Accredited Reports Record Full Year and Q4 2004 Results; Loans On-Balance Sheet up 94%; Originations up 56%; Net Income up 31% in 2004

Business Wire, Feb 10, 2005

SAN DIEGO -- Accredited Home Lenders Holding Co. (Nasdaq:LEND), a nationwide mortgage company specializing in non-prime residential mortgage loans, today announced record results for the quarter and year ended December 31, 2004.

Net income for the year ended December 31, 2004 was $130.8 million, or $6.06 per share on a fully diluted basis, an increase of 30.8% over $100.0 million for the year ended December 31, 2003. Total revenues increased 51.8% to $660.7 million from $435.2 million the prior year.

Net income for the quarter ended December 31, 2004 was $38.1 million, or $1.76 per share on a fully diluted basis, an increase of 27.1% over net income of $30.0 million for the comparable period in 2003. Total revenues for the quarter increased by 51.8% to $199.8 million from $131.6 million for the comparable period in 2003.

Chairman and CEO James Konrath said, "The record results in the fourth quarter put the exclamation point on an excellent 2004 that brought record portfolio growth, volume, revenue, and profits produced by Accredited's employees nationwide. In addition, we continued to produce outstanding portfolio results as measured by 30+ day delinquency and annualized loss results."

Mr. Konrath added, "We view 2005 as a year of opportunity and challenge, and believe that we have reflected both in our forecast of a 15% average annual earnings growth for the next three to five years and $6.90 earnings per share for 2005."

2004 Operational Highlights

--Mortgage origination volume of $12.4 billion, compared to $8.0 billion in 2003, an increase of 56.1%. Origination volume for the fourth quarter equaled $3.5 billion, which was the highest quarterly volume in the company's history, surpassing the previous record of $3.4 billion in the second quarter of 2004.

--Loans on-balance sheet reached a record balance of $6.6 billion at December 31, 2004, an increase of $3.2 billion, or 93.6%, from December 31, 2003.

--Whole loan sales of $8.3 billion, compared to $6.1 billion in 2003, an increase of 36.7%.

--Portfolio income (interest income less interest expense and provision for losses) of $166.0 million, compared to $82.3 million in 2003, an increase of 101.7%. The company monitors portfolio income in order to track its progress toward producing more stable, predictable earnings. As a percentage of net revenues (total revenue less interest expense and provision for losses), portfolio income increased from 24.3% in 2003 to 35.4% in 2004. We estimate that this ratio is also representative of the portfolio's contribution to profitability. Additional information concerning the calculation of portfolio income may be found in the Financial Summary at the end of this release.

Financial Summary ($000)

                                      % Change                % Change
                             Q4 2004   from Q4       YTD 2004 from YTD
                                           '03                     '03

Total Revenues         $     199,835     51.8%  $     660,670    51.8%
Total Expenses               135,051     65.1%        440,948    64.1%
Income before Taxes    $      64,784     30.0%  $     219,722    31.9%
Net Income             $      38,101     27.1%  $     130,778    30.8%

The 52% increase in total revenues from 2003 to 2004 resulted primarily from increases in interest income and gain on sale of loans. Interest income doubled from $179.0 million in 2003 to $357.1 million in 2004, primarily due to the increased loan portfolio, partially offset by a decrease in the weighted average coupon. The increase in the size of the loan portfolio resulted from four quarterly securitizations structured as financings and higher loan origination volume held in warehouse lines. The gain on sale of loans increased 21% from $241.1 million in 2003 to $292.5 million in 2004 owing primarily to higher volume of whole loan sales for cash. The company's average whole loan premiums, net of hedging, decreased from 4.0% in 2003 to 3.7% in 2004. For the fourth quarter, the company's whole loan premiums, net of hedging, were 3.5%, unchanged from the third quarter of 2004 and below the 3.9% net premium earned in the same period of 2003. These lower gains resulted primarily from lower interest rate margins reflecting stiff price competition in the non-prime mortgage origination market as money costs increased throughout the year.

Total expenses increased 64% from $268.7 million in 2003 to $440.9 million in 2004, due primarily to the increase in interest and provision expense resulting from the larger loan portfolio, as well as an increase in operating expenses associated with larger loan volume, and an increase in the number of employees related to that growth.

--  Portfolio Growth Related Expenses

        --  Interest expense increased by 111% from $63.6 million in
            2003 to $134.2 million in 2004, due primarily to an
            increase in the average outstanding borrowings and an
            increase in the average borrowing rate. The increase in
            the average outstanding borrowings is consistent with the
            larger loan portfolio.

        --  Provision for losses increased by 72% from $33.1 million
            in 2003 to $56.9 million in 2004, reflecting primarily the
            growth and aging of the company's portfolio, and higher
            forecasted severity rates.

    --  Business Operations Related Expenses

        --  Compensation expense increased by 43% from $112.2 million
            in 2003 to $160.8 million in 2004 due primarily to the
            growth in the number of employees and increased commission
            and bonus costs related to higher loan originations and
            profits.

        --  General, administrative, and other expenses increased by
            49% from $59.7 million in 2003 to $89.1 million in 2004
            due to increases in loan volume, number of staff and
            number of locations.

        --  Total business operations related expenses increased by
            45% from $172.0 million in 2003 to $249.9 million in 2004.