e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
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þ |
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Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
FOR THE QUARTERLY PERIOD ENDED March 31, 2006.
OR
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o |
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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 000-50721
Origen Financial, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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20-0145649 |
(State of Incorporation)
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(I.R.S. Employer Identification No.) |
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27777 Franklin Rd. |
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Suite 1700 |
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Southfield, MI
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48034 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code: (248) 746-7000
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
Number of shares of Common Stock, $.01 par value, outstanding as of May 1, 2006: 25,449,059
Origen Financial, Inc.
Index
2
Part I. Financial Information
Item 1. Financial Statements
Origen Financial, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
March 31, 2006 and December 31, 2005
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March 31, |
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December 31, |
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2006 |
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2005 |
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(Unaudited) |
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ASSETS |
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Assets |
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Cash and cash equivalents |
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$ |
2,975 |
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$ |
8,307 |
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Restricted cash |
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14,926 |
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13,635 |
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Investments held to maturity |
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41,675 |
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41,914 |
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Loans receivable, net of allowance for losses of
$9,670 and $10,017, respectively |
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806,748 |
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768,410 |
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Furniture, fixtures and equipment, net |
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3,454 |
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3,558 |
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Goodwill |
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32,277 |
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32,277 |
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Other assets |
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25,269 |
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24,902 |
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Total assets |
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$ |
927,324 |
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$ |
893,003 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Liabilities |
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Warehouse financing |
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$ |
119,640 |
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$ |
65,411 |
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Securitization financing |
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556,916 |
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578,503 |
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Repurchase agreements |
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23,582 |
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23,582 |
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Notes payable servicing advances |
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875 |
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2,212 |
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Recourse liability |
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292 |
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292 |
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Other liabilities |
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23,030 |
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23,052 |
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Total liabilities |
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724,335 |
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693,052 |
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Stockholders Equity |
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Preferred stock, $.01 par value, 10,000,000 shares
authorized; 125 shares issued and outstanding at
March 31, 2006 and December 31, 2005 |
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125 |
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125 |
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Common stock, $.01 par value, 125,000,000 shares
authorized; 25,449,059 and 25,450,726 shares issued
and outstanding at March 31, 2006 and December 31,
2005, respectively |
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254 |
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255 |
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Additional paid-in-capital |
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218,899 |
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218,366 |
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Accumulated other comprehensive income |
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2,233 |
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907 |
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Distributions in excess of earnings |
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(18,522 |
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(19,702 |
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Total stockholders equity |
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202,989 |
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199,951 |
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Total liabilities and stockholders equity |
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$ |
927,324 |
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$ |
893,003 |
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The accompanying notes are an integral part of these financial statements.
3
Origen Financial, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands, except share data)
For the three months ended March 31
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2006 |
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2005 |
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Interest Income |
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Total interest income |
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$ |
17,208 |
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$ |
13,166 |
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Total interest expense |
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9,595 |
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5,410 |
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Net interest income before loan losses |
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7,613 |
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7,756 |
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Provision for credit losses |
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2,125 |
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2,030 |
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Net interest income after loan losses |
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5,488 |
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5,726 |
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Non-interest income |
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4,179 |
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3,280 |
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Non-interest Expenses |
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Personnel |
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5,967 |
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5,481 |
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Loan origination and servicing |
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376 |
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414 |
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Provision for recourse liability |
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50 |
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State business taxes |
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98 |
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113 |
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Other operating |
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2,092 |
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1,941 |
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Total non-interest expense |
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8,533 |
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7,999 |
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Net income before cumulative effect of change in
accounting principle |
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$ |
1,134 |
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$ |
1,007 |
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Cumulative effect of change in accounting principle |
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46 |
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NET INCOME |
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$ |
1,180 |
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$ |
1,007 |
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Weighted average common shares outstanding |
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24,980,889 |
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24,726,729 |
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Weighted average common shares outstanding, diluted |
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25,124,092 |
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25,016,254 |
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Earnings per common share before cumulative effect
of change in accounting principle: |
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Basic |
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$ |
0.05 |
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$ |
0.04 |
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Diluted |
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$ |
0.05 |
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$ |
0.04 |
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Earnings per common share: |
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Basic |
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$ |
0.05 |
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$ |
0.04 |
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Diluted |
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$ |
0.05 |
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$ |
0.04 |
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The accompanying notes are an integral part of these financial statements.
4
Origen Financial, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
For the three months ended March 31
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2006 |
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2005 |
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Net income |
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$ |
1,180 |
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$ |
1,007 |
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Other comprehensive income: |
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Net unrealized gain on interest rate swaps |
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1,321 |
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1,369 |
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Reclassification adjustment for net realized losses included in net income |
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5 |
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68 |
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Total other comprehensive income |
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1,326 |
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1,437 |
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Comprehensive income |
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$ |
2,506 |
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$ |
2,444 |
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The accompanying notes are an integral part of these financial statements.
5
Origen Financial, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
For the three months ended March 31
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2006 |
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2005 |
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Cash Flows From Operating Activities |
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Net income |
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$ |
1,180 |
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$ |
1,007 |
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Adjustments to reconcile net income to cash provided by operating
activities: |
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Provision for credit losses and recourse liability |
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2,125 |
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2,080 |
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Depreciation and amortization |
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1,571 |
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1,286 |
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Compensation expense recognized under share-based compensation plans |
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578 |
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660 |
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Cumulative effect of change in accounting principal |
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(46 |
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(Increase) decrease in other assets |
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430 |
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(1,493 |
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Increase (decrease) in accounts payable and other liabilities |
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(57 |
) |
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92 |
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Net cash provided by operating activities |
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5,781 |
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3,632 |
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Cash Flows From Investing Activities |
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Increase in restricted cash |
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(1,291 |
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(1,431 |
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Purchase of investment securities |
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(3,150 |
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Origination and purchase of loans |
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(63,405 |
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(87,970 |
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Principal collections on loans |
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20,168 |
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16,308 |
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Proceeds from sale of repossessed houses |
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2,304 |
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3,069 |
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Capital expenditures |
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(151 |
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(596 |
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Net cash used in investing activities |
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(42,375 |
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(73,770 |
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Cash Flows From Financing Activities |
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Dividends paid |
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(1,009 |
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Repayment of notes payable securitizations |
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(21,630 |
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(12,880 |
) |
Proceeds from advances under repurchase agreements |
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2,198 |
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Repayment of advances under repurchase agreements |
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(210 |
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Proceeds from warehouse financing |
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55,360 |
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80,006 |
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Repayment of warehouse financing |
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(1,131 |
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(3,639 |
) |
Change in servicing advances, net |
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(1,337 |
) |
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1,977 |
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Net cash provided by financing activities |
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31,262 |
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66,443 |
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
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(5,332 |
) |
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(3,695 |
) |
Cash and cash equivalents, beginning of period |
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8,307 |
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9,293 |
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Cash and cash equivalents, end of period |
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$ |
2,975 |
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$ |
5,598 |
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Supplemental disclosures of cash flow information: |
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Interest paid |
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$ |
9,319 |
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$ |
5,011 |
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Non cash financing activities: |
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Loans transferred to repossessed assets and held for sale |
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$ |
5,264 |
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$ |
5,684 |
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The accompanying notes are an integral part of these financial statements.
6
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 1 Basis of Presentation
The unaudited consolidated financial statements of Origen Financial, Inc. (the Company),
have been prepared in accordance with accounting principles generally accepted in the United States
of America (US GAAP) for interim financial reporting and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X of the Rules and Regulations of the Securities and Exchange Commission
(SEC). However, they do not include all of the disclosures necessary for annual financial
statements in conformity with US GAAP. The results of operations for the period ended March 31,
2006 are not necessarily indicative of the operating results anticipated for the full year.
Accordingly, these unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2005. The preparation of financial statements in conformity with
US GAAP also requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial statements. All such
adjustments are of a normal and recurring nature.
Certain prior period amounts have been reclassified to conform to current financial statement
presentation.
Note 2 Recent Accounting Pronouncements
Accounting for Share-Based Payments
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, that addresses the
accounting for share-based payment transactions in which an enterprise receives employee services
in exchange for (a) equity instruments of the enterprise, or (b) liabilities that are based on the
fair value of the enterprises equity instruments or that may be settled by the issuance of such
equity instruments. Under the FASBs statement, all forms of share-based payments to employees,
including employee stock options, must be treated the same as other forms of compensation by
recognizing the related cost in the income statement. The expense of the award would generally be
measured at fair value at the grant date. Previous accounting guidance required that the expense
relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the
financial statements. The statement eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued
to Employees for options granted after June 15, 2005. On April 14, 2005, the SEC announced it
would permit companies to implement SFAS No. 123(R) at the beginning of their next fiscal year.
