Wednesday July 21, 4:15 pm Eastern Time
SOURCE: HomeGold Financial, Inc.
GREENVILLE, S.C., July 21 /PRNewswire/ -- HomeGold Financial, Inc. (Nasdaq/NM: HGFN - news) today announced net income of $7.1 million for the six months ended June 30, 1999, compared with a net loss of $43.6 million for the six months ended June 30, 1998. Earnings per share for the six months ended June 30, 1999 were $0.73 on 9.8 million average shares outstanding, compared to a net loss per share of $4.49 on 9.7 million average shares outstanding in the comparable period in 1998.
For the three month period ended June 30, 1999, the Company reported a net loss of $1.9 million, compared to a net loss of $23.0 million for the three month period ended June 30, 1998. The net loss per share for the three months ended June 30, 1999 was $0.19 on 9.8 million shares outstanding, compared to a net loss per share of $2.37 on 9.7 million shares outstanding for the three months ended June 30, 1998.
``We have made significant improvements in our operations from a year ago'' stated Kevin J. Mast, Chief Financial Officer for the Company. ``The benefits of the cost cutting efforts and structural reorganization implemented during 1998 are beginning to show in our financial results,'' Mast continued.
During the first six months of 1999, the Company repurchased $49.3 million of its senior unsecured debt, and realized an extraordinary gain of $21.2 million on the extinquishment of this debt. A gain of $16.9 million was recognized in the first quarter 1999 on the repurchase of $35.4 million of senior unsecured debt, while a gain of $4.3 million was recognized in the second quarter 1999 on $13.9 million of senior unsecured debt. The Company may, from time to time, continue to acquire its senior unsecured debt. The Company reported an operating loss of $6.1 million for the second quarter 1999 before consideration of the gain on the repurchase of these notes, compared to an operating loss of $7.9 million for the first quarter 1999. The improved operating results in the second quarter 1999 compared to the first quarter 1999 was due mainly to the securitization transaction completed in May 1999. This securitization transaction generated a gain of $1.7 million, and generated additional liquidity of $33.0 million for the Company. At June 30, 1999, the Company had total cash and excess availability under its line of credit of $54.7 million.
Total revenues for the three months ended June 30, 1999 were $9.2 million, an increase of 10% over the first quarter 1999 revenues of $8.3 million. One factor contributing to the increased revenues, in addition to the securitization transaction completed in May, is the improving premiums received on whole-loan sales. Premiums on whole loan sales averaged 1.2% in January 1999 compared to an average of 3.7% in June 1999.
The Company has begun to explore the internet as an alternative means of generating leads for production through its retail distribution channel, and currently has six employees dedicated full-time to this effort. The Company has entered into partnerships with a number of multi-lender sites as a means of generating additional customer leads. The Company is also exploring various other web-sites for running advertising campaigns. Customers are able to complete a mini application by visiting the Company's web-site at www.HomeGold.com . A major initiative was launched by the Company in the second quarter 1999 to install an automated underwriting system, which when complete should significantly enhance the speed and efficiency of the Company's present system. The Company has selected the Arcsystems.com product LT2K for this purpose. The addition of automated underwriting to the Company's web site should establish it as a competitive mortgage site on the internet.
Management has reduced general and administrative expenses to approximately $3.6 million per month in the first six months of 1999 compared to an average of $9.2 million per month in the first six months of 1998. These reduced costs reflect the sale of non-mortgage subsidiaries and the consolidation of mortgage operations to one location in South Carolina. According to Jack Sterling, CEO, the Company's current infrastructure, including information systems, servicing, and financial reporting and controls, is capable of supporting a much larger organization. ``We chose to protect this valuable infrastructure to support our anticipated future growth. In many ways the last eighteen months have been like starting over. But this time we are determined to build on a strong foundation, even though it delays profitability,'' Sterling commented.
The Company's asset quality for its total serviced loans showed significant improvement at June 30, 1999 from year-end. Total serviced loans delinquent 30 days or more at June 30, 1999 was $59.1 million, or 12.19% of the total serviced portfolio, compared to $74.9 million, or 13.44% of the total serviced portfolio, at December 31, 1998. Net loans charged-off, on an annualized basis, was 62 basis points during the six months ended June 30, 1999, compared to 108 basis points during the year ended December 31, 1998.
