COLUMBIA, Md., Aug. 9 /PRNewswire-FirstCall/ -- Fieldstone
Investment Corporation (NASDAQ:FICC) today announced its results of
operations for the three and six months ended June 30, 2006. KEY
FINANCIAL RESULTS -- Fieldstone's net income was $3.8 million in
the second quarter of 2006, or $0.08 per share, compared with $12.9
million, or $0.27 per share, in the first quarter of 2006. -- Core
net income was $4.0 million in the second quarter of 2006, or $0.08
core earnings per share, compared with $10.2 million, or $0.21 core
earnings per share, in the first quarter of 2006. -- The investment
portfolio totaled $5.7 billion at June 30, 2006, an increase of
approximately $200 million during the second quarter. -- Fieldstone
funded $1.5 billion of loans in the second quarter of 2006, for a
total of $2.5 billion of loans funded in 2006 year to date. -- Cost
to produce new mortgage loans improved to 2.58% in the second
quarter of 2006, compared with 3.52% in the prior quarter. --
During the second quarter, gains on sales of mortgage loans, net
decreased to 0.3% of loans sold from 1.6% in the preceding quarter,
due primarily to a $4.5 million pre-tax charge to reduce second
lien loans held for sale to the lower of cost or market value as a
result of lower market demand. "A challenging mortgage market
contributed to disappointing earnings results this quarter," stated
Michael J. Sonnenfeld, President and Chief Executive Officer. "Our
earnings were affected primarily by market driven factors,
including decreased spreads on new originations of loans held for
investment and reduced sales premiums on loans originated for sale.
In response to the challenging environment, we are changing our
products, pricing and commission plans and are consolidating our
branch operations. Despite the current market pressures, we will
continue to build our origination franchise and will maintain our
credit and pricing disciplines. We are confident that our mortgage
banking initiatives will enable us to increase our originations and
reduce our cost to originate. Our portfolio continues to
demonstrate the long-term value we have built through its stable
performance and below average loan losses. We continue to believe
that our vertically integrated structure will create long-term
shareholder value." DIVIDEND GUIDANCE Fieldstone is reaffirming its
previous guidance that dividends for common stockholders during
2006 are expected to total between $1.60 and $1.80 per share.
However, there have been negative trends year-to-date of net
interest margins on new loans, prepayment fees received on 2004's
loans and delinquencies and losses on loans originated in 2005 and
2006. If these negative trends continue, Fieldstone's REIT income
and dividends will be at the low end of this range and any further
worsening of market conditions could cause the dividend to fall
below this range. Because dividends are directly contingent on REIT
income, the reduced gains on sales of mortgage loans reported by
Fieldstone Mortgage Company, Fieldstone's taxable REIT subsidiary,
do not impact the REIT dividend. The dividend guidance is based on
management's current estimates and forecasts for the fiscal year
2006, including the following: -- Total annual loan fundings of
between $5.0 billion and $6.0 billion. -- Investment portfolio
balance of $6.0 billion by year end 2006, which reflects a
portfolio debt to equity leverage ratio of approximately 13 to 1.
-- Average net interest spread of 2.75% on new loans added to the
investment portfolio during the second half of 2006, which is the
difference between the average interest rate of new loans over the
two-year swap rate. This represents a decrease from the previous
estimated spread of 2.90% due to the continued competition for new
loans. -- Prepayment fee income averaging 0.5% of the portfolio
balance throughout the remainder of 2006 compared to 0.65% in 2005,
as more borrowers delay refinancing until after their prepay fee
period expires. -- Common shares outstanding of 46.9 million as of
June 30, 2006. If the factors underlying Fieldstone's dividend
guidance, including the ones stated above, differ from management's
estimates, Fieldstone's 2006 dividends could be significantly
affected. Fieldstone paid a regular quarterly dividend on July 31,
2006 of $0.44 per share for the second quarter of 2006, which was
paid to stockholders of record on June 30, 2006, for a cumulative
dividend of $0.92 for the first half of 2006. Dividends of $1.82
per share were declared in 2005 related to estimated 2005 REIT
taxable income, and Fieldstone estimates that between $0.35 and
$0.40 per share of 2005 REIT taxable income will be included in
dividends declared in 2006. Fieldstone does not anticipate any
carry-over of 2006 REIT taxable income into 2007. FINANCIAL RESULTS
This press release discloses Fieldstone's financial results under
accounting principles generally accepted in the United States of
America (GAAP). Also presented are certain non-GAAP financial
measures that management believes provide useful information to
investors regarding Fieldstone's financial performance. The
non-GAAP financial measures presented include core income from
continuing operations, core earnings per share from continuing
operations, core net income, core earnings per share, core return
on average assets, core return on average equity, core net interest
income and margin, cost to produce, and REIT taxable income.
Additional information about each of these non-GAAP financial
measures, including a definition, the reason management believes
its presentation provides useful information to investors, and a
reconciliation of each of these non-GAAP financial measures to the
most directly comparable measure under GAAP is provided in Schedule
2 of this press release. Financial information in this press
release presents the results of Fieldstone's previous conforming
origination business as a discontinued operation, following the
sale in the first quarter of 2006 of the assets related to that
business, and has been restated for the six months ended June 30,
2005 to correct the timing of the Company's recognition of income
tax expense, as previously announced on April 3, 2006. Fieldstone's
continuing operations include its Investment Portfolio, Wholesale,
Retail, and Corporate segments. With the exception of net income
and core net income, the results of operations discussed in this
press release do not include the results of the discontinued
operations, unless otherwise indicated. Net Income and Earnings per
Share Fieldstone's net income for the second quarter of 2006 was
$3.8 million, or $0.08 per share, compared with $12.9 million, or
$0.27 per share, for the first quarter of 2006. Net income
decreased during the quarter due primarily to an $8.3 million
decline in gains on sales of mortgage loans. This decrease included
a $4.5 million pre-tax charge to gains on sales to reduce second
lien loans held for sale as of June 30, 2006 to the lower of cost
or market value and a reduction in average gross premiums on loan
sales to 1.7% in the second quarter of 2006 from 2.4% in the first
quarter of 2006. The market value for second lien loans declined
significantly in the second quarter of 2006 in response to a
decline in the demand for second lien products in light of
uncertainty regarding home price appreciation and future loan
performance. The narrower net interest spreads, which contributed
to lower gain on sale premiums, also reduced Fieldstone's net yield
after provision for loan losses on loans held for investment to
1.24% in the current quarter from 1.52% in the first quarter of
2006, as new portfolio loans with narrower margins replaced
prepaying loans which were originated during periods of wider
interest margins. Net income for the second quarter of 2006 was
$20.0 million lower than the $23.8 million, or $0.49 per share,
earned in the same period in 2005, including a $24.1 million
reduction in gains on sale partially offset by an $11.1 million
increase in the market value change of Fieldstone's interest rate
swaps used to economically hedge its investment portfolio. The
decline in gains on sale primarily reflects a 48% decrease in sales
volume period over period, the reduction of gross sale premiums to
1.7% in the second quarter of 2006 from 3.3% in 2005, and the $4.5
million pre-tax charge to gains on sale in the second quarter of
2006 for the market value write-down of Fieldstone's second lien
inventory of loans held for sale. Core Net Income and Core Earnings
per Share Core net income for the second quarter of 2006 was $4.0
million, or $0.08 core earnings per share, compared with $10.2
million, or $0.21 core earnings per share, in the first quarter of
2006. Core net income decreased in the second quarter due primarily
to lower gains on sales of mortgage loans and decreased core net
yield after the provision for loan losses on loans held for
investment. Core net income declined $31.9 million in the second
quarter of 2006 compared with core net income of $35.9 million, or
$0.74 core earnings per share, in the second quarter of 2005. The
decrease in core net income reflects a $24.1 million decrease in
gains on sales due to a 48% decrease in sales volume combined with
a net gain on sales margin decrease to 0.3% in the second quarter
of 2006 compared with 2.2% in the same period of 2005. Core net
interest income after provision for loan losses on loans held for
investment also declined $6.1 million, reflecting the reduction in
core yield to 2.02% in the second quarter of 2006 from 2.98% in the
comparable period in 2005. Throughout 2005 and 2006, intense market
competition prevented the coupon on new loans from increasing at
the same rate as the rise in financing costs. As a result, new
loans added to the portfolio had narrower net interest spreads
compared with the loans which were originated during prior periods
with wider net interest spreads that are now prepaying. REIT
Taxable Income To maintain Fieldstone's status as a REIT, the
Company is required to distribute at least 90% of its REIT taxable
income each year to its shareholders. Federal tax rules calculate
REIT taxable income in a manner that, in certain respects, differs
from the calculation of consolidated net income pursuant to GAAP.
