Court filing
Crossroads Systems FQ4 & FY2020 Earnings: Revenue $36.6M, Portfolio $128.9M
Filed December 14, 2020 in Crossroads Capital Plus Otc Filings; one of 12 filings from this case.
Record facts
| Filed | 2020-12-14 |
|---|
Full text
8214 Westchester Dr. Suite 950 Dallas, Texas 75225 Main: 214-999-0149
Crossroads Systems Reports Fiscal Fourth Quarter and Fiscal
Year 2020 Financial Results
DALLAS, Texas, December 14, 2020 – Crossroads Systems, Inc. (OTCQB: CRSS)
(“Crossroads” or the “Company”), a holding company focused on investing in businesses that
promote economic vitality and community development, reported financial results for its fiscal
fourth quarter and year ended October 31, 2020.
Fiscal Fourth Quarter and Fiscal Year 2020 Key Performance Indicators (KPIs)
• Added $5.5 million in new single-family mortgages during the fiscal fourth quarter and
$21.7 million during the fiscal year 2020.
• The Company’s mortgage portfolio grew to $128.9 million from $116.9 million for the
comparative period in 2019.
• The serious delinquency rate as of the period ended October 31, 2020 was 0.9%,
compared to 0.9% at the end of the same period in 2019. The Federal Home Loan
Mortgage Corporation (Freddie Mac) reported a single-family serious delinquency rate
of 2.9% as of the period ended October 31, 2020. The serious delinquency rate is based
on the number of mortgage loans that are three monthly payments or more past due or in
the process of foreclosure.
• Held 109 properties in inventory compared to 128 at the same time in 2019. As of October
31, 2020, gross inventory was $10.5 million compared to $11.8 million as of October 31,
2019. The Company is looking to build inventory to not only meet current demand but
also to plan for renovated housing units to be ready for the spring 2021 sales season. The
Company expects the upcoming spring demand for housing to be in line with historical
periods compared to the COVID disrupted Spring in 2020.
Fiscal Fourth Quarter 2020 Financial Highlights
• Total property sales income was $5.7 million for the quarter compared to $6.6 million
for the same period in 2019. The decrease in property sales income for the quarter was
the result of lower unit sales related to the COVID-19 pandemic, which was offset by
higher sales prices during the quarter.
• Total interest income was $3.3 million, up from $3.2 million in the comparative 2019
period. The increase in interest income was the result of growth in the total mortgage
note receivable portfolio during the period. During the quarter, the Company completed
8214 Westchester Dr. Suite 950 Dallas, Texas 75225 Main: 214-999-0149
60-day forbearance agreements for 2 mortgage borrowers whose unpaid principal
balance was $190,197. During the fiscal fourth quarter, there was a significant, sequential
decline in the number and velocity of requests. Borrowers who had requested forbearance
earlier in the year have begun to make their regular payments as they had prior to the
COVID-19 pandemic.
• Operating income was $1.6 million compared to $1.2 million in the same period in 2019.
• Cash EPS (operating income less income to non-controlling interests) was $0.22
compared to $0.14 for the comparative period in 2019. The Company booked $929,000
of state and federal income tax expense, which will be offset against the Company’s
deferred tax asset. The adjusted cash EPS after adjusting for one-time transaction costs
and stock option compensation of $261K was $0.27.
• Book value as reported was $50.5 million, or $8.45 per share. Adjusted book value
including $3.5 million of subordinated debt totaled $54.0 million, or $9.04 per share.
• As of October 31, 2020, the Company held a cash balance of $2.1 million compared to
$1.7 million as of October 31, 2019.
Fiscal Year 2020 Financial Highlights
• Total property sales income was $23.5 million for the fiscal year ended October 31, 2020
compared to $25.3 million for the same period in 2019. The decrease in gross sales was
the result of lower unit sales during the pandemic, which was offset by higher sales prices
for the fiscal year.
• Total interest income was $12.6 million, up from $12.0 million in the comparative period
in 2019. The increase in interest income was the result of growth in the total mortgage
note receivable portfolio in the period. During the fiscal year, the Company completed
60-day forbearance agreements for 234 mortgage borrowers, accounting for $23.5
million in unpaid principal balance on the portfolio and an impact to interest income of
approximately $412,000.
