Saxon Capital, Inc. Reports Fourth Quarter and Year End 2004 Operating

Saxon Capital, Inc. Reports Fourth Quarter and Year End 2004 Operating Results; Diluted EPS $0.60 Per Share for the Quarter and $2.89 Per Share for 2004

    Business Editors

    GLEN ALLEN, Va.--(BUSINESS WIRE)--Feb. 3, 2005--Saxon Capital, Inc. ("Saxon" or the "Company") (NASDAQ:SAXN), a residential mortgage lending and servicing real estate investment trust (REIT), today announced fourth quarter 2004 net income of $30.1 million or $0.60 per share diluted, compared to $20.2 million or $0.66 per share diluted for the fourth quarter of 2003, and $38.3 million or $1.14 per share diluted for the third quarter of 2004. Net income for the year ended December 31, 2004 was $105.6 million or $2.89 per share diluted, as compared to $65.1 million or $2.16 per share diluted for the year ended December 31, 2003.

    Operational Highlights

--	Mortgage loan production (excluding called loans) for the fourth quarter of 2004 increased 40% compared to fourth quarter 2003, and increased 1% compared to third quarter 2004. Mortgage loan production (excluding called loans purchased in 2004 from off-balance sheet securitizations) for the year ended December 31, 2004 increased 23% from the year ended December 31, 2003.
--	Net mortgage loan portfolio increased 7% to $6.0 billion at December 31, 2004, from $5.6 billion at September 30, 2004, and increased 28% from $4.7 billion at December 31, 2003.
--	Third party servicing portfolio for the fourth quarter 2004 increased 35% compared to the third quarter 2004. Third party servicing portfolio for the year ended December 31, 2004 increased 172% compared to the year ended December 31, 2003.

    Financial Performance

    Net interest income was $57.0 million for the fourth quarter of 2004, compared to $54.2 million for the fourth quarter of 2003 and $61.7 million for the third quarter of 2004. Net interest margin was 4.0% for the fourth quarter of 2004 compared to 4.7% for fourth quarter 2003 and 4.6% for third quarter 2004. Net interest income for the year ended December 31, 2004 was $239.5 million compared to $209.8 million for the year ended December 31, 2003. Net interest margin for the year ended December 31, 2004 was 4.6% as compared to 5.0% for the prior year.
    Net interest margin after provision for mortgage loan losses was 3.1% for the fourth quarter 2004, compared to 4.2% for the fourth quarter of 2003 and 3.5% for the third quarter of 2004. Net interest margin after provision for mortgage loan losses for the years ended December 31, 2004 and 2003 was 3.8% and 4.2%, respectively.
    The decrease in net interest margin before and after provision is attributable to several factors.

    -- The Company's loans produced since 2003 generally have higher
    credit characteristics and lower weighted average coupons than
    loans produced prior to 2003.

    -- The Company has experienced prepayments of lower credit
    quality and higher coupon loans produced in 2001 and 2002.

    -- The Company's borrowing costs have increased due to an
    approximately 100 basis point increase of 1-month LIBOR from
    June 30, 2004 to December 31, 2004.

    As the Company's portfolio has shifted in credit mix to a higher quality portfolio, expected future losses on 2003 and 2004 production may decrease compared to 2001 and 2002 production. The improved credit performance may lower the required future provision for loan losses.
    The rise in 1-month LIBOR increased the cost of both the Company's long-term securitization financing as well as the Company's short-term financing. Saxon does hedge against higher cost of borrowing due to increases in 1-month LIBOR because approximately 73% of the Company's long-term securitizations are financed with variable rate bonds. While there may be an immediate impact on the Company's net interest margin (in either direction) due to changes in 1-month LIBOR, the impact of the anticipated changes in cash flows for the hedges is included in Other Comprehensive Income (OCI) in shareholders' equity on the Company's consolidated balance sheet and is recognized into earnings over the expected life of the variable rate bonds.
    Gross servicing revenue for the Company's third party portfolio was $22.0 million for the fourth quarter 2004, compared to $10.1 million for the fourth quarter 2003 and $15.6 million for the third quarter 2004. Gross servicing revenue for the Company's third party portfolio was $60.8 million for the year ended December 31, 2004 compared to $39.5 million for the year ended December 31, 2003. During 2004, Saxon purchased servicing rights to $11.5 billion in mortgage loan pools. Saxon's third party portfolio grew 172% to $14.2 billion at December 31, 2004 as compared to $5.2 billion at December 31, 2003.
    Total net revenues for the fourth quarter of 2004 were $58.0 million, compared to $57.9 million for the fourth quarter of 2003 and $55.6 million for the third quarter of 2004. Total net revenues for year ended December 31, 2004 were $235.0 million, compared to $211.4 million for the prior year.
    Total operating expenses, which include payroll and related expenses, general and administrative expenses and other expense, were $41.3 million for the fourth quarter of 2004, compared to $29.8 million for the fourth quarter of 2003 and $36.3 million for the third quarter of 2004. Total operating expenses were $142.4 million for the year ended December 31, 2004 compared to $109.8 million for the prior year.
    Total operating expenses have increased from the third quarter 2004 to the fourth quarter 2004 and from the year ended December 31, 2003 to the year ended December 31, 2004 due to the continued investment in new technology, growth in the employee base and related expenses, increase in director and officer insurance premiums, increase in fees associated with the Sarbanes-Oxley Act of 2002, and increases in marketing expenses incurred for the Company's production platforms.
    Cost to service increased to 24 basis points for the fourth quarter of 2004 from 20 basis points for the third quarter 2004, and decreased from 26 basis points for the fourth quarter of 2003. Production related payroll and related expenses and general and administrative expenses remained constant from the third quarter of 2004 to fourth quarter of 2004. Total net cost to produce was 2.84% of total loan production for the fourth quarter of 2004, compared to 3.57% for fourth quarter 2003 and 2.79% for third quarter 2004. Previously reported total net cost to produce for the third quarter of 2004 was 2.76%. Due to an adjustment to premiums paid, total net cost to produce for the third quarter of 2004 has been adjusted to 2.79%. Total net cost to produce decreased to 2.91% for the year ended December 31, 2004, compared to 3.35% for the year ended December 31, 2003. The improvement in total net cost to produce year-over-year is due to improved efficiencies in the loan production process.
    Cost to service and total net cost to produce are measures defined by the Securities and Exchange Commission as "non-GAAP financial measures." Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information about the efficiency of the Company's processes to its investors. Tables reconciling the Company's calculation of cost to service and total net cost to produce to GAAP results are set forth in Exhibit A.

