UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
| (Mark One) | ||
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2002 | ||
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or |
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from _____ to | ||
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COMMISSION FILE NUMBER 0-19604 |
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AAMES FINANCIAL CORPORATION |
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DELAWARE |
95-4340340 |
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350 SOUTH GRAND AVENUE, LOS ANGELES,
CA 90071-3459 |
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(323) 210-5000 |
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NO CHANGES |
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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 ý No o
At November 12, 2002, Registrant had 6,483,961 shares of common stock outstanding.
TABLE OF CONTENTS
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
September 30, 2002 |
June 30, 2002 |
|||||||||
|
ASSETS |
||||||||||
| Cash and cash equivalents | $ |
21,206,000 |
$ | 17,391,000 | ||||||
| Loans held for sale, at lower cost or market | 501,382,000 | 462,068,000 | ||||||||
| Accounts receivable | 58,577,000 | 61,276,000 | ||||||||
| Residual interests, at estimated fair value | 190,174,000 | 197,297,000 | ||||||||
| Mortgage servicing rights, net | 2,160,000 | 2,920,000 | ||||||||
| Equipment and improvements, net | 10,154,000 | 10,936,000 | ||||||||
| Prepaid and other | 16,019,000
|
14,710,000
|
||||||||
| Total Assets | $ | 799,672,000
|
$ | 766,598,000
|
||||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||||
| Borrowings | $ | 256,438,000 | $ | 263,970,000 | ||||||
| Revolving warehouse and repurchase facilities | 412,756,000 | 383,119,000 | ||||||||
| Accounts payable and accrued expenses | 37,035,000 | 36,005,000 | ||||||||
| Accrued dividends on convertible preferred stock | 41,586,000 | 37,763,000 | ||||||||
| Income taxes payable | 8,581,000
|
8,556,000
|
||||||||
| Total liabilities | $ | 756,396,000
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$ | 729,413,000
|
||||||
| Commitments and contingencies | ||||||||||
| Stockholders' equity: | ||||||||||
| Series A Preferred Stock, par value $0001 per
share; 500,000 shares authorized; none outstanding |
---- | --- | ||||||||
| Series B Convertible Preferred Stock, par
value $0001 per share; 29,704,000 shares authorized; 26,704,000 outstanding |
27,000 | 27,000 | ||||||||
| Series C Convertible Preferred Stock, par
value $0001 per share; 61,230,000 shares authorized; 20,186,000 shares outstanding |
20,000 | 20,000 | ||||||||
| Series D Convertible Preferred Stock; par
value $0001 per share; 108,566,000 shares authorized; 60,020,000 shares outstanding |
60,000 | 60,000 | ||||||||
| Common Stock, par value $0001 per share;
400,000,000 shares authorized; 6,483,000 and 6,482,000 outstanding |
6,000 | 6,000 | ||||||||
| Additional paid-in capital | 418,027,000 | 418,027,000 | ||||||||
| Retained deficit | (374,864,000 |
) |
(380,955,000 |
) | ||||||
| Total stockholders' equity | 43,276,000
|
37,185,000
|
||||||||
| Total liabilities and stockholders' equity | $ | 799,672,000
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$ | 766,598,000
|
||||||
See accompanying notes to condensed consolidated financial statements.
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
|
Three Months Ended |
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|
2002 |
2001 |
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| Revenue: | |||||||||||
| Gain on sale of loans | $ | 31,532,000 | $ | 23,824,000 | |||||||
| Write-down of residual interests | --- | (10,000,000 |
) |
||||||||
| Origination Fees | 13,375,000 | 13,835,000 | |||||||||
| Loan servicing | 2,755,000 | 3,072,000 | |||||||||
| Debt extinguishment income | 1,087,000 | --- | |||||||||
| Interest | 18,614,000
|
22,393,000
|
|||||||||
| Total revenue, including
write-down of residual interests |
67,363,000
|
53,124,000
|
|||||||||
| Expenses: | |||||||||||
| Personnel | 31,222,000 | 25,900,000 | |||||||||
| Production | 6,163,000 | 4,325,000 | |||||||||
| General and administrative | 10,677,000 | 10,697,000 | |||||||||
| Interest | 8,769,000
|
11,050,000
|
|||||||||
| Total expenses | 56,831,000
|
51,972,000
|
|||||||||
| Income before income taxes | 10,532,000 | 1,152,000 | |||||||||
| Provision for income taxes | 618,000
|
526,000
|
|||||||||
| Net income | $ | 9,914,000
|
$ | 626,000
|
|||||||
| Net income (loss) to common stockholders: | |||||||||||
| Basic | $ | 6,091,000
|
$ | (3,698,000
|
) | ||||||
| Diluted | $ | 11,481,000
|
$ | (3,698,000
|
) | ||||||
| Net income (loss) per common
share outstanding: |
|||||||||||
| Basic | $ | 0.94 |
$ | (0.59 |
) | ||||||
| Diluted | $ | 0.12 |
$ | (0.59 |
) | ||||||
| Weighted average number shares | |||||||||||
| Basic | $ | 6,483,000
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$ | 6,265,000
|
|||||||
| Diluted | $ | 93,488,000
|
$ | 6,265,000
|
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See accompanying notes to condensed consolidated financial statements.
