Press Release 2-04-99
Rock Financial Reports Record Loan Production and
Revenue in Fourth Quarter 1998
PR Newswire - February 04, 1999 08:46
Company Also Announces First Quarter Cash Dividend
BINGHAM FARMS, Mich., Feb. 4 /PRNewswire/ -- Rock Financial Corporation (Nasdaq:
RCCK), a leading provider of retail mortgages reported record revenue of $25.6 million for the
quarter ended December 31, 1998, a 44% increase over 1997's fourth quarter revenue of $17.8
million. Including a one-time charge related to branch closing expenses of $2.0 million, Rock reported
pre-tax income of $4.0 million, and pro forma net income of $2.6 million, or $0.18 per share (diluted).
Excluding the one-time charge, Rock reported pre-tax income of $6.0 million and pro-forma net
income of $3.9 million, or $0.28 per share (diluted), a 56% increase compared with 1997's fourth
quarter pro-forma net income of $2.5 million, or $0.18 per share (diluted).
FINANCIAL HIGHLIGHTS
Fourth Quarter % Change
(In $ millions except EPS)
1998 1997
Production
Prime $683 $263 +160%
Sub-Prime $90 $91 -1%
Other $4 $29 -86%
Total Company $777 $383 +103%
Revenue $25.6 $17.8 +44%
Net Interest Margin $1.7 $0.9 +89%
Pre-Tax Income $4.0 $3.9 +3%
Pre-Tax Income (w/o one-time
1998 4Q charge) $6.0 $3.9 +54%
Pro Forma Net Income $2.6 $2.5 +4%
Pro Forma Net Income
(w/o one-time 1998 4Q charge) $3.9 $2.5 +56%
Pro Forma EPS (diluted) $0.18 $0.18 +0%
Pro Forma EPS (diluted-w/o one-time
1998 4Q charge) $0.28 $0.18 +56%
Divisional
(In $ millions except EPS) Breakdown of
1998 Loan
Twelve Months Production
1998 1997 % Change 4thQ 12mo.
Production
Prime $1,924 $884 +118% 88% 82%
Sub-Prime $374 $269 +39% 12% 16%
Other $56 $66 -15% -- 2%
Total Company $2,354 $1,219 +93% -- --
Revenue $89.8 $52.1 +72% -- --
Net Interest Margin $5.4 $2.6 +108% -- --
Pre-Tax Income $18.8 $11.4 +65% -- --
Pre-Tax Income (w/o one-time
1998 4Q charge) $20.8 $11.4 +82% -- --
Pro Forma Net Income $12.2 $7.4 +65% -- --
Pro Forma Net Income
(w/o one-time 1998
4Q charge) $13.5 $7.4 +82% -- --
Pro Forma EPS (diluted) $0.84 $0.51 +65% -- --
Pro Forma EPS (diluted-w/o
one-time 1998 4Q charge) $0.93 $0.51 +82% -- --
Pro forma EPS are based on approximately 14.17 million shares outstanding (diluted) for the quarter
ended December 31, 1998. Record revenue and record net income (without the one-time charge)
came on record closed loan production of $777 million in the fourth quarter of 1998, a 103% increase
over 1997's closed loan production of $383 million.
For the twelve months ended December 31, 1998, Rock reported record revenue of $89.8 million, a
72% increase compared with $52.1 million for all of 1997. Including the one-time charge related to
branch closing expenses of $2.0 million, Rock reported pre-tax income of $18.8 million for 1998 and
pro-forma net income of $12.2 million, or $0.84 per share (diluted). Excluding the one-time charge,
Rock reported pre-tax income of $20.8 million and pro-forma net income of $13.5 million, or $0.93
per share (diluted), an 82% increase compared with all of 1997's pro-forma net income of $7.4
million, or $0.51 per share (diluted).
Pro-forma net income excludes the benefit of a 23.1% effective tax rate and the creation of a deferred
tax asset related to the company's conversion from a "Sub-Chapter S" Corporation to a "C"
Corporation for income tax purposes. Including those non-recurring tax-related benefits and including
the one-time fourth quarter charge, reported net income for 1998 was $16.3 million, or $1.11 per
share (diluted).
