<PAGE> 1
UNITED STATES
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 December 31, 1999
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 000-23725
BNC MORTGAGE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0661303
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1063 McGaw Avenue Irvine, California 92614-5532
-----------------------------------------------------------
(Address of principal executive offices including ZIP Code)
(949) 260-6000
---------------------------------------------------
(Registrants' 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 periods 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 February 12, 2000, registrant had 5,042,350 outstanding shares of Common
Stock.
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BNC MORTGAGE, INC.
TABLE OF CONTENTS
TO FORM 10-Q
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
<S> <C>
Consolidated Balance Sheet as of December 31, 1999 and June 30, 1999 ....................... 3
Consolidated Statement of Income for the Three Months and Six Months Ended
December 31, 1999 and 1998 ................................................................. 4
Consolidated Statement of Cash flows for the Six Months Ended December 31, 1999
and 1998 ................................................................................... 5
Notes to the Consolidated Financial Statements ............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ................................. 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .......................................................................... 17
Item 2. Changes in Securities ...................................................................... 17
Item 3. Defaults Upon Senior Securities ............................................................ 17
Item 4. Submission of Matters to a Vote of Securities Holders ...................................... 17
Item 5. Other Information .......................................................................... 17
Item 6. Exhibits and Reports on Form 8-K ........................................................... 17
(a) Exhibits ............................................................................... 17
(b) Reports on Form 8-K .................................................................... 17
Signatures ......................................................................................... 18
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS
BNC MORTGAGE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................. $ 29,941,000 $ 29,867,000
Restricted cash ....................................... 1,113,000 1,105,000
Mortgage loans held for sale .......................... 122,289,000 141,749,000
Property and equipment, net ........................... 1,749,000 1,882,000
Goodwill, net ......................................... 1,418,000 1,468,000
Deferred income taxes ................................. 2,424,000 2,424,000
Notes receivable from officers ........................ 150,000 100,000
Other assets .......................................... 3,713,000 3,384,000
------------ ------------
Total assets .................................. $162,797,000 $181,979,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse line-of-credit .............................. $120,760,000 $142,163,000
Accounts payable and accrued liabilities .............. 4,641,000 4,955,000
Income taxes payable .................................. 2,442,000 1,945,000
------------ ------------
Total liabilities ............................. 127,843,000 149,063,000
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares -- 5,000,000
Issued and outstanding shares -- none at
December 31, 1999 and June 30, 1999 ................... -- --
Common stock, $0.001 par value:
Authorized Shares -- 50,000,000
Issued and outstanding shares 5,042,350 at
December 31, 1999 and 5,092,350 at June 30, 1999 ...... 5,000 5,000
Additional paid in capital ............................ 11,678,000 11,980,000
Retained earnings ..................................... 23,271,000 20,931,000
------------ ------------
Total stockholders' equity .................... 34,954,000 32,916,000
------------ ------------
Total liabilities and stockholders' equity .... $162,797,000 $181,979,000
============ ============
</TABLE>
See accompanying notes.
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BNC MORTGAGE, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of mortgage loans .............. $ 8,341,000 $10,758,000 $15,845,000 $22,240,000
Loan origination income ..................... 2,603,000 2,036,000 5,263,000 3,688,000
Interest income ............................. 3,266,000 1,496,000 6,779,000 3,399,000
Other income ................................ 386,000 395,000 730,000 769,000
----------- ----------- ----------- -----------
Total revenues ...................... 14,596,000 14,685,000 28,617,000 30,096,000
----------- ----------- ----------- -----------
Expenses:
Employees' salaries and commissions ......... 6,722,000 6,319,000 12,902,000 13,142,000
General and administrative expenses ......... 3,518,000 3,764,000 6,757,000 6,978,000
Interest expense ............................ 2,415,000 913,000 5,044,000 2,208,000
----------- ----------- ----------- -----------
Total expenses ...................... 12,655,000 10,996,000 24,703,000 22,328,000
Income before income taxes .................. 1,941,000 3,689,000 3,914,000 7,768,000
Income tax expense .......................... 781,000 1,475,000 1,574,000 3,103,000
----------- ----------- ----------- -----------
Net income .......................... $ 1,160,000 $ 2,214,000 $ 2,340,000 $ 4,665,000
=========== =========== =========== ===========
Basic earnings per share .................... $ 0.23 $ 0.40 $ 0.46 $ 0.82
=========== =========== =========== ===========
Diluted earnings per share .................. $ 0.23 $ 0.40 $ 0.46 $ 0.82
=========== =========== =========== ===========
Weighted average shares used in computing
Net income per share:
Basic Shares ........................ 5,101,000 5,534,000 5,115,000 5,709,000
=========== =========== =========== ===========
Diluted Shares ...................... 5,101,000 5,534,000 5,115,000 5,709,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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BNC MORTGAGE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................. $ 2,340,000 $ 4,665,000
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation ...................................................... 507,000 432,000
Amortization ...................................................... 50,000 --
Origination of mortgage loans held for sale ....................... (846,097,000) (537,888,000)
Sales and principal repayments of mortgage loans
held for sale ..................................................... 865,330,000 559,115,000
Deferred loan origination fees .................................... 227,000 870,000
Change in accounts payable and accrued liability .................. (314,000) 2,560,000
Change in income taxes payable .................................... 497,000 1,186,000
Change in deferred income taxes ................................... -- (1,000)
Change in notes receivable from officers .......................... (50,000) --
Change in other assets ............................................ (329,000) 222,000
------------- -------------
Total adjustments ......................................................... 19,821,000 26,496,000
------------- -------------
Net cash provided by operating activities ................................ 22,161,000 31,161,000
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ...................................................... (374,000) (614,000)
------------- -------------
Net cash used in investing activities ..................................... (374,000) (614,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in warehouse line of credit .................................... (21,403,000) (20,022,000)
Repurchase of common stock ................................................ (302,000) (2,959,000)
Increase in restricted cash ............................................... (8,000) 38,000
------------- -------------
Net cash used in financing activities ..................................... (21,713,000) (22,943,000)
------------- -------------
Net increase in cash and cash equivalents ................................. 74,000 7,604,000
Cash and cash equivalents, beginning of the period ........................ 29,867,000 25,890,000
------------- -------------
Cash and cash equivalents, end of the period .............................. $ 29,941,000 $ 33,494,000
============= =============
</TABLE>
See accompanying notes.