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Three
Months Ended September 30, |
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2002 |
2001 |
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| Operating activities: | |||||||||||
| Net Income | $ | 9,914,000 | $ | 626,000 | |||||||
| Adjustments to
reconcile net income to net cash provided by (used in) operating activities: |
|||||||||||
| Depreciation and amortization | 1,044,000 | 1,113,000 | |||||||||
| Write-down of residual interests | --- | 10,000,000 | |||||||||
| Accretion of residual interests | (4,826,000 | ) | (8,940,000 | ) | |||||||
| Debt extinguishment income | (1,087,000 | ) | --- | ||||||||
| Mortgage servicing rights amortized | 760,000 | 1,066,000 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Loans held for sale originated | (969,158,000 | ) | (723,298,000 | ) | |||||||
| Proceeds from sale of loans held for sale | 929,844,000 | 745,107,000 | |||||||||
| Decrease (increase) in: | |||||||||||
| Accounts receivable | 2,699,000 | 4,963,000 | |||||||||
| Residual interests | 11,949,000 | 12,626,000 | |||||||||
| Prepaid and other | (1,309,000 | ) | 298,000 | ||||||||
| Increase in: | |||||||||||
| Accounts payable and accrued expenses | 1,030,000 | 4,210,000 | |||||||||
| Income taxes payable | 25,000
|
660,000
|
|||||||||
| Net cash provided by (used in) operating activities | (19,115,000 |
) | 38,505,000 |
||||||||
| Investing activities: | |||||||||||
| Purchases of equipment and improvements | (262,000 |
) | (1,254,000 |
) | |||||||
| Net cash used in investing activities | (262,000 |
) | (1,254,000 |
) | |||||||
| Financing activities: | |||||||||||
| Reduction of borrowings | (6,445,000 | ) | --- | ||||||||
| Net
increase (decrease) in revolving warehouse and repurchase facilities |
29,637,000 |
(51,088,000 |
) | ||||||||
| Net Cash provided by (used in) financing activities | 23,192,000 |
(51,008,000 |
) | ||||||||
| Net increase (decrease) in cash and cash equivalents | 3,815,000 | (13,837,000 | ) | ||||||||
| Cash and cash equivalents at beginning of period | 17,391,000
|
27,583,000
|
|||||||||
| Cash and cash equivalents at end of period | $ | 21,206,000
|
$ | 13,746,000
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See accompanying notes to condensed consolidated financial statements.
AAMES FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The condensed consolidated financial statements of Aames Financial Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted.
The condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries after eliminating all significant intercompany transactions and reflect all normal, recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the results of operations of the Company in conformity with accounting principles generally accepted in the United States for the interim periods reported. The results of operations for the Company for the three months ended September 30, 2002 are not necessarily indicative of the results expected for the full fiscal year.
At September 30, 2002, Specialty Finance Partners (“SFP”), a partnership controlled by Capital Z Financial Services Fund, II,L.P., a Bermuda partnership (together with SFP, “Capital Z”) owned preferred stock representing approximately 45.2% of the Company's combined voting power in the election of directors and approximately 90.2% of the combined voting power in all matters other than the election of directors. Representatives or nominees of Capital Z have five of the nine seats on the Board of Directors, and as current members' terms expire, Capital Z has the continuing right to appoint and elect four directors and nominate one additional director. As a result of its beneficial ownership and Board representation, Capital Z has, and will continue to have, sufficient power to determine the Company's direction and policies.