The Company adopted the new rules reflected in SFAS No. 123(R) using the modified-prospective
method on January 1, 2006. The effects of the adoption of SFAS No. 123(R) are discussed further in
Note 8.
7
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 2 Recent Accounting Pronouncements (Continued)
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Correctionsa
replacement of APB Opinion No. 20 and FASB Statement No. 3. This statement replaces APB No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for and reporting of a change in
accounting principle. The statement applies to all voluntary changes in accounting principles. It
also applies to changes required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. The statement is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15,
2005. The adoption of SFAS No. 154 on January 1, 2006 did not have a material effect on the
Companys financial position or results of operations.
Accounting for Certain Hybrid Instruments
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments,
which allows financial instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder elects to account
for the whole instrument on a fair value basis. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an entitys first fiscal year that begins
after September 15, 2006. At this time, the Company does not expect the adoption of SFAS No. 155 to
have a material impact on its financial position or results of operations.
Accounting for Servicing of Financial Assets
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets -
An Amendment of FASB Statement No. 140. This standard amends the guidance in FASB Statement No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
Among other requirements, Statement 156 requires an entity to recognize a servicing asset or
servicing liability each time it undertakes an obligation to service a financial asset by entering
into a servicing contract in any of the following situations: a transfer of the servicers
financial assets that meets the requirements for sale accounting; a transfer of the servicers
financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in
which the transferor retains all of the resulting securities and classifies them as either
available-for-sale securities or trading securities; or an acquisition or assumption of an
obligation to service a financial asset that does not relate to financial assets of the servicer or
its consolidated affiliates. SFAS No. 156 is effective as of the beginning of an entitys first
fiscal year that begins after September 15, 2006. At this time, the Company does not expect the
adoption of SFAS No. 156 to have a material impact on its financial position or results of
operations.
8
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 3 Per Share Data
Basic earnings per share (EPS) is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted EPS incorporates the potential
dilutive effect of common stock equivalents outstanding on an average basis during the period.
Dilutive common shares primarily consist of employee stock options and restricted common stock.
The following table presents a reconciliation of basic and diluted EPS for the three months ended
March 31, 2006 and 2005 (in thousands, except per share data):
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2006 |
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2005 |
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Numerator: |
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Net income |
|
$ |
1,180 |
|
|
$ |
1,007 |
|
Preferred stock dividends |
|
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(4 |
) |
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|
(4 |
) |
|
|
|
|
|
|
|
Income available to common shareholders |
|
$ |
1,176 |
|
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$ |
1,003 |
|
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Denominator: |
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|
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Weighted average common shares for basic EPS |
|
|
24,981 |
|
|
|
24,727 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Weighted avg. restricted stk. awards |
|
|
143 |
|
|
|
289 |
|
|
|
|
|
|
|
|
Weighted average common shares for diluted EPS |
|
|
25,124 |
|
|
|
25,016 |
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
0.05 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
0.05 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
Note 4 Investments
Except for debt securities acquired with evidence of deterioration of credit quality since
origination, which are accounted for under the provisions of the American Institute of Certified
Public Accountants (AICPA) Statement of Position 03-3 (SOP 03-3), Accounting for Certain Loans
or Debt Securities Acquired in a Transfer, the Company follows the provisions of Statement of
Financial Accounting Standards No. 115 (SFAS 115), Accounting For Certain Investments in Debt
and Equity Securities, in reporting its investments. The Companys investments consisted of three
asset-backed securities with principal amounts of $32.0 million, $6.8 million and $8.6 million,
respectively, at March 31, 2006. The securities are collateralized by manufactured housing loans
and are classified as held-to-maturity. They have contractual maturity dates of July 28, 2033,
December 28, 2033 and December 28, 2033, respectively. The securities are carried on the Companys
balance sheet at an amortized cost of $41.7 million at March 31, 2006, which approximates their
fair value. As prescribed by the provisions of SFAS 115 the Company has both the intent and ability
to hold the securities to maturity. The securities will not be sold in response to changing market
conditions, changing fund sources or terms, changing availability and yields on alternative
investments or other asset liability management reasons. The securities are regularly measured for
impairment through the use of a discounted cash flow analysis based on the historical performance
of the underlying loans that collateralize the securities. If it is determined that there has been
a decline in fair value below amortized cost and the decline is other-thantemporary, the cost
basis of the security is written down to fair value as a new cost basis and the amount of the
write-down is included in earnings. No impairment was recorded during the three months ended March
31, 2006. The carrying value of debt securities accounted for under the provisions of SOP 03-3 was
approximately $3.8 million at March 31, 2006 and is included in investments in the consolidated
balance sheet.
9
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 5 Loans Receivable
The carrying amounts of loans receivable consisted of the following (in thousands):
|
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|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
December 31, 2005 |
|
Manufactured housing loans securitized |
|
$ |
673,966 |
|
|
$ |
695,701 |
|
Manufactured housing loans unsecuritized |
|
|
144,376 |
|
|
|
85,949 |
|
Accrued interest receivable |
|
|
4,047 |
|
|
|
4,078 |
|
Deferred fees |
|
|
(1,570 |
) |
|
|
(2,100 |
) |
Discount on purchased loans |
|
|
(3,973 |
) |
|
|
(4,773 |
) |
Allowance for purchased loans |
|
|
(428 |
) |
|
|
(428 |
) |
Allowance for loan loss |
|
|
(9,670 |
) |
|
|
(10,017 |
) |
|
|
|
|
|
|
|
|
|
$ |
806,748 |
|
|
$ |
768,410 |
|
|
|
|
|
|
|
|
The Company originates and purchases loans collateralized by manufactured houses with the
intent to securitize them. Under the current legal structure of the securitization program, the
Company transfers manufactured housing loans it originates and purchases to a trust for cash. The
trust then sells asset-backed bonds secured by the loans to investors. These loan securitizations
are structured as financing transactions. When securitizations are structured as financings, no
gain or loss is recognized, nor is any allocation made to residual interests or servicing rights.
Rather, the loans securitized continue to be carried by the Company as assets, and the asset-backed
bonds secured by the loans are carried as a liability.
Total principal balance of loans serviced that the Company has previously securitized and
accounted for as a sale was approximately $143.4 million at March 31, 2006. Delinquency statistics
(including repossessed inventory) on those loans are as follows at March 31, 2006 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of |
|
Principal |
|
% of |
Days delinquent |
|
Loans |
|
Balance |
|
Portfolio |
31-60 |
|
|
91 |
|
|
$ |
3,531 |
|
|
|
2.5 |
% |
61-90 |
|
|
20 |
|
|
|
751 |
|
|
|
0.5 |
% |
Greater than 90 |
|
|
128 |
|
|
|
5,536 |
|
|
|
3.9 |
% |
10
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 6 Allowance for Credit Losses
The allowance for credit losses and related additions and deductions to the allowance were as
follows for the three months ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Balance at beginning of period |
|
$ |
10,017 |
|
|
$ |
5,315 |
|
Provision for loan losses |
|
|
2,125 |
|
|
|
2,030 |
|
Transfers from recourse liability |
|
|
|
|
|
|
988 |
|
Gross charge-offs |
|
|
(4,456 |
) |
|
|
(5,934 |
) |
Recoveries |
|
|
1,984 |
|
|
|
2,895 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
9,670 |
|
|
$ |
5,294 |
|
|
|
|
|
|
|
|
The recourse liability and related additions and transfers out of the recourse liability
were as follows for the three months ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Balance at beginning of period |
|
$ |
292 |
|
|
$ |
6,603 |
|
Reimbursements for losses per recourse agreements |
|
|
|
|
|
|
|
|
Provision for recourse liabilities |
|
|
|
|
|
|
50 |
|
Transfers to allowance for credit losses |
|
|
|
|
|
|
(988 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
292 |
|
|
$ |
5,665 |
|
|
|
|
|
|
|
|
Note 7 Debt
Total debt outstanding was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Warehouse financing |
|
$ |
119,640 |
|
|
$ |
65,411 |
|
Securitization financing |
|
|
556,916 |
|
|
|
578,503 |
|
Repurchase agreements |
|
|
23,582 |
|
|
|
23,582 |
|
Notes payable servicing advances |
|
|
875 |
|
|
|
2,212 |
|
|
|
|
|
|
|
|
|
|
$ |
701,013 |
|
|
$ |
669,708 |
|
|
|
|
|
|
|
|
Warehouse Financing Citigroup - The Company, through its primary operating subsidiary
Origen Financial L.L.C., currently has a short term securitization facility used for warehouse
financing with Citigroup Global Markets Realty Corporation (Citigroup). Under the terms of the
agreement, originally entered into in March 2003 and amended periodically, most recently in March
2006, the Company pledges loans as collateral and in turn is advanced funds. The facility has a
maximum advance amount of $200 million at an annual interest rate equal to LIBOR plus a spread.
