Saxon Capital, Inc. Announces 2005 Fourth Quarter and Year End Financial Result

Business Wire, March 31, 2006

GLEN ALLEN, Va. -- Saxon Capital, Inc. ("Saxon" or the "Company") (NYSE: SAX), a residential mortgage lending and servicing real estate investment trust (REIT), today announced its financial results for the fourth quarter of and fiscal year end 2005, and restated financial results for the fiscal years, 2001, 2002, 2003, and 2004 and for each of the interim reporting periods of 2005 and 2004. The restatement reflects the elimination of the use of hedge accounting treatment under Statement of Financial Standards 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) for its derivative instruments held during these periods to manage interest rate risk. All numbers presented herein have been restated.

Financial and Operational Highlights:

--Fourth quarter 2005 net income of $17.8 million, or $0.35 per share diluted. Year ended December 31, 2005, net income of $110.7 million, or $2.18 per share diluted.

--Net mortgage loan portfolio at December 31, 2005 was $6.4 billion, an increase of 7% from December 31, 2004.

--Fourth quarter 2005 mortgage loan production was $908 million, a decrease of 5% from the fourth quarter of 2004 and an increase of 7% from the third quarter of 2005 (excluding called loans).

--Fourth quarter 2005 net cost to produce was 2.45%, compared to 2.84% for the fourth quarter of 2004 and 2.94% for the third quarter of 2005.

--Fourth quarter 2005 cost to service was 15 basis points, compared to 25 basis points for the fourth quarter of 2004 and 17 basis points for the third quarter of 2005.

"The extremely competitive pricing and market conditions in 2005 brought new challenges for Saxon", said Michael L. Sawyer, Chief Executive Officer of Saxon. "However, within this environment, our management team remained focused on our core disciplines of risk-based pricing, credit and strategic capital deployment. We invested in technology, growing our third party servicing channel, refined our loan origination platform and, most importantly, reduced our general and administrative expenses."

Financial Results

This press release reports Saxon's financial results under generally accepted accounting principles ("GAAP"). Also presented are non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission that management believes provide useful information to investors regarding Saxon's financial performance. The non-GAAP measures presented include core net income, core earnings per share diluted, core net interest income and margin, total net cost to produce, cost to service, securitization net losses on liquidated loans, and a Company defined working capital calculation. Additional information about each of these non-GAAP financial measures, including a definition and the reason management believes its presentation provides useful information and a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in Schedule B of this press release. The presentation of these non-GAAP financial measures is not to be considered in isolation or as a substitute for the Company's financial results prepared in accordance with GAAP.

Net Income and Earnings Per Share

Saxon reported net income for the fourth quarter of 2005 of $17.8 million, or $0.35 per share diluted, compared to $37.9 million, or $0.76 per share diluted for the fourth quarter of 2004, and $31.9 million, or $0.63 per share diluted for the third quarter of 2005. For the year ended December 31, 2005, the Company reported net income of $110.7 million, or $2.18 per share diluted, compared to $106.3 million, or $2.91 per shared diluted for the prior year.

Core Net Income and Earnings Per Share

Core net income for the fourth quarter of 2005 was $17.9 million, or $0.35 per share diluted, compared to $35.5 million, or $0.71 per share diluted for the fourth quarter of 2004, and $15.2 million, or $0.30 per share diluted for the third quarter of 2005. For the year ended December 31, 2005, core net income was $93.6 million, or $1.85 per share diluted, compared to $109.3 million, or $2.99 per shared diluted, for the prior year. Core net income excludes the mark to market gains or losses recognized on derivative instruments. See Schedule B of this press release for a reconciliation of core net income to net income.

Net Interest Income and Margin

Net interest income was $40.5 million for the fourth quarter of 2005, compared to $59.1 million for the fourth quarter of 2004 and $47.3 million for the third quarter of 2005. Net interest margin was 2.6% for the fourth quarter of 2005, compared to 4.2% for the fourth quarter of 2004 and 3.1% for the third quarter of 2005. Net interest income for the year ended December 31, 2005 was $194.8 million, compared to $255.3 million for the prior year. Net interest margin for the year ended December 31, 2005 was 3.2%, compared to 4.9% for the prior year. Net interest margin is calculated as net interest income divided by average interest-earning assets. Average interest-earning assets are calculated using a daily average balance over the time period indicated.