For a discussion of these differences, see Schedule 2 to this
release. Estimated REIT taxable income for the six months ended
June 30, 2006 and the year ended December 31, 2005 is as follows
(in millions): Six Months Year Ended Ended June 30, December 31,
2006 2005 Consolidated GAAP pre-tax net income $12.7 $102.9 Plus:
Provision for loan losses in excess of actual charge-offs 0.5 21.5
Variance in recognition of net origination expenses (0.2) 6.4 Less:
Taxable REIT subsidiary pre-tax net loss (income) 12.0 (9.6) Mark
to market valuation changes on derivatives (0.7) (9.0)
Miscellaneous other 0.7 (7.2) Estimated REIT taxable income $25.0
$105.0 Mortgage Loan Fundings Three Months Ended June 30, March 31,
June 30, ($000) 2006 2006 2005 Wholesale Division $1,263,911 $
860,523 $1,468,307 Retail Division 196,106 150,795 216,695 Total
Fundings by Continuing Operations 1,460,017 1,011,318 1,685,002
Discontinued Conforming Division - 127,797 330,005 Total Fundings
$1,460,017 $1,139,115 $2,015,007 Fieldstone funded a total of $1.5
billion of mortgage loans during the second quarter of 2006, a 44%
increase over the first quarter of 2006 and a 13% decrease from the
second quarter of 2005. The current period increase in loan
fundings compared with the prior quarter reflects seasonal rises in
loan originations combined with the introduction of new loan
products. The 13% decrease in loan originations compared with the
prior year reflects intense competition for new loans on both price
and credit, triggered in part by a decline in the overall mortgage
market. Net Interest Income and Margin Net interest margin after
provision for loan losses for loans held for investment for the
three months ended June 30, 2006, March 31, 2006, and June 30, 2005
was as follows: 2Q 2006 1Q 2006 2Q 2005 Coupon interest income
7.21% 7.07% 6.65% Amortization of deferred origination costs
(0.44)% (0.50)% (0.46)% Prepayment fees 0.37% 0.41% 0.75% Yield on
loans held for investment 7.14% 6.98% 6.94% Cost of financing loans
held for investment (1) 5.63% 5.17% 3.70% Net yield on loans held
for investment (2) 1.63% 1.92% 3.34% Provision for loan losses
(0.39)% (0.40)% (0.59)% Yield on loans held for investment, after
provision 1.24% 1.52% 2.75% (1) Cost of financing for loans held
for investment does not include the effect of the interest rate
swap agreements. (2) Net yield on loans held for investment does
not equal the arithmetic difference between the yield on loans held
for investment less the cost of financing loans held for investment
due to the difference between the principal balance of the loans
held for investment and the principal balance of the debt financing
those loans. Net interest income after the provision for loan
losses on loans held for investment was $17.4 million for the
second quarter of 2006 compared with $20.8 million for the
preceding quarter and $31.9 million for the second quarter of 2005.
The period over period decrease in Fieldstone's net interest margin
after provision was due primarily to the 0.46% increase in the cost
of financing the loans in its portfolio as interest rates continued
to rise during the second quarter. This expense increase was only
partially offset by a 0.14% increase in coupon interest income in
the second quarter due primarily to market competition for new
loans which continued to limit rate increases on new loans. The
0.29% decrease in net yield also reflects the prepayment of older
loans with higher net interest margins during the current quarter,
as borrowers of Fieldstone's older adjustable rate mortgage loans
refinanced around the period that their loans reset from its
initial fixed rate to an adjusting rate. Net interest income on
loans held for sale was $3.4 million for the second quarter of
2006, representing a 4.15% net interest yield, compared with $4.0
million for the first quarter of 2006, a 4.84% net interest yield,
and $7.5 million for the second quarter of 2005, a 4.22% net
interest yield. The decline in net interest income compared with
the second quarter of 2005 also is due primarily to the cost of
financing increasing more than the rise in coupon rates for new
loans and to a higher balance of loans held for sale in 2005. Core
Net Interest Income and Margin Core net interest margin on loans
held for investment after provision for loan losses for the three
months ended June 30, 2006, March 31, 2006, and June 30, 2005 was
as follows: 2Q 2006 1Q 2006 2Q 2005 Yield on loans held for
investment (1) 7.14% 6.98% 6.94% Core cost of financing for loans
held for investment 4.83% 4.46% 3.47% Core yield on loans held for
investment 2.41% 2.61% 3.57% Provision for loan losses - loans held
for investment (0.39)% (0.40)% (0.59)% Core yield on loans held for
investment, after provision for loan losses 2.02% 2.21% 2.98% (1)
Includes coupon interest income and prepayment fees, net of
amortization of deferred costs. Core net interest income after the
provision for loan losses on loans held for investment was $28.4
million for the second quarter of 2006, compared with $30.2 million
for the first quarter and $34.6 million for the second quarter of
2005. The core net interest margin after the provision for loan
losses on loans held for investment decreased 0.19% in the second
quarter of 2006 compared with the preceding quarter due to a 0.37%
increase in core cost of financing for loans held for investment,
reflecting an increase in the weighted average swap rate as older,
lower rate swaps expired. New swaps for loans at current market
rates resulted in an increase in Fieldstone's weighted average swap
rate to 3.85% in the second quarter of 2006 from 3.52% in the
preceding quarter and 2.78% in the second quarter of 2005. The
increase in core cost of financing in the second quarter of 2006
was partially offset by a 0.16% increase in the yield on loans held
for investment, which includes both new originations at higher
market coupons and higher coupons on the remaining loans which have
reset from their initial fixed rate to an adjustable rate. The
decrease in core yield after provision for loan losses on loans
held for investment in the second quarter of 2006 compared with the
same period of 2005 was the result of financing costs increasing
more than the rise in coupon rates for new loans, partially offset
by a $1.0 billion increase in 2006 in the average balance of the
Company's portfolio of loans held for investment. Gains on Sales of
Mortgage Loans, Net Gains on sales of mortgage loans, net were $2.0
million in the second quarter of 2006, compared with $10.3 million
for the prior quarter, and $26.0 million for the second quarter of
2005. Gains on sales decreased in the second quarter of 2006
compared with the prior quarter due primarily to a decline in the
market value of certain second lien products late in the quarter,
combined with lower premiums on the sale of first mortgages. As a
result of industry concerns regarding a potential increase in
second lien losses in the current environment of flattening home
price appreciation and rising interest rates, the market value of
the Company's second liens held for sale as of June 30, 2006
declined below par value. Fieldstone recognized a $4.5 million
pre-tax charge to gains on sales of loans to reduce its second lien
loan inventory at period end to the lower of cost or market value.