    Portfolio Credit Performance

    Net mortgage loan portfolio totaled $6.0 billion at December 31, 2004, an increase of 28% from December 31, 2003 and an increase of 7% from September 30, 2004. Seriously delinquent (60+ days past due) loans were 6.6% of net mortgage loan portfolio at December 31, 2004, compared to 7.7% at December 31, 2003 and 6.6% at September 30, 2004. Saxon's allowance for loan losses was $37.3 million at December 31, 2004, compared to $43.4 million at December 31, 2003. Approximately 84% of the 2004 charge-offs were related to 2001 and 2002 produced loans. The Company has experienced lower static pool losses on our 2003 and 2004 production when compared to the 2001 and 2002 production. Allowance for loan losses as a percentage of net mortgage loan portfolio balance decreased from .93% at December 31, 2003 to .62% at December 31, 2004. The decrease in allowance was due to the higher credit quality loans produced in 2003 and 2004 compared to 2001 and 2002.

    Loan Production

    Mortgage loan production volume (excluding called loans) was $959.1 million for the fourth quarter of 2004, an increase of 40% compared to the fourth quarter of 2003, and an increase of 1% from the third quarter of 2004. Mortgage loan production volume was $3.5 billion for year ended December 31, 2004, an increase of 23% compared to the year ended December 31, 2003.
    Saxon's retail mortgage loan production was $255.2 million during the fourth quarter of 2004, an increase of 48% over the fourth quarter of 2003, and an increase of 3% over the third quarter of 2004. Retail mortgage loan production was $964.8 million for the year ended December 31, 2004, an increase of 26% over the prior year. At December 31, 2004, total retail branches totaled 25, compared to 27 at December 31, 2003.
    Saxon's wholesale mortgage loan production was $378.8 million during the fourth quarter of 2004, an increase of 18% over the fourth quarter of 2003, and a decrease of 4% over the third quarter of 2004. Wholesale mortgage loan production was $1.5 billion for the year ended December 31, 2004, an increase of 28% over the prior year.
    Saxon's correspondent flow mortgage loan production was $260.9 million during the fourth quarter of 2004, an increase of 52% over the fourth quarter of 2003, and a decrease of 2% from the third quarter of 2004. Correspondent flow production was $847.4 million for the year ended December 31, 2004, an increase of 21% over the prior year. Correspondent bulk mortgage loan production was $64.2 million during the fourth quarter of 2004, an increase of 244% from the fourth quarter of 2003, and an increase of 62% from the third quarter of 2004. Correspondent bulk production was $182.2 million for the year ended December 31, 2004, a decrease of 11% over the prior year. Saxon continues to focus on growing the flow business, while pursuing the bulk business when market conditions are advantageous.

    Loan Servicing

    Saxon's third party portfolio was $14.2 billion at December 31, 2004, an increase of 172% from December 31, 2003, and an increase of 35% from September 30, 2004, resulting from the purchase of third party servicing rights. During 2004, Saxon purchased third party servicing rights to service approximately $11.5 billion of mortgage loans (having annual servicing fees of approximately 50 basis points), of which third party servicing rights to service approximately $4.3 billion of mortgage loans were purchased during the fourth quarter.

    Liquidity

    At December 31, 2004, Saxon had $1.8 billion in committed facilities (consisting of $1.6 billion of warehouse and repurchase facilities and $0.2 billion of servicing advance facilities) and $224.5 million in working capital, compared to $1.5 billion in committed facilities and $106.5 million in working capital at December 31, 2003. It is common business practice to define working capital as current assets less current liabilities. However, the Company does not have a classified balance sheet and therefore calculates working capital using an internally defined formula, which is generally calculated as unrestricted cash and investments as well as unencumbered mortgage loans and servicing advances that can be pledged against existing committed facilities and converted to cash in five days or less. Management believes that this working capital calculation provides a better indication of the Company's liquidity available to conduct business at the time of calculation. A reconciliation between the Company's working capital calculation and the common definition of working capital is presented in exhibit A.
    During the fourth quarter of 2004, Saxon priced and closed a $900 million asset-backed securitization, Saxon Asset Securities Trust 2004-3.

