Saxon Capital, Inc. Reports Third Quarter 2005 Operating Results.GLEN ALLEN Glen Allen is the name of several places in the United States of America:
Any member of a Germanic people who lived along the Baltic coast in ancient times and later migrated west as far as the British Isles. The Saxons became pirates in the North Sea during the decline of the Roman empire, and in the early 5th century they spread through Capital, Inc. ("Saxon" or the "Company") (NYSE NYSE See: New York Stock Exchange :SAX), a residential mortgage lending and servicing real estate investment trust (REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). ), today announced third quarter 2005 net income of $11.6 million or $0.23 per share 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. , compared to net income of $38.3 million or $1.14 per share diluted for the third quarter of 2004, and $19.4 million or $0.38 per share diluted for the second quarter of 2005. During the third quarter of 2005, Saxon recorded a reserve of $6.8 million in connection with losses that may occur in the mortgage loan portfolio due to Hurricane Katrina  Editing of this page by unregistered or newly registered users is currently disabled due to vandalism. . The
Company has also recorded additional mortgage servicing Mortgage servicingThe collection of monthly payments and penalties, record keeping, payment of insurance and taxes, and possible settlement of default , involved with a mortgage loan. right impairments related to Hurricane Katrina of $0.4 million. During the third quarter of 2005, Saxon recorded a cumulative adjustment to increase income tax benefit and increase deferred tax asset of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $3.7 million. The adjustment had no impact on cash flows, taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. or the amount of dividends declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. for any of these periods. "During the third quarter, we continued to see the unfavorable market conditions that we discussed in the second quarter", said Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. L. Sawyer, Chief Executive Officer of Saxon. "The continued rise in short-term interest rates Short-term interest rates Interest rates on loan contracts-or debt instruments such as Treasury bills, bank certificates of deposit or commerical paper-having maturities of less than one year. Often called money market rates. , and accelerated 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. , coupled with the extended period of muted mut·ed adj. 1. a. Muffled; indistinct: a muted voice. b. Mute or subdued; softened: muted colors. 2. market pricing increases continue to adversely effect our results. We remain committed to prudent management through these times, concentrating on reducing general and administrative expenses, growing our centralized cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. retail 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 platform, focusing on capital preservation, and ensuring a strong balance sheet." Financial Performance Net interest income was $46.6 million for the third quarter of 2005, compared to $61.7 million for the third quarter of 2004 and $50.1 million for the second quarter of 2005. Net interest margin was 3.0% for the third quarter of 2005 compared to 4.6% for the third quarter of 2004 and 3.3% for the second quarter of 2005. Net interest margin is calculated as net interest income divided by average interest-earning assets. Average interest-earning assets are calculated using a daily average balance over the time period indicated. Net interest margin after provision for mortgage loan losses was 1.8% for the third quarter of 2005, compared to 3.5% for the third quarter of 2004 and 2.4% for the second quarter of 2005. Excluding the reserve of $6.8 million related to Hurricane Katrina, Saxon's net interest margin after provision for mortgage loan losses for the third quarter 2005 would have been 2.2%. Net interest margin after provision for mortgage loan losses is calculated as net interest income after provision for mortgage loan losses divided by average interest-earning assets. Faster 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. of the higher weighted average coupon 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. mortgage loan portfolio reduced gross interest income. Mortgage loans with a lower weighted average coupon produced during a period of intense pricing competition replaced the higher weighted average coupon loans. Gross interest expense increased due to the rise in 1-month LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). and its impact on Saxon's long- long- Adverb (in combination) for or lasting a long time: long-established, long-lasting and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. financing. As of September September: see month. 30, 2005, 1-month LIBOR had increased approximately 202 basis points since September 30, 2004, and approximately 52 basis points since June June: see month. 30, 2005. The increase in the 2/3-year swap curve Swap Curve The name given to the swap's equivalent of a yield curve. The swap curve identifies the relationship between swap rates at varying maturities. Notes: Used in similar manner as a bond yield curve, the swap curve helps to identify different characteristics of the positively impacted the Company's hedge values. At September 30, 2005, Saxon recognized an unrealized hedge gain of approximately $25.2 million (pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta ), which is reflected as a component of shareholder's equity in accumulated other comprehensive income In 1997 the Financial Accounting Standards Board issued a Statement on Financial Accounting Standards entitled “Comprehensive Income”. This statement required all income statement items to be reported either as a regular item in the income statement and or a special item as on the condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. 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. . The Company's unrealized hedge gain is accreted into income as a reduction of interest expense in the condensed consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: statement of operations See Income statement. in future periods over the expected life of the related debt. Total delinquencies (excluding Hurricane Katrina) increased $53 million from the second quarter of 2005 to the third quarter of 2005. Saxon increased its provision for mortgage loan losses to $19.4 million, which includes a $6.8 million reserve related to Hurricane Katrina. Servicing income, net of amortization and impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. , was $19.1 million for the third quarter of 2005, compared to $8.4 million for the third quarter of 2004 and $17.2 million for the second quarter of 2005. During the quarter, the Company recorded a $3.4 million temporary impairment to mortgage servicing rights, $0.4 million of which was related to Hurricane Katrina and the remainder of which was related to faster prepayment speeds and lower market valuation on older third party servicing portfolios. Saxon's third party servicing portfolio grew 8.6% to $20.2 billion at September 30, 2005, compared to $18.6 billion at June 30, 2005. During the third quarter 2005, Saxon purchased servicing rights on $4.1 billion in mortgage loan pools. Total net revenues for the third quarter of 2005 were $46.3 million, compared to $55.6 million for the third quarter of 2004 and $54.5 million for the second quarter of 2005. Total expenses, which include payroll payroll a list of employees, their salary rates, tax deductions, amounts paid, payroll tax, long service leave entitlements. and related expenses, general and administrative expenses and other expenses, were $41.1 million for the third quarter of 2005, compared to $36.3 million for the third quarter of 2004 and $32.8 million for the second quarter of 2005. Total expenses increased in the third quarter 2005 from third quarter of 2004 due to $1.9 million of severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when expense related to the departure of the Executive Vice President Capital Markets and Senior Vice President and Corporate Strategies Director, and an increase in accounting, consulting/outside services, and lease expenses. Total expenses increased in the third quarter 2005 from the second quarter of 2005 due to an increase in severance (as mentioned above), salary, lease and retail marketing expenses. In addition, the amount of FAS 91expenses deferred on a per loan basis was reduced in the third quarter 2005 by $1.2 million due to the impact of a lower retail cost structure. Cost to service was 17 basis points for the third quarter of 2005, compared to 20 basis points for the third quarter of 2004, and a 17 basis points cost in the second quarter of 2005. Total net cost to produce was 2.96% of total loan production for the third quarter of 2005, compared to 2.79% for the third quarter of 2004 and 2.84% for the second quarter of 2005. The increase in net cost to produce from the second quarter 2005 to the third quarter 2005 is primarily attributed to an increase in correspondent A bank, Securities firm, or other financial institution that regularly renders services for another in an area or market to which the other party lacks direct access. A bank that functions as an agent for another bank and carries a deposit balance for a bank in another city. premiums paid. Cost to service and total net cost to produce are measures defined by the Securities and Exchange Commission as "non-GAAP financial measures." Management believes that such non-GAAP financial measures, when read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the Company's reported results, can provide useful supplemental information about the efficiency of the Company's processes to its investors. Tables reconciling the Company's calculation of cost to service and total net cost to produce to GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). results are set forth in Exhibit A.
