-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, F9RmjBD7vJZrMlJm0j6gRbOUSzEYxZJByMD1T1m7K4rTzQrebmWxHrsv9cL4fc13 XgFk1RPEA4Ru+K90/3HQbA== 0000060150-94-000016.txt : 19940929 0000060150-94-000016.hdr.sgml : 19940929 ACCESSION NUMBER: 0000060150-94-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940928 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOMAS FINANCIAL CORP CENTRAL INDEX KEY: 0000060150 STANDARD INDUSTRIAL CLASSIFICATION: 6162 IRS NUMBER: 751043392 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06868 FILM NUMBER: 94550515 BUSINESS ADDRESS: STREET 1: 1600 VICEROY DR 8TH FLOOR CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 2148794000 MAIL ADDRESS: STREET 1: 1600 VICEROY DR STREET 2: 8TH FLOOR CITY: DALLAS STATE: TX ZIP: 75235 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS & NETTLETON FINANCIAL CORP DATE OF NAME CHANGE: 19881030 10-K 1 1994 FORM 10-K ========================================================================== FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------- EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------- EXCHANGE ACT OF 1934 For the transition period from to -------------- --------------- Commission file number 1-6868 Lomas Financial Corporation (Exact Name of Registrant as Specified in its Charter) Delaware 75-1043392 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1600 Viceroy Drive, Dallas, Texas 75235 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (214) 879-4000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock, par value $1 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K. ------- At September 15, 1994 the aggregate market value of the registrant's common stock held by non-affiliates was $87 million. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO (APPLICABLE ONLY TO CORPORATE REGISTRANTS) The number of shares outstanding of the registrant's Common Stock, par value $1 per share, as of September 15, 1994: Common Stock--20,099,531 shares. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10-K incorporates certain information by reference from the registrant's 1994 Proxy Statement issued in connection with its Annual Meeting of Stockholders to be held November 1, 1994. =========================================================================== LOMAS FINANCIAL CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1994 Table of Contents Page PART I Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . .15 Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . .15 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . .15 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . .16 Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA . . . . . .16 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . .18 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . .29 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . .73 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . .73 Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . .74 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . .74 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . .74 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . .75 LOMAS FINANCIAL CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1994 PART I Item 1. BUSINESS Lomas Financial Corporation was incorporated in Delaware in 1960, and its principal executive offices are located at 1600 Viceroy Drive in Dallas, Texas. Unless the context otherwise requires, the "Company," as used herein, refers to Lomas Financial Corporation ("LFC") and its subsidiaries. The Company through its wholly-owned subsidiary Lomas Mortgage USA, Inc., a Connecticut corporation ("Lomas Mortgage"), is one of the nation's largest participants in the mortgage banking industry. The Company's principal line of business is the servicing on behalf of third-party investors of single-family residential mortgages secured by properties located in all 50 states and the District of Columbia. The Company also services a relatively small number of commercial mortgage loans. As of June 30, 1994, the Company's mortgage servicing portfolio aggregated approximately $34.0 billion in unpaid principal amount and included 565,531 loans, ranking the Company as one of the twenty largest mortgage servicers in the United States by unpaid principal amount. The Company also provides administrative services to conduit issuers of mortgage-backed securities (sometimes referred to as "master servicing"). In addition, the Company's mortgage banking operations include mortgage and portfolio production activities, insurance agency operations, property inspection, preservation and other field operations. Mortgage servicing involves collecting monthly mortgage payments on behalf of investors, maintaining escrow accounts for the payment of ad valorem taxes and insurance premiums on behalf of homeowners, remitting payments of principal and interest to holders of the mortgages serviced by the Company and reporting to those holders on financial transactions related to the mortgages. Mortgage servicing rights entitle the servicer to collect servicing fees and ancillary income over the term of the related mortgage loans. The Company's strategy is to maximize profits by continuing to acquire servicing rights, to maintain and increase the principal amount of its portfolio and to provide low cost and efficient services that are responsive to the needs and requirements of its customers. The Company believes that Excelis-MLS (a federally registered service mark), the automated data processing system developed by the Company for use by Lomas Mortgage and other mortgage bankers, has improved the Company's ability to be an efficient low-cost provider of servicing and to deliver high quality and timely service to homeowners, investors and other persons served by the Company. In March 1994 the Company announced that it has retained an investment banker to assist in evaluating strategic alternatives to maximize stockholder values. Options being considered include the possibility of merging with or being acquired by another institution. In May 1994 the Company announced its intent to sell its wholly-owned information systems subsidiary, Lomas Information Systems ("LIS"). In September 1994 the Company entered into a letter of intent with an insurance company to sell substantially all the assets of LIS. For more information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company is continuing its review with the investment banker of various strategic options concerning its mortgage banking unit. The Company acquires mortgage loans and mortgage servicing rights from numerous sources referred to by the Company as its "gathering system." The Company acquires mortgage servicing rights (sometimes involving the purchase and subsequent sale of mortgage loans) on an ongoing basis from originators of mortgage loans or intermediaries. The Company also obtains servicing rights from its direct origination of a small volume of single-family mortgage loans. The Company complements these acquisitions ("flow production") by acquiring servicing rights in bulk from other financial institutions ("bulk purchases"). The Company sells the mortgage loans that it acquires through its gathering system and, in virtually all cases, retains the related servicing or master servicing rights. In fiscal 1994 the gathering system added an aggregate of $13.7 billion to the Company's servicing portfolio. These additions, net of runoff, resulted in a $1.3 billion increase in the portfolio balance, which at June 30, 1994 totaled $34.0 billion. Financial Information and Narrative Description of Industry Segments Financial information regarding revenues, operating profit and total assets of the Company are included in "Item 8. Financial Statements and Supplementary Data--Industry Segment Data of Continuing Operations" within this report. Mortgage Banking Lomas Mortgage has provided mortgage servicing and mortgage-related financial and administrative services since 1894. The primary mortgage banking services and activities of the Company are discussed below. Loan Administration The Company's loan administration services consist of three principal categories: "primary servicing" where the Company owns the servicing rights; "master servicing" where the Company provides administrative services for conduit issuers of mortgage-backed securities and monitors the work of primary servicers who own the servicing rights; and "subservicing" where the Company provides mortgage servicing on a subcontract basis for other parties who own the servicing rights. Primary Servicing. Primary servicing involves collecting monthly mortgage payments, maintaining escrow accounts for the payment of ad valorem taxes, hazard insurance and mortgage insurance premiums on behalf of homeowners, remitting payments of principal and interest promptly to investors in the underlying mortgages, reporting to those investors on financial transactions related to such mortgages and generally administering the loans. The servicing staff also must cause properties to be inspected periodically, determine the adequacy of insurance coverage on each property, monitor delinquent accounts for payment, and, in cases of extreme delinquency, institute and complete either appropriate forbearance arrangements or foreclosure proceedings on behalf of investors. For providing these administrative services, the Company currently receives a fee in an average amount of approximately .40 of 1 percent per year on the unpaid principal amount of the primary servicing portfolio in the case of single-family mortgage loans and commercial loans. Annual ancillary servicing income, consisting principally of late charges, assumption and foreclosure fees, and other miscellaneous charges, increases directly related revenues to approximately .47 of 1 percent per year of the servicing portfolio balance for residential and commercial loans. The Company also receives a fee in an average amount of approximately .10 of 1 percent per year on the unpaid principal amount of the subservicing portfolio. Servicing fees are collected by the Company out of mortgage payments as they are received. The Company also receives a benefit from the use as compensating balances of escrow, agency and fiduciary funds, which varies based on the level of prevailing interest rates. At June 30, 1994 the Company's primary servicing portfolio totaled $34.0 billion in unamortized principal amount. The total includes $27.1 billion of servicing rights owned directly by the Company, $4.0 billion of such rights owned by Lomas Mortgage Partnership (which is owned one-third by the Company and the portfolio of which is serviced entirely by the Company), and $2.9 billion of loans administered by the Company under subservicing contracts with others. As previously indicated, the Company from time to time undertakes mortgage servicing on a subcontract basis for other parties who own the servicing rights. Typically, the subservicer assumes responsibility for all loan administration activities while the owner of the servicing rights normally retains the benefits of accumulated escrow balances and retains the risk of foreclosure losses. Subservicing fees are usually agreed to be paid on a per-loan basis calculated as an annual dollar amount paid monthly. Master Servicing. Master servicing was created and introduced by the Company in 1978 to provide administrative services to conduit issuers of mortgage-backed securities. Typically, mortgages underlying mortgage-backed securities are serviced by a number of primary servicers. Under most master servicing arrangements, these primary servicers retain principal responsibility for administering the mortgage loans and the Company acts as an intermediary in overseeing the work of the primary servicers, monitoring their compliance with the issuer's standards and consolidating their respective periodic accounting reports for transmission to the issuer of the related securities. For performing these services the Company receives administrative fees, which, at an annualized rate for the year ended June 30, 1994, averaged approximately $73 per loan. At June 30, 1994 the Company's master servicing portfolio totaled approximately $8.4 billion in unpaid principal amount representing 136,609 loans. Data Processing System. In June 1991 the Company installed at Lomas Mortgage the new automated servicing system, Excelis-MLS, developed by Lomas Information Systems ("LIS"). Excelis-MLS provides benefits, such as faster response time, real time updates, improved availability, expanded data available on line and IBM-compatibility. The system also enables the Company to generate monthly statements to mortgagors rather than the more traditional coupon booklets. Portfolio Production The Company has been able to sustain and increase its mortgage servicing portfolio during a period of significant levels of refinancings due in large part to production from the variety of sources comprising the Company's gathering system. From June 30, 1993 to June 30, 1994, the Company acquired servicing rights to mortgage loans having an unpaid principal amount of $12.2 billion primarily through flow production. The Company also has complemented its flow production from time to time by acquiring mortgage servicing rights in bulk from other financial institutions. Bulk purchases totaled $1.5 billion of unpaid principal balance during fiscal 1994. Through its gathering system, the Company acquires mortgage servicing rights and, in certain cases, whole loans for the primary purpose of retaining the servicing rights on such loans. Whole loans purchased by the Company have been originated, underwritten and funded by retail originators or wholesalers who make representations and warranties to the Company as to compliance with required standards. In the event such representations and warranties are breached, the originator or wholesaler is obligated to repurchase the loan at its unpaid principal balance, thereby avoiding principal loss by the Company. The gathering system currently includes the sources set forth below. The Company continuously seeks new sources for its gathering system and expects that such sources, and their relative importance, will change over time. Flow Production Wholesale Originations. The Company purchases servicing rights with respect to newly originated loans from wholesalers on an ongoing basis through the "Lomega" unit of its loan production system. Public Pension Fund. The Company is a party to an exclusive ongoing arrangement for the purchase, for the account of a major public pension fund and from 85 lenders affiliated with that fund's mortgage origination program, of all mortgages originated under the program. State and Local Housing Authorities. The Company has exclusive ongoing arrangements for the purchase of mortgage servicing rights from lenders originating loans for lower income housing pursuant to bond issuance programs of 9 state and local housing authorities. Consolidation of Servicing. From time to time, the Company replaces disparate primary servicers with respect to loans in the master servicing portfolio and becomes the primary servicer of such loans. This increases efficiency for the Company's master servicing customers. Subservicing. The Company contracts to perform loan administration functions for various investors who own the servicing rights. Direct Originations. The Company also originated in fiscal 1994 a relatively small volume of single-family mortgage loans through telephone and direct mail solicitation of existing homeowners in the mortgage servicing portfolio through the "central funding unit" of its loan production system. From these "flow" sources during fiscal 1994 the Company acquired servicing rights to mortgage loans having an unpaid principal amount of $12.2 billion including $1.2 billion of servicing rights acquired by Lomas Mortgage Partnership, which is owned one-third by Lomas Mortgage and the portfolio of which is serviced by Lomas Mortgage. The Company's investment in the partnership was approximately $5.4 million at June 30, 1994. Bulk Purchases When economically attractive and when capital is available, the Company makes bulk purchases of mortgage servicing rights from financial institutions. During the fiscal year ended June 30, 1994, the Company acquired servicing rights to approximately $1.5 billion unpaid principal amount of mortgage loans through bulk purchases. The following table sets forth additions to and reductions from the Company's mortgage servicing portfolio for the three years ended June 30, 1994 (in millions): Years Ended June 30 -------------------------------- 1994 1993 1992 -------- ------- ------- Portfolio balance at beginning of period $ 32,677 $29,339 $26,943 Additions and reductions during period Servicing rights acquired through: Flow production 12,268 10,214 6,326 Bulk purchases 1,463 2,960 2,011 Amortizations, satisfactions and foreclosures (10,906) (9,335) (5,674) Sales and other servicing releases (1,512) (501) (267) -------- ------- ------- Portfolio balance at end of period $ 33,990 $32,677 $29,339 ======== ======= ======= For the year ended June 30, 1994, the Company relied primarily on flow production, which aggregated $12.2 billion in unpaid principal amount, to sustain and increase the size of its mortgage servicing portfolio and to replace amortizations, satisfactions, foreclosures and other servicing releases which have occurred primarily as a result of low prevailing interest rates during this period. As a result of acquisitions of servicing rights during fiscal 1994 totaling $13.7 billion in unpaid principal amount, the Company's primary servicing portfolio, net of runoff, increased from $32.7 billion at June 30, 1993 to $34.0 billion at June 30, 1994. In fiscal 1993 and under the marketing name "Lomega," the Company commenced a program for direct wholesale purchases of mortgage loans from retail originators. Under this program the Company purchases conforming loans from retail originators for packaging and resale to third party investors. Retail originators from whom the Company purchases loans are required to meet certain financial responsibility and underwriting criteria. The direct wholesale purchase of loans from retail originators entails additional market risk in connection with predicting the rate of closings of loan commitments in the mortgage pipeline and obtaining forward purchase commitments for the number of loans that are expected to close. The Company also added a central funding unit to its loan production system in fiscal 1993. The Company believes the variety of sources comprising the gathering system and the Company's flexibility in allocating its production activities among these sources to respond to market opportunities will provide sufficient portfolio production to sustain and increase the portfolio in high and low interest rate environments. No assurance can be given, however, that this will be the case. The prices paid for bulk purchases and servicing acquired through flow production are based on the present value of the estimated future servicing revenues, net of the expected servicing expenses, for each acquisition. Major factors impacting the value of servicing rights include contractual service fee rates, projected mortgage prepayment rates, projected delinquency and foreclosure rates, investor servicing requirements, projected escrow, agency and fiduciary funds to be held in connection with such servicing and projected benefit to be realized from such funds, geographic distribution and whether the loans are conforming or non-conforming conventional loans or loans insured or guaranteed by the Federal Housing Administration ("FHA") or Veterans Administration ("VA"), respectively. The Company bases its assumptions with respect to these factors on historical and expected experience rather than on conditions prevailing at any one point in time. The Company employs computer simulations to project and value cash flow streams after management has evaluated portfolio risks for application in the simulations. Management determines an acceptable discount rate to apply to the projected cash flow after considering both portfolio risk and market conditions in evaluating potential acquisitions of servicing. Warehousing and Sale of Loans Under some of the Company's programs for purchasing servicing rights, the Company also purchases whole loans from the originators and ultimately packages such loans in the form of mortgage-backed securities. The primary purpose of the Company's purchases of whole loans is to retain the servicing rights on such loans after their sale to investors. The Company's current policy is to limit its purchases of whole loans to loans which are the subject of binding commitments by a third party to purchase such loans. However, through Lomega, the Company commenced a program for direct wholesale purchases of mortgage loans from retail investors since fiscal 1993. In the period between the purchase of mortgage loans by the Company from originators and their sale to investors as mortgage-backed securities, a period of generally no more than three months, the Company warehouses such loans under arrangements with commercial banks and investment banks. Under these arrangements such banks advance funds against loans which have binding purchase commitments from governmental agencies or private investors. During this period the Company receives as net income the difference between the interest received on mortgage loans held prior to sale and the interest paid by the Company under the lines of credit or repurchase agreements provided by such banks. Because the Company currently has binding commitments from third parties to purchase loans held pending sale (at a predetermined price) during the period of time that the Company holds such loans, the Company is generally not subjected to any significant principal or interest rate risk. The Company packages substantially all of its first mortgage loans that are insured by the FHA or guaranteed by the VA into pools of loans and sells these pools in the form of modified pass-through mortgage-backed securities guaranteed by the Government National Mortgage Association ("GNMA") to dealers in mortgage-backed securities. The Company generally pools conventional conforming loans and exchanges such pools for securities issued and guaranteed by the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") which are then sold to such dealers. In connection with such exchanges, the Company pays fees for agency guarantees of principal and interest payments to the guaranteeing agency. In addition, conventional non-conforming loans are sold to private institutional investors in the form of private pass-through securities. Loans are sold pursuant to commitments negotiated with FNMA, FHLMC, GNMA and institutional investors to purchase loans meeting defined criteria. The agreements generally do not require the Company to deliver any specific amount of mortgage loans. The Company expects to enter into new commitments with these agencies and other investors in the ordinary course of business. The Company generally retains the servicing rights (including master servicing rights) on the mortgages underlying the mortgage-backed securities. Exchanges of loans into agency securities and sales of loans are generally made without recourse to the Company in the event of default by the borrower subject, in the case of VA loans used to form GNMA pools, to limitations on the VA's loan guarantees. As of June 30, 1994, the Company had an aggregate of $257.3 million in unpaid principal amount of mortgage loans pledged to secure warehouse debt and repurchase agreements. The Company's commitments to purchase and originate loans totaled $564.8 million of which approximately 79 percent, or $444.1 million, had been committed for sale to financially responsible third parties at the Company's cost. The remaining 21 percent, or $120.7 million, of the Company's commitments to purchase and originate loans and $257 million of loans held for sale were hedged by forward contracts to sell mortgage- backed securities of approximately $258.1 million, which represented the Company's best estimate of its market risk on such loans. If secondary market interest rates decline after the Company commits to an interest rate for a loan, the loan may not close and the Company may incur a loss from the cost of covering its obligations under any related forward commitments. If secondary market interest rates increase after the Company commits to an interest rate for a loan and the Company has not obtained a forward commitment, the Company may incur a loss when the loan is subsequently sold. The Servicing Portfolio The following table sets forth certain information regarding the Company's mortgage servicing portfolio for the periods indicated (dollars in millions, except average loan size): As of June 30 -------------------------------- 1994 1993 1992 -------- -------- -------- Composition of servicing portfolio: FHA-insured mortgage loans $ 6,256 $ 7,059 $ 6,899 VA-guaranteed mortgage loans 3,451 3,998 4,502 Conventional mortgage loans 24,283 21,620 17,938 ------- ------- ------- Total servicing portfolio $33,990 $32,677 $29,339 Number of loans 565,531 605,655 600,205 Average loan size $60,103 $53,953 $48,881 At June 30, 1994 the portfolio included an aggregate of $25.6 billion unpaid principal amount of loans securing payment of mortgage-backed securities. Of the total, $8.0 billion unpaid principal amount consisted of loans included in pools of GNMA securities, $9.6 billion unpaid principal amount consisted of loans included in securities supported by conventional mortgages and backed by either FNMA or FHLMC, and $8.0 billion consisted of conventional loans securing payment of other collateralized mortgage obligations. The Company's mortgage servicing portfolio includes mortgage loans secured by properties located in all 50 states and the District of Columbia, with the greatest loan concentrations (in terms of unpaid principal amount) at June 30, 1994 in the states of California, Texas, Florida, New Jersey, Massachusetts, Arizona, Illinois and Washington, which together accounted for approximately 76.8 percent of the aggregate unpaid principal amount of the portfolio. The Company's average loan size increased from $48,881 at June 30, 1992 to $60,103 at June 30, 1994 and the percentage of its portfolio comprised of VA-guaranteed loans declined from 15.3 percent to 10.2 percent of the unpaid principal balance of the portfolio during the same period. The following table shows the geographic distribution of the mortgages underlying the mortgage servicing portfolio at June 30, 1994 (dollars in millions): Geographic Distribution of Mortgage Servicing Portfolio Unpaid Number Principal of Loans Balance -------- --------- Alabama 3,829 $ 124 Alaska 453 33 Arizona 19,945 802 Arkansas 2,005 56 California 148,945 16,455 Colorado 11,033 507 Connecticut 5,875 332 Delaware 1,131 41 District of Columbia 996 74 Florida 28,588 1,248 Georgia 10,912 426 Hawaii 1,515 176 Idaho 3,033 81 Illinois 15,986 661 Indiana 9,385 236 Iowa 3,909 88 Kansas 2,128 72 Kentucky 7,791 213 Louisiana 5,871 134 Maine 1,400 95 Maryland 7,874 526 Massachusetts 12,363 869 Michigan 10,445 159 Minnesota 9,742 334 Mississippi 2,070 47 Missouri 4,086 130 Montana 1,424 46 Nebraska 902 25 Nevada 4,237 297 New Hampshire 1,343 99 New Jersey 11,861 964 New Mexico 3,846 144 New York 6,668 492 North Carolina 4,009 161 North Dakota 599 14 Ohio 21,984 417 Oklahoma 7,934 207 Oregon 3,644 235 Pennsylvania 15,954 510 Rhode Island 1,269 81 South Carolina 2,332 58 South Dakota 260 7 Tennessee 10,129 260 Texas 104,867 4,462 Utah 6,290 222 Vermont 128 8 Virginia 9,159 556 Washington 11,261 642 West Virginia 1,259 28 Wisconsin 1,719 66 Wyoming 689 23 Other 454 47 565,531 $ 33,990 The weighted average interest rate for the servicing portfolio was 8.3 percent at June 30, 1994. The following table sets forth information regarding the interest rate breakdown of the mortgage servicing portfolio at June 30, 1994: Breakdown by Interest Rate of Mortgage Servicing Portfolio (percentage of unpaid principal balance) Percentage of Total 7.99% 11.00% Unpaid and 8.00- 9.00- 10.00- and Principal lower 8.99% 9.99% 10.99% higher Balance ----- ----- ----- ------ ------ --------- FHA-insured mortgage loans 4.73 6.02 3.91 2.24 1.50 18.40 VA-guaranteed mortgage loans 2.01 3.95 2.59 .77 .84 10.16 Conventional mortgage loans 38.62 11.95 11.73 7.01 2.13 71.44 Total 45.36 21.92 18.23 10.02 4.47 100.00 At June 30, 1994 approximately $8.4 billion or 25 percent of the primary servicing portfolio consisted of adjustable rate mortgage loans. The weighted average age of the servicing portfolio was 4.8 years at June 30, 1994. The following table sets forth information regarding the aging of the mortgage servicing portfolio at June 30, 1994: Breakdown by Average Age of Mortgage Servicing Portfolio Percentage Unpaid of Total Percentage Principal Unpaid Number of Number Amount Principal Average Age of loans of Loans (in millions) Balance - ----------- -------- ---------- ------------- ---------- 1-5 years 189,533 33.5 $21,978 64.7 6-10 years 111,416 19.7 7,049 20.7 11-15 years 40,987 7.3 1,707 5.0 More than 15 years 223,595 39.5 3,256 9.6 Total 565,531 100.0 $33,990 100.0 The Company's operations are affected by changes in the level of homebuilding activity and mortgage-backed security issuance activity in the marketplace. In addition, operations are affected by declines in interest rates, which increase mortgage prepayments and reduce the yield on the related investment in such mortgage servicing rights. As a result of portfolio production aggregating $13.7 billion, the Company's servicing portfolio increased from $32.7 billion at June 30, 1993 to $34.0 billion at June 30, 1994 despite the high rate of portfolio runoff during the period. Portfolio runoff rates during fiscal 1994 and 1993 were 33.0 percent and 31.3 percent, respectively. Annualized portfolio runoff rates during the quarter and month of June 30, 1994 were 20.7 percent and 18.6 percent, respectively. Foreclosures and REO The Company collects servicing fees from investors on a cash basis by deducting the fee from mortgage payments as they are received. When a loan is delinquent, and in the case of foreclosures, such income is not collected. In some cases the Company is required to make guaranteed principal and interest payments on certain mortgage-backed securities regardless of actual collection from the underlying mortgage loans. In certain instances, the Company will buy foreclosed loans out of a pool and either attempt to have them reinstated or foreclose upon the secured properties. A portion of these advances on GNMA loans are not recoverable. Mortgage guarantees and insurance provided by the VA and the FHA, respectively, typically cover most of the foreclosure expenses, interest and principal advances of the servicer. FHA insurance covers 100 percent of the principal balance of any insured loan but generally does not cover approximately two months of interest advances, the interest differential between interest paid by the FHA on advances of principal and interest and the rate at which the Company funds such advances, and approximately one-third of the legal fees associated with the foreclosure. Prior to 1985 the Company generally recovered 100 percent of the loan balance plus accrued interest at any foreclosure of a VA-guaranteed loan. Beginning in 1985, the VA, in certain cases known as VA No-Specified Bids commonly called "VA no-bids," has elected to remit the maximum liability under its guaranty rather than to purchase the foreclosed property. In the case of VA no-bids, a VA loan guaranty typically covers only the lesser of 25 to 50 percent of the unpaid principal balance or up to $46,000 for loans originated after February 1, 1990. Prior to 1989 the maximum amount recoverable for VA no-bids was $27,500 regardless of the loan balance. Accordingly, the Company is subject to increased foreclosure risk with respect to the VA-guaranteed loans in its portfolio, which comprised approximately 10.2 percent or $3.5 billion in unpaid principal amount at June 30, 1994. The Company's losses in connection with VA no-bids (primarily in connection with losses from unreimbursed interest advances, legal fees and the liquidation of REO) were $3.6 million in fiscal 1994 and were $3.4 million for the year ended June 30, 1993. The Company's losses with respect to VA-guaranteed loans other than pursuant to VA no-bids (primarily in connection with unreimbursed interest advances and legal fees) were $1.1 million in fiscal 1994 and $1.8 million for the year ended June 30, 1993. In addition, the Company's losses in connection with FHA-insured loans (primarily in connection with unreimbursed interest advances and legal fees) were $3.3 million in fiscal 1994 and were $4.1 million for the year ended June 30, 1993. Substantially all of the remaining portfolio was serviced on a non-recourse basis without risk of loss to the Company. Property acquired through the foreclosure process, known as real estate owned ("REO"), is frequently located in an area where real estate values have declined significantly due to economic conditions. The Company then must liquidate the property at an amount which, in most cases, results in a loss. Losses occur primarily when foreclosure sale proceeds of the property underlying a defaulted mortgage loan are less than the then outstanding principal balance of such mortgage loan (net of the amount remitted by the VA) and the costs of holding and disposing of such underlying property. This loss, in the case of VA no-bids, is absorbed by the Company. The Company believes its reserves are adequate to cover losses associated with all anticipated VA no-bid cases. In the case of loans backed by FNMA or FHLMC, the servicer has the option to purchase insurance pursuant to which foreclosure losses are the responsibility of FNMA or FHLMC, and not of the servicer. As is customary in the industry, substantially all of the FNMA and FHLMC servicing in the Company's portfolio is covered by such insurance. Additionally, substantially all foreclosure risk on portfolios owned by private investors is borne by the investors and not by the Company. The following chart sets forth certain delinquency rates (expressed as a percentage of the number of loans in the primary servicing portfolio) as at each June 30 in the five years ended June 30, 1994: Loan Delinquency Rates of the Mortgage Servicing Portfolio