In response to this value decline at the end of the second quarter,
Fieldstone discontinued the origination of lower FICO second lien
products whose market value had been the most severely affected,
and will continue to evaluate its product offerings to maximize
sale premiums. In July 2006, approximately $100 million of second
liens previously held for sale were transferred to held for
investment at their lower market value based on the projected
return on the loans, including current rating agency loss
forecasts. The sales premiums earned on first lien mortgages
declined to 2.1% in the second quarter of 2006 from 2.6% in the
prior quarter, as a result of the market-driven reduction in the
net interest spread on new loans sold. Sales premiums in the first
quarter of 2006 also included the fulfillment of an existing
forward sale commitment at higher premiums. Origination Expenses
and Cost to Produce Cost to produce Three Months Ended Six Months
Ended June 30, March 31, June 30, June 30, June 30, 2006 2006 2005
2006 2005 ($000) Branch direct production expense $28,190 $26,667
$28,825 $54,858 $54,796 Premiums paid to brokers 8,016 5,682 11,641
13,698 19,472 Fees collected (9,346) (7,080) (10,044) (16,426)
(17,285) Net production costs 26,860 25,269 30,422 52,130 56,983
Corporate overhead 10,759 10,343 9,351 21,101 18,014 Cost to
produce(1) $37,619 $35,612 $39,773 $73,231 $74,997 Mortgage loan
fundings(1) $1,460,017 $1,011,318 $1,635,002 $2,471,336 $2,832,863
Cost to produce as % of mortgage loan fundings Branch direct
production expense 1.93% 2.64% 1.71% 2.22% 1.93% Premiums paid to
brokers 0.55% 0.56% 0.69% 0.55% 0.69% Fees collected (0.64%)
(0.71%) (0.61%) (0.67%) (0.62%) Net production costs 1.84% 2.49%
1.79% 2.10% 2.00% Corporate overhead 0.74% 1.03% 0.57% 0.86% 0.65%
Cost to produce as % of mortgage loan fundings 2.58% 3.52% 2.36%
2.96% 2.65% (1) Excludes cost to produce and mortgage loan fundings
relating to discontinued operations. The decline in Fieldstone's
cost to produce to 2.58% in the second quarter of 2006 from 3.52%
in the first quarter of 2006 is due primarily to increased
origination volume supported by stable fixed costs. Fieldstone
expects cost to produce to decrease further throughout the
remainder of 2006 and into 2007 as a result of origination growth
and the Company's cost management initiatives. Mortgage Loans Held
for Investment, Net ($000) 2Q 2006 1Q 2006 2Q 2005 Beginning
principal balance $5,495,705 $5,530,216 $5,091,330 Loans funded for
investment 819,154 528,334 729,341 Less: Loan repayments (593,067)
(543,382) (453,356) Transfers to mortgage loans held for sale, net
- - (530,830) Transfers to real estate owned (26,901) (19,463)
(7,916) Ending principal balance 5,694,891 5,495,705 4,828,569
Plus: Net deferred loan origination (fees)/costs 37,372 36,776
37,945 Ending balance mortgage loans held for investment 5,732,263
5,532,481 4,866,514 Allowance for loan losses - loans held for
investment (44,749) (45,744) (30,690) Ending balance mortgage loans
held for investment, net $5,687,514 $5,486,737 $4,835,824 Allowance
for loan losses as a percentage of the principal balance of loans
held for investment 0.79% 0.83% 0.64% Fieldstone's portfolio
remained stable with moderate growth of $200.8 million in the
second quarter of 2006. The constant prepayment rate (CPR) of the
loans which reached their two year interest rate reset during the
current quarter averaged 87 CPR compared with an average of 91 CPR
in the first quarter of 2006. The increase in loan foreclosures
during the second quarter of 2006 reflects the increase in
delinquent loans as the portfolio ages. Current delinquency rates
continue to be below both industry averages and management's
previous expectations as a result of Fieldstone's commitment to the
credit quality of loans originated. Delinquency, life to date
losses, and weighted average coupon rates as of June 30, 2006 of
loans held for investment by securitization pool were as follows:
As of June 30, 2006 ($000) Current % of Balance Principal Current
as Factor Balance Principal of Original Seriously Balance Principal
Delinquent(1) Loans Held for Investment Securitized: FMIC Series
2003-1 $54,554 11% 20.1% FMIT Series 2004-2 162,908 19% 17.3% FMIT
Series 2004-3 356,568 36% 9.3% FMIT Series 2004-4 439,922 50% 8.4%
FMIT Series 2004-5 496,756 55% 7.3% FMIT Series 2005-1 445,933 59%
6.6% FMIT Series 2005-2 795,841 82% 5.9% FMIT Series 2005-3
1,066,675 92% 4.7% FMIT Series 2006-1 902,567 97% 3.5% Total
4,721,724 59% 6.4% Loans held for investment-to be securitized
889,613 100% 1.6% Loans held for investment- previously securitized
83,554 12% 18.3% Total loans held for investment $5,694,891 64%
5.6% Avg. Age % of of Loans Cumulative Weighted from Realized Avg.