REIT Taxable Income
The following table is a reconciliation of GAAP net income to
estimated REIT taxable net income for the three and nine months ended
September 30, 2005:
Three Nine
months months
ended ended
September September
30, 2005 30, 2005
---------- ----------
($ in thousands)
Consolidated GAAP income before taxes $5,296 $54,800
Estimated tax adjustments:
Plus:
Provision for losses 19,369 38,551
Elimination of intercompany income before
taxes 2,095 15,515
Less:
Taxable REIT subsidiary income before taxes 544 12,490
Securitized loan adjustments for tax (3,351) 5,901
Miscellaneous other 99 (907)
---------- ----------
Estimated REIT taxable income $29,468 $91,382
========== ==========
The estimated REIT taxable income for the three and nine months ended September 30, 2005 set forth in the table above is an estimate only and is subject to change until the Company files its 2005 REIT federal tax returns. To maintain the status as a REIT, Saxon is required to distribute at least 90% of its REIT taxable income each year to its shareholders. REIT taxable income is calculated under consolidated net income pursuant to GAAP. Saxon expects that consolidated GAAP net income may differ from REIT taxable income for many reasons, including the following: --the provision for loan loss expense recognized for GAAP purposes is based upon the estimate of probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. loan losses inherent in our current portfolio of loans held for investment, for which the Company has not yet recorded a charge-off Eliminate or write off. The term charge-off is used to describe the process of removing from the records of a company something that was once regarded as an asset but has subsequently become worthless. (tax accounting rules allow a deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. for loan losses only in the period when a charge-off occurs); --there are several differences between GAAP and tax methodologies for capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. of origination expenses; and --income of a taxable REIT subsidiary is generally included in the REIT's earnings for consolidated GAAP purposes, but is not recognized in REIT taxable income. Saxon expects that its REIT taxable income will continue to differ from GAAP consolidated income, particularly during the period in which the Company is building its mortgage loan portfolio. Estimated REIT taxable income is a non-GAAP financial measure within the meaning of Regulation G promulgated prom·ul·gate tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates 1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce. 2. by the Securities and Exchange Commission. Management believes that the presentation of REIT taxable income provides useful information to investors regarding our estimated annual distributions to our investors. The presentation of REIT taxable income is not to be considered in isolation or as a substitute for financial results prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP. Portfolio Credit Performance Saxon's net mortgage loan portfolio totaled $6.2 billion at September 30, 2005, an increase of 10.7% from September 30, 2004 and an increase of 1.6% from June 30, 2005. Seriously delinquent delinquent 1) adj. not paid in full amount or on time. 2) n. short for an underage violator of the law as in juvenile delinquent. DELINQUENT, civil law. He who has been guilty of some crime, offence or failure of duty. (60+ days past due) loans were 6.4% of net mortgage loan portfolio at September 30, 2005, compared to 6.6% at September 30, 2004 and 6.0% at June 30, 2005. Saxon's allowance for loan losses was $49.2 million at September 30, 2005, compared to $36.3 million at September 30, 2004, and $36.3 million at June 30, 2005. Allowance for loan losses as a percentage of net mortgage loan portfolio balance increased to 0.79% at September 30, 2005 from 0.65% at September 30, 2004, and increased from 0.59% at June 30, 2005. Allowance for loan losses as a percentage of total delinquency delinquency Criminal behaviour carried out by a juvenile. Young males make up the bulk of the delinquent population (about 80% in the U.S.) in all countries in which the behaviour is reported. and serious delinquency was 7.0% and 14.2% for the third quarter of 2005 compared to 5.9% and 11.3% for the third quarter of 2004 and 5.7% and 11.2% for the second quarter of 2005 (excluding 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 delinquencies). Saxon's total delinquent and seriously delinquent loans continue to trend in line with historical seasonal data and include approximately $32.2 million of loans impacted by Hurricane Katrina. The Company increased its allowance for loan losses by $6.8 million for the potential impact of Hurricane Katrina. Loan Production Mortgage loan production (excluding called loans from off balance sheet securitizations) was $847.76 million for the third quarter of 2005, a decrease of 15% compared to the third quarter of 2004, and an increase of 8% from the second quarter of 2005. Mortgage loan production (excluding called loans from off balance sheet securitizations) was $2.4 billion for the nine months ended September 30, 2005, compared to $2.7 billion for the nine months ended September 30, 2004. Saxon's wholesale mortgage loan production was $404.6 million during the third quarter of 2005, an increase of 2% from the third quarter of 2004, and an increase of 7% from the second quarter of 2005. Wholesale mortgage loan production was $1.1 billion for the nine months ended September 30, 2005, which was flat compared to the nine months ended September 30, 2004. Saxon's retail mortgage loan production was $170.3 million during the third quarter of 2005, a decrease of 31% from the third quarter of 2004, and a decrease of 4.5% from the second quarter of 2005. Retail mortgage loan production was $550.6 million for the nine months ended September 30, 2005, a decrease of 22% from the nine months ended September 30, 2004. Saxon's correspondent flow mortgage loan production was $228.7 million during the third quarter of 2005, a decrease of 14% from the third quarter of 2004, and an increase of 15% from the second quarter 2005. Correspondent flow mortgage loan production was $650.94 million for the nine months ended September 30, 2005, an increase of 11% from the nine months ended September 30, 2004. Correspondent bulk mortgage loan production was $44.2 million during the third quarter of 2005, a increase of 11% from the third quarter of 2004, and a increase of 33% from the second quarter 2005. Correspondent bulk mortgage loan production was $115.3 million for the nine months ended September 30, 2005, a decrease of 2% from the nine months ended September 30, 2004. Saxon's production in 2005 has been negatively impacted by the closing and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of several retail branches, and the intense pricing competition existing in the marketplace throughout the first nine months of 2005. 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. Saxon's third party servicing portfolio was $20.2 billion at September 30, 2005, an increase of 92% from September 30, 2004, and an increase of 8% from June 30, 2005, resulting from the purchase of additional third party servicing rights. During the third quarter of 2005, Saxon purchased third party servicing rights to service approximately $4.1 billion of mortgage loans, which have annual servicing fees of approximately 50 basis points. Liquidity At September 30, 2005, Saxon had $1.7 billion in committed facilities Committed Facility A credit facility whereby terms and conditions are clearly defined by the lending institution and imposed upon the borrowing company. Notes: In committed facilities, the borrowing companies must meet specific requirements set forth by the lending and $154.0 million in working capital, compared to $1.6 billion in committed facilities and $333.0 million in working capital at September 30, 2004. It is common business practice to define working capital as current assets Current Assets Appearing on a company's balance sheet, it represents cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted to cash within one year. less current liabilities Current Liabilities Usually appearing on a company's balance sheet, it represents the amount owed for interest, accounts payable, short-term loans, expenses incurred but unpaid, and other debts due within one year. . However, the Company does not have a classified balance sheet and therefore calculates working capital using an internally defined formula, which is generally calculated as unrestricted cash and investments as well as unencumbered Unencumbered Property that is not subject to any creditor claims or liens. Notes: For example, if a house is owned free and clear (meaning the owner owes no mortgage to anyone), it is unencumbered. assets that can be pledged pledge n. 1. A solemn binding promise to do, give, or refrain from doing something: signed a pledge never to reveal the secret; a pledge of money to a charity. 2. a. against existing committed facilities and converted to cash in five days or less. Management believes that this working capital calculation provides a better indication of the Company's liquidity available to conduct business at the time of calculation. A reconciliation between the Company's working capital calculation and the common definition of working capital is presented in exhibit A. During the third quarter of 2005, Saxon priced and closed a $900 million asset-backed 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. , Saxon Asset Securities Trust 2005-3. Recent Developments On October October: see month. 18, 2005, Saxon announced its third quarter cash dividend of $0.50 per share of common stock payable November November: see month. 10, 2005 to shareholders of record at the close of business on October 28, 2005. Conference Call Saxon will host a conference call for analysts and investors at 9 a.m. Eastern Time on Tuesday Tuesday: see week. , November 8, 2005. For a live 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 broadcast of this conference call, please visit Saxon's investor relations Investor relations The process by which the corporation communicates with its investors. website at www.saxoncapitalinc.com. To participate in the call, contact Ms. Bobbi Roberts at 804-967-7879 or Ms. Meagan Evans Ev·ans , Herbert McLean 1882-1971. American anatomist who isolated four pituitary hormones and discovered vitamin E (1922). at 804-935-5281. A replay will be available shortly after the call and will remain available until 11:59 p.m. Eastern Time, November 15, 2005. The replay will be available on Saxon's website or at 800-475-6701 using the ID number 798960. About Saxon Saxon is a residential mortgage lender LENDER, contracts. He from whom a thing is borrowed. 2. The contract of loan confers rights, and imposes duties on the lender. 1. The lender has the right to revoke the loan at his mere pleasure; 9 Cowen, R. 687; 8 Johns. Rep. 432; 1 T. R. 480; 2 Campb. Rep. and servicer that manages a portfolio of mortgage assets. Saxon purchases, securitizes and services real property secured mortgages and elects to be treated as a real estate investment trust (REIT) for federal tax purposes. The company is headquartered in Glen Allen, Virginia Glen Allen is a census-designated place (CDP) in Henrico County, Virginia, United States. The population was 12,562 at the 2000 census. Geography Glen Allen is located at (37.660094, -77.485634)GR1. and has additional primary facilities in Fort Worth, Texas Fort Worth is the fifth-largest city in the state of Texas, 18th-largest city in the United States[1], and voted one of "America’s Most Livable Communities. and Foothill Ranch ranch, large farm devoted chiefly to raising and breeding cattle, horses, sheep, and goats. The cattle ranch was introduced from Latin America to Texas and the plains of the W United States and Canada. , 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). . Saxon's production subsidiaries, Saxon Mortgage, Inc., and America's MoneyLine Moneyline may refer to:
v. 1. To bring into being; create. 2. To come into being; start. and purchase loans through wholesale, correspondent and retail business channels Business channels are TV channels that concentrate on business news. List of channels
Information Regarding Forward Looking Statements Statements in this news release other than statements of historical fact, are "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. " that are based on current expectations and assumptions. These expectations and assumptions are subject to risks and uncertainty, which could affect Saxon's future plans. Saxon's actual results and the timing and occurrence of expected events could differ materially from its plans and expectations due to a number of factors, such as (i) changes in overall economic conditions and interest rates, (ii) Saxon's ability to successfully implement its growth strategy, (iii) Saxon's ability to sustain 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. growth at levels sufficient to absorb absorb To offset sell orders or a new security offering with buy orders. costs of production and operational costs, (iv) continued availability of credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities and access to the securitization markets or other funding sources, (v) deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. in the credit quality of Saxon's loan portfolio, (vi) lack of access to the capital markets for additional funding, (vii) challenges in successfully expanding Saxon's servicing platform and technological capabilities, (viii) Saxon's ability to remain in compliance with federal tax requirements applicable to REITs, (ix) Saxon's ability and the ability of its subsidiaries to operate effectively within the limitations imposed on REITs by federal tax rules, (x) changes in federal income tax laws and regulations applicable to REITs, (xi) unfavorable changes in capital market conditions, (xii) future 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. developments, (xiii) competitive conditions applicable to Saxon's industry, and (xiv) changes in the applicable legal and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. environment. You should also be aware that all information in this news release is as of November 7, 2005. Saxon undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.