Year/Month 30-day 60-day 90-day 120+-day Net(1) Foreclosure Bankruptcies Gross(2) - ---------- ------ ------ ------ -------- ------ ----------- ------------ -------- 1990 June 4.38 1.07 0.37 0.56 6.38 0.70 0.67 7.75 1991 June 5.34 1.06 0.32 0.28 7.00 0.72 0.68 8.40 1992 June 4.17 0.77 0.26 0.24 5.44 0.80 0.69 6.93 1993 June 3.72 0.86 0.33 0.29 5.20 0.79 0.83 6.82 1994 June 3.43 0.85 0.29 0.36 4.93 0.88 0.83 6.64 (1) Includes all delinquencies and forbearances; excludes foreclosures and bankruptcies. (2) Includes all delinquencies, forbearances, foreclosures and bankruptcies. /TABLE Other Services Insurance Agency Services. The Company provides brokerage services for a variety of insurance products related to the Company's business and the needs of the Company's homeowners. The products include temporary hazard insurance, permanent fire, casualty and extended homeowner coverages and mortgage life insurance, accidental death, disability and hospital indemnity coverages. The Company sells insurance products as agent and does not retain any underwriting risk. Field Services. The Company monitors the condition of properties, assures property preservation and interviews delinquent mortgagors. The Company's field services unit, in addition to its work for the Company, also serves approximately 35 leading mortgage servicers. The field services unit currently inspects approximately 52,000 properties a month for outside customers and 10,000 properties a month for the Company. Field services employs approximately 132 field inspectors located throughout the United States. Discontinued Operations Information Systems. Through LIS the Company provides information management services and products to the mortgage banking industry. Its products include software packages for mortgage loan servicing, loan production, secondary marketing and master servicing, which it markets on both a service bureau and licensing basis. These systems form the Excelis line of products. In 1991 the Company introduced its Excelis mortgage loan servicing system ("Excelis-MLS"). Excelis-MLS is a software package based on an IBM-compatible system that automates a large portion of the previously manual servicing functions and increases employee productivity. The Company's servicing portfolio was converted to Excelis-MLS in June 1991 and conversion of the Company's external service bureau customers' servicing portfolios began in April 1991 and completed in fiscal 1993. The Company also provides general accounting and other data processing, telecommunications and information services and other software products for internal use by the Company and its affiliates and for external customers. While Lomas Mortgage is LIS' largest customer, approximately 46 percent of LIS' revenue was derived outside the Company and its affiliates during the fiscal year ended June 30, 1994. At June 30, 1994 the Company's service bureau processed, for the Company and its external customers, a combined total of approximately 1.3 million mortgages and handled approximately one million transactions per day. The Company's system processes payments collected from mortgagors, posts funds to appropriate accounts, processes disbursements to the investors who own the mortgages or mortgage-backed securities and monitors escrow accounts, foreclosures and other items. The Company also maintains an extensive telecommunications network to service its customers nationwide, and provides voice communication systems and services for the Company and certain other parties. LIS added, in fiscal 1993, outsourcing and computer utility services to the service products it provides. The Company provided data processing services to approximately 62 commercial banks, savings and loan associations and mortgage banking concerns at June 30, 1994. The Company recorded a provision at June 30, 1994 of $33.5 million related to the sale proposed of the majority of the LIS assets. For more information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Information Systems." Short Term Lending. The Company's short term construction, acquisition and development lending portfolio and operations were transferred to its wholly-owned subsidiary, ST Lending, Inc. ("STL"), a Delaware corporation formed upon consummation of LFC's reorganization on January 31, 1992. The Company discontinued its short term lending operations as of that date. Lomas Management, Inc. ("LMI"), another wholly-owned subsidiary of the Company, manages the assets of STL pursuant to a management agreement. Over the past several years, STL has experienced significant defaults on loans in its short term lending portfolio due to the continuing weakness in real estate markets. Continued absence of liquidity in capital and credit markets negatively impacts all sellers of real estate and could cause STL to make additional provisions for losses in the future. During the fiscal year ended June 30, 1994, STL made $10.1 million of provision for losses in the short term lending portfolio, which resulted in a total reserve balance of $14.7 million, or 13 percent, of the short term lending portfolio at June 30, 1994. Substantially no new commercial loans and only a limited number of residential single-family construction loans have been originated since September 1989 and it is not contemplated that any new loans of either type will be originated in the foreseeable future. New single-family construction ("SFC") commitments and loans have been made principally to retire outstanding acquisition and development ("A&D") loans as construction of homes commences on developed lots securing payment of such A&D loans. STL is expected to close the sale of 12 of its properties on or about September 30, 1994 for approximately $32 million. For more information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Discontinued Operations." The Company has also discontinued the operations of three small real estate subsidiaries, LLG Lands, Inc., Vistamar, Inc. and Lomas Properties, Inc., with combined net assets of $13.5 million at June 30, 1994. Regulation The Company is subject to the rules and regulations of, and examinations by, FNMA, FHLMC, VA, GNMA and state regulatory authorities with respect to originating, processing, underwriting, selling, securitizing and servicing residential mortgage loans. In addition, there are other federal and state statutes and regulations affecting such activities. These rules and regulations, among other things, impose licensing obligations on the Company, establish eligibility criteria for mortgage loans, prohibit discrimination, provide for inspection and appraisals of properties, regulate payment features and, in some cases, fix maximum interest rates, fees and loan amounts. The Company is required to submit annual audited financial statements to investors, and GNMA requires the maintenance of specified net worth levels. The Company's affairs are also subject to examination by the Federal Housing Commissioner at all times to assure compliance with FHA regulations, policies and procedures. Mortgage origination activities are subject to the Equal Credit Opportunity Act, Federal Truth-In-Lending Act, Real Estate Settlement Procedures Act ("RESPA") and the regulations promulgated thereunder which prohibit discrimination and require the disclosure of certain information to borrowers concerning credit and settlement costs. Many of the aforementioned regulatory requirements are designed to protect the interest of consumers, while others protect the owners or insurers of mortgage loans. Failure to comply with these requirements can lead to loss of approved status, termination of servicing contracts without compensation to the servicer, demands for indemnification or loan repurchases, class action lawsuits by borrowers and administrative enforcement actions. Certain states require that interest be paid to mortgagors on funds deposited by them in escrow to cover mortgage-related payments such as property taxes and insurance premiums. In late 1991, legislation was proposed in the United States House of Representatives which would establish a uniform interest payment requirement regarding the payment of interest on, and otherwise regulate, escrow accounts. If this or similar legislation is enacted in the future, it would reduce the benefit which the Company currently derives from the use as compensating balances of that portion of escrow, agency and fiduciary funds that relates to taxes and insurance. Other proposed federal legislation, if enacted, would impose minimum capital requirements on FNMA and FHLMC. To the extent this increases these agencies' costs of operation and a portion of this cost is passed on to the Company, the Company's results of operations could be adversely impacted. The Company's information systems services are subject to oversight by agencies of the federal government to the extent those services are performed on behalf of federally insured financial institutions. Competition--General The business conducted by the Company is competitive. The Company competes with other mortgage bankers, other providers of information systems services to the mortgage banking industry, financial institutions and subsidiaries of industrial corporations. The Company believes that it competes in obtaining sources of servicing rights on the basis of price and services provided. Many of the Company's competitors have financial resources that are substantially greater than those of the Company. The Company believes that because of the systems and personnel required of a large servicer, certain economies of scale influence the cost of providing servicing and that its infrastructure allows it to take advantage of these economies of scale. In addition, the Company believes that it has a competitive advantage in that it does not bear the incremental risk and expense of supporting a large retail origination network. Employees At June 30, 1994 the Company had 2,146 full-time employees of which 419 were employed by LIS and 41 were employed by LMI. None of the Company's employees were represented by any union. Item 2. PROPERTIES The Company's principal executive offices are located at 1600 Viceroy Drive, Dallas, Texas. Its mortgage banking operations, data processing and short term lending operations are located in nearby buildings in Dallas, Texas, owned by the Company. The buildings owned by the Company are subject to a first mortgage note executed in favor of an insurance company. At June 30, 1994 the Company's continuing operations had future minimum rental commitments for noncancelable leases for office space extending beyond June 30, 1999 totaling $3.9 million. Item 3. LEGAL PROCEEDINGS On September 17, 1990 plaintiffs purporting to represent a class of single-family mortgagors having escrow deposits computed by Lomas Mortgage within the past ten years filed a class action complaint in the Circuit Court of Cook County, Illinois. The complaint alleges that Lomas Mortgage is in breach of mortgage contracts and is assessing excessive and unlawful escrow deposits against the plaintiffs. In addition, the complaint asks for punitive damages. On October 4, 1990 this lawsuit was removed to the United States District Court for the Northern District of Illinois. Similar actions for damages, fees and other relief were filed in California and Minnesota state courts and class-action counterclaims have been filed in two pending Illinois foreclosure actions. The state court actions were removed to federal court and transferred to the Northern District of Illinois where they are currently pending before the same judge as the original action. The state court counterclaims are stayed. On August 26, 1994, the United States District Court for the Northern District of Illinois preliminarily approved a settlement that, if finally approved, will result in the dismissal, with prejudice, of all claims that were or could have been brought by the class. Pursuant to the terms of the settlement, Lomas Mortgage has agreed to follow certain escrow servicing procedures that result in lower escrow balances for certain of its mortgagors and has already refunded the surplus escrow balance to its mortgagors that resulted from the implementation of this procedure. Lomas Mortgage has also agreed to implement certain special servicing procedures for its mortgagors whose mortgages are written on older conventional mortgage forms. In addition to these escrow servicing procedures, Lomas Mortgage has agreed to provide, once the settlement is finally approved and the case dismissed, a one-time rebate to its eligible present and former mortgagors. The total rebate is currently estimated to be less than six-hundred thousand dollars ($600,000). Finally, Lomas Mortgage has agreed to reimburse class counsel for their reasonable attorneys' fees and costs. Lomas Mortgage has recorded a reserve at June 30, 1994 for the estimated rebate and attorneys' fees. A hearing to determine whether the Court should finally approve the settlement is currently scheduled for November 21, 1994. The Company is also involved in a number of other lawsuits considered to be in the normal course of business. In management's opinion, the resolution of these other disputes will not have a material adverse effect on the financial position of the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The New York Stock Exchange trading symbol for LFC's common stock is LFC. The approximate number of holders of record of LFC's common stock at June 30, 1994 was 2,800. In addition, depository companies held stock for approximately 13,300 beneficial owners. There were approximately 2,300 holders of LFC's warrants and approximately 400 holders of LFC's 9 percent Senior Convertible Notes. During the last two fiscal years, LFC has not declared any dividends and the high and low prices per share have been as follows: 1994 1993 Dividends Declared ------------- -------------- ------------------ High Low High Low 1993 1992 ------ ----- ----- ----- ---- ---- First quarter 10-1/2 7-7/8 8-7/8 6-1/2 -- -- Second quarter 10-7/8 7-1/4 8-7/8 6-7/8 -- -- Third quarter 9-1/4 7-1/4 8-3/4 6-3/4 -- -- Fourth quarter 8-1/2 4-5/8 8-1/2 7 -- -- LFC is restricted from paying dividends on its common stock under the terms of its $140 million 9 percent Senior Convertible Notes, which limits any dividends to 50 percent of LFC's consolidated net income after January 1, 1992. For information concerning restrictions of Lomas Mortgage's $150 million 9.75 percent notes and $190 million 10.25 percent notes on dividend payments and restrictions of warehouse and working capital lines of credit agreements on advances to LFC, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Item 8. Financial Statements and Supplementary Data-- Debt." Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA All periods presented below have been restated for discontinued operations. See "Item 8. Financial Statements and Supplementary Data-- Discontinued Operations." Effective December 31, 1991 the Company adopted fresh start reporting in connection with the Company's reorganization. See "Item 8. Financial Statements and Supplementary Data--Accounting Policies." Since January 1, 1992 a vertical black line has been placed to separate pre- reorganization financial data from post-reorganization financial data since they are not prepared on a comparable basis. LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA | Year Ended June 30 Six Months | Six Months Year Ended June 30 ------------------- Ended | Ended -------------------- 1994 1993 June 30, 1992 | December 31, 1991 1991 1990 --------- -------- ------------- | ----------------- --------- --------- (in thousands, except share data) | Statement of Operations Data: | Revenues from continuing | operations $271,058 $293,354 $132,613 | $129,699 $210,656 $196,996 Income (loss) from continuing | operations $(108,502) $29,557 $11,558 | $(2,652) $32,194 $(41,302) Loss from | discontinued operations $(74,164) $(17,263) $(29,280) | $(20,211) $(151,263) $(654,150) Extraordinary item -- -- -- | $932,238 -- -- Net income (loss) $(182,666) $12,294 $(17,722) | $909,375 $(119,069) $(695,452) Earnings (losses) per share: | Income (loss) from continuing | operations (5.39) 1.47 .57 | * * * Net income (loss) (9.07) .61 (.88) | * * * Average number of shares 20,132 20,117 20,108 | * * * *Not meaningful due to different capital structure.
As of June 30 | As of June 30 ------------------------------- | -------------------- 1994 1993 1992 | 1991 1990 --------- --------- --------- | --------- --------- (in thousands of dollars) | Balance Sheet Data: | Assets of continuing operations 964,315 1,279,929 1,392,180 | 1,335,395 1,041,544 Purchased future mortgage servicing | income rights 382,009 436,487 418,617 | 364,633 342,492 First mortgage loans held for sale 257,534 368,266 387,726 | 242,955 92,428 Term debt of continuing operations 523,229 532,198 515,020 | 62,020 92,684 Liabilities subject to Chapter 11 proceedings -- -- -- | 2,010,741 2,019,200 Stockholders' equity (deficit) 141,435 324,079 309,310 | (602,703) (485,009) Escrow, agency and fiduciary funds 603,163 1,082,591 709,048 | 1,203,250 693,707 As of June 30 ------------------------------------------- 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (dollars in billions, except loan data) Selected Operating Data: Unpaid principal amount of mortgage loans serviced: Mortgage servicing $34.0 $32.7 $29.3 $26.9 $23.8 Master servicing $8.4 $12.5 $10.1 $4.6 $6.0 Number of loans: Mortgage servicing 565,531 605,655 600,205 628,734 602,114 Master servicing 136,609 169,302 120,864 84,680 96,836 Average loan size: Mortgage servicing $60,103 $53,953 $48,881 $42,853 $39,508 Master servicing $61,816 $74,064 $83,193 $54,264 $62,170 Loans serviced per employee 980 920 886 916 887
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company reported losses from continuing operations in fiscal 1994 of $108.5 million compared to pretax income of $33.4 million in fiscal 1993 and income for the combined year ended June 30, 1992 of $10.0 million. The Company also reported losses from discontinued operations of $74.2 million, $17.3 million and $49.5 million for fiscal 1994 and 1993 and combined year ended June 30, 1992, respectively. Of the $108.5 million loss from continuing operations in Fiscal 1994, $95.5 million or 88 percent was attributable to non-recurring charges taken during the year (i) to reduce the carrying value of the Company's investment in purchased mortgage servicing rights by $80 million and (ii) to cover the $15.5 million cost of two workforce reductions and related restructurings, which in aggregate involve the terminations of approximately 400 employees or 20 percent of the Company's workforce. The first of the reductions in force was accomplished in January 1994 and the second is scheduled for completion in November 1994. The remaining 12 percent or $12.9 million of the loss from continuing operations, is attributable primarily to the fact that the Company's mortgage banking division was plagued throughout the year by unprecedented rates of portfolio runoff and as a result earned less (before non-recurring charges) in fiscal 1994 than in the prior year. Of the $74.2 million loss from discontinued operations in fiscal 1994, $51 million or 69 percent derived from special charges (i) a $33.5 million provision related to the pending sale of the Company's information system, and (ii) a $17.5 million related to the Company's discontinued short term lending operations. The $23.2 million remainder derived from operating losses incurred in 1994 in the Company's information systems business which is scheduled to be sold on or about October 31, 1994. The results of continuing operations of each of the Company's operating divisions for the year ended June 30, 1994 and 1993, six months ended June 30, 1992, six months ended December 31, 1991 and combined year ended June 30, 1992 are set forth in the following table (in thousands):
Year Ended June 30 Six Months | Six Months Combined ------------------- Ended | Ended Year Ended 1994 1993 June 30, 1992 | December 31, 1991 June 30, 1992 --------- -------- ------------- | ----------------- ------------- | Operating income (loss) | Mortgage banking $ 6,895 $ 40,031 $14,411 | $ 11,530 $ 25,941 Other 2,653 13,207 8,423 | 6,792 15,215 --------- -------- ------ | -------- -------- Operating income 9,548 53,238 22,834 | 18,322 41,156 General and | administrative (9,327) (7,232) (3,867) | (3,422) (7,289) Corporate interest income | (expense) (13,153) (12,637) (6,270) | 9,386 3,116 --------- -------- ------ | -------- -------- Operating income | (loss) before | provisions (12,932) 33,369 12,697 | 24,286 36,983 Provisions for | restructuring (15,570) -- -- | -- -- Provisions for impairment | of PMSRs (80,000) -- -- | -- -- --------- -------- ------ | -------- -------- Operating income | (loss) before | reorganization items | and federal income | tax equivalent | provision (108,502) 33,369 12,697 | 24,286 36,983 Reorganization items--net -- -- -- | (26,938) (26,938) --------- -------- ------ | -------- -------- Operating income | (loss) before | federal income tax | equivalent provision (108,502) 33,369 12,697 | (2,652) 10,045 Federal income tax equivalent | provision -- 3,812 1,139 | -- 1,139 --------- -------- ------ | -------- -------- Operating income | (loss) from continuing operations $(108,502) $ 29,557 $11,558 | $ (2,652) $ 8,906 ========= ======== ====== | ======== ======== Results of Operations--Year Ended June 30, 1994 Compared With Year Ended June 30, 1993 Mortgage Banking. During the years ended June 30, 1994 and 1993 and the combined year ended June 30, 1992, the operating results of mortgage banking were as follows (in millions): Year Ended June 30 Six Months | Six Months Combined Year --------------- -------------- Ended | Ended Ended 1994 1993 June 30, 1992 | December 31, 1991 June 30, 1992 --------------- -------------- --------------- | ----------------- -------------- | Loan administration | Primary servicing $135.7 $137.4 $ 71.2 | $ 70.8 $142.0 Master servicing 12.1 13.5 4.8 | 4.4 9.2 Expenses (66.3) (65.8) (32.0) | (35.9) (67.9) Amortization (68.3) $ 13.2 (61.9) $ 23.2 (27.7) $ 16.3 | (24.8) $14.5 (52.5) $ 30.8 ------ ------ ------- | ------ ------ Insurance | Agency 8.9 8.2 4.8 | 3.5 8.3 Mortgage plans 4.7 4.4 2.0 | 2.3 4.3 Expenses (4.9) 8.7 (4.9) 7.7 (2.7) 4.1 | (2.3) 3.5 (5.0) 7.6 ------ ------ ------- | ------ ------ Banking (including | warehousing and | investment income | and interest | expense) | Revenues 44.8 50.3 20.4 | 22.5 42.9 Expenses (66.7) (21.9) (65.1) (14.8) (33.0) (12.6) | (31.0) (8.5) (64.0) (21.1) ------ ------ ------- | ------ ------ Portfolio Production | Revenues 47.7 36.0 12.2 | 8.6 20.8 Expenses (28.9) 18.8 (12.7) 23.3 (4.0) 8.2 | (4.3) 4.3 (8.3) 12.5 ------ ------ ------- | ------ ------ Field services | Revenues 13.6 15.1 4.9 | 5.2 10.1 Expenses (13.1) 0.5 (13.8) 1.3 (4.3) 0.6 | (4.2) 1.0 (8.5) 1.6 ------ ------ ------- | ------ ------ Fund and asset | management | Revenues 8.3 22.8 7.5 | 7.5 15.0 Expenses (2.2) 6.1 (6.0) 16.8 (3.1) 4.4 | (2.5) 5.0 (5.6) 9.4 ------ ------ ------- | ------ ------ Other departments | Revenues 1.8 1.0 1.5 | 1.3 2.8 Expenses (3.2) (1.4) (6.1) (5.1) (3.0) (1.5) | (3.2) (1.9) (6.2) (3.4) ------ ------ ------- | ------ ------ General and | administrative | expenses (17.1) (12.4) (5.1) | (6.4) (11.5) ------ ------ ------- | ------ ------ Operating income | before provisions 6.9 40.0 14.4 | 11.5 25.9 Provisions for | restructuring (9.1) -- -- | -- -- Provisions for impair- | ment of PMSRs (80.0) -- -- | -- -- ------ ------ ------- | ------ ------ Pretax income | (loss) from | continuing | operations $(82.2) $ 40.0 $ 14.4 | $ 11.5 $ 25.9 ====== ====== ======= | ====== ======
Loan administration operating income for fiscal 1994, before an $80.0 million provision to reduce the carrying value of the Company's investment in PMSRs, was $13.2 million, down from $23.2 million in fiscal 1993, principally because portfolio amortization at $68.3 million in fiscal 1994 before the $80.0 million provision for PMSR impairment was $6.4 million higher than in fiscal 1993. The Company's portfolio runoff rate on an annualized basis was 33.0 percent during fiscal 1994 compared to 31.3 percent during fiscal 1993. The runoff rate on an annualized basis for the month of June 1994 had been reduced to 18.6 percent. The Company's booked investment in its $34.0 billion primary mortgage servicing portfolio was $382.0 million at June 30, 1994. The decrease in master servicing revenues was principally a result of the decline in the master servicing portfolio to $8.4 billion during fiscal 1994, down from $12.5 billion at June 30, 1993, which was caused by unusually high rates of runoff (particularly of Capstead Mortgage Corporation ("Capstead") related mortgages) and the cessation of additions of new Capstead related loans to the Company's master servicing portfolio. The Company periodically monitors its servicing portfolio to determine if adjustments should be made to its amortization schedules or carrying values of its PMSRs due to changes in interest rates, current prepayment rates, expected future prepayment rates and certain other factors. The amortization and impairment analyses are performed for individual mortgage tranches with similar economic characteristics on an undiscounted basis. If an individual mortgage tranche's estimated undiscounted net cash flow is less than the carrying value of the tranche, that tranche is written down to the projected amount of the undiscounted cash flow. In addition, the Company amortizes the capitalized PMSRs in proportion to, and over the period of, the estimated net servicing income. This policy causes a larger portion of the PMSRs to be amortized in earlier periods. The expected life of the estimated net servicing income is based on the expected prepayment rates of the underlying mortgages within the tranches. See "Item 8. Financial Statements and Supplementary Data--Accounting Policies--Purchased Future Mortgage Servicing Income Rights." The following is an analysis of servicing fee income for the three years ended June 30, 1994 (in thousands). Year Ended June 30 ----------------------------- 1994 1993 1992 --------- -------- -------- Servicing fee income: Primary: Directly owned $129,578 $134,241 $141,206 Subservicing for others 6,079 3,238 774 --------- -------- -------- 135,657 137,479 141,980 Master servicing portfolio 12,103 13,456 9,207 --------- -------- -------- Total $147,760 $150,935 $151,187 ========= ======== ======== The following table sets forth certain information regarding the Company's servicing portfolio (dollars in millions): June 30 ---------------- 1994 1993 ------- ------- Portfolio principal balances: Primary: Directly owned $27,126 $27,760 Subservicing for others 6,864 4,917 ------- ------- 33,990 32,677 Master servicing portfolio 8,445 12,539 ------- ------- $42,435 $45,216 ======= ======= Portfolio loan count: Primary: Directly owned 474,461 530,706 Subservicing for others 91,070 74,949 ------- ------- 565,531 605,655 Master servicing portfolio 136,609 169,302 ------- ------- 702,140 774,957 ======= ======= Weighted average interest rate 8.3% 8.8% The banking unit's net expense of $21.9 million for fiscal 1994 was $7.1 million higher than the $14.8 million net expense reported for fiscal 1993. Paid-in-full ("PIF") interest, which is incurred when loans securing payment of mortgage-backed securities in the Company's primary servicing portfolio are prepaid prior to the end of a given month, was $18.7 million for both fiscal 1994 and 1993. Net interest savings from the Company's reverse interest rate swaps declined from $17.7 million in fiscal 1993 to $13.9 million in fiscal 1994. Increased warehouse credit line commitment fees and service charges resulted in $2.6 million increase in net expense. Such fees and charges totaled $4.5 million in fiscal 1994 as compared to $1.6 million in fiscal 1993, principally due to increased warehouse credit facilities from $317.5 million at June 30, 1993 to $580.0 million at June 30, 1994. The Company renegotiated its mortgage loan warehouse credit facilities with various banks to reduce the total bank warehouse lines of credit from $580 million to $120 million, and the Company's banking fees will be reduced in future periods. After giving effect to the reduction in the Company's warehouse related bank lines, currently available credit for warehousing, including committed lines with investment bankers, aggregates $320 million, its short term working capital lines total $50 million and its investment lines aggregate $600 million. For more information, see "Liquidity and Capital Resources" of this section. Income from portfolio production for fiscal 1994 was $18.8 million, down from $23.3 million in fiscal 1993. Revenues and expenses were $11.7 million and $16.2 million higher in fiscal 1994 than in 1993, respectively. The principal reason for the higher revenues and expenses in fiscal 1994 was because of the higher portfolio production in fiscal 1994 than in 1993. The Company added $12.2 billion principal amount of mortgages through flow production to its servicing portfolio in fiscal 1994 and net of record portfolio runoff, increased the unpaid principal balance of its primary servicing portfolio from $32.7 billion at June 30, 1993. However, during fourth quarter of fiscal 1994, as a result of higher interest rates, portfolio production was $1.6 billion as compared to $4.4 billion in March quarter, $3.5 billion in December quarter and $2.7 billion in September quarter. The decrease in portfolio production in the fourth quarter of fiscal 1994 accounted for the decline in operating income in portfolio production operations in fiscal 1994 as compared to fiscal 1993. Total portfolio production through flow acquisition was $10.2 billion in fiscal 1993. Portfolio production revenues for fiscal 1994 and 1993 included $24.3 million and $14.3 million, respectively, of gains from sales of first mortgage loans and related servicing income rights. Due to termination of the management agreement between the Company and Capstead, Capstead became self-administered at September 30, 1993. The fund and asset management unit received $4.8 million in fiscal 1994 as a result of the termination of the management agreement. The Company recorded Capstead related fee income totaling $6.1 million and $16.8 million in fiscal 1994 and 1993, respectively. Other departments include mortgage banking division's real estate production, real estate investment banking, property