<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
1-11785
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SOUTHERN PACIFIC FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
California 33-0636924
---------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether 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. (X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS;
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 10, 1997: 20,737,500 shares.
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Table of Contents Page
- ----------------- ----
<S> <C>
Part I Financial Information
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
at March 31, 1997 and December 31, 1996 2
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5 - 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 14
Part II Other Information
Item 6 - Exhibit - Statement Regarding Computation
of Net Income Per Share 15
Signatures 16
</TABLE>
1
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 38,169,983 $ 14,175,566
Loans held for sale 193,026,090 223,059,102
Interest-only and residual certificates 140,844,442 95,810,137
Accrued interest receivable 1,441,056 3,181,449
Premises and equipment, net 3,963,913 3,036,388
Goodwill 4,677,473 4,742,571
Other assets 7,533,967 5,165,048
------------ ------------
Total assets $389,656,924 $349,170,261
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Discounted recourse liability 12,895,887 8,793,237
Borrowings under warehouse lines of credit 166,439,083 152,680,395
Deferred tax liability 28,310,440 18,445,495
Convertible subordinated debentures 75,000,000 75,000,000
Due to affiliates 80,166 80,166
Other liabilities 9,132,598 9,022,000
------------ ------------
Total liabilities 291,858,174 264,021,293
Minority Interest
83,156 62,735
Shareholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized; none issued or
outstanding at March 31, 1997 and
December 31, 1996 -- --
Common stock, no par value,
75,000,000 shares authorized; 20,737,500
issued and outstanding at March 31, 1997
and December 31, 1996 53,798,099 53,798,099
Contributed capital 247,500 247,500
Retained earnings 43,669,995 31,040,634
------------ ------------
Total shareholders' equity 97,715,594 85,086,233
------------ ------------
------------ ------------
Total liabilities and shareholders' equity $389,656,924 $349,170,261
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Revenue:
Gains on sales of loans $28,073,459 $ 8,564,220
Interest income 6,439,257 2,668,612
Securities valuation and other income 2,454,733
743,734
----------- -----------
Total revenue 36,967,449 11,976,566
----------- -----------
Expenses:
Interest on borrowings 3,620,045 1,604,456
Personnel and commission expense 7,105,972 1,883,183
General and administrative expense 4,618,408 857,849
----------- -----------
Total expenses 15,344,425 4,345,488
----------- -----------
Income before taxes 21,623,024 7,631,078
Income taxes 8,974,995 3,243,208
=========== ===========
Net income $12,648,029 $ 4,387,870
=========== ===========
NET INCOME PER SHARE:
Primary $ 0.57 $ 0.26
=========== ===========
Fully Diluted $ 0.53 $ 0.26
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,648,029 $ 4,387,870
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization 429,978 100,166
Securities valuation income 1,792,641
Discounted recourse liability 4,102,650 1,260,397
Changes in certain assets and liabilities, net of
effect of acquisitions and contribution transaction:
Loans held for sale 30,033,012 22,254,706
Loans held under repurchase
agreement -- (385,108)
Accrued interest receivable 1,740,393 338,461
Deferred tax liability 9,864,945 --
Other assets (2,468,359) (149,267)
Other liabilities 110,598 3,601,385
------------ ------------
Net cash provided by operating activities 58,253,887 31,408,610
------------ ------------
Cash flows from investing activities:
Net change in interest only and residual
certificates (46,826,946) (12,401,467)
Purchases of premises and equipment (1,191,212) (1,098,201)
------------ ------------
Net cash used in investing activities (48,018,158) (13,499,668)
------------ ------------
Cash flows from financing activities:
Net changes in:
Borrowings under warehouse lines of
credit 13,758,688 (26,027,099)
Borrowings from SPTL -- 322,053
Due to affiliates -- 8,349,859
Bank overdraft -- (553,755)
------------ ------------
Net cash provided by (used in) financing activities 13,758,688 (17,908,942)
------------ ------------
Net change in cash 23,994,417 --
Cash at beginning of period 14,175,566 --
============ ============
Cash at end of period $ 38,169,983 $ --
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
Notes to consolidated financial statements
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. It is suggested that
these consolidated financial statements be read in conjunction with the
Company's December 31, 1996 audited consolidated financial statements and notes
thereto.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets, contingent assets and
liabilities and revenues and expenses for the periods presented. Actual results
could differ significantly from those estimates.
