SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 1-12109
DELTA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3336165
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Woodbury Road, Suite 200, Woodbury, New York 11797
(Address of registrant's principal executive offices including ZIP Code)
(516) 364 - 8500
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes [ x ] No [ ]
As of March 31, 1998, 15,372,688 shares of the Registrant's common stock,
par value $.01 per share, were outstanding.
<PAGE>
INDEX TO FORM 10-Q
Page No.
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997...........................................................1
Consolidated Statements of Income for the three months
ended March 31, 1998 and March 31, 1997......................................2
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and March 31, 1997 ............................................3
Notes to Consolidated Financial Statements....................................4
Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................6
Certain Accounting Considerations.............................................16
PART II - OTHER INFORMATION
Other Information.............................................................18
Signatures....................................................................20
<PAGE>
Part I - Financial Information
<TABLE>
<CAPTION>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(Dollars in thousands, except for share data) 1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash and interest bearing deposits $ 39,608 $ 32,858
Accounts receivable 24,689 31,209
Loans held for sale 71,381 79,247
Accrued interest and late charges receivable 33,009 29,598
Capitalized mortgage servicing rights 25,916 22,862
Interest-only and residual certificates 186,082 167,809
Equipment, net 13,699 11,211
Cash held for advance payments 7,335 6,325
Real estate owned --- ---
Prepaid and other assets 5,847 6,224
Goodwill 5,647 5,889
--------- ---------
Total assets $ 413,213 $ 393,232
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Bank payable $ 1,517 $ 2,222
Warehouse financing and other borrowings 27,593 28,233
Senior notes 149,326 149,307
Accounts payable and accrued expenses 10,850 15,503
Investor payable 52,555 40,852
Advance payment by borrowers for taxes and insurance 6,953 5,750
Income taxes payable 29,715 24,912
--------- ---------
Total liabilities $ 278,509 $ 266,779
--------- ---------
Stockholders' Equity:
Capital stock, $.01 par value. Authorized
49,000,000 shares; issued and outstanding
15,372,688 at March 31, 1998 and
December 31, 1997 $ 154 $ 154
Additional paid-in capital 93,476 93,476
Retained earnings 41,074 32,823
--------- ---------
Total stockholders' equity 134,704 126,453
--------- ---------
Total liabilities and stockholders' equity $ 413,213 $ 393,232
========= =========
See accompanying notes to consolidated financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
(Dollars in thousands, except per share data) 1998 1997
-------- --------
<S> <C> <C>
Revenues:
Net gain on sale of mortgage loans $26,826 $17,314
Interest 6,665 5,559
Servicing fees 1,914 1,392
Origination fees 5,749 3,040
------- -------
Total revenues 41,154 27,305
------- -------
Expenses:
Payroll and related costs 12,502 7,496
Interest expense 7,066 3,170
General and administrative 8,485 4,399
------- -------
Total expenses 28,053 15,065
------- -------
Income before income taxes 13,101 12,240
Provision for income taxes 4,850 5,250
------- -------
Net income $ 8,251 $ 6,990
======= =======
Per share data:
Earnings per common share - basic and diluted $0.54 $0.45
Weighted-average number of shares outstanding 15,372,688 15,319,271
See accompanying notes to consolidated financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(Dollars in thousands) 1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,251 $ 6,990
Adjustments to reconcile net income to net cash used in
Operating activities:
Provision for loan and recourse losses 25 25
Depreciation and amortization 928 444
Capitalized mortgage servicing rights, net of amortization (3,054) (2,036)
Deferred origination fees 850 25
Interest-only and residual certificates received in
securitization transactions, net (18,273) (18,786)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 6,520 (4,562)
Decrease in loans held for sale, net 7,008 5,812
Increase in accrued interest and late charges receivable (3,411) (1,441)
Increase in cash held for advance payments (1,010) (97)
Decrease in prepaid and other assets 377 17
Decrease in accounts payable and accrued expenses (4,670) (431)
Increase (decrease) in investor payable 11,703 (2,199)
Increase in advance payments by borrowers for taxes and
insurance 1,203 83
Increase in income taxes payable 4,803 4,719
-------- --------
Net cash provided by (used in) operating activities 11,250 (11,437)
-------- --------
Cash flows from investing activities:
Acquisition of Fidelity Mortgage - (3,675)
Purchase of equipment (3,155) (660)
-------- --------
Net cash used in investing activities (3,155) (4,335)
-------- --------
Cash flows from financing activities:
(Repayments of) proceeds from warehouse financing and other
borrowings, net (640) 16,794
Decrease in bank payable, net (705) (651)
-------- --------
Net cash (used in) provided by financing activities (1,345) 16,143
-------- --------
Net increase in cash and interest bearing deposits 6,750 371
Cash and interest bearing deposits at beginning of period 32,858 18,741
-------- --------
Cash and interest bearing deposits at end of period $ 39,608 $ 19,112
========= =========
Supplemental Information:
Cash paid during the period for:
Interest $ 10,626 $ 3,906
Income taxes 118 4,444
See accompanying notes to consolidated financial statements.
3
</TABLE>
<PAGE>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 and December 31, 1997
(1) Organization
Delta Financial Corporation (the "Company") is a Delaware corporation which was
organized in August 1996. On October 31, 1996, the Company acquired all of the
outstanding common stock of Delta Funding Corporation ("Delta Funding"), a New
York corporation which had been organized on January 8, 1982 for the purpose of
originating, selling, servicing and investing in residential first and second
mortgages. On November 1, 1996, the Company completed an initial public offering
of 4,600,000 shares of common stock, par value $.01 per share.