exchange and quality management operations. Operating losses for fiscal 1994 were $1.4 million compared to $5.1 million in fiscal 1993. During fiscal 1994 image processing operations, which were included in the quality management unit until June 30, 1993, were separated from the mortgage banking operations and became a wholly-owned subsidiary of LFC. Operating losses of the image processing operations were $2.4 million in fiscal 1993. Image processing loss during fiscal 1994 totaling $4.9 million was included in LFC's other income. The mortgage banking division's general and administrative costs increased during fiscal 1994 principally as a result of increased legal expenses, other external professional fees and corporate absorbed costs relating to unallocated office space. In fiscal 1993 these costs were charged to its affiliates. The Company established provisions of $80.0 million in fiscal 1994 for impairment in the carrying value of its PMSRs in response to unprecedented level of mortgage prepayments in such periods. In addition, the mortgage banking division also established in fiscal 1994 provisions to cover the cost of the reduction-in-force that occurred in January 1994 and reduction- in-force and restructuring that was approved in June 1994. Interest Rate Fluctuations and Market Factors Lower long term interest rates normally increase new mortgage loan production volume, which in turn increases fee income and the net interest spread as a result of the higher average volume of mortgages held for sale. Lower long term rates also increase prepayment speeds of mortgages on which PMSRs are currently held, which lowers yields realized on the Company's investment in PMSRs. Increased prepayment speeds also accelerate PIF interest expense owed to certain investors. PIF interest is the partial monthly interest in the month of payoff that is not payable by the mortgagor, but is receivable by the mortgage security holder. Higher long term interest rates normally decrease the general volume of new mortgage originations, decreasing the volume of mortgages held for sale. These conditions result in reduced fee income and reduced net interest income. However, the Company's average net yield as a percentage of the balance held may increase if short term rates do not change by a corresponding degree. Higher long term rates also decrease the prepayment speed of mortgages on which PMSRs are currently held, which in turn would increase the yield on the Company's investment in PMSRs. Decreased prepayment speeds will also decrease PIF interest expense due to loans which payoff. The value of the Company's loan servicing portfolio may be adversely affected if mortgage interest rates decline and loan prepayments increase. Period of accelerated prepayments may result in future declines of income generated from the Company's loan servicing portfolio. Conversely, if mortgage interest rates increase, the value of the Company's loan servicing portfolio may be positively affected. Lower short term interest rates increase the Company's net interest spread on mortgages held for sale and higher short term interest rates decrease the net yield on mortgages held for sale unless there is a corresponding increase in long term interest rates. Other Income. Other income of the Company was $2.7 million and $13.2 million in fiscal 1994 and 1993, respectively. Other income for fiscal 1994 included $2.1 million of gains on sale of a promissory note, which had been received by the Company in connection with the sale of its life insurance operations and sale of an option to purchase 500,000 shares of Capstead common stock. Amendments to certain contractual provisions related to the Company's 1991 sale of ELLCO Leasing Corporation added $3.9 million in other income in fiscal 1994. Other income for fiscal 1994 also included $4.9 million loss from the Company's image processing operations. Other income during the year ended June 30, 1993 included a $2.2 million of gain on sale of securities, amendments to the Company's relationship with Capstead also contributed $3.0 million in other income. In addition, other income included $4.9 million of investment income and $3.1 million derived from other sources. Reduction in Force and Restructuring. During the second quarter of fiscal 1994, the Company announced a plan to restructure its operations with a view to decreasing expenses and enhancing productivity. Under the plan, the Company's workforce was reduced by approximately 10 percent or approximately 200 employees. In connection with the plan, the Company's continuing operations recorded a charge of $5.7 million of which $5.1 million was recorded by the mortgage banking division. Management projected that this plan would reduce the future operating costs by approximately $8.0 million. Higher interest rates since February 1994 has resulted in the cessation of the mortgage refinancing boom and decline in mortgage servicing portfolio runoff rates. As a result, the Company's mortgage production activity and revenues also have precipitously declined. To offset the significant declines in production-related revenues, to reduce its servicing-related costs and to move the Company toward a single-company operation, the Company initiated another restructuring plan in June 1994. Under the plan, the Company intends to reduce its workforce by another 10 percent or approximately 200 employees through terminations or a voluntary early retirement program. The planned reduction in force will be completed by December 1, 1994. In connection with the plan, the Company's continuing operations provided a reserve of $10.0 million effective June 30, 1994 (of which $4.0 million was recorded by the mortgage banking division). Of the $10.0 million, $2.9 million represents the benefits to be paid on terminations and approximately $1.3 million is the estimated pension plan curtailment loss related to voluntarily early retiring employees. Employees to be terminated include employees in mortgage production and servicing- related areas and in corporate general and administrative areas. The remaining $5.8 million reserves were provided to cover planned termination of certain lease agreements and writedown of certain fixed assets. The projected annualized cost savings is approximately $10 million. These savings will derive from a number of sources including approximately $6.6 million from reduction in force and early retirement and approximately $2.6 million from renegotiation of the Company's warehouse agreements with various banks. Results of Operations--Year Ended June 30, 1993 Compared With Combined Year Ended June 30, 1992 Mortgage Banking. Loan administration contributed operating profit of $23.2 million in fiscal 1993 compared to $30.8 million for the combined year ended June 30, 1992. The primary reason for the decrease was an increase in amortization of the Company's purchased mortgage servicing rights ("PMSRs"). The amortization increased from $52.5 million for the combined year ended June 30, 1992 to $61.9 million for the year ended June 30, 1993. The annual rate at which loans in Lomas Mortgage's primary servicing portfolio were retired was 31.3 percent in fiscal 1993 compared to 19.8 percent in fiscal 1992. The Company added $13.2 billion principal amount of mortgages to its servicing portfolio in fiscal 1993 and, net of record portfolio runoff, increased the unpaid principal balance of its primary servicing portfolio by 11.6 percent from $29.3 billion at June 30, 1992 to $32.7 billion at June 30, 1993. Banking, which includes warehousing and investment income and interest expense, produced an operating loss of $14.8 million in fiscal 1993 compared to a loss of $21.1 million for the combined year ended June 30, 1992. The $6.3 million net reduction in interest expense in fiscal 1993 resulted primarily from the increased utilization of warehouse credit facilities and the positive impact of the Company's reverse interest rate swap program. The Company's paid-in-full ("PIF") interest expense, which is related to prepayments of loans securing mortgage-backed securities in the Company's primary mortgage servicing portfolio, totaled $18.7 million in fiscal 1993 which was $9.6 million higher than in the prior year. The Company reduced its net interest expense in 1993 by a total of approximately $17.7 million from its reverse interest rate swap program during fiscal 1993 and also generated approximately $11.9 million of deferred income. The Company's portfolio and mortgage production units contributed net operating income of $23.3 million in fiscal 1993, up from the $12.5 million generated in the combined year ended June 30, 1992. The Company expanded its loan production system in fiscal 1993 with the additions of: (i) Lomega which, since its operations commenced in November 1992, established in fiscal 1993 correspondent relationships with over 100 mortgage originators; (ii) major and continuing relationships with certain mortgage brokers and other financial institutions; and (iii) a central funding unit through which the Company expected to increase its direct loan originations in the future. Fund and asset management recorded operating income of $16.8 million in fiscal 1993 compared to $9.4 million in the combined year ended June 30, 1992. This was a result of the amendments to the contractual relationship between the Company and Capstead and the related acceleration of payments to the Company by Capstead. Capstead became entirely self-managed effective September 30, 1993 and the management agreement terminated on September 30, 1993. See "Item 8. Financial Statements and Supplementary Data--Transactions with Affiliates." Other Income. Other income during the year ended June 30, 1993 totaled $13.2 million, which included $2.2 million of gains on the sale of securities, $7.9 million of investment income and $3.1 million derived from other sources. This compares to other income for the combined year ended June 30, 1992 of $15.2 million. Other income for the combined year ended June 30, 1992 included $5.8 million of gains on sale of securities and investment income of $9.4 million. Corporate Interest Income (Expense). At the corporate level during fiscal 1993, the Company incurred net interest expense of $12.6 million, which compares to net interest income of $3.1 million for the combined year ended June 30, 1992. During the combined year ended June 30, 1992, corporate interest was impacted by: (a) accrual of interest expense on LFC's senior convertible notes did not commence until November 1, 1991 and (b) the Company held and received interest payments aggregating $11.6 million on approximately $300 million principal amount of intercompany indebtedness of Lomas Mortgage. The intercompany debt was extinguished when LFC's plan of reorganization was consummated in January 1992 and, therefore, did not generate comparable corporate income during fiscal 1993. The $12.6 million of corporate interest expense in fiscal 1993 related to the outstanding senior convertible notes. Discontinued Operations Discontinued operations include the Company's short term lending operations and LIS. Short term lending operations include ST Lending, Inc. ("STL"), Lomas Management, Inc. ("LMI"), which manages the assets of STL, and other real estate operations. For the six months ended December 31, 1991, discontinued operations also included the Company's real estate development operations as held and operated by Vista Properties, Inc. ("Vista"), which was spun off in connection with LFC's reorganization. Operating results from discontinued operations for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991 were as follows (in millions):
Year Ended June 30 Six Months | Six Months Combined ------------------ Ended | Ended Year Ended 1994 1993 June 30, 1992 | December 31, 1991 June 30, 1992 -------- -------- ------------- | ----------------- ------------- | Operating income (loss): | LIS $(23,164) $(14,293) $ (5,810) | $(12,253) $(18,063) STL and LMI (16,552) (14,391) (16,524) | 109 (16,415) Other real estate operations (636) 260 315 | 1,184 1,499 Vista -- -- -- | (9,251) (9,251) -------- -------- -------- | -------- -------- Loss from operations (40,352) (28,424) (22,019) | (20,211) (42,230) Provision for short term | lending operations future losses (17,500) (4,500) (8,400) | -- (8,400) Operating loss charged to reserves 17,188 14,220 -- | -- -- Provision for future LIS losses (8,500) -- -- | -- -- Estimated loss on disposition of LIS (25,000) -- -- | -- -- Tax benefit applicable to discontinued | operations -- 1,441 1,139 | -- 1,139 -------- -------- -------- | -------- -------- Loss from discontinued operations $(74,164) $(17,263) $(29,280) | $(20,211) $(49,491) ======== ======== ======== | ======== ======== Information Systems. The operating results of information systems for the years ended June 30, 1994 and 1993 and combined year ended June 30, 1992 were as follows (in millions): Year Ended June 30 Six Months | Six Months Combined ------------------ Ended | Ended Year Ended 1994 1993 June 30, 1992 | December 31, 1991 June 30, 1992 -------- -------- ------------- | ----------------- ------------- | Revenues: | External $ 17,727 $ 13,933 $ 8,617 | $ 9,520 $ 18,137 Internal 20,752 21,106 10,249 | 9,438 19,687 -------- -------- -------- | -------- -------- 38,479 35,039 18,866 | 18,958 37,824 -------- -------- -------- | -------- -------- Cash expenses: | Personnel and contract labor (20,846) (22,014) (10,980) | (17,569) (28,549) Equipment/software rent and | maintenance (18,313) (17,096) (8,736) | (9,431) (18,167) Voice communications (4,887) (3,812) (2,480) | (2,609) (5,089) General and administrative (9,442) (10,630) (5,201) | (5,810) (11,011) -------- -------- -------- | -------- -------- (53,488) (53,552) (27,397) | (35,419) (62,816) -------- -------- -------- | -------- -------- Net cash requirement (15,009) (18,513) (8,531) | (16,461) (24,992) Noncash items: | Depreciation and amortization (9,080) (8,484) (4,330) | (4,442) (8,772) Enhancement capitalization 1,050 4,298 111 | 131 242 Charges to conversion reserves -- 8,530 7,954 | 8,644 16,598 Provision for losses (125) (124) (1,014) | (125) (1,139) -------- -------- -------- | -------- -------- Loss from operations $(23,164) $(14,293) $ (5,810) | $(12,253) $(18,063) ======== ======== ======== | ======== ========
LIS recorded operating loss of $23.2 million in fiscal 1994 compared to $14.3 million in fiscal 1993. External revenues increased to $17.7 million in fiscal 1994 from $13.9 million in fiscal 1993 principally as a result of increased outsourcing businesses since the fourth quarter of fiscal 1993 which allow external customers to utilize LIS' hardware to run their own software. During fiscal 1993 $8.5 million of expenses incurred relating to the conversion of existing customers to the MLS system were charged to previously provided conversion reserves and costs incurred relating to enhancement of the MLS system of $4.3 million were capitalized. For fiscal 1994 capitalized enhancement of the MLS system was $1.1 million. On a net cash basis, LIS' loss in fiscal 1994 was $15.0 million or $3.5 million less than the $18.5 million cash loss reported for fiscal 1993. The Company recorded a provision of $33.5 million at June 30, 1994 related to the planned disposition of the assets of the Company's information systems business. Of this provision, $25.0 million is to reduce the net asset of the segment to be sold to their estimated fair value less estimated selling expenses and to cover the remainder of the projected operating losses of LIS during the first four months of fiscal 1995, as well as expenses in connection with the disposition. The Company, on September 19, 1994, entered into a definitive letter of intent pursuant to which, subject to completion of mutually satisfactory documentation, substantially all of the assets of LIS are scheduled to be sold on or about October 31, 1994 in exchange for $2.5 million in cash; and $8.0 million note due five years after closing, which can be adjusted based on future financial performance of the information systems unit; and 35 percent of the purchaser's revenues in excess of $55 million per year generated during the seven years ending December 31, 2001. The calculation of the present value of the estimated discounted cash flow considerations from this transaction is approximately $40 million. The Company will not retain operational or management control of the successor entity. The Company believes that during the period involved, it will recover its remaining $37.5 million of investment. The Company will apply all subsequent receipts, related to the transaction to reduce its remaining book basis until the entire $37.5 million is recovered. After full recovery of the remaining basis, all subsequent revenues will be treated as income as they are received. Information systems recorded a loss of $14.3 million for the fiscal year ended 1993 compared to a loss of $18 million for the combined year ended June 30, 1992. In fiscal 1993 LIS completed the conversions of its service bureau customers to its new mortgage loan servicing system, Excelis-MLS, and reduced its annual cash expenditure rate by approximately $9 million. Short Term Lending. In fiscal 1992 and 1993 the Company provided $15.4 million of reserves to cover future operating losses of STL and an additional $17.5 million during fiscal 1994. For the years ended June 30, 1994 and 1993, operating losses of $17.2 million and $14.2 million, respectively, were charged to these reserves. Operating losses of the short term lending operations included $10.1 million, $9.0 million and $18.9 million to provide for foreclosure losses and additional allowance for uncollectible receivables for the years ended June 30, 1994 and 1993 and combined year ended June 30, 1992, respectively. Provision for losses for fiscal 1994 also included a $6.5 million of reserve provided for the loss to be realized on the sales of property in early fiscal 1995 and for restructuring. The Company projects future operating losses from its short term lending operations of approximately $2.1 million through June 30, 1995, which has been provided for as of June 30, 1994. STL is expected to close a sale of 12 of its properties on or about September 30, 1994, which would generate cash of approximately $31.1 million. STL currently has on hand approximately $16.3 million in cash and its public debt has been reduced at this time to $19.0 million, resulting in a net difference between cash on hand and debt of only $2.6 million. The sale price of $31.1 million would be reduced with a retention deposit to secure a limited six months buyback undertaking, which was escrowed at $4.5 million, resulting in net cash of $26.6 million. This will leave net cash, after repayment of the public debt, of $24.0 million. This cash would be available to LFC and the consolidated operations. The assets of ST Lending adjusted after this transaction would result in a portfolio balance, net of reserves of $45.1 million, other assets of $10.7 million and cash of $24.0 million or total assets of $79.8 million. Liquidity and Capital Resources The outstanding capital and credit resources of the Company at June 30, 1994 included (in millions): Short term debt (self-liquidating) of Lomas Mortgage: --Secured by first mortgage loans pending delivery to permanent investors $ 239.6 --Secured by reverse repurchase agreements 5.9 --Secured by high quality short term investments 72.1 --Borrowings under working capital line of credit 22.0 --Other short term debt 1.4 -------- 341.0 -------- Term debt of Lomas Mortgage: --Notes due in 1997 150.0 --Notes due in 2002 190.0 --Other 43.3 -------- 383.3 -------- Term notes of STL due in 1996 62.0 Convertible notes of LFC due in 2003 139.9 Stockholders' equity 141.4 -------- $1,067.6 ======== Short term debt was $341.0 million at June 30, 1994, including $72.1 million principal amount borrowed under investment lines of credit and $239.6 million principal amount of warehouse debt secured by single-family mortgage loans pending delivery to permanent investors. Investment lines of credit were secured by high quality short term investments purchased with the proceeds of such lines of credit. The short term notes payable under reverse repurchase agreements are secured by single-family mortgage loans which, at that date, were committed for sale to institutional investors. Such short term notes (and therefore the related warehouse indebtedness) normally are self-liquidating and require no supplemental liquidity support from LFC or any of its subsidiaries. Commercial paper and bank certificates of deposit of non-affiliated commercial banks are funded with proceeds from, and are pledged as collateral for, investment lines of credit. The commercial paper and bank certificates of deposit have fixed rates of interest and generally mature within 31 days, at which time the investment lines of credit are paid down. As a result, all short term indebtedness is self-liquidating and none of it constitutes any burden on operating cash flow. Lomas Mortgage had outstanding at June 30, 1994 interest rate swaps in the aggregate notional amount of $800 million, all of which were designated as hedges. For more information on the interest rate swaps, see "Item 8. Financial Statements and Supplementary Data--Financial Instruments With Off-Balance Sheet Risks--Reverse Interest Rate Swaps." Coverage for the term notes payable of Lomas Mortgage is provided by cash internally generated by that subsidiary. Lomas Mortgage's operations during fiscal 1994, after paying interest on its short term debt, generated $111.7 million in cash available for (i) payment of interest on the subsidiary's $383.3 million term debt, (ii) investment in portfolio maintenance and growth, (iii) intercompany advances or payment of dividends to LFC (subject to restricted payment limitations described below), and (iv) addition to Lomas Mortgage's working capital. Under the terms of the warehouse agreement, servicing payment agreement and working capital line of credit that contains the most restrictive covenants, Lomas Mortgage is restricted from making dividend payments to LFC if, after giving effect thereto, the aggregate amount of such payments should exceed the sum of (i) $25 million (less any intercompany advances); plus (ii) 50 percent of Lomas Mortgage's accumulated consolidated income before tax since October 1, 1992; or reduced by 100 percent of consolidated loss before income taxes; plus (iii) (a) before November 30, 1993, the fair value of the aggregate net proceeds received by Lomas Mortgage from the issuance or sale after October 1, 1992 of its capital stock (b) after November 30, 1993, the aggregate net cash proceeds received from the issuance or sale of capital stock and warrants, options and rights to purchase its capital stock. The minimum net worth requirement, as defined, under these covenants at June 30, 1994 was $200 million and Lomas Mortgage's net worth as defined at that date before the amendment described below was $196.8 million which restricted Lomas Mortgage from declaring dividends or making additional advances to LFC. Pursuant to the amended debt agreements which were executed in September 1994, but effective June 30, 1994, the minimum net worth requirement was reduced to $175 million and, therefore, Lomas Mortgage could transfer as intercompany advances to LFC approximately $12.0 million. The total warehouse lines of credit available was reduced to $120 million per its amendment. Coverage for interest payments on LFC's $140 million of convertible notes due 2003 and general corporate expenses have been and in the future are expected to be provided by (a) LFC's current cash resources, (b) dividends (if available) and intercompany advances from Lomas Mortgage, (c) cash dividends and interest income from other investments, (d) the reinstated liquidity support agreement that is provided by STL, and (e) periodic liquidations of other assets. During fiscal 1994 the Company reinstated its liquidity support agreement with STL. Under the reinstated agreement, STL, during fiscal 1994, advanced $6.2 million to LFC for the interest payment on LFC's $140 million of convertible notes due 2003. After the STL public debt is repaid, the liquidity support agreement will be terminated, and STL can make cash advances or dividends directly to LFC to the extent of STL liquidity. Also, because of the pending sale of LIS, LFC will not be required in the future to fund LIS' cash losses which were approximately $15.0 million in fiscal 1994. As of June 30, 1994, the Company's failure to meet certain ratio requirements contained in the covenants of the Company's $140 million senior convertible note indenture, while not an event of default, limits the Company's ability to issue additional term debt. STL's term notes are related to the Company's discontinued short term lending operations and are without recourse to the general credit and resources of LFC or its other subsidiaries. The STL notes are secured by STL's investments in short term real estate loans and related assets and will be self-liquidating as the collateral is retired or otherwise liquidated over the next two years. At June 30, 1994 the outstanding balance of STL's notes was $62.0 million. Subsequent to June 30, 1994 STL has made additional principal payments of $43.0 million therefore reducing the balance to $19.0 million. For information on the current status of STL's liquidity, see "Discontinued Operations--Short term Lending" of this section. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Stockholders and Board of Directors Lomas Financial Corporation We have audited the accompanying consolidated balance sheet of Lomas Financial Corporation and subsidiaries as of June 30, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended June 30, 1994, six months ended June 30, 1992 and six months ended December 31, 1991. Our audits also included the financial statement schedules listed in the index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lomas Financial Corporation and subsidiaries at June 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the two years in the period ended June 30, 1994, six months ended June 30, 1992 and six months ended December 31, 1991, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Dallas, Texas September 22, 1994 CONSOLIDATED BALANCE SHEET LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands) June 30 ------------------------ 1994 1993 ----------- ---------- ASSETS Cash and cash equivalents $ 7,206 $ 34,368 First mortgage loans held for sale 257,534 368,266 Investments 117,452 245,860 Receivables 84,155 85,119 Foreclosed real estate 8,934 18,550 ---------- ---------- 468,075 717,795 Less allowance for losses (12,262) (10,831) ---------- ---------- 455,813 706,964 Purchased future mortgage servicing income rights--net 382,009 436,487 Fixed assets--net 89,154 69,897 Prepaid expenses and other assets 30,133 32,213 Net assets of discontinued operations 113,258 174,582 ---------- ---------- $1,077,573 $1,454,511 ========== ========== Escrow, agency and fiduciary funds--see contra $ 603,163 $1,082,591 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 71,862 $ 82,914 Notes payable 341,047 416,180 Repurchase agreements -- 99,140 Term notes payable 383,311 392,280 Senior convertible notes payable 139,918 139,918 ---------- ---------- 936,138 1,130,432 ---------- ---------- Stockholders' equity: Common stock--20,100 and 20,097 shares issued and outstanding 20,100 20,097 Other paid-in capital 309,429 309,410 Retained earnings (deficit) (188,094) (5,428) ---------- ---------- 141,435 324,079 ---------- ---------- $1,077,573 $1,454,511 ========== ========== Liability for escrow, agency and fiduciary funds--see contra $ 603,163 $1,082,591 ========== ========== See notes to consolidated financial statements. STATEMENT OF CONSOLIDATED OPERATIONS LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands, except per share amounts)
| Predecessor Reorganized Company | Company ---------------------------------- | ----------------- Year Ended June 30 Six Months | Six Months ------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 --------- -------- ------------- | ----------------- | Revenues: | Mortgage servicing $ 146,312 $148,736 $ 74,462 | $ 73,334 Interest 35,609 39,617 16,722 | 13,964 Commissions and fees 28,288 27,616 13,020 | 12,126 Gain on sales 24,479 16,365 3,341 | 1,902 Investment 21,763 28,207 14,439 | 18,491 Management fees--affiliates 2,952 10,925 7,106 | 6,598 Other--affiliates 5,028 13,537 -- | -- Other 6,627 8,351 3,523 | 3,284 --------- -------- -------- | -------- 271,058 293,354 132,613 | 129,699 --------- -------- -------- | -------- Expenses: | Interest 80,431 75,717 37,923 | 20,516 Personnel 74,428 69,333 29,904 | 33,332 Other operating 42,424 40,587 18,859 | 16,906 Depreciation and amortization 155,310 69,021 31,197 | 28,018 Provision for losses 11,397 5,327 2,033 | 6,641 Provisions for restructuring 15,570 -- -- | -- --------- -------- -------- | -------- 379,560 259,985 119,916 | 105,413 --------- -------- -------- | -------- Income (loss) from continuing operations | before reorganization items and federal | income tax equivalent provision (108,502) 33,369 12,697 | 24,286 --------- -------- -------- | -------- Reorganization items: | Interest earned on cash accumulated -- -- -- | 9,184 Professional fees and other -- -- -- | (36,122) --------- -------- -------- | -------- -- -- -- | (26,938) --------- -------- -------- | -------- Income (loss) from continuing operations | before federal income tax equivalent | provision (108,502) 33,369 12,697 | (2,652) Federal income tax equivalent provision -- 3,812 1,139 | -- --------- -------- -------- | -------- Income (loss) from continuing operations (108,502) 29,557 11,558 | (2,652) Loss from discontinued operations net of | federal income tax equivalent provision (74,164) (17,263) (29,280) | (20,211) --------- -------- -------- | -------- Income (loss) before extraordinary item (182,666) 12,294 (17,722) | (22,863) Extraordinary gain--discharge of debt -- -- -- | 932,238 --------- -------- -------- | -------- Net income (loss) $(182,666) $ 12,294 $(17,722) | $909,375 ========= ======== ======== | ======== Earnings (loss) per share: | Income (loss) from continuing operations $(5.39) $1.47 $.57 | * Net income (loss) $(9.07) $.61 $(.88) | * Average number of shares 20,132 20,117 20,108 | -- *Earnings per share for the six months ended December 31, 1991 is neither comparable nor meaningful since the Company was recapitalized on December 31, 1991. See notes to consolidated financial statements. STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES Years Ended June 30, 1994 and 1993 Six Months Ended June 30, 1992 and Six Months Ended December 31, 1991 (in thousands) Shares Outstanding Stated Par Other Retained -------------------- Value Value Paid-in Earnings Preferred Common Preferred Common Capital (Deficit) Total --------- -------- --------- -------- --------- ----------- --------- Balance at July 1, 1991 471 29,629 $ 294,166 $ 59,258 $ 196,989 $(1,153,116) $(602,703) Net income for six months ended December 31, 1991 -- -- -- -- -- 909,375 909,375 Issuance of reorganized Lomas stock -- 20,076 -- 20,076 -- -- 20,076 Exchange of stock of Predecessor (471) (29,629) (294,166) (59,258) 353,708 -- 284 Fresh start reclassification of retained earnings -- -- -- -- (243,741) 243,741 -- ---- -------- --------- -------- --------- ----------- --------- Balance at December 31, 1991 -- 20,076 -- 20,076 306,956 -- 327,032 Net loss for six months ended June 30, 1992 -- -- -- -- -- (17,722) (17,722) ---- -------- --------- -------- --------- ----------- --------- Balance at June 30, 1992 -- 20,076 -- 20,076 306,956 (17,722) 309,310 Net income -- -- -- -- -- 12,294 12,294 Federal income tax benefit recognized from application of pre-reorganization deductible temporary differences -- -- -- -- 2,371 -- 2,371 Issuance of stock under stock plans -- 33 -- 33 220 -- 253 Common stock canceled -- (12) -- (12) (137) -- (149) ---- -------- --------- -------- --------- ----------- --------- Balance at June 30, 1993 -- 20,097 -- 20,097 309,410 (5,428) 324,079 Net loss -- -- -- -- -- (182,666) (182,666) Issuance of stock under stock plans -- 3 -- 3 19 -- 22 ---- -------- --------- -------- --------- ----------- --------- Balance at June 30, 1994 -- 20,100 $ -- $ 20,100 $ 309,429 $ (188,094) $ 141,435 ==== ======== ========= ======== ========= =========== ========= See notes to consolidated financial statements.