5
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BNC MORTGAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF THE BUSINESS
BNC Mortgage, Inc. ("BNC" or the "Company"), is a specialty finance company
engaged in the business of originating, purchasing and selling, on a whole loan
basis for cash, non-conforming and, to a lessor extent, conforming, residential
mortgage loans secured by one-to-four family residences. The term
"non-conforming loans" as used herein means (i) subprime loans, which are loans
made to borrowers who are unable or unwilling to obtain mortgage financing from
conventional mortgage sources, whether for reasons of credit impairment, income
qualification, credit history or a desire to receive funding on an expedited
basis and (ii) non-conforming loan products for primarily high credit borrowers
whose credit scores equal or exceed levels required for the sale or exchange of
their mortgage loans through the Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"), but where the loan itself
fails to meet conventional mortgage guidelines, such as the principal balance
exceeds the maximum loan limit of $240,000 or the loan structure documentation
does not conform to agency requirements. The Company's loans are made primarily
to refinance existing mortgages, consolidate other debt, finance home
improvements, education and other similar needs, and, to a lesser extent, to
purchase single family residences. The Company originates and purchases loans
through its: (i) wholesale subprime operations through which it has
relationships with approximately 5,927 approved independent loan brokers and
which to date has accounted for the majority of the Company's total loan
originations and (ii) wholesale prime operations through which it originates
conforming loans that meet FNMA, FHLMC and other conventional mortgage
guidelines and non-conforming loan products which are not subprime loans.
The Company's wholesale prime operations consist of its internal wholesale prime
business which it established in 1998 and Mortgage Logic.com, Inc., its wholly
owned subsidiary, which it formed in February 1999. Through its wholesale prime
operations, the Company originates, purchases and sells mortgage loans primarily
made to high credit quality borrowers. The Company considers "high credit
quality borrowers" to be those whose credit scores equal or exceed levels
required for the sale or exchange of their mortgage loans through FNMA or FHLMC.
The wholesale prime operations originates a variety of mortgage loans including
(i) loans which qualify for inclusion in guarantee programs sponsored by FNMA or
FHLMC, (ii) non-conforming mortgage loans that do not meet agency guidelines,
such as the principal balance exceeds the maximum loan limit of $240,000, or the
loan structure or documentation does not conform to the agency's requirements,
or (iii) other niche loan products.
The Company currently sells all of its mortgage loans to institutional
purchasers such as investment banks, real estate investment trusts and other
large mortgage bankers for cash through whole loan sales.
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 Form 10-K for the fiscal year
ended June 30, 1999.
The consolidated financial statements of the Company include the accounts of the
Company and all of its wholly owned subsidiaries. All significant inter-company
transactions and balances are eliminated.
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 LOANS HELD FOR SALE
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Mortgage loans held for sale are collateralized by first and second trust deeds
on underlying real properties and are used as collateral for the Company's
borrowings. Approximately 37.8% of these properties are located in California as
of December 31, 1999. Mortgage loans held for sale include net deferred fees and
costs of $227,000 and ($1,287,000) at December 31, 1999 and June 30, 1999,
respectively.
3. WAREHOUSE LINES OF CREDIT
The Company has entered into a warehouse line-of-credit agreement with DLJ,
which provides for borrowings up to $150.0 million with interest payable monthly
at the Federal Funds rate plus 100 basis points. At December 31, 1999 and June
30, 1999 borrowings under this line of $87.6 million and $120.0 million are
collateralized by mortgage loans held for sale. This line-of-credit matures and
is subject to renewal on March 16, 2000. However, DLJ has indicated to the
Company that they currently do not intend to renew the line upon its expiration.
In February 1999, the Company entered into a warehouse line-of-credit with Bank
United, which provides for borrowings up to $50.0 million with a floating
interest rate based on the LIBOR rate and a commitment fee of $125,000. As of
December 31, 1999 and June 30, 1999, borrowings under this line of $16.6 million
and $5.1 million are collateralized by mortgage loans held for sale with an
interest rate of 6.41%. This line-of-credit matured on February 1, 2000.
However, the Company is still using this warehouse line of credit and the
Company is negotiating to increase the warehouse line to 75.0 million and extend
the October 31, 2000 expiration date.
In March 1999, the Company entered into a warehouse line-of-credit with
Residential Funding Corporation, ("RFC"), which provides for borrowings up to
$50.0 million with a floating interest rate based on the LIBOR rate and a
commitment fee of $65,000. As of December 31, 1999 and June 30, 1999, borrowings
under this line of $16.6 million and $14.7 million are collateralized by
mortgage loans held for sale with an interest rate of 7.74%. This line-of-credit
matures and is subject to renewal on March 1, 2000. The company is currently
negotiating to increase the warehouse line to 100.0 million and extend the
maturity date to July 31, 2000.
Mortgage Logic.com, Inc. entered into an uncommitted master repurchase credit
agreement with Paine Webber Real Estate Securities which provides for borrowings
up to $50.0 million with a floating interest rate based on the LIBOR rate. As of
December 31, 1999, and June 30, 1999, borrowings under this line of $0 and $2.4
million are collateralized by mortgage loans held for sale with an interest rate
of 7.28%.
Under the Bank United and RFC credit agreements, the Company must comply with
certain financial and other covenants, including the maintenance of a minimum
tangible net worth of $25.0 million, a debt to tangible worth ratio not to
exceed 15:1, other financial ratios, and the maintenance of a quarterly net
income not less than zero. Further, absent the consent of Bank United, such
covenants prohibit the Company from declaring or paying any dividends on any
shares of the Company's common stock. At December 31, 1999, the Company was in
compliance with the aforementioned covenants.