Additionally, the facility includes a $35 million supplemental advance amount that is
collateralized by the Companys residual interests in its 2004-A, 2004-B, 2005-A and 2005-B
securitizations. The facility matures on March 22, 2007. The outstanding balance on the facility
was approximately $119.6 million at March 31, 2006. At March 31, 2006 all financial covenants were
met.
Securitization Financing 2004-A Securitization - On February 11, 2004, the Company completed
a securitization of approximately $238.0 million in principal balance of manufactured housing
loans. The securitization was accounted for as a financing. As part of the securitization the
Company, through a special purpose entity, issued $200.0 million in notes payable. The notes are
stratified into six different classes and pay interest at a duration-weighted average rate of
approximately 5.12%. The notes have a contractual maturity date of October 2013 with respect to the
Class A-1 notes; August 2017, with respect to the Class A-2 notes; December 2020, with respect to
the Class A-3 notes; and January 2035, with respect to the
Class A-4, Class M-1 and Class M-2
notes. The outstanding balance on the 2004-A securitization notes was approximately $131.9 million
at March 31, 2006.
11
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 7 Debt (Continued)
Securitization Financing 2004-B Securitization On September 29, 2004, the Company
completed a securitization of approximately $200.0 million in principal balance of manufactured
housing loans. The securitization was accounted for as a financing. As part of the securitization
the Company, through a special purpose entity, issued $169.0 million in notes payable. The notes
are stratified into seven different classes and pay interest at a duration-weighted average rate of
approximately 5.27%. The notes have a contractual maturity date of June 2013 with respect to the
Class A-1 notes; December 2017, with respect to the Class A-2 notes; August 2021, with respect to
the Class A-3 notes; and November 2035, with respect to the Class A-4, Class M-1, Class M-2 and
Class B-1 notes. The outstanding balance on the 2004-B securitization notes was approximately
$130.4 million March 31, 2006.
Securitization Financing 2005-A Securitization - On May 12, 2005, the Company completed a
securitization of approximately $190.0 million in principal balance of manufactured housing loans.
The securitization was accounted for as a financing. As part of the securitization the Company,
through a special purpose entity, issued $165.3 million in notes payable. The notes are stratified
into seven different classes and pay interest at a duration-weighted average rate of approximately
5.30%. The notes have a contractual maturity date of July 2013 with respect to the Class A-1 notes;
May 2018, with respect to the Class A-2 notes; October 2021, with respect to the Class A-3 notes;
and June 2036, with respect to the Class A-4, Class M-1, Class M-2 and Class B notes. The
outstanding balance on the 2005-A securitization notes was approximately $144.7 million at March
31, 2006.
Securitization Financing 2005-B Securitization December 15, 2005, the Company completed a
securitization of approximately $175.0 million in principal balance of manufactured housing loans.
The securitization was accounted for as a financing. As part of the securitization the Company,
through a special purpose entity, issued $156.2 million in notes payable. The notes are stratified
into eight different classes and pay interest at a duration-weighted average rate of approximately
6.15%. The notes have a contractual maturity date of February 2014 with respect to the Class A-1
notes; December 2018, with respect to the Class A-2 notes; May 2022, with respect to the Class A-3
notes; and January 2037, with respect to the Class A-4, Class M-1, Class M-2 , Class B-1 and B-2
notes. The outstanding balance on the 2005-B securitization notes was approximately $149.9 million
at March 31, 2006.
Repurchase Agreements Citigroup - The Company has entered into four repurchase agreements
with Citigroup. Three of the repurchase agreements are for the purpose of financing the purchase of
investments in three asset backed securities with principal balances of $32.0 million, $3.1 million
and $3.7 million respectively. The fourth repurchase agreement is for the purpose of financing the
Companys residual interest in the 2004-B securitization with a principal balance of $4.0 million.
Under the terms of the agreements the Company sells its interest in the securities with an
agreement to repurchase them at a predetermined future date at the principal amount sold plus an
interest component. The securities are financed at an amount equal to 75% of their current market
value as determined by Citigroup. Typically the repurchase agreements are rolled over for 30 day
periods when they expire. The annual interest rates on the agreements are equal to LIBOR plus a
spread. The repurchase agreements had outstanding principal balances of approximately $16.8
million, $1.7 million, $2.1 million and $3.0 million, respectively, at March 31, 2006.
12
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 7 Debt (Continued)
Note Payable Servicing Advances JPMorgan Chase Bank, N.A. The Company currently has a
revolving credit facility with JPMorgan Chase Bank, N.A. Under the terms of the facility the
Company can borrow up to $5.0 million for the purpose of funding required principal and interest
advances on manufactured housing loans that are serviced for outside investors. Borrowings under
the facility are repaid upon the collection by the Company of monthly payments made by borrowers
under such manufactured housing loans. The banks prime interest rate is payable on the outstanding
balance. To secure the loan, the Company has granted JPMorgan Chase a security interest in
substantially all its assets excluding securitized assets. The expiration date of the facility is
December 31, 2006. The outstanding balance on the facility was approximately $0.9 million at March
31, 2006. At March 31, 2006 all financial covenants were met.
The average balance and average interest rate of outstanding debt was as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
|
|
Average |
|
Average |
|
Average |
|
Average |
|
|
Balance |
|
Rate |
|
Balance |
|
Rate |
Warehouse financing Citigroup |
|
$ |
88,973 |
|
|
|
7.2 |
% |
|
$ |
139,539 |
|
|
|
5.2 |
% |
Securitization financing 2004-A securitization |
|
|
136,295 |
|
|
|
5.2 |
% |
|
|
154,295 |
|
|
|
4.9 |
% |
Securitization financing 2004-B securitization |
|
|
134,545 |
|
|
|
5.3 |
% |
|
|
149,499 |
|
|
|
5.1 |
% |
Securitization financing 2005-A securitization |
|
|
148,612 |
|
|
|
5.2 |
% |
|
|
101,441 |
|
|
|
5.1 |
% |
Securitization financing 2005-B securitization |
|
|
152,290 |
|
|
|
5.7 |
% |
|
|
7,228 |
|
|
|
5.5 |
% |
Repurchase agreements Citigroup |
|
|
23,582 |
|
|
|
5.3 |
% |
|
|
22,793 |
|
|
|
4.2 |
% |
Note payable servicing advances JPMorgan
Chase Bank, N.A. |
|
|
672 |
|
|
|
8.3 |
% |
|
|
710 |
|
|
|
7.5 |
% |
Note 8 Share-Based Compensation Plan
The Companys equity incentive plan has approximately 1.8 million shares of common stock
reserved for issuance as either stock options or restricted stock grants. As of March 31, 2006,
approximately 685,000 shares of common stock remained available for issuance, as either stock
options or restricted stock grants, under the plan. The compensation cost that has been charged
against income for those plans was $578,000 and $660,000 for the three months ended March 31, 2006
and 2005, respectively.
The Company adopted SFAS No. 123(R) on January 1, 2006, using the modified-prospective
transition method, to account for its equity incentive plan. Prior to January 1, 2006, as
permitted under the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as
amended, the Company had chosen to recognize compensation expense using the intrinsic value-based
method of valuing stock options prescribed in APB No. 25, Accounting for Stock Issued to
Employees and related interpretations. Under the intrinsic value-based method, compensation cost
is measured as the amount by which the quoted market price of the Companys stock at the date of
grant exceeds the stock option exercise price. All options granted by the Company prior to the
adoption of SFAS 123(R) were granted at a fixed price not less than the market value of the
underlying common stock on the date of grant and, therefore, were not included in compensation
expense, prior to the adoption of SFAS No. 123(R). Results for prior periods have not been
restated.
13
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 8 Share-Based Compensation Plan (Continued)
As a result of adopting SFAS No. 123(R) on January 1, 2006, the Companys net income after the
cumulative effect of a change in accounting principle for the three months ended March 31, 2006 was
$58,000 higher than if it had continued to account for share-based compensation under APB No. 25.
