<PAGE>
<PAGE>
________________________________________________________________________________
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NO. 333-3954
------------------------
IMC MORTGAGE COMPANY
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
FLORIDA 59-3350574
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3450 BUSCHWOOD PARK DRIVE
TAMPA, FLORIDA 33618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 932-2211
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filer pursuant to Item
405 of Regulation 2-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of Common Stock held by nonaffiliates of the
registrant, based on the closing price of Common Stock as reported by the Nasdaq
National Market on March 21, 1997 was $342,431,860. For purposes of this
computation, all officers, directors, and 10% beneficial owners of the
registrant are deemed to be affiliates. Such determination should not be deemed
an admission that such officers, directors or 10% beneficial owners are, in
fact, affiliates of the registrant. As of March 21, 1997, 21,949,142 shares of
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrants proxy statement to annual stockholders meeting incorporated by
reference in Part III.
________________________________________________________________________________
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
PART I.
Item 1. Business....................................................................................... 1
Item 2. Properties..................................................................................... 22
Item 3. Legal Proceedings.............................................................................. 22
Item 4. Submission of Matters to a Vote of Security Holders............................................ 22
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................... 23
Item 6. Selected Financial Data........................................................................ 24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 26
Item 8. Financial Statements and Supplementary Data.................................................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 61
PART III.
Item 10. Directors and Executive Officers of the Registrant............................................. 61
Item 11. Executive Compensation......................................................................... 63
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 66
Item 13. Certain Relationships and Related Transactions................................................. 69
PART III.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 73
Signatures..................................................................................... 74
</TABLE>
<PAGE>
<PAGE>
ITEM 1. BUSINESS
The statements in this Report which are not merely reports of historical
facts are forward-looking statements and actual results could differ materially
due to important factors such as reduced demand for non-conforming loans,
competitive forces, too-high expectations of acquired companies, limitations on
available funds and market forces affecting the price of IMC Mortgage Company's
shares.
IMC Mortgage Company is a specialized consumer finance company engaged in
purchasing, originating, servicing and selling home equity loans secured
primarily by first liens on one- to four-family residential properties. The
Company focuses on lending to individuals whose borrowing needs are generally
not being served by traditional financial institutions due to such individuals'
impaired credit profiles and other factors. Loan proceeds typically are used by
such individuals to consolidate debt, to finance home improvements, to pay
educational expenses and for a variety of other uses. By focusing on individuals
with impaired credit profiles and by providing prompt responses to their
borrowing requests, the Company has been able to charge higher interest rates
for its loan products than typically are charged by conventional mortgage
lenders. References herein to 'IMC' or the 'Company' mean IMC Mortgage Company,
a Florida corporation and its subsidiaries on a consolidated basis, unless the
context otherwise requires.
IMC purchases and originates non-conforming home equity loans through a
diversified network of correspondents (which includes the Industry Partners) and
mortgage loan brokers and on a retail basis through its direct consumer lending
effort. As of December 31, 1996, IMC had a network of 374 approved
correspondents, including the Industry Partners, 1,693 approved mortgage loan
brokers and 17 Company-owned retail branches. During January and February 1997,
IMC added 49 retail branches through the acquisition of four retail
non-conforming mortgage lenders. Since its inception in August 1993, IMC has
experienced considerable growth in loan production, with total purchases and
originations of $29.6 million, $282.9 million, $621.6 million and $1.77 billion
in 1993, 1994, 1995 and 1996, respectively. IMC's network of correspondents
accounted for 82.5%, 87.5% and 89.4% of IMC's loan production in 1994, 1995 and
1996, respectively. Through its network of mortgage brokers, IMC generated
17.5%, 10.7% and 6.8% of its loan production in 1994, 1995 and 1996,
respectively. IMC's direct consumer lending effort, which began in 1995,
contributed approximately 1.8% and 3.8% of loan production in 1995 and 1996,
respectively. IMC is continuing to expand its direct consumer lending by opening
branch offices and expanding its use of advertising, direct mail and other
marketing strategies, and through strategic acquisitions.
As of December 31, 1996, a majority of the Industry Partners were required
to sell to IMC, on prevailing market terms and conditions, an aggregate of
$162.0 million of home equity loans per year. IMC has consistently purchased
loan production from the Industry Partners in excess of such aggregate annual
commitment. Actual sales to IMC by the Industry Partners aggregated $337.5
million for the year ended December 31, 1996. As a result of IMC's acquisition
of two of the Industry Partners (Mortgage America and Equity Mortgage) in
January and February 1997, the contractual annual sales commitment from the
Industry Partners was reduced by $36.0 million to $126.0 million. The two
acquired Industry Partners originated an aggregate of approximately $284 million
residential loans in 1996. These acquisitions reflect IMC's business strategy to
increase its retail loan origination channels through acquisitions of retail
non-conforming lenders.
IMC sells the majority of its loans through its securitization program and
retains rights to service such loans. Through December 31, 1996, IMC had
completed eight securitizations totaling $1.4 billion of loans. The Company
earns servicing fees on a monthly basis at a rate of 0.50% per year and
ancillary fees on the loans it services in the securitization pools. As of
December 31, 1995 and 1996, IMC had a servicing portfolio of $535.8 million and
$2.15 billion, respectively.
The Company's total revenues increased from $19.7 million for the year
ended December 31, 1995 to $65.7 million for the year ended December 31, 1996,
while pro forma net income increased from $4.1 million to $17.9 million in those
periods. Gain on sale of loans, net, represented $15.1 million, or 76.9% of
total revenues, for the year ended December 31, 1995 as compared to $42.1
million, or 64.1% of total revenues, for the year ended December 31, 1996.
Servicing income, net warehouse interest income and other revenues in the
aggregate increased from $4.5 million, or 23.1% of total revenues, for the year
ended December 31, 1995 to $23.6 million, or 35.9% of total revenues, for the
year ended December 31,
1
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<PAGE>
1996. IMC's strategy is to continue to increase its servicing portfolio and
portfolio of loans held for sale in order to generate increased revenues from
these two sources.
BUSINESS STRATEGY
The Company utilizes the following strategies to maintain and expand its
core business:
EXPANSION THROUGH ACQUISITIONS
The Company is actively pursuing a strategy of acquiring originators of
non-conforming home equity loans. IMC's acquisition strategy focuses on entities
that originate non-conforming mortgages either directly from the consumer or
through broker networks. In 1996, IMC acquired Equitystars and in January and
February 1997 completed the acquisitions of Mortgage America, CoreWest, Equity
Mortgage and American Reduction. Equitystars, Mortgage America and Equity
Mortgage were Industry Partners. Management believes that the acquisition of
non-conforming home equity loan originators will benefit IMC by: (i) increasing
IMC's loan production volume by capturing all of the acquired company's
production instead of only a portion; (ii) improving IMC's profitability and
profit margins because broker and direct-to-consumer originated loans typically
result in better profit margins than loans purchased from correspondents; (iii)
adding experienced management; and (iv) broadening IMC's distribution system for
offering new products. In order to incent management of the acquired companies,
IMC typically structures its acquisitions to include an initial payment upon
closing of the transaction and to provide for contingent payments tied to future
production and profitability of the acquired company.
EXPANSION OF DIRECT CONSUMER LENDING
IMC intends to continue to expand its direct consumer lending efforts by
opening additional branch offices which will allow IMC to focus on developing
contacts with individual borrowers, local brokers and referral sources such as
accountants, attorneys and financial planners. Through December 31, 1996, IMC
opened 17 retail branch offices. In January and February 1997, IMC added 49
retail branches through acquisitions. In addition, IMC's direct consumer loan
expansion strategy involves: (i) targeting cities where the population density
and economic indicators are favorable for home equity lending, the foreclosure
rate is within normal ranges and the non-conforming loan market has been
underserved; (ii) testing the target market prior to the establishment of a
branch office, where local regulations permit, via newspaper, radio, direct mail
advertising and through a toll-free telephone number which routes borrower
inquiries directly to a loan officer in the Company's Tampa, Florida office;
(iii) if test marketing is positive, establishing a small branch office,
generally with an initial staff of two business development representatives; and
(iv) setting up branch offices in executive office space with short-term leases,
which eliminates high startup costs for office equipment, furniture and
leasehold improvements and allows IMC to exit the market easily if the office
does not meet expectations.
EXPANSION OF CORRESPONDENT AND BROKER NETWORKS
The Company intends to continue to increase loan production from
correspondents and brokers by increasing its market share through geographic
expansion, tailored marketing strategies and a continued focus on servicing
smaller correspondents in regions that historically have not been actively
served by non-conforming home equity lenders. IMC believes that providing
attractive products and responsive service in conjunction with consistent
underwriting and competitive prices strengthens its relationships with
correspondents and brokers.
BROADENING OF PRODUCT OFFERINGS
The Company continues to introduce new non-conforming home equity loan
products to meet the needs of its correspondents, brokers and borrowers and to
expand its market share to new customers. The Company is in the process of
introducing two such products, HELOCs and secured credit cards. See ' -- New
Products and Services.'
2
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<PAGE>
STRATEGIC ALLIANCES AND JOINT VENTURES
In order to increase the Company's volume and diversify its sources of loan
originations over the long term, the Company seeks to enter into strategic
alliances with selected mortgage lenders, pursuant to which the Company provides
working capital and financing arrangements and a commitment to purchase
qualifying loans. In return, the Company expects to receive a more predictable
flow of loans and, in some cases, an option to acquire an equity interest in the
strategic partner. To date, the Company has entered into two strategic alliances
in the United States and a joint venture in the United Kingdom.
MAINTENANCE OF UNDERWRITING QUALITY AND LOAN SERVICING
The Company's underwriting and servicing staff have extensive experience in
the non-conforming home equity loan industry. The management of IMC believes
that the depth and experience of its underwriting and servicing staff provide
the Company with the infrastructure necessary to sustain its recent growth and
maintain its commitment to high standards in its underwriting and loan
servicing. As the Company continues to grow, it is committed to applying
consistent underwriting procedures and criteria and to attracting, training and
retaining experienced staff.
MAXIMIZE FINANCIAL CASH FLOW AND IMPROVE CASH FLOW
The Company intends to maximize its financial flexibility in a number of
ways, including by maintaining a significant quantity of mortgage loans held for
sale on its balance sheet. Maintenance of a substantial amount of mortgage loans
held for sale, which the Company can sell when necessary or desirable either
through securitizations or whole loans sales, permits IMC to improve management
of its cash flow by increasing its net interest income and to reduce its
exposure to the volatility of the capital markets. During 1996, the Company
securitized approximately 53% of its loan production.
LOANS
OVERVIEW
IMC's consumer finance activities consist primarily of purchasing,
originating, selling and servicing mortgage loans. The vast majority of these
loans are non-conforming mortgage loans that are secured by first or second
mortgages on one- to four-family residences with the balance secured by small
multi-family residences and mixed-use properties. Once loan applications have
been received, the underwriting process completed and the loans funded, IMC
typically packages the loans in a portfolio and sells the portfolio, either
through a securitization or on a whole loan basis directly to institutional
purchasers. IMC retains the right to service the loans that it securitizes and
may or may not release the right to service the loans it sells through whole
loan sales.
LOAN PURCHASES AND ORIGINATIONS
As of December 31, 1996, IMC purchased and originated loans in 48 states
and the District of Columbia through its networks of 374 approved correspondents
and 1,693 approved brokers and through its 17 retail branch offices.
Additionally, 49 new retail branches were added through acquisitions in January
and February of 1997.
3
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<PAGE>
The following table shows channels of loan purchases and originations for
the periods shown:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12, 1993) YEAR ENDED DECEMBER 31,
THROUGH DECEMBER 31, ----------------------------------
1993 1994 1995 1996
----------------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Correspondent(1):
Principal balance.................................. $28,008 $233,460 $543,635 $1,582,048
Average principal balance per loan................. 66 66 62 66
Weighted average loan-to-value ratio(2)(3)(4)...... 66.6% 69.2% 70.6% 72.8%
Weighted average interest rate..................... 10.2% 11.2% 12.1% 11.5%
Broker:
Principal balance.................................. $ 1,600 $ 49,376 $ 66,584 $ 120,700
Average principal balance per loan................. 55 56 47 54
Weighted average loan-to-value ratio(2)(3)(4)...... 70.9% 71.8% 72.6% 73.4%
Weighted average interest rate..................... 11.2% 12.0% 12.0% 11.5%
Direct consumer loan originations:
Principal balance.................................. $ -- $ 88 $ 11,410 $ 67,564
Average principal balance per loan................. -- 88 49 58
Weighted average loan-to-value ratio(2)............ 0.0% 80.0% 72.6% 72.5%
Weighted average interest rate..................... 0.0% 11.3% 11.7% 10.7%
Total loan purchases and originations:
Principal balance.................................. $29,608 $282,924 $621,629 $1,770,312
Average principal balance per loan................. 65 64 60 65
Weighted average loan-to-value ratio(2)(3)(4)...... 66.8% 69.7% 70.9% 72.9%
Weighted average interest rate..................... 10.3% 11.4% 12.1% 11.5%
</TABLE>
- ------------
(1) Includes purchases from the Industry Partners with principal balances of
$14.3 million, or 48.3% of total purchases and originations, for the period
ended December 31, 1993, $116.0 million, or 41.0% of total purchases and
originations, for the year ended December 31, 1994, $148.4 million, or 23.9%
of total purchases and originations, for the year ended December 31, 1995
and $337.5 million, or 19.1% of total purchases and originations, for the
year ended December 31, 1996.
(2) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
(3) The weighted average loan-to-value ratio has increased due to increasing
competition in the non-conforming home equity loan market and, to a lesser
extent, an increase between 1995 and 1996 in the percentage of the Company's
loans in the 'A' Risk category (see ' -- Loans -- Loan Underwriting'). 'A'
Risk loans are generally made to more credit worthy borrowers and therefore
typically carry less credit risk and involve higher loan-to-value ratios
than other categories of non-conforming loans. The Company does not believe
that these increases in the loan-to-value ratios subject it to material
increased levels of potential default and foreclosure losses, although no
assurance can be given with respect thereto.
(4) Includes loans with loan-to-value ratios between 80% and 100% in the amount
of $173.1 million, or 27.9% of total purchases and originations, for the
year ended December 31, 1995 and $700.4 million, or 39.6% of total purchases
and originations, for the year ended December 31, 1996. The increase in
(footnotes continued on next page)
4
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<PAGE>
(footnotes continued from previous page)
loan purchases and originations with loan-to-value ratios between 80% and
100% of $527.3 million during 1996 was primarily related to the increase in
purchases and originations of 'A' Risk loans of $607.0 million during 1996
(loan purchases and originations of 'A' Risk loans were $276.1 million and
$883.1 million for the years ended December 31, 1995 and 1996,
respectively). The Company does not anticipate any material increase in the
percentages of loans purchased or originated with loan-to-value ratios in
excess of 80% solely as a result of the acquisitions completed in January
and February 1997; however some of the companies that the Company acquired
in 1997 originate or purchase loans with loan-to-value ratios in excess of
100%, but only when they have a prior 'take-out' commitment for such loans.
At the present time neither the Company, nor the companies it acquired, has
included such loans in its securitized pools or held such loans for more
than thirty days.
------------------------
The following table shows channels of loan purchases and originations on a
quarterly basis for the fiscal quarters shown:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- ------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Correspondent(1):
Principal balance.............. $103,296 $104,727 $ 133,857 $201,755 $236,537 $370,359 $ 428,136
Average principal balance per
loan......................... 66 58 60 64 65 66 67
Weighted average loan-to-value
ratio(2)(3)(4)............... 69.7% 70.1% 70.8% 71.2% 71.2% 71.9% 72.3%
Weighted average interest
rate......................... 12.5% 12.6% 12.1% 11.8% 11.5% 11.4% 11.6%
Broker:
Principal balance.............. $ 14,948 $ 17,327 $ 17,297 $ 17,012 $ 21,079 $ 25,098 $ 30,625
Average principal balance per
loan......................... 52 46 45 48 54 53 53
Weighted average loan-to-value
ratio(2)(3)(4)............... 72.7% 72.5% 72.7% 72.6% 74.6% 72.8% 73.5%
Weighted average interest
rate......................... 12.5% 12.3% 11.8% 11.2% 11.2% 11.6% 11.8%
Direct consumer loan originations:
Principal balance.............. $ 1,141 $ 2,613 $ 3,836 $ 3,820 $ 6,371 $ 6,780 $ 21,471
Average principal balance per
loan......................... 52 47 49 50 48 52 59
Weighted average loan-to-value
ratio(2)..................... 73.8% 70.0% 73.3% 73.2% 73.9% 73.7% 71.3%
Weighted average interest
rate......................... 12.4% 11.9% 11.6% 11.4% 11.1% 11.0% 11.0%
Total loan purchases and
originations:
Principal balance.............. $119,385 $124,667 $ 154,990 $222,587 $263,987 $402,237 $ 480,232
Average principal balance per
loan......................... 64 56 57 62 64 64 66
Weighted average loan-to-value
ratio(2)(3)(4)............... 70.1% 70.5% 71.0% 71.4% 71.5% 72.0% 72.2%
Weighted average interest
rate......................... 12.5% 12.5% 12.0% 11.8% 11.4% 11.4% 11.6%
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Correspondent(1):
Principal balance.............. $547,016
Average principal balance per
loan......................... 66
Weighted average loan-to-value
ratio(2)(3)(4)............... 74.7%
Weighted average interest
rate......................... 11.6%
Broker:
Principal balance.............. $ 43,898
Average principal balance per
loan......................... 54
Weighted average loan-to-value
ratio(2)(3)(4)............... 73.1%
Weighted average interest
rate......................... 11.4%
Direct consumer loan originations:
Principal balance.............. $ 32,942
Average principal balance per
loan......................... 63
Weighted average loan-to-value
ratio(2)..................... 72.8%
Weighted average interest
rate......................... 10.4%
Total loan purchases and
originations:
Principal balance.............. $623,856
Average principal balance per
loan......................... 65
Weighted average loan-to-value
ratio(2)(3)(4)............... 74.4%
Weighted average interest
rate......................... 11.5%
</TABLE>
- ------------
(1) Includes purchases from the Industry Partners of an aggregate principal
balance of $148.4 million, or 23.9% of total purchases and originations, for
the year ended December 31, 1995 and $337.5 million, or 19.1% of total
purchases and originations, for the year ended December 31, 1996.
(2) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
(footnotes continued on next page)
5
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<PAGE>
(footnotes continued from previous page)
(3) The weighted average loan-to-value ratio has increased due to increasing
competition in the non-conforming home equity loan market and, to a lesser
extent, an increase between 1995 and 1996 in the percentage of the Company's
loans in the 'A' risk category (see ' -- Loans -- Loan Underwriting'). 'A'
risk loans are generally made to more credit worthy borrowers and therefore
typically carry less credit risk and involve higher loan-to-value ratios
than other categories of non-conforming loans. The Company does not believe
that these increases in the loan-to-value ratios subject it to material
increased levels of potential default and foreclosure losses, although no
assurance can be given with respect thereto.
(4) Includes loans with loan-to-value ratios between 80% and 100% in the amount
of $173.1 million, or 27.9% of total purchases and originations, for the
year ended December 31, 1995 and $700.4 million, or 39.6% of total purchases
and originations, for the year ended December 31, 1996. The increase in loan
purchases and originations with loan-to-value ratios between 80% and 100% of
$527.3 million during 1996 was primarily related to the increase in
purchases and originations of 'A' Risk loans of $607.0 million during 1996
(loan purchases and originations of 'A' Risk loans were $276.1 million and
$883.1 million for the years ended December 31, 1995 and 1996,
respectively). The Company does not anticipate any material increase in the
percentages of loans purchased or originated with loan-to-value ratios in
excess of 80% solely as a result of the acquisitions completed in January
and February 1997; however some of the companies that the Company acquired
in 1997 originate or purchase loans with loan-to-value ratios in excess of
100%, but only when they have a prior 'take-out' commitment for such loans.
At the present time neither the Company, nor the companies it acquired, has
included such loans in its securitized pools or held such loans for more
than thirty days.
The following table shows lien position, weighted average interest rates
and loan-to-value ratios for the periods shown.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED
(AUGUST 12, 1993) DECEMBER 31,
THROUGH ------------------------
DECEMBER 31, 1993 1994 1995 1996
--------------------- ---- ---- ----
<S> <C> <C> <C> <C>
First mortgages:
Percentage of total purchases and originations............. 88.3% 82.4% 77.0% 90.3%
Weighted average interest rate............................. 10.2 11.3 12.1 11.4
Weighted average loan-to-value ratio(1).................... 67.3 69.8 70.7 72.6
Second mortgages:
Percentage of total purchases and originations............. 11.7% 17.6% 23.0% 9.7%
Weighted average interest rate............................. 11.1 11.7 12.4 12.2
Weighted average loan-to-value ratio(1).................... 61.9 68.8 71.7 75.6
</TABLE>
- ------------
(1) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
------------------------
Correspondents. The majority of IMC's loan volume is purchased through
correspondents. For the year ended December 31, 1996, $1.6 billion or 89.4% of
IMC's total loan purchases and originations were purchased through the mortgage
correspondent network as compared with $543.6 million or 87.5% of IMC's total
loan purchases and originations for the year ended December 31, 1995. For the
year ended December 31, 1994, $233.5 million or 82.5% of IMC's total loan
purchases and originations were so acquired. The Industry Partners contributed
$337.5 million or 19.1% of IMC's total loan purchases and originations for the
year ended December 31, 1996, $148.4 million or 23.9% of such
6
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<PAGE>
purchases and originations for the year ended December 31, 1995, $116.0 million
or 41.0% of such purchases and originations for the year ended December 31, 1994
and $14.3 million or 48.3% of such purchases and originations for the period
ended December 31, 1993. The largest correspondent contributed 7.1% and 9.7% of
total loan production in 1994 and 1995, respectively. In 1996, GMAC and its
wholly-owned subsidiary Residential Funding Corp. contributed 14.3% of IMC's
total loan production. No other correspondent contributed 10% or more of IMC's
loan purchases and originations in 1996.
IMC has a list of approved correspondents from which it will purchase loans
on a wholesale basis. Prior to approving a financial institution or mortgage
banker as a loan correspondent, IMC performs an investigation of, among other
things, the proposed loan correspondent's lending operations, its licensing or
registration and the performance of its previously originated loans. The
investigation includes contacting the agency that licenses or registers such
loan correspondent and other purchasers of the correspondent's loans and
reviewing the correspondent's financial statements. IMC requires that the
correspondent remain current on all licenses required by federal and state laws
and regulations and that it maintain sufficient equity to fund its loan
operations. IMC periodically reviews and updates the information it has relating
to each approved correspondent to insure that all legal requirements are current
and that lending operations continue to meet IMC's standards.
Before purchasing loans from correspondents, IMC requires that each loan
correspondent enter into a purchase and sale agreement with customary
representations and warranties regarding such loans. Correspondents will then
sell loans to IMC either on a flow basis or through block sales. IMC will make a
flow basis purchase when a correspondent approaches IMC with the application of
a prospective borrower. Because the correspondent has not yet granted a loan,
IMC has the opportunity to preapprove the loan. In the preapproval process, the
correspondent provides IMC with information about the borrower and the
collateral for the potential loan, including the applicant's credit, employment
history, current assets and liabilities, a copy of recent tax returns and the
estimated property value of the collateral. If IMC pre-approves the loan, the
correspondent lends to the borrower pursuant to certain IMC guidelines. After
the correspondent has made the loan, IMC purchases the loan from the
correspondent. A block purchase occurs when the correspondent has made numerous
loans without seeking preapproval from IMC. The correspondent offers a block of
loans to IMC and IMC will purchase those loans in the block that meet its
underwriting standards.
Brokers. For the years ended December 31, 1995 and 1996, IMC originated
$66.6 million, or 10.7% of the total, and $120.7 million, or 6.8% of the total,
respectively, of the loans it purchased and originated through broker
transactions. As with correspondents, IMC maintains an approved list of brokers.
Brokers become part of IMC's network after IMC performs a thorough license and
credit check. If a broker is approved, IMC will accept loan applications from
the broker for prospective borrowers. Because brokers may submit loan
applications to several prospective lenders simultaneously, IMC makes every
effort to provide a quick response. IMC will process each application obtained
by a broker from a prospective borrower and grant or deny preliminary approval
of the application generally within one business day. In the case of an
application denial, IMC will make all reasonable attempts to ensure that there
is no missing information concerning the borrower that might change the decision
on the loan. In addition, IMC emphasizes service to the broker and loan
applicant by having loan processors follow the loan from the time of the initial
application, through the underwriting verification and audit process to the
funding and closing process. IMC believes that consistent underwriting, quick
response times and personal service are critical to successfully originating
loans through brokers.
Direct Consumer Loans. For the years ended December 31, 1995 and 1996, IMC
originated $11.4 million, or 1.8% of the total, and $67.6 million, or 3.8% of
the total, respectively, of loans it purchased and originated directly to
borrowers through its retail branch offices. As of December 31, 1996, IMC had 17
retail branch offices located in Arizona, Arkansas, California, Colorado,
Florida, Iowa, Kansas, Kentucky, Massachusetts, Missouri, Nebraska, New Mexico,
Oklahoma, Oregon and Wisconsin. Prior to the establishment of a branch office,
where local regulations permit, IMC tests the target market via newspaper, radio
and direct mail advertising and through a toll-free telephone number which
routes borrower inquiries directly to a loan officer in the Company's Tampa,
Florida office. If test marketing is positive, the branch offices are staffed
with two business development representatives and established in
7
<PAGE>
<PAGE>
executive office space with short-term leases, which eliminates the high startup
costs for office equipment, furniture and leasehold improvements and allows IMC
to exit the market easily if the office does not meet expectations. IMC plans to
use the branch office network for marketing to and meeting with individual
borrowers, local brokers and referral sources such as accountants, attorneys and
financial planners. All advertising, payment of branch expenses, regulatory
disclosure, appraisals, title searches, loan processing, underwriting and
funding of branch office loans take place in the Tampa, Florida office of IMC or
other centralized underwriting locations. The centralization of loan origination
and processing allows IMC to control branch expenses, supervise regulatory
compliance and offer consistent underwriting and processing to its customers.
IMC believes that this strategy will result in a more efficient use of its
capital and increased loan production. Negative pre-testing results could limit
expansion into new locations, but should also limit the size of potential
losses. IMC plans to continue to open new branch offices nationwide and
estimates that new branches will reach a monthly operating break-even point by
the fourth or fifth month of operation. The start-up costs and operating
expenses prior to this break-even point are estimated to be less than $50,000
per branch, with half of that expense allocated to marketing and advertising.
Additionally, IMC feels that, by centralizing its marketing and advertising
efforts in Tampa, Florida, economies of scale will be obtained and expenses will
be controlled.
Since January 1, 1997, IMC added 49 new retail branches through the
acquisitions of American Reduction, Equity Mortgage, CoreWest and Mortgage
America. These acquired branches are located in Arizona, California, Colorado,
Delaware, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Minnesota,
Missouri, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, South
Carolina, Tennessee, Utah, Washington and West Virginia.
Because borrowers may submit loan applications to several prospective
lenders simultaneously, IMC makes every effort to provide a quick response. IMC
will process each application from a borrower and grant or deny preliminary
approval for the application generally within one business day from receipt of
the application. In addition, the borrower usually has direct contact with an
underwriter in the Tampa, Florida office who follows the loan from the
application to the closing process. IMC believes that consistent underwriting,
quick response times and personal service are critical to successfully
originating loans directly with potential borrowers.