The weighted average interest rates on line-of-credit borrowings for the quarter
ended December 31, 1999 and the year ended June 30, 1999 were 7.0% and 6.9%,
respectively.
4. COMMITMENTS AND CONTINGENCIES
FORWARD LOAN SALES COMMITMENTS
On October 6, 1999, the Company entered into a forward loan sale contract with
an investment bank under which it has committed to deliver $280.0 million in
loans originated during the period from October 1999 to January 2000. The price
received under the commitment included adjustments for the actual weighted
average coupons, weighted average margins and prepayment terms of the loans
sold. As of December 31, 1999 $278.4 million loans were sold under this
commitment.
In July 1999, the Company entered into a $10.0 million mandatory delivery
commitment to sell certain nonconforming mortgage loans at current market rates
to Impac Funding Corporation. The commitment is for a 9-month period and
provides options to increase the commitment to $40.0 million. On October 8,
1999, the Company exercised its option to increase the mandatory delivery
commitment by an amount of $15.0 million. Upon expiration of the commitment
term, the Company shall pay a commitment fee equal to 0.125% of the unused
portion of the initial commitment and unused portion of any optional commitments
that were exercised. At December 31, 1999, $18.5 million loans had been sold
under this commitment.
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REPURCHASE OBLIGATION
The Company engages in loan sales pursuant to agreements that generally require
the Company to repurchase or substitute loans in the event of a breach of
representation or warranty made by the Company to the loan purchaser, any
misrepresentation during the mortgage loan origination process or, in some
cases, upon any fraud or first payment default on such mortgage loans. A reserve
for potential repurchases of $1.5 million and $1.4 million at December 31, 1999
and June 30, 1999, respectively, is included in accounts payable and accrued
liabilities.
BUSINESS ACQUISITION
On February 26, 1999, the Company acquired certain assets and the business of
America's Lender, Inc. a mortgage originator that utilizes an internet-based
wholesale mortgage lending operation that links independent mortgage brokers to
an automated underwriting and credit reporting system. The Company paid $2.0
million in cash and has agreed to pay up to an additional $1.0 million based
upon net loan originations achieved during the first 12-month period. The
earn-out is $0.001 for each dollar of net origination volume of the mortgage
business that equals or exceeds $500.0 million during the 12-month period. The
Company deposited $500,000 into an interest-bearing escrow account to
collateralize the future obligation. Should the earn-out not be earned, the
$500,000 deposit will revert back to the Company. The transaction was accounted
as a purchase and the excess of cost over fair value of the net assets acquired
as being amortized on a straight-line basis over a 15-year period. America's
Lender, Inc. is operated as the Company's wholly owned subsidiary named Mortgage
Logic.com, Inc. The operations of America's Lender, Inc. are included in the
Company's consolidated statement of operations from the date of acquisition.
5. STOCKHOLDER'S EQUITY
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders of the Company, to issue up to 5,000,000 shares of Preferred Stock
in one or more series, and to fix the designations, rights, preferences,
privileges, qualifications and restrictions thereof including dividend rights,
conversion rights, voting rights, rights and terms of redemption, liquidation
preferences and sinking fund terms, any or all of which may be greater than the
rights of the Common Stock. 570,000 shares have been designated Series A Junior
Participating Preferred Stock. The terms and conditions of the Series A Junior
Preferred Stock could have the effect of delaying, deferring or preventing a
hostile change in control of the Company.
WARRANTS
In connection with the initial public offering, the Company issued warrants to
purchase 317,319 shares of Common Stock at an exercise price per share equal to
$10.45. The warrants are exercisable over a period of four years, commencing one
year from March 10, 1998.
COMMON STOCK REPURCHASE PLAN
The Company's Board of Directors has authorized the Company to repurchase up to
$5.0 million of the Company's common stock in open market purchases from time to
time at the discretion of the Company's management. As of December 31, 1999, the
Company had repurchased 833,629 shares of Common Stock at a cost of $4.5
million.
6. SUBSEQUENT EVENT
On February 4, 2000, the Company entered into a definitive merger agreement
providing for the acquisition of the Company by an investor group led by senior
management of the Company. Under the terms of the merger agreement, which was
unanimously approved by the Company's Board of Directors after receiving the
unanimous recommendation of a Special Committee of independent members of the
Board, BNCM Acquisition Co., a company formed by the investor group, will
acquire the Company for an aggregate of approximately $47 million, which is
equal to $10.00 per share for the outstanding shares of the Company's common
stock not retained by the investor group. If this transaction is not
consummated, under certain circumstances, including acceptance by the Company of
a superior proposal, the Company could be required to pay as much as $2.0
million to BNCM Acquisition Company. The transaction is subject to the
satisfaction
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of certain conditions including stockholder approval and receipt of necessary
governmental and regulatory approvals. It is anticipated that the transaction
will be consummated on or before July 31, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
consolidated financial statements and notes included in Item 1 of this 10-Q.
Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially. Such risks and uncertainties include, but
are not limited to, changes in the performance of the financial markets, changes
in the demand for and market acceptance of the Company's products, changes in
the mortgage lending industry or changes in general economic conditions,
including interest rates; the impact of competition; changes in the value of
real estate; the ability to maintain and increase sources of funding; and other
risks disclosed from time to time in the Company's SEC reports and filings.
Forward-looking statements used in this report can be identified by the use of
words such as: "could," "may," "will," "expects," "believes," and the negatives
or derivatives thereof, and similar expressions. Investors are encouraged to
fully examine such risks prior to making an investment decision in the Company's
securities.