NOTE B - HEDGING TRANSACTIONS
The market value of fixed-rate mortgage loans has a greater sensitivity to
changes in market interest rates than adjustable-rate mortgage loans. As the
Company's production of fixed-rate mortgage loans has increased, the Company has
begun to implement various hedging strategies to mitigate the change in market
value of fixed-rate mortgage loans held for sale between the date of origination
and sale. Commencing in August 1995, these strategies have included selling
short and selling forward United States Treasury securities and pre-funding loan
originations in its securitizations. The Company currently hedges its fixed-rate
mortgage loans held for sale by selling forward a combination of United States
Treasury securities of various maturities whose combined change in value due to
a change in interest rates closely approximates the change in value of the
mortgage loans hedged. In the future the Company may hedge its variable-rate
mortgage loans and its interest-only and residual certificates with hedging
transactions which may include forward sales of mortgage loans or
mortgage-backed securities, interest rate caps and floors and buying and selling
of futures and options on futures. The nature and quantity of hedging
transactions are determined by the Company's management based on various
factors, including market conditions and the expected volume of mortgage loan
originations and purchases.
5
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
Notes to consolidated financial statements
(Unaudited)
The Company believes that it has implemented a cost-effective hedging
program to provide a level of protection against changes in market value of its
fixed-rate mortgage loans held for sale. However, an effective hedging strategy
is complex and no hedging strategy can completely insulate the Company from such
changes. In addition, hedging involves transaction and other costs, and such
costs could increase as the period covered by the hedging protection increases
or in periods of rising and fluctuating interest rates.
In addition, the Company hedges future production of mortgage loans through
a pre-funding mechanism in connection with its securitizations. In its
securitization transactions, investors deposit cash in a pre-funded amount into
the related trust to purchase the loans the Company commits to sell on a forward
basis. This pre-funded amount is invested pending use in short term obligations
which pay a lower interest rate than the interest rate the trust is obligated to
pay certificate investors on the outstanding balance of the pre-funded amount.
The Company is required to deposit at the closing of the related transaction an
amount sufficient to make up the difference between these rates.
The Company regularly securitizes and sells fixed and variable-rate mortgage
loans. To offset the effects of interest rate fluctuations on the value of its
fixed-rate loans held for sale, the Company in certain cases has hedged its
interest rate risk related to loans held for sale by selling U.S. Treasury
securities short or in the forward market. The Company classifies these sales as
hedges of specific loans held for sale. The gains or losses derived from these
sales are deferred and recognized as an adjustment to gains on sale of loans
when the loans are sold or securitized.
As of March 31, 1997 and December 31, 1996, the Company had open hedge positions
of $35.2 million and $32.6 million, respectively, related to the sales of United
States Treasury securities in the forward market. The proceeds from the short
sale are shown net of the related liability in the accompanying balance sheet at
March 31, 1997 and December 31, 1996, respectively. At March 31, 1997 the
Company's unrealized gain on open positions is $478,011 and at December 31,
1996, the Company's unrealized loss on open positions is $43,023, on forward
positions of United States Treasury securities.
NOTE D - COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off balance sheet risk in
the normal course of business. These financial instruments include agreements to
fund fixed and variable-rate mortgage loans and loans in process. For agreements
to fund fixed-rate loans, the contract amounts represent exposure to loss from
market fluctuations as well as credit loss. The Company controls the credit risk
of its agreements to fund fixed and variable-rate loans through credit
approvals, limits and monitoring procedures.
