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Wednesday May 16, 9:12 am Eastern Time
Press Release

Approved Financial Corp. Reports Results for the 1st Quarter of 2001

VIRGINIA BEACH, Va.--(BUSINESS WIRE)--May 16, 2001--Approved Financial Corp. (OTCBB: APFN news) reports results for the 1st quarter of 2001.

Financial Results
Net loss for three-month period ended March 31, 2001 was $0.6 million or ($.12) per share as compared to $0.07 million or ($.12) per share in 2000 (excluding a $18.5 million deferred loan sale in the 2000 period). Net loss for three-month period ended March 31, 2001 was $0.6 million or ($.12) per share compared to $0.06 million or ($.01) per share in 2000 (including a $18.5 million deferred loan sale in the 2000 period). A loan sale of $18.5 million scheduled for December of 1999 was deferred at the request of the investor to January of 2000 due to the investor's Y2K planning effort.

Origination of Mortgage Loans
The following table shows the loan originations in dollars and units for our broker referral and retail divisions for the three months ended March 31, 2001 and 2000. The retail division originates mortgages that are funded in-house and funded through other lenders (``brokered loans''). Brokered loans consist primarily of non-conforming mortgages that do not meet our underwriting criteria and conforming loans.


                                                    Three Months Ended


                                                         March 31,


(dollars in millions)                                  2001    2000


                                                       -----   -----





Dollar Volume of Loans Originated:


  Broker referrals ("Wholesale")                       $45.2   $41.0


  Retail  funded through other lenders                   4.6    13.7


  Retail  funded in-house non-conforming                 5.0    18.3


  Retail  funded in-house conforming and government     21.9     9.6


                                                       -----   -----


  Total                                                $76.7   $82.6


                                                       =====   =====





Number of Loans Originated:


  Broker referrals ("Wholesale")                         501     547


  Retail  funded through other lenders                    59     178


  Retail  funded in-house non-conforming                  74     260


  Retail  funded in-house conforming and government      172      85


                                                       -----   -----


  Total                                                  806   1,070


                                                       =====   =====

The dollar volume of loans, originated in the three months ended March 31, 2001 (including retail loans brokered to other lenders) decreased 7.1% when compared to the same period in 2000. The decrease in loan originations was primarily the result of the reduction in the number of retail loan origination centers of ten (10) offices at March 31, 2000 to seven (7) at March 31, 2001. During May 2001 we closed four (4) unprofitable branches and as of May 15, 2001, we have a total of three (3) retail loan origination offices. As a result of the May 2001 branch closings, the remaining goodwill of $.95 million will be amortized in the three month period ended June 30, 2001.

The dollar volume of all loans funded in-house increased 4.6% in the three months ended March 31, 2001 compared to the same period in 2000, primarily due to our initiative to reduce the amount of retail loans brokered to other lenders and due to an increase in Wholesale loan volume. Brokered loans generated by the retail division were $4.6 million during the three months ended March 31, 2001, which was a 66.4% decrease compared to $13.7 million during the same period in 2000.

Wholesale volume increased 10.2% or $4.2 million to $45.2 million for the first quarter of 2001 from $41.0 million in the 2000 period, primarily due to the expansion into the western portion of the United States in the fourth quarter of 2000. Average fees paid for services rendered on mortgage broker referral originations for the three months ended March 31, 2001 was 67 basis points compared to 42 basis points for the three months ended March 31, 2000.

Gain on Sale of Loans
The largest component of our net income is gain on sale of loans. There is an active secondary market for most types of mortgage loans originated. The majority of the loans originated are sold to other financial institutions. We receive cash at the time loans are sold. The loans are sold service-released on a non-recourse basis, except for normal representations and warranties, which is consistent with industry practices. By selling loans in the secondary mortgage market, we are able to obtain funds that may be used for additional lending and investment purposes. Gain on sale of loans is comprised of several components, as follows: (a) the difference between the sales price and the net carrying value of the loan; plus (b) loan origination fee income collected at loan closing and deferred until the loan is sold; less (c) loan sale recapture premiums and loan selling costs.