"We are very pleased with the fourth quarter results and the entire 1998 fiscal year," stated Daniel
Gilbert, President, Chairman and CEO of Rock Financial. "Despite a challenging environment in the
sub-prime sector and the closing of nine of our unprofitable locations, we were able to achieve record
numbers in closed loan volume and revenues in 1998.
"We have built a company on a platform of marketing, technology and skilled people. This allows us to
shift quickly and efficiently into products and delivery channels that are advantageous at the time. We
demonstrated this by the record prime production in the fourth quarter as we shifted resources away
from a less profitable and unstable sub-prime sector," continued Mr. Gilbert.
Fourth quarter total closed loan production was a record $777 million, up 103% over the $383 million
of closed production in the fourth quarter of 1997. Rock's prime segment (conventional and
government lending) closed a record $683 million during the fourth quarter, a 160% increase over the
fourth quarter 1997 closed loan production of $263 million. Rock's sub-prime production totaled $90
million during the fourth quarter, a 1% decrease versus $91 million closed in the fourth quarter of
1997.
In January of this year, Rock launched RockLoans.com, its Internet mortgage channel. "Management
anticipates indications are very positive that this new delivery channel will prove to be a significant part
of Rock's overall business going forward," said Gilbert.
Rock also continued to maintain a strong balance sheet with over $30 million in cash as of year-end.
Rock uses its cash on a daily basis, other than at quarter end, to pay down its warehouse credit facility
and maximize its interest spread income. Rock's interest spread income reached a record high of $1.7
million in the fourth quarter, an increase of 89% from the interest spread income of $.9 million in the
fourth quarter of 1997. The company maintained its strong cash position by selling its loans to the
whole loan or bulk markets, avoiding the need to securitize its production, and sticking to its 100%
retail approach.
Strong Cash Position Allows Stock Repurchase and Cash Dividend
Rock used some of its available cash in the fourth quarter to repurchase 244,000 of its common shares
between $4.62 and $6.56 per share.
Rock's board also declared its fourth straight quarterly cash dividend of $.02 per share since becoming
public on May 1, 1998. The dividend will be payable on February 26, 1999 to common shareholders
of record as of February 12, 1999.
Concluded Gilbert: "Rock has shown it is able to adapt to changing market conditions in a manner that
protects the company's earnings stream and long-term strategies. In the fourth quarter, 88% of our
production was conventional and government business. Although we will still maintain most of our
sub-prime product line, it is apparent that a majority of our originations is in products that have more
liquid markets available in which they can be sold. The company once again continues to maintain its
core philosophies of heavy technology and marketing investments combined with the hiring and training
of a skilled and versatile workforce. This is what drives our organization to achieve its goals of
continued growth in revenue, market share, profits and client satisfaction."
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Certain
statements contained in this press release, which are not historical fact, may be deemed to be
"forward-looking" statements under federal securities laws that involve risk and uncertainties. There are
many important factors that could cause Rock Financial Corporation's actual results to differ materially
from those indicated in the forward-looking statements. Such factors include, but are not limited to,
general economic conditions, including interest rate risk, future residential real estate values, regulatory
changes (legislative or otherwise) affecting the real estate market and mortgage lending activities,
competition, demand for Rock Financial Corporation services, availability of funding, loan prepayment
rates, delinquency and default rates, changes in factors influencing the loan securitization market and
other risks identified in Rock Financial Corporation's Securities and Exchange Commission filings.