Basic and diluted earnings per share for the three months ended March 31, 2006 would have been
$0.04 and $0.04, respectively, if the Company had not adopted SFAS No. 123(R), compared to reported
basic and diluted earnings per share of $0.05 and $0.05. The effect of this change from applying
the original provisions of SFAS No. 123 had no effect on cash flow from operations and financing
activities.
Stock Options
Under the plan, the exercise price of the options will not be less than the fair market value
of the common stock on the date of grant. The date on which the options are first exercisable is
determined by the Compensation Committee of the Board of Directors as the administrator of the
Companys equity incentive plan, and options that have been issued to date generally vest over a
two-year period, have 10-year contractual terms and a 5-year expected option term. The Company
does not pay dividends or make distributions on unexercised options. As of March 31, 2006 there
was $52,000 of total unrecognized compensation cost related to stock options granted under the
equity incentive plan. That cost is expected to be recognized over a weighted-average period of
2.7 years.
The following table summarizes the activity relating to the Companys stock options for the
three months ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
|
Options |
|
|
Price |
|
|
Term |
|
Options outstanding at January 1, 2006 |
|
|
255,500 |
|
|
$ |
10.00 |
|
|
|
8.0 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(5,000 |
) |
|
$ |
10.00 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2006 |
|
|
250,500 |
|
|
$ |
10.00 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2006 |
|
|
170,333 |
|
|
$ |
10.00 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
14
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 8 Share-Based Compensation Plan (Continued)
The following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS No. 123 to options granted under the
Companys equity incentive plan for the three months ended March 31, 2005. Note that the pro forma
disclosures are provided for 2005 because employee stock options were not accounted for using the
fair-value method during those periods. Disclosures for 2006 are not presented because share-based
payments have been accounted for under SFAS No. 123(R)s fair-value method. For purposes of this
pro forma disclosure, the value of the options is estimated using a binomial option-pricing model.
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2005 |
|
Net income available to common shareholders |
|
$ |
1,003 |
|
Stock option compensation cost |
|
$ |
(6 |
) |
|
|
|
|
Pro forma net income available to common shareholders |
|
$ |
997 |
|
|
|
|
|
Basic income per share as reported |
|
$ |
0.04 |
|
|
|
|
|
Pro forma basic income per share |
|
$ |
0.04 |
|
|
|
|
|
Diluted income per share as reported |
|
$ |
0.04 |
|
|
|
|
|
Pro forma diluted income per share |
|
$ |
0.04 |
|
|
|
|
|
Non-Vested Stock Awards
The Company grants non-vested stock awards to certain directors, officers and employees under
the equity incentive plan. The grantees of the non-vested stock awards are entitled to receive all
dividends and other distributions paid with respect to the common shares of the Company underlying
such non-vested stock awards at the time such dividends or distributions are paid to holders of
common shares.
The Company recognized compensation expense for outstanding non-vested stock awards over their
vesting periods for an amount equal to the fair value of the non-vested stock awards at grant date.
As of March 31, 2006 there was $1.7 million of total unrecognized compensation cost related to
non-vested stock awards granted under the equity incentive plan. That cost is expected to be
recognized over a weighted-average period of 1.8 years
The Company recorded a cumulative effect of a change in accounting principle, as a result of
the adoption of SFAS No. 123(R), in the amount of $46,000 as of January 1, 2006 to reflect the
change in accounting for forfeitures. Results for prior periods have not been restated.
The following table summarizes the activity relating to the Companys non-vested stock awards
for the three months ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average |
|
|
|
Non-Vested |
|
|
Grant Date |
|
|
|
Stock Awards |
|
|
Fair Value |
|
Non-vested at January 1, 2006 |
|
|
469,837 |
|
|
$ |
8.02 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,667 |
) |
|
$ |
8.33 |
|
|
|
|
|
|
|
|
Non-vested at March 31, 2006 |
|
|
468,170 |
|
|
$ |
8.02 |
|
|
|
|
|
|
|
|
15
Origen Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 9 Derivative Instruments and Hedging Activity
During the first quarter of 2006, the Company entered into three forward starting interest
rate swaps for the purpose of locking in the designated benchmark interest rate, in this case
LIBOR, on a portion of its planned securitization transaction to be completed during the late
second or early third quarter of 2006. The Company has designated the swaps as cash flow hedges
for accounting purposes.
Under the terms of the swaps the Company will pay fixed rates of 4.79%, 5.11% and 5.09% and
receive floating rates equal to the one month LIBOR rate on beginning notional balances of $44.0
million, $20.0 million and $30.0 million, respectively. The first payment on each of the swaps is
scheduled for July 2006. A rise in rates during the interim period would increase the Companys
borrowing cost in the securitization, but this increase would be offset by the increased value in
the right to pay a lower fixed rate during the term of the securitized transaction.
The hedging transactions were structured at inception to meet the criteria set forth in SFAS
No. 133 Accounting for Derivative Instruments and Hedging Activities in order to allow the
Company to assume that no ineffectiveness exists. As a result, all changes in the fair value of
the derivatives are included in other comprehensive income and such amounts will be amortized into
earnings upon commencement of the planned transaction.
In the event the Company is unable to or declines to enter into the securitization transaction
or if the commencement of the securitization transaction is delayed, some or all of the amounts
included in other comprehensive income may be immediately included in earnings, as required under
SFAS No. 133.
Additionally, SFAS No. 133 requires all derivative instruments to be carried at fair value in
the Companys statement of position. The fair value of the forward starting interest rate swaps
discussed above approximates an asset of $1.3 million at March 31, 2006.
The Company previously terminated interest rate swaps related to the 2004-B, 2005-A and 2005-B
securitizations. The unamortized gains and losses on these terminated interest rate swaps are
included in accumulated other comprehensive income in the consolidated balance sheet. The
unamortized losses on the terminated interest rate swaps related to the 2004-B and 2005-A
securitizations were approximately $1.4 million and $0.3 million at March 31, 2006, respectively.
The unamortized gains on the terminated interest rate swaps related to the 2005-B securitization
were approximately $2.6 million at March 31, 2006. Net amortization of gains over the next twelve
months is expected to amount to approximately $15,000.
Note 10 Subsequent Events
On April 27, 2006, the Company declared a dividend of $0.03 per common share payable to
holders of record as of May 19, 2006. Payment of the dividend is planned for May 31, 2006.
16
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
This Form 10-Q includes certain forward looking statements. The words will, may,
designed to, believes, should, anticipates, plans, expects, intends, estimates, and
similar expressions, identify these forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are based on reasonable assumptions,
these expectations may not be correct. Important factors that could cause our actual results to
differ materially from the forward-looking statements we make in this document include the
following:
|
|
|
the performance of our manufactured housing loans; |
|
|
|
|
our ability to borrow at favorable rates and terms; |
|
|
|
|
the supply of manufactured housing loans; |
|
|
|
|
interest rate levels and changes in the yield curve (which is formed by the
differing Treasury rates paid on one, two, three, five, ten and 30 year term debt); |
|
|
|
|
our ability to use hedging strategies to insulate our exposure to changing interest
rates; |
|
|
|
|
changes in, and the costs associated with complying with federal, state and local
regulations, including consumer finance and housing regulations; |
|
|
|
|
applicable laws, including federal income tax laws; and |
|
|
|
|
general economic conditions in the markets in which we operate. |
All forward-looking statements included in this document are based on information available to
us on the date of this document. We do not intend to update or revise any forward-looking
statements that we make in this document or other documents, reports, filings or press releases,
whether as a result of new information, future events or otherwise.
The following discussion and analysis of our consolidated financial condition and results of
operations for the three months ended March 31, 2006 in this quarterly report on Form 10-Q should
be read in conjunction with our Consolidated Financial Statements and the Notes to Consolidated
Financial Statements included in our Annual Report on Form 10-K for the year ended December 31,
2005.
Overview
In October 2003, we began operations upon the completion of a private placement of $150
million of our common stock to certain institutional and accredited investors. In February, 2004,
we completed another private placement of $10 million of our common stock to one institutional
investor. In connection with and as a condition to the October 2003 private placement, we acquired
all of the equity interests of Origen Financial L.L.C. We also took steps to qualify Origen
Financial, Inc. as a REIT. In the second quarter of 2004, we completed the initial public offering
of our common stock. Currently, most of our operations are conducted through Origen Financial
L.L.C., our wholly-owned subsidiary. We conduct the rest of our business operations through our
other wholly-owned subsidiaries, including taxable REIT subsidiaries, to take advantage of certain
business opportunities and ensure that we comply with the federal income tax rules applicable to
REITs.
