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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2004

OR

[ ]    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: 000-33485

SAXON CAPITAL, INC.
(Exact name of Registrant as specified in its charter)

                       DELAWARE
(State or other jurisdiction of incorporation or
                      organization)		                                  54-2036376
             (IRS Employer Identification No.)

4860 COX ROAD, SUITE 300
GLEN ALLEN, VIRGINIA
(Address of principal executive offices)

23060
(Zip Code)

(804) 967-7400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all documents and 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    No        

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

As of August 3, 2004 there were 28,773,200 shares of our common stock, par value $0.01 per share, outstanding.

SAXON CAPITAL, INC.

Table of Contents

Page
PART I - Financial Information  

      Item 1. Financial Statements

                 Unaudited Condensed Consolidated Balance Sheets at June 30, 2004 and
                 December 31, 2003 1 

                 Unaudited Condensed Consolidated Statements of Operations for the three and six
                 months ended June 30, 2004 and June 30, 2003 2 

                 Unaudited Condensed Consolidated Statement of Stockholders´ Equity for the six
                 months ended June 30, 2004 3 

                 Unaudited Condensed Consolidated Statements of Cash Flows for the six months
                 months ended June 30, 2004 and June 30, 2003 4 

                 Unaudited Notes to Condensed Consolidated Financial Statements		 5 

      Item 2. Management´s Discussion and Analysis of Financial Condition and Results
                  of Operations 17 

      Item 3. Quantitative and Qualitative Disclosures About Market Risk		 84 

      Item 4. Controls and Procedures		 91 

PART II - Other Information

      Item 1. Legal Proceedings		 92 

      Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 		93 

      Item 3. Defaults Upon Senior Securities		 93 

      Item 4. Submission of Matters to a Vote of SSecurity Holders		 93 

      Item 5. Other Information		 93 

      Item 6. Exhibits and Reports on Form 8-K		 93 











Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Saxon Capital, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except for share data)
(unaudited)

June 30,
2004
December 31,
2003
 Assets:            
 Cash     $ 7,320   $ 5,245  
 Accrued interest receivable       57,891     54,080  
 Trustee receivable       90,741     74,614  
 Mortgage loan portfolio       5,293,114     4,723,416  
 Allowance for loan loss       (34,032 )   (43,369 )
      Net mortgage loan portfolio       5,259,082     4,680,047  
 Restricted cash       12,343     1,257  
 Servicing related advances       79,416     98,588  
 Mortgage servicing rights, net       44,698     41,255  
 Real estate owned       20,745     23,787  
 Deferred tax asset       2,660     —  
 Other assets       73,976     79,959  
 Total assets     $ 5,648,872   $ 5,058,832  
 Liabilities and shareholders' equity:    
 Liabilities:    
 Accrued interest payable     $ 8,425   $ 8,602  
 Warehouse financing       879,107     427,969  
 Securitization financing       4,332,875     4,237,375  
 Note payable       25,000     25,000  
 Deferred tax liability       —     907  
 Other liabilities       12,165     13,933  
 Total liabilities       5,257,572     4,713,786  
 Commitments and contingencies - Note 9       —     —  
Shareholders' equity:    
 Common stock, $0.01 par value per share, 100,000,000 shares    
    authorized; shares issued and outstanding: 28,730,700 as of June    
    30, 2004 and 28,661,757 as of December 31, 2003       287     287  
 Additional paid-in capital       266,421     264,030  
 Other comprehensive income (loss), net of tax of $781 and $(3,500)       1,226     (5,497 )
 Retained earnings       123,366     86,226  
 Total shareholders' equity       391,300     345,046  
 Total liabilities and shareholders' equity     $ 5,648,872   $ 5,058,832  

The accompanying notes are an integral part of these condensed consolidated financial statements.


Table of Contents

Saxon Capital, Inc.
Condensed Consolidated Statements of Operations
(dollars in thousands, except for share data)
(unaudited)

