1
Contact: ROBERT C. PATENT, EVP
TIM S. LEDWICK, CFO
CITYSCAPE FINANCIAL CORP.
(914) 592-6677
Michele Katz/Geoffrey Buscher/
Jason Langer
Press: Stan Froelich/Elisabeth Philippe
Morgen-Walke Associates
(212) 850-5600
COMPANY PRESS RELEASE
CITYSCAPE ANNOUNCES SECOND QUARTER RESULTS
UK PERFORMANCE AFFECTED BY NEW REGULATIONS
COMPANY DEMONSTRATES SOLID US PERFORMANCE, INCREASING LOAN ORIGINATIONS,
IMPROVING DELINQUENCY RATES
ELMSFORD, NY, August 4, 1997 -- Cityscape Financial Corp. (Nasdaq:CTYS) today
reported net earnings before extraordinary items of $3.6 million or $0.08 per
share for the quarter ended June 30, 1997. This is compared to $11.1 million or
$0.35 per fully diluted share in the second quarter of 1996. Absent two one-time
charges, on an operating basis, the Company earned $17.4 million or $0.52 per
primary share.
The current quarter results were reduced by the two one-time charges, which
lowered earnings by a combined $0.44 per share. First, as previously disclosed,
the Company incurred an after-tax charge of $4.7 million or $0.15 per share,
related to the induced conversion of $14.0 million of the Company's convertible
subordinated debentures. Secondly, the Company took an after-tax reserve of $9.1
million ($15.0 million pre-tax) or $0.29 per share, to augment reserves for
recently introduced UK regulatory guidelines. Results for the second quarter of
1997 also reflect an extraordinary gain of approximately $425,000 (net of tax),
or $.01 per share, related to the early extinguishment of debt.
"We experienced considerable margin contraction in the UK marketplace,"
commented Robert Grosser, President and CEO of Cityscape. "This was due largely
to an accelerated change in our mix of loan product originations for the
quarter, consistent with the anticipated new OFT guidelines." On July 18, the
UK's Office of Fair Trading (OFT) announced new non-status lending guidelines
which seek, amongst other initiatives, to eliminate the use of "Rule of 78"
charges on new loan originations.
2
"We previously announced our intention to stop using 'Rule of 78'
calculations on new loan applications beginning on August 1st of this year," Mr.
Grosser continued. "As a leading UK non-status lender, we at Cityscape welcome
the new lending guidelines and have been cooperating fully with the OFT to
insure that these new changes are carried out fairly and evenly throughout the
industry. The move to a more regulated framework for the UK market will entail
further adjustments as we gear ourselves to maintain a leadership position in
this rapidly developing marketplace.
"We are making adjustments by developing new products, implementing new
practices, installing new systems, undergoing extensive staff training and
development programs and conducting a major review of our all-important customer
care process, making it appropriate for us to take a significant overall
provision. We believe that the UK remains a sizeable and largely untapped market
opportunity for Cityscape. Further clarification of the new rules, coupled with
our own positive actions will, we believe, help create a more 'level playing
field' within the industry and a platform for continued growth in the future."
The Company continued to post strong loan origination growth during the
quarter. Consolidated originations totaled $569.8 million, representing a 72%
increase over second quarter 1996 originations (excluding $242.4 million of
loans acquired in two UK acquisitions) and a 17% increase over first quarter
1997 originations.
Cityscape's domestic portfolio performance showed continued improvement
during the quarter. US delinquencies declined to 7.60%, compared to 7.97% at
March 31, 1997, while UK delinquencies decreased to 16.60% from 16.87% at March
31, 1997. At June 30, 1997, the Company had reserves for possible losses
(inclusive of reserves embedded in the fair value of interest only and residual
certificates) of $82.4 million or 3.0% of total loans serviced, compared to
$66.5 million or 2.8% at March 31, 1997.
For the six months ended June 30, 1997, the Company reported net earnings
before extraordinary items of $20.4 million, or $0.61 per fully diluted share.
This is compared to $20.4 million or $0.66 per fully diluted share for the same
six-month period in 1996. Absent the two one-time charges, on an operating
basis, the Company earned $34.2 million.
UK OPERATIONS
Loan originations in the UK totaled $116.8 million, representing a 186%
increase over the $40.8 million of UK loan originations in the second quarter of
1996 (excluding the $242.4 million of loans acquired as a result of two UK
acquisitions), and a 18% increase over the $99.2 million of UK loan originations
in the first quarter of 1997.
In the UK, the Company recorded gain on sale of loans of $15.7 million, net
of the $15.0 million reserve, representing a 13.4% gain on $116.8 million of
loan sales in the second quarter of 1997 compared to a gain on sale of loans of
$15.2 million, representing a 37.3% gain on the $40.8 million of loan sales in
the second quarter of 1996.
2
3
Mr. Grosser commented: "The growth in our UK originations continues to be
strong and reaffirms our position as the market leader. We have introduced new
loan programs in compliance with the two key requirements of the new OFT
guidelines. These new programs replace those using the Rule of 78 as a method of
calculating redemption and incorporate a new sliding scale redemption charge,
already favorably received by our UK broker network. In addition, our dual-rate
structure has been replaced by a single-rate product, and is also being
positively received. We believe that these new loan programs will continue to
provide us with an opportunity to achieve solid returns from our UK operation."