Funding Losses(2) Coupon (months) FMIC Series 2003-1 0.44% 9.16% 35
FMIT Series 2004-2 0.40% 9.18% 28 FMIT Series 2004-3 0.36% 8.01% 26
FMIT Series 2004-4 0.34% 7.00% 23 FMIT Series 2004-5 0.31% 6.77% 21
FMIT Series 2005-1 0.27% 6.89% 19 FMIT Series 2005-2 0.16% 7.11% 13
FMIT Series 2005-3 0.05% 7.31% 9 FMIT Series 2006-1 0.00% 7.93% 6
Total 0.25% 15 Loans held for investment-to be securitized 0.00%
8.28% 2 Loans held for investment- previously securitized 0.39%
9.35% 31 Total loans held for investment 0.24% 7.61% 12 (1)
Seriously delinquent is defined as a mortgage loan that is 60 plus
days past due or in the process of foreclosure. (2) Realized losses
include charge-offs to the allowance for loan losses - loans held
for investment related to loan principal balances and do not
include previously accrued but uncollected interest, which is
reversed against current period interest income. The total
portfolio delinquency status of mortgage loans held for investment
as of June 30, 2006, March 31, 2006, and June 30, 2005 was as
follows: June 30, 2006 March 31, 2006 June 30, 2005 Principal % of
Principal % of Principal % of ($000) Balance Total Balance Total
Balance Total Current $4,965,056 87.2% $4,897,817 89.1% $4,467,490
92.5% 30 days past due 411,390 7.2% 331,656 6.1% 226,477 4.7% 60
days past due 117,641 2.1% 94,519 1.7% 55,685 1.1% 90+ days past
due 60,972 1.1% 59,063 1.1% 32,642 0.7% In process of foreclosure
139,832 2.4% 112,650 2.0% 46,275 1.0% Total $5,694,891 100.0%
$5,495,705 100.0% $4,828,569 100.0% Seriously delinquent % 5.6%
4.8% 2.8% The increase in the portfolio's seriously delinquent
loans through the second quarter of 2006 reflects the continued
seasoning of the loans in the portfolio and the expected rise in
the delinquency rate of the loan population, which has reset from
an initial fixed coupon to a floating interest rate. Fieldstone's
portfolio delinquency and loss rates continue to be lower than
industry averages. Many lenders, including Fieldstone, have
reported an increase in early payment defaults on more recent
originations to levels approximating historical norms, which may
increase industry-wide losses. Possible causes for the increased
early payment defaults, which include an increase in consumer debt
and higher average mortgage payments due to the rise in interest
rates, continue to be closely monitored. Mortgage Loans Held for
Sale, Net ($000) 2Q 2006 1Q 2006 2Q 2005 Beginning principal
balance $314,147 $591,840 $272,368 Loans funded, held for sale
640,863 610,781 1,285,666 Transfers from mortgage loans held for
investment - - 639,469 Less: Loans sold (630,091) (880,930)
(1,536,713) Transfers to mortgage loans held for investment - -
(108,639) Loans paid off /other 5,470 (7,544) (6,992) Ending
principal balance 330,389 314,147 545,159 Plus: Net deferred loan
origination fees (costs) 455 1,469 4,145 Less: Valuation allowances
(6,412) (2,780) (858) Ending balance mortgage loans held for sale,
net $324,432 $312,836 $548,446 Mortgage loans held for sale, net,
totaled $324.4 million as of June 30, 2006, which consisted of the
portion of the non-conforming fixed rate, second lien, and
adjustable rate loans originated by Fieldstone not held for
investment. Mortgage loans held for sale increased during the
second quarter as a result of the increase in fundings during the
quarter. The valuation allowance as of June 30, 2006 included the
charge to reduce the second lien loans to the lower of cost or
market and a $1.9 million allowance for loans deemed to be
unsaleable at standard premiums. The Company was not required to
recognize a value write-down on second lien loans held for sale at
any prior reporting period end. Income Taxes Fieldstone recognized
a total income tax benefit of $3.3 million during the second
quarter of 2006, related to the $9.2 million pre-tax net loss of
Fieldstone Mortgage Company (FMC), Fieldstone's taxable REIT
subsidiary. FMC had a pre-tax net loss of $5.3 million, including
discontinued operations, during the first quarter of 2006 and
pre-tax net income of $7.7 million in the second quarter of 2005.
Conference Call Fieldstone will hold a conference call on Thursday,
August 10, 2006 at 10:00 a.m. Eastern Time to discuss its second
quarter 2006 operating results. The conference call may be accessed
by dialing 800-817-4887 (domestic) or 913-981-4913 (international).
Please dial in at least 10 minutes prior to the start of the call.
The conference call will also be webcast live on the Internet at
http://www.fieldstoneinvestment.com/. Interested participants
should go to the Fieldstone website at least 15 minutes prior to
the start of the call, select the "Press Room" tab, choose "Live
Webcast of Second Quarter 2006 Earnings Call" and follow the
related instructions. A replay of the conference call will be
available on Fieldstone's website at
http://www.fieldstoneinvestment.com/ shortly after the conclusion
of the call and will be archived on Fieldstone's website for a
minimum of 30 days following the conference call. Interested
participants may also access a replay of the conference call by
telephone after 1:00 p.m. Eastern Time on Thursday, August 10, 2006
until 11:59 p.m. Eastern Time on Wednesday, August 16, 2006 by
dialing 888-203-1112 (domestic) or 719-457-0820 (international),
passcode 6048801. About Fieldstone Fieldstone Investment
Corporation owns and manages a portfolio of non-conforming mortgage
loans originated primarily by its mortgage origination subsidiary,
Fieldstone Mortgage Company, and has elected to be a real estate
investment trust for federal income tax purposes. Founded in 1995,
Fieldstone Mortgage Company is a nationwide residential mortgage
banking company that originates non-conforming and conforming
residential mortgage loans through independent mortgage brokers
serviced by regional wholesale operations centers and a network of
retail branch offices located throughout the country. Fieldstone is
headquartered in Columbia, Maryland. Information Regarding
Forward-Looking Statements Certain matters discussed in this press
release may constitute "forward-looking statements" within the
meaning of the federal securities laws, including, but not limited
to (i) statements regarding the expected continued building of
Fieldstone's investment portfolio and origination business in 2006;
(ii) the expected achievement of targeted leveraged returns on new
loans; (iii) expectations regarding its funding levels, cost to
produce and initiatives on origination growth and cost management;
and (iv) the reaffirmation of management's previous guidance on
dividends, including management's current estimates and forecasts
for 2006 on which this guidance is based, contained in the section
titled "Dividend Guidance" of this press release. These statements
are being made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Actual results
and the timing of certain events may differ materially from those
indicated by such forward-looking statements due to a variety of
risks and uncertainties, many of which are beyond Fieldstone's
ability to control or predict, including but not limited to (i)
Fieldstone's ability to successfully implement or change aspects of
its portfolio strategy; (ii) interest rate volatility and the level
of interest rates generally; (iii) the sustainability of loan
