<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report: October 10, 1997
Date of earliest event reported: October 9, 1997
SOUTHERN PACIFIC FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
001 - 11785
California 33-0636924
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
One Centerpointe Drive, Suite 500
Lake Oswego, OR 97035
(Address of principal executive offices) (Zip Code)
(503) 684-4700
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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Item 5. Other Events
RECENT DEVELOPMENTS
The Company issued a press release announcing third quarter earnings on
October 9, 1997. See Exhibit 99.1
2
<PAGE>
Item 7. Financial Statements and Exhibits.
See Exhibit 99.1, the Company's earnings release dated October 9, 1997.
SIGNATURE
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.
SOUTHERN PACIFIC FUNDING CORPORATION
Date: October 10, 1997 By: /s/ Peter F. Makowiecki
---------------------------------
Name: Peter F. Makowiecki
Title: Chief Financial Officer and
Secretary
3
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[LETTERHEAD OF SOUTHERN PACIFIC]
FOR MORE INFORMATION CONTACT:
Peter Makowiecki, CPA David Kiser, CPA
Chief Financial Officer Director of Corporate Communication
Southern Pacific Funding Corporation Southern Pacific Funding Corporation
(503) 684-3338 (503) 684-4717
SOUTHERN PACIFIC FUNDING CORPORATION ANNOUNCES
RECORD THIRD QUARTER RESULTS
SIXTH CONSECUTIVE QUARTER OF GREATER THAN 100 PERCENT YEAR-OVER-YEAR GROWTH
LAKE OSWEGO, OR-October 9, 1997-Southern Pacific Funding Corporation (NYSE:SFC)
today announced record net earnings for the third quarter of 1997 on strong loan
originations and total revenue.
Net earnings for the quarter ended September 30, 1997 increased 68% to $13.8
million, compared with $8.2 million for the quarter ended September 30, 1996. On
a fully diluted per share basis, earnings per share for the third quarter of
1997 were $0.57. calculated on 25.5 million shares, compared to $0.37 for the
third quarter of 1996, calculated on 22.1 million shares. Revenues for the
quarter ended September 30, 1997 were $50.1 million, a 139% increase over
revenues of $21.0 million in the third quarter of 1996.
"Strong loan origination growth contributed to another successful quarter for
Southern Pacific Funding," commented Robert W. Howard, CEO and Vice-Chairman.
"Southern Pacific remains sharply focused on low-cost loan originations and
efficient operations while delivering superior value to our brokers and
customers. This is our sixth consecutive quarter of publicly reporting greater
than 100 percent growth in loan originations and total revenues."
Net earnings for the nine months ended September 30, 1997 increased 127% to
$39.9 million, compared with $17.6 million for the nine months ended September
30, 1996. On a fully diluted per share basis, earnings per share for the nine
months ended September 30, 1997 were $1.65 calculated on 25.4 million shares,
compared to $0.93 for the nine months ended September 30, 1996, calculated on
19.0 million shares. Revenues for the nine months ended September 30, 1997 were
$129.8 million, 177% increase over revenues of $46.8 million for the comparable
period of 1996.
Page 1 of 7
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Loan Production
- ---------------
Total loan origination and purchase volume increased to $578.6 million for the
third quarter of 1997, an increase of 151% from $230.3 million for the
corresponding period of 1996. Non-conforming home equity loans originated
through mortgage broker channels (wholesale originations) increased to $354.1
million, compared to $152.8 million for the third quarter of 1996.
Loan originations through Southern Pacific Funding's Consumer Loan Division
continued to increase in the quarter. First and second lien mortgages
originated through direct retail and wholesale channels were $45.4 million for
the third quarter of 1997, compared to retail originations of $0.3 million for
the third quarter of 1996.
Non-conforming home equity loans purchased from third party originators
(correspondent acquisitions) decreased 35% to $50.1 million compared to $77.2
million for the third quarter of 1996. Non-conforming home equity loans acquired
through strategic alliances increased 105% to $96.0 million compared to $46.9
million for the second quarter of 1997. (The strategic alliance program began in
the fourth quarter of 1996.) During the quarter Southern Pacific announced the
signing of a $600 million strategic alliance with Liberty Lending Corporation of
Vienna, Virginia to provide non-conforming loan originations and purchases.
Quality of Earnings
- -------------------
During the quarter the Company completed a $450 million non-conforming home
equity loan securitization. The third quarter securitization trust included
loans originated by the Company and its subsidiaries, National Capital Funding
and Oceanmark Financial Services, and through its strategic alliances with BOMAC
Capital Mortgage, American Funding Group Inc. and Liberty Lending Corporation.
In addition, the Company sold an interest-only certificate which raised in
excess of $5.2 million at closing of the securitization.
Gain on sale revenue recorded during the third quarter of 1997 was $39.6
million, compared to $15.2 million for the comparable period of 1996. In
calculating the gain on sale of loans sold into the third quarter's REMIC, the
Company implemented more conservative prepayment and loss assumptions. Third
quarter 1997 fully diluted earnings per share was reduced approximately $0.04 by
these changes in accounting estimates. The Company also completed whole loan
sales of $129.1 million during the quarter ended September 30, 1997, including
$65.4 million of non-conforming loans originated in the United Kingdom and $53.8
million of commercial loans originated through National Capital Funding.
Page 2 of 7
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Credit Quality
- --------------
Southern Pacific Funding's total loans serviced at September 30, 1997 were $1.9
billion, a record high, compared to $651.3 million as of September 30, 1996. As
anticipated by management, the delinquency rate on Southern Pacific's servicing
portfolio at September 30, 1997 decreased to 4.5% of the servicing portfolio,
compared to the second quarter delinquency rate of 4.8%. Loans in default
increased moderately to 4.7% of the servicing portfolio, compared to 3.9% in
default as of June 30, 1997.
During the third quarter 1997 Southern Pacific experienced net losses of $1.4
million or 0.32% of the average servicing portfolio on an annualized basis for
the third quarter of 1997. Included in the Company's valuation of interest-only
and residual interest are assumptions relative to credit losses. The
undiscounted impact of these assumptions as of September 30, 1997 was $32.0
million or 1.9% of securitized loans sold into REMICs, compared to 1.8% as of
June 30, 1997. Of the $1.9% billion servicing portfolio as of September 30,
1997, $1.7 billion has been sold into REMICs and subject to credit enhancement
requirements of the securitization. Cash invested in over-collateralization of
REMIC pools as of September 30, 1997 was $40.5 million.
Southern Pacific Funding Corporation is a Lake Oswego, Oregon based
international specialty finance company engaged in the business of originating,
purchasing and selling home equity loans made to borrowers whose borrowing needs
may not be met by traditional financial institutions.
The statements in this press release that are not historical in fact are
forward-looking statements. Actual results may differ from those projected in
the forward-looking statements. There are a number of important factors that
could cause the actual results of Southern Pacific Funding Corporation to differ
materially from those indicated in such forward-looking statements. Those
factors include, but are not limited to, residential real estate values,
competition, general economic conditions such as changes in interest rates and
the demand for non-conforming loans, availability of funding, loan prepayment
rates, delinquency and default rates and changes which influence the loan
securitization market generally. The Company assumes no obligation to update the
information included in this press release.
More information can be found on Southern Pacific Funding Corporation on the
Internet @
http://www.businesswire.com/cnn/sfc.htm
Financial Tables Follow
Page 3 of 7
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SOUTHERN PACIFIC FUNDING CORPORATION
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
For the Quarter Ended
-----------------------------------------------
September 30, June 30, September 30,
1997 1997 1996
------------- ----------- -------------
<S> <C> <C> <C>
Revenues:
Gains on sales of loans $39,647,780 $33,864,920 $15,245,040
Interest income $11,282,263 $ 9,987,773 $ 3,358,564
Provision for pool buyout $ (443,952) $(2,550,000) $ 0
Miscellaneous income $ (384,908) $ 1,393,235 $ 2,393,869
----------- ----------- -----------
Total revenue $50,101,183 $42,695,928 $20,997,473
Expenses:
Interest on borrowings $ 8,593,881 $ 5,775,349 $ 1,390,511
G&A and personnel expenses $17,840,842 $13,973,821 $ 5,313,009
----------- ----------- -----------
Total expenses $26,434,723 $19,749,170 $ 6,703,520
----------- ----------- -----------
Earnings before taxes $23,666,460 $22,946,758 $14,293,953
Income taxes $ 9,821,581 $ 9,521,465 $ 6,074,964
----------- ----------- -----------
Net earnings $13,844,879 $13,425,293 $ 8,218,989
=========== =========== ===========
Fully diluted earnings per share $ 0.57 $ 0.56 $ 0.37