During the quarter the Company acquired Midland and General Direct ("M&G"),
a UK mortgage broker, for an undisclosed amount. "We plan to leverage the
considerable skills and expertise that M&G has developed during its 20-year
history," commented Mr. Grosser. "Our goal is to use M&G as a platform for
increasing our retail-oriented direct marketing activities in the UK."
US OPERATIONS
Domestic loan originations totaled $453.0 million, a 56% increase over the
$290.0 million (which included one-time bulk purchases of $68.0 million) of
originations in the corresponding 1996 second quarter, and a 17% increase over
the $388.1 million of originations in the first quarter of 1997.
Broker originations increased 128% during the quarter to $267.8 million
from $117.4 million in the second quarter of 1996, while the correspondent
business increased 7% to $185.2 million from $172.6 million (which included
one-time bulk purchases of $68.0 million). "This demonstrates Cityscape's focus
on growing its diversified origination networks," Mr. Grosser said. "Broker
originations increased to 59% of total originations during the second quarter of
1997 as compared to 49% during the first quarter of 1997, 47% during the fourth
quarter of 1996 and 40% during the second quarter of 1996 (which included
one-time bulk purchases of $68.0 million).
The average premium paid as a percentage of total US originations continued
to decline from 3.3% in the second quarter of 1996 to 2.2% in the second quarter
of 1997. "Our US business continues to thrive," Mr. Grosser commented. "We are
seeing solid consumer demand for our products and continue to benefit from
providing a comprehensive product line for home equity lending. We are
particularly pleased with the growth in our Sav*-A-Loan(R) program, which
contributed $191.0 million of originations in the second quarter representing a
37% increase from the $139.9 million originated in the first quarter of 1997."
Domestically, the Company recorded gain on sale of loans totaling $35.0
million, representing a weighted average gain of 7.5% on loan sales of $465.6
million in the second quarter of 1997, compared to a gain on sale of $14.0
million, representing a weighted average gain of 5.2% on $270.9 million of loan
sales in the same period in 1996. The increase in the US gain on sale margin was
primarily a result of higher average gains recognized on the Company's sale of
its Sav*-A-Loan(R) product of $192.9 million at an average net gain of 10.4%.
The Sav*-
3
4
A-Loan(R) product sold represented 41.4% of the Company's US loan sales
and 57.4% of the US gain on sale of loans during the second quarter of 1997.
Mr. Grosser concluded, "As a result of Cityscape's continued commitment to
maintain credit quality, its ability to adapt to changing competitive and
regulatory environments, and the actions taken during the second quarter, the
Company is well-positioned to move forward."
Cityscape Financial Corp. is a consumer finance company. Through its
wholly-owned subsidiaries, Cityscape Corp. and City Mortgage Corporation
Limited, it engages in the business of originating, purchasing, selling and
servicing home equity mortgage loans, secured primarily by one-to four-family
residences, in the United States and the United Kingdom. Cityscape was founded
in 1985. It is headquartered in Elmsford, New York and has regional processing
offices in California, Georgia, Illinois and Virginia.
This release contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
including, but not limited to, risks related to operations in the UK, negative
cash flows, uncertainty as to availability of funding sources, dependence on
securitizations, potential changes in valuations of interest-only and residual
certificates and mortgage servicing receivables, risks of adverse economic
conditions, risks related to recent expansion and product extension,
competition, and the other risks detailed from time to time in the Company's SEC
reports.
[tables to follow]
4
5
CITYSCAPE FINANCIAL CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1997 1996 1997 1996
------- ------- -------- -------
REVENUES:
Gain on sale of loans.................................. $50,646 $29,217 $111,309 $53,310
Mortgage origination income............................ 1,430 1,356 2,214 2,192
Interest............................................... 16,313 6,461 35,734 9,478
Servicing income....................................... 1,089 795 1,758 1,356
Other.................................................. 5,692 624 8,690 896
------- ------- -------- -------
Total revenues............................... 75,170 38,453 159,705 67,232
------- ------- -------- -------
EXPENSES:
Salaries and benefits.................................. 16,563 9,170 31,946 14,553
Interest expense....................................... 20,251 4,684 36,706 6,382
Selling expenses....................................... 14,249 3,012 25,453 4,375
Other operating expenses............................... 13,678 1,980 26,023 6,025
Amortization of goodwill............................... 1,402 708 2,559 1,202
------- ------- -------- -------
Total expenses............................... 66,143 19,554 122,687 32,537
------- ------- -------- -------
Earnings before income taxes and extraordinary item.... 9,027 18,899 37,018 34,695
Provision for income taxes............................. 5,441 7,773 16,637 14,296
------- ------- -------- -------
Earnings before extraordinary item..................... 3,586 11,126 20,381 20,399
Gain from extinguishment of debt, net of taxes......... 425 -- 425 --
------- ------- -------- -------
Net earnings........................................... $ 4,011 $11,126 $ 20,806 $20,399
Preferred dividends.................................... 1,067 -- 1,067 --
------- ------- -------- -------
Net earnings available for common...................... $ 2,944 $11,126 $ 19,739 $20,399
======= ======= ======== =======
Earnings per share before extraordinary item:(1)
Primary.............................................. $ 0.08 $ 0.37 $ 0.62 $ 0.68
------- ------- -------- -------
Fully diluted........................................ NA(2) $ 0.35 $ 0.61 $ 0.66
------- ------- -------- -------
Extraordinary item per share........................... $ 0.01 -- $ 0.01 --
------- ------- -------- -------
Net earnings per share:(1)
Primary.............................................. $ 0.09 $ 0.37 $ 0.63 $ 0.68
------- ------- -------- -------
Fully diluted........................................ NA(2) $ 0.35 $ 0.62 $ 0.66
------- ------- -------- -------
Weighted average number of shares and common stock
equivalents Outstanding:(1)
Primary.............................................. 31,711 30,452 31,262 30,152
------- ------- -------- -------
Fully diluted........................................ NA(2) 33,842 37,971 31,941
------- ------- -------- -------
- ---------------
(1) The 1996 amounts have been restated to reflect the 100% stock dividend paid
in July 1996.
