AmNet Mortgage Inc. Reports Fourth Quarter and 2004 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. -- AmNet Mortgage Inc. (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 :AMNT), the parent company of American Mortgage Network (AmNet), a nationwide wholesale mortgage bank, today reported fourth quarter and 2004 results. Results of the fourth quarter include: --Fourth quarter consolidated net income was $123 thousand, or $0.01 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to a loss of $406 thousand or $0.05 per diluted share in Q4, 2003; --Mortgage loans funded through AmNet were $2.5 billion in the fourth quarter of 2004 compared to $1.9 billion in the fourth quarter of 2003; and --For the fourth quarter of 2004, AmNet's income before income taxes was $1.0 million, compared to a loss before income taxes of $2.9 million in the fourth quarter of 2003. Results for the full year 2004 include: --Consolidated net loss was $6.3 million, or $0.83 per diluted share, inclusive of inclusive of prep. Taking into consideration or account; including. $2.9 million, or $0.38 per diluted share related to charges for a valuation adjustment on the sale of the REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). portfolio, compared to net income of $29.0 million, or $3.57 per diluted share, for the year ended December 31, 2003, inclusive of tax benefits; --Funded $9.0 billion of mortgage loans compared to $10.2 billion for the year ended December 31, 2003; --AmNet's loss before income taxes was $5.3 million in 2004, compared to income before income taxes of $23.5 million in 2003; --Established new correspondent and subprime channels; --Opened seven new loan production offices and expanded the sales force from 89 at year-end 2003 to 171 at year-end 2004; --Increased cash and cash equivalents to $52.7 million as of December 31, 2004 from $46.5 million at December 31, 2003; --Sold the majority of its remaining REIT portfolio; and --Repurchased approximately 605 thousand shares of its common stock, representing 7.7% of the outstanding shares at the beginning of 2004. Consolidated Results AmNet Mortgage Inc. reported consolidated net income of $123 thousand, or $0.01 per diluted share, for the fourth quarter of 2004 compared to a net loss of $406 thousand, or $0.05 per diluted share for the fourth quarter of 2003. The consolidated net loss for 2004 was $6.3 million, or $0.83 per diluted share, inclusive of $2.9 million, or $0.38 per diluted share, related to the reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. and sale of the majority of its mortgage asset portfolio. Commenting on results for the year, John M. Robbins Rob·bins , Frederick Chapman 1916-2003. American microbiologist. He shared a 1954 Nobel Prize for work on the cultivation of the polio virus. , Chief Executive Officer, said, "2004 was a challenging 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. for the mortgage industry, yet it was a year of investment and growth for the Company. We capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. on a number of opportunities to build shareholder value. From a de novo [Latin, Anew.] A second time; afresh. A trial or a hearing that is ordered by an appellate court that has reviewed the record of a hearing in a lower court and sent the matter back to the original court for a new trial, as if it had not been previously heard nor decided. start in 2001, we have become one of the country's top twenty wholesale lenders. Despite a major market contraction contraction, in physics contraction, in physics: see expansion. contraction, in grammar contraction, in writing: see abbreviation. contraction - reduction , competitive pressures and margin compression, we expanded our wholesale branch network across 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 greatly increased the size of our sales force." Robbins continued, "Despite a competitive mortgage market, we launched subprime and correspondent channels to further leverage our infrastructure and operating platform. Because we believe it will benefit the Company over the long term, we made investments of an estimated $6.8 million in the new correspondent and subprime businesses as well as in net costs associated with new branches." Robbins added, "We sold the majority of our remaining REIT portfolio which simplified our balance sheet, improved liquidity and eliminated nearly all future prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. or credit risk represented by the portfolio. Net cash proceeds from the sale were approximately $26 million. More than $90 million of bond collateral debt was extinguished ex·tin·guish tr.v. ex·tin·guished, ex·tin·guish·ing, ex·tin·guish·es 1. To put out (a fire, for example); quench. 