Note 2: Residual Forward Sale Facility with Related Party
On August 31, 2000, the Company entered into a
Residual Forward Sale Facility, amended on September 30,
2002 (the “Residual Facility”) with Capital Z Investments, L.P., a Bermuda partnership (“CZI”), an affiliate of
Capital Z, the Company's largest shareholder. Pursuant to the terms of the Residual Facility, the Company may
sell up to $75.0million of its residual interests for cash in future securitizations through the earliest of
(i) March 31, 2003 (extended from September30, 2002), (ii) the full utilization of the
$75.0 million Residual
Facility amount, or (iii) a termination event, as defined in the Residual Facility. The sales of the residual
interests are without recourse to the Company.
During the three months ended September 30, 2002, the Company did not dispose of any of its loans
through a securitization nor did the Company use the Residual Facility. At September 30, 2002, the capacity
remaining under the Residual Facility was $13.5 million.
In connection with obtaining the Residual Facility, the Company incurred and capitalized $3.3 million of costs, of which $3.0 million related to a facility fee paid to CZI. The capitalized costs are being amortized to gain on sale of loans based upon the ratio of the dollar amount of the residual interests sold to CZI under the Residual Facility to the total Residual Facility amount. During the three months ended September 30, 2002, there was no amortization of capitalized Residual Facility. During the three months ended September 30, 2001, amortization of total capitalized Residual Facility costs charged to gain on sale of loans was $0.2 million, substantially all of which related to the amortization of the facility fee paid to CZI.
Note 3: Subsidiary Guarantors
In October 1996, the Company completed an offering of its 9.125% Senior Notes due November 2003 which were guaranteed by all of the Company's operating subsidiaries, all of which are wholly - owned. The guarantees are joint and several, full, complete and unconditional. There are no restrictions on the ability of such subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. The Company is a holding company with limited assets or operations other than its investments in its subsidiaries. Separate financial statements of the guarantors are not presented because the aggregate total assets, net earnings and net equity of such subsidiaries are substantially equivalent to the total assets, net earnings and net equity of the Company on a consolidated basis.
Note 4: Per Share Data
The following table sets forth information regarding basic and diluted net income (loss) per common share for the three months ended September 30, 2002 and 2001 (dollars in thousands, except per share data):
|
Three Months Ended |
|||||||||
|
2002 |
2001 |
||||||||
| Basic net income (loss) per common share: | |||||||||
| Net income | $9,914 | $626 | |||||||
| Less: Accrued
dividends on Series B, C and D Convertible Preferred Stock |
(3,823 |
) |
(4,234 |
) | |||||
| Basic net income (loss) to common stockholders | $6,091 |
$(3,698 |
) | ||||||
| Basic weighted
average number of common shares outstanding |
6,483
|
6,265
|
|||||||
| Basic net income (loss) per common share | $0.94 |
$(0.59 |
) | ||||||
| Diluted net income (loss) per common share: | |||||||||
| Basic
net income (loss) to common stockholders |
$6,091 | ($3,698 | ) | ||||||
| Plus: Accrued
dividends on Series B, C and D Preferred Stock |
3,823 | --- | |||||||
|
Interest on 5.5% Convertible Preferred Debentures |
1,567
|
---
|
|||||||
| Diluted net income (loss) to common stockholders | $11,481
|
$(3,698
|
) | ||||||
| Basic
weighted average number of common shares outstanding |
6,483 | 6,265 | |||||||
| Plus incremental shares from assumed conversion of | |||||||||
| 5.5% Convertible Subordinated Debentures | 1,458 | --- | |||||||
| Series B, C, and D Convertible Preferred Stock | 85,547
|
---
|
|||||||
| Diluted net income (loss) per common share | $0.12
|
$(0.59
|
) | ||||||
Note 5: Reclassifications
Certain amounts related to fiscal year 2002 have been reclassified to conform to the fiscal year 2003 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the financial condition and results of operations of Aames Financial Corporation (the "Company") should be read in conjunction with the Company's Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. The following discussion includes Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk.
Special Note Regarding Forward-Looking Information
This Report contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words "expect," "estimate," "anticipate," "predict," "believe," and similar expressions and variations thereof are intended to identify forward-looking statements. Such statements appear in a number of places in this filing and include statements regarding the intent, belief or current expectations of the Company, its directors or officers with respect to, among other things (a) market conditions in the securitization, capital, credit and whole loan markets and their future impact on the Company's operations, (b) trends affecting the Company's liquidity position, including, but not limited to, its access to warehouse, working capital and other credit facilities and its ability to effect securitizations and whole loan sales, (c) the impact of the various cash savings plans and other restructuring strategies being considered by the Company, (d) the Company's on-going efforts in improving its equity position, (e) trends affecting the Company's financial condition and results of operations, and, (f) the Company's business and liquidity strategies. The stockholders of the Company are cautioned not to put undue reliance on such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in this Report, for the reasons, among others, discussed under the captions "Recent Developments" and "Risk Factors" and the other portions of Management's Discussion and Analysis of Financial Condition and Results of Operations. Readers should carefully review the factors referred to above and the other documents the Company files from time to time with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002, the quarterly reports on Form 10-Q filed by the Company during the remainder of fiscal 2003, and any current reports on Form 8-K filed by the Company.