    Recent Developments

    On January 12, 2005, Saxon priced a $1.0 billion asset backed securitization, Saxon Asset Securities Trust 2005-1, which closed on January 25, 2005.

    REIT

    As a REIT, Saxon is now required to distribute at least 90% of its annual REIT taxable income to shareholders. Federal tax laws calculate REIT taxable income in a manner that, in certain respects, differs from the calculation of consolidated net income pursuant to generally accepted accounting principles (GAAP). For example, items such as loan production expenses, loan losses, and equity-based compensation expenses may cause differences to arise between tax and GAAP income. REIT taxable income will exclude the income of the REIT's taxable REIT subsidiaries except to the extent its taxable REIT subsidiary distributes income to the REIT as a dividend.
    The following table is a reconciliation of GAAP net income to estimated tax net income for the year ended December 31, 2004.

($ in thousands) Consolidated --------------- GAAP pre-tax net income $92,585 Taxable REIT subsidiary losses (1) 26,691 Income from securitized loans (2) 8,351 Miscellaneous other (731) --------------- Qualified REIT taxable income $126,896 ===============

Footnotes:

(1) The taxable loss incurred in the taxable REIT subsidiaries during 2004 relates primarily to the exercise of the non-qualified stock options in connection with the REIT conversion.

(2) Income from securitized loans includes the following: (a) GAAP to tax income differences on securitizations, (b) intercompany gains on transactions between the qualified REIT subsidiary (QRS) and taxable REIT subsidiary (TRS), and (c) mark to market adjustments on loans prior to securitizations for tax purposes.

    Conference Call

    Saxon will host a conference call for analysts and investors at 11 a.m. Eastern Time on Friday, February 4, 2005. For a live Internet broadcast of this conference call, please visit Saxon's investor relations website at www.saxoncapitalinc.com. To participate in the call, contact Bobbi Roberts at 804-967-7879 or Katie Soule at 804-967-5809. A replay will be available shortly after the call and will remain available until 11:59 p.m. Eastern Time, February 11, 2005. The replay will be available on Saxon's website or at 800-475-6701 using the ID number 765827.

    About Saxon

    Saxon is a residential mortgage lender and servicer that manages a portfolio of mortgage assets. Saxon purchases, securitizes, and services real property secured mortgages and elects to be treated as a real estate investment trust (REIT) for federal tax purposes. The company is headquartered in Glen Allen, Virginia and has additional primary facilities in Fort Worth, Texas and Foothill Ranch, California.
    Saxon's production subsidiaries, Saxon Mortgage, Inc., and America's MoneyLine, Inc. originate and purchase loans through wholesale, correspondent and retail business channels. Saxon currently originates and purchases loans in 49 states, through its network of approximately 4,000 brokers, 350 correspondents, and 25 retail branches. As of December 31, 2004, Saxon's servicing subsidiary, Saxon Mortgage Services, Inc., serviced a mortgage loan portfolio of $20.2 billion. For more information, visit www.saxoncapitalinc.com.

    Information Regarding Forward-Looking Statements

    Statements in this news release reflecting Saxon's future, plans and strategies, are "forward-looking statements" that are based on current expectations and assumptions. These expectations and assumptions are subject to risks and uncertainty, that could affect Saxon's future plans. Saxon's actual results and the timing and occurrence of expected events could differ materially from its plans and expectations due to a number of factors, such as (i) changes in overall economic conditions and interest rates, (ii) Saxon's ability to successfully implement its growth strategy, (iii) Saxon's ability to sustain loan production growth at levels sufficient to absorb costs of production and operational costs, (iv) continued availability of credit facilities and access to the securitization markets or other funding sources, (v) deterioration in the credit quality of Saxon's loan portfolio, (vi) lack of access to the capital markets for additional funding, (vii) challenges in successfully expanding Saxon's servicing platform and technological capabilities, (viii) Saxon's ability to remain in compliance with federal tax requirements applicable to REITs, (ix) Saxon's ability and the ability of its subsidiaries to operate effectively within the limitations imposed on REITs by federal tax rules, (x) changes in federal income tax laws and regulations applicable to REITs, (xi) unfavorable changes in capital market conditions, (xii) future litigation developments, (xiii) competitive conditions applicable to Saxon's industry, and (xiv) changes in the applicable legal and regulatory environment. You should also be aware that all information in this news release is as of February 3, 2005. Saxon undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Saxon Capital, Inc. Consolidated Balance Sheets (Dollars in thousands, except for share data) (unaudited)

December 31, December 31, 2004 2003 ------------- ------------- Assets

Cash $12,852 $5,245 Accrued interest receivable 56,132 54,080 Trustee receivable 112,062 74,614

Mortgage loan portfolio 6,027,620 4,723,416 Allowance for loan losses (37,310) (43,369) ------------- ------------- Net mortgage loan portfolio 5,990,310 4,680,047

Restricted cash 1,495 1,257 Servicing related advances 113,129 98,588 Mortgage servicing rights, net 98,995 41,255 Real estate owned 24,860 23,787 Derivative assets, including cash margin 16,573 7,556 Deferred tax asset 27,825 - Other assets 84,898 72,652 ------------- ------------- Total assets $6,539,131 $5,059,081 ============= =============

Liabilities and shareholders' equity

Liabilities: Accrued interest payable $8,045 $8,602 Dividend payable 28,909 - Warehouse financing 600,646 427,969 Securitization financing 5,258,344 4,237,375 Derivative liabilities 1,809 249 Note payable - 25,000 Deferred tax liability - 907 Other liabilities 22,449 13,933 ------------- ------------- Total liabilities 5,920,202 4,714,035 ------------- -------------

