The single-family residential mortgage market is the largest consumer finance market in the United States. According to the Inside Mortgage Finance 2003 Mortgage Market Statistical Annual, a trade publication, total annual originations of one- to four-family residential mortgage loans were approximately $3.8 trillion in 2003. Generally, the industry is divided by the size of the mortgage loans and credit characteristics of the borrowers. Mortgage loans that conform to the guidelines of a government-sponsored entity, such as Fannie Mae and Freddie Mac, for both size and credit characteristics are referred to as “conforming mortgages.” All other mortgage loans are considered “non-conforming,” either because of the large size of the loans, which are referred to as “jumbo” mortgages, or the credit profiles of the borrowers, which are generally referred to as nonprime or subprime.

ata obtained from Inside Mortgage Finance’s 2003 Mortgage Market Statistical Annual indicate that the nonprime segment of the United States residential mortgage industry has grown from approximately $65 billion in 1995 to approximately $213 billion in 2002, representing a compounded annual growth rate of 18.5%. According to the trade publication “Inside B&C Lending,” the nonprime mortgage market was estimated to be $332 billion in 2003. It is believed that the growth and stability of the nonprime segment of the residential mortgage industry, as compared to the residential mortgage industry as a whole, is attributable to factors such as consumers’ desire to consolidate high-cost consumer debt and achieve certain tax benefits available for interest paid on mortgage loans; and borrowers’ specific needs for funds.

The key distinguishing features of each loan product are the documentation required, the loan-to-value ratio, the mortgage and consumer credit payment history, the property type and the credit score necessary to qualify for a particular loan product.

The Company’s loans have payment schedules based upon an interest rate that is constant over the life of the loan, commonly referred to as “fixed-rate mortgage loans” or FRMs; or an interest rate that is fixed for the initial two or three years and adjusts after the initial fixed period and every six months thereafter, sometimes referred to as “adjustable-rate mortgage loans” or ARMs.

Generally, the payments on the Company’s fixed-rate loans are calculated to fully repay the loans in 15 or 30 years, or, in the case of “balloon” loans, the payments are based on a 30-year repayment schedule, but all unpaid principal is due in a larger “balloon” payment at the end of 15 years. The payments on the Company’s adjustable-rate loans are calculated to fully repay the loans in 30 years, and the payment amounts are adjusted whenever the interest rates are adjusted. The Company’s ARMs with a two-year initial fixed-rate period are commonly referred to as 2/28s and its ARMs with a three-year initial fixed-rate period are commonly referred to as 3/27s.

The interest rate adjustments on the Company’s adjustable-rate mortgage loans are determined by adding a “margin” to an “index” rate, subject to certain adjustment limitations. The “margin” is a percentage established at origination of a loan, and the “index” for the Company’s ARMs is the six-month LIBOR, and is determined as of a specified time prior to the interest adjustment date.

The Company’s mortgage loans are made for the purpose of enabling its borrowers to purchase new homes, refinance existing mortgage loans, consolidate debt and/or obtain cash for whatever purposes the borrowers desire. The Company’s single-family residence loans are secured by one- to four-unit primary residences, one-unit second homes, or one- to four-unit investment properties, and eligible property types are deemed to include single-family detached homes, semi-detached homes, row or townhomes, individual condominiums, individual units in planned unit developments and leasehold estates. The mortgaged properties may be owner-occupied, second or vacation homes or non-owner-occupied investment properties.

A substantial portion of the Company’s loans include prepayment penalties. Borrowers who agree to prepayment penalties generally receive lower interest rates and/or lower loan fees on their mortgage loans. Borrowers always retain the right to refinance their loans, but may have to pay a charge of up to six-months interest on 80% of the outstanding principal balance or 5% of the outstanding principal balance of the loan.

Total gain on sale of loans, net, increased 69.8% from $11.2 million for the quarter ended March 31, 2003 to $19.0 million for the comparable period in 2004.

Net interest income increased 173.5% from $1.2 million for the quarter ended March 31, 2003 to $3.2 million for the comparable period in 2004.

Total expenses increased 78.9% from $11.4 million for the quarter ended March 31, 2003 to $20.3 million for the comparable period in 2004.

Net earnings increased from $3.9 million for the quarter ended March 31, 2003 to $7.6 million for the quarter ended March 31, 2004.