Weighted average number of shares
outstanding--Dilutive 25,481,808 25,431,262 22,132,956
Primary earnings per share $ 0.62 $ 0.61 $ 0.37
Weighted average number of shares
outstanding--Primary 22,330,683 22,019,827 22,132,956
</TABLE>
Page 4 of 7
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SOUTHERN PACIFIC FUNDING CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
For the Quarter Ended
-------------------------------------------------
September 30, June 30, September 30,
1997 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash $ 27,732,088 $ 16,253,655 $ 12,846,933
Loans held for sale $213,915,174 $230,530,423 $157,953,455
Interest-only and residual certificates $216,179,202 $172,663,986 $ 58,853,739
Other assets $ 38,507,757 $ 22,731,526 $ 5,475,396
------------ ------------ ------------
Total assets $496,334,221 $442,179,590 $235,129,523
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Borrowings under warehouse lines of credit $192,595,674 $191,974,065 $141,078,418
Convertible subordinated debentures $ 75,000,000 $ 75,000,000 $ 0
Notes payable $ 32,760,310 $ 0 $ 0
Deferred tax liability $ 41,098,277 $ 35,709,371 $ 15,613,807
Other liabilities $ 29,589,981 $ 28,198,601 $ 3,405,942
------------ ------------ ------------
Total liabilities $371,044,242 $330,882,037 $160,098,167
Stockholders' equity $125,289,979 $111,297,553 $ 75,031,356
------------ ------------ ------------
Total liabilities and stockholders' equity $496,334,221 $442,179,590 $235,129,523
============ ============ ============
</TABLE>
Page 5 of 7
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SOUTHERN PACIFIC FUNDING CORPORATION
SUPPLEMENTARY STATISTICS
<TABLE>
<CAPTION>
-------------------------------------
For the Quarter Ended
-------------------------------------
September 30,
1997
-------------------------------------
Weighted Weighted Average
Average Interest Average LTV Loan
Rate Balance
-------------------------------------
Fixed - ARM
-------------------------------------
<S> <C> <C> <C>
Wholesale (mortgage broker
originations) 11.8% 10.6% 72.9% $86,146
Correspondent (correspondent lender
purchases) 11.7% 9.8% 75.4% $97,243
Strategic alliances 11.1% 10.2% 79.3% $139,803
Consumer 14.1% 8.8% 59.4% $35,802
<CAPTION>
For the Quarter Ended
--------------------------------------
Loans Originated and Purchased September 30, June 30, September 30,
1997 1997 1996
--------------------------------------
<S> <C> <C> <C>
Non-conforming:
---------------
Wholesale (mortgage broker
originations) $354,147,249 $297,845,233 $152,771,807
Correspondent (correspondent lender
purchases) $ 50,080,303 $ 74,586,123 $ 77,236,693
Strategic alliances $ 96,044,389 $ 46,872,305 $ 0
Consumer $ 45,433,065 $ 20,324,839 $ 313,900
------------ ------------ ------------
Total non-conforming $545,705,006 $439,628,500 $230,322,400
------------ ------------ ------------
Commercial: $ 32,925,000 $ 20,955,000 $ 0
----------- ------------ ------------ ------------
Total originations and purchases $578,630,006 $460,583,500 $230,322,400
============ ============ ============
<CAPTION>
For the Quarter Ended
--------------------------------------
September 30, June 30, September 30,
Credit Rating 1997 1997 1996
- ----------------------------- --------------------------------------
<S> <C> <C> <C>
A 26% 20% 14%
A- 32% 37% 53%
B 19% 21% 20%
C 6% 6% 9%
D 8% 9% 4%
Not rated (London) 9% 7% 0%
</TABLE>
Page 6 of 7
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SOUTHERN PACIFIC FUNDING CORPORATION
SUPPLEMENTARY STATISTICS
LOAN DELINQUENCIES AND
DEFAULTS
<TABLE>
<CAPTION>
As of September 30, 1997 As of June 30, 1997
------------------------ ----------------------
Amount Percent Amount Percent
------------------------ ----------------------
<S> <C> <C> <C> <C>
Loans serviced $1,905,645,515 100% $1,600,646,215 100.0%
Delinquencies:
- --------------
30-59 days delinquent $ 51,982,735 2.7% $ 46,465,125 2.9%
60-89 days delinquent $ 21,359,700 1.1% $ 19,442,241 1.2%
90 days or more delinquent $ 11,921,042 0.7% $ 11,799,975 0.8%
---------------------- ---------------------
Total delinquencies $ 85,263,477 4.5% $ 77,707,041 4.8%
====================== =====================
Defaults:
- ---------
Foreclosure $ 73,033,717 3.8% $ 49,985,479 3.1%
Bankruptcies $ 17,156,313 0.9% $ 11,916,349 0.7%
---------------------- ---------------------
Total defaults $ 90,190,030 4.7% $ 61,901,828 3.9%
====================== =====================
Real estate owned $ 10,742,231 0.6% $ 8,092,483 0.5%
</TABLE>
###
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