Delta Financial Corporation Reports Second Quarter 2007 Results, Announces $70 Million in Additional Capital with Angelo, Gordon & Co. and Mohnish Pabrai.WOODBURY, N.Y. -- Delta Financial Corporation (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 : DFC DFC - A dataflow language. ["Data Flow Language DFC: Design and Implementation", S. Toshio et al, Systems and Computers in Japan, 20(6):1- 10 (Jun 1989)]. ) today reported net income of $777,000, or $0.03 per diluted share, for the quarter ended June 30, 2007, compared to net income of $7.2 million, or $0.31 per diluted share, for the same period last year. Delta originated a record $1.4 billion of mortgage loans, an approximate 9% increase from the first quarter 2007 and an approximate 39% increase from the second quarter of 2006. For additional information on the second quarter earnings, please see the section later in this release entitled More on Our Second Quarter Earnings. "Liquidity has become one of the most important issues facing lending institutions Noun 1. lending institution - a financial institution that makes loans financial institution, financial organisation, financial organization - an institution (public or private) that collects funds (from the public or other institutions) and invests them in today as the credit disruption widens and rating agencies modify their reserve level requirements," explained Hugh Miller Hugh Miller (1802 – 1856) was a self-taught Scottish geologist and writer and an evangelical Christian. Born in Cromarty, he had an ordinary parish school education, but soon showed a remarkable love of reading and power of story-telling. , president and chief executive officer. "This has created a capital intensive environment in which it is increasingly more costly to operate. While our adherence to Delta's proven business model, with a focus on fixed rate loans and a diversified wholesale/retail origination platform, provided some insulation and helped us generate positive earnings during the second quarter, it became apparent this current environment would unduly strain our liquidity." "Accordingly, I am pleased to announce we have entered into two transactions to help strengthen our Company and provide additional financial flexibility," continued Mr. Miller. "First, we obtained a $60.0 million financing facility from an affiliate of Angelo, Gordon & Co., a leading alternative asset management firm. The financing is collateralized by all of our currently existing 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. cashflow certificates. As part of the transaction, Angelo, Gordon & Co. will receive warrants to purchase 10.0 million shares of our Common Stock with an initial exercise price of $5.00 per share, expiring February 2009, subject to extension if we do not obtain stockholder approval for the warrant issuance within 90 days of the closing date. The fair value of the warrants issued will be amortized to interest expense as a non-cash yield adjustment over the life of the associated financing facility." "At the same time, we have agreed to issue $10.0 million of convertible notes to funds managed by Mr. Mohnish Pabrai Mohnish Pabrai is an Indian-American businessman, investor and philanthropist. In June 2007 he made headlines by bidding US$650,100 for a charity lunch with Warren Buffett. , one of our largest stockholders," Mr. Miller explained. "The notes are convertible into an aggregate of 2.0 million shares of our Common Stock, at a conversion price of $5.00 per share. The exercise of most of the warrants and the issuance of all of the shares upon conversion of the notes are both subject to shareholder approval, which we intend to pursue in the near future." "We are pleased to be associated with Delta Financial," said David Roberts There are several people named David Roberts:
A loan whose rate is fixed for the life of the loan. , and its experienced management team, which is well-qualified, to execute the Company's strategy." Mohnish Pabrai stated, "Delta is one of the best companies and management teams in this space. I look for them to emerge from the current market disruption Market Disruption A situation where markets cease to function in a regular manner, typically characterized by rapid and large market declines. Market disruptions can result from both physical threats to the stock exchange or a unusual trading (as in a crash). and be well-positioned to take advantage of a less populated pop·u·late tr.v. pop·u·lat·ed, pop·u·lat·ing, pop·u·lates 1. To supply with inhabitants, as by colonization; people. 2. competitive landscape." "In addition to the new capital infusion Capital infusion Often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. , we have taken other steps to strengthen the Company including increasing our mortgage rates, modifying our underwriting guidelines, and discontinuing certain loan products," explained Mr. Miller. "The effects of these recently-made changes to rates and products are expected to mitigate, to some extent, the impact of rating agencies' changes. However, for those loans originated under our previous guidelines but not yet securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. or in our pipeline, we expect to receive materially less favorable securitization or whole loan execution." "With uncertainty still in the credit and mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. markets, and the housing market expected to further soften, the second half of 2007 is proving to be very challenging. As such, we will not be providing any guidance at this time as it relates to portfolio growth, net interest margins or whole loan sale premiums, and we are suspending any prior guidance. While there is pressure on short term earnings, we believe our new financing arrangements will help enable us to weather the storm," continued Mr. Miller. More on Second Quarter Earnings "Although we set a record for quarterly 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. and cost to originate this quarter, our earnings were lower than expected primarily due to the effect of slower than forecasted prepayment speeds Prepayment speed Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities. on our fixed-rate loans, which comprise the vast majority of our portfolio," explained Mr. Miller. "It was necessary to record a $3.9 million non-cash reduction to our net interest income to reflect an adjustment to the 