origination volumes and levels of origination costs; (iv) continued
availability of credit facilities for the liquidity needed to
support the origination of mortgage loans; (v) the ability to sell
or securitize mortgage loans on favorable economic terms; (vi)
deterioration in the credit quality of Fieldstone's loan portfolio;
(vii) the nature and amount of competition; (viii) the impact of
changes to the fair value of Fieldstone's interest rate swaps on
its net income, which will vary based upon changes in interest
rates and could cause net income to vary significantly from quarter
to quarter; and (ix) other risks and uncertainties outlined in
Fieldstone Investment Corporation's periodic reports filed with the
Securities and Exchange Commission. These statements are made as of
the date of this press release, and Fieldstone undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise. FIELDSTONE INVESTMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Condition (Unaudited; in thousands,
except share data) June 30, 2005 June 30, March 31, (As 2006 2006
restated) Assets Cash $31,638 $31,020 $38,435 Restricted cash 4,344
255,305 5,946 Mortgage loans held for sale, net 324,432 312,836
548,446 Mortgage loans held for investment 5,732,263 5,532,481
4,866,514 Allowance for loan losses - loans held for investment
(44,749) (45,744) (30,690) Mortgage loans held for investment, net
5,687,514 5,486,737 4,835,824 Accounts receivable 31,543 13,062
7,204 Accrued interest receivable 31,946 29,043 23,417 Trustee
receivable 103,071 119,771 95,561 Prepaid expenses and other assets
13,085 15,923 14,148 Real estate owned 34,786 22,304 7,685
Derivative assets 36,740 37,410 29,097 Deferred tax asset 14,572
16,855 18,953 Furniture and equipment, net 8,909 9,479 9,205 Total
assets $6,322,580 $6,349,745 $5,633,921 Liabilities and
Shareholders' Equity Warehouse financing - loans held for sale
$277,773 $252,814 $361,747 Warehouse financing - loans held for
investment 874,788 259,513 670,004 Securitization financing
4,614,204 5,241,266 3,968,008 Reserve for losses - loans sold
28,028 33,497 38,411 Dividends payable 20,638 23,298 - Accounts
payable, accrued expenses and other liabilities 23,453 22,499
24,411 Total liabilities 5,838,884 5,832,887 5,062,581 Commitments
and contingencies Shareholders' equity: Common stock $0.01 par
value; 90,000,000 shares authorized; shares issued and outstanding
of 46,904,485 as of June 30, 2006, 48,536,485 as of March 31, 2006,
and 48,835,876 as of June 30, 2005 469 485 488 Paid-in capital
473,270 489,602 497,244 Accumulated earnings 9,957 26,771 79,057
Unearned compensation - - (5,449) Total shareholders' equity
483,696 516,858 571,340 Total liabilities and shareholders' equity
$6,322,580 $6,349,745 $5,633,921 FIELDSTONE INVESTMENT CORPORATION
AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited;
in thousands, except share and per share data) Three Months Ended
Six Months Ended June 30, March 31, June 30, June 30, June 30, 2006
2006 2005 2006 2005 (As restated) (As restated) Revenues: Interest
income: Loans held for investment $100,440 $95,113 $80,574 $195,553
$163,410 Loans held for sale 6,991 6,601 12,846 13,592 17,133 Total
interest income 107,431 101,714 93,420 209,145 180,543 Interest
expense: Loans held for investment 77,589 68,916 41,773 146,505
80,381 Loans held for sale 3,587 2,605 5,369 6,192 6,361 Total
interest expense 81,176 71,521 47,142 152,697 86,742 Net interest
income 26,255 30,193 46,278 56,448 93,801 Provision for loan losses
- loans held for investment 5,466 5,393 6,863 10,859 11,357 Net
interest income after provision for loan losses 20,789 24,800
39,415 45,589 82,444 Gains on sales of mortgage loans, net 1,953
10,295 26,033 12,248 34,502 Other income (expense) - portfolio
derivatives 10,821 12,158 (9,432) 22,979 10,910 Fees and other
income (575) 350 9 (225) 295 Total revenues 32,988 47,603 56,025
80,591 128,151 Expenses: Salaries and employee benefits 19,166
20,869 17,719 40,035 35,423 Occupancy 1,861 1,823 1,796 3,684 3,295
Depreciation and amortization 995 935 792 1,930 1,552 Servicing
fees 2,723 2,569 1,743 5,292 4,347 General and administration 7,742
7,563 7,000 15,305 14,321 Total expenses 32,487 33,759 29,050
66,246 58,938 Income from continuing operations before income taxes
501 13,844 26,975 14,345 69,213 Income tax benefit (expense) 3,304
729 (2,454) 4,033 (2,297) Income from continuing operations 3,805
14,573 24,521 18,378 66,916 Discontinued operations, net of income
tax (including loss on disposal of $0.9 million, pre-tax) - (1,645)
(695) (1,645) (1,336) Net income $3,805 $12,928 $23,826 $16,733
$65,580 Earnings (loss) per share of common stock- basic and
diluted: Continuing operations $0.08 $0.30 $0.50 $0.38 $1.38
Discontinued operations - (0.03) (0.01) (0.03) (0.03) Total $0.08
$0.27 $0.49 $0.35 $1.35 Weighted average common shares outstanding-
basic and diluted 47,677,853 48,273,985 48,462,126 47,974,272
48,462,057 FIELDSTONE INVESTMENT CORPORATION AND SUBSIDIARIES
Schedule 1 - Supplemental Data (Unaudited; dollars in thousands)
Three Months Ended June 30, March 31, June 30, 2006 2006 2005
Mortgage Loan Fundings Non-conforming wholesale division $1,263,911
$860,523 $1,468,307 Retail division 196,106 150,795 216,695 Total
continuing operations 1,460,017 1,011,318 1,685,002 Discontinued
operations - 127,797 330,005 Total $1,460,017 $1,139,115 $2,015,007
Non-Conforming Mortgage Loan Funding Statistics Weighted average
interest rate 8.5% 8.5% 7.3% Average interest swap rate during
period 5.5% 5.1% 4.1% Net interest spread 3.0% 3.4% 3.2% Weighted
average credit score 647 646 653 Weighted average loan to value
86.2% 84.6% 84.1% Full documentation (1) 52.1% 54.1% 57.4%
Percentage held for investment 56.1% 53.9% 45.8% Mortgage Loan
Sales Non-conforming wholesale and retail divisions $630,091
$654,550 $1,206,195 Discontinued operations - 226,380 330,518 Total
$630,091 $880,930 $1,536,713 Gain on Sale Margin from Continuing
Operations Gross premiums - loan sales, net of derivative
gain/(loss) 1.7% 2.4% 3.3% Fees collected, net of premiums paid
0.2% 0.2% (0.0)% Provision for loan losses - loans sold (0.2)%
(0.3)% (0.3)% Direct origination costs (0.7)% (0.7)% (0.8)%
Sub-total: Gain on sales before lower of cost or market adjustment
1.0% 1.6% 2.2% Lower of cost or market adjustment (3) (0.7)% - -
Gain on sale of mortgage loans, net 0.3% 1.6% 2.2% Gross premiums -
loan sales, net of derivative gain/(loss) First lien mortgage loans
2.1% 2.6% 3.0% Second lien mortgage loans (0.7)% 1.2% 1.5% Total
1.7% 2.4% 3.3% Statements of Condition Data Average equity as a
percentage of average assets 8.1% 8.6% 9.9% Debt to capital 12.1
11.3 8.9 Book value per share $10.31 $10.65 $11.70 Seriously
delinquent - mortgage loans held for sale (2) 2.1% 3.9% 0.4%
Seriously delinquent - mortgage loans held for investment (2) 5.6%
4.8% 2.8% (1) Full documentation of non-conforming mortgage loan
fundings also includes the bank statements program. (2) Seriously
delinquent is defined as a mortgage loan that is 60 plus days past
due or in the process of foreclosure. (3) Allowance to reduce
$134.3 million of second lien loans held for sale as of June 30,
2006 to their net realizable market value. The allowance has been
expressed as a percentage of total loan sales to calculate the gain
on sale of mortgage loans, net as a percentage of total loan sales.