Recent Events
During the three months ended September 30, 2002, the Company recorded net income of $9.9 million compared to $0.6 million during the comparable three month period a year ago.
Total revenue during the three months ended September 30, 2002 increased $14.3 million to $67.4 million from $53.1 million during the comparable period a year ago. Total revenue during the three months ended September 30, 2002 includes $1.1 million of debt extinguishment income recognized in connection with the Company's $7.5 million extinguishment of its 9.125% Senior Notes at a discount from par for $6.4 million of cash. Total revenue during the three months ended September 30, 2001 includes a $10.0 million write-down to the Company's residual interests. Excluding the $1.1 million of debt extinguishment income and the $10.0 million write-down to the residual interests during the three months ended September 30, 2002 and 2001, respectively, the increase in total revenue during the three months ended September 30, 2002 over total revenue during the comparable three month period in 2001 was $3.2 million. The $3.2 million increase in total revenue was comprised of an increase of $7.7 million in gain on sale of loans, partially offset by declines of $3.8 million, $0.4 million and $0.3 million in interest, origination fees and loan servicing income, respectively.
Total expenses during the three months ended September 30, 2002 increased $4.8 million to $56.8 million from $52.0 million during the three months ended September 30, 2001. The increase in expenses during the three months ended September 30, 2002 from expenses reported during the comparable period a year ago was attributable primarily to increases of $5.3 million and $1.8 million in personnel and production expense, respectively, partially offset by a decline of $2.3 million in interest expense.
On May 15, 2002, the Company commenced a refinancing of its outstanding 5.5% Convertible Subordinated Debentures due 2006 (the "Existing Debentures") by means of an offer to exchange (the "Exchange Offer") the Company's to be issued 4.0% convertible Subordinated Debentures due 2012 for any and all of its outstanding Existing Debentures. The terms of the Exchange Offer are set forth in an offering memorandum, amendments to the offering memorandum, a letter of transmittal and offering supplements filed previously with the SEC and incorporated into this Form 10-Q by reference. As of November 8, 2002, the Company has received tenders of Existing Debentures from holders of approximately $42.9 million principal amount, or approximately 37.6% of the outstanding Existing Debentures. The Exchange Offer is scheduled to expire Friday, November 22, 2002, at 5:00 p.m., New York City time.
Subsequent to the three months ended September 30, 2002, the Company extinguished an additional
$11.5
million of the 9.125% Senior Notes at a discount from par.
General
The Company is a consumer finance company primarily engaged, through its subsidiaries, in the business of originating, selling and servicing home equity mortgage loans secured by single family residences. Upon its formation in 1991, the Company acquired Aames Home Loan, a home equity lender making loans in California since it was founded in 1954. In 1995, the Company expanded its retail presence outside of California and began purchasing loans from correspondents. In August 1996, the Company acquired its broker production channel through the acquisition of One Stop Mortgage, Inc. In 1999, the Company consolidated its loan production channels into one company, and the retail and broker production channels (including the former One Stop) now operate under the name "Aames Home Loan."
The Company's principal market is borrowers whose financing needs are not being met by traditional mortgage lenders for a variety of reasons, including the need for specialized loan products or credit histories that may limit such borrowers' access to credit. The Company believes these borrowers continue to represent an underserved niche of the home equity loan market and present an opportunity to earn a superior return for the risk assumed. The residential mortgage loans originated by the Company, which include fixed and adjustable rate loans, are generally used by borrowers to consolidate indebtedness or to finance other consumer needs, and to a lesser extent, to purchase homes.
The Company originates loans through its retail and broker production channels. The Company's retail channel produces loans through its traditional retail branch network and through the National Loan Centers, which produce loans primarily through affiliations with sites on the Internet. The Company's broker channel produces loans through its traditional regional broker office network (including purchasing a limited amount of closed loans from mortgage brokers on a continuous or "flow" basis) and by sourcing loans through telemarketing and the Internet. The Company ceased purchasing mortgage loans in bulk during the fiscal year ended June 30, 1999.