17
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
Critical Accounting Policies
The Companys consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).
The financial information contained within our statements is, to a significant extent,
financial information that is based on approximate measures of the financial effects of
transactions and events that have already occurred. A variety of factors could affect the ultimate
value that is obtained either when earning income, recognizing an expense, recovering an asset, or
relieving a liability. In many instances we use a discount factor to determine the present value
of assets and liabilities. A change in the discount factor could increase or decrease the values
of those assets and liabilities and such changes would result in either a beneficial or adverse
impact to our financial results. We use historical loss factors, adjusted for current conditions,
to determine the inherent loss that may be present in our loan portfolio. Other estimates that we
use are fair value of derivatives and expected useful lives of our depreciable assets. We value
our derivative contracts at fair value using either readily available, market quoted prices or from
information that can be extrapolated to approximate a market price. Additionally, as a result of
the adoption of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based
Payment, we make estimates related to future forfeitures of unvested stock awards and stock
options. Any change in the estimates of future forfeitures of unvested stock awards and stock
options could increase or decrease compensation expense. We are subject to US GAAP that may change
from one previously acceptable method to another method. Although the economics of our
transactions would be the same, the timing of events that would impact our transactions could
change.
Understanding our accounting policies is fundamental to understanding our consolidated
financial position and consolidated results of operations. Details regarding our critical
accounting policies are described fully in Note A in the Notes to Consolidated Financial
Statements in our 2005 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
Results of Operations
Comparison of the three months ended March 31, 2006 and 2005.
Net Income
Net income increased $0.2 million to $1.2 million for the three months ended March 31, 2006
compared to net income of $1.0 million for the same period in 2005. The increase is the result of
an increase of $0.9 million in non-interest income offset by a decrease of $0.2 million in net
interest income after loan losses and an increase in non-interest expenses of $0.5 million as
described in more detail below.
Interest Income
Interest income increased 30.3% to approximately $17.2 million compared to approximately $13.2
million. This increase resulted primarily from an increase of $205.3 million or 32.3% in average
interest earning assets from $635.2 million to $840.5 million. The increase in interest earning
assets includes approximately $200.4 million in newly originated and purchased manufactured housing
loans and approximately $3.3 million in newly purchased asset backed securities. The weighted
average net interest rate on the loan receivable portfolio decreased to 8.2% from 8.4% due to
competitive conditions resulting in lower interest rates on new originations and a continuing
positive change in the credit quality of the loan portfolio. Generally, higher credit quality loans
will carry a lower interest rate.
18
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
Interest expense increased $4.2 million, or 77.8%, to $9.6 million from $5.4 million. The
majority of our interest expense relates to interest on our loan funding facilities. Average debt
outstanding on our loan funding facilities increased $207.9 million to $660.7 million compared to
$452.8 million, or 45.9%. The average interest rate on total debt outstanding increased from 4.6%
to 5.6%. The higher average interest rate for the three months ended March 31, 2006 compared to
the three months ended March 31, 2005 was primarily due to increases in the base LIBOR rate.
The following table presents information relative to the average balances and interest rates
of our interest earning assets and interest bearing liabilities for the three months ended March 31
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing loans |
|
$ |
782,795 |
|
|
$ |
16,101 |
|
|
|
8.23 |
% |
|
$ |
582,414 |
|
|
$ |
12,222 |
|
|
|
8.39 |
% |
Investment securities |
|
|
41,361 |
|
|
|
951 |
|
|
|
9.20 |
% |
|
|
38,063 |
|
|
|
869 |
|
|
|
9.13 |
% |
Other |
|
|
16,348 |
|
|
|
156 |
|
|
|
3.82 |
% |
|
|
14,719 |
|
|
|
75 |
|
|
|
2.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
840,504 |
|
|
$ |
17,208 |
|
|
|
8.19 |
% |
|
$ |
635,196 |
|
|
$ |
13,166 |
|
|
|
8.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan funding facilities |
|
$ |
660,715 |
|
|
$ |
9,268 |
|
|
|
5.61 |
% |
|
$ |
452,819 |
|
|
$ |
5,226 |
|
|
|
4.62 |
% |
Repurchase agreements |
|
|
23,582 |
|
|
|
313 |
|
|
|
5.31 |
% |
|
|
20,616 |
|
|
|
174 |
|
|
|
3.38 |
% |
Notes payable servicing advance |
|
|
672 |
|
|
|
14 |
|
|
|
8.33 |
% |
|
|
402 |
|
|
|
10 |
|
|
|
9.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
684,969 |
|
|
$ |
9,595 |
|
|
|
5.60 |
% |
|
$ |
473,837 |
|
|
$ |
5,410 |
|
|
|
4.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread |
|
|
|
|
|
$ |
7,613 |
|
|
|
2.59 |
% |
|
|
|
|
|
$ |
7,756 |
|
|
|
3.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on average interest earning assets |
|
|
|
|
|
|
|
|
|
|
3.62 |
% |
|
|
|
|
|
|
|
|
|
|
4.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the changes in the components of net interest income for
the three months ended March 31, 2006 compared to the three months ended March 31, 2005 (in
thousands). The changes in net interest income between periods have been reflected as attributable
to either volume or rate changes. For the purposes of this table, changes that are not solely due
to volume or rate changes are allocated to rate changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing loans |
|
$ |
16,820 |
|
|
$ |
(12,941 |
) |
|
$ |
3,879 |
|
Investment securities |
|
|
301 |
|
|
|
(219 |
) |
|
|
82 |
|
Other |
|
|
33 |
|
|
|
48 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
17,154 |
|
|
$ |
(13,112 |
) |
|
$ |
4,042 |
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loan funding facilities |
|
$ |
9,597 |
|
|
$ |
(5,555 |
) |
|
$ |
4,042 |
|
Repurchase agreements |
|
|
100 |
|
|
|
39 |
|
|
|
139 |
|
Notes payable servicing advances |
|
|
27 |
|
|
|
(23 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
9,724 |
|
|
$ |
(5,539 |
) |
|
$ |
4,185 |
|
|
|
|
|
|
|
|
|
|
|
Decrease in net interest income |
|
|
|
|
|
|
|
|
|
$ |
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest Income
Non-interest income is primarily made up of loan servicing related revenue including loan
servicing fees, late charges, commissions on insurance and commitment fees from third-party loan
originations. Such revenue increased $0.9 million, or 27.3%, to $4.2 million compared to $3.3
million. The average serviced loan portfolio on which servicing fees are collected increased
approximately $137.7 million, or 10.0%, from $1.38 billion to $1.52 billion.
19
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
Provision for Losses
We maintain an allowance for credit losses to cover inherent losses that can be reasonably
estimated for loan receivables held on our balance sheet. The level of the allowance is based
principally on the outstanding balance of the contracts held on our balance sheet and historical
loss trends.
The
provision for credit losses increased 5.0% to $2.1 million from $2.0 million. Net
charge-offs against the allowance for loan loss decreased 16.7% from $3.0 million, to $2.5 million.
As a percentage of average loans receivable, net charge-offs, on an annualized basis, decreased to
1.3% compared to 2.1%. We expect net charge-offs as a percentage of average outstanding principal
balance to continue to decrease in the future due to the fact that the owned portfolio of loans at
March 31, 2006 has a larger concentration of loans originated
after December 31, 2001 than
was the case for the owned portfolio at March 31, 2005. A change to our underwriting practices and
credit scoring model in 2002 has resulted in higher credit quality of loans originated since 2002.
Non-interest Expenses
Personnel expenses increased approximately $0.5 million, or 9.1%, to $6.0 million compared to
$5.5 million. The increase is primarily the result of a $0.2 million increase in annual
performance bonuses and a $0.4 million increase in salaries and temporary office staffing expenses
due to an increase in the number of full time equivalent and temporary employees, offset by a
decrease of $0.1 million in stock compensation expenses.
The provision for recourse liability decreased $50,000, or 100%. This decrease is primarily
the result of a decrease in the principal balance of loans sold with recourse from $49.3 million at
March 31, 2005 to $4.4 million at March 31, 2006 as a result of the buy-out of our recourse
obligation with Vanderbilt Mortgage and Finance, Inc. in July 2005.