Shareholders' equity

Common stock, $0.01 par value per share, 100,000,000 shares authorized; shares issued and outstanding: 49,849,386 as of December 31, 2004 and 28,661,757 as of December 31, 2003 498 287 Additional paid-in capital 625,123 264,030 Other comprehensive loss, net of tax of $(2,446) and $(3,500) (3,842) (5,497) Net (accumulated deficit) retained earnings: Cumulative dividends declared (114,641) - Retained earnings 111,791 86,226 ------------- ------------- Net (accumulated deficit) retained earnings: (2,850) 86,226 ------------- -------------

Total shareholders' equity 618,929 345,046 ------------- -------------

Total liabilities and shareholders' equity $6,539,131 $5,059,081 ============= =============

Saxon Capital, Inc. Consolidated Statements of Operations (Dollars in thousands, except for share data) (unaudited)

Quarter Quarter Quarter Quarter Ended Ended Ended Ended December 31, September 30, June 30, March 31, 2004 2004 2004 2004 ------------ ------------- -------- ---------

Revenues: Interest income $105,640 $99,657 $99,051 $90,999 Interest expense (48,660) (37,933) (36,045) (33,167) ------------ ------------- -------- --------- Net interest income 56,980 61,724 63,006 57,832 Provision for mortgage loan losses (12,879) (14,730) (10,160) (3,878) ------------ ------------- -------- --------- Net interest income after provision for mortgage loan losses 44,101 46,994 52,846 53,954 Servicing income, net of amortization and impairment 13,442 8,371 6,931 4,892 Gain on sale of mortgage assets 421 220 308 2,551 ------------ ------------- -------- --------- Total net revenues $57,964 $55,585 $60,085 $61,397

Expenses: Payroll and related expenses 18,874 19,662 17,554 15,644 General and administrative expenses 19,526 14,311 13,367 12,758 Other expenses 2,919 2,371 2,823 2,637 ------------ ------------- -------- --------- Total expenses 41,319 36,344 33,744 31,039

Income before taxes 16,645 19,241 26,341 30,358 Income tax (benefit) expense (13,495) (19,044) 8,893 10,666 ------------ ------------- -------- --------- Net income $30,140 $38,285 $17,448 $19,692

Basic earnings per share $0.60 $1.21 $0.61 $0.69 ============ ============= ======== ========= Diluted earnings per share $0.60 $1.14 $0.56 $0.63 ============ ============= ======== =========

Quarter Year Year Ended Ended Ended December 31, December 31, December 31, 2003 2004 2003 ------------ ------------ ------------ Revenues: Interest income $88,743 $395,347 $333,064 Interest expense (34,506) (155,805) (123,303) ------------ ------------ ------------ Net interest income 54,237 239,542 209,761 Provision for mortgage loan losses (6,219) (41,647) (33,027) ------------ ------------ ------------ Net interest income after provision for mortgage loan losses 48,018 197,895 176,734 Servicing income, net of amortization and impairment 8,358 33,636 32,134 Gain on sale of mortgage assets 1,558 3,500 2,533 ------------ ------------ ------------ Total net revenues $57,934 $235,031 $211,401

Expenses: Payroll and related expenses 12,752 71,734 55,251 General and administrative expenses 15,036 59,962 48,886 Other expenses 1,980 10,750 5,619 ------------ ------------ ------------ Total expenses 29,768 142,446 109,756

Income before taxes 28,166 92,585 101,645 Income tax (benefit) expense 7,964 (12,980) 36,509 ------------ ------------ ------------ Net income $20,202 $105,565 $65,136

Basic earnings per share $0.71 $3.04 $2.28 ============ ============ ============ Diluted earnings per share $0.66 $2.89 $2.16 ============ ============ ============

Saxon Capital, Inc. Supplemental Data

The following supplemental data is considered to be either relevant GAAP information or operational data other than as disclosed.

