ACCREDITED HOME LENDERS HOLDING CO - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-50179

ACCREDITED HOME LENDERS HOLDING CO.

(Exact name of registrant as specified in its charter)

Delaware

04-3669482

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

15030 Avenue of Science, Suite 100

San Diego, California 92128

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 858-676-2100

Former name, former address and former fiscal year, if changed since last report: not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x or No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ or No x

The number of outstanding shares of the registrant’s common stock as of April 30, 2003 was 19,235,965.

TABLE OF CONTENTS

		Page
Part I	FINANCIAL INFORMATION

Item 1.	Unaudited Financial Statements	2

	Condensed Consolidated Balance Sheets as of December 31, 2002 and March 31, 2003	3

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and March 31, 2003	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and March 31, 2003	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 3.	Controls and Procedures	44

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 2.	Changes in Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Submission of Matters to a Vote of Security Holders	46

Item 5.	Other Information	46

Item 6.	Exhibits and Reports on Form 8-K	46

	Signatures	S-1

	Certifications	S-2

	Exhibit Index	Ex-1

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements. When used in this report, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar expressions are intended to identify forward-looking statements. They also include statements containing a projection of revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

The forward-looking statements in this report are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to them. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us, that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

•

changes in demand for mortgage loans due to fluctuations in the real estate market, interest rates or the market in which we sell or securitize our loans;

•

changes in government regulations that affect our ability to originate mortgage loans;

•

changes in the credit markets, which affect our ability to borrow money to originate mortgage loans;

•

the degree and nature of our competition;

•

our ability to employ and retain qualified employees; and

•

the other factors referenced in this report, including, without limitation, under the section entitled “ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors.

In this Form 10-Q, unless the context requires otherwise, “Accredited,” “Company,” “we,” “our,” and “us” means Accredited Home Lenders Holding Co. and its subsidiary.

PART I

ITEM 1.

Financial Statements

ACCREDITED HOME LENDERS HOLDING CO. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	December 31, 2002			March 31, 2003
	(dollars in thousands)
ASSETS
Cash and cash equivalents	$	11,300		$	11,996
Restricted cash		—			120
Mortgage loans held for sale, net		972,349			1,359,515
Securitized loans, net of allowance for loan losses of $4,550 and $6,434, respectively		743,375			725,632
Mortgage-related securities, at fair value		8,356			6,702
Mortgage servicing rights, net		3,116			2,551
Furniture, fixtures and equipment, net		8,794			9,934
Other receivables		32,229			32,648
Deferred income tax asset		17,075			20,399
Prepaid expenses and other assets		10,736			11,002

TOTAL	$	1,807,330		$	2,180,499

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Warehouse and residual interest credit facilities (including $153,726 with a related party at December 31, 2002)	$	962,285		$	1,304,343
Securitization bond financing		737,548			712,761
Convertible debt with a related party		3,000			—
Capital leases		265			190
Income taxes payable		6,423			13,615
Accounts payable and accrued liabilities		34,687			29,703

Total liabilities		1,744,208			2,060,612

Redeemable, convertible preferred stock:
Series A, $.001 par value; authorized 5,113,334 shares, issued and outstanding 5,113,334 shares at December 31, 2002 and zero at March 31, 2003; redeemable at $1.00 per share after January 1, 2000 (liquidating preference of $1.00 per share)		5,113


COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS’ EQUITY:
Preferred stock, $.001 par value; authorized 5,000,000 shares; no shares issued and outstanding					—
Common stock, $.001 par value; authorized 40,000,000 shares; issued and outstanding 5,833,873 shares at December 31, 2002 and 19,225,289 shares at March 31, 2003		6			19
Additional paid-in capital		2,351			49,404
Note receivable for common stock		(1,250	)		(1,250	)
Unearned compensation		(574	)		(573	)
Retained earnings		57,476			72,287

Total stockholders’ equity		58,009			119,887

TOTAL	$	1,807,330		$	2,180,499

See notes to condensed consolidated financial statements.

ACCREDITED HOME LENDERS HOLDING CO. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended March 31,

	2002		2003
	(dollars in thousands)
REVENUES:
Gain on sale of loans (including $1,423 and $2,834 with a related party)	$	26,643	$	43,171
Interest income		8,559		32,297
Loan servicing income		1,992		1,882
Net gain on mortgage-related securities and derivatives		199		1,399
Other income		91		391

Total revenues		37,484		79,140

EXPENSES:
Salaries, wages and benefits		14,421		23,868
Interest expense (including $1,237 and $597 with a related party)		3,700		12,167
Occupancy		1,468		2,356
Provision for losses		3,486		6,508
Depreciation and amortization		523		1,117
General and administrative expenses		4,749		8,441

Total expenses		28,347		54,457

INCOME BEFORE INCOME TAXES		9,137		24,683
INCOME TAXES		3,648		9,873

NET INCOME	$	5,489	$	14,810

BASIC EARNINGS PER SHARE	$	0.96	$	1.19

DILUTED EARNINGS PER SHARE	$	0.39	$	0.85

Weighted average shares outstanding:
Basic		5,736		12,445

Diluted		14,122		17,419

See notes to condensed consolidated financial statements.

ACCREDITED HOME LENDERS HOLDING CO. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended March 31,
	2002			2003
	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,489		$	14,810
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		523			1,117
Amortization of unearned compensation		20			49
Mortgage loans originated, net of fees		(750,133	)		(1,506,043	)
Proceeds from sale of mortgage loans held for sale, net of fees		741,634			1,111,633
Collection of principal payments on mortgage loans held for sale		2,026			4,551
Net change in fair value hedge basis adjustment on mortgage loans held for sale and securitized loans		—			(3,200	)
Amortization of net deferred origination fees on securitized loans		—			(125	)
Additions to mortgage-related securities		(820	)		—
Cash received on mortgage-related securities		7,090			3,735
Net unrealized (gain) loss on mortgage-related securities		218			(1,735	)
Accretion of mortgage-related securities		(935	)		(346	)
Additions to mortgage servicing rights

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