ROCK FINANCIAL CORPORATION
STATEMENTS OF INCOME
Three Months and Twelve Months Ended December 31, 1997 and 1998
(Unaudited)
For the Three-Month For the Twelve-Month
Periods Ended Dec. 31, Periods Ended Dec. 31,
1997 1998 1997 1998
Revenue:
Interest income $2,846,234 $3,977,873 $8,082,448 $13,169,754
Interest expense 1,701,286 2,119,322 5,149,881 7,220,968
Net interest margin 1,144,948 1,858,551 2,932,567 5,948,785
Provision for credit
losses 200,000 178,166 300,000 567,738
Net interest margin
after provision for
credit losses 944,948 1,680,385 2,632,567 5,381,047
Loan fees and gains on
sale of mortgages 16,868,474 24,000,242 47,092,426 84,401,123
Net gain (loss) on sale
of marketable
securities (32,337) -- 2,221,905 --
Other income 18,472 (38,366) 162,968 (20,017)
17,799,557 25,642,262 52,109,865 89,762,153
Expenses:
Salaries, commissions
and employee benefits 8,687,862 11,868,525 26,402,627 40,150,541
General and
administrative
expenses 2,378,302 3,874,257 7,629,889 13,424,026
Marketing expenses 2,271,387 3,295,959 5,369,515 13,152,793
Depreciation and
amortization 554,089 602,816 1,292,479 2,196,520
Store Closings -- 2,000,000 -- 2,000,000
13,891,640 21,641,557 40,694,509 70,923,881
Income before income
taxes 3,907,916 4,000,704 11,415,356 18,838,272
Income taxes due to
quarterly earnings -- 910,741 -- 3,535,281
Income tax benefit due to
conversion of "S" Corp -- -- (950,939)
Net income $3,907,916 $3,089,963 $11,415,356 $16,253,930
Pro forma information (note 5):
Provision for pro forma
income taxes 1,367,771 1,400,247 3,995,375 6,593,395
Pro forma net income $2,540,146 $2,600,458 $7,419,982 $12,244,877
Pro forma earnings per share:
Basic $0.19 $0.19 $0.54 $0.89
Diluted $0.18 $0.18 $0.51 $0.84
Pro forma weighted average number of
shares outstanding:
Basic 13,685,474 13,685,474 13,776,507 13,776,507
Diluted 14,170,910 14,170,910 14,635,677 14,635,677
ROCK FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and December 31, 1998
December 31, December 31,
1997 1998
(Audited) (Unaudited)
ASSETS
Cash and cash equivalents $11,946,992 $30,081,524
Mortgage loans held for sale 121,343,814 155,631,112
Mortgage loans held for investment
(net of allowance for losses of
$270,000 and $634,851 at December 31,
1997 and December 31, 1998, respectively) 810,293 3,766,171
Real estate owned 158,271 49,989
Shareholders' advances 1,626,519 1,225,421
Property and equipment (net of accumulated
depreciation of $3,429,862 and $5,400,480
at December 31, 1997 and December 31,
1998, respectively) 7,010,537 10,775,733
Deferred income taxes -- 1,945,000
Other assets 1,532,471 962,502
Total assets $144,428,897 $204,437,453
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Warehouse line of credit $79,293,856 $98,008,105
Reverse repurchase agreement 18,161,423 11,521,065
Notes payable 1,944,445 --
Drafts payable 21,875,184 44,021,087
Accounts payable 3,255,503 4,680,275
Accrued expenses and other liabilities 4,790,350 8,171,773
Total Liabilities 129,320,761 166,402,305
Shareholders' equity:
Common shares, $ .01 par value. 100,000 138,345
Authorized 50,000,000 shares;
issued and outstanding
10,000,000 shares and 13,829,500
shares at December 31, 1997 and
December 31, 1998, respectively
Additional paid-in capital 1,423,750 26,295,342
Retained earnings 13,584,386 11,601,462
Total shareholders' equity 15,108,136 38,035,148
Total liabilities and shareholders'
equity $144,428,897 $204,437,453
SOURCE Rock Financial Corporation
/NOTE TO EDITORS: For more information on Rock Financial Corporation,
dial 1-800-PRO-INFO and enter the company ticker "RCCK"/
/CONTACT: Investor Relations, Kelley Krass of Rock Financial Corporation,
248-723-7172; or General Information, Tad Gage, 312-640-6745, Analysts, Tanya
Hayward, 312-640-6732, or Media, Margie Baigh, 312-640-6690, all of The
Financial Relations Board/
/Web site: rockloans.com |
