off quarter, seasonally, for the company. Would you expect it to be about 100 basis points above third quarter, broadly or?

Dan Berce

Just obviously, directionally, they will be up and they will be pushing into the 6% range.

Bob Napoli - Piper Jaffray

Okay. And then just on your pricing increases -- and you have been around this business a long time -- it does raise the risk of negative selection if others aren't following you. How do you protect, or how do you know that you're not being negatively selected as you raise rates and others don't?

Dan Berce

Well, that is clearly a risk. But I think the fact that we lost volume, I think, is the reason we don't think we were adversely selected. Those loans just went elsewhere, because we were out of the market pricing-wise.

Bob Napoli - Piper Jaffray

Okay And with regards to Bay View, how would you characterize the performance of Bay View versus your expectations?

Dan Berce

It's at or better. That portfolio has held up extremely well.

Bob Napoli - Piper Jaffray

Okay. And just as a piece of your guidance, it's kind of a new item introduced into your income statement that's broken out separately, the leasing depreciation that you don't give guidance on -- as you're thinking about a net interest margin, you're not including in that thought the lease margin? That is only on loans? You are not looking at a margin, a rental margin, if you will?

Dan Berce

Well, the lease margin more or less is in the number, because the lease income and they're all operating leases. The lease income goes through other income, and to finance the leases, we have interest of some type. So that would be the margin, the net of the two.

Bob Napoli - Piper Jaffray

Is the depreciation included in that?

Dan Berce

No, the depreciation would be below the line.

Bob Napoli - Piper Jaffray

Okay. And you're expecting….

Dan Berce

But it shouldn't be that material Bob, especially as we are going to be managing the lease volume the last part of the fiscal year.

Bob Napoli - Piper Jaffray

And last question on the collection shift, in this industry I think I've seen companies really stumble on when they are shifting collections from one office to another, one collector to another. And, I believe, you are experienced in this as well. How are you making sure that -- you lose contact with a borrower on the lower -- with a subprime borrower, or kind of the low-end Long Beach borrower for a couple weeks, and that could spike your loss rates?

Dan Berce

Yeah. That's a risk in any servicing transfer that we're cognizant of. New Long Beach originations will begin servicing in Arlington on a transition basis. We're seeking to move a number of their key players to Arlington for continuity purposes, and we are staffing up the unit in Arlington, well ahead of the needs that we will have people trained and ready to hit the ground running. And as I say, we just have better technology than Long Beach has from a collection standpoint, and just kind of better tracking, because we've had a $15 billion portfolio, and they have been a tenth our size. Necessarily, we have been probably a bit more sophisticated.

Bob Napoli - Piper Jaffray

Are there material expense efficiencies at the end of the day?

Dan Berce

Yeah. There are some. Obviously, Orange, California is a higher-cost area, whether you look at labor costs or rent. So there is -- certainly, that's part of the equation, but to the whole OpEx line, not material.

Bob Napoli - Piper Jaffray

Right. Thank you.

Operator

We'll got next to Chris Brendler with Stifel

Chris Brendler - Stifel

I am sorry dragging on, but one more quick one. The cash balance was a little lower than I was expecting, given the stock you bought back and distributions from the trust. Is there anything that moved it down kind of a $150 million lower than I thought it would be?

Chris Choate

Yeah, Chris this is, its Chris. That would be the, that really that difference is the lease originations of $140 million in the quarter. Net, that was around $130 million net of deposits. Those we funded out of equity. As I commented, we don't have a facility in place to finance those on at this point, although we are working diligently to put one in place.

Chris Brendler - Stifel

Okay. And then future, there is restriction on stock buyback, $40 million in this quarter, when you are, I think, generating quite a bit more than that -- are there other alternatives that you would look to, maybe a dividend with the excess cash? Or you just want to keep it, for now?

Dan Berce

Well, dividend is in the same payment bucket that share buyback is. So it's the same restriction, Chris.

Chris Brendler - Stifel

Chris.

Dan Berce

The only way to remove that restriction would be to somehow get a modification to the high-yield instrument indenture, and we're not going to do that right now. Down the road, perhaps, we would look at that, but not now.

Chris Choate

Looking out over a three or four-quarter period, though, if our FD guidance is on point, we will be able to repurchase $160 million, $170 million worth of stock, which is not insignificant. That frankly kind of lines up with what the remaining authorization is from our Board.

Chris Brendler - Stifel

Right, but you'll generate more cash than that.

Chris Choate

Correct. But again, all I'll make a comment is it's not an insignificant amount.

Chris Brendler - Stifel

Okay. Thank again.

Operator

Ladies and gentlemen, there are no more questions. I will now turn the conference back to Caitlin DeYoung for closing remarks.

Caitlin DeYoung

Thank you. This concludes AmeriCredit's first quarter fiscal year 2008 earnings conference call. If you have any additional questions, please contact me or anyone in the Investor Relations department. Thanks to everyone for participating in today's call and for your continued support of AmeriCredit.

Operator

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may disconnect.

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Source: AmeriCredit Corp. F1Q08 (Qtr End 9/30/07) Earnings Call Transcript
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