WOODBURY, N.Y.--(BUSINESS WIRE)--Delta Financial Corporation (NASDAQ:DFC
) today reported its
financial results for the three months ended March 31, 2007.
The Company reported net income of $4.9 million, or $0.20 per
diluted share, for the quarter ended March 31, 2007, compared to net
income of $6.6 million, or $0.31 per diluted share, for the comparable
period last year.
First Quarter 2007 and Related Highlights
- Originated a record $1.2 billion of mortgage loans, an
approximate 11% increase from the fourth quarter of 2006 and
an approximate 31% increase from the first quarter of 2006.
- On-balance sheet loan portfolio increased to $7.0 billion from
$5.1 billion at March 31, 2006.
- Total cost to originate, as a percentage of total loan
production, was 1.7%.
- Sold approximately $177 million loans on a whole-loan basis
for an average premium of 3.4%.
- Completed an asset-backed securitization collateralized by
$950 million of mortgage loans in March 2007.
- Sold the remaining excess cashflow certificates for $1.1
million, and will recognize a significant benefit for income
tax purposes.
- Subsequent to March 31, 2007, we increased each of our five
credit facilities to $500 million, or $2.5 billion in total,
from $1.75 billion at March 31, 2007 at the same financing
terms we had previously with each of our five credit
providers, namely RBS Greenwich Capital, Citigroup, Bank of
America, JPMorgan Chase and Deutsche Bank.
- Paid a quarterly cash dividend on April 6, 2007 of $0.05 per
share of common stock to stockholders of record on March 29,
2007.
Hugh Miller, Delta's president and chief executive officer said,
"While we experienced a decrease in quarterly earnings over last year,
we still believe our results were solid given the challenging
operating environment in the first quarter of 2007, in which many in
the sector have announced significant losses or, in several cases,
ceased to operate. During the first three months of the year, when we
typically experience a seasonal slowdown in originations, we achieved
a 31 percent year-over-year increase in loan volume, reaching a record
$1.2 billion in loans. At the same time we grew our loan volume, we
increased our core fixed-rate mortgage product to 94 percent of our
total loan production, compared with 84 percent one year ago. Since we
remained focused on originating fixed-rate loans, and largely avoided
riskier esoteric mortgage products such as interest-only
adjustable-rate mortgage loans and 80/20 mortgage loans, among others,
we have not had to materially change our underwriting guidelines,
which can have a significant impact on loan volume and profitability.
Instead, during the first quarter of 2007, we merely fine-tuned our
existing underwriting guidelines and began increasing our
weighted-average coupon, which we believe will improve our future
profitability. Furthermore, at 1.7 percent in the first quarter of
2007, we maintained one of the lowest costs to originate in the
industry."
Mr. Miller continued, "The quarterly year-over-year decrease in
our first quarter earnings per share was not entirely unexpected, as
we outlined several factors during our year-end 2006 conference call
that we believed would impact our first quarter 2007 results. There
are three primary reasons for our decline in earnings per share. The
first factor was our planned reduction in the amount of loans sold on
a whole-loan basis, as a percentage of total quarterly originations.
Secondly, we recorded a lower amount of other income compared to a
year ago as the balance of the excess cashflow certificates have been
winding down to a de minimis value. We sold our remaining excess
cashflow certificates during the first quarter of 2007. Lastly, the
year-over-year increase in diluted shares outstanding from 21.4
million to 24.1 million shares - primarily related to our equity
offering in April 2006 - negatively impacted first quarter earnings
per share by approximately $0.03 per diluted share."
Mr. Miller added, "While we are not immune to the effects of the
current challenging market conditions and potential future market
disruptions, we believe we are well positioned to continue to grow as
we believe that the demand for subprime loans remains strong, the
market's confidence in the quality of Delta's loans remains, and we
can continue to capitalize on market opportunities as they arise in
the sector. As a result, we anticipate that our second quarter 2007
earnings will increase over the first quarter 2007."
Net Interest Income
The Company's net interest income, after provision for loan
losses, increased to $29.8 million in the first quarter of 2007, from
$28.3 million in the first quarter of 2006. The increase was
attributable to the Company's increase in its mortgage loans held for
investment. However, in line with our expectations, the Company's net
interest margin, as a percent of the average loans held for
investment, declined to 1.8 percent at March 31, 2007 compared to 1.9
percent at December 31, 2006. The compression in net interest margin
primarily relates to the increase in short-term funding costs due to
the inverted yield curve environment, and the anticipated increase in
delinquencies, due to a slower real estate market and the continued
seasoning of the Company's on-balance sheet loan portfolio.
For the quarter ended March 31, 2007, approximately 76 percent of
the Company's net revenues (net interest income after provision for
loan losses and total non-interest income) were derived from its loan
portfolio, which represents an increase from approximately 73 percent
one year ago.