Geographic Distribution of Loans. Although IMC is licensed or registered in
48 states and the District of Columbia, it has historically concentrated its
business in the mid-Atlantic states. While this concentration has declined,
Maryland and New York contributed 12.8% and 12.4%, respectively, of IMC's total
loan purchase and origination volume for the year ended December 31, 1995, and
New York and New Jersey contributed 14.0% and 7.6%, respectively, of such volume
for the year ended December 31, 1996. IMC intends to expand and geographically
diversify its loan purchase and origination activities through acquisitions,
strategic alliances, continued correspondent expansion, expansion of its
nationwide retail branch office network, the Preferred Partners Program and
opportunities outside the United States. See ' -- New Products and
Services -- Preferred Partners Program.'
8
<PAGE>
<PAGE>
The following table shows geographic distribution of loan purchases and
originations for the periods shown.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED
(AUGUST 12, 1993) DECEMBER 31,
THROUGH --------------------
DECEMBER 31, 1993 1994 1995 1996
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
States(1):
New York................................................. 17.5% 11.7% 12.4% 14.0%
Michigan................................................. 10.0 7.3 8.8 7.8
New Jersey............................................... 4.0 6.6 9.9 7.6
Maryland................................................. 14.4 18.6 12.8 7.3
Florida.................................................. 1.8 4.2 6.2 6.7
Georgia.................................................. 5.6 3.2 3.5 5.2
Illinois................................................. 0.1 2.0 3.0 4.3
Ohio..................................................... 4.5 4.9 4.7 4.3
Pennsylvania............................................. 3.3 5.3 4.3 3.8
Virginia................................................. 2.0 5.4 3.8 3.0
California............................................... -- -- 0.3 3.0
All other states......................................... 36.8 30.8 30.3 33.0
</TABLE>
- ------------
(1) States are listed in order of percentage of loan purchases and originations
for the year ended December 31, 1996.
LOAN UNDERWRITING
IMC's origination volume is generated primarily from correspondents selling
loans to IMC either on a flow basis or through block sales. For correspondents
and brokers that originate loans on a flow basis, IMC provides them with its
underwriting guidelines. Loan applications received from correspondents and
brokers on a flow basis are classified according to certain characteristics
including available collateral, loan size, debt ratio, loan-to-value ratio and
the credit history of the applicant. Loan applicants with less favorable credit
ratings generally are offered loans with higher interest rates and lower
loan-to-value ratios than applicants with more favorable credit ratings. IMC
also purchases loans on a block sale basis, in which a correspondent makes
several loans without the preapproval of the Company and offers them to the
Company for block purchase. Because IMC only chooses loans that meet its
underwriting requirements and reunderwrites them, block loans follow the same
underwriting guidelines as flow loan purchases. To date, the Company has not
made a material change in its underwriting standards.
IMC maintains a staff of experienced underwriters based in its Florida,
Pennsylvania, New Jersey, Ohio, California, Michigan, Maryland and Rhode Island
offices. IMC's loan application and approval process generally is conducted via
facsimile submission of the credit application to IMC's underwriters. An
underwriter reviews the applicant's credit history based on the information
contained in the application and reports available from credit reporting bureaus
in order to determine if the applicant's credit history is acceptable under
IMC's underwriting guidelines. Based on this review, the underwriter assigns a
preliminary rating to the application. The proposed terms of the loan are then
communicated to the correspondent or broker responsible for the application who
in turn discusses the proposal with the loan applicant. When a potential
borrower applies for a loan through a branch office, the underwriter will
discuss the proposal directly with the applicant. IMC endeavors to respond, and
in most cases does respond, to the correspondent, broker or borrower within one
business day from when the application is received. If the applicant accepts the
proposed terms, the underwriter will contact the broker or the loan applicant to
gather additional information necessary for the closing and funding of the loan.
All loan applicants must have an appraisal of their collateral property
prior to closing the loan. IMC requires correspondents and brokers to use
licensed appraisers that are listed on or qualify for
9
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<PAGE>
IMC's approved appraiser list. IMC approves appraisers based upon a review of
sample appraisals, professional experience, education, membership in related
professional organizations, client recommendations and review of the appraiser's
experience with the particular types of properties that typically secure IMC's
loans. In the case of loans purchased in blocks, if an appraisal was performed
by an appraiser that is not approved by IMC, IMC will review the appraisal and
accept it if the appraisal meets its underwriting standards.
The decision to provide a loan to an applicant is based upon the value of
the underlying collateral, the applicant's creditworthiness and IMC's evaluation
of the applicant's ability to repay the loan. A number of factors determine a
loan applicant's creditworthiness, including debt ratios (the borrower's average
monthly expenses for debts, including fixed monthly expenses for housing, taxes
and installment debt, as a percentage of gross monthly income), payment history
on existing mortgages and the combined loan-to-value ratio for all existing
mortgages on a property.
Assessment of the applicant's ability to pay is one of the principal
elements in distinguishing IMC's lending specialty from methods employed by
traditional lenders, such as thrift institutions and commercial banks. All
lenders utilize debt ratios and loan-to-value ratios in the approval process.
Many lenders simply use software packages to score an applicant for loan
approval and fund the loan after auditing the data provided by the borrower. In
contrast, IMC employs experienced non-conforming mortgage loan underwriters to
scrutinize an applicant's credit profile and to evaluate whether an impaired
credit history is a result of previous adverse circumstances or a continuing
inability or unwillingness to meet credit obligations in a timely manner.
Personal circumstances including divorce, family illnesses or deaths and
temporary job loss due to layoffs and corporate downsizing will often impair an
applicant's credit record. Among IMC's specialties is the ability to identify
and assist this type of borrower in the establishment of improved credit.
Upon completion of the loan's underwriting and processing, the closing of
the loan is scheduled with a closing attorney or agent approved by IMC. The
closing attorney or agent is responsible for completing the loan transaction in
accordance with applicable law and IMC's operating procedures. Title insurance
that insures IMC's interest as mortgagee and evidence of adequate homeowner's
insurance naming IMC as an additional insured are required on all loans.
IMC has established classifications with respect to the credit profiles of
loans based on certain of the applicant's characteristics. Each loan applicant
is placed into one of four letter ratings 'A' through 'D,' with subratings
within those categories. Ratings are based upon a number of factors including
the applicant's credit history, the value of the property and the applicant's
employment status, and are subject to the discretion of IMC's trained
underwriting staff. Terms of loans made by IMC, as well as the maximum
loan-to-value ratio and debt service-to-income coverage (calculated by dividing
fixed monthly debt payments by gross monthly income), vary depending upon the
classification of the borrower. Borrowers with lower credit ratings generally
pay higher interest rates and loan origination fees. The general criteria
currently used by IMC's underwriting staff in classifying loan applicants are as
set forth below.
10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
'A' RISK 'B' RISK 'C' RISK 'D' RISK
-------- -------- -------- --------
<S> <C> <C> <C> <C>
General repayment............................ Has repaid Has generally May have May have
installment or repaid experienced experienced
revolving debt installment or significant past significant past
revolving credit credit problems credit problems
Existing mortgage loans...................... Current at Current at May not be Must be paid in
application time application time current at full from loan
and a maximum of and a maximum of application time proceeds and no
two 30-day late three 30-day and a maximum of more than 149
payments in the late payments in four 30-day late days delinquent
last 12 months the last 12 payments and one at closing and
months 60-day late an explanation
payment in the is required
last 12 months
Non-mortgage credit.......................... Minor derogatory Some prior Significant Significant
items allowed defaults allowed prior prior defaults
with a letter of but major credit delinquencies may have
explanation; no or installment may have occurred, but
open collection debt paid as occurred, but must demonstrate
accounts or agreed may major credit or an ability to
charge-offs, offset some installment debt maintain
judgements or delinquency; paid as agreed regularity in
liens open may offset some payment of
charge-offs, delinquency credit
judgments or obligations in
liens are the future
permitted on a
case-by-case
basis
Bankruptcy filings........................... Discharged more Discharged more Discharged more Discharged prior
than four years than two years than one year to closing
prior to closing prior to closing prior to closing
and credit and credit and credit
reestablished reestablished reestablished
Debt service-to-income ratio................. Generally 45% or Generally 45% or Generally 50% or Generally 50% or
less less less less
Maximum loan-to-value ratio:
Owner-occupied............................... Generally 80% Generally 80% Generally 75% Generally 65%
(or 90%*) for a (or 85%*) for a (or 80% for (or 70% for
one- to two- one- to two- first liens*) first liens*)
family family residence for a one- to for a one- to
residence; 75% two- family four- family
for a residence; 65% residence; 60%
condominium for a for a three- to
condominium; 60% four-family
for a three-to residence or
four-family condominium
residence
Non-owner-occupied........................... Generally 70% Generally 70% Generally 60% Generally 55%
for a one- to for a one- to for a one- to for a one- to
four-family two-family two-family four-family
residence residence residence residence
</TABLE>
- ------------
* On an exception basis.
------------------------
The Company uses the foregoing categories and characteristics as guidelines
only. On a case-by-case basis, the Company may determine that the prospective
borrower warrants an exception. Exceptions may generally be allowed if the
application reflects certain compensating factors such as loan-to-value ratio,
debt ratio, length of employment and other factors. For example, a higher debt
ratio may be acceptable with a lower loan-to-value ratio. Accordingly, the
Company may classify in a more favorable risk category certain mortgage loans
that, in the absence of such compensating factors, would satisfy only the
criteria of a less favorable risk category.
11
<PAGE>
<PAGE>
The following table sets forth certain information with respect to IMC's
loan purchases and originations by borrower classification, along with weighted
average coupons, for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1994 1995 1996
----------------------------- ----------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
BORROWER % OF AVERAGE % OF AVERAGE % OF AVERAGE
CLASSIFICATION TOTAL TOTAL COUPON TOTAL TOTAL COUPON TOTAL TOTAL COUPON
- ----------------- -------- ----- -------- -------- ----- -------- ---------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'A' Risk......... $155,729 55.0% 10.6% $276,120 44.4% 11.4% $ 883,094 49.9% 10.9%
'B' Risk......... 74,527 26.3 11.6 177,149 28.5 12.0 442,629 25.0 11.5
'C' Risk......... 38,022 13.5 13.0 125,811 20.2 13.0 338,330 19.1 12.3
'D' Risk......... 14,646 5.2 14.4 42,549 6.9 14.4 106,259 6.0 13.6
-------- ----- -------- ----- ---------- -----
Total....... $282,924 100.0% $621,629 100.0% $1,770,312 100.0%
-------- ----- -------- ----- ---------- -----
-------- ----- -------- ----- ---------- -----
</TABLE>
The weighted average loan-to-value ratio of the Company's loans has
increased due to increasing competition in the non-conforming home equity loan
market and, to a lesser extent, an increase between 1995 and 1996 in the
percentage of the Company's loans in the 'A' Risk category. For the year ended
December 31, 1995, loans with loan-to-value ratios in excess of 80% amounted to
$173.1 million, or 27.9% of total purchases and originations in that year. For
the year ended December 31, 1996, loans with loan-to-value ratios in excess of
80% amounted to $700.4 million, or 39.6% of total purchases and originations in
that year. The increase in loan purchases and originations with loan-to-value
ratios between 80% and 100% of $527.3 million during 1996 was primarily related
to the increase in purchases and originations of 'A' Risk loans of $607.0
million during 1996 (loan purchases and originations of 'A' Risk loans were
$276.1 million and $883.1 million for the years ended December 31, 1995 and
1996, respectively). The majority of the Company's loans with loan-to-value
ratios in excess of 80% are 'A' Risk loans, and substantially all of such loans
are 'A' risk or 'B' Risk loans. The Company does not anticipate any material
increase in the percentages of loans purchased or originated with loan-to-value
ratios in excess of 80% solely as a result of the acquisitions completed in
January and February 1997; however some of the companies that the Company
acquired in 1997 originate or purchase loans with loan-to-value ratios in excess
of 100%, but only when they have a prior 'take-out' commitment for such loans.
At the present time neither the Company, nor the companies it acquired, has
included such loans in its securitized pools or held such loans for more than
thirty days.
LOAN SALES
Currently, IMC sells the loans it purchases or originates through one of
two methods: (i) securitization, which involves the private placement or public
offering of pass-through mortgage-backed securities; and (ii) whole loan sales,
which involve selling blocks of loans to single purchasers. This dual approach
allows IMC the flexibility to better manage its cash flow, take advantage of
favorable conditions in either the securitization or whole loan market when
selling its loan production, diversify its exposure to the potential volatility
of the capital markets and maximize the revenues associated with the gain on
sale of loans given market conditions existing at the time of disposition. For
the years ended December 31, 1994, 1995 and 1996, IMC sold $261.9 million,
$458.8 million and $1.06 billion of loan production, respectively.
12
<PAGE>
<PAGE>
The following table sets forth certain information with respect to IMC's
channels of loan sales by type of sale for the periods shown.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(AUGUST 12,
1993) YEAR ENDED DECEMBER 31,
THROUGH ------------------------------------------------------------
DECEMBER 31,
1993 1994 1995 1996
--------------- ---------------- ---------------- ------------------
% OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
------- ----- -------- ----- -------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securitizations............... $ -- 0.0% $ 81,637 31.2% $388,363 84.7% $ 935,000 87.9%
Whole loan sales.............. 21,636 100.0 180,263 68.8 70,400 15.3 128,868 12.1
------- ----- -------- ----- -------- ----- ---------- -----
Total loan sales......... $21,636 100.0% $261,900 100.0% $458,763 100.0% $1,063,868 100.0%
------- ----- -------- ----- -------- ----- ---------- -----
------- ----- -------- ----- -------- ----- ---------- -----
</TABLE>
Securitizations. Through December 31, 1996, the Company completed eight
securitizations totaling $1.4 billion. The securities sold in each
securitization, which were enhanced by an insurance policy, received a credit
rating of AAA by Standard and Poor's and Aaa by Moody's.
During the year ended December 31, 1996, IMC sold $935.0 million of its
loan volume through securitizations. IMC markets its loan inventory through
securitization when management believes that employing this strategy will create
greater long-term economic benefit to IMC stockholders. IMC intends to continue
to conduct loan sales through securitizations, either in private placements or
in public offerings, when market conditions are attractive for such loan sales.
Of IMC's eight securitizations through December 31, 1996, five were public
offerings and three were private offerings. When IMC securitizes loans, it sells
a portfolio of loans to a Real Estate Mortgage Investment Conduit (REMIC) that
issues classes of certificates representing undivided ownership interests in the
REMIC. IMC may be required either to repurchase or to replace loans which do not
conform to the representations and warranties made by IMC in the pooling and
servicing agreements entered into when a portfolio of loans is sold through a
securitization. In its capacity as servicer for each securitization, the Company
collects and remits principal and interest payments to the appropriate REMIC,
which in turn passes through payments to certificate owners. IMC retains the
servicing rights and an interest in the I/O and residual classes of certificates
of the REMIC.
Each REMIC is supported by an insurance policy from a monoline insurance
company, which insures the timely payment of interest and the ultimate payment
of principal of the AAA/Aaa-rated interests in the REMIC. In addition to such
insurance policies, credit enhancement is provided by over-collateralization,
which is intended to result in receipts and collections on the loans in excess
of the amounts required to be distributed to certificate holders of the senior
interests. Although expected loss is calculated into the pricing of the REMIC,
to the extent that borrowers default on the payment of principal and interest
above the expected rate of default, such loss will reduce the value of the
Company's residual class certificate. If payment defaults exceed the amount of
over-collateralization, the insurance policy maintained by the REMIC will pay
any further losses experienced by certificate holders of the senior interests in
the REMIC.
As part of IMC's cash flow management strategy, the first six
securitizations were structured so that ContiFinancial received a portion of the
I/O and residual interest in the related REMIC. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Transactions with
ContiFinancial.'
Whole Loan Sales. Whole loan sales represented all of IMC's loan sales
during 1993. With the initiation of the sale of loans through securitizations,
whole loan sales declined to 68.8%, 15.3% and 12.1% of total loan sales for the
years ended December 31, 1994, 1995 and 1996, respectively. Upon the sale of a
loan portfolio, IMC generally receives a premium, representing a value in excess
of the par value of the loans (par value representing the unpaid balance of the
loan amount). IMC maximizes its premium on whole loan sale revenue by closely
monitoring institutional investors' requirements and focusing on originating the
types of loans that meet those requirements and for which institutional
purchasers tend to pay higher rates.
13
<PAGE>
<PAGE>
IMC will sell some of its loan volume to various institutional investors on
a non-recourse basis with customary representations and warranties covering
loans sold. IMC may be required to repurchase a loan in the event that its
representations and warranties with respect to such loans prove to be
inaccurate. Occasionally, IMC will agree to rebate a portion of the premium
earned if a loan is prepaid during a limited period of time after sale, usually
six months and no more than one year. For the years ended December 31, 1994,
1995 and 1996, IMC was required to rebate $287,347, $167,951, and $99,578,
respectively, in premiums when certain loans were prepaid during the contractual
rebate period. In its purchase agreements with its correspondents, IMC requires
its correspondents to rebate premium payments if loans sold to IMC are prepaid
within a specified period of time after the sale. For the years ended December
31, 1994, 1995 and 1996, premium rebates due to IMC were $89,113, $1.4 million
and $2.9 million, respectively.
LOAN SERVICING AND COLLECTIONS
IMC has been servicing loans since April 1994. IMC's loan servicing
operation is divided into three departments: (i) collections; (ii) customer
service for both borrowers and investors; and (iii) tax, insurance and tax and
insurance escrow. These departments monitor loans, collect current payments due
from borrowers, remit principal and interest payments to current owners of loans
and pay taxes and insurance. The collections department furnishes reports and
enforces the holder's rights, including recovering delinquent payments,
instituting loan foreclosures and liquidating the underlying collateral. IMC
intends to increase its loan servicing operations and thus its revenue stream by
continuing to retain the servicing rights on all its securitized loans and
certain whole loan sales. IMC retained the servicing rights to 87.3% or $400.5
million of the loans it sold in 1995 and to 90.5% or $963.2 million of the loans
it sold in 1996.
IMC funds and closes loans throughout the month. Most of IMC's loans
require a first payment 30 days after funding. Accordingly, IMC's servicing
portfolio consists of loans with payments due at varying times each month. This
system ameliorates the cyclical highs and lows that some servicing companies
experience as a result of heavily concentrated payment dates.
As of December 31, 1996, IMC was servicing loans representing an aggregate
of $2.15 billion. Revenues generated from loan servicing amounted to 7.8% and
10.3% of IMC's total revenues for the years ended December 31, 1995 and 1996,
respectively. IMC anticipates that loan servicing will contribute a larger
portion of total revenues in future periods. Management believes that the
Company's loan servicing provides a consistent revenue stream to augment its
loan purchasing and originating activities.
IMC's collections policy is designed to identify payment problems
sufficiently early to permit IMC to address delinquency problems quickly and,
when necessary, to act to preserve equity before a property goes into
foreclosure. IMC believes that these policies, combined with the experience
level of independent appraisers engaged by IMC, help to reduce the incidence of
charge-offs on a first or second mortgage loan.
Collection procedures commence upon identification of a past due account by
IMC's automated servicing system. If the first payment due is delinquent, a
collector will telephone to remind the borrower of the payment. Five days after
any payment is due, a written notice of delinquency is sent to the borrower.
Eleven days after payment is due, the account is automatically placed in the
appropriate collector's queue and the collector will send a late notice to the
borrower. During the delinquency period, the collector will continue to
frequently contact the borrower. Company collectors have computer access to
telephone numbers, payment histories, loan information and all past collection
notes. All collection activity, including the date collection letters were sent
and detailed notes on the substance of each collection telephone call, is
entered into a permanent collection history for each account. Additional
guidance with respect to the collection process is derived through frequent
communication with IMC's senior management.
IMC's loan servicing software also tracks and maintains homeowners'
insurance information. Expiration reports are generated weekly listing all
policies scheduled to expire within 30 days. When policies lapse, a letter is
issued advising the borrower of the lapse and that IMC will obtain force-placed
14
<PAGE>
<PAGE>
insurance at the borrower's expense. IMC also has an insurance policy in place
that provides coverage automatically for IMC in the event that IMC fails to
obtain force-placed insurance.
Notwithstanding the above, there are occasions when a charge-off occurs.
Prior to a foreclosure sale, IMC performs a foreclosure analysis with respect to
the mortgaged property to determine the value of the mortgaged property and the
bid that IMC will make at the foreclosure sale. This analysis includes: (i) a
current valuation of the property obtained through a drive-by appraisal
conducted by an independent appraiser; (ii) an estimate of the sale price of the
mortgaged property obtained by sending two local realtors to inspect the
property; (iii) an evaluation of the amount owed, if any, to a senior mortgagee
and for real estate taxes; and (iv) an analysis of marketing time, required
repairs and other costs, such as real estate broker fees, that will be incurred
in connection with the foreclosure sale.
All foreclosures are assigned to outside counsel located in the same state
as the secured property. Bankruptcies filed by borrowers are also assigned to
appropriate local counsel who are required to provide monthly reports on each
loan file.
The Company's servicing portfolio had aggregate principal balances of $0,
$92.0 million, $535.8 million and $2.15 billion at December 31, 1993, 1994, 1995
and 1996, respectively.
The following table provides certain delinquency and default experience as
a percentage of outstanding principal balances of IMC's servicing portfolio for
the periods shown.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Delinquency percentages(1):
30-59 days.................................................... 0.72% 2.54% 3.01%
60-89 days.................................................... 0.15 0.59 1.01
90+ days...................................................... 0.00 0.30 1.28
---- ---- ----
Total delinquency........................................ 0.87% 3.43% 5.30%
---- ---- ----
Default percentages(2):
Foreclosure................................................... 0.00% 0.75% 0.94%
Bankruptcy.................................................... 0.12 0.25 0.53
---- ---- ----
Total default............................................ 0.12% 1.00% 1.47%
---- ---- ----
Total delinquency and default...................................... 0.99% 4.43% 6.77%
---- ---- ----
---- ---- ----
</TABLE>
- ------------
(1) Represents the percentages of account balances contractually past due,
exclusive of home equity loans in foreclosure, bankruptcy and real estate
owned.
(2) Represents the percentages of account balances on loans in foreclosure and
bankruptcy, exclusive of real estate owned.
15
<PAGE>
<PAGE>
The following table provides certain delinquency and default experience as
a percentage of outstanding principal balance for each of the Company's
securitization trusts completed through December 31, 1996, prior to any
potential recoveries:
DELINQUENCY AND DEFAULTS FOR THE COMPANY'S SECURITIZATIONS(1)(2)(3)
<TABLE>
<CAPTION>
1994-1 1995-1 1995-2
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days................................... $ 1,316,812 2.07% $2,286,637 2.80% $ 1,028,339 0.99%
60-89 days................................... 273,899 0.43 242,681 0.30 580,192 0.56
90 days and over............................. 38,834 0.06 190,960 0.23 119,429 0.11
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 1,629,545 2.56% $2,720,278 3.33% $ 1,727,960 1.66%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,128,767 3.35% $1,967,810 2.41% $ 2,642,563 2.54%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<CAPTION>
1995-3
--------------------
As of March 31, 1996:
<S> <C> <C>
Delinquency:
30-59 days................................... $ 2,451,357 1.74%
60-89 days................................... 102,685 0.07
90 days and over............................. 358,533 0.26
----------- ----
Total....................................... $ 2,912,575 2.07%
----------- ----
----------- ----
Total defaults............................... $ 1,665,789 1.19%
----------- ----
----------- ----
<CAPTION>
1994-1 1995-1 1995-2
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 1,001,798 1.74% $1,678,736 2.33% $ 3,232,465 3.37%
60-89 days................................... 386,579 0.67 238,285 0.33 800,972 0.84
90 days and over............................. 120,648 0.21 147,389 0.20 2,122 0.00
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 1,509,025 2.62% $2,064,410 2.86% $ 4,035,559 4.21%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 1,611,169 2.80% $1,920,443 2.67% $ 3,053,366 3.19%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<CAPTION>
1995-3
--------------------
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 5,086,087 3.86%
60-89 days................................... 505,242 0.38
90 days and over............................. 477,597 0.36
----------- ----
Total....................................... $ 6,068,926 4.60%
----------- ----
----------- ----
Total defaults............................... $ 2,703,193 2.05%
----------- ----
----------- ----
<CAPTION>
1994-1 1995-1 1995-2
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 2,131,473 4.01% $1,602,212 2.45% $ 2,541,594 2.96%
60-89 days................................... 299,147 0.56 321,059 0.49 1,150,718 1.34
90 days and over............................. 222,911 0.42 141,310 0.22 466,260 0.54
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 2,653,531 4.99% $2,064,582 3.16% $ 4,158,572 4.84%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,287,599 4.31% $1,961,704 3.00% $ 4,115,802 4.79%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<CAPTION>
1995-3
--------------------
<S> <C> <C>
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 999,636 0.85%
60-89 days................................... 644,704 0.55
90 days and over............................. 340,822 0.29
----------- ----
Total....................................... $ 1,985,162 1.69%
----------- ----
----------- ----
Total defaults............................... $ 3,072,556 2.62%
----------- ----
----------- ----
<CAPTION>
1994-1 1995-1 1995-2
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 2,615,101 5.42% $1,351,891 2.30% $ 3,314,742 4.31%
60-89 days................................... 461,981 0.96 562,719 0.96 849,593 1.10
90 days and over............................. 264,199 0.55 103,720 0.18 1,527,337 1.99
----------- ---- ---------- ---- ----------- ----
Total..................................... $ 3,341,281 6.93% $2,018,330 3.44% $ 5,691,672 7.40%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,568,471 5.32% $2,229,011 3.80% $ 3,597,044 4.68%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<CAPTION>
1995-3
--------------------
<S> <C> <C>
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 5,797,400 5.44%
60-89 days................................... 899,318 0.84
90 days and over............................. 702,633 0.66
----------- ----
Total..................................... $ 7,399,351 6.94%
----------- ----
----------- ----
Total defaults............................... $ 3,319,749 3.11%
----------- ----
----------- ----
<PAGE>
<CAPTION>
1996-1 1996-2 1996-3
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days................................... $ 3,462,018 2.04%
60-89 days................................... 628,949 0.37
90 days and over............................. 533,810 0.31
----------- ----
Total....................................... $ 4,624,777 2.72%
----------- ----
----------- ----
Total defaults............................... $ 484,716 0.29%
----------- ----
----------- ----
<CAPTION>
1996-4
--------------------
<S> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
<CAPTION>
1996-1 1996-2 1996-3
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 3,544,403 2.20% $4,045,730 2.09%
60-89 days................................... 1,090,040 0.68 916,283 0.47
90 days and over............................. 641,525 0.40 843,325 0.44
----------- ---- ---------- ----
Total....................................... $ 5,275,968 3.28% $5,805,338 3.00%
----------- ---- ---------- ----
----------- ---- ---------- ----
Total defaults............................... $ 1,710,018 1.06% $ 470,978 0.24%
----------- ---- ---------- ----
----------- ---- ---------- ----
<CAPTION>
1996-4
--------------------
<S> <C> <C>
As of June 30, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
<CAPTION>
1996-1 1996-2 1996-3
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 5,206,575 3.44% $3,598,472 1.96% $ 6,948,738 2.88%
60-89 days................................... 1,665,750 1.10 1,451,115 0.79 3,222,051 1.34
90 days and over............................. 852,773 0.56 1,222,661 0.67 1,670,647 0.69
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 7,725,098 5.10% $6,272,248 3.41% $11,841,436 4.91%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,671,238 1.76% $4,286,773 2.33% $ 1,693,101 0.70%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<CAPTION>
1996-4
--------------------
<S> <C> <C>
As of September 30, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
<CAPTION>
1996-1 1996-2 1996-3
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 8,386,098 6.10% $3,661,557 2.17% $ 3,324,516 1.46%
60-89 days................................... 2,462,853 1.79 1,635,260 0.97 3,404,998 1.50
90 days and over............................. 2,820,700 2.05 1,823,195 1.08 5,651,334 2.48
----------- ---- ---------- ---- ----------- ----
Total....................................... $13,669,651 9.94% $7,120,012 4.22% $12,380,848 5.44%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,723,282 1.98% $4,665,216 2.76% $ 3,175,997 1.39%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<CAPTION>
1996-4
--------------------
<S> <C> <C>
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 6,440,166 2.17%
60-89 days................................... 2,481,880 0.84
90 days and over............................. 4,942,472 1.67
----------- ----
Total....................................... $13,864,518 4.68%
----------- ----
----------- ----
Total defaults............................... $ 629,253 0.21%
----------- ----
----------- ----
</TABLE>
(footnotes on next page)
16
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Delinquency is the dollar value of account balances contractually past due,
excluding loans in foreclosure, bankruptcy and real estate owned.