($ in thousands, Qtr Qtr Qtr Qtr except share data) 12/31/2004 9/30/2004 6/30/2004 3/31/2004 ---------------------------------------------------------------------- Production Statistics Volume ---------------------------- Wholesale $378,790 $394,891 $425,415 $301,206 Retail 255,156 247,474 264,619 197,511 Correspondent flow 260,938 267,086 208,320 111,006 Correspondent bulk 64,198 39,660 45,601 32,720 Called loans (1) 83,269 50,476 - 136,291 Net Cost to Produce (2) ----------------------- Wholesale 2.83% 2.67% 2.63% 3.28% Retail 2.38% 2.62% 2.28% 3.58% Correspondent flow 3.13% 3.04% 3.03% 3.78% Correspondent bulk 3.51% 3.28% 4.03% 5.00% Total Production 2.84% 2.79% 2.69% 3.54% Cost to service 0.24% 0.20% 0.22% 0.26% Credit Quality (3) ----------------------- Average loan-to-value 80.2% 80.3% 80.2% 80.1% Credit score 615 622 627 618 Fixed weighted average coupon 8.3% 8.2% 7.2% 8.2% ARM weighted average coupon 7.0% 7.0% 6.9% 7.2% ---------------------------------------------------------------------- Portfolio Statistics Owned portfolio weighted average credit score 617 617 614 611 Owned portfolio principal balance (at period end) $5,950,965 $5,575,386 $5,215,050 $4,918,253 Owned portfolio seriously delinquent (4) 6.6% 6.6% 6.5% 7.0% Non-GAAP owned net losses on liquidated loans - quarter ended trust basis (5) 14,474 10,862 11,007 10,381 GAAP owned net losses on liquidated loans - quarter ended (5) 11,014 11,908 9,497 13,350 Total serviced portfolio principal balance (at period end) 20,165,942 16,098,212 11,364,002 10,127,216 Total serviced portfolio seriously delinquent (4) 5.3% 5.8% 7.2% 7.9% Total serviced net losses on liquidated loans - quarter ended trust basis 25,433 22,060 29,396 26,982 ---------------------------------------------------------------------- Key Ratios Average interest earning assets (6) $5,642,337 $5,332,503 $4,986,364 $4,726,335 Average assets (7) 6,429,964 5,984,834 5,698,349 5,403,329 Average equity (7) 659,747 545,933 375,976 352,849 Return on average assets (ROA) (8) 1.9% 2.6% 1.2% 1.5% Return on average equity (ROE) (8) 18.3% 28.1% 18.6% 22.3% Average equity/average assets 10.3% 9.1% 6.6% 6.5% Interest income/average interest earning assets (8) 7.5% 7.5% 8.0% 7.7% Interest expense/average interest earning assets (8) 3.5% 2.8% 2.9% 2.8% Net interest margin/average interest earning assets (8) (9) 4.0% 4.6% 5.1% 4.9% Net interest margin after provision for mortgage loans losses (8)(9) 3.1% 3.5% 4.2% 4.6% Operating expenses/servicing portfolio (8) 0.8% 0.9% 1.2% 1.2% Operating expenses/average assets (8) 2.6% 2.4% 2.4% 2.3% Efficiency ratio (10) 71.3% 65.4% 56.2% 50.6% Non-GAAP adjusted efficiency ratio (11) 58.7% 46.8% 44.5% 49.5% Common Stock Data Basic earnings per share $0.60 $1.21 $0.61 $0.69 Diluted earnings per share $0.60 $1.14 $0.56 $0.63 Shares used to compute basic EPS 49,844 31,525 28,703 28,671 Shares used to compute diluted EPS 49,854 33,565 31,196 31,407 Shares outstanding (period end) 49,849 49,844 28,731 28,691 Common Stock Price (12) High $26.58 $29.15 $28.97 $30.75 Low $18.25 $20.85 $21.60 $26.82 Period End $23.99 $21.50 $22.83 $28.40 Book value per share (period end) $12.42 $14.06 $13.62 $12.57

($ in thousands, Qtr Year Ended Year Ended except share data) 12/31/2003 12/31/2004 12/31/2003 ---------------------------------------------------------------------- Production Statistics Volume ---------------------------- Wholesale $320,429 $1,500,302 $1,174,573 Retail 172,204 964,760 762,657 Correspondent flow 172,033 847,350 700,340 Correspondent bulk 18,636 182,179 205,372 Called loans (1) - 270,036 - Net Cost to Produce (2) ----------------------- Wholesale 3.09% 2.82% 3.03% Retail 4.47% 2.66% 3.37% Correspondent flow 3.35% 3.16% 3.32% Correspondent bulk 5.79% 3.86% 5.14% Total Production 3.57% 2.91% 3.35% Cost to service 0.26% 0.23% 0.26% Credit Quality (3) ----------------------- Average loan-to-value 79.6% 80.2% 79.6% Credit score 621 621 618 Fixed weighted average coupon 8.1% 7.9% 7.9% ARM weighted average coupon 7.5% 7.0% 7.7% ---------------------------------------------------------------------- Portfolio Statistics Owned portfolio weighted average credit score 610 n/a n/a Owned portfolio principal balance (at period end) $4,665,770 n/a n/a Owned portfolio seriously delinquent (4) 7.7% n/a n/a Non-GAAP owned net losses on liquidated loans - quarter ended trust basis (5) 7,635 46,725 27,766 GAAP owned net losses on liquidated loans - quarter ended (5) 9,171 45,769 30,914 Total serviced portfolio principal balance (at period end) 9,899,523 n/a n/a Total serviced portfolio seriously delinquent (4) 8.9% n/a n/a Total serviced net losses on liquidated loans - quarter ended trust basis 25,310 103,871 107,646 ---------------------------------------------------------------------- Key Ratios Average interest earning assets (6) $4,623,280 $5,182,719 $4,214,186 Average assets (7) 5,100,500 5,799,106 4,611,122 Average equity (7) 334,823 481,988 315,696 Return on average assets (ROA) (8) 1.6% 1.8% 1.4% Return on average equity (ROE) (8) 24.1% 21.9% 20.6% Average equity/average assets 6.6% 8.3% 6.8% Interest income/average interest earning assets (8) 7.7% 7.6% 7.9% Interest expense/average interest earning assets (8) 3.0% 3.0% 2.9% Net interest margin/average interest earning assets (8) (9) 4.7% 4.6% 5.0% Net interest margin after provision for mortgage loans losses (8)(9) 4.2% 3.8% 4.2% Operating expenses/servicing portfolio (8) 1.2% 0.7% 1.1% Operating expenses/average assets (8) 2.3% 2.5% 2.4% Efficiency ratio (10) 51.4% 60.6% 51.9% Non-GAAP adjusted efficiency ratio (11) 47.6% 49.9% 45.4% Common Stock Data Basic earnings per share $0.71 $3.04 $2.28 Diluted earnings per share $0.66 $2.89 $2.16 Shares used to compute basic EPS 28,639 34,702 28,518 Shares used to compute diluted EPS 30,701 36,522 30,116 Shares outstanding (period end) 28,662 49,849 28,662 Common Stock Price (12) High $22.15 $30.75 $22.15 Low $17.15 $18.25 $10.76 Period End $20.95 $23.99 $20.95 Book value per share (period end) $12.04 n/a n/a ----------------------------------------------------------------------

(1) Called loans are mortgages purchased from the SAST 98-1, 98-2, 98-3, 98-4, 99-1 and 99-4 securitizations pursuant to the clean-up call provision of the trust.