2. To put an end to (hopes, for example); destroy. See Synonyms at abolish. 3. ." The Company repurchased approximately 605 thousand shares of its common stock, representing 7.7% of the outstanding shares at the beginning of 2004. "The Company's book value has continued to exceed its stock price trading range Trading Range The spread between the high and low prices traded during a period of time. Notes: When a stock breaks through or falls below its trading range after several days of trading in a range, it usually means there is momentum (positive or negative) building. , making stock repurchases Stock repurchase A firm's repurchase of outstanding shares of its common stock. a prudent utilization of the Company's capital," Robbins stated. "We believe this program is an excellent way to enhance stockholder value." Mortgage Banking Business - American Mortgage Network (AmNet) AmNet funded $2.5 billion in home loans during the fourth quarter, a 34% increase over $1.9 billion funded in the fourth quarter of 2003, reflecting the impact of improved market penetration Noun 1. market penetration - the extent to which a product is recognized and bought by customers in a particular market penetration - the act of entering into or through something; "the penetration of upper management by women" over the past year. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the Mortgage Bankers Mortgage Banker A company, individual or institution that originates, sells and services mortgage loans. Notes: Don't confuse a mortgage banker with a mortgage broker. Association (MBA MBA abbr. Master of Business Administration Noun 1. MBA - a master's degree in business Master in Business, Master in Business Administration ), fourth quarter total mortgage market origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real volumes increased approximately 6% from fourth quarter 2003 levels. For the year ended December 31, 2004, AmNet funded $9.0 billion in home loans, a 12% decrease compared to $10.2 billion in 2003. The MBA estimates that 2004 total mortgage market origination volumes declined 25% from 2003. AmNet Operating Results For the fourth quarter of 2004, AmNet's income before income taxes was $1.0 million, compared to a loss before income taxes of $2.9 million in the fourth quarter of 2003. The loss before income taxes in 2004 was $5.3 million, compared to $23.5 million of income before income taxes in 2003. Throughout 2004, profitability was affected by price competition and margin compression as the mortgage market contracted due to the industry-wide reduction in refinancing Refinancing An extension and/or increase in amount of existing debt. volume. Although 2004 was often marked by very competitive pricing, AmNet's fourth quarter margins improved due primarily to greater production of higher margin products. Gain on the sale of loans, net of derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. financial instruments in the fourth quarter totaled $19.8 million, or 75 basis points, on $2.6 billion of loan sales volume, as compared to $12.9 million, or 66 basis points, on $1.9 billion of loan sales volume during the fourth quarter of 2003. AmNet increased its volume of higher margin loan products, including Alt-A, seconds/HELOCS and subprime, to 30.9% in the fourth quarter of 2004 from 5.0% in the comparable period in 2003. Interest on mortgage assets in the fourth quarter of 2004 was $10.0 million and was offset by interest expenses of $6.3 million, resulting in a net interest spread of $3.7 million, or 15 basis points, on $2.5 billion of loan fundings. In the fourth quarter of 2003, interest on mortgage assets was $6.0 million and was offset by interest expense of $2.8 million, resulting in a net interest spread of $3.2 million, or 17 basis points on fundings of $1.9 billion. AmNet's 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. , which were total expenses of $29.0 million less interest expense $6.3 million, totaled $22.7 million during the fourth quarter of 2004, or 91 basis points, on loan fundings. These expenses included an estimated $8.5 million in sales commissions and other variable expenses, representing approximately 37% of