6
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
Notes to consolidated financial statements
(Unaudited)
Agreements to fund mortgage loans are agreements to lend to customers as long as
there is no violation of any condition established in the contracts. Such
agreements generally have fixed expiration dates or other termination clauses.
Since some agreements may expire without being drawn upon, the total agreement
amounts do not necessarily represent future cash requirements. As of March 31,
1997, the Company had agreements to fund loans of $24.5 million.
7
<PAGE>
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 included in Item 1 of the Form 10-Q.
GENERAL
The Company is engaged in the business of originating, purchasing and
selling mortgage loans secured primarily by one-to-four family residences. The
majority of the Company's loans are made to owners of single family residences
who use the loan proceeds to consolidate and refinance debt, finance home
improvements and fund educational expenses. The Company originates and purchases
loans through its Wholesale Division, its Correspondent Program, its
Retail/Telemarketing Division and its Strategic Alliance Program.
The Company's primary source of revenue is the recognition of gains from
the sale of interests in loans through securitizations. The Company recognizes
gains from the sale of senior interests in trusts of loans as the excess of the
net proceeds received on the sale and the fair value of the interest-only and
residual certificates retained by the Company over the Company's basis in such
loans and a provision for credit losses. The fair value of the interest-only and
residual certificates is an estimate of the present value of the future cash
flows from such certificates, which are subject to the prepayment and loss
characteristics of the underlying loans. The Company securitized and sold senior
interests in loans with principal balances of $343.8 million and $102.4 million
during the three months ended March 31, 1997 and 1996, respectively. The
securitizations represented 89.0% and 100.0%, of total loans sold by the Company
during the respective periods. The Company anticipates that it will continue to
sell senior interests in a majority of its loans through securitization
transactions and will strategically sell loans in whole loan transactions when
such transactions are economically advantageous.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
MARCH 31, 1997
Loans held for sale decreased $30.1 million or 13.5% to $193.0 million at
March 31, 1997 from $223.1 million at December 31, 1996. The decrease in loans
held for sale reflects the fact that the Company originated $357.9 million in
loans while delivering $343.8 million in loans into securitizations and $40.9
million in loans to whole loan sales during the quarter ended March 31, 1997.
Interest-only and residual certificates increased $45.0 million or 47.0% to
$140.8 million at March 31, 1997 from $95.8 million at December 31, 1996. This
increase is the result of the securitizations of $343.8 million during the
quarter ended March 31, 1997.
Accrued interest receivable decreased $1.8 million or 54.7% to $1.4 million
at March 31, 1997 from $3.2 million at December 31, 1996. This decrease
primarily reflects the decreased volume of loans in inventory resulting from the
securitizations of $343.8 million of loans during the quarter ended March 31,
1997.
Premises and equipment, net increased $0.9 million or 30.5% to $3.9 million
at March 31, 1997 from $3.0 million at December 31, 1996. This growth reflects
the acquisition of computer and office equipment from the company's acquisition
of new subsidiaries as well as increased computer and office equipment purchased
for the opening of a new regional branch centers during the quarter ended March
31, 1997.
Other assets increased $2.3 million or 45.9% to $7.5 million at March 31,
1997 from $5.2 million at December 31, 1996. Other assets represent prepaid
expenses, accounts receivable and bond issuance costs. The increase is primarily
due to the consolidation of the company's two new subsidiaries and the addition
of their prepaid expenses and accounts receivable to the consolidated statements
during the quarter ended March 31, 1997.
Discounted recourse liability increased $4.1 million or 46.7% to $12.9
million at March 31, 1997 from $8.8 million at December 31, 1996. This increase
is the result of the securitizations of $343.8 million in loans during the
quarter ended March 31, 1997.
Borrowings under warehouse lines of credit increased $13.7 million or 9.0%
to $166.4 million at March 31, 1997 from $152.7 million at December 31, 1996.