Three Months Ended June 30,
Six Months Ended June 30,
2004
2003
2004
2003
Revenues:                    
    Interest income     $ 99,051   $ 83,577   $ 190,050   $ 158,832  
   Interest expense       (36,045 )   (30,993 )   (69,212 )   (57,654 )
        Net interest income       63,006     52,584     120,838     101,178  
   Provision for mortgage loan losses       (10,160 )   (9,677 )   (14,038 )   (18,291 )
        Net interest income after provision for    
           mortgage loan losses       52,846     42,907     106,800     82,887  
   Servicing income, net of amortization and    
      impairment       6,931     8,202     11,823     15,782  
   Gain on sale of mortgage assets       308     45     2,859     51  
        Total net revenues       60,085     51,154     121,482     98,720  
Expenses:    
    Payroll and related expenses       (17,554 )   (13,382 )   (33,198 )   (27,660 )
   General and administrative expenses       (13,367 )   (11,424 )   (26,125 )   (22,482 )
   Depreciation       (1,575 )   (785 )   (3,069 )   (1,451 )
   Other expense       (1,248 )   (476 )   (2,391 )   (1,135 )
        Total operating expenses       (33,744 )   (26,067 )   (64,783 )   (52,728 )
   Income before taxes       26,341     25,087     56,699     45,992  
   Income tax expense       (8,893 )   (9,656 )   (19,559 )   (17,677 )
Net income     $ 17,448   $ 15,431   $ 37,140   $ 28,315  
Earnings per common share:    
    Average common shares - basic       28,703,360     28,522,401     28,687,242     28,410,096  
   Average common shares - diluted       31,196,482     29,973,379     31,309,052     29,569,312  
   Basic earnings per common share     $ 0.61   $ 0.54   $ 1.30   $ 1.00  
   Diluted earnings per common share     $ 0.56   $ 0.51   $ 1.19   $ 0.96  

The accompanying notes are an integral part of these condensed consolidated financial statements.









Table of Contents

Saxon Capital, Inc.
Condensed Consolidated Statement of Shareholders’ Equity
(dollars in thousands, except share data)
(unaudited)

Common
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
Total
Balance at January 1, 2004       28,661,757   $ 287   $ 264,030   $ (5,497 ) $ 86,226   $ 345,046  
Issuance of common stock       68,943     —     1,110     —     —     1,110  
Compensation expense on restricted stock units       —     —     1,281     —     —     1,281  
Comprehensive income:    
     Net income       —     —     —     —     37,140     37,140  
     Add: change in unrealized loss on mortgage    
      securities       —     —     —     351     —     351  
     Add: reclassification adjustment for    
      unrealized gain on mortgage securities       —     —     —     465     —     465  
     Less: tax effect of above unrealized gain on    
      mortgage securities       —     —     —     (317 )   —     (317 )
     Add: gain on cash flow hedging instruments       —     —     —     10,157     —     10,157  
     Add: reclassification adjustment for gain on    
      cash flow hedging instruments       —     —     —     30     —     30  
     Less: tax effect of gain on cash flow hedging    
      instruments       —     —     —     (3,963 )   —     (3,963 )
Total comprehensive income       —     —     —     6,723     37,140     43,863  
Balance at June 30, 2004       28,730,700   $ 287   $ 266,421   $ 1,226   $ 123,366   $ 391,300  

The accompanying notes are an integral part of these condensed consolidated financial statements.













Table of Contents

Saxon Capital, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)

Six Months Ended June 30,
2004
2003
Operating Activities:            
 Net income from operations     $ 37,140   $ 28,315  
Adjustments to reconcile net income to net cash provided    
   by operating activities:    
   Depreciation and amortization       23,208     13,337  
   Deferred income taxes       (3,567 )   (3,333 )
   Impairment of assets       6,692     1,967  
   Gain from sale of assets       (2,859 )   (51 )
   Provision for loan losses       14,038     18,291  
   (Recovery) provision for advanced interest losses       (529 )   441  
   Decrease in servicing related advances       19,172     2,850  
   Increase in accrued interest receivable       (3,811 )   (11,547 )
   (Decrease) increase in accrued interest payable       (178 )   2,157  
   Increase in trustee receivable       (16,128 )   (25,410 )
   Net change in other assets and other liabilities       (5,693 )   (2,521 )
        Net cash provided by operating activities       67,485     24,496  
Investing Activities:    
 Purchase and origination of mortgage loans       (1,750,620 )   (1,478,199 )
Principal payments on mortgage loan portfolio       965,483     619,793  
Proceeds from the sale of mortgage loans       150,690     23,584  
Proceeds from the sale of real estate owned       28,783     13,953  
(Increase) decrease in restricted cash       (11,086 )   300,598  
Purchase of mortgage bonds       --     (3,000 )
Principal payments received on mortgage bonds       3,584     1,418  
Acquisition of mortgage servicing rights       (14,826 )   (8,697 )
Net capital expenditures       (4,146 )   (4,405 )
        Net cash used in investing activities       (632,138 )   (534,955 )
Financing Activities:    
 Proceeds from issuance of securitization financing       1,115,475