On February 11, 1997, the Company acquired Fidelity Mortgage Inc. and Fidelity
Mortgage (Florida), Inc. (together referred to herein as "Fidelity Mortgage"),
retail residential mortgage origination companies, for a combination of cash and
stock with a value of $6.3 million. These transactions were accounted for under
the purchase method of accounting. Accordingly, the results of operations of
Fidelity Mortgage from February 11, 1997 have been included in the Company's
consolidated financial statements. In connection with these acquisitions the
Company recorded goodwill of approximately $6.3 million, which is being
amortized on a straight-line basis over seven years. On October 1, 1997, the
acquired operations were merged and will continue to operate as Fidelity
Mortgage Inc. going forward.
(2) Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying consolidated financial statements and the
information included under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" should be read in conjunction
with the consolidated financial statements and related notes of the Company for
the year ended December 31, 1997.
All adjustments which are, in the opinion of management, considered necessary
for a fair presentation of the financial position and results of operations for
the interim periods presented have been made. Certain prior period amounts in
the financial statements have been reclassified to conform with the current year
presentation.
4
(3) Earnings Per Share
The following is a reconciliation of the denominators used in the computations
of basic and diluted EPS. The numerator for calculating both basic and diluted
EPS is net income.
For the periods ended March 31:
(Dollars in thousands, except EPS data) 1998 1997
- ------------------------------------------------------------------------------
Net income $8,251 $6,990
Weighted-average shares 15,372,688 15,319,271
Basic EPS $0.54 $0.45
Weighted-average shares 15,372,688 15,319,271
Incremental shares-options 1,081 101,612
- ------------------------------------------------------------------------------
15,373,769 15,420,883
Diluted EPS $0.54 $0.45
5
<PAGE>
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 accompanying Notes to Consolidated
Financial Statements set forth therein.
General
Delta Financial engages in the consumer finance business by originating,
acquiring, selling and servicing non-conforming home equity loans. Throughout
its 16 years of operating history, the Company has focused on lending to
individuals who generally have impaired or limited credit profiles or higher
debt-to-income ratios and typically have substantial equity in their homes.
Through its wholly-owned subsidiary, Delta Funding Corporation, the Company
originates home equity loans indirectly through licensed mortgage brokers and
other real estate professionals who submit loan applications on behalf of the
borrower ("Brokered Loans") and also purchases loans from mortgage bankers and
smaller financial institutions that satisfy Delta's underwriting guidelines
("Correspondent Loans"). Delta Funding Corporation currently originates and
purchases the majority of its loans in 22 states, through its network of
approximately 1,150 brokers and correspondents.
Through its wholly-owned subsidiary, Fidelity Mortgage Inc., the Company
develops retail loan leads ("Retail Loans") primarily through its telemarketing
system and its network of 15 retail offices located in 9 states.
For the three months ended March 31, 1998, the Company originated and
purchased $387 million of loans, an increase of 63% over the $237 million
originated and purchased in the comparable period in 1997. Of these amounts,
approximately $168 million were originated through its network of brokers, $167
million were purchased from its network of correspondents and $52 million were
originated through its retail network in the three months ended March 31, 1998,
compared to $106 million, $123 million and $8 million, respectively, for the
same period in 1997.
The following table sets forth information relating to the delinquency and
loss experience of the mortgage loans serviced by Delta (primarily for the
securitization trusts, as described below) for the periods indicated. Delta is
not the holder of the securitization loans, but generally holds interest-only or
residual certificates of the trusts, as well as the servicing rights, each of
which may be adversely affected by defaults.
6
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
(Dollars in thousands) March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Total Outstanding Principal Balance
(at period end).................................. $ 2,100,124 $ 1,840,150
Average Outstanding(1)............................... $ 2,007,612 $ 1,744,810
DELINQUENCY (at period end) 30-59 Days:
Principal Balance................................ $ 88,795 $ 90,053
Percent of Delinquency(2)........................ 4.23% 4.89%
60-89 Days:
Principal Balance................................ $ 33,401 $ 28,864
Percent of Delinquency(2)........................ 1.59% 1.57%
90 Days or More:
Principal Balance................................ $ 22,607 $ 17,696
Percent of Delinquency(2)........................ 1.08% 0.96%
Total Delinquencies:
Principal Balance................................ $ 144,803 $ 136,613
Percent of Delinquency(2)........................ 6.90% 7.42%
FORECLOSURES
Principal Balance................................ $ 102,743 $ 85,500
Percent of Foreclosures by Dollar(2)............. 4.89% 4.65%
REO (at end of period)............................... $ 13,192 $ 10,292
Net Gains/(Losses) on liquidated loans............... $ (1,542) $ (1,579)
Percentage of Net Gains/(Losses) on liquidated loans
(based on Average Outstanding Balance)(3)........ (0.31%) (0.36%)
- ---------------
<FN>
(1) Calculated by summing the actual outstanding principal balances at the end
of each month and dividing the total by the number of months in the
applicable period.
(2) Percentages are expressed based upon the total outstanding principal balance
at the end of the indicated period.
(3) Annualized
</FN>
</TABLE>
Securitizations
As a fundamental part of its business and financing strategy, Delta sells the
majority of its loans through securitization and derives a substantial portion
of its income therefrom. In a securitization, the Company sells a pool of loans
it has originated or purchased to a REMIC trust for a cash price. The trust, in
turn, finances the pool of loans it has acquired by issuing "pass-through
certificates," or bonds, which represent undivided ownership interests in the
trust. The holders of the pass-through certificates are entitled to receive
monthly distributions of all principal received on the underlying mortgages and
a specified amount of interest, as determined at the time of the trust offering.