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. assumptions we use to accrete deferred income under the interest method in accordance with accounting pronouncement SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 91." The deferred income is comprised primarily of the net origination fees A charge imposed by a lending institution or a bank for the service of processing a loan. For example, a bank might charge an individual who has applied for a student loan an origination fee of one percent for processing the application and granting the loan. collected at the time mortgage loans are originated, and the purchase price received when the Company sells mortgage servicing Mortgage servicing The collection of monthly payments and penalties, record keeping, payment of insurance and taxes, and possible settlement of default , involved with a mortgage loan. rights in connection with securitizations, both of which are recognized over the estimated life of the related mortgage loans. "We anticipate that slower-than-previously-expected prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. on fixed-rate loans will continue for the foreseeable future," Mr. Miller explained. "While these slower-than-anticipated prepayment speeds also resulted in less-than-expected prepayment penalty Prepayment penalty A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity. income for the quarter, it could result in more net interest income recognized in later periods, as slower prepayment speeds means mortgage loans will remain outstanding for a longer period of time." As announced last quarter, "other income" was $4.0 million lower during the second quarter of 2007 compared to the quarter one year ago as the Company sold all remaining excess cashflow certificates during the first quarter of 2007. Second Quarter 2007 and Related Highlights * Total cost to originate, as a percentage of total loan production, was 1.5%. * Originated a record $1.4 billion in mortgage loans as both the retail and wholesale channels reported record volume. * On-balance sheet loan portfolio increased 39% to $7.7 billion from $5.6 billion in June 30, 2006. * Fixed rate loans for the quarter comprised approximately 96% of total production, up from approximately 86% a year ago. * Sold approximately $205 million loans on a whole-loan basis for an average premium of 3.2%. * Completed an asset-backed securitization collateralized by $850 million of mortgage loans in June 2007. * Announced quarterly cash dividend on June 5, 2007 of $0.05 per share of common stock to stockholders of record on June 25, 2007. The dividend was paid on July 3, 2007. For the six-months ended June 30, 2007, the Company reported net income of $5.7 million, or $0.23 per diluted share, compared to net income of $13.8 million, or $0.61 per diluted share, for the six- months ending June 30, 2006. Additional Second Quarter 2007 Information Net Interest Income The Company's net interest income, after provision for loan losses, decreased to $25.7 million in the second quarter of 2007, from $29.4 million in the second quarter of 2006. The decrease was attributable to several factors, including (a) the aforementioned $3.9 million non-cash reduction to net interest income related to changes in our prepayment assumptions, (b) a decline in prepayment penalty fee income to 25 basis points per annum Per annum Yearly. (as a percentage of average loans held for investment) for the second quarter of 2007 compared to 37 basis points for the second quarter of 2006, (c) a $6.3 million increase in the loan loss provision for the second quarter of 2007 compared to the second quarter of 2006 as the portfolio continues to grow and season, and (d) the continued flattened flat·ten v. flat·tened, flat·ten·ing, flat·tens v.tr. 1. To make flat or flatter. 2. To knock down; lay low: The boxer was flattened with one punch. yield curve, which compresses the net interest margin due to higher short-term funding costs. Level Yield Adjustment In accordance with SFAS No. 91, we amortize certain direct loan origination fees, origination costs, and certain other premiums and discounts to income on a level-yield basis over the estimated life of the mortgage loans and related securitization debt using estimated prepayment speeds. The Company is required to adjust the life-to-date amortization of these deferred fees and costs when differences arise between actual and estimated prepayments. Changes to the prepayment speed estimates are applied to the level-yield calculations as if the revised estimates Revised estimate The third estimate of GDP released about three months after the measurement period. had been in place since the origination of the loans and inception of the securitization debt. The Company therefore adjusted its life-to-date amortization and current period amortization to reflect the effect of the changes. The changes made by the Company to reflect a slower-than-previously anticipated prepayment environment resulted in a $3.9 million non-cash reduction to net interest income in the second quarter of 2007 and a corresponding increase in our deferred revenue, which will be amortized to net interest income over the remaining expected life of the related mortgage loans and related securitization debt. Credit Performance The allowance for loan losses represents 86 basis points, or $66.9 million, of the outstanding net loan portfolio at June 30, 2007, compared to 87 basis points, or $60.9 million, at March 31, 2007. The $6.0 million increase reflects the growth in the size, performance and seasoning of the outstanding on-balance sheet loan portfolio at June 30, 2007. The Company's allowance for loan losses is currently expected to cover principal losses over the next 18 to 24 months on the outstanding loan portfolio. During the second quarter of 2007, the Company charged-off $7.3 million of loans, or 39 basis points 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. , against the allowance for loan losses. Loans delinquent greater than 90 days constituted 6.2% of the outstanding loan balance at June 30, 2007. Other Income As the Company reported during its first quarter 2007 conference call, "other income," as expected, was minimal in the second quarter of 2007 and is expected to remain minimal in the future as the majority of "other income" in previous years was primarily related to the increase in the fair values recorded on our