Six Months Ended June 30, June 30, 2006 2005 Mortgage Loan Fundings
Non-conforming wholesale division $2,124,434 $2,444,212 Retail
division 346,902 388,651 Total continuing operations 2,471,336
2,832,863 Discontinued operations 127,797 637,996 Total $2,599,133
$3,470,859 Non-Conforming Mortgage Loan Funding Statistics Weighted
average interest rate 8.5% 7.4% Average interest swap rate during
period 5.3% 3.9% Net interest spread 3.2% 3.5% Weighted average
credit score 647 652 Weighted average loan to value 85.5% 83.9%
Full documentation (1) 52.9% 56.8% Percentage held for investment
51.8% 33.9% Mortgage Loan Sales Non-conforming wholesale and retail
divisions $1,284,641 $1,735,746 Discontinued operations 226,380
603,699 Total $1,511,021 $2,339,445 Gain on Sale Margin from
Continuing Operations Gross premiums - loan sales, net of
derivative gain/(loss) 2.0% 3.1% Fees collected, net of premiums
paid 0.2% 0.1% Provision for loan losses - loans sold (0.2)% (0.3)%
Direct origination costs (0.7)% (0.8)% Sub-total: Gain on sales
before lower of cost or market adjustment 1.3% 2.0% Lower of cost
or market adjustment (3) (0.4)% - Gain on sale of mortgage loans,
net 1.0% 2.0% Gross premiums - loan sales, net of derivative
gain/(loss) First lien mortgage loans 2.6% 3.2% Second lien
mortgage loans 0.3% 2.1% Total 2.0% 3.1% Statements of Condition
Data Average equity as a percentage of average assets 8.4% 10.0%
Debt to capital 12.1 8.9 Book value per share $10.31 $11.70
Seriously delinquent - mortgage loans held for sale (2) 2.1% 0.4%
Seriously delinquent - mortgage loans held for investment (2) 5.6%
2.8% (1) Full documentation of non-conforming mortgage loan
fundings also includes the bank statements program. (2) Seriously
delinquent is defined as a mortgage loan that is 60 plus days past
due or in the process of foreclosure. (3) Allowance to reduce
$134.3 million of second lien loans held for sale as of June 30,
2006 to their net realizable market value. The allowance has been
expressed as a percentage of total loan sales to calculate the gain
on sale of mortgage loans, net as a percentage of total loan sales.
FIELDSTONE INVESTMENT CORPORATION AND SUBSIDIARIES Schedule 2 --
Non-GAAP Financial Measures and Regulation G Reconciliations Core
income from continuing operations, core earnings per share from
continuing operations (diluted), core net income, core earnings per
share (diluted), core net interest income and margin, core return
on average assets, core return on average equity, cost to produce,
and REIT taxable income are non-GAAP financial measures of
Fieldstone's earnings within the meaning of Regulation G
promulgated by the Securities and Exchange Commission. Core income
from continuing operations is income from continuing operations
less the non-cash mark to market gains (losses) on interest rate
swap and cap agreements and the amortization of interest rate swap
buydown payments. Core earnings per share from continuing
operations (diluted) is core income from continuing operations
available to common shareholders divided by the weighted average
diluted number of shares outstanding during the period. Core net
income is net income less the non-cash mark to market gains
(losses) on interest rate swap and cap agreements and the
amortization of interest rate swap buydown payments. Core earnings
per share (diluted) is core net income available to common
shareholders divided by the weighted average diluted number of
shares outstanding during the period. Core net interest income
after provision for loan losses is net interest income after
provision for loan losses adjusted to include (a) the net cash
settlements on the existing interest rate swaps and caps
economically hedging the variable rate debt financing Fieldstone's
investment portfolio, (b) the net cash settlements to terminate
these derivatives prior to maturity and (c) the amortization of
interest rate swap buydown payments. Core net interest income after
provision for loan losses does not include the net cash settlements
incurred or paid to terminate swaps or caps related to loans
ultimately sold, which are a component of "Gains on sales of
mortgage loans, net" in the consolidated statement of operations.
Core return on average assets is core net income divided by average
total assets. Core return on average equity is core net income
divided by core average total equity, which is the equity balance
at the end of the reporting period less the cumulative non-cash
mark to market gains or losses on interest rate swap and cap
agreements and the cumulative amortization of interest rate swap
buydown payments. Cost to produce is total expenses plus deferred
origination costs and premiums paid, net of fees collected, less
internal and external servicing costs. REIT taxable income is
consolidated GAAP pre-tax net income plus (a) provision for loan
losses in excess of actual charge-offs and (b) variance in
recognition of net origination expenses, less (c) taxable REIT
subsidiary pre-tax net (income) loss, and (d) mark to market
valuation changes on derivatives. Management believes the core
financial measures are useful to investors because they include the
current period effects of Fieldstone's economic hedging program but
exclude the non-cash mark to market derivative value changes and
the amortization of swap buydown payments. Fieldstone uses interest
rate swap and cap agreements to create economic hedges of the
variable rate debt it issues to finance its investment portfolio.