Other operating expenses, which consist of occupancy and equipment, professional fees, travel
and entertainment and miscellaneous expenses increased approximately $0.2 million to $2.1 million,
or approximately 10.5%, compared to $1.9 million. This increase is primarily the result of a $0.1
million increase in occupancy and equipment expenses and a $0.1 million increase in professional
fees.
Receivable Portfolio and Asset Quality
Net loans receivable outstanding increased 5.0% to $806.7 million at March 31, 2006 compared
to $768.4 million at December 31, 2005. Loans receivable are comprised of installment contracts
and mortgages collateralized by manufactured houses and in some instances real estate.
New loan originations for the three months ended March 31, 2006 increased 9.6% to $62.5
million compared to $57.0 million for the three months ended March 31, 2005. We additionally
processed $3.3 million and $1.5 million in loans originated under third-party origination
agreements for the three months ended March 31, 2006 and 2005, respectively. These increases were
due primarily to increased market share resulting from our focus on customer service and the use of
technology to deliver our products and services.
20
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
The following table sets forth the average loan balance, weighted average loan coupon and
weighted average initial term of the loan receivable portfolio (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
Principal balance of loan receivable |
|
$ |
818,342 |
|
|
$ |
781,650 |
|
Number of loans receivable |
|
|
17,847 |
|
|
|
17,277 |
|
Average loan balance |
|
$ |
46 |
|
|
$ |
45 |
|
Weighted average loan coupon1 |
|
|
9.53 |
% |
|
|
9.56 |
% |
Weighted average initial term |
|
20 years |
|
|
20 years |
Delinquency statistics for the manufactured housing loan portfolio are as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
|
|
No. of |
|
Principal |
|
% of |
|
No. of |
|
Principal |
|
% of |
Days delinquent |
|
Loans |
|
Balance |
|
Portfolio |
|
Loans |
|
Balance |
|
Portfolio |
|
31-60 |
|
|
170 |
|
|
$ |
6,045 |
|
|
|
0.7 |
% |
|
|
215 |
|
|
$ |
8,182 |
|
|
|
1.0 |
% |
61-90 |
|
|
52 |
|
|
|
1,705 |
|
|
|
0.2 |
% |
|
|
68 |
|
|
|
2,561 |
|
|
|
0.3 |
% |
Greater than 90 |
|
|
141 |
|
|
|
6,033 |
|
|
|
0.7 |
% |
|
|
192 |
|
|
|
7,480 |
|
|
|
1.0 |
% |
We define non-performing loans as those loans that are 90 or more days delinquent in
contractual principal payments. For the three months ended March 31, 2006 the average outstanding
principal balance of non-performing loans was approximately $6.8 million compared to $6.7 million
for the three months ended March 31, 2005. Non-performing loans as a percentage of average loan
receivables decreased to 0.9% for the three months ended March 31, 2006 as compared to 1.4% for the
three months ended March 31, 2005, primarily as a result of higher average balances offset by
improved credit quality in the loan portfolio.
At March 31, 2006 we held 136 repossessed houses owned by us compared to 162 houses at
December 31, 2005. The book value of these houses, including repossession expenses, based on the
lower of cost or market value was approximately $3.1 million at March 31, 2006 compared to $3.5
million at December 31, 2005, a decrease of $0.4 million or 11.4%.
The allowance for credit losses decreased $0.3 million to $9.7 million at March 31, 2006 from
$10.0 million at December 31, 2005. Despite the 4.9% increase in the gross loans receivable
balance, net of loans accounted for under the provisions of the American Institute of Certified
Public Accountants (AICPA) Statement of Position 03-3 (SOP 03-3), Accounting for Certain Loans
or Debt Securities Acquired in a Transfer, the allowance for credit losses decreased 3.0% due to
improvement in delinquency rates at March 31, 2006. Loans delinquent over 60 days decreased $2.3
million or 23.0% from $10.0 million at December 31, 2005 to $7.7 million at March 31, 2006. The
allowance for credit losses as a percentage of gross loans receivable, net of loans accounted for
under SOP 03-3, was approximately 1.24% at March 31, 2006 compared to approximately 1.35% at
December 31, 2005. Net charge-offs were $2.5 million for the three months ended March 31, 2006
compared to $3.0 million for the three months ended December 31, 2005.
|
|
|
1 The weighted average loan coupon includes an
imbedded servicing fee rate resulting from securitization or sale of the loan
but accounted for as a financing. |
21
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
Our allowance for credit losses includes amounts reserved for inherent losses resulting from
the damage inflicted by Hurricane Katrina and Hurricane Rita in 2005. Observed trends in the
performance of the identified loans through March 31, 2006 and continuing through May 1, 2006, have
been somewhat more favorable than managements initial expectations, however, there can be no
assurance that these trends will continue. We will continue to gather and interpret data from the
affected areas and compare such information to our estimates. Amounts are refined as deemed
appropriate.
In the past, our predecessor companies sold loans with recourse. We regularly evaluate the
recourse liability for adequacy by taking into consideration factors such as changes in outstanding
principal balance of the portfolios of loans sold with recourse; trends in actual and forecasted
portfolio performance, including delinquency and charge-off rates; and current economic conditions
that may affect a borrowers ability to pay. If actual results differ from our estimates, we may be
required to adjust our liability accordingly. No provision for recourse liability was recorded
during the three months ended March 31, 2006. The reserve for loan recourse liability was $0.3
million at both March 31, 2005 and December 31, 2005. The remaining principal balance of loans
sold with recourse at March 31, 2006 was $4.4 million versus $4.6 million at December 31, 2005, a
decrease of 4.3%.
Changes to our underwriting practices, processes, credit scoring models, systems and servicing
techniques in 2002 have resulted in demonstrably superior performance by loans originated in and
subsequent to 2002 as compared to loans originated by our predecessors prior to 2002. The pre-2002
loans, despite representing a diminishing percentage of our owned loan portfolio, have had a
disproportionate impact on our financial performance.
The following tables indicate the impact of such legacy loans:
Loan Pool Unpaid Principle Balance (dollars in thousands)1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 and |
|
|
|
2001 and prior |
|
|
subsequent |
|
At December 31, 2005
|
|
|
|
|
|
|
|
|
Dollars |
|
$ |
56,622 |
|
|
$ |
732,033 |
|
Percentage of total |
|
|
7.2 |
% |
|
|
92.8 |
% |
At March 31, 2006
|
|
|
|
|
|
|
|
|
Dollars |
|
$ |
53,115 |
|
|
$ |
771,578 |
|
Percentage of total |
|
|
6.4 |
% |
|
|
93.6 |
% |
Static Pool Performance (dollars in thousands) 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 and |
|
|
|
2001 and prior |
|
|
subsequent |
|
Three Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
Dollars defaulted |
|
$ |
1,823 |
|
|
$ |
3,399 |
|
Net recovery percentage |
|
|
33.7 |
% |
|
|
43.8 |
% |
Net losses |
|
$ |
1,699 |
|
|
$ |
1,954 |
|
While representing less than 7% of the owned loan portfolio at March 31, 2006, the
pre-2002 loans accounted for almost 35% of the defaults during the three months ended March 31,
2006. Additionally, recovery rates were substantially lower for the pre-2002 loans leading to
higher losses as compared to loans from 2002 and later. Management believes that as these loans
become a smaller percentage of the owned loan portfolio, the negative impact on earnings will
diminish.
|
|
|
1
Includes owned portfolio, repossessed
inventory and loans sold with recourse |
22
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
Our asset quality statistics for the quarter ended March 31, 2006 reflect our continued emphasis on
the credit quality of our borrowers and the improved underwriting and origination practices we have
put into place. Continued improvement in delinquency statistics and recovery rates are expected to
result in lower levels of non-performing assets and net charge-offs. Long term, lower levels of
non-performing assets and net charge-offs should have a positive effect on earnings through
decreases in the provision for credit losses and servicing expenses as well as increases in net
interest income.
Liquidity and Capital Resources
We require capital to fund our loan originations, acquire manufactured housing loans
originated by third parties and expand our loan servicing operations. At March 31, 2006 we had
approximately $3.1 million in available cash and cash equivalents. As a REIT, we are required to
distribute at least 90% of our REIT taxable income (as defined in the Internal Revenue Code) to our
stockholders on an annual basis. Therefore, as a general matter, it is unlikely we will have any
substantial cash balances that could be used to meet our liquidity needs. Instead, these needs must
be met from cash provided from operations and external sources of capital. Historically, we have
satisfied our liquidity needs through cash generated from operations, sales of our common and
preferred stock, borrowings on our credit facilities and securitizations.
