Saxon Capital, Inc. ("Saxon" or the "Company") (NYSE:SAX), a
residential mortgage lending and servicing real estate investment
trust (REIT), today announced third quarter 2005 net income of
$11.6 million or $0.23 per share diluted, 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. The Company
has also recorded additional mortgage servicing 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
$3.7 million. The adjustment had no impact on cash flows, taxable
income or the amount of dividends declared 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 L. Sawyer, Chief Executive Officer of Saxon.
"The continued rise in short-term interest rates, and accelerated
prepayment speeds, coupled with the extended period of muted 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 retail origination 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 of the higher weighted
average coupon 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 and its impact on
Saxon's long- and short-term financing. As of September 30, 2005,
1-month LIBOR had increased approximately 202 basis points since
September 30, 2004, and approximately 52 basis points since June
30, 2005. The increase in the 2/3-year swap curve positively
impacted the Company's hedge values. At September 30, 2005, Saxon
recognized an unrealized hedge gain of approximately $25.2 million
(pre-tax), which is reflected as a component of shareholder's
equity in accumulated other comprehensive income on the condensed
consolidated balance sheet. The Company's unrealized hedge gain is
accreted into income as a reduction of interest expense in the
condensed consolidated statement of operations 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, 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 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 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 $1.2 million due to the
impact of a lower retail cost structure. Cost to service was 17
basis points for the third quarter of 2005, compared to 20 basis
points for the third quarter of 2004, and a 17 basis points cost in
the second quarter of 2005. Total net cost to produce was 2.96% of
total loan production for the third quarter of 2005, compared to
2.79% for the third quarter of 2004 and 2.84% for the second
quarter of 2005. The increase in net cost to produce from the
second quarter 2005 to the third quarter 2005 is primarily
attributed to an increase in correspondent premiums paid. Cost to
service and total net cost to produce are measures defined by the
Securities and Exchange Commission as "non-GAAP financial
measures." Management believes that such non-GAAP financial
measures, when read in conjunction with the Company's reported
results, can provide useful supplemental information about the
efficiency of the Company's processes to its investors. Tables
reconciling the Company's calculation of cost to service and total
net cost to produce to GAAP results are set forth in Exhibit A. -0-
*T REIT Taxable Income The following table is a reconciliation of
GAAP net income to estimated REIT taxable net income for the three
and nine months ended September 30, 2005: Three Nine months months
ended ended September September 30, 2005 30, 2005 ----------
---------- ($ 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 ========== ========== *T 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 loan losses inherent in our current portfolio
of loans held for investment, for which the Company has not yet
recorded a charge-off (tax accounting rules allow a deduction for
loan losses only in the period when a charge-off occurs); -- there
are several differences between GAAP and tax methodologies for
capitalization 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 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 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
(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 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 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 divestiture of
several retail branches, and the intense pricing competition
existing in the marketplace throughout the first nine months of
2005. Loan Servicing 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 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 less current liabilities. 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 assets
that can be pledged 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, Saxon
Asset Securities Trust 2005-3. Recent Developments On October 18,
2005, Saxon announced its third quarter cash dividend of $0.50 per
share of common stock payable November 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, November 8, 2005. For a live
Internet broadcast of this conference call, please visit Saxon's
investor relations website at www.saxoncapitalinc.com. To
participate in the call, contact Ms. Bobbi Roberts at 804-967-7879
or Ms. Meagan Evans 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 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
and has additional primary facilities in Fort Worth, Texas and
Foothill Ranch, California. Saxon's production subsidiaries, Saxon
Mortgage, Inc., and America's MoneyLine, Inc. originate and
purchase loans through wholesale, correspondent and retail business
channels. Saxon currently originates and purchases loans throughout
the United States through its network of brokers, correspondents,
and retail branches. As of September 30, 2005, Saxon's servicing
subsidiary, Saxon Mortgage Services, Inc., serviced a mortgage loan
portfolio of $26.4 billion. For more information, visit
www.saxoncapitalinc.com. Information Regarding Forward Looking
Statements Statements in this news release other than statements of
historical fact, are "forward-looking statements" 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 growth at levels
sufficient to absorb costs of production and operational costs,
(iv) continued availability of credit facilities and access to the
securitization markets or other funding sources, (v) deterioration
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 developments, (xiii)
competitive conditions applicable to Saxon's industry, and (xiv)
changes in the applicable legal and regulatory 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. -0- *T 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.
----------------------------------------------------------------------
*T
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