Wednesday July 21, 4:15 pm Eastern
Time
Company Press Release
SOURCE: HomeGold Financial, Inc.
HomeGold Financial, Inc. Reports $7.1 Million Net Income in 1st
Six Months of 1999
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
Exchange Commission.
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.