Cash provided by operating activities during the three months ended March 31, 2006, totaled
$5.8 million versus $3.6 million for the three months ended March 31, 2005. Cash used in investing
activities was $42.4 million for the three months ended March 31, 2006 versus $73.8 million for the
three months ended March 31, 2005. Cash used to originate and purchase loans decreased 28.0%, or
$24.6 million, to $63.4 million for the three months ended March 31, 2006 compared to $88.0 million
for the three months ended March 31, 2005. The change is a result of a decrease of approximately
$30.7 million in manufactured housing loan purchases offset by an increase in origination volume a
result of increased market share resulting from our focus on customer service and the use of
technology to deliver our products and services. Principal collections on loans totaled $20.2
million for the three months ended March 31, 2006 as compared to $16.3 million for the three months
ended March 31, 2005, an increase of $3.9 million, or 23.9%. The increase in collections is
primarily related to the increase in the average outstanding loan portfolio balance, which was
$782.8 million for the three months ended March 31, 2006 compared to $582.4 million for the three
months ended March 31, 2005, in addition to improved credit quality and decreased delinquency as a
percentage of outstanding loan receivable balance.
The primary source of cash during the three months ended March 31, 2006 was approximately
$54.2 million in net proceeds from our warehouse facility.
Continued access to the securitization market is very important to our business. The proceeds
from successful securitization transactions generally are applied to paying down our short-term
credit facilities giving us renewed borrowing capacity to fund new loan originations. Numerous
factors affect our ability to complete a successful securitization, including factors beyond our
control. These include general market interest rate levels, the shape of the yield curve and
spreads between rates on U.S. Treasury obligations and securitized bonds, all of which affect
investors demand for securitized debt. In the event these factors are unfavorable our ability to
successfully complete securitization transactions is impeded and our liquidity and capital
resources are affected negatively. There can be no assurance that current favorable conditions will
continue or that unfavorable conditions will not return.
23
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
We currently have a short term securitization facility used for warehouse financing with
Citigroup. Under the terms of the agreement, originally entered into in March 2003 and amended
periodically, most recently in March 2006, we pledge loans as collateral and in turn we are
advanced funds. The facility has a maximum advance amount of $200 million at an annual interest
rate equal to LIBOR plus a spread. Additionally, the facility includes a $35 million supplemental
advance amount that is collateralized by our residual interests in the 2004-A, 2004-B, 2005-A and
2005-B securitizations. The facility matures on March 22, 2007. The outstanding balance on the
facility was approximately $119.6 million at March 31, 2006.
Additionally, we have four repurchase agreements with Citigroup. Three of the repurchase
agreements are for the purpose of financing the purchase of investments in three asset backed
securities with principal balances of $32.0 million, $3.1 million and $3.7 million respectively.
The fourth repurchase agreement is for the purpose of financing our residual interest in the 2004-B
securitization with a principal balance of $4.0 million. Under the terms of the agreements we sell
our interest in the securities and residual interests with an agreement to repurchase them at a
predetermined future date at the principal amount sold plus an interest component. The securities
are financed at an amount equal to 75% of their current market value as determined by Citigroup.
Typically the repurchase agreements are rolled over for 30 day periods when they expire. The annual
interest rates on the agreements are equal to LIBOR plus a spread. The repurchase agreements had
outstanding principal balances of approximately $16.8 million, $1.7 million, $2.1 million and $3.0
million at March 31, 2006
Under the terms of our revolving credit facility with JP Morgan Chase Bank, N.A., we can
borrow up to $5.0 million to fund required principal and interest advances on manufactured housing
loans that we service for outside investors. Borrowings under the facility are repaid when we
collect monthly payments made by borrowers under such manufactured housing loans. The banks prime
interest rate is payable on the outstanding balance. To secure the loan, we have granted JPMorgan
Chase a security interest in substantially all our assets excluding securitized assets. The
expiration date of the facility is December 31, 2006. The outstanding balance on the facility was
approximately $0.9 million at March 31, 2006.
In September 2005, the Securities and Exchange Commission declared effective our shelf
registration statement on Form S-3 for the proposed offering, from time to time, of up to $200
million of our common stock, preferred stock and debt securities. In addition to such debt
securities, preferred stock and other common stock we may sell under the registration statement
from time to time, we have registered for sale 1,540,000 shares of our common stock pursuant to a
sales agreement that we have entered into with Brinson Patrick Securities Corporation. It is
anticipated that these shares of common stock will be sold at the price of our common stock
prevailing at the time of sale.
Our long-term liquidity and capital requirements consist primarily of funds necessary to
originate and hold manufactured housing loans, acquire and hold manufactured housing loans
originated by third parties and expand our loan servicing operations. We expect to meet our
long-term liquidity requirements through cash generated from operations, but we will require
external sources of capital, including sales of shares of our common stock, preferred stock, debt
securities and third-party borrowings. We intend to continue to access the asset-backed securities
market for the long-term financing of our loans in order to match the interest rate risk between
our loans and the related long-term funding source. Our ability to meet our long-term liquidity
needs depends on numerous factors, many of which are outside of our control. These factors include
general capital market and economic conditions, general market interest rate levels, the shape of
the yield curve and spreads between rates on U.S. Treasury obligations and securitized bonds, all
of which affect investors demand for equity and debt securities, including securitized debt
securities.
24
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
Cash generated from operations, borrowings under our Citigroup facility, loan securitizations,
borrowings against our securitized loan residuals, convertible debt, equity interests or additional
debt financing arrangements (either pursuant to our shelf registration statement on Form S-3 or
otherwise) will enable us to meet our liquidity needs for at least the next twelve months depending
on market conditions which may affect loan origination volume, loan purchase opportunities and the
availability of securitizations. If market conditions require, loan purchase opportunities become
available, or favorable capital opportunities become available, we may seek additional funds
through additional credit facilities or additional sales of our common or preferred stock.
The risks associated with the manufactured housing business become more acute in any economic
slowdown or recession. Periods of economic slowdown or recession may be accompanied by decreased
demand for consumer credit and declining asset values. In the manufactured housing business, any
material decline in collateral values increases the loan-to-value ratios of loans previously made,
thereby weakening collateral coverage and increasing the size of losses in the event of default.
Delinquencies, repossessions, foreclosures and losses generally increase during economic slowdowns
or recessions. For our finance customers, loss of employment, increases in cost-of-living or other
adverse economic conditions would impair their ability to meet their payment obligations. Higher
industry inventory levels of repossessed manufactured houses may affect recovery rates and result
in future impairment charges and provision for losses. In addition, in an economic slowdown or
recession, servicing and litigation costs generally increase. Any sustained period of increased
delinquencies, repossessions, foreclosures, losses or increased costs would adversely affect our
financial condition, results of operations and liquidity.
25
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market prices and interest
rates. Our market risk arises from interest rate risk inherent in our financial instruments. We are
not currently subject to foreign currency exchange rate risk or commodity price risk.
The outstanding balance of our variable rate debt under which we paid interest at various
LIBOR rates plus a spread, totaled $114.1 million and $207.9 million at March 31, 2006 and 2005,
respectively. If LIBOR increased or decreased by 1.0% during the three months ended March 31, 2006
and 2005, we believe our interest expense would have increased or decreased by approximately $0.3
million and $0.4 million, respectively, based on the $113.2 million and $149.4 million average
balance outstanding under our variable rate debt facilities for the three months ended March 31,
2006 and 2005, respectively. We had no variable rate interest earning assets outstanding during the
three months ended March 31, 2006 or 2005.
