-----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, EBFMJoAfqDyEWSoahrlI9b1cCYGcWH1fQ/eiTQIKDkT5jA1337qRZkqIN/3r3eTe 8O2KRw4ZxHbED5u+gVmNxw== 0000883369-97-000033.txt : 19971111 0000883369-97-000033.hdr.sgml : 19971111 ACCESSION NUMBER: 0000883369-97-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 SROS: NONE 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: SEC FILE NUMBER: 000-19847 FILM NUMBER: 97712101 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 QUARTERLY REPORT ENDING 9-97 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, 1997 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, 1997, 5,859,117 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 3 September 30, 1997(Unaudited) and March 31, 1997 Unaudited Statements of Income Three Months and Six Months Ended September 30, 1997 and 1996 4 Unaudited Statements of Cash Flows Six Months Ended September 30, 1997 and 1996 5 Notes to Unaudited Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 PART I. FINANCIAL INFORMATION Item 1. Financial Statements FIRST MORTGAGE CORPORATION BALANCE SHEET
September 30, 1997 March 31, 1997 (Unaudited) ASSETS Cash $2,214,000 $5,903,000 Mortgage loans held for sale 34,865,000 27,286,000 Other receivables and servicing advances 9,384,000 9,623,000 Capitalized servicing rights 7,268,000 6,709,000 Property and equipment, net 593,000 592,000 Prepaid expenses and other assets 353,000 546,000 Due from affiliates - 134,000 Note receivable 130,000 130,000 TOTAL ASSETS $54,807,000 $50,923,000 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Notes payable, banks $23,027,000 $20,172,000 Note payable, officer - 1,500,000 Sight drafts payable 2,496,000 954,000 Accounts payable and accrued liabilities 928,000 816,000 Deferred income taxes 1,957,000 1,833,000 Total Liabilities 28,408,000 25,275,000 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 - 5,859,117 5,147,000 5,147,000 Retained earnings 21,252,000 20,501,000 Total Stockholders' Equity 26,399,000 25,648,000 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $54,807,000 $50,923,000
FIRST MORTGAGE CORPORATION UNAUDITED STATEMENTS OF INCOME
Three Months Ended Six Months Ended September 30, September 30, 1997 1996 1997 1996 REVENUES: Loan origination income $808,000 $944,000 $1,512,000 $1,675,000 Loan servicing income 1,873,000 1,778,000 3,729,000 3,492,000 Gain on sale of mortgage loans 1,858,000 1,631,000 3,198,000 2,545,000 Interest income 626,000 559,000 1,163,000 1,186,000 Other income - 1,000 - 2,000 Total revenues 5,165,000 4,913,000 9,602,000 8,900,000 EXPENSES: Compensation and benefits 2,065,000 2,127,000 4,053,000 3,965,000 General and admnistrative expenses 2,078,000 1,886,000 3,897,000 3,635,000 Interest expense 183,000 216,000 355,000 410,000 Total expenses 4,326,000 4,229,000 8,305,000 8,010,000 INCOME BEFORE INCOME TAXES 839,000 684,000 1,297,000 890,000 INCOME TAX EXPENSE 352,000 287,000 546,000 376,000 NET INCOME $487,000 $397,000 $751,000 $514,000 NET INCOME PER SHARE $ 0.08 $ 0.07 $ 0.13 $ 0.09 WEIGHTED AVERAGE OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 5,859,000 5,892,000 5,859,000 5,892,000
FIRST MORTGAGE CORPORATION UNAUDITED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 751,000 $ 514,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for deferred income taxes 124,000 264,000 Provision for losses on foreclosure (183,000) 277,000 Amortization of capitalized servicing rights 1,189,000 720,000 Depreciation and amortization of property and equipment 100,000 97,000 Originations and purchases of mortgage loans held for sale (200,344,000) (171,997,000) Sales and principal repayments of mortgage loans held for sale 192,765,000 174,540,000 Changes in other receivables and servicing advances 422,000 (1,660,000) Change in prepaid expenses and other assets 193,000 92,000 Change in accounts payable and accrued liabilities 112,000 (48,000) Net cash provided by (used in) operating activities (4,871,000) 2,799,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of mortgage servicing rights (401,000) (189,000) Origination of mortgage servicing rights (1,347,000) (1,913,000) Change in note receivable - (500,000) Sale of commercial paper - 9,955,000 Purchase furniture, equipment and leasehold improvements (101,000) (105,000) Change in due from affiliates 134,000 60,000 Net cash provided by (used in) investing activities (1,715,000) 7,308,000 CASH FLOWS FROM FINANCING ACTIVITIES: Change in notes payable, banks 2,855,000 (10,093,000) Change in sight drafts payable 1,542,000 (1,783,000) Change in notes payable, officer (1,500,000) - Net cash provided by (used in) financing activities 2,897,000 (11,876,000) DECREASE IN CASH (3,689,000) (1,769,000) CASH, BEGINNING OF PERIOD 5,903,000 5,948,000 CASH, END OF PERIOD $2,214,000 $4,179,000 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 264,000 $ 205,000 Income taxes 225,000 30,000
FIRST MORTGAGE CORPORATION NOTES TO UNAUDITED FINANCIAL STATEMENTS September 30, 1997 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, 1997. 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. CAPITALIZED SERVICING RIGHTS In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (FAS 125). FAS 125 will result in the recording of Capitalized Servicing Rights (CSRs) on the date of sale of a mortgage loan as opposed to the previous practice of recording CSRs on the date loans are originated. Additionally, under FAS 125, excess servicing fees is included in CSRs for balance sheet presentation. Activities in CSRs are summarized as follows:
Capitalized Servicing Rights Balance at March 31, 1997 $6,709,000 Additions 1,748,000 Amortizations and write offs (1,176,000) Impairment (13,000) Balance at September 30, 1997 $7,268,000
3. NOTES PAYABLE At September 30, 1997, the Company had line of credit agreements with two nonaffiliated banks, which provided for borrowings up to $40,000,000 and $15,000,000 with annual interest payable monthly at 1.25% to 1.40% or the bank's reference rate, depending on the level of borrowings and the compensating balances maintained. At September 30, 1997, borrowings under these lines of $23,027,000 were collateralized by mortgage loans held for sale. The line of credit agreements are subject to renewal on September 1, 1998 and November 30, 1997, respectively. 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. 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 period in which they have a dilutive effect. 5. RECENT ACCOUNTING PRONOUNCEMENT In February 1997, the FASB issued Statement No. 128, Earnings Per Share (FAS 128), which simplifies the standards for computing earnings per share (EPS) and replaces the presentation of primary EPS with a presentation of basic EPS. The Company believes that the adoption of FAS 128 in fiscal year 1998 will not have a material impact on the financial statements. 6. 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, 1997 compared to three months ended September 30, 1996. GENERAL First Mortgage reported net income of $487,000 or $0.08 per share for the quarter ended September 30, 1997, compared to net income of $397,000 or $0.07 per share for the comparable 1996 quarter. The increase of 22.7% in net income was primarily attributable to larger gains on mortgage sales as interest rates became more favorable; and to higher servicing income as the mortgage servicing portfolio grows; and also to an increase in interest income due to stronger loan production. The improvement in earnings was, however, offset partially by greater general and administrative expenses from start-up cost of production offices. REVENUES LOAN ORIGINATION INCOME For the quarter ended September 30, 1997, the volume of new mortgage loans closed increased by 42.1% to $113.55 million from $79.90 million in the prior year quarter. The increase is a reflection of lower long-term interest rates, which significantly increased the volume of refinancing loans in the market place, and the robust recovery of the California real estate market. For the three months ended September 30, 1997, loan origination revenue decreased by approximately 14.4% to $808,000 from the September 1996 quarter, due primarily to the higher volume of wholesale loan, which carry lower front-end origination fees. 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 5.3% to $1.87 million for the three months ended September 30, 1997 from $1.78 million for the same period in 1996. The increase resulted from growth in the Company's servicing portfolio. As of September 30, 1997, the Company serviced $1.71 billion in loans compared to $1.63 billion at September 30, 1996, a net gain of 4.9% 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 a portion of new 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, 1997 1996 (Dollars in thousands except average loan balance) Beginning loan service portfolio $1,606,069 $1,508,765 Add: Loans originated 113,546 79,902 Less: Prepayment and amortization 105,673 55,066 Ending loan servicing portfolio 1,613,942 1,533,601 Sub-Servicing 98,167 97,964 Total servicing portfolio $1,712,109 $1,631,565 Average loan balance (end of period) $ 96,631 $ 95,631
GAIN ON SALE OF MORTGAGE LOANS Due to a favorable trend in long-term mortgage interest rates during the quarter, the gain on sale of mortgage loans was $1.86 million for the three months ended September 30, 1997, an increase of 13.9% over the 1996 period. INTEREST INCOME Interest income, which reflects the interest received on mortgage loans held for sale, increased to $626,000 for the three months ended September 30, 1997 from $559,000 for the comparable prior year quarter. This increase was due primarily to the larger mortgage inventory carried by the Company during the September 1997 quarter. EXPENSES The major components of the Company's total expenses are (i) compensations and benefits, (ii) general and administrative expenses and (iii) interest expense. Total expenses for the three months ended September 30, 1997 increased by 2.3% to $4.33 million from the three months ended September 30, 1996. Compensations and benefits were $2.07 million for the September 1997 quarter, a decrease of 2.9% over the year-ago quarter. General and administrative expense increased by $192,000, or 10.2% over prior year. These higher expenses were a direct result of expanding production operations in the quarter, partially offset by cost reduction measures taken by the Company over the past year. INTEREST EXPENSE Interest expense decreased 15.3% to $183,000 for quarter ended September 1997 from $216,000 for the same period in 1996. The decrease was due to an increase 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, 1997 compared to six months ended September 30, 1996. GENERAL In the six months ended September 30, 1997, the Company reported net income of $751,000 or $0.13 per share, compared to net income of $514,000 or $0.09 per share for the same period of 1996. Total revenue increased by 7.9% to $9.6 million from $8.9 million in the year earlier six months. The increase in net income was largely due to higher loan servicing income and a greater gain on sale of mortgage loans for the six month period as compared to 1996. REVENUES For the six months ended September 30, 1997, loan origination revenue decreased 9.7% to $1.51 million from $1.68 million for the six months ended September 30, 1996. 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 increased 16.5% to $200.34 million from $171.99 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 6.8% to $3.73 million for the six months ended September 30, 1997 from $3.49 million for the same period in 1996 after prepayments and scheduled 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, 1997 1996 (Dollars in thousands except average loan balance) Beginning loan service portfolio $1,583,837 $1,477,161 Add: Loans originated 200,344 171,997 Less: Prepayment and amortization 170,239 115,557 Ending loan servicing portfolio 1,613,942 1,533,601 Sub-Servicing 98,167 97,964 Total servicing portfolio $1,712,109 $1,631,565 Average loan balance (end of period) $96,631 $95,631
The sale of mortgages for the six months ended September 30, 1997 resulted in a gain of $3.20 million compared to a gain of $2.55 million for the 1996 period. The gain is primarily attributable to the favorable trend in long-term interest rates in 1997. Interest income, which reflects the interest earned on mortgage loans held for sale for the six months ended September 30, 1997 was comparable to the 1996 period. EXPENSES The major components of the Company's total expenses are (i) compensation and benefits, (ii) general and administrative expenses and (iii) interest expenses. Total expenses for the six months ended September 30, 1997 increased by $295,000 or 3.7% from the six months ended September 30, 1996. Compensation and benefits remained essentially flat at $4.05 million compared to $3.97 million in the first six months of fiscal year 1996. General and administrative expenses increased by 7.2% to $3.90 million from the comparable period in 1996. The increase was partly attributable to ongoing implementation of our production expansion plan with the opening of new retail branches. Interest expense decreased to 13.4% to $355,000 as compared to $410,000 in the year earlier 6 months, due primarily to increased usage of working capital for funding mortgage loans. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirement is the funding of its new mortgage loans and loan origination expenses. To meet these funding needs, the Company relies on warehouse lines of credit with banks, its own capital, and also cash flows from operations. At September 30, 1997, maximum permitted borrowings under the warehouse line of credit agreements with two nonaffiliated banks totaled $55 million and the amount outstanding was $23.03 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, 1997. The Company believes that the warehouse agreements will be renewed when the current terms expire. The Company had stockholders' equity of $26.40 million at September 30, 1997. Management believes that its current financing arrangements are adequate to meet its projected operational needs. PROSPECTIVE TRENDS Between June 1997 and September 1997, long-term mortgage interest rates fell approximately 1/4%, contributing to a 31% increase in new loan originations over the immediate preceding quarter ended June 30, 1997; and 42% more than the year earlier period. Unless long- term interest rates unexpectedly increase, the surge in activity should help produce positive results for the Company going forward. Pricing of traditional mortgage products, however, remains uneconomical and as previously discussed, the Company still faces intense competition from many directions, particularly for the standard conforming conventional mortgage loans so coveted by many of the major commercial banks. Our strategy is to instead emphasize the origination of FHA and VA loans, home equity loans and other mortgage products with much greater profit potential for the Company. We recently introduced, for example, a 125% second mortgage equity loan which is being originated through direct consumer mailing, telemarketing, and our traditional retail branch operations. Initially to be sold servicing-released, we intend to later securitize and retain servicing on this increasingly popular new mortgage product. As a continuing part of the Company's long-term plan, we are opening additional retail offices wherever such opportunity presents itself. We believe we are appropriately positioned to take advantage of the market niches within which we can competitively operate, but we still face formidable competition and, as always, our business is greatly influenced by the level of interest rates. 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, 1997. 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, 1997 By S/Clement Ziroli Clement Ziroli Chairman of the Board of Directors, Chief Executive Officer Date: November 8, 1997 By S/Pac W. Dong Pac W. Dong Executive Vice President, Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS MAR-31-1998 SEP-30-1997 2,214 0 9,384 0 0 0 2,534 1,941 54,807 0 0 0 0 5,147 21,252 54,807 0 9,602 0 8,305 0 0 0 1,297 546 751 0 0 0 751 0.13 0.13
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