Accredited Reports 2006 Results.SAN DIEGO San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. -- Accredited accredited recognition by an appropriate authority that the performance of a particular institution has satisfied a prestated set of criteria. accredited herds cattle herds which have achieved a low level of reactors to, e.g. Home Lenders Holding Co. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :LEND), a mortgage company specializing in non-prime residential mortgage loans, today announced results for the fourth quarter and year ended December 31, 2006. Net income for the year ended December 31, 2006 was $57.7 million, or $2.48 per share on a fully-diluted basis, down from $155.4 million and $7.07 per share for the comparable period in 2005. Net loss for the quarter ended December 31, 2006 was ($37.8) million, or ($1.49) per share on a fully-diluted basis, down from net income of $43.3 million for the comparable period in 2005. Reserve balances at December 31 increased $42 million from the end of Q3 2006, reflecting increasing delinquency trends and repurchase activity. Commenting on the fourth quarter and full-year results for 2006, Accredited's Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. James Konrath said, "For the full year, Accredited achieved positive net income when a number of non-prime mortgage companies either posted losses or exited the business. Results for the fourth quarter were dissatisfying; however, during the quarter we absorbed the bulk of the impact of the Aames merger and continued responding to the current difficult credit environment. We spent much of the quarter completing the integration of Aames' retail business and continued to implement changes to our underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. guidelines, both of which negatively affected key profitability drivers such as volume, costs and premiums. We expect the time spent on these priorities will benefit the company in this challenging environment with a stronger retail franchise and improved portfolio performance." Mr. Konrath added, "While the current operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. remains challenging, our seasoned management team, talented employees and bottom-line business model give us confidence that we will navigate successfully through the current conditions." Operational and Financial Highlights [TABLE OMITTED] [TABLE OMITTED] The decrease in total net revenues from Q4 2005 to Q4 2006 is primarily the result of lower gain on sale premiums on loans sold, higher provisions for repurchases and lower net interest income. Net interest income after provision declined primarily due to lower spreads and increasing provision for losses on loans held for investment and REO reo Noun NZ a language [Maori] . Total operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. increased from $79.6 million in Q4 2005 to $120.2 million in Q4 2006. Salaries, wages and benefits expense increased from $49.3 million in Q4 2005 to $71.4 million in Q4 2006 and general, administrative, and other expenses increased from $30.3 million in Q4 2005 to $48.8 million in Q4 2006. The increases in both of these expense categories were predominantly the result of merging the two companies' operations. Loan Originations The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. The company originated $3.9 billion of mortgage loans for the quarter ended Q4 2006, compared to $4.7 billion of mortgage loan originations in Q4 2005, a decrease of 18%. Wholesale and retail originations for the quarter represented 77% and 23% of total loan production, respectively, reflecting the impact of the merger on the retail channel. Volume from the wholesale channel decreased from $4.2 billion in Q4 2005 to $3.0 billion in Q4 2006, a decline of 29.6%. The primary reasons for the lower volume in the wholesale channel were continuation of credit quality initiatives, and pricing and product competition in the wholesale market. For the same time period, volume from the retail channel increased from $495.0 million in Q4 2005 to $897.3 million in Q4 2006, an increase of 81.3%. The former Aames retail branches originated $493.1 million in loans during Q4 2006. Volume was negatively impacted by lost sales time from training and system conversions, as well as an adjusted product menu and tightened underwriting standards. The company's net cost to originate mortgage loans was 1.85% for Q4 2006 compared to 1.35% in Q4 2005. The increase is primarily the result of the decline in volume and the effects of the Aames integration. Additional detail on the calculation of net cost to originate can be found in the Regulation G disclosure tables at the end of this release. Loan Dispositions During Q4 2006, $3.3 billion of mortgage loans, including $286 million of loans acquired from Aames, were sold in whole loan sales for cash. In addition, the company sold four of the six residuals acquired from Aames representing loans of $1.7 billion. At the end of the quarter, $2.1 billion of mortgage loans were held for sale and $883 million were held for securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. . The company closed a $760 million asset-backed, on-balance sheet securitization on January 30, 2007. Portfolio Performance and Loan Servicing Loan servicing is the process by which a mortgage bank or subservicing firm collects the timely payment of interest and principal from borrowers. The level of service varies depending on the type loan and the terms negotiated between the firm and the investor seeking their services. The company's servicing portfolio totaled $11.0 billion at December 31, 2006. The serviced portfolio increased 13.7% from $9.7 billion at December 31, 2005 primarily because of the additional two Aames securitizations held at year end. Delinquent loans (30 or more days past due, including foreclosures and real estate owned Real Estate Owned Property owned by a lender - usually a bank - after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: the minimum bid in most ) comprised 7.18% (excluding Aames loans remaining in the portfolio) of the serviced portfolio at December 31, 2006, compared to 5.45% at September 30, 2006. The primary reasons for the increase in 30+ day delinquencies were the aging of the portfolio, higher delinquencies from more recent vintages, and additional delinquency from repurchased loans. Additional details on delinquency trends can be found in the tables at the end of this release. Liquidity The company had approximately $7.6 billion in credit and commercial paper facilities at December 31, 2006. At the end of December, the company had used $2.8 billion of the available capacity. The company had $345 million in available cash and liquidity at December 31, 2006, compared to $356 million at December 31, 2005. Additionally, on January 11, 2007, the company completed a $56 million private placement of trust preferred securities through its subsidiary, Accredited Preferred Securities Trust I. The trust preferred securities bear interest at a fixed rate of 9.01% until January 30, 2012, whereupon where·up·on conj. 1. On which. 2. In close consequence of which: The instructor entered the room, whereupon we got to our feet. the rate floats at three-month LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). plus 3.95% thereafter until their maturity in January 2037, unless earlier redeemed. The trust preferred securities can be redeemed in whole or in part by the company beginning January 30, 2012 without penalty. The company believes that the issuance of the trust preferred further strengthens its liquidity position. Adjusted Leverage In managing its capital structure, the company adds its REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). subsidiary preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. , which is reflected as a minority interest on the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. , to stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. to determine an adjusted leverage ratio, which was 12.7 times at December 31, 2006. Additional detail concerning the company's leverage measures can be found in the Regulation G disclosure tables at the end of this release. Business Outlook The company will not issue earnings guidance for 2007 because of the high level of uncertainty surrounding key external conditions that determine profitability. These conditions include: * The amount and nature of competition and the effect of industry consolidation on capacity in the non-prime mortgage origination market * The overall condition of the real estate market * The impact of recent industry changes to products and underwriting standards and practices on originations and the secondary markets * Investors' appetite for certain whole loan products, whole loan pricing, and posture on loan repurchases The company expects the current market turbulence will persist through the first half of 2007 and includes the following assumptions: * Volume in first quarter to reflect the declining trend from the fourth quarter and seasonality impact * Cost to originate higher than fourth quarter levels as a result of lower anticipated volume * Continued pressure on whole loan sale premiums in early 2007 * Repurchases begin to decline by the second quarter reflecting improved credit focus and discipline Commenting on the company's outlook for 2007, Mr. Konrath said, "Challenges persist in Verb 1. persist in - do something repeatedly and showing no intention to stop; "We continued our research into the cause of the illness"; "The landlord persists in asking us to move" continue the current market, which we expect to largely continue through the first half of 2007. Accredited remains committed to being a growth company, and we expect to realize that goal as origination capacity rationalizes and reasonable margins return to the industry. We are cautiously optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that conditions for improvement will begin to emerge in the second half of the year. In the meantime Adv. 1. in the meantime - during the intervening time; "meanwhile I will not think about the problem"; "meantime he was attentive to his other interests"; "in the meantime the police were notified" meantime, meanwhile , Accredited will remain prudent, nimble nim·ble adj. nim·bler, nim·blest 1. Quick, light, or agile in movement or action; deft: nimble fingers. See Synonyms at dexterous. 2. and opportunistic." Conference Call Accredited will host a conference call for analysts and investors on February 14 at 11:00 a.m. Eastern (8:00 a.m. Pacific) to discuss the company's financial results for the fourth quarter and full year 2006. Those individuals who would like to participate on the conference call should contact Mitzi Gimenez, corporate communications Corporate communications is the process of facilitating information and knowledge exchanges with internal and key external groups and individuals that have a direct relationship with an enterprise. representative, at mgimenez@accredhome.com or 858-676-2155 to receive details regarding the call. The call is being web cast and can be accessed live at Accredited's website - http://investors.accredhome.com. A replay of the conference call will be archived on the website. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Certain matters discussed in this news release constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements regarding the company's prospect for long-term growth and profitability; statements concerning the company's loan origination volumes, costs to originate and whole loan sale premiums and the impact of market conditions, competition and tightening underwriting practices and credit standards Credit Standards The guidelines a company follows to determine whether a credit applicant is creditworthy. on those volumes, costs and premiums; overall conditions in the secondary market for mortgage loans, including the rate of repurchases of mortgage loans sold by the company in the secondary market; the impact of the company's acquisition of Aames Investment Corporation and its ability to realize any synergies, economies of scale and employee gains from the acquisition; as well as to realize the full value of the acquisition, including goodwill; the impact of industry consolidation on the amount and nature of competition; the company's liquidity; the company's projected decline in loan originations; the credit quality of the company's loan portfolio; predictions concerning the credit quality of the company's loan portfolio; and the company's anticipated reserve levels, levels of repurchases and premium recapture, and loss experience; the company's outlook on the competitive, regulatory and real estate environments, generally, and the impact that those environments will have on weighted average coupons Weighted average Coupon The weighted average of the gross interest rates of mortgages underlying a pool as of the pool issue date; the balance of each mortgage is used as the weighting factor. , margins and whole loan sale premiums. Actual results and the timing of certain events could differ materially from those projected in or contemplated by these forward-looking statements due to a number of factors, including but not limited to: the ability of the company to achieve synergies and economies of scale from its merger with Aames; the company's ability to attract and retain qualified personnel; interest rate volatility and the level of interest rates generally; fluctuations in the real estate markets generally; the nature and amount of competition, the availability of alternative loan products not offered by the company, and the nature and characteristics of the loans originated by the company; general political and economic conditions; the sustainability of loan origination volumes; the availability of financing for the origination of mortgage loans; the ability of the company to sell or securitize Securitize The practice of a company selling accounts receivables or other debts owed to it. The third party that buys the debt assumes ownership of it and the responsibility for collecting the debts, and keeps the repayments when made. mortgage loans; the company's ability to grow its portfolio; the ability of the company to manage costs; and other risk factors as outlined in Accredited Home Lenders Holding Co.'s annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the period ended December 31, 2005, its reports on Form 10-Q Form 10-Q See 10-Q. for the first, second and third quarters of 2006, and other documents filed with the SEC. About Accredited Accredited Home Lenders Holding Co. is a mortgage company operating throughout the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and in Canada. Accredited originates, finances, securitizes, services, and sells non-prime mortgage loans secured by residential real estate. Founded in 1990, the company is headquartered in San Diego. Additional information may be found at www.accredhome.com [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] Regulation G Disclosures Information on the gain on sale of mortgage loans, net cost to originate and adjusted leverage appearing elsewhere in this release may fall under the Securities and Exchange Commission's definition of "non-GAAP financial measures." Management believes that these calculations, taken in context with the other information reported in this release, provide investors with a better understanding of the efficiency of the company's loan generating platform and the relevant measurement of the company's debt level. A reconciliation of how the gain on sale of mortgage loans, net cost to originate and adjusted leverage are calculated is set forth below. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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