Saxon Capital, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(unaudited)
September December
30, 31,
2005 2004
----------- -----------
Assets
Cash $9,493 $12,852
Accrued interest receivable 56,784 56,132
Trustee receivable 130,117 112,062
Mortgage loan portfolio 6,270,256 6,027,620
Allowance for loan loss (49,175) (37,310)
----------- -----------
Net mortgage loan portfolio 6,221,081 5,990,310
Restricted cash 142,233 1,495
Servicing related advances 155,812 113,129
Mortgage servicing rights, net 138,943 98,995
Real estate owned 26,654 24,860
Derivative assets 33,919 11,801
Deferred tax asset 56,767 27,825
Other assets 65,787 89,670
----------- -----------
Total assets $7,037,590 $6,539,131
=========== ===========
Liabilities and shareholders' equity
Liabilities:
Accrued interest payable $7,044 $8,045
Dividend payable - 28,909
Warehouse financing 144,100 600,646
Securitization financing 6,195,417 5,258,344
Derivative liabilities 5,262 1,809
Other liabilities 25,493 22,449
----------- -----------
Total liabilities 6,377,316 5,920,202
----------- -----------
Commitments and contingencies - -
Shareholders' equity
Common stock, $0.01 par value per share,
100,000,000 shares
authorized; shares issued and outstanding:
49,980,135 as of
September 30, 2005 and 49,849,386 as of
December 31, 2004 501 498
Additional paid-in capital 632,702 625,123
Accumulated other comprehensive income
(loss), net of tax effect of $2,705 and
$2,446 22,932 (3,842)
Net retained earnings (accumulated deficit):
Cumulative dividends declared (170,395) (114,641)
Retained earnings 174,534 111,791
----------- -----------
Net retained earnings (accumulated deficit) 4,139 (2,850)
----------- -----------
Total shareholders' equity 660,274 618,929
----------- -----------
Total liabilities and shareholders' equity $7,037,590 $6,539,131
=========== ===========
Saxon Capital, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(unaudited)
Quarter Quarter Quarter Quarter Quarter
Ended Ended Ended Ended Ended
September June 30, March 31, December September
30, 31, 30,
2005 2005 2005 2004 2004
--------- --------- --------- --------- ---------
Revenues:
Interest income $115,685 $111,638 $114,063 $105,640 $99,657
Interest expense (69,075) (61,568) (55,172) (48,660) (37,933)
--------- --------- --------- --------- ---------
Net interest
income 46,610 50,070 58,891 56,980 61,724
Provision for
mortgage loan
losses (19,369) (13,483) (5,699) (12,879) (14,730)
--------- --------- --------- --------- ---------
Net interest
income after
provision for
mortgage loan
losses 27,241 36,587 53,192 44,101 46,994
Servicing income,
net of
amortization and
impairment 19,064 17,223 13,566 13,442 8,371
Gain on sale of
assets 44 706 1,701 421 220
--------- --------- --------- --------- ---------
Total net
revenues $46,349 $54,516 $68,459 $57,964 $55,585
Expenses:
Payroll and related
expenses 21,324 16,255 21,751 19,337 19,662
General and
administrative
expenses 16,918 15,339 16,020 19,063 14,311
Other expenses 2,811 1,219 2,918 2,919 2,371
--------- --------- --------- --------- ---------
Total expenses 41,053 32,813 40,689 41,319 36,344
Income before taxes 5,296 21,703 27,770 16,645 19,241
Income tax expense
(benefit) (6,314) 2,336 (3,965) (13,495) (19,044)
--------- --------- --------- --------- ---------
Net income before
cumulative effect
of change in
accounting
principle (SFAS
123R) $11,610 $19,367 $31,735 $30,140 $38,285
Cumulative effect
of change in
accounting
principle (SFAS
123R) - 31 - - -
--------- --------- --------- --------- ---------
Net income $11,610 $19,398 $31,735 $30,140 $38,285
========= ========= ========= ========= =========
Basic earnings per
share $0.23 $0.39 $0.64 $0.60 $1.21
========= ========= ========= ========= =========
Diluted earnings
per share $0.23 $0.38 $0.63 $0.60 $1.14
========= ========= ========= ========= =========
Saxon Capital, Inc.
Supplemental Data
The following supplemental data is considered to be either relevant
GAAP information, non-GAAP information or operational data.
Qtr Qtr Qtr
($ in thousands, except per share
data) 9/30/2005 6/30/2005 3/31/2005
----------------------------------------------------------------------
Production Statistics
Volume
------
Wholesale $404,582 $376,784 $342,514
Retail 170,249 178,391 201,979
Correspondent flow 228,717 199,461 222,759
Correspondent bulk 44,219 33,195 37,900
Called loans (1) - -
Net Cost to Produce (2)
-----------------------
Wholesale 2.60% 2.54% 2.99%
Retail 3.18% 3.12% 3.96%
Correspondent (3) 3.34% 3.12% 3.11%
Total Production 2.96% 2.84% 3.27%
Cost to service (4) 0.17% 0.17% 0.20%
Credit Quality (5)
------------------
Average loan-to-value 79.2% 79.5% 78.5%
Credit score 613 618 617
Fixed weighted average coupon 7.5% 7.7% 7.9%
ARM weighted average coupon 7.3% 7.2% 7.0%
Total weighted average coupon 7.3% 7.3% 7.2%
----------------------------------------------------------------------
Portfolio Statistics
Owned portfolio weighted average
credit score 617 617 616
Owned portfolio weighted average
coupon 7.4% 7.5% 7.5%
Owned portfolio principal balance
(at period end) $6,185,969 $6,104,889 $6,035,444
Owned portfolio seriously
delinquent (6) 6.4% 6.0% 5.7%
Non-GAAP owned net losses on
liquidated loans - quarter ended
trust basis (7) 9,496 13,074 11,273
GAAP owned net losses on
liquidated loans - quarter ended
(7) 8,618 9,209 8,893
Total serviced portfolio
principal balance (at period
end) 26,356,770 24,730,615 21,518,419
Total serviced portfolio
seriously delinquent (6) 6.3% 5.5% 5.0%
Total serviced net losses on
liquidated loans - quarter ended
trust basis 23,111 27,579 21,817
----------------------------------------------------------------------
Key Ratios
Average interest earning assets
(8) $6,132,934 $6,051,182 $6,025,904
Average assets (9) 654,771 6,812,011 6,601,140
Average equity (9) 6,999,232 661,580 646,411
Return on average assets (ROA)
(10) 0.7% 1.1% 1.9%
Return on average equity (ROE)
(10) 7.1% 11.7% 19.6%
Average equity/average assets 9.4% 9.7% 9.8%
Debt to equity 9.7 9.7 8.9
Interest income/average interest
earning assets (10) 7.5% 7.4% 7.6%
Interest expense/average interest
earning assets (10) 4.5% 4.1% 3.7%
Net interest margin/average
interest earning assets (10)
(11) 3.0% 3.3% 3.9%
Net interest margin after
provision for mortgage loans
losses (10)(11) 1.8% 2.4% 3.5%
Operating expenses/servicing
portfolio (10) 0.6% 0.5% 0.8%
Operating expenses/average assets
(10) 2.3% 1.9% 2.5%
Efficiency ratio (12) 88.6% 60.2% 59.4%
Non-GAAP adjusted efficiency
ratio (13) 59.6% 48.3% 55.7%
Common Stock Data
Basic earnings per share $0.23 $0.39 $0.64
Diluted earnings per share $0.23 $0.38 $0.63
Shares used to compute basic EPS 49,942 49,884 49,850
Shares used to compute diluted
EPS 50,726 50,751 50,463
Shares outstanding (period end) 49,980 49,903 49,884
Common Stock Price (14)
High $18.12 $18.25 $24.28
Low $10.98 $16.35 $16.33
Period End $11.87 $17.07 $17.20
Book value per share (period end) $13.21 $13.01 $13.51
----------------------------------------------------------------------
(1) Called loans are mortgages purchased from the SAST 98-3, 98-4, 99-
1 and 99-4 securitizations pursuant to the clean-up call provision of
the trust.
(2) Net cost to produce is defined as production expenses and premium
paid, net of fees collected, divided by loan production.
See net cost to produce calculation in Exhibit A.
(3) Beginning January 1, 2005, Correspondent flow and bulk g&a,
premium, and fees are combined to calculate net cost to produce for
the Correspondent business channel.
Prior periods have been recalculated to conform to the new
presentation.
(4) Cost to service is defined as servicing expenses dividend by
average total portfolio balance.
See cost of service calculation in Exhibit A.
(5) Credit quality statistics for quarters ended December 31, 2004 and
September 30, 2004, include called loan statistics. In addition,
all quarters presented include second mortgages originated and sold.
(6) Seriously delinquent is defined as 60 plus days past due.
(7) GAAP requires losses to be recognized immediately upon the loan
transferring to real estate owned. The trust does not recognize a
loss on real estate owned property until it is sold, which causes a
timing difference between GAAP and trust losses. In addition, trust
losses exclude losses resulting from a delinquent loan sale.
Exhibit A provides a reconcilation of GAAP to trust losses.
(8) Average interest earning assets is a daily average balance of
loans in the net mortgage loan portfolio.
(9) Average assets is calculated by adding current quarter and
previous quarter total assets, then dividing by 2.
Average equity is calculated by adding current quarter and previous
quarter
total shareholders' equity, then dividing by 2.
(10) Ratios are annualized.
(11) Net interest margin is calculated as the difference between
interest income and interest expense divided by average interest
earning assets.
(12) Efficiency ratio is calculated as total expenses divided by total
net revenues.
(13) See Exhibit A for a reconciliation of the calculation for non-
GAAP adjusted efficiency ratio.
(14) Represents actual stock prices during quarter. A $4.00 per
share merger consideration was paid during the third quarter 2004.
Qtr Qtr
($ in thousands, except per share
data) 12/31/2004 9/30/2004
----------------------------------------------------------------------
Production Statistics
Volume
------
Wholesale $378,790 $394,891
Retail 255,156 247,474
Correspondent flow 260,938 267,086
Correspondent bulk 64,198 39,660
Called loans (1) 83,269 50,476
Net Cost to Produce (2)
-----------------------
Wholesale 2.83% 2.67%
Retail 2.38% 2.62%
Correspondent (3) 3.21% 3.07%
Total Production 2.84% 2.79%
Cost to service (4) 0.24% 0.20%
Credit Quality (5)
------------------
Average loan-to-value 80.2% 80.3%
Credit score 615 622
Fixed weighted average coupon 8.3% 8.2%
ARM weighted average coupon 7.0% 7.0%
Total weighted average coupon 7.3% 7.3%
----------------------------------------------------------------------
Portfolio Statistics
Owned portfolio weighted average
credit score 617 617
Owned portfolio weighted average
coupon 7.6% 7.7%
Owned portfolio principal balance
(at period end) $5,950,965 $5,575,386
Owned portfolio seriously
delinquent (6) 6.6% 6.6%
Non-GAAP owned net losses on
liquidated loans - quarter ended
trust basis (7) 14,474 10,862
GAAP owned net losses on
liquidated loans - quarter ended
(7) 11,014 11,908
Total serviced portfolio
principal balance (at period
end) 20,165,942 16,098,212
Total serviced portfolio
seriously delinquent (6) 5.3% 5.8%
Total serviced net losses on
liquidated loans - quarter ended
trust basis 25,433 22,060
----------------------------------------------------------------------
Key Ratios
Average interest earning assets
(8) $5,642,337 $5,375,840
Average assets (9) 6,429,964 5,984,834
Average equity (9) 659,747 545,933
Return on average assets (ROA)
(10) 1.9% 2.6%
Return on average equity (ROE)
(10) 18.3% 28.1%
Average equity/average assets 10.3% 9.1%
Debt to equity 9.6 8.0
Interest income/average interest
earning assets (10) 7.5% 7.4%
Interest expense/average interest
earning assets (10) 3.4% 2.8%
Net interest margin/average
interest earning assets (10)
(11) 4.0% 4.6%
Net interest margin after
provision for mortgage loans
losses (10)(11) 3.1% 3.5%
Operating expenses/servicing
portfolio (10) 0.8% 0.9%
Operating expenses/average assets
(10) 2.6% 2.4%
Efficiency ratio (12) 71.3% 65.4%
Non-GAAP adjusted efficiency
ratio (13) 58.7% 46.8%
Common Stock Data
Basic earnings per share $0.60 $1.21
Diluted earnings per share $0.60 $1.14
Shares used to compute basic EPS 49,844 31,525
Shares used to compute diluted
EPS 49,854 33,565
Shares outstanding (period end) 49,849 49,844
Common Stock Price (14)
High $26.58 $29.15
Low $18.25 $20.85
Period End $23.99 $21.50
Book value per share (period end) $12.42 $14.06
----------------------------------------------------------------------
(1) Called loans are mortgages purchased from the SAST 98-3, 98-4, 99-
1 and 99-4 securitizations pursuant to the clean-up call provision of
the trust.
(2) Net cost to produce is defined as production expenses and premium
paid, net of fees collected, divided by loan production.
See net cost to produce calculation in Exhibit A.
(3) Beginning January 1, 2005, Correspondent flow and bulk g&a,
premium, and fees are combined to calculate net cost to produce for
the Correspondent business channel.
Prior periods have been recalculated to conform to the new
presentation.
(4) Cost to service is defined as servicing expenses dividend by
average total portfolio balance.
See cost of service calculation in Exhibit A.
(5) Credit quality statistics for quarters ended December 31, 2004 and
September 30, 2004, include called loan statistics. In addition,
all quarters presented include second mortgages originated and sold.
(6) Seriously delinquent is defined as 60 plus days past due.
(7) GAAP requires losses to be recognized immediately upon the loan
transferring to real estate owned. The trust does not recognize a
loss on real estate owned property until it is sold, which causes a
timing difference between GAAP and trust losses. In addition, trust
losses exclude losses resulting from a delinquent loan sale.
Exhibit A provides a reconcilation of GAAP to trust losses.
(8) Average interest earning assets is a daily average balance of
loans in the net mortgage loan portfolio.
(9) Average assets is calculated by adding current quarter and
previous quarter total assets, then dividing by 2.