This increase is the result of a cash inflow from the security prefunding on the
last day of the quarter ended March 31, 1997 that was not applied to the
warehouse borrowings.
Deferred tax liability increased $9.9 million or 53.5% to $28.3 million at
March 31, 1997 from $18.4 million at December 31, 1996. This increase is the
result of $21.6 million in pre-tax income earned during the quarter ended March
31, 1997.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Shareholders' equity increased $12.6 million or 14.8% to $97.7 million at
March 31, 1997 from $85.1 million at December 31, 1996, due to net income for
the quarter ended March 31, 1997 of $12.6 million.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Total revenues increased $25.0 million or 208.7% to $37.0 million for the
quarter ended March 31,1997 from $12.0 million for the quarter ended March 31,
1996. During the same period, the Company's total expenses increased $11.0
million or 253.1% to $15.3 million from $4.3 million. As a result, the Company's
net income increased $8.2 million or 188.2% to $12.6 million in the quarter
ended March 31, 1997 from $4.4 million in the quarter ended March 31, 1996.
The increase in revenues was primarily the result of increased gain on sale
of loans and increased interest income due to higher loan originations and
securitizations. Gains on sales of loans increased $19.5 million or 227.8% to
$28.1 million in the first quarter ended March 31, 1997 from $8.6 million in the
first quarter ended March 31, 1996. This increase was primarily the result of
higher loan origination and purchase volume as well as a higher volume of loans
at the beginning of the period which resulted in a higher level of loan
securitizations. Within the first quarter ended March 31, 1997, Wholesale
Division loan originations increased $118.8 million or 150.8% to $197.6 million
compared to $78.8 million in the comparable period in 1996, Correspondent
purchases of loans increased $85.6 million or 1,923.5% to $90.1 million in the
quarter ended March 31, 1997 compared to $4.5 million in the comparable period
in 1996, Retail/Telemarketing Division loan originations increased to $9.8
million in the quarter ended March 31, 1997 from $0 million in the comparable
period in 1996, Strategic Alliance loan originations increased to $19.5 million
in the quarter ended March 31, 1997 from $0 million in the comparable period in
1996 and conforming loan originations increased to $40.9 million in the quarter
ended March 31, 1997 from $0 million in the comparable period in 1996. As a
result, total non-conforming and conforming loan originations and purchases
increased $274.6 million or 329.9% to $357.9 million in the quarter ended March
31, 1997 from $83.3 million in the comparable period in 1996. Total loans of
$343.8 million were securitized in the quarter ended March 31, 1997 compared to
$102.4 million of loans sold or securitized during the comparable period in
1996, with a weighted average net gain on securitization of 8.3% and 8.3%,
respectively.
Interest income increased $3.7 million or 141.3% to $6.4 million in the
first quarter ended March 31, 1997 from $2.7 million in the comparable period
in1996. The increase in interest income was primarily due to a higher average
balance of loans held for sale in
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1997 resulting from the increased loan origination and purchase volume
during such period, and a higher balance of loans held for sale at the
beginning of such period as compared to the corresponding period in 1996.
Securities valuation and other income increased $1.7 million or 230.1% to
$2.4 million in the first quarter ended March 31, 1997 from $0.7 million in the
first quarter ended March 31, 1996. The increase was primarily the result of a
$1.1 million or 141.0% increase in securities valuation adjustments on
interest-only and residual certificates to $1.8 million in the quarter ended
March 31, 1997 from $0.7 million in the comparable period in 1996.
Total expenses increased $11.0 million or 253.1% to $15.3 million in the
first quarter ended March 31,1997 from $4.3 million in the comparable period in
1996. The increase in expenses was primarily the result of additional personnel
and commission expenses, increases in interest expense on loans held for sale,
and higher operating expenses related to increased loan origination and purchase
volume in 1997 compared to 1996.