(2) Defaults are the dollar value of account balances contractually past due on
loans in foreclosure and bankruptcy, exclusive of real estate owned.
(3) The percentage of loans with loan-to-value ratios between 80% and 100%
included in the 1994-1, 1995-1, 1995-2, 1995-3, 1996-1, 1996-2, 1996-3 and
1996-4 securitization trusts, as of the closing date of each securitization,
was 24.2%, 32.4%, 26.6%, 10.4%, 11.0% 12.2%, 15.7% and 18.3%, respectively.
The LTV's are calculated as of the origination date of each mortgage loan
based on the appraised value at the time of origination.
---------------------------
The following table describes certain loan loss experience of IMC's
servicing portfolio of home equity loans for the fiscal years ended December 31,
1994, 1995 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 1996
------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amount outstanding(1)........................................... $52,709 $294,252 $1,207,172
Losses(2)............................................................... -- 279 1,580
Losses as a percentage of average amount outstanding.................... 0.00% 0.09% 0.13%
</TABLE>
(1) Average amount outstanding during the period is the arithmetic average of
the principal balances of home equity loans outstanding on the last business
day of each month during the period.
(2) Losses are actual losses incurred on liquidated properties for each
respective period. Losses include all principal, foreclosure costs and
accrued interest to date.
MARKETING
Correspondent and Broker Networks. Marketing to correspondents and brokers
is conducted through IMC's business development representatives who establish
and maintain relationships with IMC's principal sources of loan purchases and
originations, including financial institutions and mortgage bankers. The
business development representatives provide various levels of information and
assistance to correspondents and brokers and are principally responsible for
maintaining IMC's relationships with its networks. Business development
representatives endeavor to increase the volume of loan originations from
brokers and correspondents located within the geographic territory assigned to
that representative. The representatives visit customers' offices, attend trade
shows and supervise advertisements in broker trade magazines. The
representatives also provide IMC with information relating to correspondents,
borrowers and brokers and products and pricing offered by competitors and new
market entrants, all of which assist IMC in refining its programs in order to
offer competitive products. The business development representatives are
compensated with a base salary and commissions based on the volume of loans that
are purchased or originated as a result of their efforts.
Direct Consumer Lending. During 1996, IMC marketed its direct consumer
lending services through 17 branch offices. IMC added 49 branches through
acquisitions in January and February 1997 and intends to continue to open new
retail branches during 1997. IMC's direct consumer loan expansion strategy
involves: (i) targeting cities where the population density and economic
indicators are favorable for home equity lending, the foreclosure rate is within
normal ranges and the non-conforming loan market has been underserved; (ii)
testing the target market prior to the establishment of a branch office, and
where local regulations permit, via newspaper, radio and direct mail advertising
and through a toll-free telephone number which routes borrower inquiries
directly to a loan officer in the Company's Tampa, Florida office; (iii) if test
marketing is positive, establishing a small branch office, generally with an
initial staff of two business development representatives; and (iv) setting up
branch offices in executive office space with short-term leases, which
eliminates high startup costs for office equipment, furniture and leasehold
improvement and allows IMC to exit the market easily if the office does not
17
<PAGE>
<PAGE>
meet expectations. The branch office network is used for marketing to and
meeting with IMC's local borrowers and brokers.
ACQUISITIONS AND STRATEGIC ALLIANCES
The Company is actively pursuing a strategy of acquiring originators of
non-conforming home equity loans. IMC's acquisition strategy focuses on entities
that originate non-conforming mortgages either directly from the consumer or
through broker networks. In 1996, IMC acquired Equitystars and in January and
February 1997 completed the acquisitions of Mortgage America, CoreWest, Equity
Mortgage and American Reduction. Equitystars, Mortgage America and Equity
Mortgage were Industry Partners. Management believes that the acquisitions of
these and similar non-conforming home equity loan originators will benefit IMC
by: (i) increasing IMC's loan production volume by capturing all of the acquired
company's production instead of only a portion; (ii) improving IMC's
profitability and profit margins because broker and direct-to-consumer
originated loans typically result in better profit margins than loans purchased
from correspondents; (iii) adding experienced management; and (iv) broadening
IMC's distribution system for offering new products. In order to incent
management of the acquired companies, IMC typically structures its acquisitions
to include an initial payment upon closing of the transaction and to provide for
contingent payments tied to future production and profitability of the acquired
company.
IMC believes that by using a 'family of companies' approach to potential
acquisitions it is able to differentiate itself from other potential acquirers
competing for acquisitions of non-conforming mortgage lenders. Under this
approach, IMC seeks to derive the benefit of the entrepreneurial energies and
organizational and marketing skills already developed by existing companies by
allowing those companies to operate after acquisition by the Company as
relatively independent lending units. IMC believes this approach appeals to
owners of certain existing companies who see a number of benefits from IMC's
concept, including: (i) the benefit of being allowed to continue to run their
companies as subsidiaries or independent divisions of IMC after acquisition;
(ii) the assurance that the previous owner controls the employees of the
acquired company following the acquisition; and (iii) the benefit of financial
support from IMC, which provides warehouse and working capital lines as needed
on an agreed business plan, thereby allowing the former owners to concentrate on
growing their business and obtaining efficient execution of the loan marketing
process.
Pursuant to this strategy, IMC has acquired during January and February
1997 the outstanding common stock of CoreWest and all of the assets of American
Reduction, Equity Mortgage, and Mortgage America. During 1996, IMC acquired all
of the assets of Equitystars and also formed a joint venture in the United
Kingdom. Each of the foregoing acquisitions will be accounted for under the
purchase method of accounting. Most acquisitions include earn-out arrangements
that provide the sellers with additional consideration if the acquired company
reaches certain performance targets after the acquisition. Any such contingent
payments will result in an increase in the amount of goodwill recorded on IMC's
balance sheet related to such acquisition. Goodwill represents the excess of
cost over fair market value of the net tangible assets acquired and is amortized
through periodic charges to earnings for up to 30 years.
18
<PAGE>
<PAGE>
The Company's acquisitions are summarized in the table below:
<TABLE>
<CAPTION>
AMERICAN
EQUITYSTARS MORTGAGE AMERICA COREWEST EQUITY MORTGAGE REDUCTION
---------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Industry Partner..... Yes Yes No Yes No
Effective date of
acquisition........ 1/1/96 1/1/97 1/1/97 1/1/97 2/1/97
Initial purchase
price:
Common Stock..... 239,666 shares 1,790,000 shares 488,404 shares -- --
Cash............. -- -- -- $150,000 in $9,150,000
excess of net
assets
Approximate 1996
originations....... $100 million $248 million $48 million $36 million $80 million
1996 originations
purchased by IMC... N/A $45 million $10 million $12 million $2 million
Headquarters......... Providence, RI Bay City, MI Los Angeles, CA Baltimore, MD Owings Mills, MD
Retail branch
offices............ 2 32 9 3 5
Primary states of
operations......... CT, ME, MA, NH, AZ, AK, CO, DE, CA, CO, OR, UT, DE, DC, GA, MD, MD, PA
NY, RI FL, GA, IL, IA, WA PA, VA
IN, KS, KY, MD,
MI, MN, MO, NJ,
NC, OH, OK, PA,
SC, TN, TX, VT,
VA, WA, WV, WI,
WY
</TABLE>
ACQUISITION OF EQUITYSTARS
Effective January 1, 1996, IMC acquired all of the assets of Equitystars,
one of the Industry Partners. Equitystars is a non-conforming lender that
purchases and originates residential mortgage loans in Rhode Island, New York,
Connecticut, Massachusetts, Maine and New Hampshire.
The purchase price for all of the assets of Equitystars consisted of a $2.0
million base payment in the form of 239,666 shares of Common Stock, and up to an
aggregate of $2.55 million of contingent payments, to be paid over two years
based on a formula keyed to the performance of the non-conforming and conforming
mortgage loan business of Equitystars during the two years subsequent to
closing.
ACQUISITION OF MORTGAGE AMERICA
Effective January 1, 1997, IMC acquired all of the assets of Mortgage
America, an Industry Partner. Mortgage America is a non-conforming lender based
in Bay City, Michigan that originates residential mortgage loans from a network
of 32 retail offices located in 29 states. Mortgage America originated over $248
million of residential mortgage loans in 1996, including over $69 million during
the last quarter of 1996. IMC purchased $45.3 million of residential mortgage
loans from Mortgage America during 1996, including $21.1 million during the last
quarter of 1996.
The purchase price for all of the assets of Mortgage America was an initial
payment of 1,790,000 shares of Common Stock and assumption of a stock option
plan which could result in issuance of an additional 334,596 shares of Common
Stock and a contingent payment of up to 2,770,000 additional shares of Common
Stock at the end of three years based on the growth and profitability of
Mortgage America during that period.
ACQUISITION OF COREWEST
Effective January 1, 1997, IMC acquired all of the outstanding common stock
of CoreWest, a non-conforming lender based in Los Angeles, California. CoreWest,
which commenced operations in early 1996, originates residential mortgage loans
primarily through a network of nine mortgage centers located in California,
Colorado, Washington, Utah and Oregon. CoreWest originated over $48 million of
residential mortgage loans in 1996, including over $22 million during the last
quarter of 1996. IMC
19
<PAGE>
<PAGE>
purchased $10.3 million of residential mortgage loans from CoreWest during 1996,
all of which was during the last quarter of 1996.
The purchase price for all of the outstanding common stock of CoreWest was
an initial payment of 488,404 shares of Common Stock and a contingent payment of
additional shares of Common Stock at the end of a two year period based on the
profitability of CoreWest during that period. There is no cap on the number of
shares which may be required to be issued as the contingent payment.
ACQUISITION OF EQUITY MORTGAGE
Effective January 1, 1997, IMC acquired all of the assets of Equity
Mortgage, an Industry Partner. Equity Mortgage is a non-conforming lender that
originates residential mortgage loans from its offices in the greater Baltimore
metropolitan region, Delaware and Pennsylvania. Equity Mortgage originated
approximately $36 million of residential mortgage loans in 1996, including over
$11 million during the last quarter of 1996. IMC purchased $12.5 million of
residential mortgage loans from Equity Mortgage during 1996, including $3.3
million during the last quarter of 1996.
The purchase price for Equity Mortgage was a cash payment of $150,000 in
excess of its net assets. In connection with the acquisition, the Company
entered into a four year employment agreement with the former owner of Equity
Mortgage, Mr. Mark Greenberg, pursuant to which the Company is obligated to pay
Mr. Greenberg 1.5% of the principal amount of non-conforming loans originated by
the Equity Mortgage division of the Company during such four years, up to a
maximum amount that does not exceed the net income of the division.
ACQUISITION OF AMERICAN REDUCTION
Effective February 1, 1997, IMC acquired all of the assets of American
Reduction, a non-conforming lender based in Owings Mills, Maryland. American
Reduction originates residential mortgage loans from its main office in Owings
Mills, and four satellite offices located in Pennsylvania. American Reduction
originated over $80 million of residential mortgage loans in 1996, including
over $28 million during the last quarter of 1996. IMC did not purchase a
significant amount of residential mortgage loans from American Reduction in
1996.
The purchase price for all of the assets of American Reduction was an
initial payment of $9.15 million and a cash contingent payment based on a
multiple of the average after-tax earnings of American Reduction for the two
year period ending December 31, 1999. At the Company's election, the contingent
payment may be made in shares of Common Stock.
STRATEGIC ALLIANCES
In order to increase the Company's volume and diversify its sources of loan
originations, the Company seeks to enter into strategic alliances with selected
mortgage lenders, pursuant to which the Company provides working capital and
financing arrangements and a commitment to purchase qualifying loans. In return,
the Company expects to receive a more predictable flow of loans and, in some
cases, an option or obligation to acquire an equity interest in the related
strategic participant. To date, the Company has completed two strategic
alliances.
UK JOINT VENTURE
In April 1996, the Company formed Preferred Mortgages, a UK joint venture.
The Joint Venture Partners are IMC, Foxgard Limited ('Foxgard') and Financial
Security Assurance Inc. ('FSA'). Preferred Mortgages is owned 45% by IMC, 45% by
Foxgard and 10% by FSA. Through Preferred Mortgages, IMC intends to explore
opportunities to serve what management believes to be an underserved segment of
the home equity market in the UK by lending to borrowers with impaired credit
profiles similar to its domestic customers. Preferred Mortgages has a `L'47.5
million (approximately $76 million as of January 31, 1997) line of credit from
National Westminster Bank, Plc for the purchase and origination of mortgage
loans (the 'NatWest Facility'), and FSA has provided an insurance policy as
credit enhancement for the NatWest Facility. Preferred Mortgages is currently
originating loans at a
20
<PAGE>
<PAGE>
rate of approximately `L'1.2 million, (or $1.9 million, as of January 31, 1997)
per month. Additionally, IMC intends to explore opportunities to serve
underserved nonconforming segments of the home equity loan markets in other
locations outside the United States.
NEW PRODUCTS AND SERVICES
SECURED CREDIT CARDS
In late 1996, IMC, through its wholly owned subsidiary, IMC Credit Card,
Inc. ('IMCCI'), entered into a joint venture (the 'Credit Card Joint Venture')
with Lakeview Credit Card Services, Inc. ('Lakeview Credit'), a wholly owned
subsidiary of Lakeview, the parent of one of the Industry Partners. The Credit
Card Joint Venture is owned 50% by IMCCI and 50% by Lakeview Credit. If a
customer wishes to borrow an amount less than that permitted by the Company's
underwriting guidelines, the Company will offer the borrower an opportunity to
borrow an additional amount up to the limit permitted by underwriting guidelines
and use the excess proceeds as collateral for a secured credit card. Those
excess proceeds are deposited in an interest-bearing account at Lakeview and are
used as collateral for a secured credit card issued by IMCCI.
HOME EQUITY LINE OF CREDIT ('HELOC')
In late 1996, IMC introduced the HELOC product, which enables customers to
borrow on a revolving basis against the equity of their homes. After repayment
of the initial advance, the availability of credit under the line increases in
proportion to the amount repaid. In the past, this type of product has been
offered primarily by commercial banks due to the complexity of the methodology
necessary to process and maintain the loans. IMC developed the methodology to
facilitate the HELOC program through an agreement with a large commercial bank.
This new product offers the convenience of a revolving mortgage credit line to
the non-conforming borrower. IMC offers HELOCs to borrowers using the same
general underwriting criteria IMC uses for its non-conforming lending business.
PREFERRED PARTNERS PROGRAM
As originally conceived, the Preferred Partners Program was for the benefit
of mortgage companies attempting to diversify their product offering and enter
the non-conforming loan business. Now, however, the Preferred Partners Program
has expanded to encompass a diverse group of projects with a common goal: to
introduce certain entities not previously involved in non-conforming lending to
the business. The entities taking part in the Preferred Partners Program now
include credit unions, banks and brokerage houses. Under the program, IMC acts
as a consultant in certain aspects of the non-conforming loan business,
including marketing, regulatory compliance, underwriting, risk-adjusted pricing,
processing, funding, servicing and selling loans. Working with the companies
either on-site or out of IMC's offices, IMC helps the entities develop new
product lines that they would not typically underwrite on their own. In return,
IMC anticipates receiving a part of the production generated by the entity. To
date, the Preferred Partners Program has not generated a significant amount of
loan production for the Company.
COMPETITION
As a purchaser and originator of mortgage loans the proceeds of which are
used for a variety of purposes, including to consolidate debt, to finance home
improvements and to pay educational expenses, the Company faces intense
competition primarily from other mortgage banking companies and commercial
banks, credit unions, thrift institutions, credit card issuers and finance
companies. Many of these competitors are substantially larger and have more
capital and other resources than the Company. Furthermore, numerous large
national finance companies and originators of conforming mortgages have expanded
from their conforming origination programs and have allocated resources to the
origination of non-conforming loans. In addition, many of these larger mortgage
companies and commercial banks have begun to offer products similar to those
offered by the Company, targeting customers similar to those of the Company. The
entrance of these competitors into the Company's market requires the Company to
pay higher premiums for loans it purchases, increases the likelihood of
21
<PAGE>
<PAGE>
earlier prepayments through refinancings and could have a material adverse
effect on the Company's results of operations and financial condition. In
addition, competition could also result in the purchase or origination of loans
with lower interest rates and higher loan-to-value ratios, which could have a
material adverse effect on the Company's results of operations and financial
condition. Premiums paid to correspondents as a percentage of loans purchased
from correspondents by the Company were 4.7%, 4.2%, 5.0% and 5.8% for the three
months ended March 31, June 30, September 30 and December 31, 1996,
respectively. The weighted average interest rate for loans purchased or
originated by the Company decreased from 12.1% for the year ended December 31,
1995 to 11.5% for the year ended December 31, 1996. The combined weighted
average loan-to-value ratio of loans purchased or originated by the Company
increased from 70.9% for the year ended December 31, 1995 to 72.9% for the year
ended December 31, 1996.
Competition takes many forms, including convenience in obtaining a loan,
service, marketing and distribution channels and interest rates. Furthermore,
the current level of gains realized by the Company and its competitors on the
sale of the type of loans purchased and originated is attracting additional
competitors into this market, including at least one quasi-governmental agency,
with the effect of lowering the gains that may be realized by the Company on
future loan sales. Competition may be affected by fluctuations in interest rates
and general economic conditions. During periods of rising rates, competitors
which have 'locked in' low borrowing costs may have a competitive advantage.
During periods of declining rates, competitors may solicit the Company's
borrowers to refinance their loans. During economic slowdowns or recessions, the
Company's borrowers may have new financial difficulties and may be receptive to
offers by the Company's competitors.
The Company depends largely on brokers, financial institutions and other
mortgage bankers for its purchases and originations of new loans. The Company's
competitors also seek to establish relationships with the Company's brokers and
financial institutions and other mortgage bankers. The Company's future results
may become more exposed to fluctuations in the volume and cost of its wholesale
loans resulting from competition from other purchasers of such loans, market
conditions and other factors.
REGULATION
IMC's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. IMC's consumer lending activities
are subject to the Federal Truth-in-Lending Act and Regulation Z (including the
Home Ownership and Equity Protection Act of 1994), the Federal Equal Credit
Opportunity Act, and Regulation B, as amended (ECOA), the Fair Credit Reporting
Act of 1970, as amended, Federal Real Estate Settlement Procedures Act (RESPA),
and Regulation X, the Home Mortgage Disclosure Act and the Federal Debt
Collection Practices Act, as well as other federal and state statutes and
regulations affecting IMC's activities. IMC is also subject to the rules and
regulations of and examinations by Department of Housing and Urban Development
(HUD) and state regulatory authorities with respect to originating, processing,
underwriting, selling and servicing loans. These rules and regulations, among
other things, impose licensing obligations on IMC, establish eligibility
criteria for mortgage loans, prohibit discrimination, provide for inspections
and appraisals of properties, require credit reports on loan applicants,
regulate assessment, collection, foreclosure and claims handling, investment and
interest payments on escrow balances and payment features, mandate certain
disclosures and notices to borrowers and, in some cases, fix maximum interest
rates, fees and mortgage loan amounts. Failure to comply with these requirements
can lead to loss of approved status, termination or suspension of servicing
contracts without compensation to the servicer, demands for indemnifications or
mortgage loan repurchases, certain rights of rescission for mortgage loans,
class action lawsuits and administrative enforcement actions. IMC believes,
however, that it is in compliance in all material respects with applicable
federal and state laws and regulations.
ENVIRONMENTAL MATTERS
To date, IMC has not been required to perform any investigation or clean up
activities, nor has it been subject to any environmental claims. There can be no
assurance, however, that this will remain the
22
<PAGE>
<PAGE>
case in the future. In the ordinary course of its business, IMC from time to
time forecloses on properties securing loans. Although IMC primarily lends to
owners of residential properties, there is a risk that IMC could be required to
investigate and clean up hazardous or toxic substances or chemical releases at
such properties after acquisition by IMC, and could be held liable to a
governmental entity or to third parties for property damage, personal injury and
investigation and cleanup costs incurred by such parties in connection with the
contamination. In addition, the owner or former owners of a contaminated site
may be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such property.
EMPLOYEES
As of December 31, 1996, IMC had a total of 380 employees, 198 of whom were
working at its Tampa, Florida headquarters. None of IMC's employees is covered
by a collective bargaining agreement. IMC considers its relations with its
employees to be good. Several members of senior management have previously
worked as a team at other lending institutions. Many employees have been
associated with senior management in previous employment positions. IMC believes
that these long-term working relationships will continue to contribute to its
growth and success. As a result of its recent acquisitions, since December 31,
1996 IMC has added in excess of 500 employees. IMC believes that it will be
necessary to continue to increase its staff to support its growth.
ITEM 2. PROPERTIES
IMC's executive and administrative offices, including its servicing
operation and full-service production office, are located at 3450 Buschwood Park
Drive, Suite 250, Tampa, Florida, where IMC leases approximately 21,300 square
feet of office space at an aggregate annual rent of approximately $331,000. The
lease expires in August 1998 and the Company intends to vacate these premises
when its new corporate headquarters are ready for occupation.
In January 1997, the Company purchased a 60,000 square foot building in
Tampa, Florida which will serve as the Company's corporate headquarters after
renovations are completed later in 1997. The purchase price for the building was
$2.6 million, and the Company anticipates spending at least an additional $2.2
million to renovate the space prior to occupation.
IMC maintains full-service offices in Ft. Washington, Pennsylvania;
Cincinnati, Ohio; Cherry Hill, New Jersey; Lincoln, Rhode Island; Bellevue,
Washington; Roselle, Illinois; Baltimore, Maryland; Los Angeles, California; and
Bay City, Michigan. The Company also maintains short-term leases for retail
branch offices in executive spaces in 66 locations throughout the United States.
ITEM 3. LEGAL PROCEEDINGS
IMC 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
results of operations or financial condition of IMC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
23
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<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on Nasdaq under the symbol 'IMCC.' The following
table sets forth, for the periods indicated, the high and low sales price for
the Common Stock as reported on Nasdaq, and reflects a two-for-one stock split
paid on February 13, 1997 to stockholders of record on February 6, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1996
Second Quarter (from June 25, 1996)(1).......................................... $11.50 $ 9.38
Third Quarter................................................................... 17.44 10.75
Fourth Quarter.................................................................. 20.50 13.63
</TABLE>
- ------------
(1) The Common Stock commenced trading on Nasdaq on June 25, 1996.
------------------------
As of February 11, 1997, there were approximately 106 holders of record of
the Common Stock.
As the Company intends to retain all of its future earnings to finance its
operations, the Company has not paid, and currently has no intention to pay, any
cash dividends on its Common Stock. Any decision to declare dividends in the
future will be made by the Company's Board of Directors and will depend upon the
Company's future earnings, capital requirements, financial condition and other
factors deemed relevant by the Company's Board of Directors. In addition,
certain agreements to which the Company is a party restrict the Company's
ability to pay dividends on the Common Stock.
RECENT REGISTRATION AND SALES OF SECURITIES
On February 14, 1997, the Company filed a Registration Statement with the
Securities and Exchange Commission to register 7,000,000 shares of common stock
to be offered to the public. Of the 7,000,000 shares of common stock, 5,600,000
shares are being offered by the Company and 1,400,000 shares are being offered
by certain stockholders of the Company. The Company will not receive any of the
proceeds from the sale of shares by the selling shareholders. Approximately
$27.0 million of the net proceeds from the proposed sale of the 5,600,000 shares
is expected to be used to retire or reduce certain indebtedness of the Company
incurred after December 31, 1996, including (i) repayment of up to $20.0 million
to Bank of Boston under the Bank of Boston credit facility, and (ii) repayment
of up to $7.0 million to Lakeview under the Lakeview unsecured credit facility.
The remaining net proceeds from the proposed offering will be used to fund
future loan purchases and originations, to support securitization transactions,
to fund acquisitions of non-conforming home equity loan originators and expenses
associated with the opening of new direct lending branch offices and for general
corporate purposes.
In January 1997, the Company acquired all of the assets of Mortgage
America, a non-conforming lender based in Bay City, Michigan. The purchase price
for all of the assets of Mortgage America included the issuance of 1,790,000
shares of Common Stock to fewer than 10 persons, each of which acquired such
shares for investment purposes. The issuance of the Common Stock was exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
In January 1997, the Company acquired all of the assets of CoreWest, a
non-conforming lender based in Los Angeles, California. The purchase price for
all the common stock of CoreWest included the issuance of 488,404 shares of
Common Stock to fewer than 10 persons, each of which acquired such shares for
investment purposes. The issuance of the Common Stock was exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
In June 1996, the Company sold 3,565,000 shares of common stock in its
initial public offering, the net proceeds of which approximated $58.2 million.
Approximately $22.9 million of the net proceeds were used to reduce certain
indebtedness of the Company, and the remaining net proceeds were used to fund
loan purchases and originations, to support securitization transactions, to fund
acquisitions of loan
24
<PAGE>
<PAGE>
originators and expenses associated with the opening of new direct lending
branch offices and for general corporate purposes.
In March 1996, the Company issued a debenture due September 18, 1996 to
Rotch Property Group Limited for $1.8 million. Pursuant to the debenture, Rotch
Property Group Limited had the right to convert the debenture into shares of
Common Stock of the Registrant and receive shares of Common Stock, $.01 par
value per share, at a price equal to 93% of the price to the public in the
Company's initial public offering. The Company paid all amounts due under the
Rotch Debenture from the proceeds of the Company's initial public offering in
June 1996. The issuance of the Rotch Debenture was exempt from registration
under the Securities Act by virtue of Section 4(2) thereof.
Pursuant to the Pre-IPO Agreement, dated as of March 30, 1996, the Company
issued 6,150,000 shares of Common Stock (including 150,000 shares issued in
exchange for limited partnership interests acquired upon exercise by Branchview,
Inc. of a portion of the Conti Option acquired in a transaction to which the
Company was not a party) to the Industry Partners and management in exchange for
their interests in the Partnership. The issuance of the Common Stock was exempt
from registration under the Securities Act by virtue of Section 4(2) thereof.
As of December 31, 1995, the Company entered into an agreement with
ContiTrade Services Corporation in which the Company issued an option to
purchase limited partnership interests which became a warrant for 3.0 million
shares of the Registrant's Common Stock, $.01 par value per share. Both the
issuance of the Conti Option and its exchange for the Conti Warrant were
transactions exempt from registration under the Securities Act by virtue of
Section 4(2) thereof.
25
<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The historical Statement of Operations and Balance Sheet data set forth
below as of and for the period from inception to December 31, 1993 and the
fiscal years ended December 31, 1994, 1995 and 1996 have been derived from the
Consolidated Financial Statements and Notes thereto of the Company. This data
should be read in conjunction with 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and the Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12,
1993) THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------
1993 1994 1995 1995
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)............................... $ 438,774 $ 8,583,277 $20,680,848 $46,229,615
Additional securitization transaction expense(3).......... -- (560,137) (5,547,037) (4,157,644)
--------- ----------- ----------- -----------
Gain on sale of loans, net............................ 438,774 8,023,140 15,133,811 42,071,971
--------- ----------- ----------- -----------
Warehouse interest income................................. 97,159 2,510,062 7,884,679 37,463,583
Warehouse interest expense................................ (50,709) (1,610,870) (6,006,919) (24,534,896)
--------- ----------- ----------- -----------
Net warehouse interest income......................... 46,450 899,192 1,877,760 12,928,687
--------- ----------- ----------- -----------
Servicing fees............................................ -- 99,224 1,543,339 6,749,995
Other..................................................... 28,235 1,072,855 1,117,903 3,903,638
--------- ----------- ----------- -----------
Total servicing fees and other........................ 28,235 1,172,079 2,661,242 10,653,633
--------- ----------- ----------- -----------
Total revenues.................................... 513,459 10,094,411 19,672,813 65,654,291
--------- ----------- ----------- -----------
Expenses:
Compensation and benefits................................. 507,904 3,348,236 5,139,386 16,006,553
Selling, general and administrative expenses(2)........... 355,526 2,000,401 3,477,677 15,652,381
Other..................................................... -- 14,143 297,743 2,321,413
Sharing of proportionate value of equity(4)............... -- 1,689,000 4,204,000 2,555,000
--------- ----------- ----------- -----------
Total expenses........................................ 863,430 7,051,780 13,118,806 36,535,347
--------- ----------- ----------- -----------
Pre-tax income (loss)........................................ (349,971) 3,042,631 6,554,007 29,118,944
Pro forma provision (benefit) for income taxes............... (134,000) 1,187,000 2,522,000 11,190,000
--------- ----------- ----------- -----------
Pro forma net income (loss)(2)............................... $(215,971) $ 1,855,631 $ 4,032,007 $17,928,944
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Pro forma per share data:
Pro forma net income per share(2)......................... $0.25 $0.94
Weighted average number of shares outstanding............. 15,871,504 19,165,304
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1993 1994 1995 1996
---------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale................................ $7,971,990 $28,995,750 $193,002,835 $ 914,586,703
Interest-only and residual certificates..................... -- 3,403,730 14,072,771 86,246,674
Warehouse finance facilities................................ 7,212,915 27,731,859 189,819,046 895,132,545
Term debt................................................... -- -- 11,120,642 47,430,295
Stockholders' equity........................................ 1,449,092 5,856,011 5,608,844 89,336,582
Total assets................................................ 8,861,144 36,641,991 354,551,434 1,707,348,185
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12,
1993) THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------
1993 1994 1995 1996
------------- -------- -------- ----------
<S> <C> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated............................... $ 29,608 $282,924 $621,629 $1,770,312
Loans sold through securitization........................... -- 81,637 388,363 935,000
Whole loan sales............................................ 21,636 180,263 70,400 128,868
Serviced loan portfolio (period end)........................ -- 92,003 535,798 2,148,068
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced
(period end)(5)(6)........................................ 0.00% 0.87% 3.43% 5.30%
Defaults as a percentage of loans serviced
(period end)(6)(7)........................................ 0.00 0.12 1.00 1.47
Net losses as a percentage of average loans serviced
for period(6)............................................. 0.00 0.00 0.09 0.13
</TABLE>
- ------------
(1) Prior to June 1996, includes interest-only and residual certificates
received by ContiFinancial in connection with IMC's agreement with
ContiFinancial. See Item 1. -- 'Business -- Loans -- Loan
Sales -- Securitizations' and Item 7. -- 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Transactions
with ContiFinancial -- Additional Securitization Transaction Expense.'
(footnotes continued on next page)
26
<PAGE>
<PAGE>
(footnotes continued from previous page)
(2) Beginning January 1, 1996, the Company adopted SFAS 122 which resulted in
additional gain on sale of $7.8 million and additional amortization expense
of $1.2 million for the year ended December 31, 1996. The effect on
unaudited pro forma net income and pro forma net income per common share for
the year ended December 31, 1996 was an increase of $4.1 million and $0.21,
respectively.
(3) In 1994, 1995 and 1996, ContiFinancial received interest-only and residual
certificates with estimated values of $3.0 million, $25.1 million and $13.4
million in exchange for cash payments of $2.1 million, $18.4 million and
$8.6 million, respectively. In addition, ContiFinancial paid IMC $0.4
million, $1.1 million and $0.7 million in 1994, 1995 and 1996, respectively,
in expenses related to securitizations. See Item 7. -- 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Additional Securitization
Transaction Expense.'
(4) Reflects expenses recorded in connection with the Conti VSA which was
terminated in March 1996. The Company's pre-tax income before the Conti VSA
for 1994, 1995 and 1996 was $4.7 million, $10.8 million and $31.7 million,
respectively. See Item 7. -- 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Transactions with
ContiFinancial -- Sharing of Proportionate Value of Equity,' 'Certain
Accounting Considerations Relating to the Conti VSA' and Note 5 of Notes to
Consolidated Financial Statements set forth under Item 8.
(5) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy and
real estate owned.
(6) The increases in total delinquencies, defaults and net losses as a
percentage of loans serviced have each trended upward as a result of the
aging of the Company's loan portfolios. The Company does not believe that
this trend should have a material adverse effect on the Company's revenues
and net income, although no assurance can be given with respect thereto.
(7) Represents the percentages of account balances of loans in foreclosure and
bankruptcy, exclusive of real estate owned.
27
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto set forth
under Item 8.
GENERAL
IMC is a specialized consumer finance company engaged in purchasing,
originating, servicing and selling home equity loans secured primarily by first
liens on one- to four-family residential properties. The Company focuses on
lending to individuals whose borrowing needs are generally not being served by
traditional financial institutions due to such individuals' impaired credit
profiles and other factors. Loan proceeds are typically used by such individuals
to consolidate debt, to finance home improvements, to pay educational expenses
and for a variety of other uses. By focusing on individuals with impaired credit
profiles and providing prompt responses to their borrowing requests, the Company
has been able to charge higher interest rates for its loan products than
typically are charged by conventional mortgage lenders.
CERTAIN ACCOUNTING CONSIDERATIONS
INTEREST-ONLY AND RESIDUAL CERTIFICATES
The Company purchases and originates loans for the purpose of sale
primarily through securitizations. In a securitization transaction, the Company
sells a pool of mortgages to a REMIC trust which simultaneously sells senior
interests to third-party investors. The Company retains the residual interests
(or a portion thereof) represented by residual class certificates and I/O
certificates. The Company retains the rights to service the pool of mortgages
owned by the REMIC. In addition, by retaining the residual class certificates,
the Company is entitled to receive the excess cash flows generated by the
securitized loans calculated as the difference between (a) the monthly interest
payments from the loans and (b) the sum of (i) pass-through interest paid to
third-party investors, (ii) trustee fees, (iii) third-party credit enhancement
fees, (iv) servicing fees and (v) anticipated loan losses. The Company's right
to receive this excess cash flow stream begins after certain over-
collateralization requirements have been met, which are specific to each
securitization and are used as a means of credit enhancement. The I/O and
residual classes of certificates are initially recorded based upon their
relative fair values as a percentage of the total cost of the securitized loans,
based upon the present value of the anticipated excess cash flows utilizing
assumptions appropriate for each securitization. These assumptions relate to the
anticipated average lives of the loans sold and anticipated loan losses. The
weighted average discount rate used to discount the cash flow for the years
ended December 31, 1995 and 1996 ranged from 11% to 11.5%, and the assumed loss
rate was 0.50% per year.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Company adopted SFAS 122. Because SFAS 122
prohibited retroactive application, the historical accounting results for the
periods ended December 31, 1994, and 1995 have not been restated and,
accordingly, the accounting results for the year ended December 31, 1996 are not
comparable to any previous period. In June 1996, the FASB released SFAS 125
which superseded SFAS 122 effective January 1, 1997.
SFAS 122 required that a mortgage banking entity recognize as a separate
asset the rights to service mortgage loans for others. Mortgage banking entities
that acquire or originate loans and subsequently sell or securitize those loans
and retain the mortgage servicing rights are required to allocate the total cost
of the loans between the mortgage servicing rights and the mortgage loans. The
Company was also required to assess capitalized mortgage servicing rights for
impairment based upon the fair value of those rights. The impact of the adoption
of SFAS 122 on the Company's Statement of Operations for the year ended December
31, 1996 resulted in additional operating income of approximately $6.6 million
and an additional pro forma provision for income tax expense of approximately
$2.6 million. The effect on unaudited pro forma net income and pro forma net
income per common share for the year ended December 31, 1996 was an increase of
$4.1 million and $0.21, respectively.
28
<PAGE>
<PAGE>
SFAS 125 addresses the accounting for all types of securitization
transactions, securities lending and repurchase agreements, collateralized
borrowing arrangements and other transactions involving the transfer of
financial assets. SFAS 125 distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS 125 is generally
effective for transactions that occur after December 31, 1996, and will be
applied prospectively. SFAS 125 requires the Company to allocate the total cost
of mortgage loans sold among the mortgage loans sold (servicing released), I/O
and residual certificates and servicing rights based on their relative fair
values. The Company is required to assess the I/O and residual certificates and
servicing rights for impairment based upon the fair value of those assets. SFAS
125 also requires the Company to provide additional disclosure about the I/O and
residual certificates in its securitizations and to account for these assets
each quarterly reporting period at fair value in accordance with SFAS 115. The
Company will apply the new rules prospectively beginning January 1, 1997. The
actual effect of implementing this new statement on the Company's financial
condition and results of operations will depend on various factors determined at
the end of a reporting period, including the amount of loans purchased and
originated during the period, the level of interest rates and estimates of
future prepayment and loss rates. Accordingly, the Company cannot determine at
this time the ultimate impact on its future earnings of applying the provisions
of SFAS 125, but does not expect the results under SFAS 125 to differ materially
from the results which would have emerged under SFAS 122. There can be no
assurance, however, that the implementation by the Company of SFAS 125 will not
reduce the Company's gain on sale of loans in the future or otherwise adversely
affect the Company's results of operations or financial condition.
GAIN ON SALE OF LOANS, NET
Gain on sale of loans, net, which arises primarily from securitizations,
includes all related revenues and costs, including the proceeds from sales of
residual class certificates, the value of such certificates, hedging gains or
losses and underwriting fees and other related securitization expenses and fees.
See ' -- Transactions with ContiFinancial -- Additional securitization
transaction expense.'
NET WAREHOUSE INTEREST INCOME
Net warehouse interest income is interest earned from the Company's
mortgage loans which generally carry long-term interest rates, less interest
expense on borrowings to finance the funding of such mortgage loans. The Company
generally sells loans in its inventory within 180 days and finances such loans
under its secured borrowing facilities, which bear short-term interest rates.
Ordinarily, short-term interest rates are lower than long-term interest rates,
and the Company earns net interest income from this difference, or spread,
during the period the mortgage loans are held by the Company.
TRANSACTIONS WITH CONTIFINANCIAL
ADDITIONAL SECURITIZATION TRANSACTION EXPENSE
IMC, in conjunction with the start up of its operations, maintained an
investment banking relationship with ContiFinancial from August 1993 to June
1996. As part of this relationship, ContiFinancial provided warehouse and
revolving credit facilities to IMC and acted as placement agent and underwriter
of certain of its securitizations. In addition, as part of its cash flow
management strategy, the first six securitizations were structured so that
ContiFinancial received, in exchange for cash, a portion of the I/O and residual
interest in such securitizations. These transactions reduced IMC's gain on sale
of loans by approximately $0.6 million in 1994, $5.5 million in 1995 and $4.2
million in 1996. ContiFinancial also has a warrant to purchase 2.7 million
shares of Common Stock (subject to certain adjustments) for a de minimis amount.
IMC continues to maintain a financing relationship with ContiFinancial.
SHARING OF PROPORTIONATE VALUE OF EQUITY
Prior to March 26, 1996, the Company's financing and investment banking
agreements with ContiFinancial included the ContiFinancial Value Sharing
Arrangement (Conti VSA). The existence of the Conti VSA had no cash impact on
the Company, but resulted in reductions of $1.7 million, $4.2 million and $2.6
million in the Company's pre-tax income for the years ended December 31, 1994,
1995
29
<PAGE>
<PAGE>
and 1996, respectively. The Conti VSA was converted into an option entitling
ContiFinancial on exercise to approximately 18% of the equity of the Partnership
for a de minimus amount (the 'Conti Option') on March 26, 1996. Consequently,
subsequent to March 26, 1996, no liability has been reflected on the Company's
balance sheet and no expense has been reflected on the Company's income
statement with respect to the Conti VSA subsequent to that date.
The Company's pre-tax income before the Conti VSA were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Total revenues............................................... $10,094,411 $19,672,813 $65,654,291
Total expenses............................................... 7,051,780 13,118,806 36,535,347
----------- ----------- -----------
Pre-tax income (loss) after Conti VSA........................ 3,042,631 6,554,007 29,118,944
Conti VSA.................................................... 1,689,000 4,204,000 2,555,000
----------- ----------- -----------
Pre-tax income (loss) before Conti VSA....................... $ 4,731,631 $10,758,007 $31,673,944
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Pro forma net income for the year ended December 31, 1996 was $17.9 million
representing an increase of $13.9 million or 344.7% over pro forma net income of
$4.0 million for the year ended December 31, 1995. Pro forma net income is
calculated on the basis of historical net income, adjusted for a pro forma
income tax expense as if the Company had been taxable as a corporation since its
inception.
The increase in pro forma net income resulted principally from increases in
net gain on sale of loans of $27.0 million or 178.0% to $42.1 million for the
year ended December 31, 1996 from $15.1 million for the year ended December 31,
1995. Also contributing to the increase in pro forma net income was a $11.0
million or 588.5% increase in net warehouse interest income to $12.9 million for
the year ended December 31, 1996 from $1.9 million for the year ended December
31, 1995, a $5.2 million or 337.4% increase in servicing fees to $6.7 million
for the year ended December 31, 1996 from $1.5 million for the year ended
December 31, 1995 and a $2.8 million or 249.2% increase in other revenues to
$3.9 million for the year ended December 31, 1996 from $1.1 million for the year
ended December 31, 1995.
The increase in income was partially offset by a $10.9 million or 211.4%
increase in compensation and benefits to $16.0 million for the year ended
December 31, 1996 from $5.1 million for the year ended December 31, 1995, of
which increase $2.2 million related to the acquisition of Equitystars on January
1, 1996 (see 'Business -- Acquisitions and Strategic Alliances -- Acquisition of
Equitystars'), $2.6 million related to the payment of bonuses to the Company's
executives (see Item 11. -- 'Executive Compensation -- Employment Agreements')
and the remainder related primarily to the growth of the Company (see Item
1. -- 'Business -- Employees'). The increase in income was also partially offset
by a $12.2 million or 350.1% increase in selling, general and administrative
expenses to $15.7 million for the year ended December 31, 1996 from $3.5 million
for the year ended December 31, 1995. The Company expects its compensation and
benefits and selling, general and administrative expenses to increase
substantially in 1997 as a result of the expansion of the business of the
Company and its recent acquisitions. See Item 1. -- 'Business -- Employees' and
Item 1. -- 'Business -- Acquisitions and Strategic Alliances.' The increase in
income was further offset by a $2.0 million or 679.7% increase in other expense
to $2.3 million for the year ended December 31, 1996 from $ 0.3 million for the
year ended December 31, 1995. Finally, income was favorably affected by a $1.6
million or 39.2% decrease in the Conti VSA to $2.6 million for the year ended
December 31, 1996 from $4.2 million for the year ended December 31, 1995. See
' -- Transactions with ContiFinancial -- Sharing of Proportionate Value of
Equity,' 'Certain Accounting Considerations Relating to the Conti VSA' and Note
5 of Notes to Consolidated Financial Statements included under Item 8.
30
<PAGE>
<PAGE>
Income before taxes was reduced by pro forma provision for income taxes of
$11.2 million for the year ended December 31, 1996 compared to $2.5 million for
the year ended December 31, 1995, representing an effective tax rate of
approximately 38.5%. The provision for income taxes prior to June 24, 1996 are
pro forma amounts because prior to that date the Company operated as a
partnership and did not pay income taxes.
Revenues
The following table sets forth information regarding components of the
Company's revenues for the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gain on sale of loans.......................................... $20,680,848 $46,229,615
Additional securitization transaction expense.................. (5,547,037) (4,157,644)
----------- -----------
Gain on sale of loans, net..................................... 15,133,811 42,071,971
----------- -----------
Warehouse interest income...................................... 7,884,679 37,463,583
Warehouse interest expense..................................... (6,006,919) (24,534,896)
----------- -----------
Net warehouse interest income.................................. 1,877,760 12,928,687
----------- -----------
Servicing fees................................................. 1,543,339 6,749,995
Other.......................................................... 1,117,903 3,903,638
----------- -----------
Total revenues................................................. $19,672,813 $65,654,291
----------- -----------
----------- -----------
</TABLE>
Gain on Sale of Loans, Net. For the year ended December 31, 1996, gain on
sale of loans increased to $46.2 million from $20.7 million for the year ended
December 31, 1995, an increase of 123.5%, reflecting increased loan production
and securitizations for the year ended December 31, 1996 and the adoption of
SFAS 122. The total volume of loans produced increased by 184.8% to $1.8 billion
for the year ended December 31, 1996 as compared with a total volume of $621.6
million for the year ended December 31, 1995. Originations by the Company's
correspondent network increased 191.0% to $1.6 billion for the year ended
December 31, 1996 from $543.6 million for the year ended December 31, 1995,
while production from the Company's broker network and direct lending operations
increased to $188.3 million or 141.4% for the year ended December 31, 1996 from
$78.0 million for the year ended December 31, 1995. Production volume increased
during the 1996 period due to: (i) the Company's expansion program; (ii) the
increase of its securitization activity; (iii) the growth of its loan servicing
capability; and (iv) the acquisition of the assets and business of Equitystars
in January 1996. For the year ended December 31, 1996, the Company experienced
higher gains as it sold more loans through securitizations. Securitizations
increased by $555 million, an increase of 146.1%, to $935 million for the year
ended December 31, 1996 from $380 million for the year ended December 31, 1995.
The number of approved correspondents increased by 161 or 75.6% to 374 at
December 31, 1996 from 213 at December 31, 1995 and the number of brokers
increased by 595 or 54.2% to 1,693 at December 31, 1996 from 1,098 at December
31, 1995. Additional securitization expense decreased to $4.2 million for the
year ended December 31, 1996, a decrease of 25.0%, from $5.5 million for the
year ended December 31, 1995. For the year ended December 31, 1996, gain on sale
of loans, net, increased to $42.1 million from $15.1 million for the year ended
December 31, 1995, an increase of 178.0%, reflecting increased loan production
and securitizations in the 1996 period.
Net Warehouse Interest Income. Net warehouse interest income increased to
$12.9 million for the year ended December 31, 1996 from $1.9 million for the
year ended December 31, 1995, an increase of 588.5%. The increase in the 1996
period reflected higher interest income resulting from increased mortgage loan
production and mortgage loans held for sale which was partially offset by
interest costs associated with warehouse facilities. The mortgage loans held for
sale increased to $914.6 million at December 31, 1996, an increase of 373.9%,
from $193.0 million at December 31, 1995.
Servicing Fees. Servicing fees increased to $6.7 million for the year ended
December 31, 1996 from $1.5 million for the year ended December 31, 1995, an
increase of 337.4%. Servicing fees for the year
31
<PAGE>
<PAGE>
ended December 31, 1996 were positively affected by an increase in mortgage
loans serviced over the prior period. During 1996, the Company increased its
servicing portfolio by $1.6 billion or 300.9% to $2.15 billion as of December
31, 1996, from $535.8 million as of December 31, 1995.
Other. Other revenues, consisting principally of interest on I/O and
residual certificates, increased to $5.3 million or 370.0% in the year ended
December 31, 1996 from $1.1 million in the year ended December 31, 1995 as a
result of increased securitization volume.
Expenses
The following table sets forth information regarding components of the
Company's expenses for the years ended December 31, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Compensation and benefits...................................... $ 5,139,386 $16,006,553
Selling, general and administrative expenses................... 3,477,677 15,652,381
Other.......................................................... 297,743 2,321,413
Sharing of proportionate value of equity....................... 4,204,000 2,555,000
----------- -----------
Total expenses................................................. $13,118,806 $36,535,347
----------- -----------
----------- -----------
</TABLE>
Compensation and benefits increased by $10.9 million or 211.4% to $16.0
million for the year ended December 31, 1996 from $5.1 million for the year
ended December 31, 1995, principally due to an increase in the number of
employees to service the Company's increased mortgage loan production, the
acquisition of the assets and business of Equitystars and an increase in
executive bonuses. Compensation expense related to the Equitystars business
(which was acquired January 1, 1996) for the year ended December 31, 1996 was
$2.2 million, and executive bonuses increased $2.6 million in 1996. It is
anticipated that the Company's compensation and benefits will increase as the
Company expands; however, the amount of executive bonuses is directly related to
increases in the Company's earnings per share (see 'Item 11. -- Executive
Compensation -- Employment Agreements').
Selling, general and administrative expenses increased by $12.2 million or
350.1% to $15.7 million for the year ended December 31, 1996 from $3.5 million
for the year ended December 31, 1995, principally due to an increase in the
volume of mortgage loan production, an additional $2.0 million of marketing
expenses related to the expansion of retail production, the acquisition of the
assets and business of Equitystars, an increase of $2.5 million in the cost to
carry of securities purchased under agreements to resell, an increase in loan
losses of $1.1 million and an increase in amortization expense related to
capitalized mortgage servicing rights of $1.2 million.
Other expenses increased by $2.0 million or 679.7% to $2.3 million for the
year ended December 31, 1996 from $0.3 million for the year ended December 31,
1995 principally as a result of increased term debt borrowings.
The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, decreased to $2.6 million or 39.2% for the year
ended December 31, 1996 from $4.2 million for the year ended December 31, 1995.
The Company's obligation to make payments under the Conti VSA terminated in
March 1996.
Pro Forma Income Taxes. The effective pro forma income tax rate for the
year ended December 31, 1996 was approximately 38.5%, which differed from the
federal tax rate of 35% primarily due to state income taxes. The increase in pro
forma provision for income taxes of $8.7 million or 343.7% to $11.2 million for
the year ended December 31, 1996 from $2.5 million for the year ended December
31, 1995 was proportionate to the increase in pre-tax income.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Pro forma net income for the year ended December 31, 1995 was $4.0 million,
representing an increase of $2.1 million or 117.3% over pro forma net income of
$1.9 million for the year ended December 31, 1994. This increase resulted
principally from a $7.1 million or 88.6% increase in gain on
32
<PAGE>
<PAGE>
sale of loans, net of additional securitization transaction expense, to $15.1
million for the year ended December 31, 1995 from $8.0 million for the year
ended December 31, 1994. Pro forma net income is calculated on the basis of
historical net income, adjusted for a pro forma income tax expense as if the
Company had been taxable as a corporation since its inception. In addition, a
$1.0 million or 108.8% increase in net warehouse interest income to $1.9 million
for the year ended December 31, 1995 from $0.9 million for the year ended
December 31, 1994 and a $1.4 million or 1,445.4% increase in servicing fees to
$1.5 million for the year ended December 31, 1995 from $0.1 million for the year
ended December 31, 1994 also contributed to the increase in pro forma net
income. The increase was partially offset by a $1.8 million or 53.5% increase in
compensation and benefits to $5.1 million for the year ended December 31, 1995
from $3.3 million for the year ended December 31, 1994 and a $1.5 million or
73.8% increase in selling, general and administrative expenses to $3.5 million
for the year ended December 31, 1995 from $2.0 million for the year ended
December 31, 1994. The increase in pro forma net income was further offset by a
$0.3 million increase in other expenses to $0.3 million for the year ended
December 31, 1995 from a negligible amount for the year ended December 31, 1994,
a $2.5 million or 148.9% increase in the Conti VSA to $4.2 million for the year
ended December 31, 1995 from $1.7 million for the year ended December 31, 1994
and a $1.3 million or 112.5% increase in pro forma income tax expense to $2.5
million for the year ended December 31, 1995 from $1.2 million for the year
ended December 31, 1994.
Revenues
The following table sets forth information regarding components of the
Company's revenues for the years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Gain on sale of loans.................................................... $ 8,583,277 $20,680,848
Additional securitization transaction expense............................ (560,137) (5,547,037)
----------- -----------
Gain on sale of loans, net.......................................... 8,023,140 15,133,811
----------- -----------
Warehouse interest income................................................ 2,510,062 7,884,679
Warehouse interest expense............................................... (1,610,870) (6,006,919)
----------- -----------
Net warehouse interest income....................................... 899,192 1,877,760
----------- -----------
Servicing fees........................................................... 99,224 1,543,339
Other.................................................................... 1,072,855 1,117,903
----------- -----------
Total revenues...................................................... $10,094,411 $19,672,813
----------- -----------
----------- -----------
</TABLE>
Gain on Sale of Loans, Net. Gain on sale of loans increased to $20.7
million for the year ended December 31, 1995 from $8.6 million for the year
ended December 31, 1994, an increase of 140.9%, reflecting increased loan
production and securitizations in the 1995 period. The total volume of loans
produced increased by 119.7% to $621.6 million for the year ended December 31,
1995 as compared with a total volume of $282.9 million for the year ended
December 31, 1994. Originations by the correspondent network increased 132.9% to
$543.6 million for the year ended December 31, 1995 from $233.5 million for the
year ended December 31, 1994, while production from the Company's broker network
and direct lending operations increased to $78.0 million or 57.6% for the year
ended December 31, 1995 from $49.5 million for the year ended December 31, 1994.
Production volume increased during the period due to: (i) the Company's
expansion program; (ii) the development of a securitization capability; (iii)
the development of a loan servicing capability; and (iv) the Company's ability
to finance its growth. In 1995 the Company experienced higher gains as it sold
more loans through securitizations. Securitizations increased by $290.0 million
or 322.2% to $380.0 million for the year ended December 31, 1995 from $90.0
million for the year ended December 31, 1994. The number of approved
correspondents increased by 108 or 102.9% to 213 at December 31, 1995 from 105
at December 31, 1994 and the number of brokers increased by 600 or 120.5% to
1,098 at December 31, 1995 from 498 at December 31, 1994. Additional
securitization transaction expense increased by $5.0 million or 890.3% to $5.5
million for the year ended December 31, 1995 from $0.6 million for the year
33
<PAGE>
<PAGE>
ended December 31, 1994. For the year ended December 31, 1995, gain on sale of
loans, net, increased to $15.1 million from $8.0 million for the year ended
December 31, 1994, an increase of 88.6%, reflecting increased loan production
and securitizations in the 1995 period. See ' -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.'
Net Warehouse Interest Income. Net warehouse interest income increased to
$1.9 million for the year ended December 31, 1995 from $0.9 million for the year
ended December 31, 1994, an increase of 108.8%. The increase in 1995 reflected
higher interest income resulting from increased mortgage loan production, offset
by interest costs associated with warehouse facilities. The holding period of
loans increased in 1995 from 1994 as the Company increased the portion of its
loans sold through securitizations.
Servicing Fees. Servicing fees increased to $1.5 million for the year ended
December 31, 1995 from $0.1 million for the year ended December 31, 1994, an
increase of 1,455.4%. Servicing fees for the year ended December 31, 1995 were
positively affected by an increase in loans serviced over the prior year.
Other. Other revenues increased by a negligible amount to $1.1 million for
the year ended December 31,1995 from $1.1 million for the year ended December
31, 1994.
Expenses
The following table sets forth information regarding components of the
Company's expenses for the years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995
---------- -----------
<S> <C> <C>
Compensation and benefits.................................................. $3,348,236 $ 5,139,386
Selling, general and administrative expenses............................... 2,000,401 3,477,677
Other...................................................................... 14,143 297,743
Sharing of proportionate value of equity................................... 1,689,000 4,204,000
---------- -----------
Total expenses........................................................ $7,051,780 $13,118,806
---------- -----------
---------- -----------
</TABLE>
Compensation and benefits increased by $1.8 million or 53.5% to $5.1
million for the year ended December 31, 1995 from $3.3 million for the year
ended December 31, 1994, principally due to an increase in the number of
employees servicing the Company's increased loan production.