Average equity is calculated by adding current quarter and previous
quarter
total shareholders' equity, then dividing by 2.
(10) Ratios are annualized.
(11) Net interest margin is calculated as the difference between
interest income and interest expense divided by average interest
earning assets.
(12) Efficiency ratio is calculated as total expenses divided by total
net revenues.
(13) See Exhibit A for a reconciliation of the calculation for non-
GAAP adjusted efficiency ratio.
(14) Represents actual stock prices during quarter. A $4.00 per
share merger consideration was paid during the third quarter 2004.
Saxon Capital, Inc.
Selected Quarterly Mortgage Loan Portfolio Data
Qtr Qtr Qtr Qtr Qtr
9/30/2005 6/30/2005 3/31/2005 12/31/2004 9/30/2004
---------- ---------- ---------- ----------- ----------
Summary by
Product Type
--------------
Adjustable
rate -
Floating 0.56% 0.36% 0.40% 0.45% 0.48%
Adjustable
rate -
Interest only 26.06% 24.81% 21.95% 18.23% 14.38%
Adjustable
rate - 2 / 3
/ 5 year
hybrids 41.14% 42.59% 44.23% 45.48% 46.98%
Fixed rate -
15 / 30 year 24.77% 24.80% 25.44% 27.00% 28.51%
Fixed rate -
Interest only 1.94% 2.02% 2.21% 2.38% 2.58%
Fixed rate -
Balloons /
Other 5.53% 5.42% 5.77% 6.47% 7.07%
Summary by
Credit Grade
--------------
Above 650
--------------
Percent of
total 27.89% 28.12% 28.14% 29.01% 28.82%
Weighted
average
coupon -
Total 6.76% 6.71% 6.70% 6.74% 6.82%
Weighted
average
coupon -
Fixed 7.02% 6.99% 7.00% 7.05% 7.08%
Weighted
average
coupon -
Adjustable 6.58% 6.53% 6.48% 6.50% 6.58%
Weighted
average
initial LTV 78.95% 79.06% 78.80% 78.43% 77.92%
Weighted
average
median credit
score 691 691 691 692 692
601 to 650
--------------
Percent of
total 31.60% 31.05% 30.49% 30.00% 29.98%
Weighted
average
coupon -
Total 7.12% 7.10% 7.11% 7.19% 7.28%
Weighted
average
coupon -
Fixed 7.47% 7.48% 7.51% 7.56% 7.58%
Weighted
average
coupon -
Adjustable 6.93% 6.90% 6.89% 6.95% 7.07%
Weighted
average
initial LTV 79.40% 79.47% 79.39% 79.34% 79.18%
Weighted
average
median credit
score 625 625 625 625 625
551 to 600
--------------
Percent of
total 25.36% 25.18% 24.84% 24.08% 23.83%
Weighted
average
coupon -
Total 7.70% 7.72% 7.77% 7.89% 8.02%
Weighted
average
coupon -
Fixed 8.07% 8.13% 8.19% 8.24% 8.29%
Weighted
average
coupon -
Adjustable 7.56% 7.56% 7.61% 7.74% 7.88%
Weighted
average
initial LTV 78.32% 78.47% 78.72% 78.93% 78.92%
Weighted
average
median credit
score 578 578 578 578 578
526 to 550
--------------
Percent of
total 8.30% 8.49% 8.91% 9.00% 9.30%
Weighted
average
coupon -
Total 8.62% 8.67% 8.73% 8.86% 8.97%
Weighted
average
coupon -
Fixed 9.22% 9.24% 9.33% 9.41% 9.48%
Weighted
average
coupon -
Adjustable 8.47% 8.51% 8.57% 8.70% 8.81%
Weighted
average
initial LTV 77.98% 78.38% 78.83% 79.57% 79.65%
Weighted
average
median credit
score 539 539 539 539 539
525 and below
--------------
Percent of
total 6.33% 6.59% 7.01% 7.24% 7.37%
Weighted
average
coupon -
Total 934.00% 9.41% 9.49% 9.64% 9.79%
Weighted
average
coupon -
Fixed 10.21% 10.29% 10.40% 10.48% 10.52%
Weighted
average
coupon -
Adjustable 9.15% 9.21% 9.28% 9.43% 9.60%
Weighted
average
initial LTV 76.54% 77.21% 77.74% 78.19% 78.13%
Weighted
average
median credit
score 511 511 511 510 510
Unavailable
--------------
Percent of
total 0.52% 0.57% 0.61% 0.68% 0.70%
Summary by
Income
Documentation
--------------
Full
documentation 73.81% 73.38% 72.91% 72.46% 72.15%
Limited
documentation 3.79% 3.99% 4.08% 4.26% 4.52%
Stated income 22.40% 22.64% 23.02% 23.28% 23.33%
Summary by
Borrower
Purpose
--------------
Cash-out
refinance 71.18% 70.08% 69.50% 68.38% 68.23%
Purchase 21.31% 22.08% 22.34% 23.00% 22.75%
Rate or term
refinance 7.51% 7.84% 8.15% 8.61% 9.02%
Saxon Capital, Inc.