Interest expense increased $2.0 million or 125.6% to $3.6 million in the
first quarter ended March 31,1997 from $1.6 million in the first quarter ended
March 31, 1996. The increase in interest expense was attributable to the
interest costs associated with higher borrowings due to a higher balance of
loans held pending sale during 1997 resulting from increased loan origination
and purchase volume during the year.
Personnel and commission expense increased $5.2 million or 277.3% to $7.1
million in the quarter ended March 31,1997 from $1.9 million in the comparable
period in 1996. The increase in personnel and commission expenses was primarily
due to increased staffing levels related to the Wholesale Division's growth and
increased loan originations. As of March 31, 1997 the Company operated 22
regional branch centers and satellite offices and employed 513 persons as
compared to 13 regional branch centers and 136 employees as of March 31, 1996.
General and administrative expense, which consists primarily of occupancy,
supplies and other expenses, increased $3.7 million or 438.4% to $4.6 million in
the quarter ended March 31, 1997 from $.9 million in the comparable period in
1996. The increase in general and administrative expense was primarily due to
expenses incurred in association with the increase in the number of regional
branch centers and satellite offices to 22 in 1997 from 13 in 1996 and increased
loan origination and purchase volume.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon short-term warehouse facilities to fund loan
originations and purchases. In November 1995, the Company entered into a
warehouse and purchases facility (the "First Facility"). Under the First
Facility, the Company has available a $200 million warehouse line of credit
secured by the loans the Company originates and purchases. The First Facility
extends through August 24, 1997. The Company is required to comply with various
operating and financial covenants as defined in the agreement governing the
First Facility. Such covenants include restrictions on (i) changes in the
Company's business that would materially and adversely affect the Company's
ability to perform its obligations under the Facility, (ii) selling any asset
other than in the ordinary course of business and (iii) guaranteeing the debt
obligations of any other entity. The continued availability of funds provided to
the Company under this facility is subject to the Company's continued compliance
with the operating and financial covenants contained in such agreement.
In October 1996, the Company entered into a second warehouse facility (the
"Second Facility"). Under the Second Facility, the Company has available a $400
million warehouse line of credit secured by the loans the Company originates or
purchases using the facility. The Company is required to comply with various
operating and financial covenants as defined in the agreement governing the
Second Facility. Such covenants include restrictions on (i) changes in the
Company's business that would materially and adversely affect the Company's
ability to perform its obligations under the Facility, (ii) selling any assets
other than in the ordinary course of business and (iii) guaranteeing the debt
obligations of any other entity. The continued availability of funds provided to
the Company under this facility is subject to the Company's continued compliance
with the operating and financial covenants contained in such agreements.
Prior to January 1, 1994, the Company sold its loans to institutional
purchasers in whole loan transactions. In March 1994, the Company completed its
first securitization of loans for $44.5 million. As of March 31, 1997 and during
successive preceding quarters dating to the fourth quarter in 1994, the Company
securitized $343.8 million, $234.9 million, $189.4 million, $130.6 million,
$102.4 million, $30.3 million, $62.1 million, $44.9 million, $27.6 million, and
$25.7 million of loans, respectively. The Company expects to continue to depend
on its ability to securitize loans in the secondary market. Several factors
affect the Company's ability to complete securitizations of its loans, including
conditions in the securities markets generally, conditions in the asset-backed
securities market specifically, the credit quality of the Company's portfolio of
loans and the Company's ability to obtain credit enhancement. Adverse changes in
such factors may affect the Company's results of operations, financial condition
and ability to generate sufficient cash flows needed to continue originating and
purchasing loans at increased levels. In addition, in order to gain access to
the securitization market, the Company has relied on credit enhancements
provided by monoline insurance companies to guarantee senior interests in the
related securitization trusts to enable it to obtain an "AAA/Aaa" rating for
such interests. Unwillingness of insurance companies to guarantee
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
senior interests in the Company's loan pools could have a material adverse
effect on the Company's results of operations and financial condition. The
Company will continue operating on a negative cash flow basis as long as it
continues to sell loans through securitizations and it continues to retain
interest-only and residual certificates in the loans sold. The use of cash in
excess of cash generated was primarily the result of the ongoing cash
requirements of the Company's operations and the sale of loans through
securitizations and the resulting investment in interest-only and residual
certificates. The Company has historically invested its entire gain on
securitization in the related interest-only and residual certificates resulting
in an insignificant net cash flow from the securitization to the Company.