Nonconforming loan sales totaled $43.9 million including loans owned in excess of 180 days (``seasoned loans'') for the three months ended March 31, 2001, compared to $84.3 million for the same period in 2000.

For the three months ended March 31, 2001, the Company sold $0.5 million of seasoned loans, at a weighted average discount to par value of 5.6%. The loss was fully reserved for in prior periods. For the three months ended March 31, 2000, the Company did not have any seasoned loan sales. The weighted-average premium, realized on non-conforming loan sales was 4.01% (excluding seasoned loans), during the three months ended March 31, 2001, compared to 2.81% for the same period in 2000.

Conforming and government loan sales were $18.3 million for the three months ended March 31, 2001, compared to $10.7 million for the three months ended March 31, 2000. The weighted-average premium realized on its conforming and government loans sales was 1.77% during the three months ended March 31, 2001, compared to 0.93% for the three months ended March 31, 2000.

The combined gain on the sale of loans was $2.8 million for the three months ended March 31, 2001, which compares with $3.9 million for the same period in 2000. The decrease in the combined gain on sale of loans was primarily the result of a decrease in the volume of loans sold in 2001 when compared to the same period in 2000. The decrease in the volume of loans sold was primarily the result of a $18.5 million loan sale that was deferred from December of 1999 to January of 2000 as part of the investor's Y2K planning for year end 2000. Additionally, the amount of loans sold during the three months ended March 31, 2001 originated by the retail lending division represented 18% of loan sales compared to 36% for the three months ended March 31, 2000. The retail division earns fees such as origination, doc-prep, processing, etc. at the time loans are funded, which are recorded as gain on sale of loans at the time the loan is sold. This origination fee income included in the gain on sale of retail loans for the three months ended March 31, 2001 was $0.8 million, compared to $1.7 million for the three months ended March 31, 2000. The decrease is the result of a decrease in the volume of loans sold, which were generated by our retail division. Average loan origination fee income was 4.28% for the three months ended March 31, 2001 as compared to 5.23% in 2000 primarily due to an increase in conforming and government loan originations. Average origination fee income from conforming and government loans was 2.27% for the three months ended March 31, 2001 compared to 3.45% for the three months ended March 31, 2000. Fees associated with selling loans were approximately 6 basis points for the three months ended March 31, 2001 compared to 34 basis points for the three months ended March 31, 2000 as a result of our expense reduction initiatives that improved operating efficiencies.

We also defer recognition of the expense incurred, from the payment of fees to mortgage brokers, for services rendered on loan originations. These costs are deferred and recognized over the lives of the related loans as an adjustment of the loan's yield using the level-yield method. The remaining balance of expenses associated with fees paid to brokers is recognized when the loan is sold.

Other Income
In addition to net interest income (expense), and gain on sale of loans, and broker fee income we derive income from other fees earned on the loans funded such as underwriting service fees, prepayment penalties, and late charge fees for delinquent loan payments. Revenues associated with the financial products marketed by Approved Financial Solutions are also recorded in other income. For the three months ended March 31, 2001, other income totaled $0.5 million compared to $0.6 million for the same period in 2000. For the three months ended March 31, 2001, fees earned on retail loans brokered to other lenders totaled $0.2 million compared to $0.6 million for the same period in 2000, as a result of a decrease in brokered loan volume.

Compensation and Related Expenses
The largest component of expenses is compensation and related expenses, which decreased by $0.4 million to $2.7 million for the three months ended March 31, 2001 compared to the same period in 2000. The decrease was directly attributable to a decrease in the number of employees and lower commissions expense caused by the decrease in loan volume. For the three months ended March 31, 2001, salary expense decreased by $0.5 million when compared to the same period in 2000. The decrease was caused by a lower average number of employees, attributed to our cost cutting and streamlining initiatives. The payroll and related benefits increased by $0.3 million for the three months ended March 31, 2001 when compared to the same period in 2000. The increase was caused by an increase in the health insurance claims paid of $0.2 million for the three months ended March 31, 2001 compared to the three months ended March 31, 2000. The Company is self insured and claims paid can vary from quarter to quarter based upon the medical needs of the employees and the number of terminated employees utilizing the medical plan under COBRA benefits. For the three months ended March 31, 2001, the average full time equivalent employee count was 204 compared to 292 for the three months ended March 31, 2000. For the three months ended March 31, 2001 the commissions to loan officers decreased by $0.2 million when compared to the same period ended March 31, 2000.