STATEMENT OF CONSOLIDATED CASH FLOWS LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands)
| Predecessor Reorganized Company | Company ----------------------------------- | ----------------- Year Ended June 30 Six Months | Six Months -------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 --------- --------- ------------- | ----------------- | Operating activities: | Income (loss) from continuing operations $(108,502) $ 29,557 $ 11,558 | $ (2,652) Noncash items included in the | determination of income (loss) from | continuing operations: | Depreciation and amortization 155,310 69,021 31,197 | 28,018 Provision for losses 11,397 5,327 2,033 | 6,641 Provisions for restructuring 15,570 -- -- | -- Gain on sales of mortgage servicing | rights (4,841) (2,439) (92) | (2) Federal income tax equivalent | provision -- 3,812 1,139 | -- --------- ----------------|-------- Cash provided by operations | before working capital changes 68,934 105,278 45,835 | 32,005 Net change in first mortgage loans | held for sale 128,812 30,494 (131,382) | (13,527) Net change in sundry receivables, | payables and other assets (46,383) (13,945) (38,296) | 3,050 Net cash used by discontinued operations (21,216) (28,680) (18,081) | (8,195) --------- ----------------|-------- Net cash provided (used) by | operating activities 130,147 93,147 (141,924) | 13,333 --------- ----------------|-------- | Investing activities: | Purchases of investments (15,929) (130,013) (294,043) | (34,026) Maturities/sales of investments 147,411 273,171 41,656 | 56,446 Purchases of loans from pools (18,026) (34,981) (11,543) | (10,975) Sales of foreclosed real estate 19,598 15,143 6,897 | 8,323 Net additions to fixed assets (24,673) (8,878) (2,097) | (2,551) Purchases of future mortgage | servicing income rights (108,071) (85,181) (32,504) | (61,135) Sales of future mortgage | servicing income rights 17,073 9,788 105 | 2 Cash proceeds from sales of subsidiaries -- -- -- | 4,990 Other 172 26 96 | 148 Net cash provided by discontinued | operations 70,789 114,416 7,791 | 40,524 --------- ----------------|-------- Net cash provided (used) by | investing activities 88,344 153,491 (283,642) | 1,746 --------- ----------------|-------- STATEMENT OF CONSOLIDATED CASH FLOWS (Continued) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands) | Predecessor Reorganized Company | Company ----------------------------------- | ----------------- Six Months | Six Months Year Ended June 30 Ended | Ended -------------------- | 1994 1993 June 30, 1992 | December 31, 1991 --------- --------- ------------- | ----------------- | Financing activities: | Net borrowings (repayments) of | notes payable $ (75,133) $ (50,948) $286,958 | $ 50,963 Net borrowings (repayments) of | repurchase agreements (99,140) (85,820) 148,687 | (28,887) Term debt borrowings -- 348,899 -- | -- Term debt repayments (8,968) (331,639) (729) | (16,276) Payment of Chapter 11 claims -- -- -- | (363,256) Net cash provided (used) by | discontinued operations (60,005) (118,008) 839 | (8,177) --------- ----------------|-------- Net cash provided (used) by | financing activities (243,246) (237,516) 435,755 | (365,633) --------- ----------------|-------- Net increase (decrease) in cash and | cash equivalents (24,755) 9,122 10,189 | (350,554) Net change in cash of discontinued | operations (2,407) 1,820 (2,216) | (45,020) Cash and cash equivalents at beginning | of period 34,368 23,426 15,453 | 411,027 --------- ----------------|-------- Cash and cash equivalents at end | of period $ 7,206 $ 34,368 $ 23,426 | $ 15,453 ========= ================|======== Supplemental cash flow information Interest paid $ 90,597 $ 71,776 $ 38,376 $ 12,077 Federal income tax paid -- -- -- -- See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES June 30, 1994 Accounting Policies Principles of Consolidation and Basis of Presentation--The consolidated financial statements include the accounts of Lomas Financial Corporation ("LFC") and its subsidiaries (collectively, the "Company"). Significant intercompany balances and transactions have been eliminated. In fiscal 1990, LFC and its real estate development subsidiaries filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. In December 1991, the bankruptcy court confirmed the Company's plan of reorganization and subsequently the Company emerged from Chapter 11 proceedings. The Company adopted fresh start reporting in accordance with the American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in Reorganization Under The Bankruptcy Code" as of December 31, 1991. As a result of the adoption of fresh start reporting, the Company's assets and liabilities were restated to reflect their fair values and the accumulated retained earnings deficit was reclassified to other paid-in capital. Accordingly, since January 1, 1992 the Company's financial statements have been prepared as if it were a new reporting entity (referred to herein as the "Reorganized Company") and a vertical black line has been placed to separate pre-reorganization consolidated financial statements from post-reorganization consolidated financial statements since they are not prepared on a comparable basis. The exchange in securities in connection with the reorganization resulted in a gain that was reported as an extraordinary item. Cash and Cash Equivalents--Cash and cash equivalents include cash on hand and investments with original maturities of three months or less. Cash balances having restrictions as to withdrawals and usage are recorded in the balance sheet as investments. First Mortgage Loans Held for Sale--First mortgage loans held for sale are carried at the lower of cost or market determined on a net aggregate basis. Adjustments to market are made by charges or credits to income. Foreclosed Real Estate--Foreclosed real estate is carried at the lower of cost or fair value minus estimated selling costs. Allowance for Losses--Possible losses are provided for based on management's evaluation of each situation, including the determination of collectibility and net realizable value of the asset or underlying collateral. Fixed Assets--Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Purchased Future Mortgage Servicing Income Rights--Purchased future mortgage servicing income rights ("PMSRs") represent the portion of the purchase price of mortgage servicing portfolios acquired from others allocated to future net servicing income to be derived from servicing such mortgages. The Company periodically monitors its servicing portfolio to determine if adjustments should be made to its amortization schedules or carrying values of its PMSRs due to changes in interest rates, current prepayment rates, expected future prepayment rates and certain other factors. The amortization and impairment analyses are performed for individual mortgage tranches with similar economic characteristics on an undiscounted basis. If an individual mortgage tranche's estimated undiscounted net cash flow is less than the carrying value of the tranche, that tranche is written down to the projected amount of the undiscounted cash flow. In addition, the Company amortizes the capitalized PMSRs in proportion to, and over the period of, the estimated net servicing income. This policy causes a larger portion of the PMSRs to be amortized in earlier periods. The expected life of the estimated net servicing income is based on the expected prepayment rates of the underlying mortgages within the tranches. Pursuant to fresh start reporting, the PMSRs at December 31, 1991 (the "Fresh Start PMSRs"), reflected their fair value at that date and were considered as a single individual mortgage tranche for impairment and amortization analyses. Effective April 1, 1993 the Company changed its methodology of measuring the impairment and amortization of its Fresh Start PMSRs and disaggregated the Fresh Start PMSRs into individual mortgage tranches with similar economic characteristics. Discounted cash flows were estimated for each tranche, and the former December 31, 1991 aggregated value, net of accumulated amortization, was allocated among the disaggregated tranches in proportion to their relative discounted projected net cash flows as of March 31, 1993. Also effective April 1, 1993, the Company refined its estimates of prepayment speeds for loans serviced from using adjusted static published generic prepayment tables to using a simulation methodology that considers the specific characteristics of the Company's servicing portfolio and changes in future median interest rates. Management believes that this refined estimate more accurately estimates the future prepayments of the Company's servicing portfolio. Sales of Servicing Rights--The Company recognizes gain or loss on the sales of servicing rights when all risks and rewards have irrevocably passed to the purchasers and there are no significant unresolved contingencies. Mortgage Servicing--Fees received for servicing mortgage loans owned by investors are generally based on a stipulated percentage of the outstanding monthly principal balance of such loans and are payable only out of interest collected from mortgagors. Servicing fees, late charges and miscellaneous other fees collected from mortgagors and others are recognized as income when collected. Servicing costs are charged to expense as incurred. Reverse Repurchase Agreements--The Company enters into reverse repurchase agreements with financially responsible parties. Mortgage assets purchased under agreements to resell are carried at the amounts of the original purchase price which is calculated at a percentage of the market price. The reverse repurchase agreements generally mature within 60 days and are covered 100 percent by binding purchase commitments issued by responsible financial institutions. The counterparty is obligated to repurchase the underlying mortgage assets at the Company's costs plus interest differential. The Company finances the reverse repurchase agreements through a third party based on a percentage of the repurchase commitments. Reverse Interest Rate Swap Agreements--The Company enters into interest rate swap agreements as a means of managing its exposure to changes in interest rates. Interest rate swaps that reduce the exposure of the Company, as a whole, to changes in interest rates are designated as hedges of the Company's fixed rate debt and treated as a hedge of the debt. Swap agreements that do not reduce the Company's exposure to changes in interest rates are not considered to be hedges. The interest differential to be paid or received on swap agreements that are treated as hedges is accrued over the life of the agreements as an adjustment to the interest expense of the related debt. Gains or losses on early termination of interest rate swap agreements designated as hedges are recognized over the remaining term of the swap agreement. Interest rate swaps that are not considered hedges are marked to market quarterly with the unrealized gain or loss, together with the accrued interest differential, treated as a gain or loss on such swaps. Federal Income Taxes--Income taxes have been provided in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") since January 1, 1992. Under SFAS 109, the deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax basis of assets and liabilities and enacted tax rates that will be in effect for the years in which the differences are expected to reverse. Prior to January 1, 1992, the Company accounted for income taxes under Accounting Principles Board Opinion No. 11. Escrow, Agency and Fiduciary Funds--The Company maintains certain cash balances on behalf of its servicing customers and investors as part of its servicing operations. These funds are held in trust in segregated generally noninterest bearing bank accounts and are excluded from the corporate assets and liabilities of the Company. Earnings (Loss) Per Share--Primary earnings (loss) per share data for the years ended June 30, 1994 and 1993 and six months ended June 30, 1992 is computed using the weighted average number of shares of common and common stock equivalents outstanding during the period. Common stock equivalents include units and shares granted under the Lomas Financial Corporation 1991 Long Term Incentive Plan for Nonemployee Directors (the "Directors Plan"), the 1991 Stock Incentive Program (the "1991 Program") and the 1993 Intermediate and Long Term Incentive Plan (the "1993 Program"). Common stock equivalents also include the assumed exercise of dilutive stock options. For the years ended June 30, 1994 and 1993 and six months ended June 30, 1992, assumed exercise of stock options is antidilutive and is, therefore, excluded from the computation. Fully diluted per share data is computed on the same basis as primary, but it also assumes (if dilutive) the conversion of senior convertible notes with related adjustments for interest and federal income tax expense. For the years ended June 30, 1994 and 1993 and six months ended June 30, 1992, the fully diluted per share data is antidilutive. Information for the six months ended December 31, 1991 was prior to reorganization when the Company had a different capital structure than that of the Reorganized Company. Per share data pertaining to the predecessor company is, therefore, not meaningful and is not presented. Reclassifications--Certain reclassifications have been made to prior years' financial statements to conform to the 1994 presentation. Potential Sale of the Company In March 1994 the Company announced that it has retained an investment banker to assist in evaluating strategic alternatives to maximize stockholder values. Options being considered include the possibility of merging with or being acquired by another institution. However, in May 1994 the Company announced its intent to sell its wholly-owned information systems subsidiary, Lomas Information Systems ("LIS"). In September 1994, the Company entered into a letter of intent with a subsidiary of an insurance company to sell substantially all the assets of LIS. The Company recorded a provision of $33.5 million at June 30, 1994 related to the planned disposition of the Company's information systems business. This provision is to reduce the net assets of the segment to their estimated fair value and to cover the projected operating losses of LIS during the first four months of fiscal 1995, as well as expenses in connection with the sale. The transaction is expected to close on or about October 31, 1994. The Company is continuing its review with the investment banker of various strategic options concerning its mortgage banking unit. Reduction in Force and Restructuring During the second quarter of fiscal 1994, the Company announced a plan to restructure its operations with a view to decreasing expenses and enhancing productivity. Under the plan, the Company's workforce was reduced by approximately 10 percent or approximately 200 employees. In connection with the plan, the Company's continuing operations recorded a charge of $5.7 million of which $5.1 million was recorded by the mortgage banking division. Higher interest rates since February 1994 have resulted in the cessation of the mortgage refinancing boom and decline in mortgage servicing portfolio runoff rates. As a result, the Company's mortgage production activity and revenues also have precipitously declined. To offset the significant declines in production-related revenues, to reduce its servicing-related costs and to move the Company toward a single-company operation, the Company approved another restructuring plan in June 1994. Under the plan, the Company intends to reduce its workforce by another 10 percent or approximately 200 employees through terminations or a voluntary early retirement program. The planned reduction in force will be completed by December 1, 1994. In connection with the plan, the Company's continuing operations provided a reserve of $10.0 million effective June 30, 1994 (of which $4.0 million was recorded by Lomas Mortgage). Of the $10.0 million, $2.9 million represents the benefits to be paid on terminations and approximately $1.3 million is the estimated pension plan curtailment loss related to voluntarily early retiring employees. Employees to be terminated include employees in mortgage production and servicing-related areas and in corporate general and administrative areas. The remaining $5.8 million reserves were provided to cover planned termination of certain lease agreements and writedown of certain fixed assets. First Mortgage Loans Held For Sale At June 30, 1994 the Company's first mortgage loans held for sale totaled $257.5 million in principal amount, of which $252.4 million, or 98%, was committed for sale to third parties. Approximately two-thirds of the Company's commitments to sell mortgage loans held for sale are related to exclusive ongoing commitments from a major public pension fund and various state and local housing authorities to purchase, at the Company's cost, loans or FNMA-guaranteed, mortgage-backed securities collateralized by loans originated under programs sponsored by those investors. At June 30, 1994 and 1993, first mortgage loans held for sale included approximately $138.6 million and $176.0 million, respectively, of FNMA mortgage-backed securities. At June 30, 1994 approximately 79% of the Company's pipeline (i.e., commitments to purchase loans or extend credit) was not subject to significant market risk as it has been committed for sale to the major public pension fund or various state and local housing authorities at the Company's cost. The remaining 21% of the Company's pipeline was hedged by commitments by third parties to purchase such loans based on the Company's best estimate of its market risk on its pipeline. At June 30, 1994 first mortgage loans held for sale also included $6.0 million of loans held under reverse repurchase agreements. Investments Investments consisted of the following (in thousands): June 30 ------------------ 1994 1993 -------- -------- Commercial paper and bank certificates of deposit $ 72,104 $168,109 Restricted investments 32,281 53,173 Mortgage servicing partnership 5,377 3,367 Other investments 4,973 7,046 Fixed maturity securities 71 9,540 Marketable equity securities 2,646 4,625 -------- -------- $117,452 $245,860 ======== ======== Commercial paper and bank certificates of deposit are funded with proceeds from, and are pledged as collateral for, investment lines of credit. The commercial paper and bank certificates of deposit have fixed rates of interest and generally mature within 31 days, at which time the investment lines of credit are paid down. Revenue from the net interest spread on these transactions totaled approximately $14.2 million, $11.5 million, $7.1 million and $10.1 million for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991, respectively. Investment income for the years ended June 30, 1994 and 1993 also included $2.3 million and $9.3 million, respectively, of gains, fees and interest income received on reverse interest rate swaps which were not accounted for as hedges. Restricted investments at June 30, 1994 includes $10 million held in escrow deposits securing the Company's indemnification obligations in connection with the sale on April 30, 1990 of the Company's commercial leasing subsidiary, ELLCO Leasing Corporation. Restricted investments at June 30, 1994 and 1993 also included $10.4 million and $8.2 million, respectively, of marketable securities purchased to fund certain benefit plans and treasury notes and certificates of deposit of $7.3 million and $11.7 million at June 30, 1994 and 1993, respectively, pledged to secure contingent repurchase obligations. Also at June 30, 1994 and 1993, cash and certificates of deposit of $2.9 million and $13.3 million, respectively, were either held on behalf of others or pledged to secure various letters of credit. Receivables Receivables consisted of the following (in thousands): June 30 ---------------- 1994 1993 ------- ------- Escrow deficiencies $40,016 $35,111 Advances on mortgage-backed securities 7,935 14,118 Receivables for servicing related advances and settlements 6,259 7,898 Mortgage notes receivable 9,284 7,361 Foreclosure claims 5,395 5,733 Accrued interest 2,685 4,109 Amounts due from officers 643 1,034 Other accounts receivable 7,788 6,466 Servicing sales receivable 4,150 3,289 ------- ------- $84,155 $85,119 ======= ======= Escrow deficiencies and advances on mortgage-backed securities represent the advances the Company makes in connection with its loan servicing activities. The Company makes certain payments for property taxes and insurance premiums in advance of collecting them from specific mortgagors. Also, in connection with servicing mortgage-backed securities guaranteed by GNMA or FNMA, the Company advances certain principal and interest payments to security holders prior to collection from mortgagors. Allowance for Losses Activity in the allowance account was as follows (in thousands): | Predecessor Reorganized Company | Company ------------------------------------- | ----------------- Year Ended June 30 Six Months | Six Months ---------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 --------- --------- ------------- | ----------------- | Beginning balance $ 10,831 $ 16,101 $ 31,395 | $ 50,321 Provisions for losses 11,397 5,327 2,033 | 6,641 Charge-offs net of recoveries (12,857) (10,001) (15,750) | (30,589) Other changes--net 2,891 (596) (1,577) | 5,022 --------- --------- -------- | -------- Ending balance $ 12,262 $ 10,831 $ 16,101 | $ 31,395 ========= ========= ======== | ======== /TABLE The allowance for losses was allocated as follows (in thousands): June 30 ---------------- 1994 1993 ------- ------- Foreclosed real estate $ 3,529 $ 5,491 Receivables 6,311 3,824 Other 2,422 1,516 ------- ------- $12,262 $10,831 ======= ======= Purchased Future Mortgage Servicing Income Rights During the year ended June 30, 1994, the Company established provisions of $80.0 million related to impairment in the carrying value of PMSRs. This provision resulted from the unprecedented prepayments that the Company has experienced and the related revision of estimated future prepayment speeds. PMSRs consisted of the following (in thousands): June 30 ------------------- 1994 1993 --------- -------- Cost of PMSRs $ 535,307 $521,738 Capitalized excess servicing fees 3,003 2,966 --------- -------- 538,310 524,704 Less: Accumulated amortization (156,301) (88,217) --------- -------- $ 382,009 $436,487 ========= ========
Purchased Future Mortgage Servicing Income Rights--(Continued) Changes in PMSRs were as follows (in thousands): | Predecessor Reorganized Company | Company ------------------------------------ | ----------------- Year Ended June 30 Six Months | Six Months --------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 -------- -------- ------------- | ----------------- | Beginning balance $436,487 $418,617 $412,679 | $364,633 Additions 110,665 88,384 34,026 | 62,704 Fresh start allocation | from goodwill -- -- -- | 10,309 Sales and writeoffs (16,896) (7,350) -- | -- Amortization (68,247) (63,164) (28,088) | (24,967) Impairment writeoff (80,000) -- -- | -- -------- -------- -------- | -------- Ending balance $382,009 $436,487 $418,617 | $412,679
At June 30, 1994, 1993 and 1992 the Company serviced 565,531, 605,655 and 600,205 loans, respectively. The aggregate unpaid principal balance of the Company's servicing portfolio was $34.0 billion, $32.7 billion and $29.3 billion at June 30, 1994, 1993 and 1992, respectively. Fixed Assets Fixed assets, at cost, consisted of the following (in thousands): June 30 ------------------ 1994 1993 -------- -------- Land $ 10,754 $ 10,388 Buildings 59,311 42,679 Furniture, equipment and leasehold improvements 31,208 23,488 Capitalized computer software 2,703 1,664 -------- -------- 103,976 78,219 Accumulated depreciation (14,822) (8,322) -------- -------- $ 89,154 $ 69,897 ======== ======== In fiscal 1993 the Company acquired an office building and adjacent land and improved the building for its intended use during fiscal 1993 and 1994 at a total capitalized cost of $25.9 million including imputed capitalized interest expense of approximately $1.0 million. Prepaid Expenses and Other Assets Prepaid expenses and other assets consisted of the following (in thousands): June 30 ---------------- 1994 1993 ------- ------- Prepaid pension expense $16,797 $17,978 Other prepaid expenses 1,857 2,590 Unamortized debt issuance cost 8,656 10,325 Other assets 2,823 1,320 ------- ------- $30,133 $32,213 ======= ======= At June 30, 1994 and 1993, the Company's discontinued operations had prepaid pension expense of $1,784,000 and $1,749,000, respectively, which were included in net assets of discontinued operations. Debt Outstanding balances and average interest rates were as follows (dollars in thousands): Average Annual Average Annual Interest Rate for Interest Rate for Year Ended Year Ended June 30, 1994 June 30, 1993 June 30, 1994 (%) June 30, 1993 (%) ------------- ----------------- ------------- ----------------- Notes Payable: Warehouse lines of credit $245,570 3.5 $248,071 1.8 Investment lines of credit 72,105 1.0 168,109 1.1 Senior secured working capital credit agreements 22,000 7.3 -- -- Other 1,372 2.0 -- -- -------- ---- -------- ---- $341,047 3.2 $416,180 1.5 ======== ==== ======== ==== Repurchase agreements $ -- -- $ 99,140 3.5 ======== ==== ======== ==== Term Notes Payable: Notes payable due 1997 $150,000 9.8 $150,000 9.8 Notes payable due 2002 190,000 10.3 190,000 10.3 Mortgage note payable due 1996* 40,026 10.0 41,163 10.0 Other term notes payable 3,285 2.5 11,117 6.7 -------- ---- -------- ---- $383,311 10.3 $392,280 10.0 ======== ==== ======== ==== Senior convertible notes due 2003 $139,918 9.0 $139,918 9.0 ======== ==== ======== ==== *The mortgage note is payable in monthly installments and matures March 1, 1996. It is secured by the Company's headquarter buildings.
Warehouse lines of credit are used to support warehouse fundings and are principally fee-based arrangements that are calculated as a percentage of the total commitments and/or a percentage of the outstanding balance. Substantially all first mortgage loans held for sale are pledged as collateral. The Company also has entered into investment lines of credit arrangements with several financial institutions. Borrowings under these lines of credit are invested in and are secured by commercial paper and bank certificates of deposit. Escrow, agency and fiduciary funds maintained in trust accounts normally serve as compensating balances under the warehouse and investment lines of credit arrangements, and the Company incurs a reduced interest rate on borrowings as a result of these compensating balances. At June 30, 1994 amounts available under the investment lines of credit were $630.0 million, of which $72.1 million were in use. Mortgage-backed securities held for sale to investors are financed from time to time through repurchase agreements with securities dealers in the business of providing such financing. These repurchase agreements, which generally mature in 60 days or less, conform to the standard form of agreement utilized by the Public Securities Association. The terms and conditions of these repurchase agreements, including interest rate, are negotiated on a transaction-by-transaction basis. At June 30, 1994, amounts available under the warehouse lines of credit and repurchase agreements were $780 million, of which $245.6 million were in use. During the year ended June 30, 1994, the Company, through Lomas Mortgage, entered into a Senior Secured Working Capital Credit Agreement (the "3/94 Credit Agreement") with a bank (the "Lender"). Under the 3/94 Credit Agreement, the Lender agreed to provide up to $25 million of secured working capital financing through March 20, 1995 at prime rate. Assets securing this working capital line include servicing receivables, foreclosure claims, notes receivables and other receivables with a total carrying value of $49.3 million at June 30, 1994. On October 1, 1992 the Company, through Lomas Mortgage, issued $340 million principal amount of unsecured notes. The notes were issued in two tranches: $150 million of 9.75% notes due 1997 and $190 million of 10.25% notes due 2002. The blended interest cost on these notes is 10.03%. The net proceeds of this offering were used to retire $330 million of increasing rate term notes due 1999 which Lomas Mortgage issued pursuant to LFC's plan of reorganization. The senior convertible notes due 2003 bear interest at 9% and are convertible into approximately 8,000,000 shares of LFC's common stock at a conversion price of $17.50 per share. The notes may be redeemed in whole or in part at the option of the Company on or after October 31, 1993 at prices ranging from 107.2% decreasing to 100% on or after October 31, 2001. Beginning in 1997 the Company is required to provide sinking fund payments of $10 million principal each year until 2002. Dividends are restricted to 50% of LFC's accumulated consolidated net income, as defined in the indenture, since January 1, 1992. As of June 30, 1994, the Company's failure to meet certain ratio requirements contained in the covenants, while not an event of default, limits the Company's ability to issue additional term debt. Under the terms of the warehouse agreement, servicing payment agreement and working capital line of credit that contains the most restrictive covenants, Lomas Mortgage is restricted from making dividend payments to LFC if, after giving effect thereto, the aggregate amount of such payments should exceed the sum of (i) $25 million (less any intercompany advances); plus (ii) 50 percent of Lomas Mortgage's accumulated consolidated income before tax since October 1, 1992; or reduced by 100 percent of consolidated loss before income taxes; plus (iii) (a) before November 30, 1993, the fair value of the aggregate net proceeds received by Lomas Mortgage from the issuance or sale after October 1, 1992 of its capital stock (b) after November 30, 1993, the aggregate net cash proceeds received from the issuance or sale of capital stock and warrants, options and rights to purchase its capital stock. The minimum net worth requirement, as defined, under these covenants at June 30, 1994 was $200 million and Lomas Mortgage's net worth as defined at that date before the amendment described below was $196.8 million which restricted Lomas Mortgage from declaring dividends or making additional advances to LFC. Pursuant to the amended debt agreements which were executed in September 1994, but effective June 30, 1994, the minimum net worth requirement was reduced to $175 million and, therefore, Lomas Mortgage could transfer as intercompany advances to LFC approximately $12.0 million. The total warehouse lines of credit available was reduced to $120 million per its amendment. At June 30, 1994 Notes Payable and Repurchase Agreements are due within one year and maturities of the term notes payable and the senior convertible notes payable were as follows in the following fiscal years (in thousands): 1995 $ 4,541 1996 38,770 1997 -- 1998 150,000 1999 -- Thereafter 329,918 -------- $523,229 ======== Federal Income Taxes The Company files a consolidated federal income tax return. All companies included in the consolidated federal income tax return are jointly and severally liable for any tax assessments based on such consolidated return. Fresh start reporting requires the Company to report federal income tax expense when in a taxable position before utilization of pre- reorganization net operating loss carryforwards and recognition of the benefit of pre-reorganization deductible temporary differences. Benefits realized in the consolidated tax return from utilization of pre- reorganization net operating loss carryforwards and recognition of pre- reorganization deductible temporary differences existing at confirmation of LFC's plan of reorganization but for which a net deferred tax asset was not recorded are reported as direct additions to paid-in capital under fresh start reporting. The federal income tax equivalent provision (benefit) is reflected in the statement of consolidated operations as follows (in thousands):
| Predecessor Reorganized Company | Company ------------------------------------ | ----------------- Year Ended June 30 Six Months | Six Months --------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 -------- -------- ------------- | ----------------- | Tax (benefit) applicable to: | Continuing operations $ -- $ 3,812 $ 1,139 | $ -- Discontinued operations -- (1,441) (1,139) | -- -------- -------- -------- | -------- Total tax (benefit) $ -- $ 2,371 $ -- | $ -- ======== ======== ======== | ======== Utilization of tax benefits | of pre-reorganization deductible | temporary differences and net | operating loss carryforwards as | a direct addition to paid-in | capital pursuant to fresh | start reporting $ -- $ 2,371 -- | N/A /TABLE The difference between actual tax expense on continuing operations and the amount computed by applying the statutory rate to income consisted of the following components (in thousands): | Predecessor Reorganized Company | Company ------------------------------------ | ----------------- Year Ended June 30 Six Months | Six Months --------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 -------- -------- ------------- | ----------------- | Tax (benefit) at statutory rate $ -- $ 6,485 $ 2,375 | $ (7,773) Book/tax difference in | amortization of purchased | future mortgage servicing | income and goodwill -- (2,673) (1,236) | (1,184) Reorganization expenses -- -- -- | 9,805 Other -- -- | (848) Actual tax expense $ -- $ 3,812 $ 1,139 | $ --