(2) The effect of the convertible preferred stock and convertible debentures
were antidilutive and therefore fully diluted figures are not presented.
6
CITYSCAPE FINANCIAL CORP.
SELECTED OPERATING DATA
(DOLLARS IN MILLIONS)
THREE MONTHS SIX MONTHS ENDED
ENDED
JUNE 30, JUNE 30,
--------------- -----------------
1997 1996 1997 1996
------ ------ -------- ------
ORIGINATION AND SALE DATA:
Loans originated and purchased:
US(1)............................................................................ $453.0 $290.0 $ 841.0 $456.7
UK(2)(3)......................................................................... 116.8 40.8 215.9 68.0
------ ------ -------- ------
Total...................................................................... $569.8 $330.8 $1,056.9 $524.7
====== ====== ======== ======
Loan originations by channel (US only):
Correspondent.................................................................... $185.2 $172.6 $ 381.3 $234.4
Broker........................................................................... 267.8 117.4 459.7 222.3
------ ------ -------- ------
Total...................................................................... $453.0 $290.0 $ 841.0 $456.7
====== ====== ======== ======
Weighted average coupon:
US:
Core products:(4)
Fixed rate................................................................... 11.7% 11.6% 11.7% 11.5%
Adjustable rate.............................................................. 10.4% N/A 10.4% N/A
Specialty products(5).......................................................... 14.1% 14.3% 14.1% 14.3%
Other products(6).............................................................. 8.2% 7.9% 8.2% 7.7%
UK:.............................................................................. 14.8% 15.0% 15.1% 16.3%
Loans sold:
US............................................................................. $465.6 $270.9 $ 808.5 $446.7
UK............................................................................. 116.8 40.8 234.1 68.0
------ ------ -------- ------
Total...................................................................... $582.4 $311.7 $1,042.6 $514.7
====== ====== ======== ======
AS OF JUNE 30, AS OF DECEMBER 31,
1997 1996
-------------- ------------------
PORTFOLIO DATA:
Loans serviced portfolio:
US(7).......................................................................... $2,116.3 $1,470.3
UK............................................................................. 638.3 511.1
-------- ---------
Total.................................................................... $2,754.6 $1,981.4
======== =========
Total delinquencies:
US............................................................................. 7.60% 8.92%
UK(8).......................................................................... 16.60% 15.41%
- ---------------
(1) As of June 30, 1997 and 1996, the Company was licensed or registered in 46
states and the District of Columbia and 37 states and the District of
Columbia, respectively.
(2) England, Scotland and Wales, excluding Northern Ireland.
(3) Excludes UK loan originations and purchases of $51.9 million and $190.5
million acquired as a result of the J&J acquisition and Greyfriars
acquisition, respectively.
(4) Fixed and adjustable rate residential mortgage loans for refinancing,
educational, home improvement and debt consolidation purposes, fixed and
adjustable rate purchase money mortgage loans and mortgage loans on
multi-family and mixed-use properties.
(5) Conventional home improvement loans, Sav-A-Loans(R) and Title I home
improvement loans.
(6) Jumbo and conventional loans.
(7) Excludes loans serviced pursuant to contract servicing and master servicing
agreements.
(8) The Company has only been servicing loans in the UK since May 1995;
accordingly, the UK loans serviced portfolio is unseasoned.
7
CITYSCAPE FINANCIAL CORP.
SELECTED BALANCE SHEET DATA
(UNAUDITED)
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
Total assets........................................................... $962,333 $810,202
Mortgage servicing receivables......................................... 270,901 242,895
Trading securities..................................................... 209,065 103,200
Mortgage loans held for sale, net...................................... 93,375 102,222
Goodwill............................................................... 54,338 47,467
Total debt............................................................. 477,363 382,523
Total liabilities...................................................... 736,287 671,370
Total stockholders' equity............................................. 226,045 138,832