General and Administrative Expenses
General and administrative expenses are comprised of various expenses such as advertising, rent, postage, printing, general insurance, travel and entertainment, telephone, utilities, depreciation, professional fees and other miscellaneous expenses. General and administrative expenses for the three months ended March 31, 2001 decreased by $0.4 million to $1.4 million, compared to the three months ended March 31, 2000. The decrease was the result of a reduction in retail loan origination offices, a decline in our employee count, and our cost cutting initiative. Beginning in June of 2001 we expect the advertising and marketing expense to decrease materially due to the closing of four (4) additional retail loan origination offices in May of 2001.

Loan Production Expense
Loan production expenses are comprised of expenses for appraisals, credit reports, and payment of fees to mortgage brokers, for services rendered on loan originations, and verification of mortgages. Loan production expenses for the three months ended March 31, 2001 were $0.3 million compared to $0.4 million for the three months ended March 31, 2000. The decrease was primarily the result of decreases in appraisal and credit report expenses, which resulted from lower loan volume.

Provision for Loan Losses
The following table presents the activity in the allowance for loan losses and selected loan loss data for the three months ended March 31, 2001 and the year ended December 31, 2000:


(In thousands)


                                                       2001    2000


                                                       -----   -----


Balance at beginning of year                          $1,479  $1,382


Provision charged to expense                              68     639


Loans charged off                                        (83) (1,086)


Recoveries of loans previously charged off                24     544


                                                       -----   -----


Balance at end of period                              $1,488  $1,479


                                                      ======  ======


Loans receivable at the end of period, gross


 of allowance for losses and deferred fees           $47,752 $38,601





Ratio of allowance for loan losses to gross


 loans receivable at the end of period                 3.12%   3.83%

The provision for loan losses was $0.1 million for the three months ended March 31, 2001 compared to $2,000 for the three months ended March 31, 2000. For the three months ended March 31, 2001, there was an increase in the allowance for loan losses based upon management's assessment of credit risk of loans held for yield. All losses (``charge offs'' or ``write downs'') and recoveries realized on loans previously charged off, are accounted for in the allowance for loan losses.

The allowance is established at a level that we consider adequate to cover future loan losses relative to the composition of the current portfolio of loans held for yield. We consider characteristics of our current loan portfolio such as credit quality, the weighted average coupon, the weighted average loan to value ratio, the combined loan to value ratio, the age of the loan portfolio and the portfolio's delinquency and loss history and current status in the determination of an appropriate allowance. Other criteria such as covenants associated with our credit facilities, trends in the demand for and pricing for loans sold in the secondary market for similar mortgage loans and general economic conditions, including interest rates, are also considered when establishing the allowance. Adjustments to the reserve for loan losses may be made in future periods due to changes in the factors mentioned above and any additional factors that may effect anticipated loss levels in the future.

Provision for Foreclosed Property Losses
The provision for foreclosed property losses was $0.04 million for the three months ended March 31, 2001 compared to $0.5 million for the year ended December 31, 2000. The company increased its provision for foreclosed property losses by $44,000 for the three months ended March 31, 2001 compared to an increase of $53,000 for the three months ended March 31, 2000.

Sales of real estate owned yielded net losses of $173,000 for the three months ended March 31, 2001 versus $244,000 for the three months ended March 31, 2000.