GENERAL
BNC Mortgage, Inc. ("BNC" or the "Company"), is a specialty finance company
engaged in the business of originating, purchasing and selling, on a whole loan
basis for cash, non-conforming and, to a lessor extent, conforming, residential
mortgage loans secured by one-to-four family residences. The term
"non-conforming loans" as used herein means (i) subprime loans, which are loans
made to borrowers who are unable or unwilling to obtain mortgage financing from
conventional mortgage sources, whether for reasons of credit impairment, income
qualification, credit history or a desire to receive funding on an expedited
basis and (ii) non-conforming loan products for primarily high credit borrowers
whose credit scores equal or exceed levels required for the sale or exchange of
their mortgage loans through the Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"), but where the loan itself
fails to meet conventional mortgage guidelines, such as the principal balance
exceeds the maximum loan limit of $240,000 or the loan structure documentation
does not conform to agency requirements. The Company's loans are made primarily
to refinance existing mortgages, consolidate other debt, finance home
improvements, education and other similar needs, and, to a lesser extent, to
purchase single family residences. The Company originates and purchases loans
through its: (i) wholesale subprime operations through which it has
relationships with approximately 5,927 approved independent loan brokers and
which to date has accounted for the majority of the Company's total loan
originations and (ii) wholesale prime operations through which it originates
conforming loans that meet FNMA, FHLMC and other conventional mortgage
guidelines and non-conforming loan products which are not subprime loans.
The Company's wholesale prime operations consist of its internal wholesale prime
business which it established in 1998 and Mortgage Logic.com, Inc., its wholly
owned subsidiary, which it formed in February 1999. Through its wholesale prime
operations, the Company originates, purchases and sells mortgage loans primarily
made to high credit quality borrowers. The Company considers "high credit
quality borrowers" to be those whose credit scores equal or exceed levels
required for the sale or exchange of their mortgage loans through FNMA or FHLMC.
The wholesale prime operations originates a variety of mortgage loans that do
not meet agency guidelines, such as the principal balance exceeds the maximum
loan limit of $240,000, or the loan structure or documentation does not conform
to the agency's requirements, or (iii) other niche loan products.
During the quarter ended December 31, 1999, the Company's wholesale prime
operations continued to reduce its staff and the Company relocated Mortgage
Logic.com, Inc.'s operations to the Company's corporate facilities. Furthermore,
the Company filed a lawsuit against America's Lender, Inc. and it's principals
for breaches of certain provisions of the agreement for the purchase of certain
assets and the assumption of certain liabilities of America's Lender, Inc.
Approximately 21.3% of total loan production for the three months ended December
31, 1999 consisted of conforming loans. Substantially all of the Company's
mortgage loan originations are sold in the secondary market through loan sales
in which the Company disposes of its entire economic interest in the loans
including the related servicing rights for cash. As a result of this strategy,
the Company receives cash revenue, rather than recognizing non-cash revenue
attributable to residual interests in future loan payments on the loan, as is
the case with securitizations.
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The following table shows the Company's mortgage loan originations, mortgage
loan sales, cash gain on sale of mortgage loans and origination locations with
account executives for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C>
Mortgage loan originations
Subprime ......................... $325,154 $220,654 $637,280 $473,697
Prime ............................ 88,016 33,856 208,817 64,190
-------- -------- -------- --------
$413,170 $254,510 $846,097 $537,887
======== ======== ======== ========
Mortgage loan sales
Subprime ......................... $329,107 $239,181 $648,441 $492,027
Prime ............................ 81,909 36,460 205,023 65,985
-------- -------- -------- --------
$411,016 $275,642 $853,464 $558,012
======== ======== ======== ========
Gain on sale of mortgage loans
Subprime ......................... $ 7,968 $ 10,508 $ 15,148 $ 21,658
Prime ............................ 373 250 697 582
-------- -------- -------- --------
$ 8,341 $ 10,758 $ 15,845 $ 22,240
======== ======== ======== ========
Origination locations at end of period ... 50 55 50 55
======== ======== ======== ========
</TABLE>
The major components of the Company's revenues are (i) the volume of loans
originated, (ii) the premium over principal amount received in loan sales, (iii)
origination points received or paid, (iv) origination fees received and (v) the
differential between the interest rate on borrowings under revolving warehouse
credit facilities and the interest rate of loans held for sale. Cash gain on
sale of mortgage loans is affected by, among other things, borrower credit risk
classification, loan- to-value ratio, interest rate and margin of the loans.
Total revenues decreased 1% to $14.6 million for the three months ended December
31, 1999 as compared to $14.7 million for the three months ended December 31,
1998.
The major components of expenses are employees' salaries and commissions,
general and administrative, and interest. Employees' salaries and commissions,
for the three months ended December 31, 1999 and 1998 accounted for 53.1% and
57.5% of total expenses, respectively. Employees' salaries and commissions are
primarily related to the loan origination volume because the Company's sales
force is compensated on a commission basis in addition to salaries. Total
expenses increased to $12.7 million for the three months ended December 31,
1999, compared to $11.0 million for the three months ended December 31, 1998.
The Company's net income decreased to $1.2 million for the three months ended
December 31, 1999, compared to $2.2 million for the three months ended December
31, 1998. The decrease in net income resulted primarily from a reduction in the
cash gain on sale of mortgage loans during the period due to secondary marketing
conditions.
Increased competition in the non-conforming mortgage industry could have the
effect of (i) lowering gains that may be realized on loan sales through lower
cash premiums paid for loans or an increase in demand for yield spread premium
paid to the mortgage brokers, (ii) reducing an individual company's volume of
loan originations and sales, (iii) increasing demand for experienced personnel
increasing the likelihood such personnel will be recruited by competitors and
(iv) lowering the industry standard for non-conforming underwriting guidelines
as competitors attempt to increase or maintain market share in the face of
increased competition. In the past, certain of these factors have caused the
revenues and net income of many participants in the non-conforming mortgage
industry, including the Company, to fluctuate from quarter to quarter.
The mortgage loan industry experienced significant turmoil during the twelve
months ended December 31, 1999 due to a lack of liquidity in the mortgage and
asset-backed securitization market. These developments in the mortgage and
asset-backed securitization markets have caused a tightening in the pricing of
whole loan sales as many mortgage securitizers have been forced to sell their
loans on a whole loan basis for cash. Average prices offered by third parties
for mortgage loans in the second quarter of 1999 have been less than that which
the Company received in the comparable quarter.