excess cashflow certificates, all of which were sold during the first quarter of 2007. Secondary Marketing (Securitized Loans and Loan Sales) The Company completed an asset-backed securitization collateralized by $850 million of mortgage loans in June 2007, under its Renaissance Mortgage Acceptance Corp. shelf, and continued to distinguish itself in the market place by receiving attractive whole-loan sale premiums in the second quarter. Whole-loan sales in the second quarter of 2007 represented approximately 15% of total loan originations, or $205 million, with an average whole-loan sale premium of 3.2%. The following table provides certain information regarding securitized loans and loans sold on a whole-loan basis during the three months ended June 30, 2007 and 2006: [TABLE OMITTED] Loan Originations and Characteristics The following tables provide information on the Company's loan originations by loan type and origination channel for the three months ended June 30, 2007 and 2006: [TABLE OMITTED] [TABLE OMITTED] Conference Call and Webcast The Company will host a conference call to discuss its financial results at 4:30 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT , Tuesday, August 14, 2007. The live conference call can be accessed by dialing (866) 585-6398 (domestic) or (416) 849-9626 (international). A live listen-only webcast of the conference call will be available in the Corporate Highlights portion of the Investor Relations Investor relations The process by which the corporation communicates with its investors. section of the Company's website at www.deltafinancial.com. A replay of the conference call and the question/answer session will be available on the Company's website shortly after the live call is completed, and will be available through Tuesday, August 28, 2007. The telephone replay will also be available shortly after the live call is completed and can be accessed by dialing (866) 245-6755 (domestic) or (416) 915-1035 (international), and using the code: 497268. About the Company Founded in 1982, Delta Financial Corporation is a Woodbury, New York-based specialty consumer finance company that originates, securitizes and sells non-conforming mortgage A non-conforming mortgage is a term in the United States for a residential mortgage that does not conform to the loan purchasing guidelines set by the Federal National Mortgage Association /Federal Home Loan Mortgage Corporation (Fannie Mae and Freddie Mac). loans. The loans the Company originates are primarily fixed rate, and are secured by first mortgages on one- to four-family residential properties. The Company originates non-conforming loans A non-conforming loan is a loan that fails to meet bank criteria for funding. Reasons include the loan amount is higher than the conforming loan limit (for mortgage loans), lack of sufficient credit, the unorthodox nature of the use of funds, or the collateral backing it. through a network of approximately 3,200 independent brokers and the Company's retail offices. Since 1991, Delta has completed 52 asset-backed securitizations, collateralized by approximately $19.8 billion in mortgage loans. Important Information Regarding 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 statements contained in this press release, which are not historical fact, may be deemed to be "forward-looking" statements under the federal securities laws, and involve risk and uncertainties. Forward-looking statements relate to, among other things, our statements as to the benefits to be realized from our financing arrangements and changes to our loan origination policies, our liquidity needs, our capital raising plans, our future earnings, profitability, net interest income, interest expense, growth, loan production, loan portfolio size, prepayment rates, loan performance (including delinquencies and losses), emphasis on originating fixed-rate loans, future product offerings and originations activity, the pricing of whole-loan sales, our future competitive position and the adequacy of our allowance for loan losses. There are many important factors that could cause our actual results to differ materially from those indicated in the forward-looking statements. Such factors include, but are not limited to, the availability of funding at favorable terms and conditions, including, without limitation, the availability of warehouse, residual and other credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities ; our ability or inability to continue to access the securitization and whole-loan markets on favorable terms and conditions or at all; our ability to obtain stockholder approval of the equity issuances In financial markets, an Equity Issuance is the sale of new equity or "stocks" by a firm to investors. Equity Issuance can involve a private sale, in which the transaction between investors and the firm takes place directly, or publicly, in which case the firm has to described above and the consequences to us if we do not receive stockholder approval; the potential impact that amortizing the discount related to the warrants may have to our financial statements; rating agencies' changes impacting reserve levels; competition; loan losses, loan prepayment rates, delinquency and default rates; repurchase obligations, early payment default, costs and potential liabilities associated with litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , regulatory investigations or actions by state and/or federal agencies and other regulatory compliance matters and changes (legislative or otherwise) affecting mortgage lending activities and the real estate market; general economic conditions, including interest rate risk, future residential real estate values, future tax rates and demand for our products and services; the state of the housing market; and other risks identified in our filings with the Securities and Exchange Commission, including those discussed in our 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. under the captions "Business-Forward Looking Statements and Risk Factors" and "Risk Factors" and our Form 10-Q Form 10-Q See 10-Q. under the caption "Risk Factors." We disclaim any obligation to update or revise any of the forward-looking information contained in this press release at any future date, except as required under applicable securities laws. [TABLE OMITTED] [TABLE OMITTED] |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion