-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GsgkdKFg5gnlE+DPY+XFmwIAsyOmKpkqOKs6OGnOC/Vh0EZKw4go1PSspW7hTjpT CCw3AwxjjekQqn0Qg5eu6Q== 0000883369-96-000027.txt : 19961113 0000883369-96-000027.hdr.sgml : 19961113 ACCESSION NUMBER: 0000883369-96-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST MORTGAGE CORP /CA/ CENTRAL INDEX KEY: 0000883369 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 952960716 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19847 FILM NUMBER: 96658926 BUSINESS ADDRESS: STREET 1: 3230 FALLOWFIELD DR CITY: DIAMOND BAR STATE: CA ZIP: 91765 BUSINESS PHONE: 9095951996 MAIL ADDRESS: STREET 1: 3230 FALLOW FIELD DRIVE CITY: DIAMOND BAR STATE: CA ZIP: 91765 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM 10-Q [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 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 0-19847 FIRST MORTGAGE CORPORATION (Exact name of registrant as specified in its charter) California 95-2960716 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 3230 Fallow Field Drive Diamond Bar, California 91765 (Address, including zip code, of principal executive offices) (909) 595-1996 (Registrant's telephone number, including area code) 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____ As of September 30, 1996, 5,883,117 shares of the registrant's common stock were outstanding. FIRST MORTGAGE CORPORATION FORM 10-Q INDEX Part I - Financial Information Page Item 1. Financial Statements: Balance Sheet September 30, 1996 (Unaudited) and March 31, 1996 3 Unaudited Statements of Income Three Months and Six Months Ended September 30, 1996 and 1995 4 Unaudited Statements of Cash Flows Six Months Ended September 30, 1996 and 1995 5 Notes to Unaudited Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 PART I. FINANCIAL INFORMATION Item 1. Financial Statements FIRST MORTGAGE CORPORATION BALANCE SHEET
September 30, 1996 March 31, 1996 (Unaudited) ASSETS Cash $4,179,000 $5,948,000 Mortgage loans held for sale 17,336,000 19,879,000 Investment in commercial paper - 9,955,000 Other receivables and servicing advances 10,928,000 9,545,000 Originated mortgage servicing rights net 4,510,000 3,133,000 Excess service fee, net 358,000 414,000 Purchased servicing rights, net 491,000 430,000 Property and equipment, net 620,000 612,000 Prepaid expenses and other assets 799,000 891,000 Due from affiliates 134,000 194,000 Notes receivable 630,000 130,000 TOTAL ASSETS $39,985,000 $51,131,000 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Notes payable, banks $10,560,000 $20,653,000 Note payable, officer 1,500,000 1,500,000 Sight drafts payable 916,000 2,699,000 Accounts payable and accrued liabilities 717,000 765,000 Deferred income taxes 1,131,000 867,000 Total Liabilities 14,824,000 26,484,000 STOCKHOLDERS' EQUITY Preferred stock, no par value: Authorized shares - 1,000,000 Issued and outstanding shares - None - - Common stock, no par value: Authorized shares - 10,000,000 Issued and outstanding shares- 5,883,117 5,261,000 5,261,000 Retained earnings 19,900,000 19,386,000 Total Stockholders' Equity 25,161,000 24,647,000 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $39,985,000 $51,131,000 See accompanying notes
FIRST MORTGAGE CORPORATION UNAUDITED STATEMENTS OF INCOME
Three Months Ended Six Months Ended September 30, September 30, 1996 1995 1996 1995 REVENUES: Loan origination income $944,000 $1,230,000 $1,675,000 $2,180,000 Loan servicing income 1,778,000 1,678,000 3,492,000 3,365,000 Gain on sale of mortgage loans 1,631,000 1,907,000 2,545,000 4,335,000 Interest income 559,000 619,000 1,186,000 1,054,000 Other income 1,000 - 2,000 10,000 Total revenues 4,913,000 5,434,000 8,900,000 10,944,000 EXPENSES: Employees' salaries and commissions 2,127,000 1,989,000 3,965,000 3,952,000 General and administrative expenses 1,886,000 1,634,000 3,635,000 3,149,000 Interest expense 216,000 191,000 410,000 404,000 Total expenses 4,229,000 3,814,000 8,010,000 7,505,000 INCOME BEFORE INCOME TAXES 684,000 1,620,000 890,000 3,439,000 INCOME TAX EXPENSE 287,000 698,000 376,000 1,453,000 NET INCOME $397,000 $922,000 $514,000 $1,986,000 NET INCOME PER SHARE $0.07 $0.16 $0.09 $0.34 WEIGHTED AVERAGE OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 5,892,000 5,883,000 5,892,000 5,883,000 See accompanying notes
FIRST MORTGAGE CORPORATION UNAUDITED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 514,000 $1,986,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for deferred income taxes 264,000 538,000 Provision for losses on foreclosure 277,000 235,000 Amortization of originated mortgage servicing rights, excess service fee and purchased servicing rights 720,000 501,000 Depreciation and amortization of property and equipment 97,000 100,000 Originations and purchases of mortgage loans held for sale (171,997,000) (170,528,000) Sales and principal repayments of mortgage loans held for sale 174,540,000 175,108,000 Changes in other receivables and servicing advances (1,660,000) (1,419,000) Additions to excess service fee - (2,000) Change in prepaid expenses and other assets 92,000 (781,000) Change in accounts payable and accrued liabilities (48,000) 491,000 Change in income taxes payable - 912,000 Net cash provided by operating activities 2,799,000 7,141,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of mortgage servicing rights (189,000) (2,000) Origination of mortgage servicing rights (1,913,000) (2,202,000) Change in Notes receivable (500,000) 120,000 Sale of commercial paper 9,955,000 - Purchase furniture, equipment and leasehold improvements (105,000) (30,000) Proceeds from sale of assets - 1,000 Change in due from affiliates 60,000 - Net cash provided by (used in) investing activities 7,308,000 (2,113,000) CASH FLOWS FROM FINANCING ACTIVITIES: Change in notes payable, banks (10,093,000) 3,519,000 Change in sight drafts payable (1,783,000) 1,339,000 Change in notes payable, other - (9,493,000) Net cash used in financing activities (11,876,000) (4,635,000) INCREASE (DECREASE) IN CASH (1,769,000) 393,000 CASH, BEGINNING OF PERIOD 5,948,000 4,748,000 CASH, END OF PERIOD $4,179,000 $5,141,000 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 147,000 $ 326,000 Income taxes 30,000 800,000 See accomanying notes
FIRST MORTGAGE CORPORATION NOTES TO UNAUDITED FINANCIAL STATEMENTS September 30, 1996 1. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results for the interim periods have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. In addition, this document should be read in conjunction with the financial statements and footnotes included in the Company's annual report on Form 10-K for fiscal year ended March 31, 1996 The preparation of the financial statements of the Company requires management to make estimates and assumptions that affect reported amounts. These estimates are based on information available as of the date of the financial statements. Therefore, actual results could differ from those estimates. 2. MORTGAGE SERVICING ASSETS Mortgage servicing assets consist of excess service fees, purchased servicing rights and originated mortgage servicing rights. Activities in each category are summarized as follows:
Excess Purchased Originated Service Servicing Mortgage Fee Rights Servicing Rights Balance at March 31, 1996 $ 414,000 $ 430,000 $ 3,133,000 Additions - 189,000 1,913,000 Amortizations and (56,000) (128,000) (527,000) write offs Impairment - - (9,000) (1) Balance at September 30, 1996 $ 358,000 $ 491,000 $ 4,510,000 (1) Figure includes $199,000 of originated mortgage servicing rights relating to mortgage loans held for sale to investors. Since the underlying loans have not yet been sold, no revenues have been recognized on these originated mortgage servicing rights for the three months ended September 30, 1996.
3. NOTES PAYABLE At September 30, 1996, the Company had line of credit agreements with two nonaffiliated banks, which provided for borrowings up to $30,000,000 and $15,000,000 with annual interest payable monthly at 1.25% or the bank's reference rate, depending on the level of borrowings and the compensating balances maintained. At September 30, 1996, borrowings under these lines of $10,560,000 were collateralized by mortgage loans held for sale. At March 31, 1996, advances of $9,955,000 against one of the lines of credit was collateralized by commercial paper which matured in April 1996. The advance was repaid and there was no investment in commercial paper at September 30, 1996. The line of credit agreements are subject to renewal on September 1997. Both agreements contain certain requirements, including, but not limited to, the maintenance of minimum net worth, debt to net worth ratio, current ratio, net income and servicing portfolio, and restrict the Company's ability to pay dividends. The Company believes its two lines of credit agreements will be renewed prior to their expiration. The Company has a presale funding facility with a nonaffiliated investment banking firm for borrowings under reverse repurchase arrangements, collateralized by mortgage loans held for sale pooled to form GNMA securities. There was no amount outstanding on September 30, 1996. At September 30, 1996, the Company also had an unsecured line of credit of $2,000,000 with a nonaffiliated bank which expired on October 31, 1996. 4. NET INCOME PER SHARE Net income per share is computed on the basis of the weighted average number of common shares outstanding during each period plus the effect of common shares contingently issuable from stock options in periods in which they have a dilutive effect. 5. CONTINGENCIES The Company is currently a defendant in certain litigation arising in the ordinary course of business. It is management's opinion that the outcome of these actions will not have a material effect on the financial position or results of operations of the Company. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Three months ended September 30, 1996 compared to three months ended September 30, 1995. GENERAL The Company reported net income of $397,000 or $0.07 per share for the quarter ended September 30, 1996, compared to net income of $922,000 or $0.16 per share for the comparable 1995 quarter. The decrease in net income was attributable to a 20% reduction in new loan originations resulting from intensive price competition among mortgage banking firms and commercial banks. As a result, revenues fell nearly 9.6% while expenses increased by about 10.9%. REVENUES LOAN ORIGINATION INCOME For the quarter ended September 30, 1996, the volume of new mortgage loans closed decreased by 20% to $79.90 million from $99.90 million in the prior year quarter. The decrease is a reflection of higher long-term interest rates, which significantly reduced the volume of refinancing loans in the market place, and a higher proportion of wholesale loans, which carry lower front-end origination fees. For the three months ended September 30, 1996 loan origination revenue decreased by approximately 23.3% to $944,000 from the September 1995 quarter, due primarily to the lower volume of new loan originations. LOAN SERVICING INCOME Loan servicing income, representing the loan servicing fees, late charges and other fees earned by the Company for administering the loans in its servicing portfolio, rose 6.0% to $1.78 million for the three months ended September 30, 1996 from $1.68 million for the same period in 1995. The increase resulted from growth in the Company's servicing portfolio. As of September 30, 1996, the Company serviced $1.63 billion in loans compared to $1.57 billion at September 30, 1995, a net gain of 3.8% after prepayments and scheduled amortization of mortgage loans. The growth in the servicing portfolio reflects the Company's long-term plan of retaining the servicing rights on most loan originations. The following table sets forth certain information pertaining to the servicing portfolio of the Company for the period indicated.
Three Months Ended September 30, 1996 1995 (Dollars in thousands except average loan balance) Beginning loan service portfolio $1,508,765 $1,421,673 Add: Loans originated 79,902 99,902 Less: Prepayment and amortization 55,066 43,624 Ending loan servicing portfolio 1,533,601 1,477,951 Sub-Servicing 97,964 90,721 Total servicing portfolio $1,631,565 $1,568,672 Average loan balance (end of period) $ 95,631 $ 94,175
GAIN ON SALE OF MORTGAGE LOANS Due to intense price competition and an increase in long-term mortgage interest rates during the quarter, the gain on sale of mortgage loans was $1.63 million for the three months ended September 30, 1996, a decrease of 14.5% over the 1995 period. INTEREST INCOME Interest income, which reflects the interest received on mortgage loans held for sale, decreased to $559,000 for the three months ended September 30, 1996 from $619,000 for the comparable prior year quarter. This decrease is due primarily to the smaller mortgage inventory carried by the Company during the September 1996 quarter. EXPENSES The major components of the Company's total expenses are (i) employees' salaries and commissions, (ii) general and administrative expenses and (iii) interest expense. Total expenses for the three months ended September 30, 1996 increased by 10.9% to $4.23 million from the three months ended September 30, 1995. Salaries and commissions were $2.13 million for the September 1996 quarter, an increase of 6.9% over the year-ago quarter. General and administrative expense increased by $252,000, or 15.4% over prior year. These higher expenses were a direct result of expanding production operations in the quarter coupled with higher foreclosure expenses, partially offset by cost reduction measures taken by the Company over the past year. INTEREST EXPENSE Interest expense increased 13.1% to $216,000 for quarter ended September 1996 from $191,000 for the same period in 1995. The increase was due to a decrease in the compensating balances used to establish our borrowing costs, and a decrease in use of working capital for loan fundings. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Six months ended September 30, 1996 compared to six months ended September 30, 1995. GENERAL In the six months ended September 30, 1996, the Company reported net income of $514,000 or $0.09 per share, compared to net income of $1.99 million or $0.34 per share for the same period of 1995. Total revenue decreased by 18.7% to $8.90 million from $10.94 million in the year earlier six months. The lower operating results were largely due to lower loan origination income and a lower gain on sale of mortgage loans for the six month period as compared to 1995. REVENUES For the six months ended September 30, 1996, loan origination revenue decreased 23.2% to $1.68 million from $2.18 million for the six months ended September 30, 1995. The lower loan origination revenue was largely due to a higher proportion of wholesale loans, which carry much lower front-end origination revenue than retail loans. The volume of new mortgage loan originations remained flat at $171.99 million from $170.53 million in the comparable period last year. Loan servicing income, representing the loan servicing fees, late charges and other fees earned by the Company for administering the loans in its servicing portfolio, rose 3.8% to $3.49 million for the six months ended September 30, 1996 from $3.37 million for the same period in 1995 after prepayments and schedule amortization of mortgage loans. The following table sets forth certain information pertaining to the servicing portfolio of the Company for the period indicated:
Six Months Ended September 30, 1996 1995 (Dollars in thousands except average loan balance) Beginning loan service portfolio $1,477,161 $1,401,832 Add: Loans originated 171,997 170,528 Less: Prepayment and amortization 115,557 94,407 Ending loan servicing portfolio 1,533,601 1,477,951 Sub-Servicing 97,964 90,721 Total servicing portfolio $1,631,565 $1,568,672 Average loan balance (end of period) $95,631 $94,175 Weighted average interest rate 8.00% 8.18%
The sale of mortgages for the six months ended September 30, 1996 resulted in a gain of $2.55 million compared to a gain of $4.34 million for the 1995 period. The gain is primarily impacted by two factors: the escalating price competition and the recognition of gains related to originated mortgage servicing rights mandated by FAS 122. Interest income, which reflects the interest received on mortgage loans held for sale, increased 12.5% to $1.19 million for the six months ended September 30, 1996 from $1.05 million for the 1995 period. This increase was due largely to higher average interest rate on mortgage loans and a larger inventory carried by the Company during the June, 1996 quarter. EXPENSES The major components of the Company's total expenses are (i) employees' salaries and commissions, (ii) general and administrative expenses and (iii) interest expenses. Total expenses for the six months ended September 30, 1996 increased by $505,000 or 6.7% from the six months ended September 30, 1995. Salaries and commission expenses remained flat at $3.97 million compared to $3.95 million in the first six months of fiscal year 1995. General and administrative expenses increased by 15.4% to $3.64 million from the comparable period in 1995. The increase was partly attributable to ongoing implementation of our production expansion plan, coupled with higher foreclosure expenses. There was no material increase in interest expense compared to prior year. LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity requirement is the funding of its new mortgage loans and origination expenses. To meet these needs, the Company relies on warehouse lines of credit with banks, its own capital, cash flows from operations and short-term reverse repurchase agreements with other investment banking firms. The Company's mortgage loans held for sale decreased from $19.88 million at March 31, 1996 to $17.34 million at September 30, 1996. The majority of the cash provided from this decrease was used to repay short-term borrowings. At September 30, 1996, maximum permitted borrowings under the warehouse line of credit agreements with two nonaffiliated banks totaled $45 million and the amount outstanding was $10.56 million. Borrowings under these facilities are secured by mortgage loans. The agreements contain various covenants, including minimum net worth, current ratio, net income, servicing portfolio balances, debt to net worth ratio, and restrict the Company's ability to pay dividends. The Company was in compliance with all debt covenants at September 30, 1996. The Company believes that the warehouse agreements will be renewed when the current terms expire in September 1997. In addition to the warehouse lines of credit, the Company may use the short-term reverse repurchase agreements provided by other investment banking firms in connection with its inventory of mortgage loans and mortgage-backed securities. There was no amount outstanding under the agreements at September 30, 1996. The Company had stockholders' equity of $25.16 million at September 30, 1996. Management believes that its current financing arrangements are adequate to meet its projected operation needs. PROSPECTIVE TRENDS The increase in long-term interest rates during the first four months of the fiscal year had a negative impact on new loan originations, particularly those for refinance loans. Although our new loan originations were virtually flat at $172 million for the six months ended September 30, 1996 compared to $171 million for the six months ended September 30, 1995, the mix of new originations tilted more to wholesale rather than retail. We have completed the wholesale expansion phase of our production growth plan, and have now moved to the retail branch expansion phase, opening new branches in Spokane, Washington and Diamond Bar, California. Both of the new operations are off to a fast start, and we plan to continue to expand our retail operations as opportunities arise. Competition is more intense than at any time in the past, as the industry continues consolidation and downsizing. Pricing practices remain cut-throat in most of our markets, particularly at the wholesale level in which several of the major banks appear to be engaged in a virtual price war for mortgages originated through wholesale sources. With our multiple origination channels, the Company remains well-positioned to take advantage of whichever channel emerges as the most productive in the future. Nevertheless, competition at all levels remains formidable and price intensive, and is likely to remain so unless the capacity of the mortgage-providing industries finally shrink to the size of current demand, or long-term interest rates decline enough to stimulate more demand. PART II. OTHER INFORMATION. Item 6. Exhibits and Reports of Form 8-K. (a) No exhibits are filed with this report. (b) The Company did not file any reports on Form 8-K during the quarter ended September 30, 1996. SIGNATURES Pursuant to the requirements 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. FIRST MORTGAGE CORPORATION Date: November 8, 1996 By S/Clement Ziroli Clement Ziroli Chairman of the Board of Directors, Chief Executive Officer Date: November 8, 1996 By S/Pac W. Dong Pac W. Dong Executive Vice President, Chief Financial Officer EX-27 2
5 0000883369 FIRST MORTGAGE CORPORATION 6-MOS MAR-31-1996 SEP-30-1996 4,179 0 10,928 0 0 0 2,363 1,743 39,985 0 0 0 0 5,261 19,900 39,985 0 8,900 0 8,010 0 0 0 890 376 514 0 0 0 514 0.09 0.09
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