When the Company sells a pool of loans to the securitization trust, it
receives the following economic interests in the trust: (a) the difference
between the interest payments due on the loans sold to the trust and the
interest rate paid to the pass-through certificateholders, less the Company's
contractual servicing fee and other costs and expenses of administering the
trust, represented by interest-only and residual certificates, and (b) the right
to service the loans on
7
behalf of the trust and earn a contractual servicing fee, as well as other
ancillary servicing related fees directly from the borrowers on the underlying
loans.
Upon the securitization of a pool of loans, the Company (i) recognizes in
income, as origination fees, the unamortized origination fees included in the
investment in the loans sold, and (ii) recognizes a gain on sale of loans for
the difference between cash received from the trust and the investment in the
loans remaining after the allocation of portions of that investment to record
interest-only and residual certificates and mortgage servicing rights received
in the securitization. The majority of the net gain on sale of mortgage loans
results from, and is initially realized in the form of, the retention of
interest-only and residual certificates.
In recording and accounting for mortgage servicing rights and interest-only
and residual certificates, the Company makes estimates of rates of prepayments
and defaults, and the value of collateral, which it believes reasonably reflect
economic and other relevant conditions then in effect. The actual rate of
prepayments, defaults and the value of collateral will generally differ from the
estimates used, due to subsequent changes in economic and other relevant
conditions and the implicit imprecision of estimates, and such differences can
be material. Prepayment and default rates which are higher than those estimated
would adversely affect the value of both the mortgage servicing rights (actual
mortgage servicing income will be less, and significant changes could require an
impairment of the capitalized mortgage servicing rights) and the interest-only
and residual certificates, for which changes in fair value are recorded in
operations. Conversely, prepayment and default rates which are lower than those
estimated would increase the servicing income earned over the life of the loans
and positively impact the value of the interest-only and residual certificates.
The Company has, from time to time, sold its economic interest in the
interest-only certificates for cash proceeds including, most recently, the
interest-only certificates on its last three 1997 securitization transactions
and its 1998 first quarter securitization transaction.
Recent Growth
The Company has experienced significant loan origination and purchase growth
in the last few years, particularly since January 1, 1995. Management believes
that this growth is primarily attributable to the Company's (i) geographic
expansion of its operations, (ii) further penetration into its established
markets, (iii) increased access to capital and additional funding sources
through (a) the capital markets and (b) larger warehouse finance agreements
which have enabled the Company to accumulate larger pools of loans for sales
through securitizations, and (iv) recent expansion of its production channels
through the acquisition of the Fidelity Mortgage retail operations.
In connection with its geographic expansion, the Company has continued to
focus on developing loan production from brokers and correspondents. In
addition, the Company is also committed to developing and growing the Fidelity
Mortgage retail origination network. There can be no assurance that the Company
will continue to grow significantly in the future. Any future growth will be
limited by, among other things, the Company's need for continued funding
sources, access to capital markets, sensitivity to economic slowdowns, ability
to attract and retain qualified personnel, fluctuations in interest rates and
competition from other consumer
8
finance companies and from new market entrants. To date, the Company has not
experienced any significant seasonal variations in loan originations and
purchases.
The Company's recent and rapid growth may have a somewhat distortive impact
on certain of the Company's ratios and financial statistics and may make
period-to-period comparisons difficult. In light of the Company's growth,
historical performance of the Company's earnings may be of limited relevance in
predicting future performance. Furthermore, the Company's financial statistics
may not be indicative of the Company's results in future periods. Any credit or
other problems associated with the large number of loans originated and
purchased in the recent past may not become apparent until sometime in the
future.
The comparability of the results of operations for the three months ended
March 31, 1998 and March 31, 1997, and financial position as of March 31, 1998
and December 31, 1997 may also be affected by the Company's acquisition of
Fidelity Mortgage.
Results of Operations
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997
Revenues
Total revenues for the three months ended March 31, 1998 increased $13.9
million, or 51%, to $41.2 million from $27.3 million for the comparable period
in 1997. The increase in revenue was primarily attributable to the increase in
the net gain recognized on the sale of mortgage loans, reflecting the growth in
the Company's level of loan originations, purchases and securitizations. Revenue
also increased in all other categories including origination fees, servicing
fees, and interest income.
For the three months ended March 31, 1998, the Company originated and
purchased $387 million of mortgage loans, representing a 63% increase from $237
million of mortgage loans originated and purchased for the three months ended
March 31, 1997. The Company completed a $400 million securitization during the
three months ended March 31, 1998 compared to a $235 million securitization in
the corresponding period in the prior year, representing a 70% increase. Total
loans serviced at March 31, 1998 increased 89% to $2.10 billion from $1.11
billion at March 31, 1997.
Net Gain on Sale of Mortgage Loans. Net gain on sale of mortgage loans
represents (i) the sum of (a) the fair value of the retained interest-only and
residual certificates associated with loans securitized in each period and the
market value of the sold interest-only strips, (b) the fair value of mortgage
servicing rights associated with loans securitized in each period, and (c)
premiums earned on the sale of whole loans on a servicing-released basis, (ii)
less the (x) premiums paid to originate or acquire mortgage loans, (y) costs
associated with securitizations and (z) any hedge loss (gain).