Selling, general and administrative expenses increased by $1.5 million or
73.8% to $3.5 million for the year ended December 31, 1995 from $2.0 million for
the year ended December 31, 1994, principally due to an increase in the volume
of loan production.
Other expenses increased to $0.3 million for the year ended December 31,
1995 from a negligible amount for the year ended December 31, 1994 as a result
of increased loan production and securitization volume in 1995.
The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, increased by $2.5 million or 148.9% to $4.2 million
for the year ended December 31, 1995 from $1.7 million for the year ended
December 31, 1994. See ' -- Transactions with ContiFinancial -- Sharing of
Proportionate Value of Equity,' 'Certain Accounting Considerations Relating to
the Conti VSA' and Note 5 of Notes to Consolidated Financial Statements included
under Item 8.
Pro Forma Income Taxes. The effective pro forma income tax rate for the
year ended December 31, 1995 was 38.5% compared to the federal tax rate of 35%
primarily due to state income taxes. The increase in pro forma income taxes of
$1.3 million or 112.5% to $2.5 million for the year ended December 31, 1995 from
$1.2 million for the year ended December 31, 1994 was proportionate to the
increase in pre-tax income.
FINANCIAL CONDITION
DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Mortgage loans held for sale at December 31, 1996 were $914.6 million,
representing an increase of $721.6 million or 373.9% over mortgage loans held
for sale of $193.0 million at December 31, 1995. This
34
<PAGE>
<PAGE>
increase was a result of increased loan purchases and originations as the
Company expanded into new states and increased purchasing and origination
efforts in states in which the Company had an existing market presence. This
increase was also a result of the Company's strategy to increase its financial
flexibility by increasing its balance of mortgage loans held for sale.
I/O and residual certificates at December 31, 1996 were $86.2 million,
representing an increase of $72.1 million or 512.9% over I/O and residual
certificates of $14.1 million at December 31, 1995. This increase was a result
of the Company completing four securitizations, one in each of the four quarters
of 1996, for an aggregate of $935.0 million in securitizations for 1996.
Borrowings under warehouse financing facilities at December 31, 1996 were
$895.1 million, representing an increase of $705.3 million or 371.6% over
warehouse financing facilities of $189.8 million at December 31, 1995. This
increase was a result of increased mortgage loans held for sale.
Term debt at December 31, 1996 was $47.4 million, representing an increase
of $36.3 million or 326.5% over term debt of $11.1 million at December 31, 1995.
This increase was primarily a result of financing the increase in I/O and
residual certificates.
Stockholders' equity as of December 31, 1996 was $89.3 million,
representing an increase of $83.7 million over stockholders' equity of $5.6
million at December 31, 1995. This increase was primarily a result of the
Company's initial public offering of 7.1 million shares of common stock for
$9.00 per share, the net proceeds of which amounted to $58.2 million, the
conversion of the Conti VSA into the Conti Option of $8.5 million, and net
income for the year ended December 31, 1996, offset by $9.8 million of
distributions to former partners of the Partnership for taxes payable by these
former partners with respect to the income of the Partnership.
DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
Mortgage loans held for sale at December 31, 1995 were $193.0 million,
representing an increase of $164.0 million or 565.6% over mortgage loans held
for sale of $29.0 million at December 31, 1994. This increase was a result of
increased loan origination and purchasing as the Company expanded into new
states and increased its origination and purchasing efforts in states in which
the Company had an existing market presence.
I/O and residual certificates at December 31, 1995 were $14.1 million,
representing an increase of $10.7 million or 313.5% over I/O and residual
certificates of $3.4 million at December 31, 1994. This increase was the result
of the Company completing two securitizations.
Warehouse financing facilities at December 31, 1995 were $189.8 million,
representing an increase of $162.1 million or 584.5% over warehouse financing
facilities of $27.7 million at December 31, 1994. This increase was primarily a
result of the Company's increased loan purchases and originations.
Term debt at December 31, 1995 totaled $11.1 million, representing an
increase of $11.1 million over December 31, 1994. This increase was primarily a
result of the Company's securitizations and the financing thereof.
Stockholders' equity at December 31, 1995 was $5.6 million, representing a
decrease of $0.3 million or 4.2% from stockholders' equity of $5.9 million at
December 31, 1994. This decrease, which is negligible, represents the difference
between net income and distributions.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its cash flow from the sale of loans through
securitizations, whole loan sales, loan origination fees, processing fees, net
interest income, servicing fees and borrowings under its warehouse facilities
and term debt to meet its working capital needs. The Company's cash requirements
include the funding of loan purchases and originations, payment of interest
costs, funding of over-collateralization requirements for securitizations,
operating expenses, income taxes, acquisitions and capital expenditures.
The Company has an ongoing need for capital. Adequate credit facilities and
other sources of funding, including the ability of the Company to sell loans,
are essential to the continuation of the Company's ability to purchase and
originate loans. As a result of increased loan purchases and
35
<PAGE>
<PAGE>
originations and its growing securitization program, the Company has operated,
and expects to continue to operate, on a negative cash flow basis. During the
year ended December 31, 1996, the Company used cash flow for operating
activities of $776.7 million, an increase of $611.4 million, or 369.9%, over
cash flows used for operating activities of $165.3 million during the year ended
December 31, 1995. During the year ended December 31, 1996, the Company received
cash flows from financing activities of $788.7 million, an increase of $621.0
million or 370.3% over cash flows received from financing activities of $167.7
million during the year ended December 31, 1995. The cash flows used for
operating activities related primarily to the funding of mortgage loan purchases
or originations and cash flows received from financing activities related
primarily to the funding of the mortgage loan purchases or originations and net
proceeds of $58.2 million from the Company's initial public offering of 7.1
million shares in June 1996. As a result of the aging of the Company's loan
portfolio, it has experienced an increase in loan delinquency and loss rates;
however, to date, the increase in delinquency rates and loss rates has not had a
material effect on the Company's cash flows.
The Company's sale of loans through securitizations has resulted in an
increase in the amount of gain on sale recognized by the Company. The
recognition of this gain on sale results in significant cash costs being
incurred upon closing of a securitization transaction. The Company does not,
however, receive the cash representing the gain until later periods when the
related loans are repaid or otherwise collected. During the year ended December
31, 1996, the Company received cash of approximately $4.8 million related to I/O
and residual certificates. The Company borrows funds on a short-term basis to
support the accumulation of loans prior to sale. These short-term borrowings are
made under warehouse lines of credit with various lenders.
At December 31, 1996, the Company had a $400 million uncommitted warehouse
facility with Bear Stearns Home Equity Trust 1996-1 which also provides
additional warehouse financing on an as offered basis and which may result in
amounts borrowed to be in excess of $400 million. This facility bears interest
at LIBOR plus 0.875%. Approximately $441.0 million was outstanding under this
facility at December 31, 1996. In March 1997, the warehouse facility was
increased to $500 million and renewed to March 1998.
Additionally, at December 31, 1996, the Company had approximately $580.6
million available under numerous other warehouse lines of credit, $60 million
which expired in January, 1997 and $280.6 million, $30 million, $100 million and
$110 million which will expire in August, September, November and December 1997,
respectively. As of December 31, 1996, approximately $454.1 million was
outstanding under these lines of credit. Interest rates ranged from 6.5% to 7.2%
as of December 31, 1996, and all borrowings mature within one year. Outstanding
borrowings on the Company's warehouse financing facilities are collateralized by
mortgage loans held for sale and warehouse financing due from correspondents at
December 31, 1996 and servicing rights on approximately $250 million of mortgage
loans. Upon the sale of these loans and the repayment of warehouse financing due
from correspondents, the borrowings under these lines will be repaid. Since
December 31, 1996, the Company has renewed and increased $110 million lines of
credit expiring in December 1997 to $210 million and entered into a new
uncommitted line of credit for $400 million.
At December 31, 1996, the Company also had term debt outstanding of $47.4
million which expire through January 2000. Outstanding borrowings under these
facilities are secured by I/O and residual certificates and accrue interest at
rates ranging from 6.70% to 8.13%.
In December 1996, the Company executed an agreement with Bank of Boston
pursuant to which Bank of Boston will provide a $25 million one year revolving
credit facility subject to the following sublimits and terms: (i) $5 million
warehouse line of credit due June 30, 1998, (ii) $25 million to finance
interest-only and residual certificates, to be repaid according to a repayment
schedule calculated by Bank of Boston with a maximum amortization period after
the revolving period of three years; and (iii) $20 million for acquisitions or
bridge financing due within six months from the initial borrowing date of each
takedown of the bridge financing, but in no event later than June 30, 1998. No
amounts were outstanding under this facility at January 31, 1997, but it is
anticipated that amounts up to $20.0 million may be borrowed for an acquisition
or on a bridge basis.
The Company's warehouse lines and term debt contain various affirmative and
negative covenants customary for credit arrangements of their type and which the
Company believes will not have a
36
<PAGE>
<PAGE>
material effect on its operations, growth and financial flexibility. The credit
facility with Bank of Boston also contains certain financial covenants requiring
the maintenance of certain debt-to-equity or debt-to-net worth ratios, as well
as establishing limits on the ability of the Company to incur unsecured
indebtedness. The Company does not believe that the existing financial covenants
will restrict its operations within the next 12 months. Management believes the
Company is in compliance with all such covenants under these agreements.
The Company's current warehouse lines generally are subject to one-year
terms. Certain warehouse lines have automatic renewal features subject to the
absence of defaults and permit the lender to terminate the facility on notice to
the Company. There can be no assurance either that the Company's current
creditors will renew their facilities as they expire or that the Company will be
able to obtain additional credit lines.
On February 14, 1997, the Company filed a Registration Statement with the
Securities and Exchange Commission to register 7,000,000 shares of common stock
to be offered to the public (The Offering). Of the 7,000,000 shares of common
stock, 5,600,000 shares are being offered by the Company and 1,400,000 shares
are being offered by certain stockholders of the Company. The Company will not
receive any proceeds from the sale of shares by the selling stockholders.
Funds available under the Company's current warehouse and other credit
facilities and the net proceeds from the Offering are expected to be sufficient
to fund the Company's liquidity requirements, including the implementation of
its business strategy, beyond December 1997. However, the Company has
substantial capital requirements and it anticipates that it may need to arrange
for additional external cash resources in 1998 through additional financings or
offerings.
The Company purchases and originates mortgage loans and then sells them
primarily through securitizations. At the time of securitization and the
delivery of the loans, the Company recognizes gain on sale based on a number of
factors including the difference, or 'spread,' between the interest rate on the
loans and the interest rate on the treasury security with a maturity
corresponding to the anticipated life of the loans. If interest rates rise
between the time the Company originates or purchases the loans and the time the
loans are priced at securitization, the spread narrows, resulting in a loss in
value of the loans. To protect against such losses, the Company hedges the value
of the loans through the short sale of treasury securities. Prior to hedging,
the Company performs an analysis of its loans taking into account, among other
things, interest rates and maturities to determine the amount, type (usually
three and five years), duration (usually less than three months) and proportion
of each treasury security to sell short so that the risk to the value of the
loans is more effectively hedged. The Company executes the sale of the treasury
securities with large, reputable securities firms and uses the proceeds received
to acquire treasury securities under repurchase agreements. These securities are
designated as hedges in the Company's records and are closed out when the loans
are sold.
If the value of the hedges decreases, offsetting an increase in the value
of the loans, the Company, upon settlement with its counterparty, will pay the
hedge loss in cash and realize the corresponding increase in the value of the
loans as part of its I/O and residual certificates. Conversely, if the value of
the hedges increase, offsetting a decrease in the value of the loans, the
Company, upon settlement with its counterparty, will receive the hedge gain in
cash and realize the corresponding decrease in the value of the loans through a
reduction in the value of the corresponding I/O and residual certificates.
The Company believes that its hedging activities using treasury securities
are substantially similar in purpose, scope and execution to customary hedging
activities using treasury securities engaged in by many of its competitors.
INFLATION
Inflation historically has had no material effect on the Company's results
of operations. Inflation affects the Company most significantly in the area of
loan originations and can have a substantial effect on interest rates. Interest
rates normally increase during periods of high inflation and decrease during
periods of low inflation.
Profitability may be directly affected by the level and fluctuation in
interest rates which affect the Company's ability to earn a spread between
interest received on its loans and the costs of its
37
<PAGE>
<PAGE>
borrowings. The profitability of the Company is likely to be adversely affected
during any period of unexpected or rapid changes in interest rates. A
substantial and sustained increase in interest rates could adversely affect the
ability of the Company to purchase and originate loans and affect the mix of
first and second mortgage loan products. Generally, first mortgage production
increases relative to second mortgage production in response to low interest
rates and second mortgage production increases relative to first mortgage
production during periods of high interest rates. A significant decline in
interest rates could decrease the size of the Company's loan servicing portfolio
by increasing the level of loan prepayments. Additionally, to the extent
servicing rights and I/O and residual certificates have been capitalized on the
books of the Company, higher than anticipated rates of loan prepayments or
losses could require the Company to write down the value of such servicing
rights and I/O and residual certificates which would have a material adverse
effect on the Company's results of operations and financial condition.
Fluctuating interest rates also may affect the net interest income earned by the
Company from the difference between the yield to the Company on loans held
pending sales and the interest paid by the Company for funds borrowed under the
Company's warehouse facilities. In addition, inverse or flattened interest yield
curves could have an adverse impact on the profitability of the Company because
the loans pooled and sold by the Company have long-term rates, while the senior
interests in the related REMIC trusts are priced on the basis of intermediate
term rates.
RECENT EVENTS AND ACQUISITIONS
Pursuant to the Company's acquisition strategy, in January and February
1997 IMC acquired the outstanding stock of CoreWest and all of the assets of
American Reduction, Equity Mortgage and Mortgage America. During 1996, IMC
acquired all of the assets of Equitystars and also formed a joint venture in the
United Kingdom. Several acquisitions include earn-out arrangements that provide
the sellers with additional consideration if the acquired company reaches
certain performance targets after the acquisition. Any such contingent payments
will result in an increase in the amount of goodwill recorded on IMC's balance
sheet related to each acquisition. Goodwill represents the excess of cost over
fair market value of the net tangible assets acquired in each acquisition and is
amortized through periodic charges to earnings for up to 30 years. See Item 1
'Business -- Acquisitions and Strategic Alliances.'
38
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IMC MORTGAGE COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... 40
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................................... 41
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996............ 42
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and
1996................................................................................................. 43
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996............ 44
Notes to Consolidated Financial Statements............................................................ 45
</TABLE>
39
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
IMC MORTGAGE COMPANY AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of IMC
Mortgage Company and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of IMC Mortgage Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IMC Mortgage
Company and Subsidiaries as of December 31, 1995 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 4, effective January 1, 1996 the Company changed its
method of accounting for mortgage servicing rights.
/S/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 21, 1997
40
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------ --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................................... $ 5,133,718 $ 13,289,128
Securities purchased under agreements to resell................................ 138,058,262 659,490,000
Accrued interest receivable.................................................... 1,872,129 8,311,530
Accounts receivable............................................................ 1,179,907 3,689,540
Mortgage loans held for sale................................................... 193,002,835 914,586,703
Interest-only and residual certificates........................................ 14,072,771 86,246,674
Warehouse financing due from correspondents.................................... 53,200 5,045,385
Furniture, fixtures and equipment -- net...................................... 679,950 1,676,822
Capitalized mortgage servicing rights.......................................... -- 6,621,347
Investment in joint venture.................................................... -- 1,738,760
Goodwill....................................................................... -- 1,843,144
Other assets................................................................... 498,662 4,809,152
------------ --------------
Total................................................................ $354,551,434 $1,707,348,185
------------ --------------
------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse finance facilities.............................................. $189,819,046 $ 895,132,545
Term debt................................................................. 11,120,642 47,430,295
Accrued and other liabilities............................................. 547,707 7,766,858
Accrued interest payable.................................................. 1,055,550 4,077,744
Securities sold but not yet purchased..................................... 139,200,000 661,061,161
Amounts payable for taxes................................................. 1,306,645 2,543,000
Accrual for sharing of proportionate value of equity (Note 5)............. 5,893,000 --
------------ --------------
Total liabilities.................................................... 348,942,590 1,618,011,603
------------ --------------
Commitments (Note 15)
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized;
none issued and outstanding............................................. -- --
Common stock, par value $.01 per share; 50,000,000 authorized; 12,000,000
and 19,669,666 shares issued and outstanding............................ 60,000 196,696
Additional paid-in capital................................................ 3,844,601 76,489,738
Retained earnings......................................................... 1,704,243 12,650,148
------------ --------------
Total stockholders' equity........................................... 5,608,844 89,336,582
------------ --------------
Total................................................................ $354,551,434 $1,707,348,185
------------ --------------
------------ --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Gain on sales of loans......................................... $ 8,583,277 $20,680,848 $46,229,615
Additional securitization transaction expense (Note 5)......... (560,137) (5,547,037) (4,157,644)
----------- ----------- -----------
Net gain on sale of loans................................. 8,023,140 15,133,811 42,071,971
----------- ----------- -----------
Warehouse interest income...................................... 2,510,062 7,884,679 37,463,583
Warehouse interest expense..................................... (1,610,870) (6,006,919) (24,534,896)
----------- ----------- -----------
Net warehouse interest income............................. 899,192 1,877,760 12,928,687
----------- ----------- -----------
Servicing fees................................................. 99,224 1,543,339 6,749,995
Other revenues................................................. 1,072,855 1,117,903 3,903,638
----------- ----------- -----------
Total servicing fees and other............................ 1,172,079 2,661,242 10,653,633
----------- ----------- -----------
Total revenues............................................ 10,094,411 19,672,813 65,654,291
----------- ----------- -----------
Expenses:
Compensation and benefits...................................... 3,348,236 5,139,386 16,006,553
Selling, general and administrative expenses................... 2,000,401 3,477,677 15,652,381
Sharing of proportionate value of equity (Note 5).............. 1,689,000 4,204,000 2,555,000
Other.......................................................... 14,143 297,743 2,321,413
----------- ----------- -----------
Total expenses............................................ 7,051,780 13,118,806 36,535,347
----------- ----------- -----------
Income before income taxes..................................... 3,042,631 6,554,007 29,118,944
Provision for income taxes..................................... -- -- (4,206,000)
----------- ----------- -----------
Net income.......................................................... $ 3,042,631 $ 6,554,007 $24,912,944
----------- ----------- -----------
----------- ----------- -----------
Unaudited Pro Forma Data (giving effect to provision for income
taxes):
Income before provision for income taxes....................... $ 6,554,007 29,118,944
Pro forma provision for income taxes (Note 4).................. 2,522,000 11,190,000
----------- -----------
Pro forma net income........................................... $ 4,032,007 17,928,944
----------- -----------
----------- -----------
Pro forma net income per common share.......................... $ 0.25 $ 0.94
Weighted average number of shares outstanding.................. 15,871,504 19,165,304
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Stockholders' equity at January 1,
1994................................... 6,000,000 $ 60,000 $ 1,739,063 $ (349,971) $ 1,449,092
Cash contributions....................... -- -- 1,554,959 -- 1,554,959
Contributions in foregone premiums....... -- -- 530,579 -- 530,579
Net income............................... -- -- -- 3,042,631 3,042,631
Distributions for taxes (Note 3)......... -- -- -- (721,250) (721,250)
---------- -------- ----------- ----------- -----------
Stockholders' equity at December 31,
1994................................... 6,000,000 60,000 3,824,601 1,971,410 5,856,011
Cash contributions....................... -- -- 20,000 -- 20,000
Net income............................... -- -- -- 6,554,007 6,554,007
Distributions for taxes (Note 3)......... -- -- -- (6,821,174) (6,821,174)
---------- -------- ----------- ----------- -----------
Stockholders' equity at December 31,
1995................................... 6,000,000 60,000 3,844,601 1,704,243 5,608,844
Issuance of options to ContiFinancial
(Note 5)............................... -- -- 8,448,000 -- 8,448,000
Common stock issued in public offering... 3,565,000 35,650 58,167,727 -- 58,203,377
Reclassification of partnership
earnings............................... -- -- 4,124,456 (4,124,456) --
Conversion of convertible preferred
stock.................................. 119,833 1,198 2,004,802 -- 2,006,000
Stock options exercised.................. 150,000 1,500 (1,500) -- --
Net income............................... -- -- -- 24,912,944 24,912,944
Distributions for taxes (Note 3)......... -- -- -- (9,842,583) (9,842,583)
Two-for-one stock split (Note 1)......... 9,834,833 98,348 (98,348) -- --
---------- -------- ----------- ----------- -----------
Stockholders' equity at December 31,
1996................................... 19,669,666 $196,696 $76,489,738 $12,650,148 $89,336,582
---------- -------- ----------- ----------- -----------
---------- -------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
1994 1995
------------ -------------
<S> <C> <C>
Operating activities:
Net income.............................................................................. $ 3,042,631 $ 6,554,007
Adjustments to reconcile net income to net cash used in operating activities:
Sharing of proportionate value of equity................................................ 1,689,000 4,204,000
Foregone premiums....................................................................... 530,579 --
Depreciation and amortization........................................................... 98,285 163,798
Capitalized mortgage servicing rights................................................... -- --
Net loss in joint venture............................................................... -- --
Non-recurring benefit associated with the conversion of
Partnership to C Corporation............................................................ -- --
Deferred taxes.......................................................................... -- --
Net change in operating assets and liabilities, net of effects from purchase of Mortgage
Central Corp.:
Increase in mortgage loans held for sale................................................ (21,023,760) (164,007,085)
Decrease (increase) in securities purchased under agreement to resell and securities
sold but not yet purchased............................................................ -- 1,141,738
Increase in accrued interest receivable................................................. (175,470) (1,653,412)
Decrease (increase) in warehouse financing due from correspondents...................... -- 3,800
Increase in interest-only and residual certificates..................................... (2,953,130) (10,669,041)
(Increase) decrease in other assets..................................................... 13,338 (370,667)
Increase in accounts receivable......................................................... (292,053) (884,904)
Increase in accrued interest payable.................................................... 486,828 546,974
Decrease in deferred income............................................................. -- (450,600)
Increase in amounts payable for taxes................................................... -- --
Increase in accrued and other liabilities............................................... 185,596 141,762
------------ -------------
Net cash used in operating activities................................................... (18,398,156) (165,279,630)
------------ -------------
Investing activities:
Investment in joint venture............................................................. -- --
Purchase of furniture, fixtures and equipment........................................... (292,809) (391,132)
------------ -------------
Net cash used in investing activities................................................... (292,809) (391,132)
------------ -------------
Financing activities:
Issuance of common stock................................................................ -- --
Contributions from partners............................................................. 1,554,959 20,000
Distributions to partners for taxes..................................................... (721,250) (5,514,529)
Borrowings -- warehouse................................................................. 288,530,292 711,907,906
Borrowings -- term debt................................................................. -- 11,120,642
Repayments of borrowings -- warehouse................................................... (268,008,343) (549,820,719)
Repayments of borrowings -- term debt................................................... -- --
------------ -------------
Net cash provided by financing activities............................................... 21,355,658 167,713,300
------------ -------------
Net increase in cash and cash equivalents............................................... 2,664,693 2,042,538
Cash and cash equivalents, beginning of period.......................................... 426,487 3,091,180
------------ -------------
Cash and cash equivalents, end of period................................................ $ 3,091,180 $ 5,133,718
------------ -------------
------------ -------------
Supplemental disclosure cash flow information: Cash paid during the year for interest..... $ 1,364,920 $ 5,459,945
------------ -------------
------------ -------------
Cash paid during the year for taxes....................................................... $ -- $ --
------------ -------------
------------ -------------
Supplemental disclosure of noncash financing and investing activities: Contributed capital
via foregone premiums (Note 3).......................................................... $ 530,579 $ --
------------ -------------
------------ -------------
Acquisition of assets of Mortgage Central Corp. (Note 6).................................. $ -- $ --
------------ -------------
------------ -------------
Amounts payable for taxes (Note 3)........................................................ $ -- $ 1,306,645
------------ -------------
------------ -------------
Issuance of options to ContiFinancial..................................................... $ -- $ --
------------ -------------
------------ -------------
<CAPTION>
1996
----------------
<S> <C>
Operating activities:
Net income.............................................................................. $ 24,912,944
Adjustments to reconcile net income to net cash used in operating activities:
Sharing of proportionate value of equity................................................ 2,555,000
Foregone premiums....................................................................... --
Depreciation and amortization........................................................... 1,649,621
Capitalized mortgage servicing rights................................................... (7,861,913)
Net loss in joint venture............................................................... 852,250
Non-recurring benefit associated with the conversion of
Partnership to C Corporation............................................................ (3,600,000)
Deferred taxes.......................................................................... 879,000
Net change in operating assets and liabilities, net of effects from purchase of Mortgage
Central Corp.:
Increase in mortgage loans held for sale................................................ (721,346,574)
Decrease (increase) in securities purchased under agreement to resell and securities
sold but not yet purchased............................................................ 429,423
Increase in accrued interest receivable................................................. (6,439,401)
Decrease (increase) in warehouse financing due from correspondents...................... (4,992,185)
Increase in interest-only and residual certificates..................................... (72,173,903)
(Increase) decrease in other assets..................................................... (1,610,356)
Increase in accounts receivable......................................................... (2,509,633)
Increase in accrued interest payable.................................................... 3,022,194
Decrease in deferred income............................................................. --
Increase in amounts payable for taxes................................................... 2,543,000
Increase in accrued and other liabilities............................................... 6,977,434
----------------
Net cash used in operating activities................................................... (776,713,099)
----------------
Investing activities:
Investment in joint venture............................................................. (2,591,010)
Purchase of furniture, fixtures and equipment........................................... (1,217,782)
----------------
Net cash used in investing activities................................................... (3,808,792)
----------------
Financing activities:
Issuance of common stock................................................................ 58,203,377
Contributions from partners............................................................. --
Distributions to partners for taxes..................................................... (11,149,228)
Borrowings -- warehouse................................................................. 1,796,117,164
Borrowings -- term debt................................................................. 51,065,610
Repayments of borrowings -- warehouse................................................... (1,090,803,665)
Repayments of borrowings -- term debt................................................... (14,755,957)
----------------
Net cash provided by financing activities............................................... 788,677,301
----------------
Net increase in cash and cash equivalents............................................... 8,155,410
Cash and cash equivalents, beginning of period.......................................... 5,133,718
----------------
Cash and cash equivalents, end of period................................................ $ 13,289,128
----------------
----------------
Supplemental disclosure cash flow information: Cash paid during the year for interest..... $ 23,834,115
----------------
----------------
Cash paid during the year for taxes....................................................... $ 796,310
----------------
----------------
Supplemental disclosure of noncash financing and investing activities: Contributed capital
via foregone premiums (Note 3).......................................................... $ --
----------------
----------------
Acquisition of assets of Mortgage Central Corp. (Note 6).................................. $ 2,190,791
----------------
----------------
Amounts payable for taxes (Note 3)........................................................ $ --
----------------
----------------
Issuance of options to ContiFinancial..................................................... $ 8,448,000
----------------
----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
IMC Mortgage Company (the 'Company') was formed in 1993 by a team of
executives experienced in the non-conforming home equity loan industry. The
Company was originally structured as a partnership, Industry Mortgage Company,
L.P. (the 'Partnership'), which became a wholly owned subsidiary of the Company
in June 1996 when the limited partners (the 'Partners') and the general partner
exchanged their partnership interests for voting common shares (the 'exchange'
or 'recapitalization') of IMC Mortgage Company. The exchange was consummated on
an historical cost basis as all entities were under common control. Accordingly,
since June 1996, IMC Mortgage Company (the 'Company') has owned 100% of the
limited partnership interests in the Partnership and 100% of the general
partnership interest in the Partnership. At the time of the exchange, the
retained earnings previously reflected by the Partnership were transferred to
additional paid-in capital.
The accompanying consolidated financial statements include the accounts of
the Company, the Partnership and their wholly owned subsidiaries, after giving
effect to the exchange as if it had occurred at inception. All inter-company
transactions have been eliminated in the accompanying consolidated financial
statements.