The Company continues to focus on increasing its profitability through executing its core business strategy of: (i) increasing the amount and value of its loan production; (ii) reducing its cost of production; (iii) maximizing its opportunities in loan servicing; and (iv) maintaining adequate liquidity and access to the capital markets.
Increasing the Amount and Value of Its Loan Production. The Company intends to increase the size of its overall originations while improving its value. The Company's traditional retail branch network, the National Loan Centers and its traditional regional broker office network, and its broker telemarketing and Internet platforms, are all targeted as sources of growth. In its traditional retail branch network, the Company intends to drive this growth by: improving market penetration in its existing markets, introducing new products, improving its customer service levels and branch efficiencies. The Company's traditional regional broker office network plans to grow by: improving the service levels it offers to its current group of independent mortgage brokers, continuing to build new relationships with independent mortgage brokers throughout the country and introducing new products that meet the needs of brokers' customer bases. The Company's National Loan Centers, which produce loans through affiliations with sites on the Internet, and its growing broker telemarketing and Internet channel are planning to increase their scale by: identifying additional non - traditional lead sources, increasing their product offerings and expanding their overall operations. Additionally, the Company plans to continue using its knowledge of current customer needs and the historical performance of its loans to improve the value of its offerings to its retail customers and independent mortgage brokers while maximizing the resale value of its production.
Reducing Its Cost of Production. The Company intends to reduce its cost of production by leveraging its
investment in its origination technology platform, increasing the amount of automation in the loan origination
process and increasing the scale of the origination business driving fixed costs down as a percentage of overall
production costs. The Company will also continue its on-going effort of identifying opportunities for cost
reductions across all levels of the Company's operations.
Maximizing Its Opportunities in Loan Servicing. The Company intends to maximize opportunities in loan servicing taking into consideration the Company's overall profitability and liquidity position. Retaining loan servicing generates servicing income and related fees over the life of the loans in the servicing portfolio compared to receiving cash up front in selling servicing rights to third parties in connection with whole loan sales and securitizations. During the fiscal year ending June 30, 2003, the Company expects to maximize profitability and cash flow by selling all of its loan production through whole loan sales and securitizations on a servicing released basis. The Company sold all of its loan production during the three months ended September 30, 2002 through whole loan sales on a servicing released basis. When combined with existing loan servicing run-off, in the form of principal amortization, prepayments and liquidations, the Company's loan servicing portfolio at September 30, 2002 declined $22.0 million, or 1.0%, to $2.3 billion from the balance of the servicing portfolio at June 30, 2002, and declined $438.0 million, or 16.1%, from $2.7 billion at September 30, 2001. Mortgage loans in securitization trusts serviced in-house declined $125.0 million, or 10.5%, to $1.1 billion at September 30, 2002 from $1.2 billion at June 30, 2002, and declined by $574.0 million, or 35.0%, from $1.6 billion at September 30, 2001.
Maintaining Adequate Liquidity and Access to the Capital Markets. The Company intends to continue to increase and diversify its funding sources by adding additional warehouse or repurchase facilities, expanding its current funding relationships and identifying new funding sources. The Company intends to continue to fund its operations by disposing of a portion of its loan production for cash in the whole loan market, monetizing residual interests, selling the mortgage servicing rights and the rights to prepayment fees on the mortgage loans in its securitizations, monetizing servicing advances and developing new sources for working capital.
The strategies discussed above contain forward-looking statements. Such statements are based on current expectations and are subject to risks, uncertainties and assumptions, including those discussed under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Risk Factors" included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Thus, no assurance can be given that the Company will be able to accomplish the above strategies.
Loan Origination. The Company originates loans through its retail and broker production channels. The Company's retail channel produces loans through its traditional retail branch network and through the National Loan Centers, which produce loans primarily through affiliations with sites on the Internet. The Company's broker channel produces loans through its traditional regional broker office network (including purchasing a limited amount of closed loans from mortgage brokers on a continuous or "flow" basis) and by sourcing loans through telemarketing and the Internet. The Company generally underwrites the loans it originates to its underwriting guidelines and, to a lesser extent, to the underwriting guidelines of its investors in the secondary markets, and appraises every loan it originates. The underwriting of a mortgage loan to be originated by the Company generally includes a review of the completed loan package, including the loan application, a current appraisal, a preliminary title report and a credit report.