The following table presents the activity in the allowance for foreclosed property losses and selected real estate owned data for the three months ended March 31, 2001 and the year ended December 31, 2000:
(In thousands)


                                                       2001    2000


                                                       -----   -----


Balance at beginning of year                          $  376  $  717


Provision charged to expense                              44     451


Loss on sale of foreclosures                            (173)   (792)


                                                      ------  ------


Balance at end of period                              $  247  $  376


                                                      ======  ======


Real estate owned at the end of period, gross


 of allowance for losses                              $1,010  $1,528





Ratio of allowance for foreclosed property losses


 to gross real estate owned at the end of period      24.43%  24.67%

Assets acquired through loan foreclosure are recorded as real estate owned (``REO''). When a property is transferred to REO status a new appraisal is ordered on the property. The property is written down to the value of the new appraisal. An allowance for REO losses is then established on that property based upon current market conditions and historical results with the sale of REO properties. While we believe that our present allowance for foreclosed property losses is adequate, future adjustments may be necessary.

Corporate Initiatives
Our central corporate goal is to generate profits. Our commitment to the efficient application of sound business practices is reflected in the following strategic business initiatives, all of which are focused on achieving our goal to generate profits.
  • Maintain quality loan underwriting and servicing standards.
  • Maintain strict cost controls through the continued application of new technologies.
  • Focus on expanding the level of profitable residential mortgage origination.
  • Diversify loan sale strategies and investors with a commitment to prudent management of cash flow.
  • Expand product and financial service offerings.
  • Build on the business opportunities provided by a federal savings bank charter.
  • Enhance shareholder value through evaluation of strategic opportunities afforded to us for enhancing our capital base, launching new production units or new corporate divisions and forming new business relationships.


APPROVED FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and December 31, 2000
(Dollars in thousands, except per share amounts)
                   ASSETS                         2001         2000


                                                --------     --------





  Cash                                          $  3,124     $  7,597


  Mortgage loans held for sale, net               31,578       22,438


  Mortgage loans held for yield, net              14,260       14,274


  Real estate owned, net                             763        1,151


  Investments                                      2,894        2,847


  Deferred tax asset, net                          3,882        3,504


  Premises and equipment, net                      5,218        5,408


  Goodwill, net                                      948          983


  Other assets                                     1,696        1,617


                                                --------    ---------


  Total assets                                  $ 64,363     $ 59,819


                                                ========    =========





              LIABILITIES AND EQUITY





Liabilities:


  Revolving warehouse loan                      $  4,913     $  1,694


  FHLB bank advances and line of credit            1,000        3,000


  Mortgage notes payable                           2,218        2,529


  Notes payable-related parties                    2,631        2,818


  Certificate of indebtedness                      2,069        2,043


  Certificates of deposits                        36,903       34,432


  Money market account                             3,380        3,926


  Loan proceeds payable                            2,486           -


  Accrued and other liabilities                    1,392        1,366


                                                --------    ---------


  Total liabilities                               56,992       51,808


                                                --------    ---------


Commitments and contingencies                         -            -





Shareholders' equity:


  Preferred stock series A, $10 par value;             1            1


  Noncumulative, voting:


    Authorized shares - 100


    Issued and outstanding shares - 90


  Common stock, par value - $1                     5,482        5,482


    Authorized shares - 40,000,000


    Issued and outstanding shares - 5,482,114


  Accumulated other comprehensive loss                (5)         (12)


  Additional capital                                 552          552


  Retained earnings                                1,341        1,988


                                                --------    ---------


  Total equity                                     7,371        8,011


                                                --------    ---------


  Total liabilities and equity                  $ 64,363    $  59,819


                                                ========    =========





    The notes to financial statements filed on Form 10Q as filed on


May15, 2001 are an integral part of the consolidated financial


statements.
