total operating expenses. For the fourth quarter of 2003, AmNet's operating expenses, which were total expenses of $21.8 million less interest expense $2.8 million, totaled $19.0 million, or 102 basis points, on loan fundings. These expenses included an estimated $6.6 million in sales commissions and other variable expenses, representing approximately 35% of total operating expenses. The year-over-year fourth quarter increase in operating expenses is tied mainly to a larger branch system and infrastructure investments in the subprime and correspondent businesses. Commenting on mortgage operations in the fourth quarter, Robbins stated, "There was continuing momentum throughout the quarter as new account executives increased their loan production. With our subprime and home equity offerings now in place, we are confident that our 'one-stop shopping' wholesale model will help to differentiate us from other lenders." Liquidity and Book Value Cash and cash equivalents were $52.7 million as of December 31, 2004, compared to $46.5 million at December 31, 2003. Cash per outstanding share was $7.22 at December 31, 2004, compared to $5.91 at December 31, 2003. Book value per outstanding share was $10.56 at December 31, 2004, compared to $11.24 at December 31, 2003. 2005 Strategic Initiatives The MBA is forecasting that total mortgage originations for 2005 will be $2.6 trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. , one of the five largest mortgage markets in history. The average 30-year fixed mortgage rate is predicted by the MBA to rise to 6.4% in the fourth quarter of 2005, up from 5.7% in the fourth quarter of 2004. AmNet's 2005 strategic initiatives are focused on leveraging its scale across channels and growing production by: --Expanding our sales force and intensifying in·ten·si·fy v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies v.tr. 1. To make intense or more intense: recruitment of top performing account executives; --Continuing to grow market share and sales penetration through our wholesale branch network; --Increasing production from correspondent and subprime channels as well as through home equity offerings; --Implementing specific technology platform enhancements that increase functionality for our broker customers and make it easier for them to do business with us; and --Continuing to improve product mix. Conference Call and Webcast Management will host a conference call with a simultaneous webcast today at 8:30 a.m. Pacific/10:30 a.m. Central/11:30 a.m. Eastern to discuss fourth quarter and year-end 2004 operating performance. The conference call, featuring Chairman and Chief Executive Officer, John M. Robbins, and Executive Vice President and Chief Financial Officer, Judith A. Berry Berry, former province, France Berry (bĕrē`), former province, central France. Bourges, the capital, and Châteauroux are the chief towns. , will be available by telephone and via the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . To participate by telephone, please dial 800-201-1027 at least five minutes before start time. For international callers, please dial 706-634-0805. A telephone replay will be available through March 16, 2005 by dialing (800) 642-1687 or (706) 645-9291 and entering the pass code #3722165. To listen to the webcast, log on to www.amnetmortgageinc.com/webcasts.shtml. The webcast will also be available live at www.fulldisclosure.com. An online replay will be available at www.amnetmortgageinc.com/webcasts.shtml for one year. Electronic versions of news releases may be accessed via the Company's web site at www.amnetmortgageinc.com. About AmNet Mortgage, Inc. AmNet Mortgage Inc. is the parent company of American Mortgage Network. For more information, please visit www.amnetmortgageinc.com. About American Mortgage Network Headquartered in San Diego, California “San Diego” redirects here. For other uses, see San Diego (disambiguation). San Diego is a coastal Southern California city located in the southwestern corner of the continental United States. As of 2006, the city has a population of 1,256,951. , AmNet is a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of AmNet Mortgage, Inc. AmNet originates loans for the national mortgage broker community through its network of branches and business-to-business over the Internet. Through its correspondent channel, the Company purchases loans from small to mid-size mortgage banks, credit unions and community banks. AmNet has loan production