Allowance for Loan Losses
The Company increased its allowance for loan losses to $60.9
million, or 87 basis points, of the outstanding net loan portfolio at
March 31, 2007, compared to $41.9 million, or 82 basis points, at
March 31, 2006, and $55.3 million, or 86 basis points at December 31,
2006. The overall increase in the loss allowance reflects the increase
in the overall size, performance and seasoning of the outstanding
on-balance sheet loan portfolio at March 31, 2007. The Company's
allowance for loan losses is intended to account for the expected
principal losses over the next 18 to 24 months on the outstanding loan
portfolio. During the first quarter of 2007, the Company charged-off
$5.1 million, or 30 basis points annualized, of loans against the
allowance, compared to $4.3 million, or 28 basis points annualized, in
the fourth quarter of 2006.
Other Income
During the 2006 year-end conference call, the Company also
disclosed that other income would be significantly lower in 2007 due
to winding down of and ultimate sale of its remaining excess cashflow
certificates in the first quarter of 2007. Other income decreased by
$1.6 million to $1.8 million for the quarter ended March 31, 2007,
from $3.4 million for the quarter ended March 31, 2006. Included in
the $1.8 million was $1.6 million of income generated by the remaining
excess cashflow certificates prior to the sale. Beginning in the
second quarter of 2007, the Company expects other income to be
minimal, as the majority of other income was related primarily to the
excess cashflow certificates. The Company sold the excess cashflow
certificates and will recognize a significant benefit for income tax
purposes. The sale of these excess cashflow certificates will result
in a reduction in income tax payments of approximately $7.0 million
over the next several quarters.
Secondary Marketing (Securitized Loans and Loan Sales)
During the first quarter of 2007, the Company successfully
completed an asset-backed securitization under its Renaissance
Mortgage Acceptance Corp. shelf, collateralized by $950 million in
mortgage loans in March 2007. The Company's ability to complete a
securitization in a difficult environment for non-prime lenders
underscores the market's view of the quality of the Company's loans
and the strength of its business. The pricing of the bonds was not as
favorable as past issuances due to the market conditions that
prevailed at the time. However, the Company was able to sell every
bond it issued, while many other issuers during the same time period
were unable to sell all of their bonds, and in some cases, were not
able to securitize at all.
At the end of the fourth quarter of 2006, the Company announced
its intention to sell approximately 15 percent of its total loan
origination volume on a whole-loan basis in 2007, which represented a
decrease from the average of 18.0 percent sold in 2006. During the
first quarter of 2007, the Company sold approximately 14.3 percent, or
$177.1 million, of its quarterly originations on a whole-loan basis
for an average whole-loan sale premium of 3.4 percent, compared to
approximately 17.4 percent, or $164.7 million, for an average premium
of 3.4 percent in the first quarter of 2006.
"Delta continues to differentiate itself in the sector, receiving
average whole-loan premiums in excess of three percent. We expect to
continue to receive whole-loan premiums in excess of three percent
throughout the remainder of 2007," added Mr. Miller.
"By decreasing the percentage of whole-loan sales, in the first
quarter of 2007 compared to one year ago, we recognized significantly
less current gain-on-sale income than we would have recorded had we
sold the same percentage of loans on a whole-loan basis as we did in
the first quarter of 2006. It is important to note that generally, the
expenses associated with our loan originations are recognized in the
quarter the loans are originated. Conversely, the income received from
retained loans is recognized over the life of the loans, resulting in
an accounting mismatch between income and expense recognition. Simply
put, the more loans we originate, the greater the expense drag on that
specific quarter's earnings, but in turn the greater the future net
interest income benefit to Delta. The size of our loan portfolio is a
major contributing factor to the amount of interest income it
generates. Given our first quarter origination growth and the current
market place, we expect our loan portfolio to increase by at least 30
percent, or to at least $8.3 billion, by the end of 2007 over the
outstanding balance at December 31, 2006. This represents an increase
from our previously stated guidance of at least 20 percent growth,"
said Mr. Miller.
