Declares Q2 Dividend of $0.03 Per Share JACKSONVILLE, Fla., Aug. 15
/PRNewswire-FirstCall/ -- Sunset Financial Resources, Inc.
(NYSE:SFO) announced today a net loss for the second quarter ended
June 30, 2005 of $5.1 million, or ($0.49) per diluted share,
compared to net income of $171,000 in the same period a year ago.
This compares to net income of $1.4 million, or $0.14 per diluted
share, for the quarter ended March 31, 2005. The net loss for the
second quarter of 2005 was attributed primarily to a $5.7 million
impairment charge relating to a commercial loan. The Company also
announced it has declared a quarterly cash dividend of $0.03 per
share, payable September 2, 2005, to shareholders of record as of
August 22, 2005. Bert Watson, Chairman, President and CEO of Sunset
Financial Resources, said, "Second quarter results reflect the
difficult operating environment affecting the entire residential
mortgage industry, including tightened rate spreads and increased
residential loan prepayment activity." "While Sunset did not attain
taxable income during the quarter, we determined it was prudent to
maintain our commitment to providing shareholders with quarterly
dividends. We are confident the cash used from our capital reserves
for our second quarter dividend will not have any material impact
on our ability to conduct business or grow operations. We expect
dividends for the remainder of the year to be based on taxable
income." As of June 30, 2005, Sunset's total assets were $1.1
billion (including $896 million of investments in Mortgage Backed
Securities; $182 million of residential mortgage related loans and
$30 million of commercial bridge loans), compared to $423 million
(including $128 million of investments in Mortgage Backed
Securities; $230 million of residential mortgage related loans and
$39 million of commercial bridge loans) in the same period a year
ago. This compares to total assets of $1.1 billion (including $818
million of investments in Mortgage Backed Securities; $192 million
of residential mortgage related loans and $36 million of commercial
bridge loans) as of March 31, 2005. Watson concluded, "We continue
to diligently work through major performance issues affecting our
existing commercial portfolio. At the same time, we are actively
evaluating and in certain situations, taking advantage of
opportunities to prudently deploy capital. In the last 60 days, we
successfully executed two commercial mortgage loans, one in Florida
(master plan development center) and the other in West Virginia
(equestrian facility)." As of June 30, 2005, the Company's
residential mortgage portfolio was fully leveraged at approximately
10 times; its commercial portfolio was leveraged approximately 1.6
times, compared to 1.1 times as of March 31, 2005. For the quarter
ended June 30, 2005, the yield on average earning assets was 4.25%
and the cost of funds was 3.58%, which equates to an interest rate
spread of 0.67%. This compares to a yield on average earning assets
of 4.42% and a cost of funds of 3.30%, which equates to an interest
rate spread of 1.12%, for the quarter ended March 31, 2005.
Sunset's book value per share at June 30, 2005 was $10.47, compared
$11.22, at of March 31, 2005. Sunset Financial has scheduled a
conference call to discuss its first quarter financial results at
10:00 a.m. ET on Monday, August 15, 2005. Those wishing to listen
to the conference call by telephone may dial 1-800-599-9795 and the
reservation number is 47206471. Please call approximately ten
minutes prior to the scheduled conference call time. The conference
call will also be archived on the Company's web site for 30 days
following the call at http://www.sunsetfinancial.net/. About Sunset
Financial Resources, Inc. Sunset Financial Resources, Inc. is a
self-managed real estate investment trust (REIT) that went public
in March 2004. Sunset Financial Resources seeks to deliver
attractive dividend income and steady growth to its shareholders
through the acquisition and management of a portfolio of high
quality residential mortgage loans and well secured commercial
mortgage bridge loans in the United States. Certain statements in
this news release may constitute "forward-looking statements"
within the meaning of the federal securities laws and involve
risks, uncertainties and other factors, which may cause the actual
performance of Sunset Financial Resources, Inc. to be materially
different from the performance expressed or implied by such
statements. These risks include the failure of the Company to
successfully execute its business plan, gain access to additional
financing, the availability of additional loan portfolios for
future acquisition, continued qualification as a REIT, the cost of
capital, as well as the additional risks and uncertainties detailed
in the Company's periodic reports and registration statements filed
with the Securities and Exchange Commission. Sunset Financial
Resources, Inc. Consolidated Balance Sheets (dollar amounts in
thousands) June 30, December 31, June 30, 2004 2004 2005
(unaudited) (unaudited) Assets Mortgage assets Mortgage backed