The Company had a consolidated tax net operating loss carryforward at June 30, 1994 totaling approximately $500 million. Of this total $317 million arose prior to the reorganization and will be subject to the limitations of Internal Revenue Code Section 382. These carryovers expire in the years 2003 through 2009. The Company and its subsidiaries have a total deferred tax liability of $53 million as of June 30, 1994. Deferred tax assets totaled $253 million as of June 30, 1994 subject to a valuation allowance of approximately $200 million. Of this valuation allowance, approximately $88.6 million relates to pre-reorganization tax attributes. Future utilization of these tax attributes on a consolidated basis will result in adjustments to paid-in capital. The net change in the valuation allowance of $70 million for the fiscal year ended June 30, 1994 was primarily attributable to the current year net operating loss and adjustments to the net deferral tax asset for enacted changes in the tax rates. Deferred tax assets (deductible temporary differences) prior to the allocation of the valuation allowance consisted of the following (in thousands): June 30 ------------------ 1994 1993 -------- -------- Post-reorganization net operating loss carryover $ 64,355 $ 36,654 Pre-reorganization net operating loss carryover 110,950 107,780 Loss reserves 39,926 24,835 Deferred income on terminated swap agreements 3,253 4,430 Purchased servicing writedown 28,446 -- Employee benefits 3,594 2,995 Partnership income 114 583 Uniform capitalization expense 2,331 1,348 Miscellaneous assets 39 -- Total deferred tax assets $253,008 $178,625 Deferred tax liabilities (taxable temporary differences) consisted of the following (in thousands): June 30 ------------------ 1994 1993 -------- -------- Software development costs $ 20,918 $ 20,501 Pension overfunding 4,913 4,734 Accelerated depreciation 17,995 17,433 Partnership loss 686 945 Excess mortgage servicing fees 3,660 3,675 Lease payments 794 954 Miscellaneous liabilities 4,025 389 -------- -------- $ 52,991 $ 48,631 ======== ======== Stockholders' Equity At June 30, 1994 LFC had 100,000,000 shares of $1 par value common stock (the "Common Stock") authorized and 20,100,000 shares issued and outstanding. The Common Stock has no preemptive or other subscription rights and there are no conversion rights, redemption or sinking fund provisions with respect to such shares. In connection with the plan of reorganization, LFC issued warrants to its pre-reorganization equity holders to purchase an aggregate of 7,000,000 shares of Common Stock at a price equal to $29.75 per share. The warrants expire October 31, 2001. At June 30, 1994 there were 17,300,000 shares reserved for future issuance for the conversion of senior convertible notes, the warrants and stock plans (see "Stock Plans" below). Stock Plans The Company has three stock incentive plans, namely the Directors Plan, the 1991 Program and the 1993 Program. Directors Plan--Directors of the Company who are not employees participate in the Directors Plan. On November 2, 1993 each participating director was granted 500 units under the Directors Plan and an additional 500 units will be granted to each participating director at the 1994 Annual Stockholders Meeting and at each annual stockholders meeting thereafter. Each unit represents the right of the holder thereof to be paid one share of Common Stock at the earlier of (i) the date such holder terminates service as a director of the Company and (ii) the tenth anniversary of the date of the award. The number of shares of Common Stock that may be granted under the Directors Plan is 100,000, and at June 30, 1994 there were 35,000 units outstanding. 1991 Program--The 1991 Program provides for the grant of non-qualified and incentive stock options as well as the grant of performance-restricted stock and other stock-based awards to key personnel and executives based on the Company's preset performance goals approved in the confirmation of the Company's plan of reorganization. The 1991 Program authorized the grant of a maximum of 500,000 shares of Common Stock, of which 100,000 were subject to awards upon LFC's emergence from reorganization, and of which no more than 75,000 shares may be awarded as performance-restricted stock subject to intermediate term awards. The 1991 Program expired January 31, 1994. 1993 Program--The 1993 Program provides for the grant of any or all of the following types of awards: (1) stock options, including incentive stock options and non-qualified stock options; (2) stock appreciation rights, either in tandem with stock options or freestanding; (3) restricted stock awards; (4) performance shares; (5) performance units; (6) dividend equivalents; and (7) other stock-based awards to key personnel and executives based on each such individual's present and potential contribution to the success of the Company. The 1993 Program authorizes the issuance of Common Stock (or with respect to which awards may be granted) up to a maximum of 1,800,000 shares; provided, no more than 300,000 shares may be granted in any one fiscal year. During fiscal 1994 options for 287,936 shares had been granted and 1,512,064 options remained available for grant under the 1993 Program and options for 13,314 shares had been granted (net of 76,250 options canceled) under the 1991 Program prior to its expiration on January 31, 1994. Information on stock options is summarized below (in thousands, except price per share): Number of Price Aggregate Shares Per Share Option Price --------- --------- ------------ Outstanding at July 1, 1992 193 $8.25 $1,592 Granted 141 $8.25 1,163 Canceled (8) $8.25 (66) ---- ------ Outstanding at June 30, 1993 326 $8.25 2,689 Granted 301 $8.25 2,485 Canceled (76) $8.25 (629) ---- ------ Outstanding at June 30, 1994 551 $8.25 $4,545 ==== ====== The options expire at various dates beginning February 13, 2002 and ending January 25, 2004. At June 30, 1994 and 1993 options for 276,000 and 132,000 shares, respectively, were exercisable. Mortgage Servicing Portfolio Risks The Company's combined primary servicing and subservicing portfolios include mortgage loans secured by properties located in all 50 states and the District of Columbia with the heaviest loan concentrations (in terms of principal amount) in the states of California, Texas, Florida, New Jersey, Massachusetts and Arizona. The Company's servicing portfolio is comprised of the following: June 30, 1993 June 30, 1992 ----------------------- ----------------------- Principal Principal Number Balance Number Balance of Outstanding of Outstanding Loans (in millions) Loans (in millions) ------- ------------- ------- ------------- FHA--insured mortgage loans 166,885 $ 4,861 202,255 $ 5,991 VA--guaranteed mortgage loans 106,572 2,970 128,839 3,615 Conventional mortgage loans 201,004 19,295 199,612 18,155 ------- ------- ------- ------- 474,461 27,126 530,706 27,761 Subservicing 91,070 6,864 74,949 4,916 ------- ------- ------- ------- 565,531 $33,990 605,655 $32,677 ======= ======= ======= ======= Upon foreclosure, an FHA/VA property is typically conveyed to HUD or VA. However, when it is in the VA's financial interest, it has the authority to deny conveyance of the foreclosed property to the VA ("VA no-bids"). The VA instead reimburses the Company based on a percentage of the loan's outstanding principal balance. For GNMA loans or VA no-bids, the foreclosed property is conveyed to the Company, and the Company assumes the market risk of disposing of the property. In some cases, the Company is required to make guaranteed principal and interest payments on certain mortgage-backed securities regardless of actual collection from the underlying mortgage loans. In certain instances, the Company will buy foreclosed loans out of a pool and either attempt to have them reinstated or foreclose upon the secured properties. A portion of these advances on GNMA loans are not recoverable. As of June 30, 1994 and 1993, a reserve for GNMA loans on unrecoverable advances and VA no-bids of approximately $3.1 million and $4.0 million, respectively, had been established. GNMA losses, including advances and VA no-bids, for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991 were $8.0 million, $9.3 million, $6.5 million and $5.2 million, respectively. At June 30, 1994 the Company is servicing approximately $13.9 million in recourse loans that relate to servicing purchased from third parties. The Company is obligated to purchase individual mortgages from investors if such mortgages are foreclosed. Financial Instruments With Off-Balance Sheet Risks Reverse Interest Rate Swaps--The Company, through Lomas Mortgage, has entered into reverse interest rate swap agreements since July 1992. Under the terms of these swap agreements, the Company receives an annual fixed rate of interest and pays a floating rate of interest based on the 30-day average A1/P1 commercial paper rate. At June 30, 1994 interest rate swaps in the aggregate notional amount of $800 million were outstanding, all of which were designated as hedges. These swaps will mature in October 1998. The Company receives an average fixed interest rate of 4.765 percent on these swaps. The floating interest rate, which the Company pays, at June 30, 1994 was 4.5 percent. The Company has not entered into any additional interest rate swap agreements since October 1993. During the year ended June 30, 1994 and 1993, the swaps resulted in net interest savings of $13.9 million and $17.7 million, including gains of $2.3 million and $7.2 million, respectively, recognized on termination of swaps which were accounted for as speculative. Since its inception in July 1992 and through June 30, 1994, the swap program has generated net cash of $43.1 million, including $11.5 million of deferred income which currently is being amortized as an offset to future net interest expense at the rate of $3.3 million per year. The terms of the swaps provide that the counterparty, under certain circumstances, can demand collateral from Lomas Mortgage to protect against mark-to-market exposure attributable to the agreements. During fiscal 1994, as a result of increases in interest rates, Lomas Mortgage, at the request of the counterparty, pledged servicing rights related to approximately $4.8 billion of mortgage loans as collateral which had a carrying value of $98.7 million at June 30, 1994. According to an amended pledge agreement, the counterparty can demand additional collateral from Lomas Mortgage up to $2.0 billion unpaid principal balance of mortgage loans if unrealized swap termination liabilities in the future exceed $80 million. The swap agreements contain certain default and termination provisions whereby the counterparty can terminate the agreements prior to their maturity, including a provision which permits the counterparty to terminate if, in its reasonable business judgment, there has been a material adverse change since April 1, 1994 in the business, assets, operations or financial condition of Lomas Mortgage. The Company estimates that if the swap agreements had been terminated as of June 30, 1994, Lomas Mortgage would have incurred a liability, net of $11.5 million related deferred gains, of approximately $54.0 million. Loans Sold With Recourse--The Company has sold, with recourse, single- family mortgages with unpaid principal balances aggregating $48.5 million at June 30, 1994. The Company is obligated to repurchase individual mortgages if such mortgages reach specified stages of delinquency. At June 30, 1994 restricted cash balances of $1.4 million and treasury notes totaling $4.7 million had been pledged to secure the Company's contingent repurchase obligations. Commitments to Purchase and to Sell Loans--At June 30, 1994 the Company's commitments to purchase and originate loans totaled $564.8 million of which approximately 79%, or $444.1 million, had been committed for sale to financially responsible third parties at the Company's cost. The remaining 21%, or $120.7 million, of the Company's commitments to purchase and originate loans and $257 million of loans held for sale were hedged by forward contracts to sell mortgage-backed securities of approximately $258.1 million, which represented the Company's best estimate of its market risk on such loans. If secondary market interest rates decline after the Company commits to an interest rate for a loan, the loan may not close and the Company may incur a loss from the cost of covering its obligations under any related forward commitments. If secondary market interest rates increase after the Company commits to an interest rate for a loan and the Company has not obtained a forward commitment, the Company may incur a loss when the loan is subsequently sold. Paid-in-Full Interest--In connection with servicing certain mortgage- backed securities under most of the Company's servicing agreements, the Company is required to pay to investors a full month's interest on each loan although the loan may be paid off other than on a month-end basis. Therefore, the Company is obligated to pay the investor interest at the agreed rate from the date of loan payoff through the end of the calendar month without reimbursement. At June 30, 1994 the unpaid principal balance of the Company's mortgage servicing portfolio that is subject to paid-in-full interest totaled $16.1 billion. Fair Value of Financial Instruments Statement of Financial Accounting Standards ("SFAS") 107 requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for those that it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and the relevant market information. Where available quoted market prices are used, and in other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. The derived fair value estimates cannot be substantiated by comparison to independent markets and could not be realized in an immediate sale of the instruments. Under SFAS 107 fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. The aggregate fair value amounts presented do not represent the underlying market value of the Company. Described below are the methods and assumptions used by the Company in estimating fair values. Cash and Cash Equivalents--The carrying amounts reported in the consolidated balance sheet approximate the fair values as maturities are less than three months. First Mortgage Loans Held For Sale--Fair value is estimated using the quoted market prices for securities backed by similar types of loans and current commitments to purchase such loans. Investments--Commercial paper and bank certificates of deposit generally mature within 31 days; therefore, the carrying amounts reported in the consolidated balance sheet are the approximate fair value. Restricted cash balances approximate the fair value. Fair value on mortgage loans held for investment is estimated using the quoted market prices for securities backed by similar loans adjusted for differences in financial characteristics. Fair value on fixed-maturity debt securities are based on quoted market prices. Discontinued Operations--The carrying amounts for cash represent the fair value. Notes receivable's fair value is estimated by discounting cash flows at interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Debt securities' fair value is estimated using the quoted market price. Notes Payable and Repurchase Agreements--The carrying amounts approximate fair values due to the short term maturity of these instruments. Term Notes and Senior Convertible Notes Payable--Fair value is based on the quoted market prices. Reverse Interest Rate Swaps--Fair values are obtained from dealer quotes. These values represent the estimated amount the Company would receive or pay to terminate the agreements at the reporting date. Commitments to Purchase and to Sell Loans--The fair value of commitments to purchase loans is based upon the difference between the current value of similar loans and the price at which the Company has committed to purchase the loans. The fair value of commitments to sell loans contracts is the estimated amount that the Company would receive or pay to terminate the commitments at the reporting date based on market prices for similar financial instruments. The estimated fair values of the Company's on-balance sheet and off- balance sheet financial instruments were as follows (in thousands of dollars): June 30, 1994 June 30, 1993 -------------------- -------------------- Carrying Carrying Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- Financial Assets: Cash and cash equivalents $ 7,206 $ 7,206 $ 34,368 $ 34,368 First mortgage loans held for sale 257,534 258,067 367,383 368,272 Investments 109,418 107,614 238,957 242,763 Net assets of discontinued operations: Cash 41,371 41,371 31,800 31,800 Notes receivable 39,048 38,400 91,772 88,553 Debt securities 61,987 52,689 121,992 108,268 Financial Liabilities: Notes payable and repurchase agreements 341,047 341,047 515,320 515,320 Term notes and senior convertible notes payable 523,229 483,921 532,198 540,977 Off-balance sheet items: Reverse interest rate swaps (liability) -- (65,505) -- -- Commitments to purchase loans (liability) -- (46) -- 422 Commitments to sell loans -- 6 -- 473 Contingent Liabilities On September 17, 1990 plaintiffs purporting to represent a class of single-family mortgagors having escrow deposits computed by Lomas Mortgage within the past ten years filed a class-action complaint in the Circuit Court of Cook County, Illinois. The complaint alleges that Lomas Mortgage is in breach of mortgage contracts and is assessing excessive and unlawful escrow deposits and in addition the complaint asks for punitive damages. On October 4, 1990 this lawsuit was removed to the United States District Court for the Northern District of Illinois. Similar actions for damages, fees and other relief were filed in California and Minnesota state courts and class- action counterclaims have been filed in two pending Illinois foreclosure actions. The state court actions were removed to federal court and transferred to the Northern District of Illinois where they are currently pending before the same judge as the original action. The state court counterclaims are stayed. On August 26, 1994, the United States District Court for the Northern District of Illinois preliminarily approved a settlement that, if finally approved, will result in the dismissal, with prejudice, of all claims that were or could have been brought by the class. Pursuant to the terms of the settlement, Lomas Mortgage has agreed to follow certain escrow servicing procedures that result in lower escrow balances for certain of its mortgagors and has already refunded the surplus escrow balance to its mortgagors that resulted from the implementation of this procedure. Lomas Mortgage has also agreed to implement certain special servicing procedures for its mortgagors whose mortgages are written on older conventional mortgage forms. In addition to these escrow servicing procedures, Lomas Mortgage has agreed to provide, once the settlement is finally approved and the case dismissed, a one-time rebate to its eligible present and former mortgagors. The total rebate is currently estimated to be less than six-hundred thousand dollars ($600,000). Finally, Lomas Mortgage has agreed to reimburse class counsel for their reasonable attorneys' fees and costs. Lomas Mortgage recorded a provision at June 30, 1994 for the estimated rebate and attorneys' fees. A hearing to determine whether the Court should finally approve the settlement is currently scheduled for November 21, 1994. The Company is also involved in a number of other lawsuits considered to be in the normal course of business. In management's opinion, the resolution of these other disputes will not have a material adverse effect on the financial position of the Company. Leases The Company's continuing operations incurred rental expense and had future minimum rental commitments at June 30, 1994 for noncancelable leases as follows (in thousands): Office Space Equipment Total ------ --------- ------ Expense for the year ended June 30: Six months ended December 31, 1991 $2,661 $ 415 $3,076 Six months ended June 30, 1992 $1,499 $ 434 $1,933 1993 $3,316 $ 811 $4,127 1994 $2,977 $1,054 $4,031 Commitments for the years ending June 30: 1995 $1,052 $1,107 $2,159 1996 971 1,023 1,994 1997 733 338 1,071 1998 632 42 674 1999 501 9 510 ------ ------ ------ Total minimum lease payments $3,889 $2,519 $6,408 ====== ====== ====== Pension Plans Defined Benefit Plan--The Company's pension plan is sponsored by Lomas Mortgage. The plan is a noncontributory plan which covers substantially all employees of the Company. Benefits are based on the employee's years of service and compensation. Pension plan assets consist principally of listed stocks and bonds and United States government securities. The Company makes contributions to the plan which equal or exceed the minimum amounts required by the Employee Retirement Income Security Act of 1974. Credits to expense related to the defined benefit plan included the following components (in thousands): Year Ended June 30 ------------------------- 1994 1993 1992 ------- ------- ------- Actual return on plan assets $ 4,009 $ 3,927 $ 4,066 Net amortization and deferrals 132 195 428 Service costs--benefits earned (1,768) (1,557) (1,417) Interest on projected benefit obligations (2,259) (2,206) (2,335) Curtailment (1,260) -- -- ------- ------- ------- Net credit (expense) recognized $(1,146) $ 359 $ 742 ======= ======= ======= During the quarter ended June 30, 1994, the Company approved a plan of restructuring including a reduction in its workforce. As a result a group of employees covered by the defined benefit plan are to be terminated or accept early retirement benefits. An expense of $1,260,000 from the curtailment had been included in the 1994 expense. The funded status of the Company's defined benefit plan after giving effect to accruals and contributions was as follows (in thousands): June 30 ------------------ 1994 1993 -------- -------- Plan assets at market value $ 45,385 $ 48,290 Actuarial present value of projected benefit obligations (29,872) (29,192) -------- -------- Excess plan assets 15,513 19,098 Unrecognized excess plan assets being amortized over 15 years (6,077) (6,917) Unrecognized actuarial loss 11,574 7,787 Unrecognized prior service cost (1,169) (241) Loss on curtailment (1,260) -- -------- -------- Prepaid pension expense recorded in the financial statements $ 18,581 $ 19,727 ======== ======== Actuarial present value of accumulated benefit obligations $ 25,452 $ 24,649 Actuarial present value of vested benefit obligations $ 23,316 $ 22,705 Assumptions used in the accounting were: June 30 ------------------ 1994 1993 1992 ---- ---- ---- Discount/settlement rates 7.5% 8.0% 8.5% Rates of increase in compensation levels 8.1% 8.1% 5.5% Expected long term rate of return on assets 9.0% 9.0% 9.0% Defined Contribution Plan--The Company has also established a 401(k) savings plan effective April 1, 1993. Substantially all employees of the Company are eligible to participate in the plan. Eligible employees are entitled to contribute up to 12% of salary, and the Company matches up to 35% of an employee's contributions up to 6% of salary. The total amount of contributions made by the Company during fiscal 1994 and 1993 was $445,000 and $108,000, respectively. Management Security Plan The Company adopted a Management Security Plan ("MSP") to aid the Company in its continuous effort to attract, motivate and retain outstanding employees. Key employees of the Company who elected to participate in MSP will be paid in the event of retirement or death that portion of the employee's salary which such employee chooses as the basis for computation of his retirement or death benefits. The Company ceased new enrollments in 1985. Funds contributed to the plan are held in a trust. The assets of the trust were included in Investments and totaled $7.3 million at June 30, 1994. The trust's assets are invested at the discretion of the outside trustee. At June 30, 1994 the assets consisted primarily of listed common stocks and fixed-income investments. Marketable securities held by the trust are carried at the lower of aggregate cost or market value. Income and expenses of the trust are included in the Company's consolidated income and expenses. The trust is irrevocable and subject only to the claims of creditors in the event of the insolvency of the Company. Discontinued Operations Discontinued operations include the Company's short term lending operations and information systems operations. For the six months ended December 31, 1991, discontinued operations also included the Company's real estate development operations as held and operated by Vista Properties, Inc. ("Vista"), which was spun off in connection with LFC's reorganization. In May 1994 the Company announced its intent to sell LIS. In September 1994, the Company entered into a letter of intent with a subsidiary of an insurance company to sell substantially all the assets of LIS, therefore, LIS has been accounted for as discontinued operation. The 1993 and 1992 financial statements have been restated to reflect LIS as discontinued operations. The Company's discontinued short term lending operations include ST Lending, Inc. ("STL"), Lomas Management, Inc. ("LMI"), which manages the assets of STL, and certain other real estate operations. The Company is discontinuing its short term lending operations by orderly liquidation of its portfolio of construction, acquisition and development loans, and foreclosed real estate. Substantially no new commercial loans and only a limited number of residential single-family construction loans have been originated since June 1989. The Company projects future operating losses from its short-term lending operations of approximately $2.1 million through June 30, 1995, which has been provided for as of June 30, 1994. Operating results from discontinued operations for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991 were as follows (in thousands): | Predecessor Reorganized Company | Company ------------------------------------ | ----------------- Year Ended June 30 Six Months | Six Months --------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 -------- -------- ------------- | ----------------- | Revenues $ 49,039 $ 51,800 $ 29,990 | $ 36,428 Operating income (loss): | LIS $(23,164) $(14,293) $ (5,810) | $(12,253) STL and LMI (16,552) (14,391) (16,524) | 109 Other real estate operations (636) 260 315 | 1,184 Vista -- -- -- | (9,251) Loss from operations (40,352) (28,424) (22,019) | (20,211) Provisions for future short term | lending operations losses (17,500) (4,500) (8,400) | -- Operating loss charged to reserves 17,188 14,220 -- | -- Provision for future LIS losses (8,500) -- -- | -- Estimated loss on disposition | of LIS (25,000) -- -- | -- Tax benefit applicable to | discontinued operations -- 1,441 1,139 | -- Loss from discontinued operations $(74,164) $(17,263) $(29,280) | $(20,211)
Operating losses of the short term lending operations included $10.1 million, $9 million, $13.6 million and $5.3 million to provide for foreclosure losses and additional allowances for uncollectible receivables for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991, respectively. Provision for future losses for fiscal 1994 also included a $6.5 million of reserve provided for losses to be realized on STL sales of property in early fiscal 1995 and for restructuring. The sales in early fiscal 1995 would generate net cash of approximately $27.7 million. STL currently has cash on hand of $16.4 million. After prepaying the balance of the secured notes of $19.0 million, STL would have $24.0 million of cash available to advance to the Company. In May 1993 the Financial Accounting Standards Board issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). SFAS 114 requires impairment of a loan be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient at the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. The Company is currently evaluating the impact from the adoption of this standard. The Company is required to adopt this standard on July 1, 1995. Net assets of discontinued operations of short term lending were as follows (in thousands): June 30 ------------------- 1994 1993 -------- --------- Assets: Mortgage notes receivable and foreclosed real estate, net of allowance for losses of $17,904 and $31,821, respectively $111,432 $ 202,911 Cash and restricted cash investments 39,292 31,799 Other assets 2,491 3,079 -------- --------- 153,215 237,789 Less: Secured notes payable (61,987) (121,992) Accrued interest payable and other (3,257) (4,224) Other reserves (2,092) (1,180) -------- --------- $ 85,879 $ 110,393 ======== ========= STL was organized in January 1992 in connection with LFC's plan of reorganization to service, manage and orderly dispose of certain mortgage loans, participations in mortgage loans and foreclosed real estate. In connection with the reorganization, STL issued $240 million of non-recourse notes secured by its assets (the "Collateral") which will mature in 1996. The interest rate on STL's secured non-recourse notes is subject to adjustment for changes in the 90-day LIBOR rate. Principal, interest, rents and income received on the Collateral are used to fund STL's operating expenses and provide for debt service payments. Substantially all of the net assets of STL ($79.9 million at June 30, 1994) are restricted pursuant to provisions of the secured non-recourse notes. The yield on STL's earning loans (totaling $34.5 million at June 30, 1994) was approximately 8.84%, on its earning real estate (totaling $29.0 million at June 30, 1994) was approximately 9.0%, and on its cash (invested primarily in high-grade commercial paper) was approximately 4.06%. The interest rate on STL's debt outstanding at that date was 6.25%. Prepayments on the STL notes are required prior to 1996 to the extent STL's cash flow permits. During the year ended June 30, 1994, STL made principal payments aggregating $60.0 million on its secured notes, thereby reducing the balance thereof to $62.0 million. Subsequent to June 30, 1994, STL made additional principal payments of $43.0 million. The outstanding balance of the notes after application of these principal payments was $19.0 million. The secured notes are without recourse to the Company or any subsidiary thereof other than STL. During the year ended June 30, 1994, LFC reinstated its liquidity support agreement with STL. Under the terms of the agreement, STL, through a trustee, will make quarterly cash deposits (governed by the STL note indenture agreement) into the liquidity support trust account. Amounts deposited into the account are available to LFC for interest shortfalls on LFC's $140 million senior convertible notes. The interest shortfalls are calculated on a predetermined formula. As of June 30, 1994 STL has advanced $6.2 million to LFC for such interest shortfall. The agreement limits the aggregate advances which can be made to $20.0 million. Loan commitments are made to accommodate the financial needs of the Company's borrowers and are subject to the Company's normal credit policies. Guarantees and other commitments include standby letters of credit, financial guarantees and performance guarantees made by the Company to third parties on behalf of borrowers in connection with the Company's short term lending operations. Even though this segment of business is discontinued, the guarantees remain in effect. These arrangements have credit risk essentially the same as that involved in extending loans. Outstanding commitments and guarantees at June 30, 1994 were as follows (in thousands): Loan commitments on existing short term construction, acquisition and development loans $1,326 Guarantees and other commitments $766 The Company's LIS discontinued operations provide information management services and products to the mortgage banking industry. Its products include software packages for mortgage loan servicing, loan production, secondary marketing and master servicing, which it markets on both a service bureau and licensing basis. At June 30, 1994 LIS' service bureau processed, for Lomas Mortgage and its external customers, a total of approximately 1.3 million mortgages. The Company recorded a provision of $33.5 million at June 30, 1994 related to the planned disposition of this segment of the Company's business. This provision is to reduce the net assets of the segment expected to be sold to their estimated fair value and to cover the projected operating losses of LIS during the first four months of fiscal 1995, as well as expenses in connection with the sale. The transaction is expected to close on or about October 31, 1994. Net assets of discontinued LIS were as follows (in thousands): June 30 ---------------- *1994 1993 ------- ------- Capitalized computer software $31,433 $61,361 Other assets 9,548 7,210 ------- ------- 40,981 68,571 Less: Accounts payable and other (3,502) (4,382) Future operating losses and selling costs (10,100) -- ------- ------- $27,379 $64,189 ======= ======= _______________ * The amounts for June 30, 1994 are adjusted to reflect the net assets after recording the loss provision on the sale as discussed above. Transactions With Affiliates On September 30, 1993 the contractual relationship between the Company and Capstead Mortgage Corporation ("Capstead"), a real estate investment trust managed by a wholly-owned subsidiary of Lomas Mortgage, was terminated and Capstead became entirely self-managed on September 30, 1993. However, Lomas Mortgage will continue to service Capstead's mortgage servicing portfolio existing at the termination of the management agreement which at June 30, 1994 totaled $6.1 billion. In connection with the early termination provision included in the amended management agreement, the Company received a final payment of $4.8 million, which represented the discounted value of payments previously scheduled to be made by Capstead to the Company during the balance of fiscal 1994 and 1995. The Company's contractual relationship with Capstead resulted in the following (in thousands): | Predecessor Reorganized Company | Company ------------------------------------ | ----------------- Year Ended June 30 Six Months | Six Months --------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 -------- -------- ------------- | ----------------- | Management fee income $ 2,952 $ 9,854 $ 6,092 | $ 5,500 Servicing and master servicing fee | income $ 10,042 $ 15,809 $ 5,222 | $ 2,456 Sale of first mortgage loans $ 4,516 $ 14,160 $ 9,077 | $ 2,630 Purchase of servicing rights $ 3,379 $ 33,475 $ 22,009 | $ 14,544 Other income $ 5,028 $ 13,537 -- | --