For the three months ended March 31, 1998, net gain on sale of mortgage loans
increased $9.5 million, or 55%, to $26.8 million from $17.3 million for the
three months ended March 31, 1997. This increase was primarily due to a 70%
increase in the amount of loans securitized in the first quarter of 1998
compared to the same period in 1997. Net gains from the sale of loans increased
less than the overall increase in loan securitizations primarily because of
market driven
9
increases in the pass-through rates required by REMIC trust investors which
reduced the value of the interest-only and residual certificates the Company
received in connection with that quarter's securitization. The weighted average
net gain on sale ratio for the three months ended March 31, 1998, and for the
comparable period in 1997, was 6.7% and 7.4%, respectively. The weighted-average
net gain on sale ratio is calculated by dividing the net gain on sale by the
total amount of loans securitized.
Interest Income. Interest income primarily represents the sum of (i) interest
earned on loans held for sale, (ii) interest earned on cash collection balances,
and (iii) the difference between the distributions the Company receives on its
interest-only and residual certificates and the adjustments recorded to reflect
the change in the fair value in the interest-only and residual certificates.
Interest income for the three months ended March 31, 1998 increased $1.1
million, or 20%, to $6.7 million from $5.6 million in the comparable period in
1997. The increase in interest income was primarily due to (a) a higher average
balance of mortgage loans held for sale during the three months ended March 31,
1998 driven by higher loan originations and purchases as noted above and (b) an
increase in excess servicing received from the Company's interest-only and
residual certificates, partially offset by the fair value adjustment to the
interest-only and residual certificates, primarily related to distributions
received from the securitization trusts. This increase was partially offset by a
lower mortgage coupon of 10.4% from 11.3% reflecting the Company's shift to a
higher credit quality borrower and a lower economic interest rate environment.
Servicing Fees. Servicing fees represent all contractual and ancillary
servicing revenue received by the Company less (a) the offsetting amortization
of the capitalized mortgage servicing rights, and any adjustments recorded to
provide valuation allowances for the impairment in mortgage servicing rights and
(b) prepaid interest shortfalls.
Servicing fees for the three months ended March 31, 1998 increased $0.5
million, or 36%, to $1.9 million from $1.4 million in the comparable period in
1997. This increase was primarily due to a higher average loan servicing
portfolio, which resulted in increased contractual and ancillary service fees,
net of amortization of the Company's capitalized mortgage servicing rights, in
1998 compared to 1997. During the three months ended March 31, 1998, the average
balance of mortgage loans serviced by the Company increased 91% to $2.01 billion
from $1.05 billion during the comparable period in 1997. The amount of mortgage
loans serviced by the Company increased at a faster rate than the amount of
servicing fees, primarily as a result of (a) a reduction in the contractual
servicing fee rate from 0.65% to 0.50% per annum beginning with the 1996-2
securitization in September 1996, and (b) an increase in the amount of
amortization during the three months ended March 31, 1998 as compared to the
comparable period in 1997.
Origination Fees. Origination fees represent fees earned on brokered and
retail originated loans. Origination fees for the three months ended March 31,
1998 increased $2.7 million, or 90%, to $5.7 million from $3.0 million in the
comparable period in 1997. The increase is primarily the result of (a) the 1997
acquisition of Fidelity Mortgage and the subsequent expansion of its retail
network which accounted for $3.9 million of origination fees in 1998, or a
10
144% increase from $1.6 million in 1997, and (b) a 58% increase in broker
originated loans and a commensurate increase in broker loan origination fees.
Expenses
Total expenses increased $13.0 million, or 86%, to $28.1 million for three
months ended March 31, 1998, from $15.1 million for the comparable period in
1997. The increase in expenses was primarily the result of (i) increased
interest expense due to (a) higher interest costs associated with increased
borrowings under the Company's warehouse facilities to finance the growth in
loan origination and purchase activities, and (b) the issuance in July 1997 of
$150 million aggregate principal amount of 9.5% Senior Notes due 2004 (the
"Senior Notes"), (ii) an increase in the Company's personnel related to higher
loan originations, including in its Fidelity Mortgage retail division and (iii)
costs associated with the expansion of the Company's retail, broker and
correspondent divisions.
Payroll and Related Costs. Payroll and related costs include salaries,
benefits and payroll taxes for all employees. For the three months ended March
31, 1998, payroll and related costs expense increased $5.0 million, or 67%, to
$12.5 million from $7.5 million for the comparable period in 1997. This increase
is primarily due to staff increases related to growth in the Company's loan
originations and the costs associated with the Company's broker, correspondent
and Fidelity Mortgage retail division. As of March 31, 1998, the Company
employed 941 full- and part-time employees, 319 of which are employees of
Fidelity Mortgage, compared to 530 full- and part-time employees as of March 31,
1997.
Interest Expense. Interest expense includes the borrowing costs to finance
loan originations and purchases under (i) the Company's credit facilities, (ii)
the Senior Notes, and (iii) its investment in interest-only and residual
certificates.
For the three months ended March 31, 1998, interest expense increased $3.9
million, or 122%, to $7.1 million from $3.2 million for the comparable period in
1997. The increase in interest expense was attributable to (i) growth in loan
production, which increased the level of debt needed throughout the first
quarter of 1998 to finance the inventory of loans held for sale prior to their
securitization, (ii) a higher cost of funds on the Company's credit facilities
which were tied to one-month LIBOR, and (iii) the Company's issuance in July
1997 of the Senior Notes. The one-month LIBOR index increased to an average
interest rate of 5.6% in the three months ended March 31, 1998, compared to an
average interest rate of 5.5% for the comparable period in 1997.