On January 27, 1997, the Board of Directors declared a two-for-one split of
common stock payable on February 13, 1997 to stockholders of record as of
February 6, 1997. A total of $98,348 was transferred from additional
paid-in-capital to the stated value of common stock in connection with the stock
split. This transaction has been recorded herein in the year ended December 31,
1996. The par value of the common stock remains unchanged. All share and per
share amounts have been restated retroactively herein to reflect the stock split
except with respect to periods presented in the consolidated statements of
stockholders' equity prior to December 31, 1996.
2. NATURE OF BUSINESS
The Company purchases and originates mortgage loans made to borrowers who
may not otherwise qualify for conventional loans for the purpose of
securitization and sale. The Company securitizes these mortgages into the form
of a Real Estate Mortgage Investment Conduit ('REMIC'). A significant portion of
the mortgages are sold on a servicing retained basis.
3. DESCRIPTION OF PARTNERSHIP AGREEMENT
CAPITAL CONTRIBUTIONS
Each Partner owning a full partnership share contributed $100,000 in cash
and was required to make additional contributions in either loan volume (via
foregone premiums) or in cash until its respective capital contribution reached
$380,000, which occurred in 1994. Foregone premiums represent the difference
between the amount paid by the Partnership for mortgage loans to Partners who
opted to make additional contributions in loan volume and the value set forth in
a pricing schedule (estimated fair value) delivered to the Partners at the time
of purchase.
PURCHASES FROM PARTNERS
As of December 31, 1996, a majority of the Partners were required to sell
to the Company on prevailing market terms and conditions, an aggregate of $162.0
million of home equity loans per year. As a result of the Company's acquisition
of two of the Partners (Mortgage America and Equity Mortgage -- see Note 17)
effective January 1, 1997, the contractual annual sales commitment of the
Partners was reduced by $36.0 million to $126.0 million. Loans purchased from
Partners during 1994, 1995 and 1996 approximated $115,976,000, $148,420,000 and
$337,505,000, respectively.
45
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
INCOME TAXES
All the tax effects of the Partnership's income or loss were passed through
to the partners individually, therefore, no Federal income taxes were payable by
the Partnership. State and Federal income taxes related to the Partnership's
corporate subsidiaries were not material.
Under the terms of the partnership agreement, the Company was obligated to
make quarterly cash distributions to the partners equal to 45% of profits (as
defined in the partnership agreement) to enable the partners to pay taxes with
respect to their partnership interests. Distributions to partners for income
taxes were $721,250, $6,821,174 and $9,842,583 for the years ended December 31,
1994, 1995 and 1996, respectively. Distributions include cash paid to partners
as well as distributions accrued but not yet paid. The amount payable to
partners for taxes (including interest) at December 31, 1995 and 1996 was
$1,306,645 and $0, respectively.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and on deposit at
financial institutions. Cash and cash equivalents include interest bearing
deposits of $5,133,718 and $13,289,128 at December 31, 1995 and 1996,
respectively.
INTEREST-ONLY AND RESIDUAL CERTIFICATES
The Company originates and purchases mortgages for the purpose of
securitization and whole loan sale. The Company securitizes these mortgages into
the form of a REMIC. A REMIC is a multi-class security with certain tax
advantages which derives its monthly principal paydowns from a pool of
underlying mortgages. The senior classes of the REMICs are sold, with the
subordinated classes (or a portion thereof) retained by the Company. The amount
of senior classes of REMICs outstanding at December 31, 1995 and 1996 was
$418,251,000 and $1,133,644,000, respectively. The subordinated classes are in
the form of interest-only and residual certificates. The documents governing the
Company's securitizations require the Company to build over-collateralization
levels through retention of distributions by the REMIC trust otherwise payable
to the Company as the residual interest holder. This overcollateralization
causes the aggregate principal amount of the loans in the related pool and/or
cash reserves to exceed the aggregate principal balance of the outstanding
investor certificates. Such excess amounts serve as credit enhancement for the
related REMIC trust. To the extent that borrowers default on the payment of
principal or interest on the loans, losses will reduce the overcollateralization
and cash flows otherwise payable to the residual interest security holder to the
extent that funds are available. If payment defaults exceed the amount of
overcollateralization, as applicable, the insurance policy maintained by the
related REMIC trust will pay any further losses experienced by holders of the
senior interests in the related REMIC trust. The Company does not have any
recourse obligations for credit losses in the REMIC trust. During 1995, the
Company securitized $380 million of loans through three REMICs and, during 1996,
the Company securitized $935 million of loans through four REMICs. See Note 11.
The Company initially records these securities at their allocated cost
based upon the present value of the interest in the cash flows retained by the
Company after considering various economic factors, including interest rates,
collateral value and estimates of the value of future cash flows from the REMIC
mortgage pools under expected loss and prepayment assumptions discounted at a
market yield. The weighted average rate used to discount the cash flows range
from 11% to 11.5%, and the assumed loss rate is 50 basis points per year.
In 1994, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 115, 'Accounting for Certain Investments in Debt and Equity
Securities' ('SFAS 115'), which requires fair
46
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
value accounting for these securities. In accordance with the provisions of SFAS
115, the Company classifies interest-only and residual certificates as `trading
securities' and, as such, they are recorded at fair value with the resultant
unrealized gain or loss recorded in the results of operations in the period of
the change in value. The Company determines fair value at inception and on an
ongoing basis based on a discounted cash flow analysis. The cash flows are
estimated as the excess of the weighted average coupon on each pool of mortgage
loans sold over the sum of the pass-through interest rate plus a normal
servicing fee, a trustee fee, an insurance fee and an estimate of annual future
credit losses related to the mortgage loans securitized over the life of the
mortgage loans.
These cash flows are projected over the life of the mortgage loans using
prepayment, default, and interest rate assumptions that market participants
would use for similar financial instruments subject to prepayment, credit and
interest rate risk. The fair valuation includes consideration of the following
characteristics: loan type, size, interest rate, date of origination, term and
geographic location. The Company also used other available information such as
externally prepared reports on prepayment rates, interest rates, collateral
value, economic forecasts and historical default and prepayment rates of the
portfolio under review.
CAPITALIZED MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Company adopted SFAS No. 122 'Accounting for
Mortgage Servicing Rights' ('SFAS 122'), superseded in June 1996 by SFAS No. 125
'Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities' ('SFAS 125'), which is effective in January 1997. The SFAS's
require that upon sale or securitization of mortgages, companies capitalize the
cost associated with the right to service mortgage loans based on their relative
fair values. The Company determines fair value based on the present value of
estimated net future cash flows related to servicing income. The cost allocated
to the servicing rights is amortized in proportion to and over the period of
estimated net future servicing fee income. Under SFAS 122, the Company
capitalized and amortized approximately $7,818,000 and $1,197,000, respectively,
of capitalized mortgage servicing rights, resulting in additional operating
income of approximately $6,621,000 for the year ended December 31, 1996. The
effect on unaudited pro forma net income and pro forma net income per common
share for the year ended December 31, 1996 was an increase of $4,050,000 and
$0.21, respectively.
Prior to the adoption of SFAS 122, servicing rights acquired through loan
origination activities were recorded in the period the loans were serviced.
The Company periodically reviews capitalized servicing fees receivable for
impairment. This review is performed on a disaggregated basis for the
predominant risk characteristics of the underlying loans which are loan type,
term, credit quality and, to a lesser extent, interest rate. The Company
generally makes loans to borrowers whose borrowing needs may not be met by
traditional financial institutions due to credit exceptions. The Company has
found that these borrowers are more payment sensitive rather than interest rate
sensitive. Impairment is recognized in a valuation allowance for each
disaggregated stratum in the period of impairment. The carrying amount of
capitalized mortgage servicing rights is deemed to be a reasonable estimate of
their fair value.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL/SECURITIES SOLD BUT NOT YET
PURCHASED
To hedge the interest rate risk on loan purchases, the Company sells short
United States Treasury securities which match the duration of the fixed rate
mortgage loans held for sale and borrows the securities under agreements to
resell.
Securities sold but not yet purchased are recorded on a trade date basis
and are carried at market value. The unrealized gain or loss on these
instruments is deferred and recognized upon securitization
47
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
as an adjustment to the carrying value of the hedged mortgage loans. The cost to
carry securities purchased under agreements to resell is recorded as incurred.
Securities purchased under agreements to resell are recorded on a trade
date basis and are carried at the amounts at which the securities will be
resold.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are mortgages the Company plans to sell or
securitize. Mortgage loans held for sale are stated at lower of aggregate cost
or market. The cost is net of any deferred hedging gain or loss. Market value is
determined by outstanding commitments from investors, if any, or current
investor yield requirements on the aggregate basis. The amount by which cost
exceeds market value is accounted for as a valuation allowance. Changes in the
valuation allowance are included in the determination of net income in the
period of change.
REVENUE RECOGNITION
Gains on the sale of mortgage loans representing the difference between the
sales price and the net carrying amount (which includes any hedging gains and
losses) of the loan are recognized when mortgage loans are sold and delivered to
investors. For securitizations of mortgage loans, the gain on the sale of the
loans represents the present value of the differential between interest earned
on the portion of loans sold and interest paid to investors less related costs
over the expected life of the loans, adjusted for projected prepayments,
expected charge-offs, foreclosure expenses and a normal servicing fee.
Interest income on the interest-only and residual certificates, included in
other revenues in the statement of operations, is recognized on the interest
method as earned and deemed collectible. Other income consists primarily of
interest on interest-only and residual certificates and earnings on deposits.
Warehouse interest income on mortgage loans held for sale is recognized on the
accrual method.
The Company generally retains servicing rights and recognizes servicing
income from fees, prepayment penalties and late payment charges earned for
servicing the loans owned by certificate holders and others. Servicing fees are
generally earned at a rate of approximately 1/2 of 1%, on an annualized basis,
of the unamortized loan balance being serviced. Servicing fee income is
recognized as collected.
FURNITURE, FIXTURES AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
Furniture, fixtures and equipment are carried at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the useful life of the improvements.
GOODWILL
Goodwill represents the excess of cost over fair value of net tangible
assets acquired by acquisition through December 31, 1996. Such excess of cost
over fair value of net tangible assets acquired in 1996 is being amortized on a
straight-line basis over twenty-five years. Amortization expense was $71,404 for
the year ended December 31, 1996. Management periodically reviews the potential
impairment of goodwill on a non-discounted cash flow basis to assess
recoverability. If the estimated future cash flows are projected to be less than
the carrying amount, an impairment write-down (representing the carrying amount
of the goodwill which exceeds the present value of estimated expected future
cash flows) would be recorded as a period expense.
48
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS
125, which is effective for transactions that occur after December 31, 1996, and
will be applied prospectively. SFAS 125 requires the Company to allocate the
total cost of mortgage loans sold among the mortgage loans sold, interest-only
and residual certificates and servicing rights based on their relative values.
The Company will apply the new rules prospectively beginning in the first
quarter of 1997. The actual effect of implementing this new statement on the
Company's financial condition and results of operations will depend on various
factors determined at the end of a reporting period, including the amount of
originated and purchased production, the level of interest rates and market
estimates of future prepayment and loss rates. Accordingly, the Company can not
determine at this time the ultimate impact on its future earnings of applying
the provision of SFAS 125, but does not expect the results under SFAS 125 to
differ materially from results which would have emerged under SFAS 122.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform with the 1996 classifications.
UNAUDITED PRO FORMA DATA
The Partnership which is included in the consolidated financial statements
became a wholly owned subsidiary of the Company after the plan of exchange
described in Note 1 was consummated. The Partnership made no provision for
income taxes since the Partnership's income or losses were passed through to the
partners individually.
The Partnership became subject to income taxes as of June 24, 1996, the
effective date of the exchange. The unaudited pro forma data included in the
consolidated statements of operations of the Company includes a pro forma
provision for income taxes to indicate what these taxes would have been had the
exchange occurred in prior periods.
The following unaudited pro forma information reflects the income tax
expense that the Company would have incurred if it had been subject to Federal
and state income taxes for the entire year ended December 31, 1995 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Pro forma current:
Federal.............................................................. $ 3,904,000 $ 8,910,000
State................................................................ 649,000 1,894,000
----------- -----------
4,553,000 10,804,000
----------- -----------
Pro forma deferred:
Federal.............................................................. (1,843,000) 318,000
State................................................................ (188,000) 68,000
----------- -----------
(2,031,000) 386,000
----------- -----------
Pro forma provision for income taxes...................................... $ 2,522,000 $11,190,000
----------- -----------
----------- -----------
</TABLE>
49
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The following unaudited pro forma information reflects the reconciliation
between the statutory provision for income taxes and the pro forma provision
relating to the income tax expense the Company would have incurred had the
Partnership been subject to federal and state income taxes.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Income tax at federal statutory rate....................................... $2,272,000 $10,192,000
State taxes, net of federal benefit........................................ 232,000 1,310,000
Nondeductible expenses..................................................... 18,000 36,000
Other, net................................................................. -- (348,000)
---------- -----------
Pro forma provision for income taxes....................................... $2,522,000 $11,190,000
---------- -----------
---------- -----------
</TABLE>
PRO FORMA EARNINGS PER SHARE
Pro forma net income per common share has been computed using the weighted
average number of common shares and dilutive common share equivalents
outstanding during the period after giving effect to the recapitalization
described in Note 1. Dilutive common share equivalents consist of stock options
(calculated using the treasury stock method), convertible preferred stock and
the stock warrant issued to ContiFinancial Corporation described in Note 5.
Pursuant to the requirements of the Securities and Exchange Commission, common
shares and common equivalent shares issued at prices below the public offering
price of $9 per share during the twelve months immediately preceding the date of
the initial filing of the Registration Statement have been included in the
calculation of common shares and common share equivalents, using the treasury
stock method, as if they were outstanding for all periods presented.
Weighted average number of shares outstanding is comprised of the following
for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding........................ 12,000,000 15,981,520
Additional shares deemed to be outstanding:
Cheap stock............................................................ 3,871,504 3,169,090
Employee stock options................................................. -- 14,694
---------- ----------
Weighted average number of common shares and common share equivalents....... 15,871,504 19,165,304
---------- ----------
---------- ----------
</TABLE>
5. STRATEGIC ALLIANCE
The Company relied on ContiFinancial Corporation and its subsidiaries and
affiliates ('ContiFinancial') to provide the original credit facility for
funding its loan purchases and originations as well as their expertise and
assistance in loan securitization. In 1994, 1995 and 1996, the securitizations
were structured so that ContiFinancial received, in exchange for cash of
$2,109,011, $18,424,827 and $8,632,647, respectively, interest-only and residual
certificates with estimated values of $3,035,000, $25,054,000 and $13,444,000,
respectively. In addition, ContiFinancial paid $365,852, $1,082,136 and $653,709
in expenses related to securitizations in 1994, 1995 and 1996, respectively. The
difference between the estimated value of the interest-only and residual
certificates provided to ContiFinancial and the total amount of cash received
and expenses paid by ContiFinancial amounts to $560,137, $5,547,037 and
$4,157,644 in 1994, 1995 and 1996, respectively, and has been recorded as
additional securitization transaction expense.
50
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
In August 1993, the Company entered into a five-year agreement ('1993
Agreement') with ContiFinancial which provided the Company with a warehouse line
of credit, a standby credit facility, and certain investment banking services.
In compensation for these services, the Company agreed to pay a commitment fee
to ContiFinancial equal to 0.50% of the agreement limit ($10 million) in the
first year and 0.75% of the agreement limit minus the weighted average advance
balance for the prior year, payable on each anniversary of the first purchase
date. Total commitment fees paid to ContiFinancial pursuant to the 1993
Agreement were $50,000 in 1994.
Pursuant to the 1993 Agreement, the Company agreed to share the value of
the partnership through a contingent fee based on a percentage of Residual
Company Equity (as defined in the 1993 Agreement) to be paid in cash at the
termination of the agreement. At December 31, 1993, there was no Residual
Company Equity and accordingly no liability was recorded. At December 31, 1994,
the Company had Residual Company Equity and accordingly the Company accrued a
liability (sharing of proportionate value of equity) to reflect the contingent
fee payable of $1,689,000 at December 31, 1994 with a corresponding charge in
the statement of operations.
On January 12, 1995, the Company and ContiFinancial entered into a revised
ten-year agreement (the '1995 Agreement') which replaced the 1993 Agreement and
provided for contingent fees based on the fair market value of the Company (as
defined). The amount of the contingent fee ranged from 15% to 25% of the fair
market value of the Company if ContiFinancial or the Company, respectively,
elected to terminate these arrangements. In the event that the agreement expired
with neither ContiFinancial nor the Company electing to terminate the
arrangements, the fee would have been 20% of the fair market value of the
Company. If the Company made any distributions to the partners other than those
made as tax distributions and returns of partnership equity, the Company would
have been required to distribute an amount to ContiFinancial equal to 25% of
these other distributions. At December 31, 1995, the Company accrued $5,893,000
(based on an independent appraisal of the fair market value of the Company)
representing the estimated amount that would have been payable to ContiFinancial
had ContiFinancial elected to terminate the 1995 Agreement as of December 31,
1995. The increase in the amount of the accrual at December 31, 1995 related to
the 1995 Agreement over the amount accrued at December 31, 1994 related to the
1993 Agreement was recorded as a charge to earnings for 1995.
In March 1996, the Company and ContiFinancial replaced the 1995 Agreement
with an agreement (the '1996 Agreement') which eliminated the ability of
ContiFinancial to obtain or require a cash payment as provided for in the 1993
and 1995 Agreements and provided ContiFinancial options to acquire an interest
in the Company for a nominal amount. On June 24, 1996, the effective date of the
exchange described in Note 1, the option was converted into a warrant
exercisable for a de minimus amount for 3,000,000 shares of the Company's common
stock. The warrant contains normal anti-dilution provisions. ContiFinancial has
certain rights to join in registration of additional shares of stock and under
certain conditions after the expiration of a four-year time period, to require
that shares subject to ContiFinancial's warrants be registered by the Company or
its successor. The liability that had been established under the 1995 Agreement
was reclassified to paid in capital in March 1996 in conjunction with the
issuance of the ContiFinancial option. The fair value of the option at the date
of grant (March 26, 1996) was estimated to be $8,448,000 based on an independent
appraisal of the option. The Company recorded expense of $2,555,000 for the year
ended December 31, 1996, representing the excess of the estimated fair value of
the option at the date of grant over the amount accrued at December 31, 1995
pursuant to the 1995 Agreement.
6. ACQUISITION OF ASSETS OF MORTGAGE CENTRAL CORPORATION
On January 1, 1996, the Company acquired certain assets of Mortgage Central
Corp., a Rhode Island corporation ('MCC'), a mortgage banking company which did
business under the name `Equitystars' primarily in Rhode Island, New York,
Connecticut and Massachusetts. The initial purchase
51
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
price ($2,006,000) for certain assets of MCC was paid by delivery to MCC of
Series A voting, convertible preferred stock of the Company, with contingency
payments (capped at $2,550,000) over two years based on performance. The
preferred stock had a liquidation preference of $100 per share plus preferred
dividends accruing at 8% per annum from the date of issuance until redemption or
liquidation. The preferred stock was converted into 239,666 shares of the
Company's common stock upon closing of the Company's initial public offering in
June 1996.
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the purchase price of $2,006,000 has been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
date of acquisition. The excess of the purchase price of $2,006,000 over the
fair values of the net assets was approximately $1,730,000 and was recorded as
goodwill. Additional purchase price consideration of approximately $185,000 was
recorded as goodwill in 1996 related to the contingent payment terms of the
acquisition. Any additional consideration will also be accounted for as
goodwill.
The operating results of MCC have been included in the consolidated
statement of income from the date of acquisition on January 1, 1996. On the
basis of a pro forma consolidation of the results of operations as if the
acquisition had taken place at the beginning of 1995, consolidated total
revenues would have approximated $24,193,000 for the year ended December 31,
1995. Consolidated income would not have been materially different from the
reported amount for the year ended December 31, 1995. Such amounts are not
necessarily indicative of what the actual consolidated results of operations
might have been if the acquisition had been effective at the beginning of 1995.
7. JOINT VENTURE
In March 1996, the Company entered into an agreement to form a joint
venture (Preferred Mortgages Limited) in the United Kingdom to originate and
purchase mortgages made to borrowers who may not otherwise qualify for
conventional loans for the purpose of securitization and sale. The Company and a
second party each own 45% of the joint venture, and a third party owns the
remaining 10%. The original investment in the joint venture represents the
acquisition of 675,000 shares of the joint venture stock for $1,031,737 and a
note receivable from the joint venture for $1,031,737. Additionally, at December
31, 1996, the Company had loaned to the joint venture $527,536. The note and
loan bear interest at 3% per annum above LIBOR. Principal repayment on the note
is to begin when the joint venture's Board of Directors determine the joint
venture has sufficient available profits. The loan is due upon demand. To the
extent not previously repaid, all principal is due December 31, 2040. The
investment in the joint venture is accounted for under the equity method and
through December 31, 1996 was not material in relation to the financial position
or results of operations of the Company.
8. COLLATERALIZED OBLIGATIONS
WAREHOUSE FINANCE FACILITIES
The Company has a $400 million uncommitted warehouse facility with Bear
Stearns Home Equity Trust 1996-1 which also provides additional warehouse
financing on an as offered basis and, which may result in amounts borrowed to be
in excess of $400.0 million. This facility bears interest at LIBOR plus 0.875%
and expires in March 1997. Approximately $441.0 million was outstanding under
this facility at December 31, 1996. In February 1997, the warehouse facility was
increased to $500 million.
Additionally, the Company had approximately $580.6 million available under
numerous other warehouse lines of credit, of which approximately $454.1 million
was outstanding at December 31, 1996 ($113.2 million was through
ContiFinancial). Interest rates ranged from 6.5% to 7.2% as of December 31, 1996
and all borrowings mature within one year. Outstanding borrowings on the
Company's
52
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
warehouse financing facilities are collateralized by mortgage loans held for
sale and warehouse financing due from correspondents at December 31, 1996 and
servicing rights on approximately $250 million of mortgage loans. Upon the sale
of these loans and the repayment of warehouse financing due from correspondents,
the borrowings under these lines will be repaid.
TERM DEBT
The Company has available a line of credit under a term debt with
ContiFinancial for $15,000,000, the entire amount of which was outstanding at
December 31, 1996. Outstanding borrowings bear interest based on LIBOR plus
1.70% (which was 7.3% at December 31, 1996) and are collateralized by the
Company's interest in certain interest-only and residual certificates. This
agreement terminates in January 2000.
The Company also has available a $20,000,000 credit facility which matures
in August 1999 and bears interest at 2.75% per annum in excess of LIBOR. At
December 31, 1996, $11,299,291 was outstanding under this credit facility and is
collateralized by the Company's interest in a residual certificate. In January
1997, the Company borrowed an additional $6,218,183 under this facility.
In 1996, Bear, Stearns & Co. Inc. and its affiliates, Bear Stearns Mortgage
Capital Corporation and Bear, Stearns International Limited, agreed to provide
the Company with a $30 million credit facility which extends through October
1997 and is collateralized by certain interest-only and residual certificates
owned by the Company. At December 31, 1996, $14,127,595 was outstanding under
this credit facility, which bears interest at 1.75% per annum in excess of
LIBOR. In January 1997, the Company borrowed an additional $15,250,000 under
this facility.
At December 31, 1996, the Company had borrowed $7,003,409 under agreements
which mature through August 1998, bearing interest at rates ranging from 1.25%
to 2.00% per annum in excess of LIBOR which were collateralized by certain
interest-only and residual certificates.
The Company also has available a $7 million credit facility which matures
July 31, 1999 and bears interest at 10% per annum from an affiliate of a
stockholder. At December 31, 1996, no amounts were outstanding under this credit
facility. In February 1997, the Company borrowed approximately $6,800,000 under
the facility.
In December 1996, the Company executed an agreement with the Bank of Boston
whereby Bank of Boston provides a $25 million one year revolving credit facility
subject to the following sublimits and terms: (i) $5 million warehouse line of
credit due June 30, 1998, (ii) $25 million to finance interest-only and residual
certificates, to be repaid according to a repayment schedule calculated by Bank
of Boston with a maximum amortization period after the revolving period of three
years; and (iii) $20 million for acquisition or bridge financing due within six
months from the initial borrowing date of each takedown of the bridge financing,
but in no event later than June 30, 1998. No amounts were outstanding under this
credit facility at December 31, 1996.
The warehouse notes and term debt have requirements that the Company
maintain certain debt to equity ratios and certain agreements restrict the
Company's ability to pay dividends on common stock. Capital expenditures are
limited by certain agreements. Management believes the Company is in compliance
with all such covenants of these agreements.
53
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
9. OTHER ASSETS
Other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Prepaid expenses.................................................... $214,206 $ 912,708
Real estate owned................................................... 141,840 460,280
Organization costs, net............................................. 54,014 33,148
Other assets........................................................ 88,602 682,016
Net deferred tax asset.............................................. -- 2,721,000
-------- ----------
$498,662 $4,809,152
-------- ----------
-------- ----------
</TABLE>
10. SERVICING PORTFOLIO
The total servicing portfolio of loans was approximately $92 million, $536
million and $2.15 billion at December 31, 1994, 1995 and 1996, respectively.
11. INTEREST-ONLY AND RESIDUAL CERTIFICATES
Activity in interest-only and residual certificates consisted of the
following for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Balance, beginning of year..................................... $ 3,403,730 $14,072,771
Additions...................................................... 11,835,997 77,010,992
Reductions (cash receipts)..................................... (1,166,956) (4,837,089)
----------- -----------
Balance, end of year........................................... $14,072,771 $86,246,674
----------- -----------
----------- -----------
</TABLE>
The Company has not recorded any direct write-downs for impairment for the
years ended December 31, 1995 and 1996.
12. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET ACTIVITIES
FINANCIAL INSTRUMENTS
SFAS No. 105 'Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risks and Financial Instruments with Concentrations of Credit
Risk' and SFAS No. 119, 'Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments' require disclosure of the notional amount
or contractual amounts of financial instruments.
The Company regularly securitizes and sells fixed and variable rate
mortgage loan receivables. As part of its interest rate risk management
strategy, the Company may choose to hedge its interest rate risk related to its
mortgage loans held for sale by utilizing treasury securities. The Company
classifies these transactions as hedges. The gains and losses derived from these
financial securities are deferred and included in the carrying amounts of the
mortgage loans held for sale and ultimately recognized in income when the
related mortgage loans are sold. Deferred losses on the treasuries used to hedge
the anticipated transactions amounted to approximately $1,140,000 and $1,571,000
at December 31, 1995 and 1996, respectively.
54
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
MARKET RISK
The Company is subject to market risk from financial instruments, including
short sales of treasury securities, in that changes in market conditions can
unfavorably affect the market value of such contracts.
FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, 'Disclosures about Fair Values of Financial Instruments,'
requires disclosure of fair value information about financial instruments,
whether or not recognized in the financial statements, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based upon estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and the estimated future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts do not represent the
underlying value of the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
the value:
Cash and cash equivalents: The carrying amount of cash on hand and on
deposit at financial institutions is considered to be a reasonable estimate
of fair market value.
Accrued interest receivable and accounts receivable: The carrying
amounts are considered to approximate fair value. All amounts that are
assumed to be uncollectible within a reasonable time are written off.
Mortgage loans held for sale: The estimate of fair values is based on
current pricing of whole loan transactions that a purchaser unrelated to
the seller would demand for a similar loan. The fair value of the mortgage
loans held for sale approximated $196,577,000 and $931,635,200 at December
31, 1995 and 1996, respectively.
Interest-only and residual certificates: The fair value is determined
by discounting the estimated cash flow over the life of the certificate
using prepayment, default, and interest rate assumptions that market
participants would use for similar financial instruments subject to
prepayment, credit and interest rate risk. The carrying amount is
considered to be a reasonable estimate of fair market value.