The Company's total mortgage loan originations increased 11% in the second quarter of 1999 compared to the first quarter of 1999, growing from $52.6 million for the three months ended March 31, 1999 to $58.4 million for the three months ended June 30, 1999. The June loan volume was the highest month so far in 1999, with originations of $25.3 million compared to $16.5 million in the previous month. The mix of production between retail and wholesale has remained fairly constant, with the retail component producing approximately 57% of the volume while wholesale contributed the remaining 43%. The Company currently has 66 retail loan officers and 29 wholesale account executives. Productivity levels per loan officer and account executive continue to be an area of focus for the Company. The Company's biggest challenge is to continue increasing loan origination volume without increasing costs. To help achieve this goal, the Company hired a new Executive Vice President in July 1999. This individual, Mr. John Crisler, has been active in management positions in the financial services industry for approximately 19 years. Most recently, Mr. Crisler was with Advanta Corporation where he served as the Senior Vice President of Direct Originations and Vice President of Marketing.
The Company showed considerable improvement in its balance sheet from year-end, increasing shareholders' equity from $5.8 million at December 31, 1998 to $13.1 million at June 30, 1999. The Company's equity-to- assets ratio improved from 2.3% at December 31, 1998 to 6.5% at June 30, 1999.
HomeGold Financial, Inc. is a financial services company, which originates, services, and sells non-prime first and second lien residential mortgage loans. HomeGold currently has approximately 400 employees.
``Safe Harbor'' statement under the Private Securities
Litigation Reform Act of 1995: From time to time the Company may
publish forward-looking statements relating to such matters as
anticipated financial performance, business prospects and similar
matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated
results or other expectations expressed in the Company's forward-looking
statements. The risks and uncertainties that may affect the
operations, performance and results of the Company's business
include the following: lower origination volume due to market
conditions; inability to achieve desired efficiency levels;
higher losses due to economic downturn or lower real estate
values; loss of key employees; negative cash flows and capital
needs; delinquencies and losses in securitization trusts; right
to terminate mortgage servicing and related negative impact on
cash flow; adverse consequences of changes in the interest rate
environment; year 2000 compliance and technological enhancement;
prepayment risk; credit risk, including deterioration of
creditworthiness of borrowers and risk of default; risk of
adverse changes in the secondary market for mortgage loans;
dependence on funding sources; dependence on broker network;
competition; timing of loan sales; economic conditions;
contingent risks; government regulation; adverse impact of
lawsuits; losses due to breach of representation or warranties
under previous agreements; and lower than anticipated loan
origination fees. For more complete information concerning
factors which could affect the Company's financial results,
reference is made to the Company's registration statements,
reports and other documents filed with the U.S. Securities and
HOMEGOLD FINANCIAL, INC. AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Dollars in thousands) June 30, December 31, 1999 1998 (Unaudited) (Audited) Assets Cash and cash equivalents $ 36,203 $ 36,913 Restricted cash 5,169 5,100 Loans receivable 65,303 124,740 Less allowance for loan losses (4,842) (6,659) Less deferred loan fees (1,166) (2,071) Plus deferred loan costs 640 888 Net loans receivable 59,935 116,898 Accrued interest receivable and other receivables 14,494 15,541 Residual receivables (net of allowance for loss of $7,313 and $7,165 respectively) 49,120 43,857 Property and equipment, net 18,656 19,665 Real estate and personal property acquired through foreclosure 4,949 5,881 Excess of cost over net assets of acquired businesses, net 1,613 1,660 Debt origination costs, net 2,676 4,681 Deferred income tax asset 4,151 4,151 Servicing asset 945 940 Other assets 2,823 1,921 Total assets $200,734 $257,208 Liabilities and Shareholders' Equity Revolving warehouse lines of credit $ -- $ 16,736 Investor savings debentures 141,420 135,890 Senior unsecured debt 37,364 86,650 Other liabilities 8,851 12,108 Total liabilities 187,635 