American Residential Reports Third Quarter 2003 Earnings and Provides 2004 Earnings Guidance; Affirms 2003 Earnings Estimates at High End of Guidance Range.Business Editors SAN DIEGO--(BUSINESS WIRE)--Nov. 6, 2003 American Residential Investment Trust, Inc. (AMEX AMEX See: American Stock Exchange (R):INV INV abbr. in vitro fertilization ), the parent company of American Mortgage Network (AmNet), a wholesale mortgage bank serving mortgage brokers nationwide, today reported third quarter 2003 results and affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. its increased full-year 2003 earnings guidance at higher end Coordinates: For other places with the same name, see Billinge. Higher End or Billinge Higher End is a district of the Metropolitan Borough of Wigan, in Greater Manchester, England. of the range. Highlights included: -- Third quarter consolidated net income was $7.8 million or $0.91 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, inclusive of inclusive of prep. Taking into consideration or account; including. $724 thousand or $0.08 per diluted share related to tax benefits; -- Third quarter consolidated pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern earnings were $11.0 million or $1.29 per diluted share; -- Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. consolidated net income was $29.4 million or $3.45 per diluted share, inclusive of $9.9 million or $1.16 per diluted share related to tax benefits; -- Book value per diluted share was $10.42 as of September 30, 2003; -- Cash and cash equivalents were $46.5 million as of September 30, 2003, an increase of 58% from June 30, 2003; -- Funded $3.0 billion in mortgage loans through American Mortgage Network in the third quarter; -- Aggregate warehouse funding facilities rose to $1.4 billion; -- Expects 2003 projected consolidated net income to be at the higher end of previous guidance range, or approximately $3.70 per diluted share; expects 2003 mortgage loan production to be $10.5 billion; and -- Provides 2004 outlook of $12 billion to $13 billion in mortgage loan production and $1.75 to $2.00 in diluted earnings per share, assuming a 42% combined federal and state tax rate, up from approximately 33% in 2003. Consolidated Results American Residential reported consolidated net income of $7.8 million, or $0.91 per diluted share for the third quarter of 2003. Third quarter 2003 results included a tax benefit of $724 thousand, or $0.08 per diluted share, due to the realization of additional deferred tax assets associated with net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carry forwards in American Residential Investment Trust (AMREIT). The deferred tax asset realization resulted from an increase in profitability from the Company's mortgage banking subsidiary, AmNet. The Company's year-to-date consolidated net income was $29.4 million, or $3.45 per diluted share, inclusive of $9.9 million, or $1.16 per diluted share, in tax benefits. 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, "Third quarter earnings were strong, attributable largely to robust loan production and a hedging strategy that worked effectively during a period of extreme volatility in the market price for mortgages. The Company has been transitioning to a purchase market as the refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. market tapers off. 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 National Association of Realtors The National Association of Realtors (NAR) is made up of residential and commercial realtors who are brokers, salespeople, property managers, appraisers, and counselors, and others working in the real estate industry. (R), existing home sales Existing Home Sales An economic indicator of both the number and prices of existing single family houses, condos and co-op sales over a one-month period. Released monthly by the U.S. in September increased to a record seasonally adjusted Seasonally adjusted Mathematically adjusted by moderating a macroeconomic indicator (e.g., oil prices/imports) so that relative comparisons can be drawn from month to month all year. annual rate of 6.69 million units due to low interest rates. The Company also undertook several key initiatives in the third quarter, including a major upgrade to the Company's proprietary technology platform to substantially increase our processing capability and scalability. We also accelerated our expansion plan to propel pro·pel tr.v. pro·pelled, pro·pel·ling, pro·pels To cause to move forward or onward. See Synonyms at push. [Middle English propellen, from Latin AmNet's organic growth by continuing to recruit seasoned regional managers and account executives." The Company's cash and cash equivalents balance was $46.5 million at September 30, 2003, as compared to approximately $29.3 million at June 30, 2003, an increase of approximately 58%. The Company's basic and diluted book values per share were $11.30 and $10.42, respectively, at September 30, 2003. The Company reports its results in two segments -- mortgage banking (AmNet) and mortgage asset portfolio investments (AMREIT). Mortgage