Collateralized borrowings: Collateralized borrowings consist of
warehouse finance facilities and term debt. The warehouse finance
facilities have maturities of less than one year and bear interest at
market interest rates and, therefore, the carrying value is a reasonable
estimate of fair value. The carrying amount of outstanding term debt, which
bear market rates of interest, approximates its fair value.
CREDIT RISK
The Company uses securities purchased under agreements to resell as part of
its interest rate management strategy. These instruments expose the Company to
credit risk which is measured as the loss the Company would record if
counterparties failed to perform pursuant to the terms of their contractual
obligations and the value of the collateral held, if any, was not adequate to
cover such losses. The Company's policy is to keep the securities at the
financial institution which instituted the trade on behalf of the Company. The
Company monitors the market value of the assets acquired to ensure their
adequacy as compared to the amount at which the securities will be resold. The
interest rate of these
55
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
instruments depends upon, among other things, the underlying collateral, the
term of the agreement and the credit quality of the counterparty. The Company
transacts these resale agreements with institutional broker/dealers.
The Company is a party to financial instruments with off-balance sheet
credit risk in the normal course of business. These financial instruments
include commitments to extend credit to borrowers, and commitments to purchase
loans from correspondents. The Company has a first or second lien position on
all of its loans, and the maximum combined loan-to-value ratio ('CLTV')
permitted by the Company's underwriting guidelines is 100%. The CLTV represents
the combined first and second mortgage balances as a percentage of the lesser of
appraised value or the selling price of the mortgaged property, with the
appraised value determined by an appraiser with appropriate professional
designations. A title insurance policy is required for all loans.
As of December 31, 1995 and 1996, the Company had outstanding commitments
to extend credit at fixed rates or purchase loans in the amounts of $92,397,000
and $121,000,000 respectively.
Commitments to extend credit or to purchase a loan are granted for a period
of thirty days and are contingent upon the borrower and the borrower's
collateral satisfying the Company's underwriting guidelines. Since many of the
commitments are expected to expire without being exercised, the total commitment
amount does not necessarily represent future cash requirements or future credit
risk.
The Company is exposed to on-balance sheet credit risk related to its
mortgage loans held for sale and interest-only and residual certificates. The
Company is also exposed to off-balance sheet credit risk related to loans which
the Company has committed to originate or buy.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
mortgages held for sale, securities purchased under agreements to resell, and
securities sold but not yet purchased. The Company places its cash and cash
equivalents with what management believes to be high-quality financial
institutions and thereby limits its exposure to credit risk. As of December 31,
1995 and 1996, the majority of mortgage loans with on balance sheet and off
balance sheet risks were collateralized by properties located in the
mid-atlantic region of the United States.
WAREHOUSE EXPOSURE
The Company makes available to certain correspondents warehouse financing
which bear interest at rates ranging from 1.75% to 2.50% per annum in excess of
LIBOR. As of December 31, 1996 the Company had $23,000,000 of committed
warehousing available to these correspondents, of which $5,045,385 was
outstanding, including $3,514,800 due from a stockholder. There was $53,200
outstanding as of December 31, 1995 under warehouse facilities due from
correspondents. Interest income on these warehouse financing facilities was
$23,299 and $190,506 for 1995 and, 1996, respectively. The warehouse commitments
are for terms of less than one year. Mortgage loans originated by the
correspondents remain in the warehouse for a period of 30 days at which point
the mortgage loans are either purchased by the Company or sold to another
investor.
56
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
13. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Computer systems.................................................... $523,150 $1,089,375
Office equipment.................................................... 174,107 589,041
Furniture........................................................... 196,283 484,956
Leasehold improvements.............................................. 11,068 28,655
Other............................................................... 3,487 3,487
-------- ----------
Total..................................................... 908,095 2,195,514
Less accumulated depreciation....................................... (228,145) (518,692)
-------- ----------
Furniture, fixtures and equipment, net.............................. $679,950 $1,676,822
-------- ----------
-------- ----------
</TABLE>
Depreciation expense was $76,662, $142,932 and $316,785 for 1994, 1995 and
1996, respectively.
14. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN
The Company adopted a defined contribution plan (401(k)) for all eligible
employees during August 1995. Contributions to the plan are in the form of
employee salary deferrals which may be subject to an employer matching
contribution up to a specified limit at the discretion of the Company. The
Company's contribution to the plan amounted to $107,031 and $277,372 for 1995
and 1996, respectively.
KEY EMPLOYEE AND ADVISOR OPTIONS
On December 11, 1995, the Partnership adopted the Partnership Option Plan
pursuant to which the Partnership was authorized to grant certain key employees,
directors of the General Partner and certain non-employee advisors
(collectively, 'Eligible Persons') options to acquire an equity interest in the
Partnership. In April 1996, the Company adopted the Company Incentive Plan and
the Directors Stock Option Plan. All options granted under the Partnership
Option Plan were assumed by the Company pursuant to the Company Incentive Plan
and the Directors Stock Option Plan. The aggregate equity interest in the
Company available under the Company Incentive Plan and the Director Stock Option
Plan is not to exceed 12% of all equity interests in the Company as of the date
the plan was adopted.
The Company applies Accounting Principles Board Opinion No. 25 ('APB' 25)
and related interpretations in accounting for its plans. SFAS No. 123
'Accounting for Stock-Based Compensation' ('SFAS 123') was issued by the FASB in
1995 and, if fully adopted, changes the method for recognition of cost on plans
similar to those of the Company. The Company has adopted the disclosure
alternative established by SFAS 123. Therefore pro forma disclosures as if the
Company adopted the cost recognition requirements under SFAS 123 are presented
below.
The Company's stock option plans provide primarily for the granting of
nonqualified stock options to certain key employees, non-employee directors and
non-employee advisors. Generally, options outstanding under the Company's stock
option plans: (1) are granted at prices which are equal to the market value of
the stock on the date of grant, (2) vest at various rates over a three or five
year period and (3) expire ten years subsequent to award.
57
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
A summary of the status of the Company's stock options as of December 31,
1995 and 1996 and the changes during the year is presented below:
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.................................. 0 1,150,866 $ 2.35
Granted........................................................... 1,150,866 $ 2.35 360,302 $10.00
Exercised......................................................... 0 0
Canceled.......................................................... 0 0
--------- ---------
Outstanding at end of year........................................ 1,150,866 $ 2.35 1,511,168 $ 4.18
--------- ---------
--------- ---------
Options exercisable at end of year................................ 690,520 1,010,456
--------- ---------
--------- ---------
Options available for future grant................................ 894,588 534,286
--------- ---------
--------- ---------
Weighted average fair value of options granted during year........ $ 1.10 $ 5.75
--------- ---------
--------- ---------
</TABLE>
The fair value of each option granted during 1996 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of zero, (2) expected volatility of 53%, (3)
risk-free interest rate of 5.68% and (4) expected life of 4 years.
The 1996 grants included 120,000 employee option shares granted at exercise
prices less than the market price of the stock on the date of grant. The
exercise price of the options, market price of the common shares at grant date
and estimated fair value of such options at grant date were $8.00, $12.00 and
$8.11 per share, respectively. The Company records compensation expense for such
grants over their vesting periods in accordance with APB 25. Such expense
totaled approximately $40,000 in 1996.
The 1996 grants also include 20,000 option shares which were granted to
advisors to the Company at exercise prices equal to the market price of the
stock at grant date. Expense representing the estimated fair value of such
grants of approximately $20,000 has been recognized in 1996 under the provisions
of SFAS 123.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
WEIGHTED
NUMBER AVERAGE WEIGHED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
1996 LIFE PRICE 1996 PRICE
--------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$2.35...................................... 1,150,866 9.0 $ 2.35 920,692 $ 2.35
$8.00...................................... 310,302 9.5 $ 8.00 87,092 $ 8.00
$12.00 to $16.00........................... 50,000 9.7 $12.80 2,672 $12.00
--------------- --------------
Total................................. 1,511,168 9.1 $ 4.18 1,010,456 $ 2.86
--------------- --------------
--------------- --------------
</TABLE>
58
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Had compensation cost for the Company's 1995 and 1996 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's pro forma net income and pro forma net income per common share for
1995 and 1996 would approximate the pro forma amounts below.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Pro forma net income....................................... $ 4.0 $ 3.6 $17.9 $17.3
Pro forma net income per common share...................... $0.25 $0.23 $0.94 $0.90
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. There were no awards prior to 1995 and additional
awards in future years are anticipated.
15. COMMITMENTS
INDUSTRY PARTNERS INCENTIVE PLAN
In 1996, the Company created an incentive plan (the 'Industry Partners
Incentive Plan') to encourage partners to sell more mortgage loans to the
Company than required under their commitments. Under that Plan, options
exercisable for five years after grant to acquire a total of 20,000 shares of
Common Stock at $9.00 per share were awarded to Industry Partners for the
quarter ended September 30, 1996. The market price of the stock at date of grant
was $16.00 per share. The 20,000 options were allocated among those Industry
Partners that doubled their commitments, pro rata, to the extent the Industry
Partners exceeded that doubled commitment for the quarter. The plan was amended
and, for each quarter beginning December 31, 1996, Industry Partners that double
their commitments will be eligible to receive on a pro rata basis fully paid
shares of Common Stock equal to $150,000 divided by the market price of the
Common Stock at the end of each quarter. The fully paid shares of Common Stock
will be issued among those Industry Partners that double their commitments, pro
rata, to the extent the Industry Partner exceeded its doubled commitment for the
quarter. The Industry Partners Incentive Plan continues through the quarter
ended June 30, 2000. Expense recorded under the plan in 1996 amounted to
approximately $257,000.
OPERATING LEASES
The Company leases office space in various cities under operating lease
agreements. The lease agreements have lease terms ranging from 6 to 36 months.
Future minimum lease payments under noncancellable lease agreements at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING OPERATING
DECEMBER 31, LEASES
- ------------ ----------
<S> <C>
1997............................................................................ $ 931,715
1998............................................................................ 748,739
1999............................................................................ 369,530
----------
$2,049,984
----------
----------
</TABLE>
Rent expense under operating leases was $210,063, $362,946 and $753,197 in
1994, 1995 and 1996.
EMPLOYMENT AGREEMENTS
Certain members of management entered into employment agreements expiring
through 2001 which, among other things, provide for aggregate annual
compensation of approximately $1,175,000 plus
59
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
bonuses ranging from 5% to 15% of base salary in the relevant year for each one
percent by which the increase in net income on an earnings per share basis of
the Company over the prior year exceeds 10%, up to a maximum of 300% of annual
compensation. Each employment agreement contains a restrictive covenant which
prohibits the executive from competing with the Company for a period of 18
months after termination.
16. INCOME TAXES
The Partnership which is included in the consolidated financial statements
became a wholly owned subsidiary of the Company after the plan of exchange
described in Note 1 was consummated.. The Partnership made no provision for
income taxes since the Partnership's income or losses were passed through to the
partners individually. The Partnership became subject to income taxes as of June
24, 1996, the effective date of the exchange and began accounting for the effect
of income taxes under SFAS No. 109, 'Accounting for Income Taxes,' on that date.
Taxable income for 1996 is calculated on the days method whereby the previous
partners are responsible for the tax liability generated through June 24, 1996.
The components of the provision for income taxes allocable to the Company
consist of the following:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Current income tax expense:
Federal.............................................................................. $5,713,000
State................................................................................ 1,214,000
----------
6,927,000
----------
Deferred income tax expense:
Federal.............................................................................. 725,000
State................................................................................ 154,000
----------
879,000
----------
Non-recurring benefit associated with the conversion of Partnership to C Corporation...... (3,600,000)
----------
Total provision for income taxes.......................................................... $4,206,000
----------
----------
</TABLE>
Total provision for income taxes differs from the amount which would be
provided by applying the statutory federal income tax rate to income before
income taxes as indicated below:
<TABLE>
<CAPTION>
Income tax at federal statutory rate.................................................... $ 10,192,000
<S> <C>
State income taxes, net of federal benefit.............................................. 1,310,000
Non-recurring benefit associated with the conversion of the Partnership to a C
Corporation........................................................................... (3,600,000)
Nondeductible items..................................................................... 36,000
Other, net.............................................................................. (348,000)
Effect of applying statutory federal and state income tax rates to partnership income... (3,384,000)
------------
Total provision for income taxes................................................... $ 4,206,000
------------
------------
</TABLE>
60
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Stock warrants....................................................................... $ 3,003,000
Allowance for loan losses............................................................ 435,000
Interest-only and residual certificates.............................................. 531,000
REMIC income......................................................................... 322,000
Loss on joint venture................................................................ 320,000
Amortization of mortgage servicing rights............................................ 204,000
Other................................................................................ 246,000
Deferred tax liabilities:
Securitization income................................................................ (1,228,000)
Mortgage servicing rights............................................................ (934,000)
Other................................................................................ (178,000)
-----------
Net deferred tax asset............................................................... $ 2,721,000
-----------
-----------
</TABLE>
17. SUBSEQUENT EVENTS
ACQUISITION OF AMERICAN MORTGAGE
Effective February 1, 1997, the Company acquired all of the assets of
American Mortgage Reduction, Inc. (`American Reduction'), a non-conforming
mortgage lender based in Owings Mills, Maryland. The purchase price for all of
the assets of American Reduction was an initial payment of approximately
$9,150,000 and a contingent payment based on the average after-tax earnings of
American Reduction for the two year period ending December 31, 1999.
ACQUISITION OF EQUITY MORTGAGE
Effective January 1, 1997, the Company acquired all of the assets of Equity
Mortgage Co., Inc. ('Equity Mortgage'), a non-conforming mortgage lender based
in Baltimore, Maryland, for a cash payment of $150,000 in excess of the net
assets of Equity Mortgage.
ACQUISITION OF MORTGAGE AMERICA
Effective January 1, 1997, the Company acquired all of the assets of
Mortgage America, Inc. ('Mortgage America'), a non-conforming mortgage lender
based in Bay City, Michigan. The purchase price for all of the assets of
Mortgage America was an initial payment of 1,790,000 shares of common stock of
the Company and assumption of a stock option plan which could result in issuance
of an additional 334,596 shares of IMC stock and a contingent payment of up to
2,770,000 additional shares of the Company's common stock at the end of three
years based on the future growth and profitability of Mortgage America.
ACQUISITION OF COREWEST
Effective January 1, 1997, the Company acquired all of the outstanding
common stock of CoreWest Banc ('CoreWest'), a non-conforming mortgage lender
based in Los Angeles, California. The purchase price for all of the outstanding
common stock of CoreWest was an initial payment of 488,404 shares of common
stock of the Company and a contingent payment of additional shares of the
Company's common stock at the end of a two year period based on the future
profitability of CoreWest.
The acquisitions of American Reduction, Equity Mortgage, Mortgage American
and CoreWest will be accounted for using the purchase method of accounting and,
accordingly, the purchase price will be
61
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
allocated to assets purchased and liabilities assumed based upon the fair values
at the date of acquisition. The initial purchase price for American Reduction
and Equity Mortgage was $9,300,000 in cash. The initial purchase price for
Mortgage America and CoreWest was valued at $24,500,000 by an independent
appraiser. The excess of the purchase prices over the fair values of the net
assets will be recorded as goodwill. The fair value of the acquired companies'
assets approximated the liabilities assumed, and accordingly, the majority of
the initial purchase prices is anticipated to be recorded as goodwill and will
be amortized for periods from 10 to 30 years.
Most of the acquisitions include earn-out arrangements that provide for
additional consideration if the acquired company achieves certain performance
targets after the acquisition. Any such contingent payments will result in an
increase in the amount of recorded goodwill related to such acquisition.
RECENT SECURITIZATION
In January 1997, the Company completed a securitization in the amount of
$325 million, its ninth securitization. The securities sold in the
securitization were rated AAA/Aaa and were sold in a public offering.
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following unaudited quarterly results of operations are presented in
thousands, except earnings per share amounts.
<TABLE>
<CAPTION>
FISCAL QUARTER
----------------------------------------
1996 FIRST SECOND THIRD FOURTH
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.............................................................. $11,456 $14,285 $19,766 $20,147
Pro forma net income (actual for third and fourth quarters)........... $ 1,625 $ 3,653 $ 6,052 $ 6,599
Pro forma earnings per share (actual for third and fourth quarters)... $ 0.10 $ 0.22 $ 0.26 $ 0.28
1995
----
Revenues.............................................................. $ 3,432 $ 3,752 $ 6,226 $ 6,263
Pro forma net income.................................................. $ 690 $ 650 $ 1,458 $ 1,234
Pro forma earnings per share.......................................... $ 0.04 $ 0.04 $ 0.09 $ 0.08
</TABLE>
62
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
TERMINATION OF INDEPENDENT ACCOUNTANT
IMC terminated the engagement of Deloitte & Touche LLP ('D&T') as its
independent accountants, effective December 1995 after completing the audit for
the year ended December 31, 1994. The decision to terminate D&T was approved by
the Board of Directors of the general partner of the Partnership.
The audit reports of D&T on the financial statements of IMC for the period
from inception to December 31, 1993 and for the year ended December 31, 1994 did
not contain an adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
There were no disagreements with D&T during the period from inception to
December 31, 1993 or for the fiscal year ended December 31, 1994, or in any
subsequent interim period through the date of their termination on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of D&T, would have
caused D&T to make reference to such disagreement in connection with its opinion
on IMC's financial statements.
ENGAGEMENT OF INDEPENDENT ACCOUNTANT
Effective December, 1995 IMC engaged Coopers & Lybrand L.L.P. to serve as
independent accountants to audit and certify IMC's financial statements.
Pursuant to this engagement, Coopers & Lybrand L.L.P. has audited IMC's
financial statements for the period from inception to December 31, 1993, and for
the years ended December 31, 1994, 1995 and 1996.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND REGISTRANT
DIRECTORS AND OFFICERS
The directors and executive officers of IMC and their ages as of January
31, 1997 and positions are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ ---- ---------------------------------------------------------------
<S> <C> <C>
George Nicholas........................... 54 Chairman of the Board of Directors, Chief Executive Officer and
Assistant Secretary, Member of the Compensation and Executive
Committees
Thomas G. Middleton....................... 50 Director, President, Chief Operating Officer and Assistant
Secretary, Member of the Compensation and Executive
Committees
Stuart D. Marvin.......................... 37 Chief Financial Officer
Joseph P. Goryeb.......................... 66 Director, Member of the Audit and Option Committees
Mitchell W. Legler........................ 54 Director, Member of the Compensation and Audit Committees
Allen D. Wykle............................ 50 Director, Member of the Audit and Option Committees
</TABLE>
George Nicholas has served as Chief Executive Officer and Chairman of the
Board of IMC since the formation of the corporation in December 1995 and as
Assistant Secretary of IMC since April 1996. Since his founding of the
Partnership in August 1993, Mr. Nicholas has served as Chief Executive Officer
of the Partnership and Chairman of the Board and sole stockholder of its general
partner. Mr. Nicholas' experience in the lending business spans 32 years. He has
previously held positions at General Electric Credit Corp., Household Finance
Corp. and American Financial Corporation of Tampa ('AFC'), a company of which he
was owner and Chief Executive Officer from its formation in February 1986 until
it was acquired by Equibank in 1988. From February 1988 until May 1992 Mr.
Nicholas was president of AFC, a subsidiary of Equibank which was a wholesale
lending institution specializing in the purchase of non-conforming mortgage
loans. From June 1992 until July 1993, Mr. Nicholas was an independent mortgage
industry consultant. In 1993, Mr. Nicholas organized the original Industry
Partners and led negotiations with investment bankers for the Partnership.
63
<PAGE>
<PAGE>
Thomas G. Middleton has served as Director and President of IMC since
December 1995 and as Assistant Secretary of IMC since April 1996. Mr. Middleton
has served as Chief Operating Officer of the Partnership since August 1993 and
as President of the Partnership since July 1995. Mr. Middleton has 26 years of
experience in the lending business. From April 1992 until August 1993, Mr.
Middleton was Senior Vice President of Shawmut National Corporation and from
February 1991 until April 1992, Mr. Middleton was Managing Director of SAG
Financial Inc. Mr. Middleton served as Executive Vice President and Chief Credit
Officer of Equimark Corp. from June 1987 until February 1991.
Stuart D. Marvin joined the Company as its Chief Financial Officer on
August 1, 1996. Mr. Marvin is a certified public accountant and was most
recently a partner in the Jacksonville, Ft. Lauderdale and Miami, Florida
offices of Coopers & Lybrand L.L.P. Mr. Marvin has over 12 years of public
accounting experience with Coopers & Lybrand L.L.P. and Arthur Young & Company.
Joseph P. Goryeb has served as a director of IMC since April 1996. Mr.
Goryeb is the Chairman and Chief Executive Officer of Champion Mortgage Co.
Inc., a leading non-conforming residential mortgage institution that was founded
by Mr. Goryeb in 1981. His 40 years of experience in the consumer lending
industry include previous positions with Beneficial Finance Company and Suburban
Finance Company.
Mitchell W. Legler has served as a director of IMC since April 1996. Mr.
Legler is the sole stockholder of Mitchell W. Legler, P.A. and has been general
counsel to IMC since August 1995. Mr. Legler is currently a director of Stein
Mart, Inc. a Nasdaq listed company. From January 1991 to August 1995, Mr. Legler
was a partner of Foley & Lardner, prior to which he was a partner of Commander,
Legler, Werver, Daws, Sadler & Howell, P.A.
Allen D. Wykle has served as a director of IMC since April 1996. Mr. Wykle
has been the Chairman of the Board and Chief Executive Officer of Approved
Financial Corp. (formerly American Industrial Loan Association), a
non-conforming mortgage lending institution, since 1984, for which Mr. Wykle
negotiated the initial public offering in April 1992. Mr. Wykle was owner,
President and Chief Executive Officer of Best Homes of Tidewater, Inc., a
residential construction and remodeling company in Virginia from 1972 to 1986.
TERMS OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the Company's Board of
Directors consists of such number of persons as shall be fixed by the Board of
Directors from time to time by resolution and is divided into three classes,
with each class to be as nearly equal in number of directors as possible. The
Company's Bylaws provide that the Board of Directors shall consist of no fewer
than one nor more than 10 persons. Currently there are five directors. The term
of office of the directors in each of the three classes expires at the annual
meetings of stockholders in 1997 through 1999, respectively. Mr. Legler serves
until the 1997 annual meeting of stockholders. Messrs. Wykle and Goryeb serve
until the 1998 annual meeting of stockholders. Messrs. Nicholson and Middleton
serve until the 1999 annual meeting of stockholders. At each annual meeting, the
successors to the class of directors whose term expires at that time are to be
elected to hold office for a term of three years, and until their respective
successors are elected and qualified, so that the term of one class of directors
expires at each such annual meeting. In the case of any vacancy on the Board of
Directors, including a vacancy created by an increase in the number of
directors, the vacancy shall be filled by the Board of Directors, with the
director so elected to serve until the next annual meeting of stockholders. Any
newly-created directorships or decreases in directorships are to be assigned by
the Board of Directors so as to make all classes as nearly equal in number as
possible. Directors may be removed only for cause. Officers are elected annually
by the Board of Directors and serve at the discretion of the Board of Directors.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee consists of Messrs. Goryeb, Legler and
Wykle. The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the indepen-
64
<PAGE>
<PAGE>
dence of the independent public accountants, considers the range of audit and
non-audit fees and reviews the adequacy of the Company's internal accounting
controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Nicholas, Middleton and Legler. The Compensation Committee determines the
compensation of the Company's executive officers.
Option Committee. The Option Committee consists of Messrs. Goryeb and Wykle
and has authority to administer the Company's stock option plans and to grant
options thereunder.
Other Committees. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time, including, but not limited
to, an Executive Committee of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive stock options
pursuant to the Directors' Stock Option Plan (the 'Directors' Plan'). Each of
Messrs. Goryeb, Legler and Wykle has received options to purchase 12,932 shares
of Common Stock pursuant to the Directors' Plan. The Company pays non-employee
directors $6,000 per year plus $2,500 for each meeting attended. All directors
receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with meetings of the Board of Directors. No director who is an
employee of the Company will receive separate compensation for services rendered
as a director.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid and accrued during fiscal 1996 to the Company's Chief Executive Officer and
the other executive officers of the Company whose compensation exceeded $100,000
for that year (collectively, the 'Named Executive Officers').
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(2)
- ------------------------------------------ ---- -------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
George Nicholas, Chairman of the Board,
Chief Executive Officer................. 1996 $475,000 $1,425,000 $ 6,500 --
Thomas G. Middleton, President, Chief
Operating Officer....................... 1996 380,000 1,140,000 9,500 --
Stuart D. Marvin, Chief Financial
Officer(3).............................. 1996 111,677 93,750 -- 120,000
</TABLE>
- ------------
(1) Represents matching contributions by IMC under the IMC Savings Plan, a
defined contribution plan under Section 401(k) of the Internal Revenue Code,
as amended.
(2) Represents number of shares of Common Stock underlying options.
(3) Represents compensation from commencement of employment on August 1, 1996,
and includes reimbursement of $17,927 for relocation costs to Tampa,
Florida.
65
<PAGE>
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to Stuart D. Marvin, the only Named Executive Officer to receive stock
options during the year ended December 31, 1996. No stock appreciation rights
were granted during such year:
<TABLE>
<CAPTION>
INDIVIDUAL GRANT POTENTIAL REALIZABLE
-------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------------------------
NAME GRANTED FISCAL YEAR PRICE(1) DATE 0% 5% 10%
- --------------------- ---------- ------------- --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stuart D. Marvin..... 120,000 35.3% $8.00 8/1/01 $480,000 $1,385,608 $2,774,989
</TABLE>
- ------------
(1) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the date of exercise or pursuant to a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company may
also allow the optionee to pay the aggregate exercise price plus any tax
liability incurred in connection with the exercise with a promissory note.
On the date of grant of this option, the market price of the Common Stock
was $12 per share. Mr. Marvin received 120,000 options for restricted and
unregistered shares of common stock, the fair market value as estimated by a
Committee of the Board of Directors to be $8.00 per share, as part of the
negotiated terms of his employment.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are permitted by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants to the
executive officers.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning the value of
unexercised options held by each of the Named Executive Officers at December 31,
1996. No options or stock appreciation rights were exercised during 1996 and no
stock appreciation rights were outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
George Nicholas...................................... 452,586 113,146 $ 6,517,238 $1,629,302
Thomas G. Middleton.................................. 226,292 56,574 3,258,605 814,666
Stuart D. Marvin..................................... 10,000 110,000 87,500 962,500
</TABLE>
- ------------
(1) Based on the closing price of $16.75 per share, adjusted for the two-for-one
stock split, of the Common Stock on Nasdaq on December 31, 1996, the last
trading day of the Company's fiscal year.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with George Nicholas, its Chairman
and Chief Executive Officer, Thomas G. Middleton, its President and Chief
Operating Officer, and Stuart D. Marvin, its Chief Financial Officer
('Employment Agreements').
Mr. Nicholas' current Employment Agreement commenced on January 1, 1996 and
terminates on December 31, 2001 (subject to automatic five-year extensions,
unless either the Company or Mr. Nicholas gives a notice of termination six
months prior to the extension). The Employment Agreement provides for an annual
salary of $475,000, plus an increase each year equal to the greater of (i) the
change in the cost of living in Tampa, Florida, or (ii) an amount equal to 10%
of the base salary for the prior year, but only if the Company has achieved an
increase in net income per share of 10% or more in that year. In addition, the
Employment Agreement provides for payment of a bonus equal to 15% of
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the base salary of the relevant year for each one percent by which the increase
in net income per share exceeds 10% up to a maximum of 300% of his base salary.