General and Administrative Expenses. General and administrative expenses
consist primarily of office rent, insurance, telephone, depreciation, goodwill
amortization, real estate owned expenses, license fees, legal and accounting
fees, travel and entertainment expenses, advertising and promotional expenses
and the provision for loan losses on the inventory of loans held for sale and
recourse loans.
For the three months ended March 31, 1998, general and administrative
expenses increased $4.1 million, or 93%, to $8.5 million from $4.4 million for
the comparable period in 1997. This increase was primarily attributable to (i)
the expansion costs associated with the Company's
11
increasing the number of Fidelity Mortgage retail branch offices from five
to fifteen and (ii) an increase in expenses associated with the Company's
increase in loan origination and purchases.
Income Taxes. Income taxes are accounted for under SFAS No. 109, "Accounting
for Income Taxes." Deferred tax assets and liabilities are recognized on the
income reported in the financial statements regardless of when such taxes are
paid. These deferred taxes are measured by applying current enacted tax rates.
The Company recorded a tax provision of $4.9 million and $5.3 million for the
periods ended March 31, 1998 and 1997, respectively.
Income taxes provided a 37.0% effective tax rate for the three months ended
March 31, 1998, compared to a 42.9% assumed effective tax rate for the three
months ended March 31, 1997. The reduction in the effective tax rate is
primarily attributable to the Company's expansion into lower tax rate states and
local jurisdictions.
Financial Condition
March 31, 1998 compared to December 31, 1997
Cash and interest bearing deposits increased $6.7 million, or 20%, to $39.6
million at March 31, 1998 from $32.9 million at December 31, 1997. The increase
was primarily the result of additional monies held in securitization trust
accounts by the Company, acting as servicer for its ongoing securitization
program.
Accounts receivable decreased $6.5 million, or 21%, to $24.7 million at March
31, 1998 from $31.2 million at December 31, 1997. The decrease was primarily
attributable to the receipt of a federal tax refund partially offset by an
increase in reimbursable servicing advances made by the Company, acting as
servicer on its securitizations, related to a higher average servicing
portfolio. The Company's servicing portfolio increased 14% to $2.10 billion as
of March 31, 1998 from $1.84 billion as of December 31, 1997.
Loans held for sale decreased $7.8 million, or 10%, to $71.4 million at March
31, 1998 from $79.2 million at December 31, 1997. This decrease was primarily
the result of a larger percentage of loans securitized, compared to loans
originated and purchased, in the first quarter of 1998.
Accrued interest and late charges receivable increased $3.4 million, or 11%,
to $33.0 million at March 31, 1998 from $29.6 million at December 31, 1997. This
increase was primarily due to a higher average loan servicing portfolio which
resulted in increased reimbursable interest advances made by the Company, acting
as servicer on its securitizations.
Capitalized mortgage servicing rights increased $3.0 million, or 13%, to
$25.9 million at March 31, 1998, from $22.9 million at December 31, 1997. This
increase was directly attributable to the Company's capitalizing the fair market
value of the servicing assets, totaling $4.9 million, resulting from the
Company's completion of a securitization during the first quarter of 1998,
partially offset by the amortization of capitalized mortgage servicing rights.
Interest-only and residual certificates increased $18.3 million, or 11%, to
$186.1 million at March 31, 1998 from $167.8 million at December 31, 1997. This
increase is primarily
12
attributable to the Company's receipt of a residual certificate valued and
recorded at $23.9 million from the securitization in the first quarter of 1998,
partially offset by adjustments to reflect changes in fair value primarily due
to distributions , totaling $5.6 million.
Equipment, net, increased $2.5 million, or 22%, to $13.7 million at March 31,
1998 from $11.2 million at December 31, 1997. The increase was primarily due to
capital expenditures related to new technology and our continued expansion of
Fidelity Mortgage.
Cash held for advance payments increased $1.0 million, or 16%, to $7.3
million at March 31, 1998 from $6.3 million at December 31, 1997. The increase
was primarily due to a higher average loan servicing portfolio resulting in
additional monies held in escrow trust accounts by the Company acting as a
servicer.
The aggregate principal balance of the Senior Notes totaled $149.3 million at
March 31, 1998, net of unamortized bond discount. The Senior Notes accrue
interest at a rate of 9.5% per annum, payable semi-annually on February 1 and
August 1, commencing on February 1, 1998. The Company did not have any Senior
Notes outstanding prior to July 1997.
Accounts payable and accrued expenses decreased $4.6 million or 30%, to $10.9
million at March 31, 1998 from $15.5 million at December 31, 1997. This decrease
was primarily attributable to a payment of interest on Senior Notes.
Investor payable increased $11.7 million, or 29%, to $52.6 million at March
31, 1998 from $40.9 million at December 31, 1997. This increase was primarily
due to the 14% increase in the Company's portfolio of serviced loans. Investor
payable is comprised of all principal collected on mortgage loans and accrued
interest. Variability in this account is primarily due to the principal payments
collected within a given collection period.
Advance payments by borrowers for taxes and insurance increased $1.2 million,
or 21%, to $7.0 million at March 31, 1998 from $5.8 million at December 31,
1997. This increase is primarily due to a higher average loan servicing
portfolio and the timing of payments collected and disbursed resulting in
additional monies held in escrow trust accounts by the Company acting as a
servicer.
Stockholders' equity increased $8.2 million, or 6%, to $134.7 million at
March 31, 1998 from $126.5 million at December 31, 1997. This increase is due to
net income for the three month period ending March 31, 1998.