CASH FLOWS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Operating Activities. For the quarter ended March 31, 1997, the Company's
operating activities provided cash of $30.0 million on a short term basis from
securitizing mortgage loans held for sale. Total cash provided by operating
activities increased $25.1 million to $56.5 million for the quarter ended March
31, 1997 as compared to $31.4 for the quarter ended March 31, 1996. As of March
31, 1997, total cash on hand amounted to $38.2 million as compared to $0 million
at March 31, 1996.
Investment Activities. The primary investing activity for which cash was
used during the quarter ended March 31, 1997 was the investment in interest-only
and residual certificates. Net cash used by investing activities increased to
$46.2 million for the quarter ended March 31, 1997 from $13.5 million for the
quarter ended March 31, 1996.
Financing Activities. Net cash provided by financing activities increased
$31.7 million to $13.8 million for the quarter ended March 31, 1997 as compared
to $(17.9) million for the quarter ended March 31, 1996. The increase in net
cash provided was primarily the result of $13.8 million in proceeds from the
borrowings under warehouse lines of credit.
RECENT ACCOUNTING DEVELOPMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". This Statement specifies the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. This Statement shall be effective for financial
statements for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. At this time the Company has determined
that this Statement will have no significant impact on the financial position or
results of operations for 1997.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 129, "Disclosure of
Information about Capital Structure". This Statement shall be effective for
financial statements for both interim and annual periods ending after December
15, 1997. At this time the Company has determined that this Statement will have
no significant impact on the financial position or results of operations for
1997.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 6 EXHIBIT
SOUTHERN PACIFIC FUNDING CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Fully diluted net income per share:
Net income $12,648,029 $ 4,387,870
Add: Interest on convertible subordinated
debentures, net of tax effect) $ 633,446 $ --
Net income, as adjusted $13,281,475 $ 4,387,870
Weighted average number of shares outstanding 22,141,497 17,157,000
Net effect of dilutive stock options-based
treasury stock method using average
market price 3,151,125 --
----------- -----------
Total average shares 25,292,622 17,157,000
Fully diluted net income per share $ 0.53 $ 0.26
=========== ===========
Primary net income per share:
Net income $12,648,029 $ 4,387,870
Weighted average number of shares outstanding 22,141,497 17,157,000
Primary net income per share $ 0.57 $ 0.26
=========== ===========
</TABLE>
15
<PAGE>
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.
Southern Pacific Funding Corporation
------------------------------------
(Registrant)
By: \s\ Robert W. Howard
--------------------------------
Robert W. Howard
President and
Chief Executive Officer
By: \s\ Bernard A. Guy
--------------------------------
Bernard A. Guy
Acting Chief Financial Officer
Dated: May 10, 1997
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF INCOME FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM
10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 38,170
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 347,523
<PP&E> 4,825
<DEPRECIATION> 861
<TOTAL-ASSETS> 389,657
<CURRENT-LIABILITIES> 291,858
<BONDS> 0
0
0
<COMMON> 53,798
<OTHER-SE> 44,001
<TOTAL-LIABILITY-AND-EQUITY> 389,657
<SALES> 36,967
<TOTAL-REVENUES> 36,967
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,724
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,620
<INCOME-PRETAX> 21,623
<INCOME-TAX> 8,975
<INCOME-CONTINUING> 12,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,648
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.53
</TABLE>