Operating costs related to the Capstead management fee income were approximately $2.1 million, $5.8 million, $2.6 million and $2.1 million for the year ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991, respectively. During fiscal 1993 and 1994 the contractual relationship between Capstead and the Company was amended and shortened to provide for Capstead's move to a self-administered status on September 30, 1993. Pursuant to the amendments, the Company received management fees based on an amount equal to the Company's costs plus a fixed profit aggregating $9.4 million. The Company also agreed that for a period of one year after the termination of the agreement not to compete, organize or provide management services to any real estate investment trust. The Company received $5.3 million in connection with the non-compete agreement and a six-year option to acquire 750,000 shares of Capstead common stock at $32.625 per share which the Company recorded at $3.0 million and was included in income from other affiliates. The Company also received $4.8 million fees for early termination of the management agreement. During fiscal 1994 and 1993, the Company recognized total income of $6.0 million and $17.2 million, respectively (excluding reimbursed expenses), from the amended management agreement and the non-compete agreement. The Company, through a wholly-owned subsidiary (which is accounted for as a discontinued operation), is a manager of Liberte Investors ("Liberte"), a real estate investment trust. During the year ended June 30, 1993, the Company amended its management agreement with Liberte. Under the amended agreement, Liberte pays the Company management fees equal to 1% of Liberte's invested assets net of reserves. The management agreement may be terminated by either party for cause at any time upon 60-days written notice or without cause upon 90-days written notice. For the years ended June 30, 1994 and 1993, the Company received management fees of $1.9 million and $2.9 million, respectively, under the amended management agreement. For the six months ended June 30, 1992 and six months ended December 31, 1991, the Company received management fees of $880,000 and $1.0 million under the old management agreement. The Company, through Lomas Mortgage, is a partner and manager of Lomas Mortgage Partnership (the "Partnership"). The Company owns one-third of the Partnership and at June 30, 1994 the Company's investment in the Partnership approximated $5.4 million. The Partnership is engaged primarily in acquiring mortgage servicing rights and servicing single-family mortgages. The Company subservices all mortgages in the Partnership's mortgage servicing portfolio for its usual subservicing fees. During the year ended June 30, 1994 and 1993, the Company sold to the Partnership approximately $1.2 billion and $361.8 million in unpaid principal balance of mortgage servicing income rights with a carrying value of $13.7 million and $4.7 million for $12.1 million and $4.7 million, respectively. The PMSRs sold in fiscal 1994 had been acquired in 1994 and were expected to yield the Company an annual return of approximately 13.6 percent. The Company received subservicing fees of approximately $3.9 million and $1.4 million from the Partnership during fiscal 1994 and 1993, respectively. Subsequent Events In September 1994 the Company entered into a letter of intent with an insurance company to sell substantially all the assets of LIS. For more information, see the "Discontinued Operations" footnote. Also for information on the sale of certain assets of STL that is expected to occur in early fiscal 1995, see the "Discontinued Operations" footnote. Quarterly Results (Unaudited) The following is a summary of the unaudited quarterly results of operations for the two years ended June 30, 1994 (in thousands of dollars, except per share amounts). Year Ended June 30, 1994 First Second Third Fourth Quarter Quarter Quarter Quarter Revenues from continuing operations 80,064 65,761 63,833 61,400 Loss from continuing operations (39,698) (42,503) (4,746) (21,555) Loss from discontinued operations (9,869) (5,635) (12,923) (45,737) Net loss (49,567) (48,138) (17,669) (67,292) Earnings (loss) per common share: Loss from continuing operations (1.97) (2.11) (.24) (1.07) Net loss (2.46) (2.39) (.88) (3.34) During the first quarter and second quarter of fiscal 1994, the Company established provisions of $50.0 million and $30.0 million, respectively, related to impairment in the carrying value of PMSRs. For information concerning the Company's reduction in force and restructuring in the second quarter and fourth quarter, see "Reduction in Force and Restructuring" footnote. In the fourth quarter of fiscal 1994, the Company recorded a provision of $33.5 million relating to the pending sale of substantially all the assets of LIS. Year Ended June 30, 1993 First Second Third Fourth Quarter Quarter Quarter Quarter Revenues from continuing operations 73,616 70,463 73,352 75,923 Income from continuing operations 8,149 6,791 7,580 7,037 Loss from discontinued operations (3,740) (3,481) (4,077) (5,965) Net income 4,409 3,310 3,503 1,072 Earnings per common share: Income from continuing operations .41 .34 .38 .35 Net income .22 .16 .17 .05 INDUSTRY SEGMENT DATA OF CONTINUING OPERATIONS LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands)
| Predecessor Reorganized Company | Company ---------------------------------- | ----------------- Year Ended June 30 Six Months | Six Months ------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 --------- -------- ------------- | ----------------- | Revenues | Mortgage banking $ 262,019 $279,874 $124,996 | $122,937 Other 9,039 13,880 7,911 | 6,920 --------- -------- -------- | -------- | 271,058 293,754 132,907 | 129,857 Intersegment revenues eliminated | in consolidation -- (400) (294) | (158) --------- -------- -------- | -------- Total revenues per statement of | consolidated operations $ 271,058 $293,354 $132,613 | $129,699 ========= ======== ======== | ======== | Operating profit (loss) | Mortgage banking $ 6,895 $ 40,031 $ 14,411 | $ 11,530 Other 2,653 13,207 8,423 | 6,792 --------- -------- -------- | -------- Operating income (loss) 9,548 53,238 22,834 | 18,322 General and administrative (9,327) (7,232) (3,867) | (3,422) Corporate interest income (expense) (13,153) (12,637) (6,270) | 9,386 --------- -------- -------- | -------- Operating income (loss) before | provisions (12,932) 33,369 12,697 | 24,286 Provisions for restructuring (15,570) -- -- | -- Provisions for impairment of PMSRs (80,000) -- -- | -- --------- -------- -------- | -------- Operating income (loss) before | reorganization items (108,502) 33,369 12,697 | 24,286 Reorganization items -- -- -- | (26,938) --------- -------- -------- | -------- Operating income (loss) before | federal income tax equivalent | provision (108,502) 33,369 12,697 | (2,652) Federal income tax equivalent | provision -- 3,812 1,139 | -- --------- -------- -------- | -------- Income (loss) from continuing | operations $(108,502) $ 29,557 $ 11,558 | $ (2,652) ========= ======== ======== | ======== Corporate interest income for the six months ended December 31, 1991 reflected interest charged to subsidiaries for their borrowings from LFC in excess of corporate interest expense. /TABLE INDUSTRY SEGMENT DATA OF CONTINUING OPERATIONS (Continued) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands)
| Predecessor Reorganized Company | Company ------------------------------------- | ----------------- June 30 | ---------------------- | 1994 1993 June 30, 1992 | December 31, 1991 ---------- ---------- ------------- | ----------------- | Identifiable Assets | Mortgage banking $ 926,995 $1,217,498 $1,311,113 | $ 869,252 Other 37,320 62,431 81,067 | 124,686 964,315 1,279,929 1,392,180 | 993,938 Net assets of discontinued operations 113,258 174,582 165,335 | 183,462 Total assets per consolidated | balance sheet $1,077,573 $1,454,511 $1,557,515 | $1,177,400 | Predecessor Reorganized Company | Company ------------------------------------- | ----------------- Year Ended June 30 Six Months | Six Months ---------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 ---------- ---------- ------------- | ----------------- | Depreciation and Amortization Expense | Mortgage banking $ 153,787 $ 68,342 $ 30,817 | $ 27,595 Other 1,523 679 380 | 423 $ 155,310 $ 69,021 $ 31,197 | $ 28,018 Net Charges to Allowance for Losses | Mortgage banking $ 12,410 $ 9,897 $ 15,499 | $ 13,062 Other 447 104 251 | 17,527 $ 12,857 $ 10,001 $ 15,750 | $ 30,589 Capital expenditures | Mortgage banking $ 24,042 $ 9,021 $ 2,658 | $ 3,836 Other 1,016 576 86 | 128 $ 25,058 $ 9,597 $ 2,744 | $ 3,964 /TABLE INDUSTRY SEGMENT DATA OF CONTINUING OPERATIONS (Continued) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands) Intersegment charges to Lomas Mortgage operations are as follows (in thousands):
| Predecessor Reorganized Company | Company ------------------------------------- | ----------------- Year Ended June 30 Six Months | Six Months ---------------------- Ended | Ended 1994 1993 June 30, 1992 | December 31, 1991 ---------- ---------- ------------- | ----------------- | LIS for data processing and telecommunications $ 17,061 $ 17,918 $ 9,052 $ 8,178 Lomas Administrative Services, Inc. ("LAS") for various administrative services 7,487 8,064 3,882 3,950 LAS for office space 6,026 1,717 686 686 Intellifile, Inc. for image processing 2,926 -- -- -- LFC for management fees 1,630 1,970 725 700 LFC for interest expense (income) (518) 166 136 11,486 $ 34,612 $ 29,835 $ 14,481 $ 25,000 During fiscal 1994 LAS changed its method of allocating office space costs. Prior to fiscal 1994 Lomas Mortgage received credit for depreciation and interest expense related to the office space occupied by other affiliates and unallocated office space totalling approximately $4.2 million. These costs were absorbed by Lomas Mortgage during fiscal 1994.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E -------------- ---------- ---------- --------------------------- ------------------------ Deductions Balance at End of Period --------------------------- ------------------------ Balance at (1) (2) Beginning Amounts Amounts (1) (2) Name of Debtor of Period Additions Collected Written Off Current Not Current -------------- ---------- ---------- --------- ----------- ------- ----------- Year Ended June 30, 1994: Receivable from employees of continuing operations: Receivable from current employees-- Bridge notes and first mortgage loans Robert E. Byerley, Jr. $ -- $ 106,000(A) $ -- $ -- $ -- $106,000 *John Giliam 36,000 158,000 (159,000) -- -- 35,000 *Gary Kell 61,000 -- (61,000) -- -- -- Gary White -- 102,000(A) (102,000) -- -- -- Other employees individually less than $100,000 166,000 35,000(A) (48,000) -- -- 153,000 Open advances Employees individually less than $100,000 7,000 43,000 (46,000) -- 4,000 -- Total receivables from current employees 270,000 444,000 (416,000) -- 4,000 294,000 Receivables from terminated employees-- Bridge notes and first mortgage loans Henry Hortenstine 175,000 -- -- -- -- 175,000 David Stephens 445,000 -- (445,000)(B) -- -- -- Other terminated employees individually less than $100,000 144,000 67,000 (41,000) -- -- 170,000 Total receivables from terminated employees 764,000 67,000 (486,000) -- -- 345,000 Total receivables from employees of continuing operations $1,034,000 $ 511,000 $ (902,000) $ -- $ 4,000 $639,000 *Officers of subsidiaries. (A) Includes accrued interest of $9,000 added to notes principal. (B) Includes mortgage loans of $264,000 sold to FNMA. Note: Beginning balance of each category is different from previous year's ending balance due to the change in employment status during the year.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES--(Continued) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E -------------- ---------- ---------- --------------------------- ------------------------ Deductions Balance at End of Period --------------------------- ------------------------ Balance at (1) (2) Beginning Amounts Amounts (1) (2) Name of Debtor of Period Additions Collected Written Off Current Not Current -------------- ---------- ---------- --------- ----------- ------- ----------- Year Ended June 30, 1993: Receivable from employees of continuing operations: Receivable from current employees-- Bridge notes and first mortgage loans *Gary Kell $ 114,000 $ -- $ (53,000) $ -- $ -- $ 61,000 *Ronn Lytle 34,000 -- (34,000) -- -- -- *David Stephens 464,000 12,000 (31,000) -- -- 445,000 Other employees individually less than $100,000 127,000 74,000 (39,000) -- -- 162,000 Open advances Employees individually less than $100,000 74,000 74,000 (69,000) -- 79,000 -- Total receivables from current employees 813,000 160,000 (226,000) -- 79,000 668,000 Receivables from terminated employees-- Bridge notes and first mortgage loans Henry Hortenstine 175,000 -- -- -- -- 175,000 Richard Marshall 153,000 -- (153,000) -- -- -- Other terminated employees individually less than $100,000 107,000 84,000(A) (79,000) -- -- 112,000 Total receivables from terminated employees 435,000 84,000 (232,000) -- -- 287,000 Total receivables from employees of continuing operations $1,248,000 $ 244,000 $ (458,000) $ -- $79,000 $955,000 *Officers of subsidiaries and affiliates. (A) Includes accrued interest of $9,000 added to notes principal. /TABLE SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES--(Continued) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E -------------- ---------- ---------- --------------------------- ------------------------ Deductions Balance at End of Period --------------------------- ------------------------ Balance at (1) (2) Beginning Amounts Amounts (1) (2) Name of Debtor of Period Additions Collected Written Off Current Not Current -------------- ---------- ---------- --------- ----------- ------- ----------- Year Ended June 30, 1992: Receivable from employees of continuing operations: Receivable from current employees-- Career Executive Stock Plan(C) *Ted Enloe $1,298,000 $ -- $ (43,000) $(1,255,000)(A) $ -- $ -- Jess Hay 2,435,000 -- -- (2,435,000)(B) -- -- *David Stephens 100,000 -- -- (100,000)(B) -- -- Gary White 168,000 -- -- (168,000)(B) -- -- *Carey B. Wickland 252,000 -- -- (252,000)(B) -- -- Other employees individually less than $100,000 267,000 -- -- (267,000)(B) -- -- Bridge notes and first mortgage loans *Gary Kell 118,000 -- (4,000) -- -- 114,000 *Ronn Lytle 133,000 -- (99,000) -- -- 34,000 *David Stephens 459,000 11,000 (6,000) -- -- 464,000 Other employees individually less than $100,000 123,000 15,000 (11,000) -- -- 127,000 Open advances Ted Enloe 106,000 4,000 (110,000) -- -- -- Other employees individually less than $100,000 84,000 28,000 (38,000) -- 74,000 -- Total receivables from current employees 5,543,000 58,000 (311,000) (4,477,000) 74,000 739,000 Receivable from terminated employees-- Bridge notes and first mortgage loans Henry Hortenstine 175,000 -- -- -- -- 175,000 Richard Marshall 155,000 -- (2,000) -- -- 153,000 H. H. Miller, Jr. (deceased) 81,000 -- (64,000) (17,000) -- -- Other terminated employees individually less than $100,000 187,000 8,000(D) (79,000) (9,000) -- 107,000 Open advances Other terminated employees individually less than $100,000 $ 4,000 $ -- $ -- $ (4,000) $ -- $ -- Total receivables from terminated employees 602,000 8,000 (145,000) (30,000) -- 435,000 Total receivables from employees of continuing operations $6,145,000 $ 66,000 $ (456,000) $(4,507,000) $74,000 $1,174,000 *Officers of subsidiaries and affiliates. (A) Mr. Enloe terminated his employment with the Company in fiscal 1992, this indebtedness to the Company was sold to a third part (B) Employees surrendered stock in lieu of cash payment to satisfy receivable in accordance with the terms of the Career Executive Stock Plan. (C) Career Executive Stock Plan receivables were written off to reserves established in 1989. (D) Represents accrued interest added to notes principal. Note: Beginning balance of each category is different from previous year's ending balance due to the change in employment status during the year.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Registrant's condensed financial statements for periods prior to reorganization are not presented as the Registrant had different capital structure and information for these periods is not meaningful. LOMAS FINANCIAL CORPORATION CONDENSED BALANCE SHEET (in thousands) June 30, 1994 and 1993 ASSETS June 30 1994 1993 Cash $ (1,237) $ 1,925 Receivables (including $7,062 and $1,476, respectively, due from subsidiaries eliminated in consolidation) 7,689 2,097 Investments (including $170,234 and $262,578, respectively, investments in subsidiaries eliminated in consolidation) 188,702 300,857 Less: Allowance for losses (2,383) (633) 194,008 302,321 Fixed assets, prepaid expenses and other assets 4,748 5,061 Net assets of discontinued operations 113,258 174,582 $ 310,777 $483,889 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses (including $15,295 and $4,070, respectively, due to subsidiaries eliminated in consolidation) $ 29,424 $ 19,892 Senior convertible notes payable 139,918 139,918 169,342 159,810 Stockholders' Equity: Common stock 20,100 20,097 Other paid-in capital (including $1,300 eliminated in consolidation) 309,429 309,410 Retained earnings (deficit) (188,094) (5,428) 141,435 324,079 $ 310,777 $483,889 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) LOMAS FINANCIAL CORPORATION CONDENSED STATEMENT OF OPERATIONS (in thousands) Years Ended June 30, 1994 and 1993 and Six Months Ended June 30, 1992 Year Ended Six Months June 30 Ended 1994 1993 June 30, 1992 Revenues: Investment (excluding dividends from subsidiaries) $ 3,234 $ 6,244 $ 4,980 Other 4,098 6,644 331 7,332 12,888 5,311 Expenses: Interest 13,260 12,898 6,428 General and administrative 13,957 7,232 3,867 27,217 20,130 10,295 Loss before federal income tax equivalent provision and equity income (loss) of subsidiaries (19,885) (7,242) (4,984) Federal income tax equivalent benefit -- 7,265 3,439 Equity in net income (loss) of subsidiaries (88,617) 29,534 13,103 Income (loss) from continuing operations (108,502) 29,557 11,558 Loss from discontinued operations (74,164) (17,263) (29,280) Net income (loss) $(182,666) $ 12,294 $(17,722) Dividends paid by subsidiaries $ 744 $ 21,083 $ 3,985 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) LOMAS FINANCIAL CORPORATION CONDENSED STATEMENT OF CASH FLOWS (in thousands) Years Ended June 30, 1994 and 1993 and Six Months Ended June 30, 1992 Year Ended Six Months June 30 Ended 1994 1993 June 30, 1992 Operating activities: Income (loss) from continuing operations $(108,502) $ 29,557 $ 11,558 Noncash items included in the determination of income (loss) from continuing operations: Depreciation and amortization 232 226 108 Provision for losses and restructuring 4,630 -- -- Equity (income) loss of subsidiaries 88,617 (29,534) (13,103) Federal income tax equivalent benefit -- (7,265) (3,439) Cash used by operations before working capital changes (15,023) (7,016) (4,876) Net change in receivables, payables and other assets (3,912) (7,219) (29,348) (18,935) (14,235) (34,224) Investing activities: Purchases of investments (3,525) (997) -- Sales of investments 26,467 4,681 29,583 Other 31 (151) (145) 22,973 3,533 29,438 Financing activities: Change in receivables/payables from/(to) subsidiaries 5,639 34,197 13,497 Funding of discontinued LIS operations (19,854) (23,998) (13,903) Change in receivables/payables from/(to) discontinued short term lending and other real estate operations 7,015 (6,455) 1,669 (7,200) 3,744 1,263 Net decrease in cash and cash equivalents (3,162) (6,958) (3,523) Cash and cash equivalents at beginning of period 1,925 8,883 12,406 Cash and cash equivalents (deficit) at end of period $ (1,237) $ 1,925 $ 8,883 SCHEDULE IX -- SHORT TERM BORROWINGS LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
COL. B COL. C COL. D COL. E COL. F Maximum Average Weighted Amount Amount Average Balance at Weighted Outstanding Outstanding Interest Rate End of Average During the During the During the Period Interest Rate Period Period(1) Period(2) Year Ended June 30, 1994: Notes payable to banks and others $245,570,000 3.64% $428,567,000 $302,531,000 2.46% Investment lines of credit 72,105,000 1.00% 174,805,000 128,073,000 1.34% Repurchase agreements -- -- 328,304,000 169,310,000 4.33% Senior secured working capital credit agreements 22,000,000 7.25% 25,000,000 5,417,000 7.36% Other 1,372,000 2.00% 8,775,000 2,514,000 2.20% Year Ended June 30, 1993: Notes payable to banks and others $248,071,000 1.59% $254,014,000 $213,283,000 1.79% Investment lines of credit 168,109,000 1.22% 328,294,000 217,704,000 1.11% Repurchase agreements 99,140,000 3.38% 333,441,000 233,411,000 3.46% Six Months Ended June 30, 1992: Notes payable to banks and others $178,104,000 1.60% $224,284,000 $197,374,000 3.06% Investment lines of credit 289,024,000 1.16% 289,024,000 219,343,000 1.18% Repurchase agreements 184,960,000 4.01% 184,960,000 141,611,000 4.14% Six Months Ended December 31, 1991: Notes payable to banks and others $180,170,000 3.11% $180,170,000 $148,795,000 3.19% Investment lines of credit -- -- 237,480,000 197,731,000 1.13% Repurchase agreements 36,273,000 5.25% 134,593,000 95,530,000 5.54% (1) The average amount outstanding during the period was computed using the sum of the actual amount outstanding on each day divide by the actual days of the year. (2) The weighted average interest rate during the period was computed by dividing the actual interest expense for the year by the average short term debt outstanding. /TABLE Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required for Directors is included in the registrant's 1994 Proxy Statement dated October 3, 1994 issued in connection with its Annual Meeting to be held November 1, 1994 on pages 6 through 8 under the caption "Election of Directors," and is incorporated herein by reference, pursuant to General Instruction G(3). Executive Officers of the Registrant JESS HAY--Chief Executive Officer of the Company since 1965; Chairman of the Board of Directors of LFC since 1969; Chairman of the Board of Directors of Lomas Mortgage since 1990. Age 63. JAMES L. CROWSON--Executive Vice President of the Company since 1994; Director of the Company since 1993; prior thereto, Senior Vice President-- General Counsel of the Company since 1987; Vice Chancellor and General Counsel of The University of Texas System from 1980 to 1987; previously, Executive Vice President and Professor of Political Economy at The University of Texas at Dallas; also a director of Lomas Mortgage. Age 56. ROBERT E. BYERLEY, JR.--Senior Vice President--Finance and Treasurer of the Company since 1990; President of Lomas Administrative Services since 1993; Executive Vice President of Lomas Mortgage since 1994; prior thereto, Vice President--Finance and Treasurer of the Company from 1988 to 1990; Vice President--Control from 1986 to 1988 and Assistant Vice President--Control of Lomas Mortgage from 1984 to 1986. Age 34. M. ROBERT ROOFNER--Senior Vice President--Tax of the Company since 1990; prior thereto, Vice President--Tax from 1984 to 1990 and Manager of the Tax Department of the Company from 1983 to 1984. Age 48. RAMONA TAYLOR--Senior Vice President and Corporate Secretary of the Company since 1990; prior thereto, Corporate Secretary of the Company from 1975 to 1990. Age 64. GARY WHITE--Senior Vice President and Controller and Principal Accounting Officer of the Company since 1981; Executive Vice President and Controller and Principal Accounting Officer of Lomas Mortgage since 1994; prior thereto, Vice President--Control from 1979 to 1981 and Treasurer of the Company from 1974 to 1979; also a director of Lomas Mortgage. Age 59. GARY H. KELL--President of Lomas Mortgage since 1994; prior thereto, Executive Vice President--Portfolio Production of Lomas Mortgage from 1985 to 1994; Senior Vice President of Lomas Mortgage from 1979 to 1985. Employed by Lomas Mortgage since 1969. Age 53. THOMAS J. CLOONEY--Executive Vice President--Operations of LIS since 1992; previously, Senior Vice President--Accounting of the Company from 1991 to 1992 and, prior thereto, Senior Vice President--Audit from July 1990 to November 1990, Vice President--Audit from 1988 to June 1990 and Assistant Vice President--Audit from 1987 to 1988 of the Company. Age 46. BERT P. HEADDEN--Executive Vice President of Lomas Mortgage since 1994; prior thereto, Senior Vice President of Lomas Mortgage from 1992 to 1994. Age 51. FLOYD L. MCGLOTHLIN--Executive Vice President--Sales, Marketing and Customer Service of LIS since 1992; prior thereto, Senior Vice President from 1985 to 1992 and Vice President from 1982 to 1985 of LIS. Age 45. LYNDA-ROSS VEGA--Executive Vice President--Systems of LIS since 1992; prior thereto, Senior Vice President from 1988 to 1992, Vice President from 1986 to 1988 and Second Vice President from 1984 to 1986 of LIS. Age 44. CAREY B. WICKLAND--President and Chief Operating Officer of LMI since 1987, prior thereto, Executive Vice President of LMI from 1982 to 1987. Age 53. Item 11. EXECUTIVE COMPENSATION The information required by this item is included in the registrant's 1994 Proxy Statement dated October 3, 1994 issued in connection with its Annual Meeting of Stockholders to be held November 1, 1994 on pages 11 through 20 under the caption "Executive Compensation," and is incorporated herein by reference, pursuant to General Instruction G(3). Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included in the registrant's 1994 Proxy Statement dated October 3, 1994 issued in connection with its Annual Meeting of Stockholders to be held November 1, 1994 on pages 2 through 6 under the caption "Security Ownership of Certain Beneficial Owners and Management," and is incorporated herein by reference, pursuant to General Instruction G(3). Notwithstanding the foregoing incorporation by reference to the registrant's 1994 Proxy Statement, neither (i) the registrant's "Compensation Committee Report on Executive Compensation" pursuant to Item 402(k) of Regulation S-K nor (ii) the registrant's "Share Investment Performance" graph pursuant to Item 402(l) of Regulation S-K are incorporated from the registrant's 1994 Proxy Statement into this Form 10-K, nor shall such items be deemed "filed" with the Securities and Exchange Commission. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is included in the registrant's 1994 Proxy Statement dated October 4, 1994 issued in connection with its Annual Meeting of Stockholders to be held November 1, 1994 on pages 21 through 22 under the caption "Transactions with Management and Others," and is incorporated herein by reference, pursuant to General Instruction G(3). See also "Item 8. Financial Statements and Supplementary Data--Transactions with Affiliates." PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: (1) The following consolidated financial statements are included in Item 8. Pages Consolidated Balance Sheet--June 30, 1994 and 1993 31 Statement of Consolidated Operations--Years Ended June 30, 1994 and 1993, Six Months Ended June 30, 1992 and Six Months Ended December 31, 1991 32 Statement of Consolidated Stockholders' Equity-- Years Ended June 30, 1994 and 1993, Six Months Ended June 30, 1992 and Six Months Ended December 31, 1991 33 Statement of Consolidated Cash Flows-- Year Ended June 30, 1994 and 1993, Six Months Ended June 30, 1992 and Six Months Ended December 31, 1991 34 Notes to Consolidated Financial Statements-- June 30, 1994 36 (2) The following financial statement schedules are included in Item 8. Schedule II--Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other than the Related Parties 65 Schedule III--Condensed Financial Information of Registrant 69 Schedule IX--Short Term Borrowings 72 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. Financial statements (and summarized financial information) of unconsolidated subsidiaries and 50-Percent-or-Less-Owned Persons accounted for by the equity method are not presented because they do not, individually or in aggregate, constitute a significant subsidiary. (3)(a)Exhibits: Exhibit Number (10.1) Amendment No. 1 to Amended and Restated Pledge Agreement, dated May 25, 1994, between Lomas Mortgage USA, Inc. and Lehman Brothers Special Financing Inc. (10.2) Amendment No. 1 to the Interest Rate and Currency Exchange Agreement, dated May 25, 1994, between Lomas Mortgage USA, Inc. and Lehman Brothers Special Financing Inc. (10.3) Eleventh Amendment to Servicing Payments Loan and Security Agreement dated June 30, 1994 among Lomas Mortgage USA, Inc., the bank signatories thereto and Bank One, Texas, N.A., as agent. (10.4) Sixth Amendment to Restated Loan and Security Agreement dated _____ among Lomas Mortgage USA, Inc., the bank signatories thereto and Bank One, Texas, N.A., as administrative agent, and Texas Commerce Bank National Association, as syndication agent. (10.5) Seventh Amendment to Restated Loan and Security Agreement dated June 30, 1994 among Lomas Mortgage USA, Inc., the bank signatories thereto and Bank One, Texas, N.A., as administrative agent, and Texas Commerce Bank National Association, as syndication agent. (10.6) 6/94 Senior Secured Working Capital Credit Agreement dated June 30, 1994 between Lomas Mortgage USA, Inc. and Texas Commerce Bank National Association. (10.7) 6/94 (third) Amendment to 6/93 Servicing Purchase Loan Agreement dated June 30, 1994 between Lomas Mortgage USA, Inc. and Texas Commerce Bank National Association. (11) Computation of earnings per share. (21) List of subsidiaries of the registrant. (23) Consent of independent auditors. (b) Reports on Form 8-K: Form 8-K dated August 2, 1994 reporting the intended retirement of Jess Hay, the Company's chairman and chief executive officer, on December 31, 1994. There were no financial statements filed. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LOMAS FINANCIAL CORPORATION Registrant Date: September 19, 1994 By /S/GARY WHITE -------------------------- Gary White Senior Vice President--Control Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: September 19, 1994 By JESS HAY -------------------------- Jess Hay Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934 and in response to General Instruction D to Form 10-K, this report has been signed below on behalf of the registrant by the following directors on the dates indicated. Date: September 21, 1994 By Gene H. Bishop -------------------------- (Gene H. Bishop) Date: September 21, 1994 By Robert G. Boucher -------------------------- (Robert G. Boucher) Date: September 21, 1994 By Dolph Briscoe -------------------------- (Dolph Briscoe) Date: September 19, 1994 By James L. Crowson -------------------------- (James L. Crowson) Date: September 19, 1994 By Rod Dammeyer -------------------------- (Rod Dammeyer) Date: September 19, 1994 By Mark M. Feldman -------------------------- (Mark M. Feldman) Date: September 19, 1994 By Jess Hay -------------------------- (Jess Hay) Date: September 19, 1994 By Robert LeBuhn -------------------------- (Robert LeBuhn) Date: September 19, 1994 By Robert V. Lindsay -------------------------- (Robert V. Lindsay) Date: September 20, 1994 By Reid Nagle -------------------------- (Reid Nagle) Date: September 19, 1994 By Diana Natalicio -------------------------- (Diana Natalicio) Date: September 20, 1994 By Hugh G. Robinson -------------------------- (Hugh G. Robinson) Date: September 21, 1994 By Douglas L. Rock -------------------------- (Douglas L. Rock) Date: September 19, 1994 By Harvey M. Schuster -------------------------- (Harvey M. Schuster) Date: September 19, 1994 By Paul T. Walker -------------------------- (Paul T. Walker) Date: September 20, 1994 By W. Ray Wallace -------------------------- (W. Ray Wallace) Date: September 26, 1994 By Paul S. Wolansky -------------------------- (Paul S. Wolansky) EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 AMENDMENT NO. 1 TO AMENDED AND RESTATED PLEDGE AGREEMENT AMENDMENT NO. 1, dated as of May 25, 1994, to the AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of April 7, 1994 (the "Pledge Agreement"), made by Lomas Mortgage USA, Inc. ("Pledgor") to Lehman Brothers Special Financing Inc. ("Pledgee"). Capitalized terms used but not defined herein shall have the meanings assigned to them in the Pledge Agreement. WHEREAS, Pledgor has entered into the Pledge Agreement with Pledgee and has agreed to pledge and deliver any collateral that Pledgor is required to deliver to secure its obligations under the Agreement or any Swap Transaction pursuant to the terms of the Pledge Agreement; and WHEREAS, Pledgor and Pledgee now wish to amend the Pledge Agreement; NOW, THEREFORE, for due consideration, the receipt and sufficiency of which are hereby acknowledged by Pledgor and Pledgee, the Pledgor and the Pledgee agree that Exhibit A of the Pledge Agreement, and consequently the definitions of "Mortgage Notes" and "Mortgage Servicing Collateral" in the Pledge Agreement, shall be amended by (i) adding the mortgage notes which are described by Pool Number on Annex I hereto and (ii) upon Pledgor's pledge of the Third Mortgage Servicing Collateral as described in the letter agreement (the "Letter Agreement") dated the date hereof between the Pledgor and the Pledgee, by adding the mortgage notes which are described by pool number on an Annex 2 hereto delivered to Pledgee substantially in the form of Annex 1 hereto. As amended by this Amendment No. 1, the Pledge Agreement is in all respects ratified and confirmed and the Agreement (as supplemented by Confirmations of Swap Transactions and amended by the Letter Agreement) and the Pledge Agreement (as supplemented by Confirmations of Swap Transactions and as amended by this Amendment No. 1) will form a single agreement between Pledgor and Pledgee. IN WITNESS WHEREOF, Pledgor has caused this Amendment No. 1 to be duly executed and delivered on the day and year first above written. LOMAS MORTGAGE USA, INC. By: /s/PAUL D. FLETCHER ------------------------------ - ---- Title: Senior Vice President and Assistant Treasurer ---------------------------- - ----- EX-10.2 3 EXHIBIT 10.2 EXHIBIT 10.2 LEHMAN BROTHERS May 25, 1994 Lomas Mortgage USA, Inc. 1600 Viceroy Drive Dallas, Texas 75235 Attention: Paul Fletcher Gentlemen: Reference is made to the Interest Rate and Currency Exchange Agreement, dated as of July 2, 1992, as amended by this letter agreement (the "Agreement"), between Lomas Mortgage USA, Inc. ("Lomas") and Lehman Brothers Special Financing Inc. ("LBSF") and to the Amended and Restated Master Pledge Agreement, dated as of April 8, 1994, as amended by Amendment No. 1 thereto dated the date hereof (the "Pledge Agreement"), by Lomas in favor of LBSF. LBSF hereby demands that Lomas deliver to LBSF the additional Mortgage Servicing Collateral (as defined in the Pledge Agreement) described in Amendment No. 1 to the Pledge Agreement (the "Second Mortgage Servicing Collateral") to be held as Collateral under and as defined in the Pledge Agreement. This demand is made without limiting any other rights we may have under the Agreement or the Pledge Agreement, except that we and you agree that: (i) for purposes of the Additional Termination Event in Section 5(b) (iv) (C) of the Agreement and for purposes of the Credit Support Event specified in Paragraph (3) of Part 5 of the Schedule to the Agreement, the determination of whether Party B has experienced or is experiencing a material adverse change shall be measured against the business, assets, operations and financial condition of Party B on April 1, 1994; (ii) in addition to the rights of Party A under the Agreement, unless one or more outstanding Senior Debt Issues of Party B is rated at least Baa3 as determined by Moody's, or BBB- as determined by S&P, LBSF shall have the right to retain the Mortgage Servicing Collateral previously delivered by you (the "Original Mortgage Servicing Collateral"), LBSF shall have the right to receive and retain the Second Mortgage Servicing Collateral LEHMAN BROTHERS SPECIAL FINANCING INC. LEHMAN BROTHERS INC. AN AMERICAN EXPRESS COMPANY AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER NEW YORK 10285-1200 212 640-8811 FAX 212 528 6927 Lomas Mortgage USA, Inc. -2- May 25, 1994 and, at any time the Aggregate Exposure Amount (as defined in the Pledge Agreement) equals or exceeds $80,000,000, LBSF shall have the right to demand that you deliver additional Mortgage Servicing Collateral substantially equivalent to that previously provided or otherwise acceptable to us ("Acceptable Mortgage Servicing Collateral"), relating to a maximum of $2,000,000,000 principal amount of mortgage notes (the "Third Mortgage Servicing Collateral") which agreed Third Mortgage Servicing Collateral shall be listed by pool numbers in an annex which you will furnish to us in the form contemplated by Amendment No. 1 to the Pledge Agreement; (iii) upon receipt of satisfactory evidence of the proper filing of financing statements relating to the Second Mortgage Servicing Collateral, LBSF will release to you all amounts held by LBSF and owed to you under the Agreement; (iv) You agree to deliver to LBSF not later than the fifteenth day of the month following each calendar quarter in which Mortgage Servicing Collateral is pledged to us under the Agreement additional Acceptable Mortgage Servicing Collateral, in an amount at least equal to the aggregate principal paydown in such quarter on all such Mortgage Servicing Collateral, to be held as Collateral under the Agreement; (v) Notwithstanding any provision of the Pledge Agreement, LBSF shall not be required to release to you any Mortgage Servicing Collateral unless (x) you have one or more outstanding Senior Debt Issues that is rated Baa3 or higher as determined by Moody's, BBB- or higher as determined by S&P, or an equivalent investment grade rating from an Alternative Rating Service (as defined in the Pledge Agreement, or (y) no Swap Transactions are outstanding under the Agreement; and (vi) You agree that with respect to each delivery of Mortgage Servicing Collateral contemplated hereby you will cause appropriate financing statements to be filed and notified to us as soon as practical and that you will furnish to us an opinion of your General Counsel substantially in the form previously furnished to us. This letter shall constitute an amendment to the Agreement and shall supersede any inconsistent provisions of the Agreement. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Agreement. LEHMAN BROTHERS SPECIAL FINANCING INC. LEHMAN BROTHERS INC. AN AMERICAN EXPRESS COMPANY AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER NEW YORK 10285-1200 212 640-8811 FAX 212 528 6927 Lomas Mortgage USA, Inc. -3- May 25, 1994 Please execute this letter in the space provided below to indicate your agreement to the terms stated above. Very truly yours, LEHMAN BROTHERS SPECIAL FINANCING INC. By: Name: Title: Accepted and Agreed LOMAS MORTGAGE USA, INC. By: Name: Title: LEHMAN BROTHERS SPECIAL FINANCING INC. LEHMAN BROTHERS INC. AN AMERICAN EXPRESS COMPANY AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER NEW YORK 10285-1200 212 640-8811 FAX 212 528 6927 EX-10.3 4 EXHIBIT 10.3 EXHIBIT 10.3 SIXTH AMENDMENT TO RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDMENT is entered into as of June 8, 1994, between LOMAS MORTGAGE USA, INC., a Connecticut corporation (the "Company"), the banks listed on the signature pages below ("Lenders"), BANK ONE, TEXAS, N.A., as Administrative Agent (in that capacity "Administrative Agent"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Syndication Agent (together with Administrative Agent "Agents"). The Company, Lenders, and Agents have entered into the Restated Loan and Security Agreement dated as of July 8, 1993 (as amended through the date of this amendment and as further renewed, extended, amended, and restated, the "Loan Agreement"), providing for loans to the Company on a revolving basis. The Company has requested an amendment to the Loan Agreement in order to approve the addition of certain "Investors" under the Loan Agreement. Accordingly, for adequate and sufficient consideration, the parties agree as follows: 1. Certain Definitions. Unless otherwise specified in this amendment (a) all terms defined in the Loan Agreement have the same meanings when used in this amendment and (b) all references to "Sections" and "Schedules" are references to the Loan Agreement's sections and schedules. 2. Amendment. Schedule 1.1(b) is entirely amended in the form of - -- and all references in the Loan Papers to it shall be to -- the attached Second Amended 1.1(b) 3. Conditions Precedent. The foregoing is not effective unless (a) Agents have received counterparts of this amendment executed by the Company, by Agents, and at least by Determining Lenders and (b) all of the representations and warranties -- in this amendment and in all other Loan Papers are true and correct as of -- as if made on -- the date of this amendment. 4. Ratifications. This amendment modifies and supersedes all inconsistent terms and provisions of the other Loan Papers. Except as expressly modified and superseded by this amendment, the terms and provisions of the other Loan Papers are ratified and confirmed and continue in full force and effect. The Company, Determining Lenders, and Agents agree that the Loan Papers, as amended by this amendment, continue to be legal, valid, binding, and enforceable in accordance with their respective terms. The Company ratifies and confirms that all Liens granted to Agents, on behalf of Lenders, were intended to, do, and continue to secure the full payment and performance of the Obligations. The Company shall perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional documents as either Agent or any Lender may reasonably request in order to perfect and protect such Liens and preserve and protect the rights of Agents and Lenders in respect of all present and future Collateral. 5. Representations and Warranties. The Company represents and warrants to Lenders and Agents that (a) this amendment and the other Loan Papers to be delivered under this amendment have been duly authorized, executed, and delivered by the Company, (b) no action of, or filing with, any Tribunal is required to authorize, or is otherwise required in connection with, the execution, delivery, and performance by the Company of this amendment and those other Loan Papers (c) this amendment and those other Loan Papers are valid and binding upon the Company and are enforceable against the Company in accordance with their respective terms, except as limited by the Bankruptcy Code of the United States of America and all other similar Laws affecting the rights of creditors generally, (d) the execution, delivery, and performance by the Company of this amendment and those other Loan Papers do not require the consent of any other Person and do not and will not constitute a violation of any Laws, agreement, or understanding to which the Company is a party or by which the Company is bound, (e) the representations and warranties in the Loan Agreement, as amended by this amendment, and each other Loan Paper are true and correct in all material respects on and as of the date of this amendment as though made as of the date of this amendment, and (f) as of the date of this amendment, no Default or Potential Default exists. 6. References. All references in the Loan Papers to the "Loan Agreement" refer to the Loan Agreement as amended by this amendment. Because this amendment is a "Loan Paper" referred to in the Loan Agreement, then the provisions relating to Loan Papers in Section 10 are incorporated in this amendment by reference, the same as if included in this amendment verbatim. 7. Counterparts. This amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute one and the same document. 8. Parties Bound. This amendment binds and inures to the Company, Agents, each Lender, and (subject to Section 10.10) their respective successors and assigns. 9. ENTIRETY. THIS AMENDMENT, THE LOAN AGREEMENT AS AMENDED BY IT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES FOR THE TRANSACTIONS THEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] EXECUTED as of the date first stated. Lomas Mortgage USA, Inc. LOMAS MORTGAGE USA, INC., as the Company 1600 Viceroy Drive Dallas, Texas 75235 Attn: Robert E. Byerley, Jr., Executive Vice President and Assistant Treasurer By /s/ROBERT E. BYERLEY, JR. ------------------------------------- Telecopy: 214/879-7018 Robert E. Byerley, Jr., Executive Vice President and Treasurer Third Floor, 1717 Main Street BANK ONE, TEXAS, N.A., Mortgage Finance Group as Administrative Agent and a Lender Dallas, Texas 75201 Attn: Kathleen C. Stewart, Vice President Telecopy: 214/290-2275 By /s/KATHLEEN C. STEWART ------------------------------------- Kathleen C. Stewart, Vice President Texas Commerce Bank National TEXAS COMMERCE BANK NATIONAL Association ASSOCIATION, as Syndication Agent 717 Travis Street and a Lender Houston, Texas 77002 Attn: Carlotta M. Hudler, Vice President Telecopy: 713/216-2082 By /s/CARLOTTA M. HUDLER ------------------------------------- Carlotta M. Hudler, Vice President First Bank Place, FIRST BANK NATIONAL ASSOCIATION, 2nd Floor MPFP0801 as a Lender 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attn: Lee L. Weber Assistant Vice President Telecopy: 612/973-0826 By /s/LEE L. WEBER ------------------------------------- Lee L. Weber, Assistant Vice President 8333 Douglas Avenue GUARANTY FEDERAL BANK, F.S.B., Dallas, Texas 75255 as a Lender Attn: Abbie Y. Tidmore, Vice President Telecopy: 214/360-1660 By /s/ABBIE Y. TIDMORE ------------------------------------- Abbie Y. Tidmore, Vice President 280 Park Avenue, 23 West BANKERS TRUST COMPANY, as a Lender New York, New York 10017 Attn: Glenn Minkoff Vice President Telecopy: 212/454-3821 By /s/GLENN MINKOFF ------------------------------------- Matthew C. Bernstein, Vice President 313 Carondelet HIBERNIA NATIONAL BANK, as a Lender Suite 1400 New Orleans, Louisiana 70130 Attn: Mark L. Freeman, Assistant Vice President Telecopy: 504/584-2042 By /s/MARK L. FREEMAN ------------------------------------- Mark L. Freeman, Assistant Vice President 6222 Wilshire Blvd. BANK HAPOALIM, B.M., Los Angeles, California 90048 LOS ANGELES BRANCH, as a Lender Attn: Robert Pollak, Vice President Telecopy: 213/937-1439 By /s/ROBERT POLLAK ------------------------------------- Robert Pollak, Vice President By /s/SHUMEL SHABKED ------------------------------------- Name Shumel Shabked ---------------------------------- Title Senior Vice President and Manager ---------------------------------- 75 Wall Street DRESDNER BANK, AG, NEW YORK BRANCH, New York, New York 10005-2889 as a Lender Attn: Charles H. Hill, Vice President Telecopy: 212/574-0129 By /s/CHARLES H. HILL ------------------------------------- Name Charles H. Hill ---------------------------------- Title Vice President --------------------------------- By /s/R. MATTHEW SCHERER ------------------------------------- Name R. Matthew Scherer ---------------------------------- Title Vice President --------------------------------- 100 Federal Street 01-32-041 THE FIRST NATIONAL BANK OF BOSTON, Boston, MA 02110 as a Lender Attn: Corinne M. Barrett, Vice President Telecopy: 617/434-7108 By ------------------------------------- Corinne M. Barrett, Vice President One Marine Midland Center, MARINE MIDLAND BANK, as a Lender 15th Floor Buffalo, New York 14203 Attn: William F. Dentinger Vice President Telecopy: 716/841-2707 By /s/WILLIAM F. DENTINGER ------------------------------------- William F. Dentinger, Vice President 380 Madison Avenue BANK OF SCOTLAND, as a Lender New York, New York 10017 Attn: Catherine M. Oniffrey, Vice President Telecopy: 212/557-9460 By ------------------------------------- Catherine M. Oniffrey, Vice President 1601 Elm Street, 2nd Floor COMERICA BANK - TEXAS, as a Lender Dallas, Texas 75201 Attn: W. James Meintjes, Banking Officer Telecopy: 214/979-8344 By ------------------------------------- W. James Meintjes, Banking Officer 1230 Peachtree Street, NE, COMMERZBANK AKTIENGESELLSCHAFT, Suite 3500 ATLANTA AGENCY, as a Lender Atlanta, Georgia 30309 Attn: Harry P. Yergey, Vice President Telecopy: 404/888-6539 By /s/ANDREAS BREMER ------------------------------------- Andreas Bremer, Senior Vice President By /s/HARRY P. YERGEY ------------------------------------- Harry P. Yergey, Vice President 499 Thornall Street MIDLANTIC NATIONAL BANK, as a Lender Edison, New Jersey 08837 Attn: Glenn A. Hedde, Vice President Telecopy: 908/321-2094 By ------------------------------------- Glenn A. Hedde, Vice President 7485 New Horizon Way THE PRUDENTIAL HOME MORTGAGE Frederick, Maryland 21701 COMPANY, INC., as a Lender Attn: Russell R. Anderson, Vice President Telecopy: 301/696-7405 By /s/RUSSELL R. ANDERSON ------------------------------------- Russell R. Anderson, Vice President 640 Fifth Avenue, 15th Floor BANK OF IRELAND GRAND CAYMAN BRANCH, New York, New York 10019 as a Lender Attn: Roger M. Burns, Vice President Telecopy: 212/586-7752 By ------------------------------------- Roger M. Burns, Vice President 15 South 20th Street, 15th Floor COMPASS BANK, as a Lender Birmingham, Alabama 35233 Attn: John D. West, Mortgage Banking Officer Telecopy: 205/715-7994 By /s/JOHN D. WEST ------------------------------------- John D. West, Mortgage Banking Officer 231 South LaSalle Street CONTINENTAL BANK N.A., as a Lender Chicago, Illinois 60697 Attn: Mary Jo Hoch, Vice President Telecopy: 312/987-5833 By /s/MARY JO HOCH ------------------------------------- Mary Jo Hoch, Vice President 1 Mercantile Center MERCANTILE BANK OF ST. LOUIS NATIONAL 7th & Washington ASSOCIATION, as a Lender St. Louis, Missouri 63101 Attn: Michael P. Lane, Assistant Vice President Telecopy: 314/425-2162 By /s/MICHAEL P. LANE ------------------------------------- Michael P. Lane, Assistant Vice President 66th Floor, NationsBank Plaza NATIONSBANK OF TEXAS, N.A., as a Lender 901 Main Street Dallas, Texas 75202 Attn: Beth Sorensen Senior Vice President Telecopy: 214/508-0604 By /s/BETH SORENSEN ------------------------------------- Beth Sorensen, Senior Vice President 800 East Main Street SIGNET BANK/MARYLAND, as a Lender Richmond, Virginia 26260 Attn: Susan Rare, Vice President Telecopy: 804/771-7151 By /s/SUSAN RARE ------------------------------------- Susan Rare, Vice President THIRD AMENDED SCHEDULE 1.1(b) INVESTORS I. Bond Programs Program Trustee Bexar County Housing Finance Corp., Series 1990 Ameritrust Texas, N.A. Brevard County Housing Finance Authority, Series 1991C Sun Bank, N.A. East Texas Housing Finance Corp., Series 1992A Ameritrust Texas, N.A. Harris County Housing Finance Corporation, Series 1991 Texas Commerce Bank, N.A. Housing Finance Authority of Manatee County, FL; Series 1991A NationsBank Trust Co. (FL), N.A. Housing Finance Authority of Palm Beach County, FL; Series 1992A NationsBank Trust Co. (FL), N.A. New Orleans Home Mortgage Authority, Series 1991A First National Bank of Commerce Travis County Housing Finance Corp., Series 1991, A&B Ameritrust Texas, N.A. Orange County Housing Finance Authority, Series 1992 A & B Sun Bank, N.A. Housing Finance Authority of Pinellas County, Series 1991 B NationsBank Trust Co. (FL), N.A. Central Texas Housing Finance Corp., Series 1991 NCNB Texas National Bank Ft. Worth Escambia County Housing Finance Authority, Series 1992 NationsBank Trust Co. (FL) Northeast Texas Housing Finance Corp., Series 1991 NCNB Texas National Bank Ft. Worth Texas Dept. of Housing & Community Affairs; No.45 Team Bank, Ft. Worth Texas Dept. of Housing & Community Affairs Bond Program No. 44, Series 1991 Team Bank, Ft. Worth II. Pension Funds California Public Employees Retirement System III. Investment Banks Donaldson, Lufkin & Jenrette Securities Corp. Goldman, Sachs & Company Paine Webber, Inc. Rauscher Pierce Refsnes, Inc. Salomon Brothers, Inc. The First Boston Corporation Shearson/Lehman Brothers, Inc. Smith Barney Harris Hupham & Company, Inc. Kidder, Peabody, Inc. Merrill Lynch & Company, Inc. Merrill Lynch Government Securities, Inc. IV. Other Veterans Land Board of the State of Texas Prudential Securities Realty Funding Corporation Guaranty Federal Bank, F.S.B. Capstead Mortgage Corporation Citibank, N.A. Citicorp Securities, Inc. Norwest Funding, Inc. The Prudential Home Mortgage, Inc. Residential Funding Corporation EX-10.4 5 EXHIBIT 10.4 EXHIBIT 10.4 SEVENTH AMENDMENT TO RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDMENT is executed and -- unless otherwise specified below -- effective as of September 15, 1994, between LOMAS MORTGAGE USA, INC., a Connecticut corporation (the "Company"), the banks listed on the signature pages below ("Lenders"), BANK ONE, TEXAS, N.A., as Administrative Agent (in that capacity "Administrative Agent"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Syndication Agent (together with Administrative Agent, "Agents"). The Company, Lenders, and Agents have entered into the Restated Loan and Security Agreement dated as of July 8, 1993 (as amended through the date of this amendment and as further renewed, extended, amended, and restated, the "Loan Agreement"), providing for loans to the Company on a revolving basis. The Company has requested amendments to the Loan Agreement in order to amend the Swing Commitment, to reduce the minimum Consolidated Net Worth covenant, to reduce the total Commitments to $120,000,000, to fully terminate certain Lenders' Commitments, and to reallocate the remaining Commitments. Accordingly, for adequate and sufficient consideration, the parties agree as follows: 1. Certain Definitions. Unless otherwise specified in this amendment (a) all terms defined in the Loan Agreement have the same meanings when used in this amendment and (b) all references to "Sections" and "Schedules" are references to the Loan Agreement's sections and schedules. 2. Notice of Termination. In accordance with Section 2.4(b), the Company hereby gives immediate and irrevocable notice of the full termination, effective September 15, 1994, of the Commitments of those Lenders not listed on the attached Second Amended Schedule 1.1(a). The Company shall make the mandatory prepayment to those Lenders required by Section 2.7(c) on September 15, 1994. 3. Amendments. (a) Effective as of September 15, 1994, the following definition in Section 1.1 is entirely amended as follows: "Swing Commitment" means the $20,000,000 facility provided solely by Administrative Agent. (b) Effective as of June 30, 1994, Section 7.4 is entirely amended as follows: 7.4 Consolidated Net Worth. Permit its Consolidated Net Worth to be less than the greater of either (i) the amount required by FHA, FHLMC, FNMA, VA, and GNMA at any and all times for maintaining the Company's status as an approved mortgagee, seller/servicer, or issuer, or (ii) $175,000,000. (c) Effective September 15, 1994, Schedule 1.1(a) is amended in its entirety -- and all references in the Loan Papers to it are changed to -- the attached Second Amended Schedule 1.1(a). On September 15, 1994, the Company shall prepay to the Lenders named on the attached Second Amended Schedule 1.1(a) the Borrowing Excess that exists on that date. 4. Conditions Precedent. Paragraph 2 is effective when this amendment is executed by the Company without requirement that it be executed by any other party. Paragraph 3, however, is not effective unless (a) Agents receive counterparts of this amendment executed by the Company, by Agents, and all Lenders, (b) Agents receive an officer's certificate dated as of the date of this amendment, executed by the Company's secretary or assistant secretary, certifying resolutions adopted by its directors authorizing the transactions contemplated in this amendment, incumbency of officers, and any changes to its charter or bylaws, if any, (c) Administrative Agent receives a Swing Note dated the date of this amendment, executed by the Company, payable to Administrative Agent's order, and in the stated principal amount of $20,000,000, (d) Administrative Agent receives Ratable Notes dated the date of this amendment, executed by the Company, and payable to each Lender named -- and in the stated principal amount of its Commitment stated -- on the attached Second Amended Schedule 1.1(a), and (e) all of the representations and warranties -- in this amendment and in all other Loan Papers are true and correct as of -- as if made on -- the date of this amendment. The foregoing notice of termination is immediately effective and is not subject to these conditions precedent. 5. Ratifications. This amendment modifies and supersedes all inconsistent terms and provisions of the other Loan Papers. Except as expressly modified and superseded by this amendment, the terms and provisions of the other Loan Papers are ratified and confirmed and continue in full force and effect. The Company, Determining Lenders, and Agents agree that the Loan Papers, as amended by this amendment, continue to be legal, valid, binding, and enforceable in accordance with their respective terms. The Company ratifies and confirms that all Liens granted to Agents, on behalf of Lenders, were intended to, do, and continue to secure the full payment and performance of the Obligations. The Company shall perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional documents as either Agent or any Lender may reasonably request in order to perfect and protect such Liens and preserve and protect the rights of Agents and Lenders in respect of all present and future Collateral. 6. Representations and Warranties. The Company represents and warrants to Lenders and Agents that this amendment and the other Loan Papers to be delivered under this amendment have been duly authorized, executed, and delivered by the Company, (b) no action of, or filing with, any Tribunal is required to authorize, or is otherwise required in connection with, the execution, delivery, and performance by the Company of this amendment and those other Loan Papers (c) this amendment and those other Loan Papers are valid and binding upon the Company and are enforceable against the Company in accordance with their respective terms, except as limited by the Bankruptcy Code of the United States of America and all other similar Laws affecting the rights of creditors generally, (d) the execution, delivery, and performance by the Company of this amendment and those other Loan Papers do not require the consent of any other Person and do not and will not constitute a violation of any Laws, agreement, or understanding to which the Company is a party or by which the Company is bound, (e) the representations and warranties in the Loan Agreement, as amended by this amendment, and each other Loan Paper are true and correct in all material respects on and as of the date of this amendment as though made as of the date of this amendment, and (f) as of the date of this amendment, no Default or Potential Default exists. 7. References. All references in the Loan Papers to the "Loan Agreement" refer to the Loan Agreement as amended by this amendment. Because this amendment is a "Loan Paper" referred to in the Loan Agreement, then the provisions relating to Loan Papers in Section 10 are incorporated in this amendment by reference, the same as if included in this amendment verbatim. 8. Counterparts. This amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute one and the same document. 9. Parties Bound. This amendment binds and inures to the Company, Agents, each Lender, and (subject to Section 10.10) their respective successors and assigns. 