Approved Financial Corp. Announces Results for the Second Quarter of 1999

Business Wire, August 9, 1999

VIRGINIA BEACH, Va.--(BUSINESS WIRE)--Aug. 9, 1999--

Approved Financial Corp. (Bulletin Board:APFN)

HIGHLIGHTS

Second quarter of 1999 compared to the Second quarter of 1998:

-- Loan origination volume of $98.5 million compared to $140.1 million -- Whole loan sales of $58.1 million compared to $117.0 million -- Net loss of $1.3 million compared to $.5 million profit -- Successful implementation of expense reduction initiatives -- Continued investment in technology

FINANCIAL RESULTS

Approved Financial Corp. ("Approved" or "Company") reports a net loss of $1.3 and $2.5 million or $.24 and $.46 per share for the three and six months ended June 30, 1999. This represents a significant decrease from net income of $.5 and $1.9 million or $.09 and $.35 per share for the three and six months ended June 30, 1998. Included in the first six months of 1999 is a net addition to the provision for loan losses of $1.5 million compared to a net addition of $.8 million to the provision during the same period in 1998.

LOAN ORIGINATIONS

The Company reports total loan volume of $98.5 million and $195.7 million for the three and six months ended June 30, 1999 and 1998, respectively. The retail branch network contributed $66.9 million or 70% of loan volume in the second quarter of 1999 compared to $84.3 million or 60% in the second quarter of 1998. The remainder of the volume was sourced from broker referrals. Of the loans funded by the Company during the three and six months ended June 30, 1999, 80% and 84%, respectively, incorporate a prepayment penalty.

Retail loan volume for the three and six month periods in 1999 include loans generated by the Company's retail division that are funded through other lenders ("brokered loans") of $42.4 and $88.9 million, respectively, for which the Company receives fee income. The brokered loans consist of non-conforming mortgages that do not meet the Company's underwriting guidelines and conforming loans. This type of retail loan production allows the Company to accommodate non-conforming loan customers during competitive periods while adhering to solid underwriting standards.

The Company recently initiated in-house funding of conforming loans through its wholly owned subsidiary, Approved Federal Savings Bank. During the month of June 1999, the new conforming loan department funded approximately $3.5 million conforming and government mortgages. The retail offices originated an additional volume of approximately $7 million in conforming and government loans, which were funded through other lenders, receiving broker fee income. Increasing volumes of the Company's retail conforming mortgage business is targeted to fund through the new department as it develops capacity.

The Company's wholesale division, which originates loans through referrals from a network of mortgage brokers ("broker origination") produced $31.6 and $57.3 million in volume during the three and six months ended June 30, 1999, respectively. Continued pricing competition in this origination channel was the primary factor contributing to the reduction in broker origination volume of 43% and 45% for the respective periods when compared to the same periods in 1998. The company's average fees paid to mortgage brokers significantly declined to .27% (27 basis points) in the second quarter of 1999 compared to .79% (79 basis points) in second quarter of 1998.

LOAN SALES

The Company sells loans on a whole loan basis receiving cash at the time of sale. The net loss for the three and six month periods ended June 30, 1999 is directly related to the reduction in both the volume of loan sales and the average cash premium percentage received on whole loan sales ("loan sale premium"), which lead to a 64% and 59% drop in gain on sale of loans compared to the same periods in 1998. The volume of loans sold for the periods was $58.1 and $139.9 million, respectively, a 50% and 39% decline from loan sales of $117.0 and $231.2 million during the same periods in 1998. The average loan sale premiums were 3.1% and 3.2% for the respective 1999 periods, a 31% and 41% decrease from 4.5% and 5.3% during the same periods in 1998.

The Company continues to experience lower loan sale premiums due to the changing landscape of the non-conforming mortgage industry and the Company's shift to a higher credit grade customer. The Company's traditional investor base currently exhibits a strong demand for higher credit quality borrowers and less demand for mid to lower credit grade mortgages. Therefore, current origination volume reveals a higher credit grade customer and the lower weighted average coupons associated with this type of loan.

ORIGINATION FEE INCOME

Approximately 57% and 54% of the loans sold during the three and six-months ended June 30, 1999 were originated by the retail division ("retail loans") compared to 54% and 55% during the same periods in 1998. Average front-end fees earned on retail loans sold during the 1999 were 4.66% and 4.91% including underwriting fees that are recognized in other income and including conforming and government loans. Average front-end fees on non-conforming loans sold, including underwriting fees earned during the three and six months ended June 30, 1999, were 4.99% and 5.06%, respectively.