• Operating income was $5.8 million, up from $5.5 million in the comparative period in
2019.
• Cash EPS (operating income less income to non-controlling interests) was $0.74, which
was an increase compared to $0.63 during the same period in 2019. The Company booked
$1.4 million of state and federal income tax expense, which will be offset against the
8214 Westchester Dr. Suite 950 Dallas, Texas 75225 Main: 214-999-0149
Company’s deferred tax asset. The adjusted cash EPS after adjusting for one-time
transaction costs and stock option compensation of $503K was $0.82.
Management Commentary
“During the fiscal fourth quarter, we continued to make incremental progress in returning our
portfolio to historical performance levels despite a challenging pandemic backdrop,” said Eric
A. Donnelly, Chief Executive Officer of Crossroads Systems. “With the state of Texas’ firm
economic reopening initiatives, our borrowers have been able to return to work with confidence,
resulting in a material decrease in forbearance requests during the period and leading to strong
cash earnings performance throughout the year. The one silver lining to the pandemic has been
a validation of our alternative approach to underwriting. Across our overall borrower base,
we’ve maintained less than a 3% default rate, proving that our first-time borrowers are more
than qualified, conservative with their money, and have shown great solvency in the face of
adversity. While traditional credit methods exclude those with a lack of credit history, that
should not, and does not, have a comparable impact on many borrowers’ true creditworthiness.
“Looking ahead to the new fiscal year, we are cautiously optimistic about a return to loan and
portfolio growth. The macroeconomic backdrop of the single-family home market remains
strong both in Texas and throughout the U.S. With a favorable bank rate environment expected
to continue for the foreseeable future, we’ll look to augment our reliable interest income
performance with improved property sales as we enter the 2021 season. By maintaining
conservative leverage and maximizing operational efficiencies from procurement to sale, we
can continue to drive stable year-on-year growth on the top and bottom-line over the long term
while continuing to provide a positive social impact to our communities throughout the state.”
About Crossroads Systems
Crossroads Systems, Inc. (OTCQB: CRSS) is a holding company focused on investing in businesses that promote economic
vitality and community development. Crossroads’ subsidiary, Capital Plus Financial (CPF), is a certified Community
Development Financial Institution (CDFI) and certified B- Corp, which supports Hispanic homeownership with a long term,
fixed-rate single-family mortgage product.
Important Cautions Regarding Forward-Looking Statements
This press release includes forward-looking statements that relate to the business and expected future events or future
performance of Crossroads Systems, Inc. and Capital Plus Financial and involve known and unknown risks, uncertainties
and other factors that may cause its actual results, levels of activity, performance or achievements to differ materially from
any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Words such as, but not limited to, "believe," "expect," "anticipate," "estimate," "intend," "plan," "targets," "likely," "will,"
"would," "could," and similar expressions or phrases identify forward-looking statements. Forward-looking statements
include, but are not limited to, statements about Crossroads Systems' and Capital Plus Financial’s ability to implement their
business strategy, and their ability to achieve or maintain profitability. The future performance of Crossroads Systems and
Capital Plus Financial may be adversely affected by the following risks and uncertainties: economic changes affecting
homeownership in the geographies where Capital Plus Financial conducts business, developments in lending markets that
may not align with Capital Plus Financial’s expectations and that may affect Capital Plus Financial’s plans to grow its
portfolio, variations in quarterly results, developments in litigation to which we may be a party, technological change in the
industry, future capital requirements, regulatory actions or delays and other factors that may cause actual results to be
8214 Westchester Dr. Suite 950 Dallas, Texas 75225 Main: 214-999-0149
materially different from those described or anticipated by these forward-looking statements. For a more detailed discussion
of these factors and risks, investors should review Crossroads Systems' annual and quarterly reports. Forward-looking
statements in this press release are based on management's beliefs and opinions at the time the statements are made. All
forward-looking statements are qualified in their entirety by this cautionary statement, and Crossroads Systems undertakes
no duty to update this information to reflect future events, information or circumstances.