securities, available for sale $128,431 $614,154 $896,099
Securitized hybrid adjustable rate mortgages 223,041 201,381
180,089 Hybrid adjustable rate residential mortgages 1,292 1,286
1,159 Fixed rate residential mortgages 5,832 1,045 936 Commercial
mortgages 39,260 44,522 29,726 Total mortgage assets 397,856
862,388 1,108,009 Allowance for loan losses (64) (1,333) (6,077)
Net mortgage assets 397,792 861,055 1,101,932 Cash and cash
equivalents 17,986 25,700 10,802 Interest receivable 1,523 2,676
4,273 Fixed assets, net 764 861 688 Other assets 2,377 484 16,150
Hedging assets 2,953 2,716 4,173 Total assets $423,395 $893,492
$1,138,018 Liabilities Whole loan financing facility $- $9,718 $-
Reverse repurchase agreements 301,589 761,205 1,002,368 Trust
preferred securities - - 20,000 Hedging liabilities 350 944 2,704
Accrued liabilities 1,035 2,367 3,249 Total liabilities 302,974
774,234 1,028,321 Commitments - - - Shareholders' equity Preferred
stock, $.001 par value, authorized 50,000,000; no shares
outstanding - - - Common stock 10 10 10 Additional paid in capital
119,057 119,219 119,330 Accumulated other comprehensive income
2,748 87 (1,954) Retained earnings (1,394) (58) (7,689) Total
shareholders' equity 120,421 119,258 109,697 Total liabilities and
shareholders' equity $423,395 $893,492 $1,138,018 Book value per
share 11.52 11.41 10.47 Leverage 2.5 6.5 9.4 Sunset Financial
Resources, Inc. Consolidated Statement of Operations (unaudited)
(dollar amounts in thousands, except per share amounts) Quarter
Quarter Six months Six months ended ended ended ended June 30, June
30, June 30, June 30, 2005 2004 2005 2004 Interest and fee income
$11,802 $3,058 $21,973 $3,102 Interest expense 9,031 1,345 15,730
1,377 Net interest income 2,771 1,713 6,243 1,725 Provision for
loan losses 5,722 49 5,798 64 Net interest income after provision
(2,951) 1,664 445 1,661 Securities gains 8 - 8 - Operating expenses
Salaries and employee benefits 564 543 1,304 1,445 Professional
fees 756 315 1,220 539 Other 830 635 1,579 1,049 Total operating
expenses 2,150 1,493 4,103 3,033 Net income (loss) $(5,093) $171
$(3,650) $(1,372) Basic earnings per share (0.49) 0.02 (0.35)
(0.22) Diluted earnings per share (0.49) - (0.36) (0.25) Weighted
average basic shares 10,475 10,450 10,465 6,281 Weighted average
diluted shares 10,477 10,458 10,467 6,290 Sunset Financial
Resources, Inc. Trended Income Statements (dollar amounts in
thousands) 2004 2005 Second Third Fourth First Second quarter
quarter quarter quarter quarter Interest and fee income $3,058
$5,989 $9,142 $10,171 $11,802 Interest expense 1,345 3,118 5,347
6,699 9,031 Net interest income 1,713 2,871 3,795 3,472 2,771
Provision for loan losses 49 85 1,184 76 5,722 Net interest income
after provision 1,664 2,786 2,611 3,396 (2,951) Securities gains -
403 331 - 8 Loss on sale of loans - - (48) - - Operating expenses
Salaries and employee benefits 543 660 759 740 564 Professional
fees 315 349 263 464 756 Other 635 747 924 749 830 Special charge -
- 365 - - Total operating expenses 1,493 1,756 2,311 1,953 2,150
Net income (loss) $171 $1,433 $583 $1,443 $(5,093) Averages and
yields/ costs Residential assets $223,720 $476,388 $754,493
$878,454 $1,074,277 Yield 3.79% 4.04% 4.25% 4.21% 4.12% Commercial
assets 33,671 42,003 52,839 44,457 28,850 Yield 11.09% 10.24% 7.72%
8.90% 9.63% Earning assets 267,312 535,385 815,065 933,880
1,114,511 Yield 4.60% 4.45% 4.46% 4.42% 4.25% Borrowings 163,380
422,786 701,938 823,171 1,012,197 Interest 2.02% 1.58% 2.16% 2.65%
3.16% Swaps 0.90% 1.20% 0.78% 0.57% 0.36% Fees 0.39% 0.15% 0.09%
0.08% 0.06% Total 3.31% 2.93% 3.03% 3.30% 3.58% Net interest margin
2.58% 2.13% 1.85% 1.51% 1.00% Net interest spread 1.29% 1.52% 1.43%
1.12% 0.67% Sunset Financial Resources, Inc. Earning Assets (dollar
amounts in thousands) Investment securities Agency Non Agency
Securities Securities Total Par $598,437 $291,547 $889,984
Unamortized premium 8,517 2,288 10,805 Unamortized discount (687)
(490) (1,177) Amortized cost 606,267 293,345 899,612 Gross
unrealized gains 806 67 873 Gross unrealized losses (3,375) (1,011)
(4,386) Estimated fair value $603,698 $292,401 $896,099 Investment
securities - repricing characteristics Floating rate $71,998 Three
year ARM $57,840 Five year ARM 750,808 Seven year ARM 15,453
$896,099 Residential Loans Par Prem/disc Book value Fixed rates
$908 $28 $936 Three year ARM 6,661 187 6,848 Five year ARM 61,637
1,716 63,353 Seven year ARM (and other) 110,239 808 111,047 Total
residential loans $179,445 $2,739 $182,184 Commercial loans
(dollars in millions) Balance Location Participation Resort
development $15.6 NC No Cemetery / funeral home 5.7 HI Yes Multi
sports facility 4.7 NJ No Retail development 4.2 FL No Total $30.2
DATASOURCE: Sunset Financial Resources, Inc. CONTACT: Michael
Pannell, Chief Financial Officer, Sunset Financial Resources,
+1-904-425-4349, ; Jeffrey Goldberger, +1-212-896-1249, , or
Michael Cimini, +1-212-896-1233, , both of KCSA Worldwide for
Sunset Financial Resources Web site:
http://www.sunsetfinancial.net/
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