Liquidity and Capital Resources
While the Company has historically operated on a negative cash flow basis due
primarily to increases in the volume of loan purchases and originations and the
growth of its securitization program, the Company has partially offset its
negative cash flow in recent quarters, and expects to continue to do for the
foreseeable future, as a result of the securitization structures that the
Company has utilized as well as the Company's concentration on the less
cash-intensive broker and retail originations. Currently, the Company's primary
cash requirements include the funding of (i) mortgage originations and purchases
pending their pooling and sale, (ii) the points and expenses paid in connection
with the acquisition of correspondent loans, (iii) interest expense on its
Senior Notes and warehouse and other financings, (iv) fees, expenses and tax
13
payments incurred in connection with its securitization program, and (v) ongoing
administrative and other operating expenses. The Company has relied upon a few
lenders to provide the primary credit facilities for its loan originations and
purchases.
The Company must be able to sell loans and obtain adequate credit facilities
and other sources of funding in order to continue to originate and purchase
loans. For the quarters ended March 31, 1998 and 1997, the Company had an
operating cash surplus of $11.3 million and an operating cash deficit of $11.4
million, respectively. The cash surplus as of March 31, 1998, was primarily due
to a one-time tax refund, an increase in the Company's restricted cash held for
securitization trust accounts and an increase in loans sold from the Company's
inventory of loans held for sale. As it has done for the past three quarters,
Delta utilized a senior/subordinate structure for its first quarter 1998
securitization and sold an interest-only certificate. This quarter's
securitization structure allowed Delta to sell an interest-only certificate
twice as large on a percentage basis than any of the Company's previous
interest-only certificates sales. This transaction, coupled with the receipt of
a tax refund, but partially offset by the semi-annual Senior Note interest
payment, resulted in additional cash flow. During the first quarter of 1997, the
Company had an operating cash flow deficit as a result of increased loan
originations and purchases, and the structure of the 1997 securitization, in
which the interest-only certificate was retained by the Company.
Historically, the Company has utilized various financing facilities and an
equity financing to offset negative operating cash flows and support the
continued growth of its loan originations and purchases, securitizations and
general operating expenses. On July 23, 1997, the Company completed an offering
of the Senior Notes. A portion of the Senior Notes proceeds were used to pay
down various financing facilities with the remainder used to fund the Company's
growth in loan originations and purchases and its ongoing securitization
program. The Company's primary sources of liquidity continue to be warehouse and
other financing facilities, securitizations and, subject to market conditions,
sales of whole loans and additional debt and equity securities.
To accumulate loans for securitization, the Company borrows money on a
short-term basis through warehouse lines of credit. The Company has three
warehouse facilities for this purpose. One warehouse facility is a $400 million
committed credit line with a variable rate of interest and a maturity date of
February 1999. This facility was converted from an uncommitted to a committed
line during the three months ended March 31, 1997 and the maturity date was
extended from February 1998 to February 1999 during the three months ended March
31, 1998. The Company's second warehouse facility was a $200 million committed
revolving line with a variable rate of interest and a maturity date of February
1998. In February 1998, management elected not to renew this line and secured a
new $250 million committed revolving line with a variable rate of interest which
has a maturity date of May 1999. The Company's third warehouse facility is a
syndicated $140 million committed revolving line with a variable rate of
interest and a maturity date of June 1998. This facility was increased from $100
million to $140 million during the three months ended March 31, 1998. The
outstanding balance on the $400 million facility as of March 31, 1998 was $21.5
million. The Company had no outstanding balances for the $250 million facility
and the $140 million facility as of March 31, 1998.
14
The Company has in the past obtained financing facilities for interest-only
and residual certificates acquired as part of its securitizations. As of March
31, 1998, the Company did not have any indebtedness secured by interest-only and
residual certificates. In addition, the Company is limited by the terms of the
Indenture governing the Senior Notes as to the amount of future indebtedness
permitted to be secured by interest-only and residual certificates.
The Company is required to comply with various operating and financial
covenants as provided in the agreements described above which are customary for
agreements of their type. The Company does not believe that its existing
financial covenants will restrict its operations or growth. The continued
availability of funds provided to the Company under these agreements is subject
to the Company's continued compliance with these covenants. Management believes
that the Company is in compliance with all such covenants under these agreements
as of March 31, 1998.
Interest Rate Risk
The Company's primary market risk exposure is interest rate risk.
Profitability may be directly affected by the level of, 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 borrowings, which are tied
to various United States Treasury maturities and the London Inter-Bank Offered
Rate ("LIBOR"). 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
Company's ability to purchase and originate loans. A significant decline in
interest rates could increase the level of loan prepayments thereby decreasing
the size of the Company's loan servicing portfolio. To the extent servicing
rights and interest-only and residual classes of 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 interest-only and residual certificates, adversely
impacting earnings. Fluctuating interest rates also may affect the net interest
income earned by the Company resulting 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, although the Company
undertakes to hedge its exposure to this risk by using treasury rate lock
contracts.
Hedging
The Company originates and purchases mortgage loans and then sells them
primarily through securitizations. At the time of securitization and 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 treasury securities with maturities 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 sold at
securitization, the excess spread narrows, resulting in a loss in value of the
loans. The Company has implemented a strategy to protect against such losses and
to reduce interest rate risk on loans originated and purchased that have not yet
been securitized through the use of treasury rate lock contracts with various
durations (which are similar to selling a combination of United States Treasury
15
securities), which equate to a similar duration of the underlying loans. The
nature and quantity of hedging transactions are determined by the Company based
upon various factors including, without limitation, market conditions and the
expected volume of mortgage originations and purchases. The Company will enter
into treasury rate lock contracts through one of its warehouse lenders and/or
one of the investment bankers which underwrite the Company's securitizations.
