Delta Financial Updates Financial Condition; Earnings Fall Off a Cliff
Delta Financial Corp., who hastily delayed its earnings release earlier in the week without explanation, said late yesterday in a filing with the SEC that the earnings delay comes as the subprime lender "began to negotiate one or more arrangements to add new sources of capital." Delta said the new capital would "directly and materially" impact the financial condition of the company. Is this code-speak for "liquidity crisis?" I can't tell, but a company usually only looks to add capital if current capital isn't sufficient to meet operating needs. The company said it expects to report net income for the second quarter of $770,000, down nearly 90 percent from the $7.2 million in profits reported in the year-ago period. The drop is all the more staggering considering that Delta had reported $4.9 million in earnings just one quarter earlier, meaning quarter-to-quarter earnings dropped 84 percent. It seems appropos to note here that the company will badly miss the general guidance it had given markets in its first quarter earnings release -- at the time, Delta CEO Hugh Miller said the company expected second quarter earnings to surpass what was reported for the first quarter. Provisions for loan losses appear to be the primary culprit for the earnings drop here, although the company cited slowing prepayment speeds as a factor as well. Delta said its loan loss provisions increased by $6.3 million during the second quarter compared to the year-ago period, citing "the performance and seasoning" of mortgage loans held for investment.