10
<PAGE> 11
In the event that declines in whole loan pricing continue, the Company expects
to see a decrease in its cash gain on sale of mortgage loans in future quarters.
If the Company is unable to increase its mortgage loan origination volume
commensurate with such pricing declines, the Company's net income would be
adversely affected. The Company made certain internal adjustments in response to
market conditions in the mortgage industry. The Company reduced yield spread
premiums paid to brokers and compensation paid to employees. The Company also
reduced its employees, raised interest rates and increased origination fees
charged to borrowers to boost profitability. While the Company would also expect
to receive some benefit from these and other adjustments with regard to
profitability of its mortgage loan originations, the effect of these adjustments
may have an adverse effect on future mortgage loan production.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1998
REVENUES. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
December 31
--------------------
1999 1998
------- -------
(Dollars in Thousands)
<S> <C> <C>
Gain on sale of mortgage loans .... $ 8,341 $10,758
Loan origination income ........... 2,603 2,036
Interest income ................... 3,266 1,496
Other income ...................... 386 395
------- -------
$14,596 $14,685
======= =======
</TABLE>
The decrease in revenues was due primarily to decrease in the cash gain on sales
of mortgage loans. Mortgage loan originations increased $158.7 million to $413.2
million for the three months ended December 31, 1999 from $254.5 million for the
three months ended December 31, 1998. There can be no assurance that the Company
will recognize comparable levels of revenues and mortgage loan originations in
future periods.
Cash gain on sale of mortgage loans decreased $2.5 million to $8.3 million for
the three months ended December 31, 1999 from $10.8 million for the three months
ended December 31, 1998. The decrease was due primarily to a decline in the
average cash premium paid for non-conforming mortgage loans. The weighted
average cash premium paid for subprime mortgage loans sold was 3.56% for the
three months ended December 31, 1999 and 5.34% for the three months ended
December 31, 1998. The Company makes yield spread premium payments to its
mortgage broker customers in the ordinary course of business. The weighted
average yield spread premiums paid as a percentage of subprime mortgage loans
sold for the three months ended December 31, 1999 was 1.14% and for the three
months ended December 31, 1998 was 0.95%. The weighted average cash premiums
paid for prime mortgage loans sold was 1.37% for the three months ended December
31, 1999 and 1.14% for the three months ended December 31, 1998. The weighted
average yield spread premium as a percentage of prime mortgage loans sold was
0.92% for the three months ended December 31, 1999, and 0.46% for the three
months ended December 31, 1998.
Loan origination income increased to $2.6 million for the three months ended
December 31, 1999 from $2.0 million for the three months ended December 31,
1998. As a percentage of total revenues, loan origination income for the three
months ended December 31, 1999 increased to 17.8% as compared to 13.9% for the
three months ended December 31, 1998. Loan originations may be adversely
affected in future periods as a result of an increase in yield spread premiums
payable to brokers and raised interest rates charged to borrowers.
Interest income increased $1.8 million to $3.3 million for the three months
ended December 31, 1999 from $1.5 million for the three months ended December
31, 1998. This increase is due to the increase in mortgage loan originations.
Other income, which is comprised of investment income, prepayment penalties and
late charges, decreased to $386,000 for the three
11
<PAGE> 12
months ended December 31, 1999 as compared to $395,000 for the three months
ended December 31, 1998 as a result of lower interest earned on investments.
EXPENSES. The following table sets forth the components of the Company's
expenses for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
December 31
--------------------
1999 1998
------- -------
(Dollars in Thousands)
<S> <C> <C>
Employees' salaries and commissions .... $ 6,722 $ 6,319
General and administrative expenses .... 3,518 3,764
Interest expense ....................... 2,415 913
------- -------
$12,655 $10,996
======= =======
</TABLE>
Total expenses increased to $12.7 million for the three months ended December
31, 1999 from $11.0 million for the three months ended December 31, 1998. This
increase is related to an increase in mortgage loan originations.
Employee salaries and commissions increased $400,000 to $6.7 million during the
three months ended December 31, 1999 from $6.3 million for the three months
ended December 31, 1998. The primary reason for the increase was due to an
increase in mortgage loan originations.
General and administrative expenses decreased to $3.5 million for the three
months ended December 31, 1999 compared to the $3.8 million in the corresponding
1998 period.
Interest expense increased $1.5 million to $2.4 million for the three months
ended December 31, 1999 from $900,000 for the three months ended December 31,
1998. This increase is due to the increase in mortgage loan originations.
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1998
REVENUES. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------
1999 1998
------- -------
(Dollars in Thousands)
<S> <C> <C>
Gain on sale of mortgage loans .... $15,845 $22,240
Loan origination income ........... 5,263 3,688
Interest income ................... 6,779 3,399
Other income ...................... 730 769
------- -------
$28,617 $30,096
======= =======
</TABLE>
The decrease in revenues was due primarily to a decrease in the cash gain on
sales of mortgage loans. Mortgage loan originations increased $308.2 million to
$846.1 million for the six months ended December 31, 1999 from $537.9 million
for the six months ended December 31, 1998. There can be no assurance that the
Company will recognize comparable levels of revenues and mortgage loan
originations in future periods.
Cash gain on sale of mortgage loans decreased $6.4 million to $15.8 million for
the six months ended December 31, 1999 from $22.2 million for the six months
ended December 31, 1998. The decrease was due primarily to a decrease in the
price paid for mortgage loans
12
<PAGE> 13
sold. The weighted average cash premium paid for mortgage loans sold was 3.54%
for the six months ended December 31, 1999 and 5.48% for the six months ended
December 31, 1998. There can be no assurance that the Company will recognize
comparable levels of cash gain on sale of mortgage loans in future periods. The
Company makes yield spread premium payments to its mortgage broker customers in
the ordinary course of business. Due to competitive conditions, these payments
have increased in recent periods, which adversely affected the Company's cash
gain on sale of mortgage loans for the six months ended December 31, 1999.
Loan origination income increased to $5.3 million for the six months ended
December 31, 1999 from $3.7 million for the six months ended December 31, 1998.
As a percentage of total revenues, loan origination income for the six months
ended December 31, 1999 increased to 18.4% as compared to 12.3% for the six
months ended December 31, 1998. This increase was a result of increase in loan
origination charges in its loan products.
Interest income increased $3.4 million to $6.8 million for the six months ended
December 31, 1999 from $3.4 million for the six months ended December 31, 1998.
This increase is primarily attributable to the increase in loan originations.
Other income, which is comprised of investment income, prepayment penalties and
late charges, decreased to $730,000 for the six months ended December 31, 1999
as compared to $769,000 for the six months ended December 31, 1998 largely as a
result of using more cash for funding loans and to acquire America's Lender,
Inc.
EXPENSES. The following table sets forth the components of the Company's
expenses for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
--------------------
1999 1998
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Employees' salaries and commissions .... $12,902 $13,142
General and administrative expenses .... 6,757 6,978
Interest expense ....................... 5,044 2,208
------- -------
$24,703 $22,328
======= =======
</TABLE>
Total expenses increased to $24.7 million for the six months ended December 31,
1999 from $22.3 million for the six months ended December 31, 1998. This
increase is related to interest paid on warehouse lines of credit and to an
increase in mortgage loan originations. Total expenses are expected to be
positively affected by decreased employee compensation, a reduction in staffing
and a decrease in loan originations.
Employee salaries and commissions decreased $200,000 to $12.9 million during the
six months ended December 31, 1999 from $13.1 million for the six months ended
December 31, 1998. The primary reason for the decrease was due to a decrease in
staffing and strategic branch closures.
General and administrative expenses decreased $200,000 to $6.8 million for the
six months ended December 31, 1999 from $7.0 million for the six months ended
December 31, 1998. This decrease is due primarily to cost reduction measures
implemented by the Company.
Interest expense increased $2.8 million to $5.0 million for the six months ended
December 31, 1999 from $2.2 million for the six months ended December 31, 1998.
This increase is due to the increase in mortgage loans originations.
DISCLOSURE ABOUT MARKET RISK
13
<PAGE> 14
The Company's earnings can be affected significantly by the movement of interest
rates, which is the primary component of market risk to the Company. The
interest rate risk affects the value of the mortgage loans held for sale, net
interest income earned on its mortgage inventory, interest income earned on idle
cash, interest expense and cash gain on sale of mortgage loans, as well as
consumer demand for mortgage loan production.
As it relates to lending activities, the Company originates mortgage loans,
which are generally presold through forward loan sales commitments. However,
between the time that the loan is originated and sold to the ultimate investor,
the Company earns interest income. The loans are funded through the use of the
DLJ warehouse line of credit, and more recently, the Bank United warehouse line
of credit and the interest charged by DLJ and Bank United is generally based
upon short-term interest rates. Therefore, the net interest income that is
earned by the Company is generally dependent upon the spread between long-term
mortgage rates and short-term mortgage rates.
The Company currently does not maintain a trading portfolio. As a result, the
Company is not exposed to market risk as it relates to trading activities. The
majority of the Company's loan portfolio is held for sale which requires the
Company to perform quarterly market valuations of its portfolio in order to
properly record the portfolio at the lower of cost or market. Therefore, the
Company continually monitors the interest rates of its loan portfolio as
compared to prevalent interest rates in the market.
The Company currently does not enter into any hedging activities as it currently
sells its loan production on a monthly basis.
Based on the information available and the interest environment as of December
31, 1999, the Company believes that a 100 basis point increase in long-term
interest rates over a twelve month period, with all else being constant, would
have an adverse effect on the pricing for the Company's whole loan sales.
Therefore, the Company believes that its net income could be adversely affected
in the range of $1.3 to $2.5 million. However, the Company believes that a 100
basis point decrease in long-term interest rates over a twelve-month period may
not result in a similar increase of its net income. These estimates are limited
by the fact that they are performed at a particular point in time and
incorporate many other factors and thus should not be used as a forecast.
Therefore, there can be no assurance that the amount of such decrease would not
substantially vary from these estimates.
YEAR 2000
The Company did not experience any adverse effects related to the Year 2000
issue neither in its internal operation systems nor with its principal service
providers. The Company will continue to monitor for any affects of the Year 2000
issue during the current quarter. Even though management does not expect any
adverse implications, there can be no assurance that the Company will not be
affected by the Year 2000 issue. The costs associated in achieving Year 2000
compliance did not have a material impact on the Company's business operations
or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash flow include cash gain on sale of mortgage loans,
origination income, net interest income and borrowings. The Company sells its
mortgage loans generally on a monthly basis to generate cash for operations. The
Company's uses of cash in the short-term include the funding of mortgage loan
originations, payment of interest, repayment of amounts borrowed under warehouse
lines of credit, operating and administrative expenses, start-up costs for new
origination locations, income taxes and capital expenditures. Long- term uses of
cash may also include the funding of securitization activities and selective
acquisitions of other specialty finance companies or portfolios of loan assets.
Capital expenditures totaled $374,000 and $614,000 for the six months ended
December 31, 1999 and 1998, respectively. Capital expenditures were primarily
comprising furniture, fixtures and equipment software and leasehold
improvements.
14
<PAGE> 15
Cash and cash equivalents were $29.9 million at December 31, 1999. The Company
invests its cash in short-term investments maintaining flexibility for funding
of loan originations and strategic opportunities. In March 1998 the Company
concluded its initial public offering and received net proceeds of $16.2 million
from the Offering.
As of April 6, 1999, the Company's Board of Directors had authorized the Company
to purchase up to $5.0 million of the Company's common stock in open market
purchases from time to time at the discretion of the Company's management. As of
December 31, 1999, the Company had repurchased 833,629 shares of Common Stock at
a cost of $4.5 million.
The Company funds its operations through cash reserves, loan sales, net
earnings, revolving warehouse credit facilities and an uncommitted master loan
repurchase credit agreement, under which it borrows money to finance the
origination of mortgage loans. As of December 31, 1999, the Company had three
warehouse credit facilities, and one master repurchase credit agreement which
provides borrowings in the aggregate up to $300.0 million.
The Company has entered into a warehouse line of credit agreement with DLJ,
which provides for borrowings up to $150.0 million with interest payable monthly
at the Federal Funds rate plus 100 basis points. As of December 31, 1999,
borrowings under this line of $87.6 million were collateralized by mortgage
loans held for sale. The interest rate is subject to increase based on the
length of time loans are held by the Company, and that DLJ receives a security
interest on all loans, and other rights in connection herewith, originated by
the Company. This line of credit matures and is subject to renewal on March 16,
2000. However DLJ has indicated to the Company that they currently do not intend
to renew the line upon its expiration.
In February 1999, the Company entered into a warehouse line of credit with Bank
United, which provides for borrowings up to $50.0 million with a floating
interest rate based on the LIBOR rate and a commitment fee of $125,000. As of
December 31, 1999, borrowings under this line were $16.6 million and the
interest rate was 6.41%. The warehouse line of credit with Bank United contains
certain financial covenants including the requirement that the Company maintain
a minimum adjusted tangible net worth of not less than $25.0 million and a debt
to adjusted tangible net worth ratio not to exceed 15:1, each computed as of the
end of each calendar quarter. The Company was in compliance with these covenants
as of December 31, 1999. The warehouse line is secured by all mortgage loans
used under the line and all related rights thereto. This line of credit matured
on February 1, 2000. However, The Company is still using this warehouse line of
credit and the company is negotiating to increase the warehouse line to $75.0
million and extend the to October 31, 2000 expiration date.
In March 1999, the Company entered into a warehouse line of credit with RFC,
which provides for borrowings up to $50.0 million with a floating interest rate
based on the LIBOR rate and a commitment fee of $65,000. As of December 31,
1999, borrowings under this line were $16.6 million and the interest rate was
7.74%. The warehouse line of credit with RFC contains certain financial
covenants including the requirement that the Company maintain a minimum adjusted
tangible net worth of not less than $25.0 million, liquidity of not less than
$10.0 million, quarterly net income of not less than zero and a debt to adjusted
tangible worth ratio not to exceed 15:1. The Company was in compliance with
these covenants as of December 31, 1999. The warehouse line is secured by all
mortgage loans used under the line and all related rights thereto. This line of
credit matures and is subject to renewal on March 1, 2000. The company is
currently negotiating to increase the warehouse line to $100.0 million and
extend the maturity date to July 31, 2000.
The Company also entered into an uncommitted master repurchase credit agreement
with PWRS, which provides for borrowing up to $50.0 million with a floating
interest rate based on the LIBOR rate. As of December 31, 1999, there were no
borrowings under this line were $0 and the interest rate was 7.28%.
The Company is currently negotiating with other lenders to obtain additional
warehouse lines of credit with interest rates and terms that are consistent with
management's objectives, however, there is no assurance that the Company will
consummate these lines of credit. The Company repays borrowings with proceeds of
its loan sales.
During the six months ended December 31, 1999 and 1998, the Company used cash of
$846.1 million and $537.9 million, respectively, for new loan originations.
During the same periods, the Company received cash proceeds from the sale of
loans of $865.3 million and $559.1 million, respectively, representing the
principal balance of loans sold. The Company received cash proceeds from the
premiums on such sale of loans of $15.8 million and $22.2 million, for the six
months ended December 31, 1999 and 1998, respectively.
The Company's ability to continue to originate loans is dependent in large part
upon its ability to sell the mortgage loans at par or for a premium in the
secondary market in order to generate cash proceeds to repay borrowings under
the warehouse facility, thereby creating borrowing capacity to fund new
originations. The value of an market for the Company's loans are dependent upon
a number of factors,
15
<PAGE> 16
including the borrower credit risk classification, loan-to-value ratios and
interest rates, general economic conditions, warehouse facility interest rates
and governmental regulations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURE ABOUT MARKET RISK
The Company's earnings can be affected significantly by the movement of interest
rates, which is the primary component of market risk to the Company. The
interest rate risk affects the value of the mortgage loans held for sale, net
interest income earned on its mortgage inventory, interest income earned on idle
cash, interest expense and cash gain on sale of mortgage loans, as well as
consumer demand for mortgage loan production.
As it relates to lending activities, the Company originates mortgage loans,
which are generally presold through forward loan sales commitments. However,
between the time that the loan is originated and sold to the ultimate investor,
the Company earns interest income. The loans are funded through the use of the
warehouse lines of credit, and the interest charged by the lenders is generally
based upon short-term interest rates. Therefore, the net interest income that is
earned by the Company is generally dependent upon the spread between long-term
mortgage rates and short-term mortgage rates.
The Company currently does not maintain a trading portfolio. As a result, the
Company is not exposed to market risk as it relates to trading activities. The
majority of the Company's loan portfolio is held for sale which requires the
Company to perform quarterly market valuations of its portfolio in order to
properly record the portfolio at the lower of cost or market. Therefore, the
Company continually monitors the interest rates of its loan portfolio as
compared to prevalent interest rates in the market.
The Company currently does not enter into any hedging activities as it currently
sells its loan production on a monthly basis.
Based on the information available and the interest environment as of December
31, 1999, the Company believes that a 100 basis point increase in long-term
interest rates over a twelve month period, with all else being constant, would
have an adverse effect on the pricing for the Company's whole loan sales.
Therefore, the Company believes that its net income could be adversely affected
in the range of $1.3 to $2.5 million. However, the Company believes that a 100
basis point decrease in long-term interest rates over a twelve-month period may
not result in a similar increase of its net income. These estimates are limited
by the fact that they are performed at a particular point in time and
incorporate many other factors and thus should not be used as a forecast.
Therefore, there can be no assurance that the amount of such decrease would not
substantially vary from these estimates.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. The Company is a party to various routine legal proceedings
arising out of the ordinary course of its business. Management
believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the
consolidated financial condition or results of operations of the
Company.
ITEM 2. Changes in Securities - See Management Discussion and Analysis
of Financial Condition and Results of Operation Liquidity and
Capital Resources for a discussion of the use of proceeds from
the Company's initial public offering.
ITEM 3. Defaults upon Senior Securities - Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On December 14, 1999, the Company held it's annual meeting of
stockholders. Of the total number of shares eligible to vote
5,042,350, 4,816,803 votes were returned, or 96% formulating a
quorum. At the stockholders meeting, the following matters were
submitted to stockholders for vote: Proposal I -- Election of
Class II Directors, Proposal II -- Amendment to the Company's
Certificate of Incorporation to enable the Board of Directors to
amend as adopted the Bylaws, Proposal III -- Ratify appointment
of Company's independent auditors, Ernst & Young, LLP.
The results of voting on these proposals are as follows:
Proposal I -- Election Class II Directors
Kelly W. Monahan and Keith C. Honig were re-elected as
directors.
A different class of Director is elected annually at the
Company's annual stockholders meeting.
Proposal II -- Amendment to the Company's Certificate of
Incorporation.
Proposal II was approved with 2,707,934 shares voted for,
403,984 voted against and 1,704,885 abstained from voting.
Proposal III -- Appointment of Independent Auditors
Proposal III was approved with 4,797,003 shares voted for,
14,100 voted against, and 5,700 abstained from voting thereby
ratifying the appointment of Ernst & Young, LLP as the Company's
independent auditors.
ITEM 5. Other Information - Not Applicable
ITEM 6. Exhibits and Reports on form 8-K
(a) Exhibits
3.1 Certificate of Amendment of the Certificate of
Incorporation filed on December 16, 1999.
11.1 Statement regarding computation of per share earnings
27.1 Financial Statement Data Schedule (EDGAR filing only)
(b) Reports on form 8-K
On February 7, 2000 a Form 8-K was filed with the
Securities and Exchange Commission reporting items 5 and 7.
17
<PAGE> 18
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized, in the City of Irvine, State of California.
<TABLE>
<S> <C>
BNC MORTGAGE, INC.
(Registrant)
By: /s/EVAN R. BUCKLEY February 14, 2000
-----------------
Evan R. Buckley Date
Chief Executive Officer and
Secretary
By: /s/KELLY W. MONAHAN February 14, 2000
-----------------
Kelly W. Monahan Date
President
By: /s/PETER R. EVANS February 14, 2000
-----------------
Peter R. Evans Date
Vice President and
Chief Financial Officer
</TABLE>
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
3.1 Certificate of Amendment of the Certificate of Incorporation filed on
December 16, 1999.
11.1 Statement regarding computation of per share earnings
27.1 Financial Statement Data Schedule (EDGAR filing only)
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
BNC MORTGAGE, INC.
A DELAWARE CORPORATION
BNC Mortgage, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), pursuant to the provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY as
follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby amended by
adding ARTICLE IX as follows:
"In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, amend,
alter or repeal the Bylaws of the Corporation."
SECOND: The amendment to the Certificate of Incorporation of the Corporation set
forth in this Certificate of Amendment has been duly adopted in accordance with
the provisions of Section 242 of the DGCL by (a) the Board of Directors of the
Corporation having duly adopted a resolution setting forth such amendment and
declaring its advisability and submitting it to the stockholders of the
Corporation for their approval, and (b) the stockholders of the Corporation
having duly adopted such amendment by vote of the holders of a majority of the
outstanding stock entitled to vote thereon at the annual meeting of stockholders
for 1999 called and held upon notice in accordance with Section 222 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto
affixed and this Certificate of Amendment to be signed by Kelly W. Monahan, its
President, and attested by its Secretary, on December 14, 1999.
/s/ KELLY W. MONAHAN
-------------------------
Kelly W. Monahan
President
ATTEST: /S/ EVAN R. BUCKLEY
-------------------------
Evan R. Buckley
Secretary
<PAGE> 1
Exhibit 11.1 - Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
December 31, December 31,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic earnings per common share
Net income for calculating basic earnings
per common share .............................. $1,160,000 $2,214,000 $2,340,000 $4,665,000
========== ========== ========== ==========
Average common shares outstanding ............. 5,101,000 5,534,000 5,115,000 5,709,000
---------- ---------- ---------- ----------
Basic earnings per common share ............... $ 0.23 $ 0.40 $ 0.46 $ 0.82
========== ========== ========== ==========
Diluted earnings per common share
Net income for calculating basic earnings
per common share .............................. $1,160,000 $2,214,000 $2,340,000 $4,665,000
========== ========== ========== ==========
Average common shares outstanding ............. 5,101,000 5,534,000 5,115,000 5,709,000
Add exercise of options and warrants .......... -- -- -- --
---------- ---------- ---------- ----------
Diluted common shares outstanding ............. 5,101,000 5,534,000 5,115,000 5,709,000
========== ========== ========== ==========
Diluted earnings per common share ..................... $ 0.23 $ 0.40 $ 0.46 $ 0.82
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 29,941,000
<SECURITIES> 1,113,000
<RECEIVABLES> 6,287,000
<ALLOWANCES> 0
<INVENTORY> 122,289,000
<CURRENT-ASSETS> 159,630,000
<PP&E> 5,485,000
<DEPRECIATION> 2,318,000
<TOTAL-ASSETS> 162,797,000
<CURRENT-LIABILITIES> 127,843,000
<BONDS> 0
0
0
<COMMON> 5,000
<OTHER-SE> 34,949,000
<TOTAL-LIABILITY-AND-EQUITY> 162,797,000
<SALES> 28,617,000
<TOTAL-REVENUES> 28,617,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,659,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,044,000
<INCOME-PRETAX> 3,914,000
<INCOME-TAX> 1,574,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,340,000
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.46
</TABLE>