©2020 Crossroads Systems, Inc., Crossroads and Crossroads Systems are registered trademarks of Crossroads Systems,
Inc. All trademarks are the property of their respective owners.
Company Contact:
Crossroads Systems
IR@crossroads.com
Investor Relations Contact:
Gateway Investor Relations
Matt Glover and Tom Colton
CRSS@gatewayir.com
(949) 574-3860
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
The accompanying notes are an integral part of these consolidated financial statements.
ASSETS
October 31,
2020
October 31,
2019
CURRENT ASSETS
Cash and cash equivalents
2,127,059
$
1,656,114
$
Restricted cash
3,004,051
2,583,057
Interest receivable
930,871
893,343
Current portion of notes receivable
1,527,234
1,447,842
Current portion of other notes receivable
7,014
339,429
Inventory
10,544,236
11,796,430
Prepaid expenses and other current assets
411,645
351,547
Total current assets
18,552,110
19,067,762
NOTES RECEIVABLE, net of current maturities, participations and allowance of $0
126,897,360
115,278,982
OTHER NOTES RECEIVABLE, net of current maturities, participations and allowance of $0
1,583,761
6,463,049
GOODWILL
18,566,966
18,566,966
DEFERRED TAX ASSET
18,300,334
19,680,324
OTHER NON-CURRENT ASSETS
-
36,083
TOTAL ASSETS
183,900,531
$
179,093,166
$
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable
222,610
$
289,230
$
Accrued liabilities
353,901
609,546
Escrow liabilities
2,886,249
2,646,581
Payroll Protection Program Loan
376,800
-
Current portion of credit facilities
52,705,640
66,167,346
Current portion of other note payable (subordinated)
191,337
179,327
Current portion of acquisition notes payable
2,495,172
2,495,168
Total current liabilities
59,231,709
72,387,198
CREDIT FACILITIES, net of current maturities
62,470,640
45,608,430
OTHER NOTE PAYABLE, net of current maturities (subordinated)
1,144,235
1,335,571
ACQUISITION NOTES PAYABLE, net of current maturities (includes $2.2M subordinated)
10,582,769
12,418,163
OTHER LONG-TERM LIABILITIES
-
-
TOTAL LIABILITIES
133,429,353
131,749,362
EQUITY
Common stock, $0.001 par value: 75,000,000 shares
authorized, 5,971,994 shares issued and outstanding
6,172
5,972
Additional paid in capital
242,471,411
242,358,843
Accumulated deficit
(210,059,912)
(213,074,517)
Crossroads Systems, Inc. stockholders' equity
32,417,672
29,290,298
Non-controlling interests
18,053,506
18,053,506
TOTAL EQUITY
50,471,178
47,343,804
TOTAL LIABILITIES AND EQUITY
183,900,531
$
179,093,166
$
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
The accompanying notes are an integral part of these consolidated financial statements.
October 31,
2020
October 31,
2019
REVENUES
Interest income
12,633,818
$
11,986,113
$
Property sales
23,461,898
25,330,557
Other revenue
538,876
387,264
Total revenues
36,634,592
37,703,935
COSTS AND EXPENSES
Interest expense
5,712,138
6,343,947
Cost of properties sold
20,297,457
21,138,085
General and administrative
2,027,976
1,962,626
Salaries and wages
2,839,113
2,788,032
Total costs and expenses
30,876,684
32,232,690
Income from operations
5,757,908
5,471,245
OTHER EXPENSES
Interest expense
(734,005)
(1,110,230)
Total other expenses
(734,005)
(1,110,230)
Income before income tax provision
5,023,903
4,361,015
INCOME TAX PROVISION
(1,377,572)
(1,990,988)
NET INCOME
3,646,331
2,370,027
Less: net income attributable to non-controlling interests
(631,726)
(617,582)
NET INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS
3,014,605
$
1,752,445
$
Earnings (loss) per share:
Cash income attributable to common shareholders
4,392,177
3,743,433
Weighted average shaes outstanding
5,971,994
5,971,994
Cash income per share
0.74
$
0.63
$
For the Twelve Months Ended
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
The accompanying notes are an integral part of these consolidated financial statements.
October 31,
2020
October 31,
2019
REVENUES
Interest income
3,294,195
$
3,160,107
Property sales
5,725,586
6,611,054
Other revenue
160,627
42,433
Total revenues
9,180,408
9,813,594
COSTS AND EXPENSES
Interest expense
1,343,316
1,682,942
Cost of properties sold
4,871,987
5,547,809
General and administrative
589,191
665,678
Salaries and wages
733,555
690,675
Total costs and expenses
7,538,049
8,587,105
Income from operations
1,642,359
1,226,489
OTHER EXPENSES
Interest expense
(148,707)
(240,126)
Total other expenses
(148,707)
(240,126)
Income before income tax provision
1,493,652
986,363
INCOME TAX PROVISION
(929,174)
(1,587,459)
NET INCOME
564,478
(601,096)
Less: net income attributable to non-controlling interests
(158,795)
(155,546)
NET INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS
405,683
$
(756,642)
$
Earnings (loss) per share:
Cash income attributable to common shareholders
1,334,857
830,817
Weighted average shaes outstanding
5,971,994
5,971,994
Cash income per share
0.22
$
0.14
$
For the Three Months Ended
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(except per share data)
The accompanying notes are an integral part of these consolidated financial statements.
October 31,
2020
October 31,
2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
3,646,331
$
3,987,299
Adjustments to reconcile net income to net cash
used in operating activities:
Loss on derivative related activity
(105,702)
225,620
Stock awards in settlement of liabilities
112,768
(1,681)
Amortization of deferred financing fees
47,533
-
Provision for income taxes
1,379,990
-
Changes in operating assets and liabilities:
Interest receivable
(37,528)
(160,706)
Notes receivable (Mortgages and other)
(7,286,153)
(14,662,839)
Inventory
1,252,194
(4,308,159)
Prepaids and other assets
(60,100)
(12,863)
Accounts payable
(66,620)
697,848
Accrued liabilities
(149,943)
(276,849)
Escrow liabilities
239,668
119,233
Net cash used in operating activities
(1,027,561)
(14,393,096)
CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash
(420,994)
(41,127)
Net cash used in investing activities
(420,994)
(41,127)
CASH FLOWS FROM FINANCING ACTIVITIES
Preferred equity contributions
-
2,500,000
Preferred equity dividend distributions
(631,726)
(663,658)
Paycheck Protection Program loan
376,800
-
Borrowings on credit facilities, net
36,701,455
16,593,569
Principal payments on credit facilities
(33,300,951)
-
Principal payments on other notes payable
(179,326)
(167,695)
Principal payments on acquisition note payable
(1,846,840)
(4,415,983)
Sale of participations in mortgage notes and other receivables
800,086
-
Net cash provided by financing activities
1,919,498
13,846,234
Net change in cash and cash equivalents and restricted cash
470,943
(587,989)
Cash and cash equivalents and restricted cash at beginning of period
1,656,114
2,323,614
Cash and cash equivalents and restricted cash at end of period
2,127,057
$
1,735,625
$
SUPPLEMENTAL INFORMATION
Cash paid for interest
6,613,755
$
7,169,428
$
Cash paid for income taxes
-
$
-
$
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE PERIOD ENDED OCTOBER 31, 2020
The accompanying notes are an integral part of these consolidated financial statements.
Crossroads
Capital Plus
Systems, Inc.
Financial, LLC
Eliminations
Total
ASSETS
CURRENT ASSETS
Cash and cash equivalents
20,649
$
2,106,410
$
-
$
2,127,059
$
Restricted cash
-
3,004,051
-
3,004,051
Interest receivable
-
930,871
-
930,871
Current portion of notes receivable
-
1,527,234
-
1,527,234
Current portion of other notes receivable
-
7,014
-
7,014
Intercompany receivables
3,143,910
21,553,266
(24,697,176)
-
Inventory
-
10,544,236
-
10,544,236
Prepaid expenses and other current assets
147,392
264,253
-
411,645
Total current assets
3,311,951
39,937,335
(24,697,176)
18,552,110
NOTES RECEIVABLE, net of current
-
126,897,360
-
126,897,360
maturities and allowance of $0
-
-
-
OTHER NOTES RECEIVABLE, net of current
-
1,583,761
-
1,583,761
maturities and allowance of $0
-
-
-
GOODWILL
18,566,966
-
-
18,566,966
DEFERRED TAX ASSET
18,300,334
-
-
18,300,334
INVESTMENT IN SUBSIDIARY
13,386,175
-
(13,386,175)
-
OTHER NON-CURRENT ASSETS
-
-
-
-
TOTAL ASSETS
53,565,426
$
168,418,456
$
(38,083,351)
$
183,900,531
$
CURRENT LIABILITIES
Accounts payable
-
$
222,610
$
-
$
222,610
$
Accrued liabilities
40,444
313,460
-
353,904
Escrow liabilities
-
2,886,249
2,886,249
Intercompany payables
21,553,266
-
(21,553,266)
-
Paycheck Protection Program loan
376,800
-
376,800
Current portion of credit facilities
-
52,705,640
-
52,705,640
Current portion of other note payable (subordinated debt)
-
191,337
191,337
Current portion of acquisition notes payable
-
-
2,495,172
2,495,172
Total current liabilities
21,593,710
56,504,759
(18,866,757)
59,231,712
CREDIT FACILITIES, net of current maturities
-
62,470,640
-
62,470,640
OTHER NOTE PAYABLE, net of current maturities (subordinated)
-
1,335,571
(191,337)
1,144,234
ACQUISITION NOTES PAYABLE, net of current maturities (includes $2.2M sub
13,077,941
-
(2,495,172)
10,582,769
maturities (includes $2.2M subordinated debt)
TOTAL LIABILITIES
34,671,651
120,310,970
(21,553,266)
133,429,355
EQUITY
Common stock, $0.001 par value: 75,000,000 shares
authorized, 5,971,994 shares issued and outstanding
6,172
-
-
6,172
Additional paid in capital
242,473,090
-
-
242,473,090
Accumulated earnings (deficit)
(223,585,487)
30,053,980
(16,530,085)
(210,061,592)
Crossroads Systems, Inc. stockholders' equity
18,893,775
30,053,980
(16,530,085)
32,417,670
Non-controlling interests
-
18,053,506
-
18,053,506
TOTAL EQUITY
18,893,775
48,107,486
(16,530,085)
50,471,176
TOTAL LIABILITIES AND EQUITY
53,565,426
$
168,418,456
$
(38,083,351)
$
183,900,531
$
LIABILITIES AND EQUITY
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2020
The accompanying notes are an integral part of these consolidated financial statements.
Crossroads
Capital Plus
Systems, Inc.
Financial, LLC
Total
REVENUES
Interest income
-
$
12,633,818
$
12,633,818
$
Property sales
-
23,461,898
23,461,898
Other revenue
-
538,876
538,876
Total revenues
-
36,634,592
36,634,592
COSTS AND EXPENSES
Interest expense
-
5,712,138
5,712,138
Cost of properties sold
-
20,297,457
20,297,457
General and administrative
305,646
1,722,330
2,027,976
Salaries and wages
114,449
2,724,664
2,839,113
Total costs and expenses
420,095
30,456,589
30,876,684
Income (loss) from operations
(420,095)
6,178,003
5,757,908
OTHER EXPENSES
Interest expense
(734,005)
-
(734,005)
Total other expenses
(734,005)
-
(734,005)
Income (loss) before income tax provision
(1,154,100)
6,178,003
5,023,903
INCOME TAX PROVISION
(1,377,572)
-
(1,377,572)
NET INCOME (LOSS)
(2,531,671)
6,178,003
3,646,331
Less: net income attributable to non-controlling interests
-
(631,726)
(631,726)
NET INCOME (LOSS) ATTRIBUTABLE TO
CONTROLLING INTERESTS
(2,531,671)
5,546,277
3,014,605
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED OCTOBER 31, 2020
The accompanying notes are an integral part of these consolidated financial statements.
Crossroads
Capital Plus
Systems, Inc.
Financial, LLC
Total
REVENUES
Interest income
-
$
3,294,195
$
3,294,195
$
Property sales
-
5,725,586
5,725,586
Other revenue
-
160,627
160,627
Total revenues
-
9,180,408
9,180,408
COSTS AND EXPENSES
Interest expense
-
1,343,316
1,343,316
Cost of properties sold
-
4,871,987
4,871,987
General and administrative
87,657
501,534
589,191
Salaries and wages
68,592
664,963
733,555
Total costs and expenses
156,248
7,381,801
7,538,049
Income (loss) from operations
(156,248)
1,798,607
1,642,359
OTHER EXPENSES
Interest expense
(148,707)
-
(148,707)
Total other expenses
(148,707)
-
(148,707)
Income (loss) before income tax provision
(304,956)
1,798,607
1,493,652
INCOME TAX PROVISION
(929,174)
-
(929,174)
NET INCOME (LOSS)
(1,234,129)
1,798,607
564,478
Less: net income attributable to non-controlling interests
-
(158,795)
(158,795)
NET INCOME (LOSS) ATTRIBUTABLE TO
CONTROLLING INTERESTS
(1,234,129)
$
1,639,813
$
405,683
$
Shareholder Report for
the Fourth Quarter & Fiscal Year Ended
October 31, 2020
Crossroads Systems, Inc.
Delaware
74-284664
(State of Incorporation) (IRS Employer Identification No.)
8214 Westchester Drive
Suite 950
Dallas, TX 75225
(Address of principal executive office)
(214) 999-0149
(Company’s telephone number)
Common Stock
$0.001 Par Value
Trading Symbol: CRSS
Trading Market: OTCQB
75,000,000 Common Shares Authorized
5,971,994 Shares Issued and Outstanding as of October 31, 2020
Dear Fellow Shareholder:
As we wrap up our third fiscal year since the Crossroads and Capital Plus Financial (CPF)
business combination, we find ourselves a much stronger and unified organization despite
the unique and challenging environment being experienced by the rest of the world. Our
teams are still largely working remotely, and we’ve been fortunate to not have any material
exposures to the virus throughout our workforce.
We have been highly encouraged by the resiliency among our borrowers despite the
ongoing pandemic. The State of Texas’ commitment to getting citizens safely back to work
has allowed many within the housing and construction industry to return to work
confidently, which has led to a material decrease in the level of forbearance requests as
well as an improvement in payment schedules. We have also experienced the additional
positive impact of operating at nearly full potential in securing new inventory and
facilitating new transactions for families looking for more permanent places of residence.
The single-family market in Texas is incredibly tight which bodes well for our homes for
sale but can pose challenges to procuring inventory.
As a social enterprise, we’ve placed a great deal of trust in our borrowers. For many of
these families, the purchase of a home through CPF is their first credit transaction of any
kind. While most conventional banking and financing institutions perceive this lack of
credit history as a liability, we view it as an opportunity—which has been clearly evidenced
by our superior portfolio performance over time. At the end of the fiscal year, the Federal
Home Loan Mortgage Corporation (Freddie Mac) reported a single-family delinquency
rate of 2.89% whereas our borrowers collectively represent a delinquency rate of only
0.9%. The delinquency rate is based on the number of mortgage loans that are three
monthly payments or more past due or in the process of foreclosure. Although the court
system has temporarily delayed the processing of foreclosures because of the pandemic,
this period’s delinquency rate is in line with last period’s rate of 0.9%. It is important to
recognize that our borrower’s credit standing is purely out of insufficient history vs. poor
performance. Our process of alternative, socially conscious underwriting has enabled a
previously ignored segment of the population to access the same housing products and
services that other populations have had ready access to for decades, and they are
performing better and more reliably than traditional borrowers during these uncertain
times.