The following table presents the volume of loans originated by the Company during the periods presented (in thousands):
|
Three Months Ended |
|||||||||
|
September 30, |
June 30, |
||||||||
|
2002 |
2001 | 2002 | |||||||
| Retail | |||||||||
| Traditional retail branch network | $321,915 | $299,293 | $328,283 | ||||||
| National Loan Centers | 130,299
|
54,735
|
115,553
|
||||||
| Total retail | 452,214
|
354,028
|
443,836
|
||||||
| Broker: | |||||||||
| Traditional regional broker office network (1) | 465,164 | 345,681 | 424,953 | ||||||
| Telemarketing and Internet | 51,780
|
23,589
|
37,962
|
||||||
| Total broker | 516,944
|
369,270
|
462,915
|
||||||
| Total production | $969,158
|
$723,298
|
$906,751
|
||||||
|
(1) |
Includes the purchase of closed loans on a flow basis from correspondents of $2.7 million, $8.0 million and $6.9 million during the three months ended September 30, 2002, 2001 and June 30, 2002, respectively. |
Total Loan Production. Total loan production during the three months ended September 30, 2002 increased $62.4 million, or 6.9% to $969.2 million from $906.8 million reported during the three months ended June 30, 2002, and increased $245.9 million, or 34.0%, over the $723.3 million of total loan production reported during the three months ended September 30, 2001. Total loan production during the three months ended September 30, 2002 increased from loan production during the three months ended June 30, 2002 due to the continuation of the favorable mortgage interest rate environment, and the issuance of new uniform underwriting guidelines throughout the Company designed to improve the Company's competitive position and to provide greater consistency among the retail and broker origination channels. The interest rate environment during the three months ended September 30, 2002 was generally more favorable than the mortgage interest rate environment during the three months ended September 30, 2001, which contributed to the increase in the Company's total loan origination during the three months ended September 30, 2002 compared to total production during the three months ended September 30, 2001. Retail loan production during the three months ended September 30, 2002, also benefited from the acquisition of certain assets and the operating platform of another mortgage lender, which became the Company's second National Loan Center, and which did not contribute to loan production during the three months ended September 30, 2001. In the event that a less favorable mortgage interest rate environment occurs during calendar year 2003 it could reduce the overall demand for mortgage loans generally and demand for the Company's mortgage loan products. Should that event occur, the Company expects to be responsive to such changes in market conditions.
Retail Production. The Company's total retail production was $452.2 million during the three months ended September 30, 2002, an increase of $8.4 million, or 1.9%, from the $443.8 million reported during the three months ended June 30, 2002, and an increase of $98.2 million, or 27.7%, over the $354.0 million of total retail production during the three months ended September 30, 2001.
Traditional Retail Branch Network
The Company's traditional retail branch network production was $321.9 million during the three months ended September 30, 2002, a decrease of $6.4 million, or 2.0%, from the $328.3 million of traditional retail branch network production reported during the three months ended June 30, 2002, and an increase of $22.6 million, or 7.6%, over the $299.3 million reported during the three months ended September 30, 2001.
National Loan Centers
Mortgage loan production from the Company's National Loan Centers, which primarily originate loans through affiliations with certain Internet sites, increased $14.7 million, or 12.7% to $130.3 million during the three months ended September 30, 2002 from $115.6 million during the three months ended June 30, 2002, and increased $75.6 million over the $54.7 million of loan production reported during the three months ended September 30, 2001. The increase in the National Loan Centers' production during the three months ended September 30, 2002 compared to their production during the three months ended September 30, 2001 was due in part to the fact that the September 2002 quarter's production included loan production from the Company's second National Loan Center that was yet not in operation during the September 2001 quarter.
Broker Production. The Company's total broker production increased $54.0 million, or 11.7%, to $516.9 million during the three months ended September 30, 2002 from the $462.9 million of total broker production reported during the three months ended June 30, 2002, and increased $147.6 million, or 40.0%, over the $369.3 million reported during the three months ended September 30, 2001.
Traditional Regional Broker Office Network
Mortgage loan production from the traditional regional broker office network during the three months ended September 30, 2002 was $465.2 million which increased $40.2 million and $119.5 million over the $425.0 million and $345.7 million, respectively, of traditional regional office network production during the three months ended June 30, 2002 and September 30, 2001, respectively.
Broker Telemarketing and Internet
Broker mortgage loan production through telemarketing and the Internet was $51.8 million during the three months ended September 30, 2002, an increase of $13.8 million, or 36.3%, over the $38.0 million reported during the three months ended June 30, 2002, and an increase of $28.2 million over the $23.6 million reported during the three months ended September 30, 2001.
The following table sets forth the number of retail branch and broker offices operated by the Company at September 30, 2002 and 2001: