A Lone Bright Spot: Delta Financial Reports Quarterly, Full Year Profits

In a rare positive note during the recent earnings season, Delta Financial Corporation, a Woodbury, NY-based subprime lender, posted positive results for both the fourth quarter and full fiscal year 2006. Delta reported net income of $8.0 million for the fourth quarter, up 40 percent from the fourth quarter of 2006. Full-year profits jumped to $29.8 million, up $11.8 million from the previous year, the company said. “We are pleased to deliver such positive results as we continue to distinguish ourselves in the sector, particularly during a time that so many have struggled with loan performance, profitability and loan production issues,” said president and CEO Hugh Miller, noting the the company has focused on originating fixed-rate subprime loans in the past few years — a strategy that limited growth during the subprime boom but has now left the company on solid financial footing as subprime credit begins to tighten. “Throughout our 25 years, we recognized that prudent underwriting is the key to long-term profitability,” said Miller. “As a result, we choose to focus on loan products that we believe have the appropriate risk-adjusted returns, and have not sacrificed credit quality to boost loan volume or gain market share.

“We have not engaged in originating material amounts of the riskier, esoteric products, such as interest-only adjustable-rate mortgages, 80/20 loans and the ‘as stated’ wage earner 100 percent loan-to-value mortgage. These products have been credited as the leading causes of early payment defaults and increased repurchases throughout the sector. In addition, we did not have to materially change our product offerings or underwriting guidelines. The bottom line is that we have not experienced the negative effects on loan production and profitability that sudden and significant product contraction can cause.” The company saw solid increases in origination volume throughout the year, originating $1.1 billion during the fourth quarter and $4.0 billion for the full year, up 5 percent from the company’s 2006 origination volume. Warehouse credit growth? In perhaps a signal of where the subprime industry is headed, Delta saw its warehouse lines grow during a time when other mortgage originators were coping with margin calls and a general pullback in credit policy. Miller said the company had increased warehouse lines of credit during 2006 by $500 million, bringing total available liquidity for these facilities to $1.75 billion, through RBS Greenwich Capital, Citigroup, Bank of America, and two new providers, JPMorgan Chase and Deutsche Bank. For more information, visit http://www.deltafinancial.com.

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