The following table shows the contractual maturity dates of our assets and liabilities at
March 31, 2006. For each maturity category in the table the difference between interest-earning
assets and interest-bearing liabilities reflects an imbalance between re-pricing opportunities for
the two sides of the balance sheet. The consequences of a negative cumulative gap at the end of one
year suggests that, if interest rates were to rise, liability costs would increase more quickly
than asset yields, placing negative pressure on earnings (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity |
|
|
|
0 to 3 |
|
|
4 to 12 |
|
|
1 to 5 |
|
|
Over 5 |
|
|
|
|
|
|
months |
|
|
months |
|
|
years |
|
|
years |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
2,975 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,975 |
|
Restricted cash |
|
|
14,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,926 |
|
Loans receivable, net |
|
|
27,942 |
|
|
|
79,092 |
|
|
|
317,167 |
|
|
|
382,547 |
|
|
|
806,748 |
|
Investments held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,675 |
|
|
|
41,675 |
|
Furniture, fixtures and equipment, net |
|
|
276 |
|
|
|
864 |
|
|
|
2,314 |
|
|
|
|
|
|
|
3,454 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,277 |
|
|
|
32,277 |
|
Other assets |
|
|
13,318 |
|
|
|
4,992 |
|
|
|
4,396 |
|
|
|
2,563 |
|
|
|
25,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
59,437 |
|
|
$ |
84,948 |
|
|
$ |
323,877 |
|
|
$ |
459,062 |
|
|
$ |
927,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse financing |
|
$ |
22,433 |
|
|
$ |
67,298 |
|
|
$ |
29,909 |
|
|
$ |
|
|
|
$ |
119,640 |
|
Securitization financing |
|
|
19,289 |
|
|
|
54,599 |
|
|
|
218,947 |
|
|
|
264,081 |
|
|
|
556,916 |
|
Repurchase agreements |
|
|
23,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,582 |
|
Notes payable servicing advances |
|
|
875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875 |
|
Recourse liability |
|
|
15 |
|
|
|
40 |
|
|
|
137 |
|
|
|
100 |
|
|
|
292 |
|
Other liabilities |
|
|
21,633 |
|
|
|
278 |
|
|
|
|
|
|
|
1,119 |
|
|
|
23,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
87,827 |
|
|
|
122,215 |
|
|
|
248,993 |
|
|
|
265,300 |
|
|
|
724,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
125 |
|
Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254 |
|
|
|
254 |
|
Additional paid-in-capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,899 |
|
|
|
218,899 |
|
Accumulated other comprehensive income |
|
|
12 |
|
|
|
3 |
|
|
|
158 |
|
|
|
2,060 |
|
|
|
2,233 |
|
Distributions in excess of earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,522 |
) |
|
|
(18,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
12 |
|
|
|
3 |
|
|
|
158 |
|
|
|
202,816 |
|
|
|
202,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
87,839 |
|
|
$ |
122,218 |
|
|
$ |
249,151 |
|
|
$ |
468,116 |
|
|
$ |
927,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest sensitivity gap |
|
$ |
(28,402 |
) |
|
$ |
(37,270 |
) |
|
$ |
74,726 |
|
|
$ |
(9,054 |
) |
|
|
|
|
Cumulative interest sensitivity gap |
|
$ |
(28,402 |
) |
|
$ |
(65,672 |
) |
|
$ |
9,054 |
|
|
|
|
|
|
|
|
|
Cumulative interest sensitivity gap to
total assets |
|
|
(3.06 |
)% |
|
|
(7.08 |
)% |
|
|
0.98 |
% |
|
|
|
|
|
|
|
|
26
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe the negative effect of a rise in interest rates is reduced by the anticipated
securitization of our loans receivable which fixes our cost of funds associated with the loans over
the lives of such loans.
During the first quarter of 2006, we entered into three forward starting interest rate swaps
for the purpose of locking in the designated benchmark interest rate, in this case LIBOR, on a
portion of our planned securitization transaction to be completed in the late second or early third
quarter of 2006. We have designated the swaps as cash flow hedges for accounting purposes. Under
the terms of the swaps we will pay fixed rates of 4.79%, 5.11% and 5.09% and receive floating rates
equal to the one month LIBOR rate on beginning notional balances of $44.0 million, $20.0 million
and $30.0 million, respectively. The first payment on each of the swaps is scheduled for July 2006.
A rise in rates during the interim period would increase our borrowing cost in the securitization,
but this increase would be offset by the increased value in the right to pay a lower fixed rate
during the term of the securitized transaction. The hedging transactions were structured at
inception to meet the criteria set forth in SFAS No. 133 in order to allow us to assume that no
ineffectiveness exists. As a result, all changes in the fair value of the derivatives are included
in other comprehensive income and such amounts will be amortized into earnings upon completion of
the planned transaction. In the event that we are unable to or decline to enter into the
securitization transaction or if the completion of the securitization transaction is significantly
delayed, some or all of the amounts included in other comprehensive income may be immediately
included in earnings, as required under SFAS No. 133.
The following table shows our financial instruments that are sensitive to changes in interest
rates and are categorized by contractual maturity at March 31, 2006, (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There- |
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
after |
|
|
Total |
|
Interest sensitive assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
81,455 |
|
|
$ |
97,753 |
|
|
$ |
86,280 |
|
|
$ |
76,103 |
|
|
$ |
67,099 |
|
|
$ |
398,059 |
|
|
$ |
806,748 |
|
Average interest rate |
|
|
9.53 |
% |
|
|
9.53 |
% |
|
|
9.53 |
% |
|
|
9.53 |
% |
|
|
9.53 |
% |
|
|
9.53 |
% |
|
|
9.53 |
% |
Interest bearing deposits |
|
|
18,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,130 |
|
Average interest rate |
|
|
3.82 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.82 |
% |
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,675 |
|
|
|
41,675 |
|
Average interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.20 |
% |
|
|
9.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest sensitive
assets |
|
$ |
99,585 |
|
|
$ |
97,753 |
|
|
$ |
86,280 |
|
|
$ |
76,103 |
|
|
$ |
67,099 |
|
|
$ |
439,734 |
|
|
$ |
866,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest sensitive
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse financing |
|
$ |
89,730 |
|
|
$ |
29,910 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
119,640 |
|
Average interest rate |
|
|
7.21 |
% |
|
|
7.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.21 |
% |
Securitization financing |
|
|
56,230 |
|
|
|
67,481 |
|
|
|
59,561 |
|
|
|
52,535 |
|
|
|
46,320 |
|
|
|
274,789 |
|
|
|
556,916 |
|
Average interest rate |
|
|
5.36 |
% |
|
|
5.36 |
% |
|
|
5.36 |
% |
|
|
5.36 |
% |
|
|
5.36 |
% |
|
|
5.36 |
% |
|
|
5.36 |
% |
Repurchase agreements |
|
|
23,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,582 |
|
Average interest rate |
|
|
5.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.31 |
% |
Note payable servicing
advance |
|
|
875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875 |
|
Average interest rate |
|
|
8.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest sensitive
liabilities |
|
$ |
170,417 |
|
|
$ |
97,391 |
|
|
$ |
59,561 |
|
|
$ |
52,535 |
|
|
$ |
46,320 |
|
|
$ |
274,789 |
|
|
$ |
701,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have concluded that the design and
operation of our disclosure controls and procedures are effective as of the end of the period
covered by this report. This conclusion is based on an evaluation conducted under the supervision
and with the participation of management. Disclosure controls and procedures are those controls and
procedures which ensure that information required to be disclosed in our filings is accumulated and
communicated to management and is recorded, processed, summarized and reported in a timely manner
and in accordance with Securities and Exchange Commission rules and regulations.
Our management, including our Chief Executive Officer and Chief Financial Officer, has
determined that during the period covered by this report there were no changes in our internal
controls over financial reporting that materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
|
|
|
|
|
|
|
Exhibit No. |
|
Description |
|
Method of Filing |
31.1
|
|
Certification of Chief Executive
Officer Required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as
amended.
|
|
|
(1 |
) |
|
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial
Officer Required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as
amended.
|
|
|
(1 |
) |
|
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive
Officer and Chief Financial Officer
Required by Rule 13a-14(b) of the
Securities Exchange Act of 1934, as
amended.
|
|
|
(1 |
) |
(b) Reports on Form 8-K
During the period covered by this report, we filed the following Current Reports on Form 8-K:
(i) Form 8-K, filed March 14, 2006, furnished for the purpose of reporting, under
Item 2.02 (Results of Operations and Financial Condition), our preliminary unaudited
financial results for the year ended December 31, 2005.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 10, 2006
|
|
|
|
|
|
ORIGEN FINANCIAL, INC. (Registrant)
|
|
|
BY: /s/ W. Anderson Geater, Jr.
|
|
|
W. Anderson Geater, Jr., Chief |
|
|
Financial Officer and Secretary
(Duly authorized officer and principal
financial officer) |
|
|
29
ORIGEN FINANCIAL, INC.
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit No. |
|
Description |
|
Method of Filing |
31.1
|
|
Certification of Chief Executive
Officer Required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as
amended.
|
|
|
(1 |
) |
|
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial
Officer Required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as
amended.
|
|
|
(1 |
) |
|
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive
Officer and Chief Financial Officer
Required by Rule 13a-14(b) of the
Securities Exchange Act of 1934, as
amended.
|
|
|
(1 |
) |
30