10. ENTIRETY. THIS AMENDMENT, THE LOAN AGREEMENT AS AMENDED BY IT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES FOR THE TRANSACTIONS THEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGE(S) FOLLOW. EXECUTED as of the date first stated -- but effective as provided -- in this amendment. Lomas Mortgage USA, Inc. LOMAS MORTGAGE USA, INC., as the Company 1600 Viceroy Drive Dallas, Texas 75235 Attn: Paul D. Fletcher Senior Vice President and Treasurer By /s/PAUL D. FLETCHER ------------------------------------- Telecopy: 214/879-7018 Paul D. Fletcher Senior Vice President and Treasurer Fourth Floor, 1717 Main Street BANK ONE, TEXAS, N.A., Mortgage Finance Group as Administrative Agent and a Lender Dallas, Texas 75201 Attn: Kathleen C. Stewart, Vice President Telecopy: 214/290-2275 By /s/KATHLEEN C. STEWART ------------------------------------- Kathleen C. Stewart, Vice President Texas Commerce Bank National TEXAS COMMERCE BANK NATIONAL Association ASSOCIATION, as Syndication Agent and a 717 Travis Street Lender Houston, Texas 77002 Attn: Carlotta M. Hudler, Vice President Telecopy: 713/216-2082 By /s/CARLOTTA M. HUDLER ------------------------------------- Carlotta M. Hudler, Vice President First Bank Place, FIRST BANK NATIONAL ASSOCIATION, 2nd Floor MPFP0801 as a Lender 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attn: Kathlyn K. Slater, Vice President Telecopy: 612/973-0826 By /s/KATHLYN K. SLATER ------------------------------------- Kathlyn K. Slater, Vice President 8333 Douglas Avenue GUARANTY FEDERAL BANK, F.S.B., Dallas, Texas 75255 as a Lender Attn: Abbie Y. Tidmore, Vice President Telecopy: 214/360-1660 By /s/ABBIE Y. TIDMORE ------------------------------------- Abbie Y. Tidmore, Vice President 280 Park Avenue, 23 West BANKERS TRUST COMPANY, as a Lender New York, New York 10017 Attn: Glenn Minkoff Vice President Telecopy: 212/454-3821 By /s/GLENN MINKOFF ------------------------------------- Glenn Minkoff, Vice President 313 Carondelet HIBERNIA NATIONAL BANK, as a Lender Suite 1400 New Orleans, Louisiana 70130 Attn: Mark L. Freeman, Assistant Vice President Telecopy: 504/584-2042 By /s/MARK L. FREEMAN ------------------------------------- Mark L. Freeman, Assistant Vice President 6222 Wilshire Blvd. BANK HAPOALIM, B.M., Los Angeles, California 90048 LOS ANGELES BRANCH, as a Lender Attn: Robert Pollak, Vice President Telecopy: 213/937-1439 By /s/ROBERT POLLAK ------------------------------------- Robert Pollak, Vice President By /s/SHUMEL SHAKBED ------------------------------------- Name Shumel Shakbed ---------------------------------- Title Senior Vice President and Manager --------------------------------- 75 Wall Street DRESDNER BANK, AG, NEW YORK BRANCH, New York, New York 10005-2889 as a Lender Attn: Charles H. Hill, Vice President Telecopy: 212/574-0129 By /s/CHARLES H. HILL ------------------------------------- Name Charles H. Hill ---------------------------------- Title Vice President --------------------------------- By /s/PETER BECKER ------------------------------------- Name Peter Becker ---------------------------------- Title Vice President --------------------------------- 100 Federal Street 01-32-041 THE FIRST NATIONAL BANK OF BOSTON, Boston, MA 02110 as a Lender Attn: Corinne M. Barrett, Vice President Telecopy: 617/434-7108 By /s/CORINNE M. BARRETT ------------------------------------- Corinne M. Barrett, Vice President One Marine Midland Center, MARINE MIDLAND BANK, as a Lender 15th Floor Buffalo, New York 14203 Attn: Jamie M. Eberhardt Assistant Vice President Telecopy: 716/841-2707 By /s/JAMIE M. EBERHARDT ------------------------------------- Jamie M. Eberhardt, Assistant Vice President 565 Fifth Avenue, Fifth Floor BANK OF SCOTLAND, as a Lender New York, New York 10017 Attn: Catherine M. Oniffrey, Vice President Telecopy: 212/557-9460 By /s/CATHERINE M. ONIFFREY ------------------------------------- Catherine M. Oniffrey, Vice President 1601 Elm Street, 2nd Floor COMERICA BANK - TEXAS, as a Lender Dallas, Texas 75201 Attn: Timothy Hopkins Vice President Telecopy: 214/979-8344 By /s/TIMOTHY HOPKINS ------------------------------------- Timothy Hopkins, Vice President 1230 Peachtree Street, NE, COMMERZBANK AKTIENGESELLSCHAFT, Suite 3500 ATLANTA AGENCY, as a Lender Atlanta, Georgia 30309 Attn: Harry P. Yergey, Vice President Telecopy: 404/888-6539 By /s/ANDREAS BREMER ------------------------------------- Andreas Bremer, Senior Vice President By /s/HARRY P. YERGEY ------------------------------------- Harry P. Yergey, Vice President 499 Thornall Street MIDLANTIC NATIONAL BANK, as a Lender Edison, New Jersey 08837 Attn: Glenn A. Hedde, Vice President Telecopy: 908/321-2094 By /s/GLENN A. HEDDE ------------------------------------- Glenn A. Hedde, Vice President 7485 New Horizon Way THE PRUDENTIAL HOME MORTGAGE Frederick, Maryland 21701 COMPANY, INC., as a Lender Attn: Russell R. Anderson, Vice President Telecopy: 301/696-7405 By /s/RUSSELL R. ANDERSON ------------------------------------- Russell R. Anderson, Vice President 640 Fifth Avenue, 15th Floor BANK OF IRELAND GRAND CAYMAN BRANCH, New York, New York 10019 as a Lender Attn: Roger M. Burns, Vice President Telecopy: 212/586-7752 By /s/ROGER M. BURNS ------------------------------------- Roger M. Burns, Vice President 15 South 20th Street, 15th Floor COMPASS BANK, as a Lender Birmingham, Alabama 35233 Attn: John D. West, Mortgage Banking Officer Telecopy: 205/715-7994 By /s/JOHN D. WEST ------------------------------------- John D. West, Mortgage Banking Officer 333 Clay Street BANK OF AMERICA, N.T. & S.A., as a Lender Houston, TX 77002 Attn: Claire Liu, Vice President Telecopy: 713/651-4841 By /s/CLAIRE LIU ------------------------------------- Claire Liu, Vice President 1 Mercantile Center MERCANTILE BANK OF ST. LOUIS NATIONAL 7th & Washington ASSOCIATION, as a Lender St. Louis, Missouri 63101 Attn: Michael P. Lane, Assistant Vice President Telecopy: 314/425-2162 By /s/MICHAEL P. LANE ------------------------------------- Michael P. Lane, Assistant Vice President 66th Floor, NationsBank Plaza NATIONSBANK OF TEXAS, N.A., as a Lender 901 Main Street Dallas, Texas 75202 Attn: Maureen Macan, Senior Vice President Telecopy: 214/508-0604 By /s/MAUREEN MACAN ------------------------------------- Maureen Macan, Senior Vice President 800 East Main Street SIGNET BANK/MARYLAND, as a Lender Richmond, Virginia 26260 Attn: Susan Raher, Vice President Telecopy: 804/771-7151 By /s/SUSAN RAHER ------------------------------------- Susan Raher, Vice President SECOND AMENDED SCHEDULE 1.1(a) Payee Principal Bank One, Texas, N.A. $40,000,000 Texas Commerce Bank National Association $40,000,000 First Bank National Association $20,000,000 Guaranty Federal Bank, F.S.B. $20,000,000 Total Commitment $120,000,000 EX-10.5 6 EXHIBIT 10.5 EXHIBIT 10.5 ELEVENTH AMENDMENT TO SERVICING PAYMENTS LOAN AND SECURITY AGREEMENT THIS AMENDMENT is executed and -- unless otherwise specified below -- effective as of September 15, 1994, between LOMAS MORTGAGE USA, INC., a Connecticut corporation (the "Company"), the banks listed on the signature pages of this amendment ("Banks"), and BANK ONE, TEXAS, N.A., as agent for Banks (in that capacity "Agent"). The Company, Banks, and Agent have entered into the Servicing Payments Loan and Security Agreement dated as of February 11, 1992 (as amended through the date of this amendment and as further renewed, extended, amended, and restated, the "Loan Agreement"), providing for loans to the Company on a revolving basis up to $25,000,000 outstanding at any time. The Company has requested amendments to the Loan Agreement in order to amend certain recitals, to reduce the minimum Consolidated Net Worth covenant under the Loan Agreement, to increase the total Committed Sums to $30,000,000, and to add First Bank National Association as a Bank with a Committed Sum of $5,000,000. Accordingly, for adequate and sufficient consideration, the Company, Banks, and Agent agree as follows: 1. Certain Definitions. Unless otherwise stated in this amendment (a) terms defined in the Loan Agreement have the same meanings when used in this amendment and (b) references to "Sections" and "Schedules" are to sections and schedules of or to the Loan Agreement. 2. Amendments. (a) Effective as of September 15, 1994, Recitals B(1) through (3) are amended in their entirety as follows: (1) under this agreement never exceeds $30,000,000, (2) the portions thereof (or GNMA Advances) made for Servicing Payments for GNMA I Pools or GNMA II Pools and Loan Packages never exceeds $15,000,000, and (3) the portion thereof made for Other Advances (as defined in this agreement) never exceeds $15,000,000. (b) Effective as of September 15, 1994, Section 2.1(b) is entirely amended as follows: (b) Upon the Company's Advance Request therefor, provided that (i) the Aggregate Advances may never exceed the lesser of the Aggregate Committed Sum and the Servicing Portfolio Value, (ii) the aggregate unpaid balance of GNMA Advances may never exceed $15,000,000, (iii) the aggregate unpaid balance of all Other Advances may never exceed $15,000,000, (iv) no Advance may exceed 95% of the aggregate Servicing Payments to be paid by or for the account of the Company with such Advance, (v) no Advance may be made to reimburse the Company for any Servicing Payments it has already made from its own funds, previous Advances, or otherwise, (vi) no Advance may be made during the five-day period under Section 2.7(d)(iii), and (vii) no Advance may be made on a day that is not a Business Day or on or after the Termination Date; and (c) Effective as of September 15, 1994, Section 2.11(a) is entirely amended as follows: (a) On September 15, 1994, the Company shall pay to Agent for First Bank National Association a facility fee of $2,604.17. (d) Effective as of June 30, 1994, Section 7.4 is entirely amended as follows: 7.4 Consolidated Net Worth. Permit its Consolidated Net Worth to be less than the greater of either (i) the amount required by FHA, FHLMC, FNMA, VA, and GNMA at any and all times for maintaining the Company's status as an approved mortgagee, seller/servicer, or issuer, or (ii) $175,000,000. (e) Effective as of September 15, 1994, Schedule 1.1 is amended in its entirety -- and all references in the Loan Papers to it are changed to -- the attached Third Amended Schedule 1.1. (f) Effective as of September 15, 1994, Exhibit C is amended in its entirety -- and all references in the Loan Papers to it are changed to -- the attached Third Amended Exhibit C. 3. Conditions Precedent. The foregoing is not effective unless (a) Agent receives counterparts of this amendment executed by the Company, Agent, and all Banks, (b) Agent receives an officer's certificate dated the effective date of this amendment, executed by the Company's Secretary or Assistant Secretary, certifying resolutions adopted by directors authorizing the transactions contemplated in this amendment, incumbency of officers, and changes to its charter or bylaws, if any, (c) First Bank National Association receives a Note dated the date of this amendment, executed by Borrower, payable to the order of First Bank National Association, and in the stated principal amount of $5,000,000, and (d) all of the representations and warranties -- in this amendment and in all other Loan Papers are true and correct as of -- as if made on -- the date of this amendment. 4. Ratifications. This amendment modifies and supersedes all inconsistent terms and provisions of the Loan Papers, and, except as expressly modified and superseded by this amendment, the Loan Papers are ratified and confirmed and continue in full force and effect. The Company, Banks, and Agent agree that the Loan Papers as amended by this amendment continue to be legal, valid, binding, and enforceable in accordance with their respective terms. Without limiting the generality of the foregoing, the Company ratifies and confirms that all Liens (except as amended by this amendment) heretofore granted to Agent, on behalf of Banks, were intended to, do, and continue to secure the full payment and performance of the Obligations, and the Company agrees to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional assignments, security agreements, modifications or amendments to any of the foregoing, and such other agreements, documents, and instruments as Agent or any Bank may reasonably request in order to perfect and protect those Liens and preserve and protect the rights of Agent and Banks in respect of all present and future Collateral. 5. Representations and Warranties. The Company represents and warrants to Banks and Agent that (a) this amendment and the Loan Papers to be delivered under this amendment have been duly executed and delivered by the Company, (b) no action of, or filing with, any Tribunal is required to authorize, or is otherwise required in connection with, the execution, delivery, and performance by the Company of this amendment and the Loan Papers to be delivered under this amendment, (c) this amendment and the Loan Papers to be delivered under this amendment are valid and binding upon the Company and are enforceable against the Company in accordance with their respective terms, except as limited by the Bankruptcy Code of the United States of America and all other similar Laws affecting the rights of creditors generally, (d) the execution, delivery and performance by the Company of this amendment and the Loan Papers to be delivered under this amendment do not require the consent of any other Person and do not and will not constitute a violation of any laws, agreement, or understanding to which the Company is a party or by which the Company is bound, (e) the representations and warranties contained in the Loan Agreement, as amended by this amendment, are true and correct in all material respects except to the extent that (i) the representations and warranties speak to a specific date or (ii) the facts on which the representations and warranties were based have been changed by transactions contemplated or permitted by the Loan Agreement as of the date of this amendment, (f) as of the date of this amendment, no Event of Default or Potential Default has occurred and is continuing, and (g) no change in the financial condition or prospect of the Company which could reasonably be expected to be a Material Adverse Event has or will have occurred. 6. References. All references in the Loan Papers to the "Loan Agreement" refer to the Loan Agreement as amended by this amendment, and, because this amendment is a "Loan Paper" referred to in the Loan Agreement, then the provisions relating to Loan Papers in Section 10 are incorporated in this amendment by reference, the same as if set forth verbatim in this amendment. 7. Counterparts. This amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document. All counterparts must be construed together to constitute one and the same instrument. 8. Parties Bound. This amendment binds and inures to the Company, Agent, each Bank, and, subject to Section 10.10, their respective successors and assigns. 9. ENTIRETY. THIS AMENDMENT, THE LOAN AGREEMENT AS AMENDED BY THIS AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES FOR THE TRANSACTIONS THEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGE(S) FOLLOW. EXECUTED as of the date first stated -- but effective as provided -- in this amendment. Lomas Mortgage USA, Inc. LOMAS MORTGAGE USA, INC., as the Company 1600 Viceroy Drive Dallas, Texas 75235 Attn: Paul D. Fletcher Senior Vice President and Assistant Treasurer By /s/PAUL D. FLETCHER ------------------------------------- Telecopy: 214/879-7018 Paul D. Fletcher Senior Vice President and Treasurer Fourth Floor, 1717 Main Street BANK ONE, TEXAS, N.A., Mortgage Finance Group as Agent and a Bank Dallas, Texas 75201 Attn: Kathleen C. Stewart, Vice President Telecopy: 214/290-2275 By /s/KATHLEEN C. STEWART ------------------------------------- Kathleen C. Stewart, Vice President 8333 Douglas Avenue GUARANTY FEDERAL BANK, F.S.B., Dallas, Texas 75255 as a Bank Attn: Abbie Y. Tidmore, Vice President Telecopy: 214/360-1660 By /s/ABBIE Y. TIDMORE ------------------------------------- Abbie Y. Tidmore, Vice President Texas Commerce Bank National TEXAS COMMERCE BANK NATIONAL Association ASSOCIATION, as a Bank 717 Travis Street Houston, Texas 77002 Attn: Carlotta M. Hudler, Vice President Telecopy: 713/216-2082 By /s/CARLOTTA M. HUDLER ------------------------------------- Carlotta M. Hudler, Vice President First Bank Place, FIRST BANK NATIONAL ASSOCIATION, 2nd Floor MPFP0801 as a Bank 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attn: Kathlyn K. Slater, Vice President Telecopy: 612/973-0826 By /s/KATHLYN K. SLATER ------------------------------------- Kathlyn K. Slater, Vice President THIRD AMENDED SCHEDULE 1.1 Payee Principal Bank One, Texas, N.A. $10,000,000 Guaranty Federal Bank, F.S.B. $7,500,000 Texas Commerce Bank National Association $7,500,000 First Bank National Association $5,000,000 Total Commitment $30,000,000 THIRD AMENDED EXHIBIT C ADVANCE REQUEST AGENT: Bank One, Texas, N.A. DATE: , 1994 ------------------ THE COMPANY: Lomas Mortgage USA, Inc. BANKS: Bank One, Texas, N.A., Guaranty Federal Bank, F.S.B. Texas Commerce Bank National Association, and First Bank National Association - --------------------------------------------------------------------------- This request is delivered to Agent and each Bank under the Servicing Payments Loan and Security Agreement (as renewed, extended, and amended, the "Loan Agreement") dated as of February 11, 1992, among the Company, Banks, and Agent, all the defined terms of which have the same meanings when used herein. This request is an Advance Request for the one or more following Type or Types of Advances (collectively, the "Requested Advance"), in the aggregate amount of $________________, to be made on _______________________, 199__: [check appropriate box(es)] - ----- A GNMA I Advance to be disbursed $_______________ to Custodial Account No. _____________________ at Agent and $_____________________ by wire transfer to CPTA as set forth below, if applicable, in which event (i) the sum of the aggregate outstanding GNMA Advances, such portion of the Requested Advance, plus any other requested but unfunded GNMA Advances does not exceed $15,000,000 and (ii) such portion of the Requested Advance will be used solely to pay servicing payments for GNMA I Pools. Bank: ________________________ Fed Routing No: ________________________ Account Name: ________________________ Account No: ________________________ Contact: ________________________ - ----- A GNMA II Advance to be disbursed $________________ to Custodial Account No. ________________ at Agent and $________________ by wire transfer to CPTA as set forth below, if applicable, in which event (i) the sum of the aggregate outstanding GNMA Advances, such portion of the Requested Advance, plus any other requested but unfunded GNMA Advances does not exceed $15,000,000 and (ii) such portion of the Requested Advance will be used solely to pay Servicing Payments for GNMA II Pools. Bank: ________________________ Fed Routing No: ________________________ Account Name: ________________________ Account No: ________________________ Contact: ________________________ - ----- An Other Advance to be used to pay Servicing Payments in respect of FNMA Pools or FHLMC Pools, to be disbursed $_______________ to Custodial Account No. _____________________ at Agent and $________________ by wire transfer as set forth below, if applicable, in which event the sum of the aggregate outstanding Other Advances, such portion of the Requested Advance, plus any other requested but unfunded Other Advance does not exceed $15,000,000. Bank: ________________________ Fed Routing No: ________________________ Account Name: ________________________ Account No: ________________________ Contact: ________________________ - ----- An Other Advance to be used to pay Servicing Payments in respect of securities backed by pools of mortgage loans serviced by the Company under Private Servicing Agreements to be disbursed $_____________ to Private Custodial Account No. ____________ at Agent and $______________ by wire transfer as set forth below, if applicable, in which event the sum of the aggregate outstanding Other Advances, such portion of the Requested Advance, plus any other requested but unfunded Other Advance does not exceed $15,000,000. Bank: ________________________ Fed Routing No: ________________________ Account Name: ________________________ Account No: ________________________ Contact: ________________________ Each Bank's Pro Rata part of the Requested Advance (stated both as a percentage of the Requested Advance and as a dollar amount) is as follows: Bank Pro Rata Part % $ % $ % $ % $ % $ Each Bank's Pro Rata Part of each Advance is to be directed, by no later than 2:00 p.m. Dallas time on the date the requested Advance is to be made, by wire transfer to Agent, for deposit into the Advance Account. Wiring instructions are as follows: Bank: Bank One, Texas, N.A. Fed Routing No: ABA 111 000 614 Account Name: Bank One P&I Account Account No: 0100104157 Attention: __________________ The Company represents, warrants, and certifies to Agent and Banks that (a) the foregoing statements are true and correct, (b) the sum of the Aggregate Advances, the Requested Advances, plus any other requested but unfunded Advance exceeds neither (i) the lesser of $30,000,000 and the Servicing Portfolio Value, nor (ii) 95% of the unreimbursed Servicing Payments (as of two days prior to the date hereof) paid or to be paid by or for the account of the Company therewith, all of which were or will be used solely for such purposes, (c) the Requested Advance (i) does not exceed 95% of the aggregate Servicing Payments to be paid by or for the account of the Company therewith and (ii) will be used solely for such purpose and not to reimburse the Company for any Servicing Payments it has already made from its own funds, previous Advances, or otherwise, (d) the Company has complied with all conditions under the Loan Papers for the Requested Advance, and (e) on and as of the date of this request and the date the Advance is requested to be made (i) the representations and warranties made in all of the Loan Papers are and will be true and correct in all material respects, (ii) no change in the financial condition or prospects of Company which could reasonably be expected to be a Material Adverse Event has or will have occurred, (iii) no Potential Default or Event of Default has or will have occurred and is or will be continuing, and (iv) all fees due and owing to Agent or any Bank under any Loan Paper have been paid. LOMAS MORTGAGE USA, INC. By ---------------------------------------- (Name) ----------------------------------- (Title) ----------------------------------- EX-10.6 7 EXHIBIT 10.6 EXHIBIT 10.6 TEXAS COMMERCE BANK NATIONAL ASSOCIATION P. O. BOX 2558 HOUSTON, TEXAS 77252-8056 June 30, 1994 Lomas Mortgage USA, Inc. 1600 Viceroy Drive Dallas, Texas 75235 Re: 6/94 (third) Amendment to 6/93 Servicing Purchase Loan Agreement (the "6/94 Amendment to 6/93 Servicing Purchase Loan Agreement") Ladies and Gentlemen: The June 28, 1993 letter loan agreement (the "6/93 Servicing Purchase Loan Agreement") between your Company and this Bank (all terms that are defined in which and that are used herein without definition having the same meanings here as there) that has been amended twice previously by the letter agreement (the "8/93 Amendment to 6/93 Servicing Purchase Loan Agreement") between us dated August __, 1993 and by the letter agreement (the "3/94 Amendment to 6/93 Servicing Purchase Loan Agreement") between us dated March 31, 1994 is hereby further amended by mutual agreement as follows: Subsection (k) (titled "Maintain $215 Million Net Worth; No Business Changes") of Section 3.1 (titled "Affirmative Covenants") of the 6/93 Servicing Purchase Agreement is amended in its entirety so that, from and after the effective date of this 6/94 Amendment to 6/93 Servicing Purchase Loan Agreement, it will read as follows: (k) Maintain $175 Million Net Worth; No Business Changes. Your Company will maintain a net worth, determined in accordance with GAAP, of not less than One Hundred Seventy-Five Million Dollars ($175,000,000) and will make no material change in the nature or character of its business. Each of your Company and this Bank hereby acknowledges receipt of $10 and other good and valuable consideration for this amendment, and ratifies and confirms (a) the 6/93 Servicing Purchase Loan Agreement, as amended by the 8/93 Amendment to 6/93 Servicing Purchase Loan Agreement and the 3/94 Amendment to 6/93 Servicing Purchase Loan Agreement and as further amended by this 6/94 Amendment to 6/93 Servicing Purchase Loan Agreement (the "Amended 6/93 Servicing Purchase Loan Agreement"), and (b) the other Loan Papers, remain in full force and effect. Your Company hereby republishes all of its warranties and representations made in them, declares that they are true on the date of this letter and reconfirms the debt to your Bank that is presently evidenced by the 6/93 Servicing Purchase Note. Lomas Mortgage USA, Inc. June 30, 1994 Page 2 Notice Pursuant to Tex. Bus. & Comm. Code Section 26.02. THE AMENDED 6/93 SERVICING PURCHASE LOAN AGREEMENT AND THE OTHER LOAN PAPERS TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Very truly yours, TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: ----------------------------------- Carlotta M. Hudler Vice President Accepted and agreed to: LOMAS MORTGAGE USA, INC. By: ----------------------------------- Name: --------------------------------- Title: --------------------------------- Date: --------------------------------- EX-10.8 8 EXHIBIT 10.8 EXHIBIT 10.7 - --------------------------------------------------------------------------- LOMAS MORTGAGE USA, INC., the Company and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, the Lender 6/94 AMENDMENT TO 3/94 SENIOR SECURED WORKING CAPITAL CREDIT AGREEMENT June 30, 1994 - --------------------------------------------------------------------------- DEFINED TERMS "3/94 Credit Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . 1 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 "Credit Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 "Lender" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 TABLE OF CONTENTS PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 2 11.13 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . 2 6/94 AMENDMENT TO 3/94 SENIOR SECURED WORKING CAPITAL CREDIT AGREEMENT PREAMBLE THIS 6/94 [second] AMENDMENT TO 3/94 SENIOR SECURED WORKING CAPITAL CREDIT AGREEMENT (the "6/94 Amendment to WCC Agreement") dated as of June 30, 1994 amending the 3/94 Senior Secured Working Capital Credit Agreement dated as of March 21, 1994 (the "3/94 Credit Agreement" and as it is hereby and may from time to time hereafter be supplemented, amended or restated the "Credit Agreement") between LOMAS MORTGAGE USA, INC. (the "Company"), a Connecticut corporation and TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the "Lender"), a national banking association, WITNESSETH: RECITALS: The Company has requested that the minimum Consolidated Net Worth negative covenant of the 3/94 Credit Agreement be amended to reduce the second element of the test for compliance specified in that covenant from $200,000,000 to $175,000,000, and the Lender has agreed to do so. The Sections of this 6/94 Amendment to WCC Agreement are numbered to correspond to those in the 3/94 Credit Agreement and are therefore not in sequential order. All capitalized terms used without definition in this Agreement that are defined in the 3/94 Credit Agreement have the same meanings here as there. All italicized capitalized terms used in the Credit Agreement, including this amendment of it, are defined in the 7/93 RL&S Agreement, and it is to be referred to for definitions of those terms. AGREEMENTS: For good and valuable consideration, the receipt and sufficiency of which the Company and the Lender each acknowledge, they hereby agree as follows: The first sentence of Section 7 (titled "Negative Covenants") of the 3/94 Credit Agreement is amended in its entirety to henceforth read as follows: The Company hereby agrees with the Lender to keep, observe and perform the Company's negative covenants stated in the 7/93 RL&S Agreement to the same effect as if they were repeated herein verbatim and regardless of whether or not the 7/93 RL&S Agreement expires or is terminated before this Agreement, and to concurrently provide copies of all written materials required to be provided to the agent or the lenders thereunder to the Lender herein; provided that Section 7.4 of the 7/93 RL&S Agreement shall be deemed for purposes of this Agreement to read as follows from and after June 30, 1994: 7.4 Consolidated Net Worth. Permit its Consolidated Net Worth to be less than the greater of (i) the amount required by FHA, FHLMC, FNMA, VA and GNMA at any and all times for maintaining the Company's status as an approved mortgagee, seller/ servicer, or issuer, or (ii) $175,000,000. SECTION 11. MISCELLANEOUS. 11.13 ENTIRE AGREEMENT. THE 3/94 CREDIT AGREEMENT, AS AMENDED BY THE 3/31/94 AMENDMENT TO 3/94 SENIOR SECURED WORKING CAPITAL CREDIT AGREEMENT BETWEEN THE COMPANY AND THE LENDER DATED AS OF MARCH 31, 1994 AND AS FURTHER AMENDED BY THIS 6/94 AMENDMENT TO WCC AGREEMENT, THE WORKING CAPITAL NOTE AND THE OTHER CREDIT PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. EXECUTED effective as of the date first above written, 1600 Viceroy LOMAS MORTGAGE USA, INC. Dallas, Texas 75235 Attention: Mr. Paul Fletcher Senior Vice President and Assistant Treasurer Telecopy No. (214) 879-7018 By: /s/PAUL D. FLETCHER ----------------------------------- Telephone No. (214) 879-7010 Name:Paul D. Fletcher ----------------------------------- Title:Senior Vice President and Assistant Treasurer ---------------------------------- (the "Company") 712 Main Street TEXAS COMMERCE BANK Houston, Texas 77002 NATIONAL ASSOCIATION Attention: Carlotta M. Hudler Vice President Telecopy No. (713) 216-2182 By: /s/CARLOTTA M. HUDLER ----------------------------------- Telephone No. (713) 216-5298 Name:Carlotta M. Hudler ----------------------------------- Title:Vice President ----------------------------------- (the "Lender") EX-11 9 EXHIBIT 11 EXHIBIT 11 LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE Six Months Year Ended June 30 Ended -------------------------- 1994 1993 June 30, 1992 ------------- ----------- ------------- PRIMARY EARNINGS (LOSS) PER SHARE: Average common shares outstanding 20,099,000 20,087,000 20,076,000 Common stock equivalents under Nonemployee Directors Long Term Incentive Plan 33,000 30,000 32,000 ------------- ----------- ------------- TOTAL SHARES 20,132,000 20,117,000 20,108,000 ============= =========== ============= Income (loss) from continuing operations $(108,502,000) $29,557,000 $ 11,558,000 Loss from discontinued operations (74,164,000) (17,263,000) (29,280,000) ------------- ----------- ------------- Net income (loss) $(182,666,000) $12,294,000 $ (17,722,000) ============= =========== ============= Primary earnings (loss) per share: Income (loss) from continuing operations $(5.39) $1.47 $ .57 Loss from discontinued operations (3.68) (.86) (1.45) ------ ----- ------ Net earnings (loss) $(9.07) $ .61 $ (.88) ====== ===== ====== ADDITIONAL COMPUTATION OF EARNINGS (LOSS) PER SHARE: FULLY DILUTED EARNINGS (LOSS) PER SHARE: Average common shares outstanding 20,099,000 20,087,000 20,076,000 Common stock equivalents under Nonemployee Directors Long Term Incentive Plan 33,000 30,000 32,000 ------------- ----------- ------------- TOTAL SHARES 20,132,000 20,117,000 20,108,000 ============= =========== ============= Income (loss) from continuing operations $(108,502,000) $29,557,000 $ 11,558,000 Loss from discontinued operations (74,164,000) (17,263,000) (29,280,000) ------------- ----------- ------------- Net income (loss) $(182,666,000) $12,294,000 $ (17,722,000) ============= =========== ============= Fully diluted earnings (loss) per share: Income (loss) from continuing operations $(5.39) $1.47 $ .57 Loss from discontinued operations (3.68) (.86) (1.45) ------ ----- ------ Net earnings (loss) $(9.07) $ .61 $ (.88) ====== ===== ====== Information for the periods through December 31, 1991 related to pre- reorganization periods when the Company had a different capital structure than that of the reorganized Company. Per share data pertaining to the Company's pre-reorganization period is, therefore, not meaningful and is not presented. EX-21 10 EXHIBIT 21 EXHIBIT 21 LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES CORPORATE STRUCTURE June 30, 1994 The consolidated structure of the Company is set forth in the following table which identifies each corporate entity's subsidiaries and shows the state of incorporation in which each of LFC and its subsidiaries are incorporated. Except as otherwise specified, each entity is headquartered at 1600 Viceroy Drive in Dallas. State of Corporation Incorporation - ----------- ------------- Lomas Financial Corporation(1). . . . . . . . . . . . . . . . Delaware Lomas Mortgage USA, Inc.. . . . . . . . . . . . . . . . . . Connecticut Lomas Mortgage Services, Inc. . . . . . . . . . . . . . . Delaware Property Exchange USA, Inc. . . . . . . . . . . . . . . . Texas Lomas Field Services, Inc.. . . . . . . . . . . . . . . . Nevada Gibraltar Deed Company. . . . . . . . . . . . . . . . . . California Lomas Insurance Services, Inc.. . . . . . . . . . . . . . Connecticut Lomas Insurance Services of Arizona, Inc.(2). . . . . . Arizona Lomas Insurance Services of Florida, Inc.(2). . . . . Florida Lomas Insurance Services of Louisiana, Inc.(2). . . . Louisiana Lomas General Insurance Services, Inc.(2) . . . . . . Texas Lomas Insurance Services of Virginia, Inc.(2) . . . . Virginia L&N Funding Corporation . . . . . . . . . . . . . . . . . Delaware INTELLIFILE, INC.(3). . . . . . . . . . . . . . . . . . . . Nevada Lomas New York, Inc.. . . . . . . . . . . . . . . . . . . . New York Lomas Information Systems, Inc. . . . . . . . . . . . . . . Nevada Lomas Administrative Services . . . . . . . . . . . . . . . Nevada Lomas Marketing Services, Inc.. . . . . . . . . . . . . . Nevada Lomas Management, Inc.(2) . . . . . . . . . . . . . . . . . Nevada Custodial Funding Corporation(2). . . . . . . . . . . . . Nevada ST Lending, Inc.(2)(7). . . . . . . . . . . . . . . . . . . Delaware Meaderose, Inc.(2). . . . . . . . . . . . . . . . . . . . Nevada L&N Consultants, Inc.(2)(4) . . . . . . . . . . . . . . . . Nevada Crown Cabot, Inc.(2). . . . . . . . . . . . . . . . . . . Nevada LNC Holdings, Inc.(2) . . . . . . . . . . . . . . . . . . Nevada Northern Lights Inn(2). . . . . . . . . . . . . . . . . . Alaska Lomas Properties, Inc.(2) . . . . . . . . . . . . . . . . . Texas Louisiana National Land Corporation(2). . . . . . . . . . Louisiana Lomas Investment Properties, Inc.(2). . . . . . . . . . . Nevada Bay South, Inc.(2). . . . . . . . . . . . . . . . . . . . Nevada Naples Bay View, Inc.(2). . . . . . . . . . . . . . . . . Florida Financial Insurance Ltd.(5) . . . . . . . . . . . . . . . . Bermuda Lomas Housing Management Corp.. . . . . . . . . . . . . . . Texas Roosevelt Office Center, Inc.(6). . . . . . . . . . . . . . New York Vistamar, Inc.(2) . . . . . . . . . . . . . . . . . . . . . Puerto Rico LLG Lands, Inc.(2). . . . . . . . . . . . . . . . . . . . . Arkansas Notes to Table of Corporate Structure: (1) Unless otherwise stated, each affiliated entity is a corporation and is 100 percent owned by the indicated parent company. (2) Located at 1420 Viceroy Drive, Dallas, Texas 75235. (3) Located at 8600 Harry Hines, Dallas, Texas 75235 (4) 100 percent of common stock owned by LFC but only 50 percent of the voting stock. Preferred stock owned by third parties including 50 percent of the voting stock. (5) Located at Dorchester House, P. O. Box HM2020, Church Street, Hamilton 5, Bermuda. (6) Located at 67 Wall Street, Suite 2411, New York, New York 10005. (7) 51 percent of voting stock owned by Lomas Financial Corporation and 49 percent of voting stock owned by Lomas Mortgage USA, Inc. EX-23 11 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-52764, Form S-8 No. 33-52393 and Form S-8 No. 33-52391) pertaining to the Lomas Financial Corporation 1991 Stock Incentive Program, the Lomas Financial Corporation 1993 Intermediate and Long Term Incentive Plan, and the Lomas Financial Corporation 1991 Long Term Incentive Plan for Non-Employee Directors, respectively of our report dated September 22, 1994, with respect to the consolidated financial statements and schedules of Lomas Financial Corporation included in the Form 10-K for the year ended June 30, 1994. ERNST & YOUNG LLP Dallas, Texas September 23, 1994 -----END PRIVACY-ENHANCED MESSAGE-----