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Friday March 26, 5:01 am Eastern Time
Company Press Release
LIFE Financial Reports Fourth Quarter and Year-End Results
Results Include New Guidance on 'Cash-out' Accounting Under FASB Rule No 125
RIVERSIDE, Calif.--(BUSINESS WIRE)--March 26, 1999--LIFE Financial Corporation (NASDAQ:LFCO - news) today reported a net loss of $6.7 million or $1.02 per diluted share for the fourth quarter ending December 31, 1998 as compared to restated net earnings of $5.7 million or $0.83 per diluted share for the same period ending December 31, 1997.
For the year ended December 31, 1998, LIFE reported net earnings of $1.1 million or $0.16 per diluted share compared to restated net earnings of $10.3 million or $2.02 per share, for the year ended December 31, 1997.
Commenting on the Company's financial results, Daniel L. Perl, President and Chief Executive Officer, remarked, ''I am disappointed by LIFE's financial results posted in 1998. The upheaval in the capital markets during the latter half of 1998, compounded by a year long interest rate decline, adversely affected servicing and residual assets.'' Mr. Perl further stated, ''I am pleased that LIFE was able to manage through 1998 with its core business intact and cash flow positive. Furthermore, the company is positioned to pursue opportunities in 1999 that will enhance its existing business.''
The fourth quarter loss is primarily comprised of:
-- A $9.8 million mark to market adjustment to the value of the
Company's residual assets, from $60.5 million to $50.7 million.
The residual assets, represent retained interests in securitized
mortgage loans and are comprised of cash reserves, mortgage
over-collateralization and expected future excess cash flows from
each securitization:
-- The mark to market reflects management's current estimate of
future losses and expected prepayments for each of the
pools. These estimates are based on review of historical
experience, trends in the portfolios, and in the case of
real estate secured loans, loan to value ratios.
Additionally, the estimates include management's experience
with similar portfolios coupled with available industry
information on "like" mortgage product.
-- A $1.8 million increase to loan loss reserves to $2.8 million;
-- This supports Life Bank's ownership of high LTV loans and the
higher retention of loans originated by Life Bank.
-- A $786,000 write-down in the value of mortgage servicing rights:
-- The write-down associated with mortgage servicing rights is a
result of the decline in mortgage interest rates, which occurred
during the latter half of 1998, which accelerated pre-payments of
Life Bank's servicing portfolio.
-- A $475,000 lower of cost or market adjustment related to the
transfer of $74.4 million in loans from Loans Held for Sale to Loans
Held for Investment.
RESTATEMENT
As required by the Financial Accounting Standards Board's Special Report, ''A Guide to Implementation of Statement 125 on Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, Second Edition,'' dated December 1998, and public comments from the Securities and Exchange Commission released on December 8, 1998, LIFE has retroactively changed its practice of measuring and accounting for all excess cash flows to the ''cash-out'' accounting method from the ''cash-in'' method. As a result, the company's financial results for the years ended December 31, 1997 and 1996, and the first three quarters of 1998 have been restated. Results for the quarter and year ended December 31, 1998 also reflect adoption of the ''cash-out'' accounting method.
Initial deposits to cash spread accounts and subsequent cash flows received by securitization trusts accumulate until certain targeted levels are achieved (spread account caps), after which cash is distributed from the spread accounts to the company. Under the ''cash-in'' method previously used by LIFE (i) the assumed discount period for measuring the present value of spread account cash flows ended when these cash flows were deposited into the trusts and (ii) initial deposits to spread accounts were recorded at face value. Under the ''cash-out'' method now called for by the FASB and SEC, the assumed discount period for measuring the present value of future cash flows from the trusts ends when cash, including return of the initial deposits, if any, is distributed to the company on an unrestricted basis.
The change to the cash-out method results only in a difference in the timing of revenue recognition from a securitization and has no effect on the total cash flows of such transactions. While the total amount of revenue recognized over the term of a securitization transaction is the same under either method, the cash-out method results in lower initial gains on the sale of receivables due to the longer discount period. Accordingly, the reductions in previously reported earnings resulting from retroactive application of the change will generally be recognized in subsequent period earnings.
The restatement resulted in the following changes to prior period financial statements:
(Unaudited)
(Dollars in Thousands)
Quarters Ended Years Ended
September 30, June 30, March 31, December 31,
1998 1998 1998 1997 1996
------ ------ ------ ------ ------
Net Income:
Previous $1,804 $1,152 $3,717 $12,700 $1,505
As Restated $2,534 $1,519 $3,715 $10,327 ($52)
Diluted Earnings
per Share:
Previous $0.27 $0.17 $0.54 $2.49 $0.63
As Restated $0.37 $0.22 $0.54 $2.02 ($0.02)
Shareholders' Equity:
(End of Period)
Previous $61,544 $59,718 $58,537 $54,819 $9,273
As Restated $58,710 $56,154 $54,605 $50,889 $7,716
The Company will amend its Annual Report on Form 10-K for the year ended December 31, 1997 and quarterly reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1997 and 1998 and September 30, 1997 and 1998 in connection with the restatement.
The information in this release is unaudited. There can be no assurances that the information presented herein will not materially differ from the corresponding information which will be shown in the amended SEC filings referenced above.
FORWARD-LOOKING COMMENTS
The statements contained in this release that are not historical facts are forward-looking statements based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by management. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties. These include, but are not limited to, the following risks:
-- Changes in the performance of the financial markets,
-- Changes in the demand for and market acceptance of LIFE's
products,
-- Changes in general economic conditions including interest
rates, presence of competitors with greater financial
resources, and the impact of competitive products and
pricing,
-- The effect of the Company's policies,
-- The continued availability of adequate funding sources,
-- Actual prepayment rates and credit losses of loans sold as
compared to prepayment rates and credit losses assumed by
the Company at the time of sale for purposes of its gain on
sale computations,
-- The effect of changes in market interest rates on the spread
between the coupon rate on loans sold and the pass through
rate on securities backed by such loans issued by the
Company in securitization transactions and on the discount
rate assumed by the Company in its gain on sale
computations, and
-- Various legal, regulatory and litigation risks.
CONFERENCE CALL
On Friday, March 26, 1999 at 11:00 A.M. Eastern Time (8:00 A.M. Pacific Time), Daniel L. Perl, President and Chief Executive Officer will host a conference call. He will discuss the results of prior period restatements and of the fourth quarter and fiscal year ended December 31, 1998, followed by a question and answer session. If you would like to participate on the call:
-- The dial-in number is (800) 288-8968
-- The replay numbers are: (USA) (800) 475-6701; Access Code:
442109 (International) (320) 365-3844
The conference call will be replayed continuously beginning at 11:00 a.m. (Pacific Time) on March 26, 1999 and ending at 11:59 p.m. (Pacific Time) on April 2, 1999.
--------------------------------------------------------------------------------
Contact:
LIFE Financial
Jeffrey L. Blake, 909/637-4096 (Chief Financial Officer)
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