Banking Business -- American Mortgage Network (AmNet) AmNet funded $3.0 billion in home loans during the third quarter of 2003 compared to $3.2 billion for the second quarter of the year. AmNet sells the loans it funds on a servicing-released basis to investors who include major correspondent servicers and Wall Street dealers. AmNet Operating Results For the third quarter of 2003, AmNet reported pre-tax income of $9.8 million, as compared to $9.8 million in the second quarter of 2003. Gain on the sale of loans and other fee income, net of hedging, totaled $24.7 million in the third quarter, or approximately 81 basis points on $3.0 billion in loan fundings, as compared to 74 basis points on $3.2 billion in fundings in the second quarter of 2003. While interest rate fluctuations in the third quarter decreased the gross loan sale margin, AmNet's hedging strategy was extremely effective and contributed to the increased basis point gain. AmNet hedges to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. the potential adverse impact that interest
rate fluctuations can have on the value of its loan pipeline. The
interest rate risk is represented by the interest rate commitments, or
locks, AmNet makes to borrowers. AmNet's hedges are designed to
protect profit margins on locked loans and on closed loans before they
are committed for sale. The hedge instruments used by AmNet are forward
sale commitments of mortgage backed securities ("TBA TBASee: To be announced ") and options to sell mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. . Gross interest income was $10.4 million and was offset by interest expense of $4.5 million, resulting in net interest spread on loans held for sale during the third quarter of $ 5.8 million, or approximately 19 basis points on third quarter loan fundings of $3.0 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. , total expenses of $25.4 million less interest expense of $4.5 million, were $20.8 million during the third quarter, or approximately 69 basis points on total loan fundings. These expenses included an estimated $9.3 million in sales commissions and other variable expenses, representing approximately 45% of operating expenses. Commenting on the Company's mortgage banking operations, Robbins said, "Our expansion strategy is continuing with 21 branches now operational. In 2004, our plan is to be located in the top 30 Metropolitan Statistical Areas (MSAs) with 200 account executives. These markets have strong housing demographics The attributes of people in a particular geographic area. Used for marketing purposes, population, ethnic origins, religion, spoken language, income and age range are examples of demographic data. that enable us to ramp up Ramp Up To increase a company's operations in anticipation of increased demand. Notes: A company might 'ramp up' operations if they just signed a contract creating substantially more demand for their product. See also: Demand, Economies of Scale quickly with a local team. Our customer base now consists of close to 4,000 mortgage brokers nationwide. We are not only expanding into new markets, but are also continuing to add commissioned account executives to existing branches, capitalizing on the consolidation that took place in the third quarter, to extend our reach in the broker community and grow our market share." During the third quarter of 2003, AmNet's warehouse loan funding capacity grew from $1.3 billion to $1.4 billion. AmNet has lending partnerships with Countrywide coun·try·wide adv. & adj. Throughout a whole country; nationwide: launched a fundraising campaign countrywide; a countrywide search. Adj. 1. Warehouse Lending, UBS UBS Union Bank of Switzerland UBS United Bible Societies UBS United Blood Services UBS United Buying Service UBS Used Bookstore UBS University Business Services UBS Universal Building Society (UK) UBS Ulaanbaatar Broadcasting System Warburg War·burg , Otto Heinrich 1883-1970. German biochemist. He won a 1931 Nobel Prize for research on the respiration of cells. Real Estate Securities Inc., JPMorgan Chase JPMorgan Chase (NYSE: JPM TYO: 8634 ) is one of the oldest financial services firms in the world. The company, headquartered in New York City, is one of the leaders in investment banking, financial services, asset and wealth management and private equity. With assets of $1. Bank, and GMAC's Residential Funding Corporation. Mortgage Asset Portfolio Investments (AMREIT) The Company's total mortgage assets held for portfolio investment were approximately $186 million at September 30, 2003, compared to $209 million at June 30, 2003. Since 1999, the dollar value of the Company's portfolio of mortgage assets has declined due to the strategic decision to re-deploy capital into AmNet, the Company's mortgage banking subsidiary. In the third quarter of 2003, the Company had pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. attributable to its mortgage asset portfolio investments of $1.2 million compared to $939 thousand for the second quarter of 2003. In the third quarter of 2003 interest income on the mortgage asset portfolio was $2.7 million and interest expense was $1.1 million, resulting in a net interest spread of $1.6 million, or approximately 3.3% of September 30, 2003 portfolio assets on an annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. basis, compared to second quarter interest income of $2.8 million and interest expense of $1.2 million, resulting in a net interest spread of $1.7 million. Non-cash loan premium amortization expenses in the quarter ended September 30, 2003 totaled approximately $825 thousand. 