For example, if the increase in net income per share for a particular year were
20%, the bonus payment would equal 150% of the base salary for such year. The
Employment Agreement also provides that the Company shall use its best efforts
to elect Mr. Nicholas to the Company's Board of Directors and to its Executive
Committee, if constituted. Mr. Nicholas' employment may be terminated by the
Company at any time for 'cause' (including material breach of the Employment
Agreement, certain criminal or intentionally dishonest and misleading acts,
breaches of confidentiality and failure to follow directives of the Board). If
Mr. Nicholas is terminated for cause or voluntarily terminates his employment
(in the absence of a Company breach or a 'change of control') he does not
receive any deferred compensation. Mr. Nicholas is entitled to deferred
compensation upon (i) his termination by the Company without cause, (ii) the
Company's failure to renew his Employment Agreement on expiration, (iii) death
or disability, (iv) voluntary termination by Mr. Nicholas after a material
breach by the Company, and (v) voluntary termination after a 'change of control'
(defined as any (A) acquisition of 25% or more of the voting power or equity of
the Company, (B) change in a majority of the members of the Board excluding any
change approved by the Board, or (C) approval by the Company's stockholders of a
liquidation or dissolution of the Company, the sale of substantially all of its
assets, or a merger in which the Company's stockholders own a minority interest
of the surviving entity). The amount, if any, of deferred compensation payable
to Mr. Nicholas will be determined at the time of termination equal to the
greater of (i) his base salary for the remainder of the then-current term of the
Employment Agreement, or (ii) an amount equal to 150% of the highest annualized
compensation earned by him during the preceding three years. Receipt of deferred
compensation is Mr. Nicholas' sole remedy in the event of a wrongful termination
by the Company. Mr. Nicholas' Employment Agreement contains a restrictive
covenant prohibiting him, for a period of 18 months following the termination of
his employment for any reason, from competing with the Company within the
continental United States or from soliciting any employees from the Company who
are earning in excess of $50,000 per year. However, this restrictive covenant is
not applicable if Mr. Nicholas is terminated without cause or if the Company
defaults in the payment of deferred compensation to Mr. Nicholas or otherwise
materially breaches the Employment Agreement. The Employment Agreement also
provides that the Company shall indemnify Mr. Nicholas for any and all
liabilities to which he may be subject as a result of his services to the
Company.
Mr. Middleton's Employment Agreement commenced on January 1, 1996 and
contains terms that are substantially the same as those of Mr. Nicholas'
Employment Agreement, with the exception that Mr. Middleton's annual salary is
$380,000, plus increases as provided therein.
Mr. Marvin's Employment Agreement commenced on August 1, 1996 and extends
until December 31, 1999. The terms of the Employment Agreement provide for an
annual salary of $225,000 commencing August 1, 1996, plus an increase each
calendar year equal to the greater of (i) the change in the cost of living in
Tampa, Florida, or (ii) an amount equal to 10% of the base salary for the prior
year, but only if the Company has achieved an increase in net income per share
of 10% or greater. In addition, the Employment Agreement provides for a payment
of a bonus equal to 5% of the base salary of the relevant year for each one
percent by which the increase in net income per share exceeds 10% up to a
maximum of 100% of his base salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Company's Board of
Directors or officers responsible for compensation decisions and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past. Messrs. Nicholas, Middleton and
Legler serve on the Compensation Committee and Messrs. Nicholas and Middleton
are executive officers of the Company.
PERFORMANCE GRAPH
The performance graph required by Item 402 of Regulation S-K is hereby
incorporated by reference to the Registrant's proxy statement to annual
stockholders meeting.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 31, 1997 of: (i) each person known
by the Company to own beneficially five percent or more of the outstanding
Common Stock; (ii) each of the Company's directors; (iii) each of the Named
Executive Officers; and (iv) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-----------------------
PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER CLASS
- ------------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
ContiTrade Services Corporation(1) ............................................ 2,700,000 10.95%
277 Park Avenue
New York, New York 10172
Branchview, Inc.(2) ........................................................... 1,661,856 7.57
989 McBride Avenue
West Patterson, New Jersey 07424
Approved Financial Corp. ...................................................... 1,205,018 5.49
3420 Holland Road, Suite 107
Virginia Beach, Virginia 23452
George Nicholas(3) ............................................................ 1,543,496 6.89
3450 Buschwood Park Drive
Tampa, Florida 33618
Thomas G. Middleton(4) ........................................................ 440,767 1.99
3450 Buschwood Park Drive
Tampa, Florida 33618
Stuart D. Marvin(5) ........................................................... 16,000 *
3450 Buschwood Park Drive
Tampa, Florida 33618
Joseph P. Goryeb(6)(7) ........................................................ 1,183,460 5.39
Waterview Corporate Centre
20 Waterview Boulevard
Parsippany, New Jersey 07054-1267
Allen D. Wykle(6)(8) .......................................................... 21,456 *
3420 Holland Road
Virginia Beach, Virginia 23452
Mitchell W. Legler(6)(9) ...................................................... 90,062 *
Independent Drive, Suite 3104
Jacksonville, Florida 32202
Thomas P. LaPorte Trust(10) ................................................... 1,229,274 5.60
2230 Groveland
Bay City, MI 48708
Mary M. Reid Trust(10) ........................................................ 1,229,270 5.60
2230 Groveland
Bay City, MI 48708
All directors and executive officers as a group (6 persons)(11)........... 3,295,241 14.50%
</TABLE>
- ------------
* Represents less than one percent.
(1) Consists of 2,700,000 shares of Common Stock issuable upon the exercise of
the Conti Warrant, which is currently exercisable for a de minimus amount.
(2) Excludes 110,000 registered shares purchased by shareholders of Branchview,
Inc. in the Company's intial public offering.
(3) Includes 452,586 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan.
(4) Includes 226,293 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan.
(footnotes continued on next page)
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(footnotes continued from previous page)
(5) Includes 16,000 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan.
(6) Includes 10,346 shares of Common Stock issuable upon the exercise of
options under the Directors' Plan.
(7) Includes 1,145,338 shares of Common Stock owned by JRJ Associates, Inc. Mr.
Goryeb has voting and investment control of the Common Stock owned by JRJ
Associates, Inc.
(8) Excludes 1,199,768 shares of Common Stock and 5,250 shares of Common Stock
issuable upon the exercise of options under the Incentive Plan owned by
Approved. Mr. Wykle, who owns 32% of the voting stock of Approved, has
voting, but not investment, control of the Common Stock owned by Approved.
Mr. Wykle disclaims beneficial ownership of the shares of Common Stock
owned by Approved and issuable upon the exercise of such options.
(9) Includes 48,940 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan, 27,776 shares held by Mr. Legler jointly
with his spouse and 3,000 shares held in his IRA.
(10) Includes 4,282 shares of Common Stock issuable upon the exercise of options
issued to Mortgage America under the Incentive Plan. Thomas P. LaPorte and
Mary M. Reid are husband and wife and have voting and investment control of
the 4,282 shares of Common Stock issuable upon the exercise of these
options. Each acts as co-trustee of the other's respective trust.
(11) See Notes (3)-(9).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since its inception, the Company has had business relationships and engaged
in certain transactions with affiliated companies and parties as described
below. It is the policy of the Company to engage in transactions with related
parties only on terms that, in the opinion of the Company, are no less favorable
to the Company than could be obtained from unrelated parties and each of the
transactions described below conforms to that policy.
AGREEMENTS WITH CONTIFINANCIAL
Warehouse Facility. The Company and ContiFinancial are party to the Amended
and Restated Loan and Security Agreement, dated as of September 1, 1995
(together with its predecessor agreement, the 'Warehouse Facility'). Pursuant to
the Warehouse Facility, the Company has a $125.0 million line of credit that is
secured by its mortgage loans and expires on August 31, 1997. Amounts
outstanding under the Warehouse Facility bear interest at a rate of LIBOR plus
1.5% per year. During 1994, 1995 and 1996, the Company made interest payments
under the Warehouse Facility of $0.5 million, $5.1 million and $6.0 million,
respectively.
Standby Agreement. The Company and ContiFinancial are party to a Standby
Agreement through which the Company funds the income taxes payable as a result
of the recognition of the securitization gain on sale and other working capital
needs prior to receipt of any cash flow from the residual interests in its
securitizations. Amounts borrowed under the Standby Agreement bear interest at a
rate of LIBOR plus 1.7% per annum. The Standby Agreement expires on January 12,
2000. The Company has borrowed the full $15.0 million available under the
Standby Agreement. During 1994, 1995 and 1996, the Company made interest
payments to ContiFinancial under the Standby Agreement of $0, $0.2 million and
$1.4 million, respectively.
Investment Banking Relationship. As part of the 1995 Agreement, the Company
and ContiFinancial entered into an agreement for investment banking services
dated January 12, 1995 (the '1995 Investment Banking Agreement'). The 1995
Investment Banking Agreement replaced a prior agreement between the parties
under the 1993 Agreement (together with the 1995 Investment Banking Agreement,
the 'Investment Banking Agreements'). Pursuant to the 1995 Investment Banking
Agreement, unless the Company determines, in its sole discretion, that
materially better terms are available from others, ContiFinancial has a right
(the 'Retention Right') to act as underwriter,
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placement agent or sponsor ('Mortgage Banker') with respect to $2.0 billion of
placement or underwriting of securitizations and whole loan acquisitions or
dispositions of the Company's mortgage loans (the 'Mortgage Transaction'). In
addition, ContiFinancial may retain all underwriting fees from the Mortgage
Transaction in any instance in which it acts as Mortgage Banker for the Company,
receive information from the Company regarding any Mortgage Transaction in which
it is not chosen to be the Mortgage Banker and receive certain minimum
allocations of Retention Rights on a per annum basis which, if not fulfilled,
are rolled over into the minimum allocation of Retention Rights for the
following year. The 1995 Investment Banking Agreement expires in 2000, unless
extended through the mutual agreement of the parties. Under the Investment
Banking Agreements, the Company paid $0.3 million, $0.2 million and $0 million,
respectively, to ContiFinancial for services as Mortgage Banker in 1994, 1995
and 1996, respectively.
Conti Warrant. In August 1993, the Company entered into the 1993 Agreement
with ContiFinancial which provided IMC with the $15.0 million Standby Agreement
to fund retention of I/O and residual classes of certificates and certain
investment banking services and also committed ContiFinancial to provide a
warehouse facility to IMC, subject to the satisfaction of certain conditions.
Pursuant to the 1993 Agreement, IMC agreed to share a portion of its equity with
ContiFinancial through an agent fee based on a percentage of increases in equity
(as defined) at the termination of the 1993 Agreement. On January 12, 1995, IMC
and ContiFinancial entered into the 1995 Agreement which replaced the 1993
Agreement and provided for agent fees to ContiFinancial based on the fair market
value of the Company (as defined in the 1995 Agreement). The amount of the agent
fee ranges from 15% of the fair market value of the Company in the event
ContiFinancial elects to terminate the 1995 Agreement to 25% of the fair market
value of the Company in the event IMC elects to terminate the 1995 Agreement.
Pursuant to the 1995 Agreement, the Conti VSA was established. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Sharing of Proportionate Value
of Equity.' A professional valuation firm valued the Company as of December 31,
1995 in order to calculate the value of the Conti VSA at that time. The Conti
VSA was valued at $5.9 million. The Conti VSA was converted into the Conti
Option effective December 31, 1995 by an agreement executed March 26, 1996.
Prior to the Company's initial public offering in June 1996, the Conti Option
was converted into the Conti Warrant. The Conti Warrant grants ContiFinancial
certain registration rights. The Conti Warrant is exercisable for 2.7 million
shares (after giving effect to ContiFinancial's sale in June 1996 of 10% of its
interest in the Conti Warrant) of Common Stock for a de minimus amount, subject
to adjustment if the Company issues Common Stock below fair market value and
certain anti-dilution adjustments.
ADDITIONAL SECURITIZATION TRANSACTION EXPENSE
Through June 1996, the Company had an I/O and residual certificate sharing
arrangement with ContiFinancial in connection with its securitizations pursuant
to which the Company arranged to have issued to ContiFinancial a percentage of
the residual interest in the related REMIC trust in exchange for cash.
ContiFinancial received 50% of the residual interests (valued at $3.0 million)
in the Company's 1994-1 securitization in exchange for $2.1 million, 50% of the
residual interests (valued at $4.2 million) in the Company's 1995-1
securitization in exchange for $3.3 million, 100% of the residual interests
(valued at $12.4 million) in the Company's 1995-2 securitization in exchange for
$10.0 million, 55% of the residual interests (valued at $8.5 million) in the
Company's 1995-3 securitization in exchange for $5.1 million, 50% of the
residual interests (valued at $9.5 million) in the Company's 1996-1
securitization in exchange for $6.2 million and 25% of the residual interests
(valued at $3.9 million) in the Company's 1996-2 securitization in exchange for
$2.5 million. See Item 7 -- 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Transactions with ContiFinancial --
Additional Securitization Transaction Expense.'
IMC ASSOCIATES, INC.
IMC Associates, Inc. ('IMC Associates') was formed to lease a skybox suite
in the Ice Palace stadium for games of the Tampa Bay Lightning, a national
hockey league franchise. The Company purchases tickets for the hockey games from
IMC Associates for an aggregate amount equal to the
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$75,000 annual lease cost of the skybox. IMC Associates is owned by George
Nicholas, the Chairman of the Board and Chief Executive Officer of the Company.
GENERAL COUNSEL
The Company paid $230,000 in legal fees in 1996 to Mr. Legler who acted as
general counsel for the Company through his professional association, Mitchell
W. Legler, P.A. The Company has an arrangement with Mitchell W. Legler, P.A.
pursuant to which it pays that firm $17,500 per month for Mr. Legler's services
as general counsel.
In addition, Mitchell W. Legler, P.A. earns a contingent cash fee for
acting in the primary role in identifying potential acquisition candidates and
in analyzing, negotiating and closing acquisitions of other non-conforming
lenders and strategic alliances with other non-conforming lenders. The
contingent fees are determined based on a percentage of the expected increase in
IMC's earnings per share resulting from an acquisition or strategic alliance
based on the first year following the closing of the acquisition and based on
the first three years following the closing of a strategic alliance. Fifty
percent of contingent fee as to acquisitions is paid following the closing and
the remainder is paid at the end of the first year based on actual results
achieved. The contingent fee as to strategic alliances is paid at the end of the
first three years following closing based on actual results. No fee is due to
Mitchell W. Legler, P.A. for unsuccessful acquisition or strategic alliance
efforts.
As a result of this contingent fee arrangement, Mitchell W. Legler, P.A.
received fees in the aggregate of $468,167 in connection with the acquisitions
of CoreWest, Mortgage America, American Reduction and Equity Mortgage. The
balance of the fees, if any, due as a result of those acquisitions will be paid
in 1998.
In addition, on December 11, 1995, Mr. Legler was granted options to
purchase 42,026 shares of Common Stock at an exercise price of $2.35 per share
pursuant to the Incentive Plan for advisory services to the Company and options
to purchase 12,932 shares of Common Stock at an exercise price of $2.35 per
share pursuant to the Directors' Plan and options to purchase 20,000 shares of
Common Stock at an exercise price of $8.00 per share pursuant to the Incentive
Plan.
TAX DISTRIBUTIONS
Under the terms of the partnership agreement governing the Partnership, the
Company was obligated to make quarterly cash distributions to the partners equal
to 45% of profits (as defined in the partnership agreement) to enable the
partners to pay taxes in respect of their partnership interests ('Tax
Distributions'). Tax Distributions to partners in 1996 related to partnership
income prior to June 24, 1996, the effective date of the exchange of the
partnership interests for Common Stock of the Company, and included $790,281 to
George Nicholas, $898,703 to Mortgage America, $898,703 to JRJ Associates, Inc.,
$898,703 to Branchview, $898,703 to Approved and $898,703 to Cityscape Corp.
TRANSACTIONS WITH INDUSTRY PARTNERS
INDUSTRY PARTNERS' INCENTIVE PLAN
At the time the Partnership became a subsidiary of the Company, the
Industry Partners were given an opportunity to double the monthly dollar amount
of mortgage loans which they committed to sell to the Company. To encourage
Industry Partners to continue to sell more mortgage loans than required under
their commitments, the Company created an incentive option plan for Industry
Partners (the 'Industry Partners' Incentive Plan'). Under that Plan, options
exercisable for five years after grant to acquire a total of 20,000 shares of
Common Stock at $9.00 per share were awarded to Industry Partners for the
quarter ending September 30, 1996. The 20,000 options were allocated among those
Industry Partners that doubled their commitments, pro rata, to the extent the
Industry Partners exceeded that doubled commitment for the quarter. The plan was
amended and for each quarter beginning December 31, 1996, Industry Partners that
doubled their commitments will be eligible to receive on a pro rata basis fully
paid shares of Common Stock equal to $150,000 divided by the market price of the
Common Stock at the end of each quarter. The fully paid shares of Common Stock
will be issued among
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those Industry Partners that doubled their commitments, pro rata, to the extent
the Industry Partner exceeded its doubled commitment for the quarter. The
Industry Partners Incentive Plan continues through the quarter ended June 30,
2000.
LAKEVIEW
The Company entered into the Lakeview Facility in January 1996 with
Lakeview, an affiliate of Branchview, Inc., one of the Industry Partners. The
Company repaid all outstanding amounts under the Lakeview Facility with a
portion of the proceeds of the Company's initial public offering in June 1996.
The Company has re-borrowed approximately $5 million under the Lakeview
Facility, effective in January 1997. In 1996, IMC, through its wholly owned
subsidiary, IMCCI, entered into the Credit Card Joint Venture with Lakeview
Credit. The Credit Card Joint Venture is owned 50% by IMCCI and 50% by Lakeview
Credit. See Item 1 -- 'Business -- New Products and Services -- Secured Credit
Cards.'
JRJ ASSOCIATES INC.
JRJ Associates Inc. sold loans in the aggregate amount of $24.9 million to
the Company during 1996 and has agreed to sell $24.0 million in loans to the
Company in 1997. Mr. Goryeb, a member of the Board of Directors of IMC, is
Chairman and Chief Executive Officer of Champion Mortgage Co. Inc., an affiliate
of JRJ Associates Inc.
CITYSCAPE CORP.
Cityscape Corp. contributed $420,000 to the Company in lieu of additional
loan sales in satisfaction of its aggregate loan sale commitments for 1996 and
will contribute $360,000 in satisfaction of its commitments for 1997.
MORTGAGE AMERICA
Effective January 1, 1997, IMC acquired all of the assets of Mortgage
America, one of the Industry Partners. IMC purchased $45.3 million of
residential mortgage loans from Mortgage America during 1996. The purchase price
for all of the assets of Mortgage America was an initial payment of 1,790,000
shares of Common Stock and assumption of a stock option plan which could result
in issuance of an additional 334,596 shares of Common Stock and a contingent
payment of up to 2,770,000 additional shares of Common Stock at the end of three
years based on the growth and profitability of Mortgage America during that
period.
EQUITY MORTGAGE
Effective January 1, 1997, IMC acquired all of the assets of Equity
Mortgage, one of the Industry Partners. IMC purchased $12.5 million of
residential mortgage loans from Equity Mortgage during 1996. The purchase price
for Equity Mortgage was a cash payment of $150,000 in excess of its net assets.
In connection with the acquisition, the Company entered into a four year
employment agreement with the former owner of Equity Mortgage, Mr. Mark
Greenberg, pursuant to which the Company is obligated to pay Mr. Greenberg 1.5%
of the principal amount of non-conforming loans originated by the Equity
Mortgage division of the Company during such four years, up to a maximum amount
that does not exceed the net income of the division.
INVESTORS MORTGAGE
Investors Mortgage sold loans in the aggregate amount of $12.1 million to
IMC during 1996. Investors Mortgage has agreed to sell $12.0 million in loans to
the Company in 1997.
APPROVED FINANCIAL CORP.
Approved, formerly American Industrial Loan Association, sold loans in the
aggregate amount of $100.1 million to IMC during 1996 and has agreed to sell $24
million in loans to IMC in 1997. Mr. Wykle, a member of the Board of Directors
of IMC, is Chairman and Chief Executive Officer of Approved. In January 1996,
IMC and Approved entered into a warehouse financing facility pursuant to which
IMC committed to lend Approved $8.0 million secured by mortgage loans.
Borrowings under the facility bear interest at a rate of LIBOR plus 1.75%, and
Approved paid IMC $137,189 in interest payments during 1996.
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PART III.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report.
(1) Financial Statements
See Item 8.
'Financial Statements and Supplementary Data'
(2) Financial Statement Schedules
No Financial statement schedules are included because of the absence
of the conditons under which they are required or because the information
is included in the financial statements or notes thereto.
(3) Exhibits
The exhibits are listed on the Exhibit Index attached hereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
IMC MORTGAGE COMPANY
By /S/ THOMAS G. MIDDLETON
..................................
THOMAS G. MIDDLETON,
PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons on behalf of
the registrant and in the capacities indicated on March 31 , 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ --------------------------------------------
<S> <C>
/S/ GEORGE NICHOLAS Chairman of the Board and Chief Executive
......................................... Officer (Principal Executive Officer)
(GEORGE NICHOLAS)
/S/ STUART D. MARVIN Chief Financial Officer (Principal
......................................... Accounting Officer and Principal Financial
(STUART D. MARVIN) Officer)
/S/ JOSEPH P. GORYEB Director
.........................................
(JOSEPH P. GORYEB)
/S/ MITCHELL W. LEGLER Director
.........................................
(MITCHELL W. LEGLER)
/S/ THOMAS G. MIDDLETON Director
.........................................
(THOMAS G. MIDDLETON)
/S/ ALLEN D. WYKLE Director
.........................................
(ALLEN D. WYKLE)
</TABLE>
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EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 -- Pre-IPO Agreement between the Partnership, the General Partners and each Limited Partner.*
3.1 -- Articles of Incorporation of the Registrant, as amended.*
3.2 -- Bylaws of the Registrant, as amended.*
4.1 -- Specimen of Certificate for Common Stock.*
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited.*
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services Corporation.*
4.4 -- Incentive Plan of the Company and related assumption agreements.*
4.5 -- Outside Directors' Option Plan of the Company and related assumption agreements.*
4.6 -- Form of Common Stock Warrant issued to ContiTrade Services Corporation.*
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George Nicholas, as amended.*
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G. Middleton, as amended.*
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David MacDonald.*
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group Inc.*
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard Limited, Financial
Security Assurance Holdings, Inc. and Preferred Mortgages Limited.*
10.6 -- Transfer Agreement between the Partnership and Curzon Equity Finance Corporation Limited, Preferred
Mortgages Limited, Rotch Property Group Limited, Foxgard Limited and Financial Security Assurance Holdings,
Inc.*
10.7 -- Side letter relating to the Share Subscription and Shareholders' Agreement between the Partnership and
Foxgard Limited, Financial Security Assurance Holdings, Inc. and Preferred Mortgage Limited.*
10.8 -- Asset Purchase Agreement and Plan of Reorganization between the Partnership, IMC Acquisition, Inc.,
Mortgage Central Corp. and the shareholders of Mortgage Central Corp.*
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of Mortgage Central Corp.*
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade Services Corporation.*
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services Corporation and Supplement
thereto.*
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and ContiTrade Services
Corporation.*
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation.*
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services Corporation and Bank
of Boston.*
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation.*
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade, ContiTrade Services LLC
and First National Bank of Boston.*
10.17 -- Master Repurchase Agreement Governing Purchase and Sales of Mortgage Loans between the Partnership and
Nomura Asset Capital Corporation and related Power of Attorney.*
10.18 -- Master Repurchase Agreement between the Partnership and Nomura Securities International, Inc.*
10.19 -- Global Master Repurchase Agreement between the Partnership and Nomura Grand Cayman, Ltd.*
10.20 -- Custodial Agreement among the Partnership, The First National Bank of Boston and Nomura Asset Capital
Corporation.*
10.21 -- Loan and Security Agreement between the Partnership and First National Bank of Boston and amendments
thereto.*
10.22 -- Interim Loan and Security Agreement between the Partnership and National Westminster Bank PLC, New York
Branch.*
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First National Bank of
Boston.*
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank.*
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and Lakeview Savings Bank.*
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity Trust 1996-1.*
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<S> <C>
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns Home Equity Trust 1996-1
and Bank of Boston.*
10.28 -- Warehousing Credit and Security Agreement among the Partnership, IMC Corporation of America and
Residential Funding Corporation, as amended.`D'*
10.29 -- Custodial Agreement among the First National Bank of Boston, the Partnership, IMC Corporation of America
and Residential Funding Corporation.*
10.30 -- Loan and Security Agreement between the Partnership and Approved Financial Corp., Approved Residential
Mortgage, Inc. and Armada Residential Mortgage, LLC.*
10.31 -- Loan and Security Agreement between the Partnership and Mortgage Central Corp.*
10.32 -- Custodial Agreement among the Partnership, Mortgage Central Corp. and the First National Bank of Boston.*
10.33 -- Custodial Agreement among the Partnership, American Industrial Loan Association, Approved Residential
Mortgage, Inc., Armada Residential Mortgage, LLC and the First National Bank of Boston.*
10.34 -- Employment Agreement dated August 1, 1996 between the Registrant and Stuart D. Marvin.**
10.35 -- Asset Purchase Agreement and Plan of Reorganization between the Registrant, Mortgage America, Inc. and the
shareholders of Mortgage America, Inc.***
10.36 -- First Amendment to the Asset Purchase Agreement and Plan of Reorganization between the Registrant,
Mortgage America, Inc. and the shareholders of Mortgage America, Inc.***
10.37 -- Form of Registration Rights Agreement between the Registrant and the Shareholders of Mortgage America,
Inc.***
10.38 -- Agreement and Plan of Reorganization between the Registrant, CWB Acquisitions, Inc., CoreWest Banc and the
shareholders of CoreWest Banc.***
10.39 -- Registration Rights Agreement between the Registrant and the shareholders of CoreWest Banc.***
10.40 -- Form of Amended and Restated Loan Agreement between the Registrant, the Partnership, IMC Corporation of
America and Nomura Asset Capital Corporation.***
10.41 -- Form of Custodial Agreement between the Registrant, the Partnership, IMC Corporation of America, Nomura
Asset Capital Corporation and LaSalle National Bank.***
10.42 -- Form of Loan and Security Agreement among the Registrant, the Partnership and The First National Bank of
Boston.***
10.43 -- Form of Asset Purchase Agreement between the Registrant, American Mortgage Reduction, Inc., and the
Shareholders of American Mortgage Reduction, Inc.***
10.44 -- Form of Asset Purchase Agreement between the Registrant and Equity Mortgage Co., Inc.***
10.45 -- Employment Agreement dated as of January 1, 1997 between the Registrant and Mark J. Greenberg.***
10.46 -- Form of Warehouse Security Agreement among the Registrant, the Partnership and GE Capital Mortgage
Services, Inc.***
10.47 -- Form of Warehouse Credit Agreement among the Registrant, the Partnership and GE Capital Mortgage Services,
Inc.***
10.48 -- Loan and Security Agreement among the Registrant, IMC Corporation of America, the Partnership, IMC
Investment Corp., CoreWest Banc and Paine Webber Real Estate Securities Inc.***
11.1 -- Statement re computation of earnings per share (See Note 4 of the Notes to the Consolidated Financial
Statements).
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant.*
21.1 -- Subsidiaries of the Registrant.*
27.1 -- Financial Data Schedule.***
99.1 -- Third Amended and Restated Agreement of Limited Partnership.*
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`D' Confidential treatment granted with respect to certain provisions.
* Incorporated by reference to the same exhibit to the Registrant's
Registration Statement on Form S-1 declared effective by the Securities and
Exchange Commission on June 25, 1996 (Registration No. 333-3954).
** Incorporated by reference to Exhibit 1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
*** Incorporated by reference to the same exhibit to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-21823) filed by the
Company with the Commission.
76
STATEMENT OF DIFFERENCES
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The British pound sign shall be expressed as 'L'
The dagger symbol shall be expressed as 'D'