(2) Net cost to produce is defined as general and administrative costs and premium paid, net of fees collected, divided by loan production. See net cost to produce calculation in Exhibit A.

(3) Credit quality statistics for quarters ended December 31, 2004, September 30, 2004, and March 31, 2004 includes called loan statistics. In addition, all quarters presented include second mortgages originated and sold.

(4) Seriously delinquent is defined as 60 plus days past due.

(5) GAAP requires losses to be recognized immediately upon the loan transferring to real estate owned. The trust does not recognize a loss on real estate owned property until it is sold, which causes a timing difference between GAAP and trust losses. In addition, trust losses exclude losses resulting from a delinquent loan sale. Exhibit A provides a reconciliation of GAAP to trust losses.

(6) Average interest earning assets is a daily average balance of loans in the net mortgage loan portfolio.

(7) Average assets is calculated by adding current quarter and previous quarter total assets, then dividing by 2. Average equity is calculated by adding current quarter and previous quarter total shareholders' equity, then dividing by 2.

(8) Ratios are annualized.

(9) Net interest margin is calculated as the difference between interest income and interest expense divided by average interest earning assets.

(10) Efficiency ratio is calculated as total expenses divided by total net revenues.

(11) See Exhibit A for a reconciliation of the calculation for non-GAAP adjusted efficiency ratio.

(12) Represents actual stock prices during quarter. A $4.00 per share merger consideration was paid during the third quarter 2004.

Saxon Capital, Inc. Exhibit A

Qtr Qtr Qtr Qtr 12/31/2004 9/30/2004 6/30/2004 3/31/2004 ------------ ------------ ------------ ------------

Reconciliation between GAAP and Trust Losses

Losses trust basis $14,474,116 $10,862,011 $11,007,444 $10,381,098 Loan transfers to real estate owned 8,558,014 10,420,423 8,535,846 10,962,530 Realized losses on real estate owned (11,563,352) (9,138,547) (8,153,321) (9,013,402) Timing differences between liquidation and claims processing (151,298) (496,701) (1,157,682) 294,238 Loss from delinquent loans sale applied to reserve - - - 359,138 Basis adjustments applied against loss - - - - Fraud - - - - Interest not advanced on warehouse (172,776) (78,060) (59,539) (43,022) Other (130,788) 338,939 (675,503) 409,460 ------------ ------------ ------------ ------------ GAAP losses $11,013,916 $11,908,065 $9,497,245 $13,350,040 ============ ============ ============ ============

Qtr Year ended Year ended 12/31/2003 12/31/2004 12/31/2003 ------------ ------------ ------------

Reconciliation between GAAP and Trust Losses

Losses trust basis $7,634,886 $46,724,669 $27,766,318 Loan transfers to real estate owned 7,807,217 38,476,813 23,217,590 Realized losses on real estate owned (6,189,620) (37,868,622) (21,371,897) Timing differences between liquidation and claims processing (45,201) (1,511,443) 2,394,846 Loss from delinquent loans sale applied to reserve 249,714 359,138 249,714 Basis adjustments applied against loss (20,223) - (278,733) Fraud - Interest not advanced on warehouse (39,665) (353,397) (693,060) Other (226,144) (57,892) (371,245) ------------ ------------ ------------ GAAP losses $9,170,964 $45,769,266 $30,913,533 ============ ============ ============

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Net Cost to Produce (1)

Management believes net cost to produce is beneficial to investors because it provides a measurement of efficiency in the origination process.

The following table demonstrates the Company's calculation of net cost to produce. There is no directly comparable GAAP financial measure to "net cost to produce", the components of which are calculated in accordance with GAAP.

Qtr Qtr Qtr Qtr 12/31/2004 9/30/2004 6/30/2004 3/31/2004 ------------ ------------ ------------ ------------

Payroll & related expenses and general & administrative expenses

Wholesale G&A $8,024,158 $7,994,304 $8,558,251 $7,513,707 Retail G&A 12,638,093 12,745,208 12,546,033 11,936,672 Correspondent flow G&A 1,829,147 1,924,784 1,779,065 1,504,352 Correspondent bulk G&A 239,256 321,118 375,855 368,931 Servicing G&A 10,420,251 7,150,671 5,621,714 5,939,149 Administrative G&A 12,923,501 11,921,997 11,391,783 8,298,652 Capitalized expenses (2) (7,673,961) (8,085,969) (9,352,329) (7,159,005) ------------- ------------- ------------- ------------- Total payroll & related expenses and general & administrative expenses $38,400,445 $33,972,113 $30,920,372 $28,402,458

Fees Collected (3)