2003 Guidance 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 ) expects 2003 overall market size to be approximately $3.3 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. . AmNet expects to fund approximately $2.2 billion in the fourth quarter, bringing total funding to approximately $10.5 billion for 2003. The Company's net income for the fourth quarter is expected to be approximately $0.25 per diluted share. For 2003, consolidated net income is projected to be at the higher end of the Company's previously announced guidance range, or approximately $3.70 per diluted share, inclusive of tax benefits. This guidance is based on an assumed combined federal and state tax rate of approximately 33%. Based on 2003 earnings guidance, basic book value per share would be approximately $11.57 at December 31, 2003. 2004 Guidance The Mortgage Bankers Association (MBA) expects 2004 overall market size to be approximately $1.5 trillion, based on a strong purchase market that is fueled by low interest rates, an economic recovery and job creation. AmNet expects to fund approximately $12 billion to $13 billion of mortgage loans in 2004, with monthly loan volumes increasing to $1.5 billion by the end of 2004 in conjunction with organic expansion in the Company's nationwide network. Commenting on expectations for 2004, Robbins remarked, "Interest rates remain low by historic standards. Thirty-year fixed mortgages are expected to be in the range of 6.00% to 6.75% as the employment rate grows and the economy recovers. The MBA predicts a strong purchase market with residential originations totaling $1.5 trillion in 2004, which would still represent one of the five largest markets in mortgage industry history. While aware of the challenge, we believe we will increase our market share and grow year-over-year loan production despite an overall market contraction contraction, in physics contraction, in physics: see expansion. contraction, in grammar contraction, in writing: see abbreviation. contraction - reduction of about 55% between 2003 and 2004. AmNet is a young company with significant growth opportunities in several major metropolitan markets. Locations targeted for possible regional branch expansion include Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. , San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden , San Jose San Jose, city, United States San Jose (sănəzā`, săn hōzā`), city (1990 pop. 782,248), seat of Santa Clara co., W central Calif.; founded 1777, inc. 1850. , Kansas City Kansas City, two adjacent cities of the same name, one (1990 pop. 149,767), seat of Wyandotte co., NE Kansas (inc. 1859), the other (1990 pop. 435,146), Clay, Jackson, and Platte counties, NW Mo. (inc. 1850). , St. Louis, Salt Lake City and Detroit." He added, "We believe that mortgage brokers will continue to dominate originations. From our research, we know they appreciate doing business with a lender who is strictly wholesale rather than one that competes with them in the retail channel. Our ability to offer a broad selection of loan products from multiple investors helps make brokers successful by serving the needs of both existing and first-time homebuyers First-Time Homebuyer An IRA owner who is exempt from the early-distribution penalty (which applies to IRA distributions that occur before the IRA owner reaches age 59.5) for distributing funds from his or her IRA to buy, build, or rebuild a home when having had no interest in a ." After-tax income for 2004 is expected to be in the range of $15 million to $17 million, or $1.75 to $2.00 per diluted share. Pre-tax earnings for 2004 are anticipated to be in the range of $26 to $30 million. This would represent a decline of up to 20% from estimated 2003 pre-tax earnings due to increased infrastructure costs, including new loan production offices, as well as the assumption that AmNet will realize lower per loan revenues due to competitive pressure. Additionally, because the Company has recognized the majority of its tax benefits in the last nine months, the combined federal and state tax rate is assumed to be 42% in 2004 versus approximately 33% in 2003. Commenting on specific 2004 metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. , Judith A. Berry Berry, former province, France Berry (bĕrē`), former province, central France. Bourges, the capital, and Châteauroux are the chief towns. , Executive Vice President and Chief Financial Officer, concluded, "As we transition to a purchase environment and execute our expansion plan, we expect loan volume and profits to decrease during the fourth quarter of 2003 and first quarter of 2004. However, loan volume and profits should increase in the second half of 2004. This has been anticipated as refinances decline and we shift to a more normal purchase market. We are confident that well-executed expansion plans will permit us to increase year-over-year loan production in 2004 and 2005 as the full impact of AmNet's market share growth is realized. Furthermore, the Company's strong cash position, representing over half of our stockholders equity balance at September 30, 2003, gives us the ability to consider a variety of options to enhance stockholder value. The Company's current priority for its cash is to ensure adequate reserves to support the anticipated growth in branch locations and loan volume. As growth goals are met, the Board of Directors will consider alternative uses which could include dividends, share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. and new business development." Conference Call and Webcast Management will host a conference call with a simultaneous webcast today at 1:30 p.m. Pacific/4:30 p.m. Eastern to discuss third quarter operating performance and outlook. The conference call, featuring Chairman and Chief Executive Officer John M. Robbins and Executive Vice President and Chief Financial Officer Judith A. Berry, will be available live 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 listen to the webcast, log on to the Company's web site at www.amerreit.com and click on the link that appears on the home page. The webcast will also be available live at www.fulldisclosure.com. An online replay will be available at www.amerreit.com for one year. A telephone replay will be available through November 13, 2003 by dialing (800) 642-1687 or (706) 645-9291 and entering the pass code 3749618. Electronic versions of news releases may be accessed via the Company's web site at www.amerreit.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 American Residential Investment Trust, Inc. AmNet originates loans for the national mortgage broker community through its network of branches and business-to-business over the Internet. AmNet has loan production offices in Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Minnesota, New Jersey, 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. , Oregon, 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, Virginia and Washington. AmNet has a total of $1.4 billion in warehouse borrowing capacity and is approved to do business in 47 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. AmNet has close to 4,000 broker customers across the nation. For more information, please visit www.amnetmortgage.com. About American Residential Investment Trust American Residential Investment Trust, Inc. is the parent company of American Mortgage Network. For more information, please visit www.amerreit.com. Forward Looking Statement Certain matters discussed in this press release may constitute 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. within the meaning of federal securities laws. Forward-looking statements include statements regarding Company expansion plans for branch locations and account executives in 2004, the MBA's expected mortgage market size in 2003 and 2004, AmNet's expected mortgage loan fundings in the fourth quarter and year 2003, the Company's anticipated net income for the fourth quarter and year 2003, the Company's assumed combined federal and state income tax rates for 2003 and 2004, the Company's basic book value per share at December 31, 2003, AmNet's expected mortgage loan funding volume range for 2004 and monthly funding volume by the end of 2004, thirty-year fixed mortgage rates in 2004, the Company's belief that AmNet will increase its market share in 2004 and produce more loans than in 2003, potential cities for new branch locations, the Company's belief that mortgage brokers will continue to dominate mortgage originations, expected after-tax and pre-tax earnings for the Company in 2004, the expectation that loan volumes will decrease in the fourth quarter of 2003 and the first quarter of 2004, but increase in the second half of 2004 and the expectation that the Board of Directors will consider alternative uses for the Company's cash including dividends, share repurchase and new business development. 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 level of interest rates generally; economic conditions generally; the size of the national mortgage market; uncertainty as to the percentage of the loan pipeline that will result in mortgage loan fundings; fluctuation Fluctuation A price or interest rate change. in the margins, net of hedging, of loans in the Company's pipeline; the predictability of the Company's expenses; the future correlation of volatility in forward mortgage sale instruments to the Company's loan lock commitments; interest rate volatility; the availability of financing for the funding of mortgage loans; the Company's liquidity position; the availability of qualified mortgage professionals and other risk factors outlined in American Residential's SEC reports.
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
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Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
-------------------- --------------------
9/30/2003 9/30/2002 9/30/2003 9/30/2002
-------------------- --------------------
Income Statement
Mortgage Banking Segment:
Revenues
Gain on sales of loans $9,580 $18,808 $62,760 $25,254
-------------------- --------------------
Derivative financial
instruments:
Treasury futures and
options and related
commissions and fees - (8,000) - (18,123)
Forward sales of mortgage
backed securities (MBS)
and options on MBS 4,194 (9,668) 1,115 (9,791)
Market adjustment on loan
commitment pipeline 10,955 2,466 2,539 4,311
-------------------- --------------------
Total derivative
financial
instruments 15,149 (15,202) 3,654 (23,603)
-------------------- --------------------
Interest on mortgage assets 10,381 4,158 23,843 8,051
Other income 24 2 76 8
-------------------- --------------------
Total revenue, net
of derivative
financial
instruments 35,134 7,766 90,333 9,710
-------------------- --------------------
Expenses
Interest expense 4,535 2,409 10,656 4,233
Operating expenses 20,840 7,707 53,216 17,951
-------------------- --------------------
Total expenses 25,375 10,116 63,872 22,184
-------------------- --------------------
Income (loss) before income
taxes - Mortgage Banking
Segment $9,759 $(2,350) $26,461 $(12,474)
Mortgage Asset Portfolio
Segment:
Revenues
Interest on mortgage assets $2,665 $2,999 $8,841 $13,520
Other income 534 243 945 1,073
Litigation Settlement - - - 10,281
-------------------- --------------------
Total revenue 3,199 3,242 9,786 24,874
-------------------- --------------------
Expenses
Interest expense 1,111 2,383 3,800 8,458
Provision for loan losses 764 1,492 2,478 4,619
(Gains) Loss on sale of real
estate owned, net (236) (281) (751) 152
Operating expenses 330 844 1,733 2,281
-------------------- --------------------
Total expenses 1,969 4,438 7,260 15,510
-------------------- --------------------
Income (loss) before income
taxes - Mortgage Asset
Portfolio Segment $1,230 $(1,196) $2,526 $9,364
Consolidated Income (loss)-
Combined Segments $10,989 $(3,546) $28,987 $(3,110)
Provision for income taxes 3,945 - 9,423 7
Income tax benefit from
termination of REIT status (724) - (9,865) -
Consolidated Net
Income (loss) $7,768 $(3,546) $29,429 $(3,117)
Per Share Data
-----------------------------
Weighted average common
shares outstanding 7,858,733 7,879,229 7,861,665 7,892,563
Consolidated income (loss)
per share basic $0.99 $(0.45) $3.74 $(0.39)
Consolidated income (loss)
per share diluted $0.91 $(0.45) $3.45 $(0.39)
Loan Origination Data
-----------------------------
Total mortgage loans funded
in period ($ millions) $3,033 $1,263 $8,319 $2,216
Number of loans funded 17,218 7,005 46,763 12,585
Balance Sheet Data
-----------------------------
Cash and cash equivalents $44,357 $11,650
Restricted cash 2,100 2,856
Bond collateral mortgage
loans and real estate owned,
net of reserves 185,931 305,682
Mortgage loans held for sale,
net 367,013 243,929
Total assets 616,676 595,389
Short-term debt 352,778 255,890
Long-term debt, net 153,283 273,016
Total stockholders' equity $88,827 $54,826
Book value per share basic $11.30 $6.96
Book value per share diluted $10.42 $6.96
Debt to equity ratio 5.7:1 9.6:1
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($ in thousands, except per share data and as noted)
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