Vestin says one-time charges dragged down profit

Tuesday, Aug. 19, 2003 | 11:09 a.m.

A Las Vegas commercial mortgage lender is blaming its second-quarter loss on two accounting moves -- one to write down the value of real estate collateral held for sale and the other to write off delinquent loan fees.

Vestin Group Inc., which makes short-term loans using mortgages as collateral, said it's still in strong financial shape and expects to introduce a new line of investment products in conjunction with nationwide marketing efforts.

During a conference call with investors Monday, Vestin executives said the company would have reported a profit in the quarter if not for the one-time expenses.

Vestin last week reported a loss of $730,378 for the quarter compared to a profit of $2.1 million in the same quarter of last year. On a per share basis, Vestin lost 18 cents compared to earnings of 22 cents

Poor economic conditions also are hurting loan demand as the company's sales and marketing expenses increased amid a nationwide advertising campaign, Vestin said.

The dollar amount of loans placed during the second quarter declined 35.7 percent to $97.1 million.

An increase in non-performing assets held by Vestin Funds I and II has decreased the cash the funds have available to invest in new mortgage loans, the company said.

To help free up cash, the company intends to sell real estate worth about $7.3 million that was acquired through foreclosure and that secures the non-performing loans.

Revenue decreased 19 percent in the second quarter to $7.2 million.

"The uncertainties associated with the war in Iraq and the continued slow economy have undoubtedly caused some borrowers to delay projects and acquisitions," Vestin President Lance Bradford said.

Loan demand appears to be recovering in the third quarter, with "borrowers again focusing on the future instead of the war in Iraq as well as hopes for economic recovery."

The company's balance sheet is strong, with about $23 million in assets versus $8.4 million in liabilities, Vestin Chief Financial Officer John Alderfer said.

To offset the slowdown, the company has hired additional loan origination staff to help seek new business.

This month, Vestin appointed former Station Casinos Inc. marketing manager Cedric Crear as chief marketing officer. Crear served as director of marketing at the Sunset Station casino and was responsible for the property's hotel and casino marketing programs as well as special events, direct mail and database marketing efforts.

Vestin Group manages two mortgage deed funds, the $100 million Vestin Fund I and the $500 million Vestin Fund II.

The company closed Vestin Fund II to new investors as of the end of last month. The fund passed the $400 million mark last month but is authorized to sell up to $500 million in membership units.

"We are happy with the size of our portfolio right now," Bradford said.

Existing investors are expected to make up the additional $100 million.

New investment products also are on the horizon, Bradford said. He did not elaborate on what those products might be.

After announcing a $1.1 million loss in the first quarter, Vestin said it would not pay a dividend in the second quarter.

The company said it expects to issue dividends in future quarters.