These contracts are designated as hedges in the Company's records and are closed
out when the associated loans are sold through securitization.
If the value of the hedges decrease, 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 net gain on sale of mortgage loans and its corresponding
interest-only 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 interest-only and residual certificates.
The Company believes that its current hedging strategy of using treasury rate
lock contracts is the most effective way to manage its interest rate risk on
loans prior to securitization. Because the Company's securitization closed on
March 31, 1998, the Company had no hedge outstanding as of that date.
Certain Accounting Considerations
SFAS No. 130
SFAS No. 130, "Reporting on Comprehensive Income" was issued in June 1997 and
is effective for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Statement requires all items that are
required to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement that is displayed
with the same prominence as other financial statements. The Company has
determined that the implementation of the requirements of SFAS No. 130 will not
affect the Company's net income, cash flows or financial position.
SFAS No. 131
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" was issued in June 1997 and is effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The Statement requires a public business enterprise to report a
measure of segment profit or loss, certain specific revenue and expense items
and segment assets. The Company has determined that the implementation of the
requirements of SFAS No.131 will not affect the Company's net income, cash flows
or financial position.
16
Risk Factors
Except for historical information contained herein, certain matters discussed
in this Form 10-Q are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act (PSLRA) of 1995, which involve risk and
uncertainties that exist in the Company's operations and business environment,
and are subject to change on various important factors. The Company wishes to
take advantage of the "safe harbor" provisions of the PSLRA by cautioning
readers that numerous important factors discussed below, among others, in some
cases have caused, and in the future could cause the Company's actual results to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. The following include some, but not all, of
the factors or uncertainties that could cause actual results to differ from
projections:
* A general economic slowdown.
* The effects of interest rate fluctuations and the Company's ability
or inability to hedge effectively against such fluctuations in
interest rates; the effects of changes in monetary and fiscal
policies, laws and regulations, other activities of governments,
agencies, and similar organizations, social and economic conditions,
unforeseen inflationary pressures and monetary fluctuation.
* The Company's ability or inability to continue its practice of
securitization of mortgage loans held for sale.
* Increased competition within the Company's markets.
* The unanticipated expenses of assimilating newly-acquired businesses
into the Company's structure; as well as the impact of unusual
expenses from ongoing evaluations of business strategies, asset
valuations, acquisitions, divestitures and organizational
structures.
* Unpredictable delays or difficulties in the development of new
product programs.
* Rapid or unforeseen escalation of the cost of regulatory compliance
and/or litigation, including but not limited to, environmental
compliance, licenses, adoption of new, or changes in accounting
policies and practices and the application of such policies and
practices.
17
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Because the nature of the Company's business involves the collection of
numerous accounts, the validity of liens and compliance with state and federal
lending laws, the Company is subject to numerous claims and legal actions in the
ordinary course of its business. While it is impossible to estimate with
certainty the ultimate legal and financial liability with respect to such claims
and actions, the Company believes that the aggregate amount of such liabilities
will not result in monetary damages which in the aggregate would have a material
adverse effect on the financial condition or results of the Company.
Several class-action lawsuits have been filed against a number of consumer
finance companies alleging that the compensation of mortgage brokers through the
payment of yield spread premiums violates various federal and state consumer
protection laws. The Company has been named in two such lawsuits:
a. On March 18, 1997, the Company received notice that it had been
named in a lawsuit filed in the United States District Court for the
Eastern District of New York, alleging that the Company's compensation of
mortgage brokers by means of yield spread premiums violates, among other
things, the Real Estate Settlement Procedures Act ("RESPA"). The complaint
seeks (i) certification of a class of plaintiffs, (ii) an injunction
against payment of yield spread premiums by the Company and (iii)
unspecified compensatory and punitive damages (including attorney's fees).
On July 7, 1997, the Company filed an answer to the plaintiff's amended
complaint.
b. On or about February 10, 1998, the Company received notice that it
had been named in a lawsuit filed in the United States District Court for
the Northern District of Mississippi - Greenville Division, alleging that
the Company's compensation of mortgage brokers by means of yield spread
premiums violates RESPA. The complaint seeks (i) certification of a class
of plaintiffs, and (ii) unspecified compensatory damages (including
attorney's fees). On March 31, 1998, the Company filed an answer to the
complaint.
Management believes the Company has meritorious defenses and intends to
defend these suits, but the Company cannot estimate with any certainty its
ultimate legal or financial liability, if any, with respect to the alleged
claims.
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission to a Vote of Security Holders. None
Item 5. Other Information. None
18
Item 6. Exhibits and Current Reports on Form 8-K.
(a)Exhibits: 10.1 Eighth Amendment to Lease Agreement between
Delta Funding Corporation and the Tilles
Investment Company, dated April 1, 1998.
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule - Three Months ended
March 31, 1998
27.2 Financial Data Schedule - Three Months ended
March 31, 1997
(b)Reports on Form 8-K: None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has duly caused this Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.
DELTA FINANCIAL CORPORATION
(Registrant)
Date: May 11, 1998
By:/s/ HUGH MILLER
-----------------------------------
Hugh Miller
President & Chief Executive Officer
By:/s/ RICHARD BLASS
-----------------------------------
Richard Blass
Senior Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.1 Eighth Amendment to Lease Agreement between Delta Funding
Corporation and the Tilles Investment Company, dated April 1, 1998.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule - Three Months ended March 31, 1998
27.2 Financial Data Schedule - Three Months ended March 31, 1997
Exhibit 10.1. Eighth Amendment to Lease Agreement.