Wholesale fees collected $1,172,415 $1,240,165 $1,337,206 $974,911 Retail fees collected 6,569,123 6,259,238 6,509,525 4,870,595 Correspondent flow fees collected 257,932 267,776 211,625 125,125 ------------- ------------- ------------- ------------- Total fees collected $7,999,470 $7,767,179 $8,058,356 $5,970,631

Premium Paid (3)

Wholesale premium $3,859,707 $3,793,064 $3,970,853 $3,329,981 Correspondent flow premium 6,601,075 6,449,065 4,743,717 2,822,250 Correspondent bulk premium 2,015,048 978,411 1,464,127 1,267,229 ------------- ------------- ------------- ------------- Total premium (4) $12,475,830 $11,220,540 $10,178,697 $7,419,460

Net Cost to Produce - dollars

Wholesale $10,711,450 $10,547,203 $11,191,898 $9,868,777 Retail 6,068,970 6,485,970 6,036,508 7,066,077 Correspondent flow 8,172,290 8,106,073 6,311,157 4,201,477 Correspondent bulk 2,254,304 1,299,529 1,839,982 1,636,160 ------------- ------------- ------------- ------------- Total $27,207,014 $26,438,775 $25,379,545 $22,772,491

Volume

Wholesale $378,789,806 $394,891,184 $425,415,460 $301,205,855 Retail 255,155,792 247,473,919 264,619,339 197,510,549 Correspondent flow 260,938,187 267,086,209 208,319,875 111,006,111 Correspondent bulk 64,198,424 39,660,218 45,600,653 32,719,745 ------------- ------------- ------------- ------------- $959,082,209 $949,111,530 $943,955,327 $642,442,260

Net Cost to Produce - basis points

Wholesale 2.83% 2.67% 2.63% 3.28% Retail 2.38% 2.62% 2.28% 3.58% Correspondent flow 3.13% 3.04% 3.03% 3.78% Correspondent bulk 3.51% 3.28% 4.03% 5.00% ------------- ------------- ------------- ------------- Total (4) 2.84% 2.79% 2.69% 3.54%

Qtr Year ended Year ended 12/31/2003 12/31/2004 12/31/2003 ------------ ------------ ------------

Payroll & related expenses and general & administrative expenses

Wholesale G&A $7,879,359 $32,090,420 $29,365,158 Retail G&A 11,431,898 49,866,006 42,605,250 Correspondent flow G&A 1,605,679 7,037,348 6,033,733 Correspondent bulk G&A 456,309 1,305,160 1,936,299 Servicing G&A 5,360,402 29,131,785 20,380,709 Administrative G&A 9,525,746 44,535,933 31,554,663 Capitalized expenses (2) (8,471,289) (32,271,264) (27,738,439) ------------- --------------- --------------- Total payroll & related expenses and general & administrative expenses $27,788,104 $131,695,388 $104,137,373

Fees Collected (3)

Wholesale fees collected $1,019,571 $4,724,697 $4,007,577 Retail fees collected 3,734,747 24,208,481 16,906,582 Correspondent flow fees collected 193,400 862,458 745,800 ------------- --------------- --------------- Total fees collected $4,947,718 $29,795,636 $21,659,959

Premium Paid (3)

Wholesale premium $3,030,113 $14,953,605 $10,290,323 Correspondent flow premium 4,346,282 20,616,107 17,992,892 Correspondent bulk premium 622,914 5,724,815 8,612,581 ------------- --------------- --------------- Total premium (4) $7,999,309 $41,294,527 $36,895,796

Net Cost to Produce - dollars

Wholesale $9,889,901 $42,319,328 $35,647,904 Retail 7,697,151 25,657,525 25,698,668 Correspondent flow 5,758,561 26,790,997 23,280,825 Correspondent bulk 1,079,223 7,029,975 10,548,880 ------------- --------------- --------------- Total $24,424,836 $101,797,825 $95,176,277

Volume Wholesale $320,429,456 $1,500,302,305 $1,174,572,949 Retail 172,203,642 964,759,599 762,656,756 Correspondent flow 172,032,693 847,350,382 700,340,458 Correspondent bulk 18,636,492 182,179,040 205,371,815 ------------- --------------- --------------- $683,302,283 $3,494,591,326 $2,842,941,978

Net Cost to Produce - basis points

Wholesale 3.09% 2.82% 3.03% Retail 4.47% 2.66% 3.37% Correspondent flow 3.35% 3.16% 3.32% Correspondent bulk 5.79% 3.86% 5.14% ------------- --------------- --------------- Total (4) 3.57% 2.91% 3.35%

(1) Net cost to produce is calculated by adding premium paid and G&A expenses, deducting fees collected dividing by volume.

(2) Other expenses include servicing cost and corporate related expenditures. Capitalized expenses are origination expenses that are capitalized per FAS 91.

(3) Fees collected and premium are capitalized and held on balance sheet as components of the net mortgage loan portfolio.

(4) Third quarter 2004 premium paid has increased by $276 thousand due to an adjustment. Total net cost to produce changed from 2.76% to 2.79% because of this adjustment. ----------------------------------------------------------------------

Cost to Service

Management believes cost to service is beneficial to investors because it provides a measurement of efficiency in the servicing channel.

The following table demonstrates the Company's calculation of cost to service.