Changes in the fair value of these agreements, which reflect the
potential future cash settlements over the remaining lives of the
agreements according to the market's changing projections of
interest rates, are recognized in the line item "Other income
(expense) - portfolio derivatives" on the consolidated statements
of operations. This single line item includes both the actual cash
settlements related to the agreements that occurred during the
period and recognition of the non-cash changes in the fair value of
the agreements over the period. The actual cash settlements include
regular monthly payments or receipts under the terms of the swap
agreements and amounts paid or received to terminate the agreements
prior to maturity. The amounts of cash settlements and non-cash
changes in derivative value that were included in the line item
"Other income (expense) - portfolio derivatives" were: Three Months
Ended Six Months Ended (Dollars in 000s) June 30, March 31, June
30, June 30, June 30, 2006 2006 2005 2006 2005 Non-cash changes in
fair value $(1,024) $1,894 $(12,087) $870 $8,541 Cash settlements
received (paid) 11,845 10,264 2,655 22,109 2,369 Other income
(expense) - portfolio derivatives $10,821 $12,158 $(9,432) $ 22,979
$10,910 Management believes that the presentation of cost to
produce provides useful information to investors regarding
financial performance because this measure includes additional
costs to originate mortgage loans, both recognized when incurred
and deferred costs, which are not all included in GAAP total
expenses. Management believes that the presentation of REIT taxable
income provides useful information to investors regarding the
estimated annual distributions to our investors. As required by
Regulation G, a reconciliation of each of these non-GAAP financial
measures to the most directly comparable measure under GAAP is
provided in the remainder of this Schedule 2. Regulation G
Reconciliation Core Income From Continuing Operations, Core
Earnings Per Share From Continuing Operations-Diluted Core Net
Income and Core Earnings Per Share-Diluted Three Months Ended
(Dollars in 000's, except share and June 30, March 31, June 30, per
share data) 2006 2006 2005 Core Income From Continuing Operations
and Core Net Income: Income from continuing operations $3,805
$14,573 $24,521 Discontinued operations, net of income tax -
(1,645) (695) Net income 3,805 12,928 23,826 Less: Mark to market
(gain) loss on portfolio derivatives included in "Other income
(expense) - portfolio derivatives" Mark to market interest rate
swaps 1,024 (1,894) 11,788 Mark to market interest rate cap - - 299
Total mark to market on portfolio derivatives 1,024 (1,894) 12,087
Less: Amortization of interest rate swap buydown payments (781)
(867) - Core net income $4,048 $10,167 $35,913 Core Earnings per
Share From Continuing Operations - Diluted and Core Earnings Per
Share - Diluted: Income from continuing operations $3,805 $14,573
$24,521 Unvested restricted stock dividends (97) (78) (176) Income
from continuing operations available to common shareholders 3,708
14,495 24,345 Discontinued operations, net of income tax - (1,645)
(695) Net income available to common shareholders 3,708 12,850
23,650 Less: Mark to market (gain) loss on portfolio derivatives
1,024 (1,894) 12,087 Amortization of interest rate swap buydown
payments (781) (867) - Core net income available to common
shareholders $3,951 $10,089 $35,737 Earnings per share from
continuing operations - basic and diluted $0.08 $0.30 $0.50 Core
earnings per share from continuing operations - basic and diluted
$0.08 $0.24 $0.75 Earnings per share - basic and diluted $0.08
$0.27 $0.49 Core earnings per share - basic and diluted $0.08 $0.21
$0.74 Diluted weighted average common shares outstanding 47,677,853
48,273,985 48,462,126 Core Return on Average Assets and Core Return
on Average Equity: Average total equity $504,588 $528,039 $558,407
Average total assets 6,198,692 6,157,291 5,651,150 Core average
total equity 476,416 500,692 530,409 Core average total assets
6,198,692 6,157,291 5,651,150 Return on average equity (annualized)
3.0% 9.8% 17.1% Return on average assets (annualized) 0.2% 0.8%
1.7% Core return on average equity (annualized) 3.4% 8.1% 27.1%
Core return on average assets (annualized) 0.3% 0.7% 2.5% Average
Balance Data Mortgage loans held for sale* $324,336 $330,044
$701,022 Mortgage loans held for investment 5,564,433 5,453,923
4,590,662 Warehouse financing - mortgage loans held for sale*
242,929 212,156 516,843 Warehouse financing - mortgage loans held
for investment 477,987 510,867 223,368 Securitization financing
$4,975,958 $4,825,196 $4,242,147 * Excludes average balance data
relating to discontinued operations. Six Months Ended (Dollars in
000's, except share and June 30, June 30, per share data) 2006 2005
Core Income From Continuing Operations and Core Net Income: Income
from continuing operations $18,378 $66,916 Discontinued operations,
net of income tax (1,645) (1,336) Net income 16,733 65,580 Less:
Mark to market (gain) loss on portfolio derivatives included in
"Other income (expense) - portfolio derivatives" Mark to market
interest rate swaps (870) (8,770) Mark to market interest rate cap
- 229 Total mark to market on portfolio derivatives (870) (8,541)
Less: Amortization of interest rate swap buydown payments (1,648) -
Core net income $14,215 $57,039 Core Earnings per Share From
Continuing Operations - Diluted and Core Earnings Per Share -
Diluted: Income from continuing operations $18,378 $66,916 Unvested
restricted stock dividends (175) (176) Income from continuing
operations available to common shareholders 18,203 66,740
Discontinued operations, net of income tax (1,645) (1,336) Net
income available to common shareholders 16,558 65,404 Less: Mark to
market (gain) loss on portfolio derivatives (870) (8,541)
Amortization of interest rate swap buydown payments (1,648) - Core
net income available to common shareholders $14,040 $56,863
Earnings per share from continuing operations - basic and diluted
$0.38 $1.38 Core earnings per share from continuing operations -
basic and diluted $0.32 $1.20 Earnings per share - basic and
diluted $0.35 $1.35 Core earnings per share - basic and diluted
$0.29 $1.17 Diluted weighted average common shares outstanding
47,974,272 48,462,057 Core Return on Average Assets and Core Return
on Average Equity: Average total equity $516,313 $552,386 Average
total assets 6,148,329 5,541,016 Core average total equity 488,554
524,964 Core average total assets 6,148,329 5,541,016 Return on
average equity (annualized) 6.5% 23.7% Return on average assets
(annualized) 0.5% 2.4% Core return on average equity (annualized)
5.8% 21.7% Core return on average assets (annualized) 0.5% 2.1%
Average Balance Data Mortgage loans held for sale* $327,190
$458,903 Mortgage loans held for investment 5,509,484 4,736,675
Warehouse financing - mortgage loans held for sale* 227,543 307,528
Warehouse financing - mortgage loans held for investment 494,336
370,294 Securitization financing $4,900,994 $4,215,218 * Excludes
average balance data relating to discontinued operations.