The following table sets forth certain information regarding
securitized loans and loans sold on a whole-loan basis during the
three months ended March 31, 2007 and 2006:
For the Three Months
Ended March 31,
-----------------------
(Dollars in thousands) 2007 2006
-----------------------
Securitized loans - portfolio based $ 950,000 $ 875,000
Whole-loan sales 177,082 164,711
----------- -----------
Total securitized loans and whole-loan sales $1,127,082 $1,039,711
=========== ===========
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 March 31, 2007 and 2006:
For the Three Months
Ended March 31,
---------------------
Loan Type: 2007 2006
--------- ---------
Fixed-Rate Mortgages 94% 84%
Adjustable-Rate Mortgages 6% 16%
--------- ---------
Total 100% 100%
========= =========
(Dollars in thousands) For the Three Months Ended March 31, Quarter-
------------------------------------ Over-
Quarter
Percentage
Origination Channel: 2007 2006 Change
--------------------- -------------- ----------
Wholesale $ 661,771 53% $518,031 55% 28%
Retail 579,003 47% 426,693 45% 36%
---------------- ---- --------- ----
Total $1,240,774 100% $944,724 100% 31%
================ ==== ========= ====
Income Tax Expense
The Company reduced its deferred tax asset during the first
quarter of 2007 to reflect a reduction in the Company's estimated
future tax rate, which resulted in an increase in the Company's tax
provision of $287,000, or approximately $0.01 per diluted share. The
effective tax rate, excluding this adjustment, would have been 38.9
percent for the three months ended March 31, 2007.
Conference Call and Webcast
The Company will host a conference call to discuss its financial
results at 10 a.m. EDT today, Tuesday, May 8, 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 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, May 22, 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: 64426.
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 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 through a network of approximately
3,200 independent brokers and the Company's retail offices. Since
1991, Delta has completed 51 asset-backed securitizations,
collateralized by approximately $18.9 billion in mortgage loans.
Important Information Regarding Forward-Looking Statements.
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
projections as to our future earnings, profitability, net interest
income, growth, loan production, loan portfolio size, prepayment
rates, emphasis on originating fixed-rate loans, future product
offerings, the pricing of whole-loan sales, future tax rates as well
as the future increases in loan delinquencies 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; our ability or
inability to continue to access the securitization and whole-loan
markets on favorable terms and conditions; competition; loan losses,
loan prepayment rates, delinquency and default rates; repurchase
obligations, early payment default, costs and potential liabilities
associated with litigation, our regulatory settlements with state and
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 under the captions "Business-Forward Looking Statements and
Risk Factors" and "Risk Factors" and our Form 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.
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except share and per share data)
For the Three Months
Ended March 31,
-------------------------
2007 2006
------------ ------------
Interest income $ 140,960 $ 101,973
Interest expense 100,522 67,266
------------ ------------
Net interest income 40,438 34,707
Provision for loan losses 10,645 6,404
------------ ------------
Net interest income after provision for
loan losses 29,793 28,303
Non-interest income:
Net gain on sale of mortgage loans 7,840 7,061
Other income 1,823 3,376
------------ ------------
Total non-interest income 9,663 10,437
------------ ------------
Non-interest expense:
Payroll and related costs 17,217 17,030
General and administrative 13,672 11,162
Loss (gain) on derivative instruments 96 (275)
------------ ------------
Total non-interest expense 30,985 27,917
------------ ------------
Income before income tax expense 8,471 10,823
Provision for income tax expense 3,584 4,237
------------ ------------
Net income $ 4,887 $ 6,586
============ ============
Per Share Data:
Basic - weighted average number of shares
outstanding 23,292,385 20,497,408
============ ============
Diluted - weighted average number of shares
outstanding 24,076,959 21,360,176
============ ============
Basic earnings per share - net income $ 0.21 $ 0.32
============ ============
Diluted earnings per share - net income $ 0.20 $ 0.31
============ ============
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
At At
March 31, December 31,
------------------------
2007 2006
----------- ------------
Assets:
Cash and cash equivalents $ 7,007 $ 5,741
Mortgage loans held for investment, net of
discounts and deferred origination fees 7,033,655 6,413,687
Less: Allowance for loan losses (60,868) (55,310)
----------- ------------
Mortgage loans held for investment, net 6,972,787 6,358,377
Trustee receivable 76,789 73,361
Accrued interest receivable 44,394 41,684
Excess cashflow certificates -- 1,209
Equipment, net 7,981 8,287
Accounts receivable 15,324 4,872
Prepaid and other assets 52,115 49,836
Deferred tax asset 36,930 45,760
----------- ------------
Total assets $7,213,327 $6,589,127
=========== ============
Liabilities and Stockholders' Equity
Liabilities:
Bank payable $ 1,935 $ 1,557
Warehouse financing 457,081 335,865
Financing on mortgage loans held for
investment, net 6,506,954 6,017,947
Other borrowings 6,271 5,970
Accrued interest payable 27,669 25,052
Accounts payable and other liabilities 62,014 53,160
----------- ------------
Total liabilities 7,061,924 6,439,551
----------- ------------
Stockholders' Equity
Common stock 234 234
Additional paid-in capital 142,472 141,984
Retained earnings 13,901 10,180
Accumulated other comprehensive loss (3,886) (1,504)
Treasury stock, at cost (1,318) (1,318)
----------- ------------
Total stockholders' equity 151,403 149,576
----------- ------------
Total liabilities and stockholders' equity $7,213,327 $6,589,127
=========== ============