offices in Arizona Arizona (âr'əzō`nə), state in the southwestern United States. It is bordered by Utah (N), New Mexico (E), Mexico (S), and, across the Colorado R., Nevada and California (W). , California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). , Colorado, Connecticut Connecticut, state, United States Connecticut (kənĕt`ĭkət), southernmost of the New England states of the NE United States. It is bordered by Massachusetts (N), Rhode Island (E), Long Island Sound (S), and New York (W). , Florida, Georgia Georgia, country, Asia Georgia (jôr`jə), Georgian Sakartvelo, Rus. Gruziya, officially Republic of Georgia, republic (2005 est. pop. 4,677,000), c.26,900 sq mi (69,700 sq km), in W Transcaucasia. , Illinois Illinois, river, United States Illinois, river, 273 mi (439 km) long, formed by the confluence of the Des Plaines and Kankakee rivers, NE Ill., and flowing SW to the Mississippi at Grafton, Ill. It is an important commercial and recreational waterway. , Kansas, Minnesota, New Jersey, New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures Area, 52,586 sq mi (136,198 sq km). Pop. , Ohio, Oregon Oregon, city, United States Oregon, city (1990 pop. 18,334), Lucas co., NW Ohio, a suburb adjacent to Toledo, on Lake Erie; inc. 1958. It is a port with railroad-owned and -operated docks. The city has industries producing oil, chemicals, and metal products. , Rhode Island Rhode Island, island, United States Rhode Island, island, 15 mi (24 km) long and 5 mi (8 km) wide, S R.I., at the entrance to Narragansett Bay. It is the largest island in the state, with steep cliffs and excellent beaches. , Texas, Utah, Virginia and Washington. AmNet has a total of $1.4 billion in warehouse borrowing capacity and is approved to do business in 50 states and the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). either by license or exemption. For more information, please visit www.amnetmortgage.com. Forward-Looking Statement 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 press release may constitute forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements regarding: The belief that certain investments made in 2004 will benefit the Company over the long term; the elimination of nearly all future prepayment and credit risk represented by the sale of mortgage portfolio assets; stock repurchase being an excellent way to enhance stockholder value; the MBA's estimates of 2004 mortgage market origination volume; Company differentiation resulting from the addition of subprime and home equity mortgage product offerings; MBA estimates for 2005 total mortgage originations and 30-year fixed mortgage interest rates; and the Company's 2005 strategic initiatives growing loan production. The Company's ability to meet its operational and financial goals are subject to risks including risks related to: The Company's ability to continue to sell its loans to a competitor who is its largest purchaser; the Company's ability to maintain and renew its warehouse lines; the large concentration of the Company's loans in California; the effectiveness of the Company's hedging strategies; the Company's ability to increase its loan origination 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. volume in a contracting market; and the Company's lack of significant experience with subprime loans Subprime Loan A loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Notes: Subprime loans tend to have a rate that is 0.1% to 0.6% higher than the prime rate. and correspondent lending. Actual results and the timing of certain events could also differ materially from those projected in or contemplated by our forward-looking statements due to a number of other factors, including but not limited to: the level of interest rates generally; economic conditions generally; the size of the national mortgage market, including subprime loans; the stability of the entire mortgage secondary market; the predictability of the Company's expenses and margins; the future correlation of volatility in forward mortgage sale instruments to the Company's loan lock commitments; interest rate volatility; the ability to retain and renew warehouse lending facilities for the funding of all of the Company's mortgage loans; the Company's liquidity position; the availability of qualified mortgage professionals; the ability to attract and retain qualified mortgage professionals and other risk factors outlined in the Company's SEC reports.
AMNET MORTGAGE, INC.