251,384 Minority interest 17 23 Shareholders' equity 13,082 5,801 Total liabilities and shareholders' equity $200,734 $257,208 HOMEGOLD FINANCIAL, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Operations (Dollars in thousands, except share and per share data) Six months ended Three months ended Year ended June 30, June 30, December 31, 1999 1998 1999 1998 1998 (Unaudited) (Unaudited) (Audited) Revenues: Interest income $ 4,956 $ 19,190 $ 1,618 $ 10,516 $ 35,075 Servicing income 5,010 7,601 2,608 3,379 12,239 Gain on sale of loans: Gain on sale of loans 4,389 13,291 3,216 6,773 9,472 Loan fees, net 2,373 6,830 1,416 3,228 11,745 Total net gain on sale of loans 6,762 20,121 4,632 10,001 21,217 Gain on sale of subsidiaries -- -- -- -- 18,964 Other revenues 750 2,418 354 880 4,230 Total revenues 17,478 49,330 9,212 24,776 91,725 Expenses: Interest expense 8,987 18,385 4,189 9,952 35,968 Provision for credit losses (349) 6,940 (430) 2,111 11,906 Fair value adjustment of residuals 775 8,910 828 7,330 13,638 Restructuring charges -- -- -- -- 6,838 General & administrative expense 21,537 55,444 10,595 25,791 96,366 Total expenses 30,950 89,679 15,182 45,184 164,716 Income (loss) before income taxes, minority interest and extraordinary item (13,472) (40,349) (5,970) (20,408) (72,991) Provision (benefit) for income taxes 620 3,244 170 2,566 3,017 Income (loss) before minority interest and extraordinary item (14,092) (43,593) (6,140) (22,974) (76,008) Minority interest in (earnings) loss of subsidiaries (4) 2 (7) (2) 47 Income (loss) before extraordinary item (14,096) (43,591) (6,147) (22,976) (75,961) Extraordinary item - gain on extinguishment of debt 21,227 -- 4,281 -- 18,216 Net income (loss) $ 7,131 $ (43,591) $ (1,866) $ (22,976) $(57,745) Basic earnings (loss) per share: Income (loss) before extraordinary item $ (1.44) $ (4.49) $ (0.63) $ (2.37) $ (7.81) Extraordinary item 2.16 -- 0.44 -- 1.87 Net income (loss) $ 0.72 $ (4.49) $ (0.19) $ (2.37) $ (5.94) Weighted average number of shares outstanding 9,809,798 9,705,055 9,827,228 9,708,083 9,719,262 Diluted earnings (loss) per share: Income (loss) before extraordinary item $ (1.42) $ (4.49) $ (0.62) $ (2.37) $ (7.81) Extraordinary item 2.14 -- 0.43 -- 1.87 Net income (loss) $ 0.72 $ (4.49) $ (0.19) $ (2.37) $ (5.94) Weighted average number of shares And options outstanding 9,899,649 9,705,055 9,990,357 9,708,083 9,719,262 HOMEGOLD FINANCIAL, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Dollars in thousands) Six months ended Year ended June 30, December 31, 1999 1998 1998 (Unaudited) (Unaudited) Operating cash income: Servicing fees received and excess cash flow from securitization trusts $ 8,309 $ 4,870 $ 16,548 Interest received 5,784 20,234 36,127 Cash gain on sale of loans 2,673 7,979 1,343 Cash loan origination fees received 2,925 9,843 18,255 Other cash income 750 2,603 5,388 Total operating cash income 20,441 45,529 77,661 Operating cash expenses: Securitization costs 593 851 851 Cash operating expenses 19,966 53,635 99,551 Interest paid 10,674 18,770 37,519 Taxes paid 1,049 1,466 2,515 Total operating cash expenses 32,282 74,722 140,436 Cash flow due to operating cash income and expenses (11,841) (29,193) (62,775) Other cash flows from operating activities: Cash provided by (used in) other payables and receivables (7,043) 638 (12,541) Cash provided by (used in) loans held for sale 44,840 (51,058) 123,674 Cash proceeds on sale of residual assets -- -- 16,958 Cash gain on sale of subsidiary assets -- -- 18,964 Net cash provided by (used in) operating activities 25,956 (79,613) 84,280 Net cash provided by investing activities 12,451 18,173 24,327 Net cash provided by (used in) financing activities (39,117) 97,505 (79,255) Net increase (decrease) in cash and cash equivalents (710) 36,065 29,352 Cash and cash equivalents, beginning of period 36,913 7,562 7,561 Cash and cash equivalents, end of period $ 36,203 $ 43,627 $ 36,913 HOMEGOLD FINANCIAL, INC. AND SUBSIDIARIES Asset Quality Statistics (Dollars in thousands) (Unaudited) June 30, December 31, 1999 1998 Dollars Percent Dollars Percent Delinquencies as a % of total unguaranteed serviced loans: 30-59 days $ 20,160 4.16% $ 28,174 5.05% 60-89 days $ 7,216 1.49% $ 8,647 1.55% 90 days or more and loans in foreclosure process $ 31,678 6.54% $ 38,109 6.84% Total greater than 30 days $ 59,054 12.19% $ 74,930 13.44% YTD net charge-offs as percentage of average unguaranteed serviced loans (annualized) $ 1,607 0.62% $ 8,938 1.08% Total allowances for credit losses as percentage of total unguaranteed serviced loans $ 12,155 2.51% $ 13,824 2.48%
SOURCE: HomeGold Financial, Inc.