Qtr Qtr Qtr Qtr 12/31/2004 9/30/2004 6/30/2004 3/31/2004 ------------ ------------ ------------ ------------

Servicing G&A $10,420,251 $7,150,671 $5,621,714 $5,939,149 Servicing related depreciation (1) 461,177 491,451 595,414 587,729 ------------ ------------ ------------ ----------- Total servicing expense $10,881,428 $7,642,122 $6,217,128 $6,526,878 ------------ ------------ ------------ -----------

Average total portfolio balance $18,371,194 $15,107,928 $11,134,783 $9,926,027 ------------ ------------ ------------ ----------- Cost to service (Annualized) 0.24% 0.20% 0.22% 0.26% ============ ============ ============ ===========

Qtr Year ended Year ended 12/31/2003 12/31/2004 12/31/2003 ------------ ------------ ------------

Servicing G&A $5,360,402 $29,131,785 $20,380,709 Servicing related depreciation (1) 574,723 2,135,769 1,575,104 ----------- ------------ ------------ Total servicing expense $5,935,125 $31,267,554 $21,955,813 ----------- ------------ ------------

Average total portfolio balance $9,214,287 $13,634,983 $8,426,478 ----------- ------------ ------------ Cost to service (Annualized) 0.26% 0.23% 0.26% =========== ============ ============

(1) Servicing related depreciation is a component of other expense on the income statement. ----------------------------------------------------------------------

Reconciliation of non-GAAP adjusted efficiency ratio

Qtr Qtr Qtr Qtr 12/31/2004 9/30/2004 6/30/2004 3/31/2004 ----------- ----------- ----------- -----------

Total expenses $41,319 $36,344 $33,744 $31,039 Less: one-time expenses - 3,508 2,598 - ----------- ----------- ----------- ----------- Total adjusted expenses $41,319 $32,836 $31,146 $31,039

Total net revenues $57,964 $55,585 $60,085 $61,397 Add: provision for mortgage loan losses 12,879 14,730 10,160 3,878 Less: gain on sale of mortgage assets 421 220 308 2,551 ----------- ----------- ----------- ----------- Total adjusted net revenues $70,422 $70,095 $69,937 $62,724 ----------- ----------- ----------- ----------- Adjusted efficiency ratio (1) 58.7% 46.8% 44.5% 49.5% =========== =========== =========== ===========

Qtr Year ended Year ended 12/31/2003 12/31/2004 12/31/2003 ------------ ------------- -------------

Total expenses $29,768 $142,446 $109,756 Less: one-time expenses - 6,106 - ------------ ------------- ------------- Total adjusted expenses $29,768 $136,340 $109,756

Total net revenues $57,934 $235,031 $211,401 Add: provision for mortgage loan losses 6,219 41,647 33,027 Less: gain on sale of mortgage assets 1,558 3,500 2,533 ------------ ------------- ------------- Total adjusted net revenues $62,595 $273,178 $241,895 ------------ ------------- ------------- Adjusted efficiency ratio (1) 47.6% 49.9% 45.4% ============ ============= =============

(1) Non-GAAP adjusted efficiency ratio is calculated as total expenses divided by net revenues, excluding provision for mortgage loan losses and gain on sale of mortgage assets. Total expenses for third quarter 2004 excludes the $3.5 million expense associated with the REIT conversion. Total expenses for second quarter 2004 excludes a $2.6 million severance expense.

Working Capital Reconciliation

Management believes the Company's definition of working capital provides a better indication of how much liquidity the Company has available to conduct business at the time of the calculation.

This following table provides a reconciliation between the Company's working capital calculation and the common definition of working capital.

December 31, 2004 December 31, 2003 --------------------- --------------------- Saxon Commonly Saxon Commonly Defined Defined Defined Defined Working Working Working Working Capital Capital Capital Capital --------- ----------- --------- ----------- ($ in thousands)

Unrestricted cash $12,852 $12,852 $5,245 $5,245 Borrowing availability 64,271 - 12,907 - Trustee receivable - 112,062 - 74,614 Accrued interest receivable - 56,132 - 54,080 Accrued interest payable - (8,045) - (8,602) Unsecuritized mortgage loans - payments less than one year 429,505 674,596 189,383 520,198 Warehouse financing facility - payments less than one year (282,092) (523,277) (101,055) (361,915) Bonds - repurchase agreement - payments less than one year - - - (1,440) Servicing advances - 113,129 - 98,588 Financed advances - payments less than one year - (34,667) - (39,089) Securitized loans - payments less than one year - 1,575,480 - 1,689,328 Securitized debt - payments less than one year - (1,558,258) - (1,692,335) --------- ----------- --------- ----------- Total $224,536 $420,004 $106,480 $338,672 ========= =========== ========= ===========

It is common business practice to define working capital as current assets less current liabilities. The Company does not have a classified balance sheet and therefore calculates its working capital using its own internally defined formula, which is generally calculated as unrestricted cash and investments as well as unencumbered mortgage loans and servicing advances that can be pledged against existing committed facilities and converted to cash in five days or less.

--30--KT/na*

CONTACT: Saxon Capital, Inc. Ms. Bobbi J. Roberts, 804-967-7879 InvestorRelations@saxonmtg.com or Ms. Katie Soule, 804-967-5809 InvestorRelations@saxonmtg.com

KEYWORD: VIRGINIA INDUSTRY KEYWORD: REAL ESTATE BUILDING/CONSTRUCTION BANKING EARNINGS CONFERENCE CALLS SOURCE: Saxon Capital, Inc.

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