(unaudited)
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Three Three Twelve Twelve
Months Months Months Months
------ ------ ------ ------
Ended Ended Ended Ended
----- ----- ----- -----
12/31/2004 12/31/2003 12/31/2004 12/31/2003
---------- ---------- ---------- ----------
Income Statement
----------------
Mortgage Banking Segment:
Revenues
Gain on sales of loans $22,582 $16,444 $64,619 $79,203
---------------------------------------------
Derivative financial
instruments:
Forward sales of
mortgage backed
securities (MBS) and
options on MBS (2,928) 1,067 (5,351) 2,182
Market adjustment on
loan commitment
pipeline 96 (4,644) (424) (2,104)
---------------------------------------------
Total derivative
financial instruments (2,832) (3,577) (5,775) 78
---------------------------------------------
Gain on sales of loans,
net of derivative
financial instruments 19,750 12,867 58,844 79,281
Interest on mortgage
assets 10,042 6,032 32,250 29,875
Other income 205 18 508 94
---------------------------------------------
Total revenue, net of
derivative financial
instruments 29,997 18,917 91,602 109,250
---------------------------------------------
Expenses
Interest expense 6,295 2,826 17,370 13,482
Operating expenses 22,691 19,005 79,531 72,220
---------------------------------------------
Total expenses 28,986 21,831 96,901 85,702
---------------------------------------------
Income (loss) before
income taxes - Mortgage
Banking Segment $1,011 $(2,914) $(5,299) $23,548
Mortgage Asset Portfolio
Segment:
Revenues
Interest on mortgage
assets $784 $2,065 $3,013 $10,906
Other income (556) 226 152 1,171
---------------------------------------------
Total revenue 228 2,291 3,165 12,077
---------------------------------------------
Expenses
Interest expense 111 1,040 1,451 4,840
Provision for loan losses (1) 964 206 3,442
Gain on sale of real
estate owned, net (2) (170) (408) (921)
Valuation adjustment
(gain)/loss - bond
collateral sale (8) - 4,864 -
Operating expenses 389 610 1,782 2,344
---------------------------------------------
Total expenses 489 2,444 7,895 9,705
---------------------------------------------
(Loss) income before
income taxes - Mortgage
Asset Portfolio Segment $(261) $(153) $(4,730) $2,372
Consolidated Income (loss)
- Combined Segments $750 $(3,067) $(10,029) $25,920
Provision for income tax
expense (benefit) $627 (1,642) $(3,702) 7,781
Income tax (benefit) from
termination of REIT
status - (1,019) - (10,884)
Consolidated Net
Income (loss) $123 $(406) $(6,327) $29,023
Per Share Data
--------------
Weighted average common
shares outstanding 7,309,079 7,862,949 7,613,773 7,861,988
Consolidated income
(loss) per share basic $0.02 $(0.05) $(0.83) $3.69
Consolidated income
(loss) per share diluted $0.01 $(0.05) $(0.83) $3.57
Loan Origination and Sale
-------------------------
Data
----
Total mortgage loans
funded in period
($ millions) $2,490 $1,855 $9,002 $10,173
Number of loans funded 13,502 11,055 50,902 57,814
Total mortgage loans sold
in period ($ millions) $2,640 $1,932 $9,039 $10,277
Percentage of mortgage
loans funded in period
by type (based on
$ funded):
Conventional conforming 42.2% 70.4% 50.0% 75.8%
Alt-A 26.1% 3.7% 18.6% 2.1%
Jumbo/Non conforming 21.4% 12.1% 19.3% 11.2%
Government 5.5% 12.5% 8.7% 10.2%
Second/HELOC 4.0% 1.3% 3.1% 0.7%
Subprime 0.8% 0.0% 0.4% 0.0%
100.0% 100.0% 100.0% 100.0%
Balance Sheet Data
------------------
Cash and cash equivalents $50,600 $44,400 $50,600 $44,400
Restricted cash 2,100 2,100 2,100 2,100
Bond collateral mortgage
loans and real estate
owned, net of reserves,
held for investment 14,988 161,252 14,988 161,252
Mortgage loans held for
sale, net 238,440 276,781 238,440 276,781
Total assets 340,479 500,972 340,479 500,972
Short-term debt 232,236 268,619 232,236 268,619
Long-term debt, net 13,500 130,295 13,500 130,295
Total stockholders'
equity $77,151 $88,485 $77,151 $88,485
Book value per share
basic $10.56 $11.24 $10.56 $11.24
Book value per share
diluted $9.58 $10.86 $9.58 $10.86
Debt to equity ratio 3.2:1 4.5:1 3.2:1 4.5:1
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($ in thousands, except per share data and as noted)
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