APPROVED FINANCIAL CORP. CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE INCOME (LOSS) for the three months ended March 31, 2001 and 2000 (In thousands, except per share amounts)
2001 2000 -------- -------- Revenue: Gain on sale of loans $ 2,777 $ 3,926 Interest income 1,253 1,583 Broker fee income 200 638 Other fees and income 460 564 -------- -------- 4,690 6,711 -------- -------- Expenses: Compensation and related 2,692 3,133 General and administrative 1,405 1,790 Advertising expense 282 337 Loan production expense 348 366 Interest expense 875 1,122 Provision for loan and foreclosed property losses 112 55 -------- -------- 5,714 6,803 -------- -------- Loss before income taxes (1,024) (92) Benefit from income taxes (378) (32) -------- -------- Net loss (646) (60) Other comprehensive income, net of tax: Unrealized gain on securities: Unrealized holding gain during period 7 - -------- -------- Comprehensive loss $ (639) $ (60) ======== ======== Net loss per share: Basic and Diluted $ (0.12) $ (.01) ======== ======== Weighted average shares outstanding: Basic and Diluted 5,482 5,482 ======== ======== The notes to financial statements filed on Form 10Q as filed on May15, 2001 are an integral part of the consolidated financial statements.
APPROVED FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS for the three months ended March 31, 2001 and 2000 (In thousands)
2001 2000 -------- -------- Operating activities Net loss $ (646) $ (60) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of premises and equipment 174 218 Amortization of goodwill 34 34 Provision for loan losses 68 2 Provision for losses on real estate owned 44 53 Deferred tax expense (378) 506 Loss on real estate owned 173 - Proceeds from sale and prepayments of loans 65,427 100,388 Originations of loans, net (72,016) (69,335) Loss on sale/disposal of fixed assets 10 - Gain on sale of loans (2,777) (3,926) Changes in assets and liabilities: Loan sale receivable - 3 Other assets (79) 196 Accrued and other liabilities 26 (434) Loan proceeds payable 2,486 1,545 -------- -------- Net cash used in operating activities (7,454) 29,190 Cash flows from investing activities: Sales of securities - 115 Purchase of premises and equipment (40) (41) Sales of premises and equipment 56 10 Sales of real estate owned 425 924 Real estate owned capital improvements (85) (74) Purchases of ARM fund shares (47) (31) Purchases of FHLB stock - (297) -------- -------- Net cash (used in) provided by investing activities 309 606
APPROVED FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS, continued for the three months ended March 31, 2001 and 2000 (In thousands)
2001 2000 -------- -------- Cash flows from financing activities: Borrowings - warehouse $ 17,493 $ 16,158 Repayments of borrowings - warehouse (14,274) (29,348) FHLB and LOC advances (repayments),net (2,000) (4,648) Principal payments on mortgage notes payable (311) (18) Net increase (decrease) in: Notes payable (187) (76) Certificates of indebtedness 26 1 Certificates of deposit 2,471 (9,624) FDIC-insured money market account (546) - -------- -------- Net cash provided by (used in) financing activities 2,672 (27,555) -------- -------- Net (decrease) increase in cash (4,473) 2,241 Cash at beginning of year 7,597 10,656 -------- -------- Cash at end of year $ 3,124 $ 12,897 ======== ======== Supplemental cash flow information: Cash paid for interest $ 831 $ 1,146 Cash paid for income taxes - 4 Supplemental non-cash information: Loan balances transferred to real estate Owned $ 175 $ 341 The notes to financial statements filed on Form 10Q as filed on May15, 2001 are an integral part of the consolidated financial statements.

Certain statements in this press release, which are not merely historical facts, may contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995 concerning Approved Financial Corp. and its subsidiaries. Such statements may include but are not limited to those concerning current and future loan production volumes, success of the Bank's and AFS's product offerings, successful development of the new wholesale loan origination division in the Western United States, warehouse lines of credit or other current and future sources of capital investment or funding, any past, present or future business strategy/initiatives or business operation are forward-looking statements. There are a number of important factors (``factors'') that could cause the actual results of Approved to differ materially from those indicated in such forward-looking statements or anticipated by us. Those factors include, but are not limited to our ability to implement restructuring, expense reduction and revenue enhancement plans, recognition of future net losses or reductions in tangible net worth, our ability to retain experienced personnel, our ability to profitably expand wholesale operations, any changes in residential real estate values, changes in competition, general economic conditions, changes in interest rates, changes in the demand for non-conforming or conforming mortgage loans, our availability of affordable funding sources for capital liquidity, changes in loan prepayment speeds, delinquency and default and loss rates, regulatory restrictions on mortgage funding activity, asset growth, or operating procedures, future GAAP accounting standards affecting the Company's financial statements, and any changes which influence any market for profitable sales of all types of mortgage loans.

This press release is not a comprehensive disclosure o