Evidence suggests that our borrowers are taking conservative leverage positions in-line
with a responsible fiscal management approach. For qualified mortgage (QM) underwriters
like CPF, we require borrowers to maintain debt-to-income (DTI) ratios below 43%. The
average DTI ratio in our portfolio, however, is only 24%. The conservative leveraging that
our borrowers employ provides us with further comfort in knowing that they can afford
mortgage payments and continue to pay on time. In the unfortunate event that it becomes
necessary, we have equipped ourselves to be able to rapidly turn around inventory to
mitigate perceived risks around delinquency and foreclosure. As a vertically integrated
company that purchases, renovates, resells, and finances homes, we are capable of quickly
reabsorbing properties into the rehab and resale cycles, typically in 60 to 95 days. This
capability reduces our portfolio risk.
The current bank rate environment has been favorable to us, which we expect to contribute
to an increase in demand for single-family homes in the coming years. This dynamic serves
both us and our borrowers well. We expect more families, especially those in the
communities that CPF serves, to take advantage of the favorable rates available to them as
we enter the Spring 2021 season, which is historically characterized by increased sales
volume.
In preparation for this higher sales activity, during the fourth quarter, we purchased land in
McAllen, TX located in the Rio Grande Valley that we intend to develop into
approximately 48 single-family homes. While this purchase is somewhat of a departure
from our normal operating activities, we believe the demand for these homes will prove to
make this investment a prescient one. In spearheading the development process on our
own, we’re able to design homes to meet the unique needs of our borrowers while also
having more control over the supply chain. Given our deep knowledge of development,
construction, and real estate management, we are confident in our ability to execute this
exciting opportunity. We believe this new approach can significantly enhance our margins
and encourage a greater number of prospective homeowners to make purchases.
Throughout this year, we have been impressed by the reliable growth of our mortgage
portfolio as well as the significant improvements that we have made in key profitability
metrics. At the end of the fiscal year, our mortgage loan portfolio balance totaled $128.9
million and generated $12.6 million in interest income. For the fiscal fourth quarter, CPF
generated $3.3 million in interest income and added $5.5 million in new mortgages. Cash
income attributable to common shareholders for the fiscal fourth quarter was $1.3 million,
up 55% from $831,000 in the same period last year. For the fiscal year, CPF generated
$12.6 million in interest income and added $21.7 million in new mortgages. Cash income
attributable to common shareholders for the fiscal year was $4.4 million, resulting in a cash
income per share of $0.74. It is important to note that these figures include several one-
time operating expenses due to our pending acquisition of Rice Bancshares (RBI).
Adjusting for these expenses, our profitability metrics are even stronger, resulting in an
adjusted EPS of $.82.
On RBI, we are continuing to make progress on consummating a transaction soon and are
optimistic about getting a deal done in the new year subject to regulatory approvals. There
are many reasons why RBI represents an exciting addition to the Crossroads family. First
of all, we expect the transaction to provide immediate earnings accretion to our
shareholders. We also benefit from a sizable 300 basis point reduction in the cost of capital,
which will prove even more valuable as we continue adding to our inventory for the coming
Spring season. This cost of funds index is currently 50 basis points and yields on deposits
are closer to 10 to 15 bps but for conservative modeling, we are assuming 300 bps in
savings to our current trailing 6 month cost of funds rate of 4.66% and full impact on new
loan production. Additionally, we see operational cost savings and non-interest income
expansion opportunities for the bank. While the process can be long and arduous, the
timeline is still where we anticipated it to be and we look forward to providing an update
on this and other opportunities.
Looking ahead, we are cautiously optimistic about a return to loan and portfolio growth.
While many indicators are pointing towards positive results for a potential vaccine and
subsequent nationwide rollout, we are continuing to focus on what is within our control
and remaining prudent concerning employee safety and our finances. The macroeconomic
backdrop of the single-family home market remains strong both in Texas and throughout
the U.S., which bodes well for the long term. We are eager to continue working with our
existing borrowers as well as prospective homebuyers next year and are grateful to work
with an incredibly passionate and resilient group of families who constantly validate our
mission.
Saludos Cordiales,
Robert H. Alpert & Eric A. DonnellyFile and source
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