Selected Quarterly Mortgage Loan Production Data
Qtr Qtr Qtr Qtr Qtr
9/30/2005 6/30/2005 3/31/2005 12/31/2004 9/30/2004
---------- ---------- ---------- ----------- ----------
Overall
Summary ($ in
thousands)
(1)
--------------
Total Loan
Production $847,767 $787,831 $805,151 $1,042,351 $999,588
Average
principal
balance per
loan $174 $165 $165 $148 $147
Number of
loans
originated 4,880 4,761 4,870 7,063 6,799
Summary by
Product Type
(1)
--------------
Adjustable
rate -
Floating 0.05% 0.11% 0.13% 0.28% 0.26%
Adjustable
rate -
Interest only 35.54% 40.66% 41.84% 35.41% 37.04%
Adjustable
rate - 2 / 3
/ 5 year
hybrids 36.19% 38.21% 40.71% 43.15% 35.83%
Adjustable
rate - 40/30 3.48% - - - -
Fixed rate -
15 / 30 year 18.65% 15.89% 12.41% 13.98% 17.64%
Fixed rate -
Interest only 1.19% 0.76% 0.41% 0.75% 1.38%
Fixed rate -
Balloons /
Other 3.48% 4.37% 4.49% 6.44% 7.85%
Fixed Rate -
40/30 1.42% - - - -
Summary by
Credit Grade
(1)
--------------
Above 650
--------------
Percent of
total 23.97% 26.98% 27.66% 28.16% 31.97%
Weighted
average
coupon -
Total 7.06% 6.99% 6.86% 6.81% 6.92%
Weighted
average
coupon -
Fixed 7.44% 7.68% 7.82% 8.13% 8.07%
Weighted
average
coupon -
Adjustable 6.88% 6.74% 6.55% 6.30% 6.37%
Weighted
average
initial LTV 82.55% 82.42% 81.67% 81.93% 81.79%
Weighted
average
median credit
score 687 688 688 688 690
601 to 650
--------------
Percent of
total 34.85% 34.47% 32.78% 30.46% 31.07%
Weighted
average
coupon -
Total 7.09% 7.06% 6.93% 7.00% 7.10%
Weighted
average
coupon -
Fixed 7.37% 7.67% 7.81% 8.18% 8.13%
Weighted
average
coupon -
Adjustable 6.98% 6.88% 6.73% 6.66% 6.68%
Weighted
average
initial LTV 80.98% 81.12% 78.83% 80.77% 80.34%
Weighted
average
median credit
score 624 625 625 624 624
551 to 600
--------------
Percent of
total 28.23% 26.87% 26.14% 25.61% 23.40%
Weighted
average
coupon -
Total 7.41% 7.37% 7.24% 7.44% 7.49%
Weighted
average
coupon -
Fixed 7.58% 7.58% 7.77% 8.17% 8.14%
Weighted
average
coupon -
Adjustable 7.37% 7.33% 7.16% 7.29% 7.31%
Weighted
average
initial LTV 77.37% 77.55% 77.10% 78.80% 78.97%
Weighted
average
median credit
score 576 576 576 578 579
526 to 550
--------------
Percent of
total 7.34% 6.78% 7.75% 8.18% 7.33%
Weighted
average
coupon -
Total 8.04% 8.03% 7.92% 8.30% 8.32%
Weighted
average
coupon -
Fixed 8.41% 8.44% 8.65% 8.85% 9.10%
Weighted
average
coupon -
Adjustable 7.99% 7.98% 7.83% 8.20% 8.12%
Weighted
average
initial LTV 73.93% 73.78% 74.14% 78.46% 78.97%
Weighted
average
median credit
score 537 537 539 539 544
525 and below
--------------
Percent of
total 5.47% 4.78% 5.56% 7.07% 6.01%
Weighted
average
coupon -
Total 8.59% 8.68% 8.58% 8.87% 9.00%
Weighted
average
coupon -
Fixed 8.76% 9.32% 9.16% 10.00% 9.78%
Weighted
average
coupon -
Adjustable 8.57% 8.62% 8.53% 8.74% 8.86%
Weighted
average
initial LTV 69.84% 71.39% 73.16% 77.64% 79.11%
Weighted
average
median credit
score 511 512 512 512 521
Unavailable
--------------
Percent of
total 0.13% 0.12% 0.12% 0.52% 0.22%
Summary by
Income
Documentation
(1)
--------------
Full
documentation 74.47% 74.76% 70.17% 71.69% 69.38%
Limited
documentation 2.08% 2.42% 3.22% 3.03% 3.10%
Stated income 23.45% 22.82% 26.60% 25.28% 27.52%
Summary by
Borrower
Purpose (1)
--------------
Cash-out
refinance 80.00% 73.01% 73.67% 68.64% 65.39%
Purchase 16.35% 21.73% 22.39% 25.94% 29.68%
Rate or term
refinance 3.65% 5.26% 3.94% 5.42% 4.93%
(1) Includes called loans
Saxon Capital, Inc.
Exhibit A
Qtr Qtr Qtr
($ in thousands) 9/30/2005 6/30/2005 3/31/2005
----------- ----------- ------------
Reconciliation between GAAP and
Trust Losses
Losses trust basis $9,496 $13,074 $11,273
Loan transfers to real estate
owned 7,772 7,900 6,855
Realized losses on real estate
owned (7,789) (10,581) (8,597)
Timing differences between
liquidation and claims
processing (258) (338) (198)
Interest not advanced on
warehouse (157) (220) (75)
Other (446) (626) (364)
----------- ----------- ------------
GAAP losses $8,618 $9,209 $8,893
=========== =========== ============
Qtr Qtr
($ in thousands) 12/31/2004 9/30/2004
----------- -----------
Reconciliation between GAAP and
Trust Losses
Losses trust basis $14,474 $10,862
Loan transfers to real estate
owned 8,558 10,420
Realized losses on real estate
owned (11,563) (9,139)
Timing differences between
liquidation and claims
processing (151) (497)
Interest not advanced on
warehouse (173) (78)
Other (131) 339
----------- -----------
GAAP losses $11,014 $11,908
=========== ===========
---------------------------------------------------------------------
Net Cost to Produce (1)
Management believes net cost to produce is beneficial to investors
because it provides a measurement of efficiency in the origination
process.
The following table demonstrates the Company's calculation of net cost
to produce. There is no directly comparable GAAP financial measure
to "net cost to produce", the components of which are calculated in
accordance with GAAP.
Qtr Qtr Qtr
9/30/2005 6/30/2005 3/31/2005
------------ ------------ ------------
Total expenses
Wholesale G&A $8,599 $7,348 $8,086
Retail G&A 10,195 10,379 13,171
Correspondent G&A (2) 2,221 2,015 2,319
Servicing G&A 11,122 10,349 10,205
Administrative G&A 13,759 10,460 11,826
Other
(income)/expenses (3) 1,159 (117) 1,411
Capitalized
expenses (4) (6,221) (7,620) (6,329)
------------ ------------ ------------
Total expenses $41,053 $32,813 $40,689
Fees Collected (5)
Wholesale fees
collected 1,230 1,139 $1,073
Retail fees
collected 4,779 4,816 5,169
Correspondent fees
collected (2) 235 208 222
------------ ------------ ------------
Total fees
collected $6,243 $6,163 $6,465
Premium Paid (5)
Wholesale premium 3,161 3,364 $3,212
Correspondent
premium (2) 7,137 5,456 6,013
------------ ------------ ------------
Total premium (6) $10,297 $8,820 $9,225
Net Cost to Produce - dollars
Wholesale $10,530 $9,573 $10,226
Retail 5,417 5,563 8,001
Correspondent (2) 9,123 7,263 8,110
------------ ------------ ------------
Total $25,069 $22,398 $26,337
Volume
Wholesale $404,582 $376,784 $342,514
Retail 170,249 178,391 201,979
Correspondent flow 228,717 199,461 222,759
Correspondent bulk 44,219 33,195 37,900
------------ ------------ ------------
Total $847,767 $787,831 $805,152
Net Cost to Produce - basis points
Wholesale 2.60% 2.54% 2.99%
Retail 3.18% 3.12% 3.96%
Correspondent (2) 3.34% 3.12% 3.11%
------------ ------------ ------------
Total (6) 2.96% 2.84% 3.27%
Qtr Qtr
12/31/2004 9/30/2004
------------ ------------
Total expenses
Wholesale G&A $8,024 $7,994
Retail G&A 12,638 12,745
Correspondent G&A (2) 2,068 2,246
Servicing G&A 10,881 7,642
Administrative G&A 13,923 12,825
Other
(income)/expenses (3) 1,459 978
Capitalized
expenses (4) (7,674) (8,086)
------------ ------------
Total expenses $41,319 $36,344
Fees Collected (5)
Wholesale fees
collected $1,172 $1,240
Retail fees
collected 6,569 6,259
Correspondent fees
collected (2) 258 268
------------ ------------
Total fees
collected $7,999 $7,767
Premium Paid (5)
Wholesale premium $3,860 $3,793
Correspondent
premium (2) 8,616 7,427
------------ ------------
Total premium (6) $12,476 $11,221
Net Cost to Produce - dollars
Wholesale $10,711 $10,547
Retail 6,069 6,486
Correspondent (2) 10,427 9,406
------------ ------------
Total $27,207 $26,439
Volume
Wholesale $378,790 $394,891
Retail 255,156 247,474
Correspondent flow 260,938 267,086
Correspondent bulk 64,198 39,660
------------ ------------
Total $959,082 $949,112
Net Cost to Produce - basis points
Wholesale 2.83% 2.67%
Retail 2.38% 2.62%
Correspondent (2) 3.21% 3.07%
------------ ------------
Total (6) 2.84% 2.79%
(1) Net cost to produce is defined as production expenses and premium
paid, net of fees collected, divided by loan production.
(2) Beginning January 1, 2005, Correspondent flow and bulk g&a,
premium, and fees are combined to calculate net cost to produce for
the Correspondent business channel.
Prior periods have been recalculated to conform to the new
presentation.
(3) For purposes of net cost to produce, depreciation is removed from
other expenses (as it is presented on the income statement) and is a
component of the channel g&a expenses.
(4) Capitalized expenses are origination expenses that are capitalized
per FAS 91.
(5) Fees collected and premium are capitalized and held on balance
sheet as components of the net mortgage loan portfolio.
(6) Third quarter 2004 premium paid increased by $276 thousand due to
an adjustment. Total net cost to produce changed from 2.76% to
2.79% because of this adjustment.
---------------------------------------------------------------------
Cost to Service
Management believes cost to service is beneficial to investors because
it provides a measurement of efficiency in the servicing channel.
The following table demonstrates the Company's calculation of cost to
service.
Qtr Qtr Qtr
($ in thousands) 9/30/2005 6/30/2005 3/31/2005
------------ ------------ ------------
Servicing G&A $11,122 $10,349 $10,205
Average total portfolio
balance ($ in thousands) 26,662,657 24,499,778 $20,795,384
------------ ------------ ------------
Cost to service (Annualized) 0.17% 0.17% 0.20%
============ ============ ============
Qtr Qtr
($ in thousands) 12/31/2004 9/30/2004
------------ ------------
Servicing G&A $10,881 $7,642
Average total portfolio
balance ($ in thousands) $18,371,194 $15,107,928
------------ ------------
Cost to service (Annualized) 0.24% 0.20%
============ ============
---------------------------------------------------------------------
Reconciliation of non-GAAP adjusted efficiency ratio (1)
Qtr Qtr Qtr Qtr Qtr
9/30/2005 6/30/2005 3/31/2005 12/31/2004 9/30/2004
---------- ---------- ---------- ----------- ----------
Total
expenses $41,053 $32,813 $40,689 $41,319 $36,344
Less: one-
time
expenses(2) 1,900 300 300 - 3,508
---------- ---------- ---------- ----------- ----------
Total
adjusted
expenses $39,153 $32,513 $40,389 $41,319 $32,836
Total net
revenues $46,349 $54,516 $68,459 $57,964 $55,585
Add:
provision
for
mortgage
loan losses 19,369 13,483 5,699 12,879 14,730
Less: gain
on sale of
assets 44 706 1,701 421 220
---------- ---------- ---------- ----------- ----------
Total
adjusted net
revenues $65,674 $67,293 $72,457 $70,422 $70,095
---------- ---------- ---------- ----------- ----------
Adjusted
efficiency
ratio (1) 59.6% 48.3% 55.7% 58.7% 46.8%
========== ========== ========== =========== ==========
(1) Non-GAAP adjusted efficiency ratio is calculated as total adjusted
expenses divided by total adjusted net revenues.
(2) Total adjusted expenses for third quarter 200 excludes $1.9
million severance expense.
Total adjusted expenses for second quarter 2005 excludes the $0.3
million expense associated with the six retail branch closings.
Total adjusted expenses for first quarter 2005 excludes the $0.3
million expense associated with the four retail branch closings.
Total adjusted expenses for third quarter 2004 excludes the $3.5
million expense associated with the REIT conversion.
Total adjusted expenses for second quarter 2004 excludes a $2.6
million severance expense.
----------------------------------------------------------------------
Working Capital Reconciliation
Management believes the Company's definition of working capital
provides a better indication of how much liquidity the Company has
available to conduct business at the time of the calculation.
This following table provides a reconciliation between the Company's
working capital calculation and the common definition of working
capital.
September 30, 2005 September 30, 2004
------------------------ -------------------------
Saxon Commonly Saxon Commonly
Defined Defined Defined Defined
Working Working Working Working
Capital Capital Capital Capital
----------- ------------ ------------ ------------
($ in
thousands)
Unrestricted cash $9,493 $9,493 $226,807 $226,807
Borrowing
availability 73,650 - 52,924 -
Trustee receivable - 130,117 - 99,604
Accrued interest
receivable - 56,784 - 56,767
Accrued interest
payable - (7,044) - (9,116)
Unsecuritized
mortgage loans -
payments less
than one year 193,295 216,311 241,715 549,081
Warehouse
financing
facility -
payments less
than one year (122,473) (144,100) (188,420) (492,584)
Servicing advances - 155,812 - 111,420
Financed advances
- payments less
than one year - (65,566) - (32,999)
Securitized loans
- payments less
than one year - 2,300,057 - 1,585,145
Securitized debt -
payments less
than one year - (2,400,559) - (1,566,656)
----------- ------------ ------------ ------------
Total $153,965 $251,305 $333,026 $527,469
=========== ============ ============ ============
It is common business practice to define working capital as
current assets less current liabilities. The Company does not have a
classified balance sheet and therefore calculates its working capital
using its own internally defined formula, which is generally
calculated as unrestricted cash and investments as well as
unencumbered assets that can be pledged against existing committed
facilities and converted to cash in five days or less.
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