Regulation G Reconciliation - Core Net Interest Income & Core
Yield Analysis Three Months Ended Six Months Ended June 30, March
31, June 30, June 30, June 30, (Dollars in 000's) 2006 2006 2005
2006 2005 Core net interest income after provision for loan losses
Net interest income after provision for loan losses $20,789 $24,800
$39,415 $45,589 $82,444 Plus: Net cash settlements received (paid)
on portfolio derivatives included in "Other income (expense) -
portfolio derivatives 11,845 10,264 2,655 22,109 2,369 Less:
Amortization of interest rate swap buydown payments (781) (867) -
(1,648) - Core net interest income after provision for loan losses
$31,853 $34,197 $42,070 $66,050 $84,813 Interest income loans held
for investment $100,440 $95,113 $80,574 $195,553 $163,410 Interest
expense loans held for investment 77,589 68,916 41,773 146,505
80,381 Plus: Net cash settlements (received) paid on portfolio
derivatives (11,845) (10,264) (2,655) (22,109) (2,369) Plus:
Amortization of interest rate swap buydown payments 781 867 - 1,648
- Core interest expense - loans held for investment 66,525 59,519
39,118 126,044 78,012 Core net interest income loans held for
investment 33,915 35,594 41,456 69,509 85,398 Provision for loan
losses loans held for investment 5,466 5,393 6,863 10,859 11,357
Core net interest income loans held for investment after provision
for loan losses 28,449 30,201 34,593 58,650 74,041 Net interest
income loans held for sale 3,404 3,996 7,477 7,400 10,772 Core net
interest income after provision for loan losses $31,853 $34,197
$42,070 $66,050 $84,813 Core Yield Analysis Core yield analysis -
loans held for investment Coupon interest income on loans held for
investment 7.21% 7.07% 6.65% 7.14% 6.66% Amortization of deferred
origination costs (0.44)% (0.50)% (0.46)% (0.47)% (0.45)%
Prepayment fees 0.37% 0.41% 0.75% 0.39% 0.65% Yield on loans held
for investment 7.14% 6.98% 6.94% 7.06% 6.86% Cost of financing for
loans held for investment 5.63% 5.17% 3.70% 5.40% 3.48% Net cash
settlements (received) paid on portfolio derivatives* (0.86)%
(0.77)% (0.23)% (0.81)% (0.10)% Amortization of interest rate swap
buydown payments 0.06% 0.06% 0.00% 0.06% 0.00% Core cost of
financing for loans held for investment 4.83% 4.46% 3.47% 4.65%
3.38% Net yield on loans held for investment 1.63% 1.92% 3.34%
1.77% 3.49% Net cash settlements received (paid) on portfolio
derivatives* 0.84% 0.75% 0.23% 0.80% 0.10% Amortization of interest
rate swap buydown payments (0.06)% (0.06)% 0.00% (0.06)% 0.00% Core
net yield on loans held for investment 2.41% 2.61% 3.57% 2.51%
3.59% Provision for loan losses - loans held for investment (0.39)%
(0.40)% (0.59)% (0.39)% (0.48)% Core yield on loans held for
investment after provision for loan losses 2.02% 2.21% 2.98% 2.12%
3.11% Yield analysis - loans held for sale Yield on loans held for
sale 8.53% 8.00% 7.25% 8.26% 7.43% Cost of financing for loans held
for sale 5.84% 4.91% 4.11% 5.41% 4.11% Net yield on loans held for
sale 4.15% 4.84% 4.22% 4.50% 4.67% Core yield analysis - loans held
for investment and loans held for sale Yield - net interest income
on loans held for sale and loans held for investment after
provision for loan losses 1.40% 1.72% 2.95% 1.56% 3.16% Net cash
settlements received (paid) on portfolio derivatives 0.79% 0.71%
0.20% 0.75% 0.09% Amortization of interest rate swap buydown
payments (0.05)% (0.06)% 0.00% (0.06)% 0.00% Core yield - net
interest income on loans held for sale and loans held for
investment after provision for loan losses 2.14% 2.37% 3.15% 2.25%
3.25% * Net cash settlements on portfolio derivatives are
calculated as a percentage of the average debt outstanding for
loans held for investment in calculating the core cost of financing
for loans held for investment and as a percentage of the average
loan balance in calculating the core yield for loans held for
investment. Regulation G Reconciliation - Cost to Produce and REIT
Taxable Income Cost to produce Three Months Ended June 30, March
31, June 30, (Dollars in 000's) 2006 2006 2005 Total expenses
$32,487 $33,759 $29,050 Deferred origination costs 9,774 6,506
11,632 Servicing costs - internal and external (3,312) (3,255)
(2,505) Total general and administrative costs 38,949 37,010 38,177
Premiums paid, net of fees collected (1,330) (1,398) 1,596 Cost to
produce* $37,619 $35,612 $39,773 Mortgage loan fundings* $1,460,017
$1,011,318 $1,685,002 Cost to produce as % of mortgage loan
fundings 2.58% 3.52% 2.36% Cost to produce as % of mortgage loan
fundings Total expenses 2.23% 3.34% 1.72% Deferred origination
costs 0.67% 0.64% 0.69% Servicing costs - internal and external
(0.23%) (0.32%) (0.14%) Total general and administrative costs
2.67% 3.66% 2.27% Premiums paid, net of fees collected (0.09)%
(0.14)% 0.09% Cost to produce as % of mortgage loan fundings 2.58%
3.52% 2.36% * Excludes cost to produce and mortgage loan fundings
relating to discontinued operations. Six Months Ended June 30, June
30, (Dollars in 000's) 2006 2005 Total expenses $66,246 $58,938
Deferred origination costs 16,280 19,694 Servicing costs - internal
and external (6,567) (5,823) Total general and administrative costs
75,959 72,809 Premiums paid, net of fees collected (2,728) 2,188
Cost to produce* $73,231 $74,997 Mortgage loan fundings* $2,471,336
$2,832,863 Cost to produce as % of mortgage loan fundings 2.96%
2.65% Cost to produce as % of mortgage loan fundings Total expenses
2.68% 2.08% Deferred origination costs 0.66% 0.70% Servicing costs
- internal and external (0.27%) (0.21%) Total general and
administrative costs 3.07% 2.57% Premiums paid, net of fees
collected (0.11%) 0.08% Cost to produce as % of mortgage loan
fundings 2.96% 2.65% * Excludes cost to produce and mortgage loan
fundings relating to discontinued operations. Estimated REIT
Taxable Income Six months ended Year ended (Dollars in 000,000's)
June 30, 2006 Dec. 31, 2005 Consolidated GAAP pre-tax net income
$12.7 $102.9 Plus: Provision for loan losses in excess of actual
charge-offs 0.5 21.5 Plus: Variance in recognition of net
origination expenses (0.2) 6.4 Less: Taxable REIT subsidiary
pre-tax net (income) loss 12.0 (9.6) Less: Mark to market valuation
changes on derivatives (0.7) (9.0) Miscellaneous other 0.7 (7.2)
Estimated REIT taxable income $25.0 $105.0 DATASOURCE: Fieldstone
Investment Corporation CONTACT: Mark C. Krebs, Director of Investor
Relations, Fieldstone Investment, +1-410-772-5160, Toll-free:
+1-866-438-1088, Web site: http://www.fieldstoneinvestment.com/
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