EIGHTH AMENDMENT TO LEASE
THIS AGREEMENT made the 1st day of April, 1998, by and between
THE TILLES INVESTMENT COMPANY, having offices at 7600 Jericho Turnpike,
Woodbury, New York 11797, hereinafter referred to as the "LANDLORD" and DELTA
FUNDING CORPORATION, having offices at 1000 Woodbury Road, Woodbury, New York
11797, hereinafter referred to as the "TENANT".
W I T N E S S E T H :
WHEREAS, the parties have heretofore on or about the 1st day of
November, 1993, entered into a certain agreement of lease, which was amended the
20th day of January, 1994, the 23rd day of March, 1994, the 8th day of December,
1995 (3rd Amendment), the 8th day of December, 1995 (4th Amendment), the 4th day
of March, 1996, the 28th day of August, 1997 and the 29th day of October, 1997,
for certain premises located at 1000 Woodbury Road, Woodbury, New York and
NOW, THEREFORE, in consideration of One Dollar and other good and valuable
consideration, each in hand paid to the other, the receipt whereof is hereby
acknowledged and in further consideration of the mutual covenants contained
herein, it is agreed as follows:
FIRST: TENANT shall surrender 2,410 square feet on the fourth
floor as noted on the floor plan attached hereto as Exhibit "A", making TENANT'S
total Demised Premises 115,894 square feet rentable.
SECOND: Commencing on the date the TENANT delivers the 2,410
square feet to allow the LANDLORD to construct the demising wall, TENANT shall
pay an Annual Basic Rent in equal monthly installments as per the following
schedule:
TERM ANNUAL BASIC RENT MONTHLY RENT
Lease Year 1 $2,433,774.00 $202.814.50
1
Lease Year 2 $2,519,535.56 $209,961.30
Lease Year 3 $2,607,615.00 $217,301.25
Lease Year 4 $2,699,171.26 $224,930.94
Lease Year 5 $2,794,204.34 $232,850.36
Lease Year 6 $2,891,550.30 $240,962.53
Lease Year 7 $2,992,383.08 $249,365.26
Lease Year 8 $3,096,687.68 $258,057,31
Lease Year 9 $3,205,628.04 $267,135.67
Lease Year 10 $3,318,045.22 $276,503.77
THIRD: Section "Sixth" of the Seventh Amendment to Lease
shall be changed to read as follows: "...rentable area of the Demised
Premises (i.e., 115,894 square feet)...form a part (i.e., 230,000 square
feet), i.e., 50.39%."
FOURTH: Section "Seventh" of the Seventh Amendment to Lease
shall be changed to read as follows: "...TENANT'S Energy Base =
$405,629.00..."
FIFTH: Section "Eighth" of the Seventh Amendment to Lease
shall be changed to read as follows: "...pay the sum of $220,198.60 per year
in equal monthly installments of $18,349.81 in advance..."
SIXTH: Sections "Twelfth", "Thirteenth", "Fourteenth" and
"Fifteenth" of the Seventh Amendment to Lease shall be adjusted proportionately
based upon the actual square footage at the time of any surrender of space.
SEVENTH: Nothing herein shall modify any rent credits due to
the TENANT under the Seventh Amendment to Lease
EIGHTH: The foregoing provisions are intended to modify said
lease only in the foregoing respects and such modifications and the terms hereof
as herein set forth are to be strictly
2
construed. It is further agreed that except as herein above provided all of
the terms, convenants and conditions of said lease dated the 1st day of
November, 1993 and amended the 20th day of January, 1994, the 23rd day of March,
1994, the 8th day of December, 1994 (3rd Amendment), the 8th day of December,
1995 (4th Amendment), the 4th day of March, 1996, the 28th day of August, 1997
and the 29th day of October, 1997, shall continue to remain in full force and
effect as therein written and shall be read and construed together with this
instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals the day and year first above written.
THE TILLES INVESTMENT COMPANY
By: /s/ PETER TILLES
-------------------------
DELTA FUNDING CORPORATION
By: /s/ MARC E. MILLER
-------------------------
3
<TABLE>
<CAPTION>
Exhibit 11.1. Statement Re: Computation of Per Share Earnings
Three Months Ended
March 31,
(Dollars in thousands) 1998 1997
---- ----
<S> <C> <C>
Basic Earnings Per Share
- ------------------------
Net income $ 8,251 $ 6,990
======== =======
Weighted average number of common
and common equivalent shares: 15,372,688 13,319,271
----------------------------------
Basic earnings per share $ 0.54 $ 0.45
========== ==========
Diluted Earnings Per Share
- --------------------------
Net income $ 8,251 $ 6,990
======== =======
Weighted average number of common
and common equivalent shares:
---------------------------------
Average no. of shares outstanding 15,372,688 15,319,271
Net effect of dilutive stock options
based on treasury stock method 1,081 101,612
Total average shares: 15,373,769 15,420,883
========== ==========
Diluted earnings per share $ 0.54 $ 0.45
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF INCOME FOUND IN THE COMPANY'S FORM 10-Q FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 39,608
<SECURITIES> 0
<RECEIVABLES> 24,689
<ALLOWANCES> 0
<INVENTORY> 71,381
<CURRENT-ASSETS> 0
<PP&E> 13,699
<DEPRECIATION> 0
<TOTAL-ASSETS> 413,213
<CURRENT-LIABILITIES> 0
<BONDS> 149,326
0
0
<COMMON> 154
<OTHER-SE> 134,550
<TOTAL-LIABILITY-AND-EQUITY> 413,213
<SALES> 0
<TOTAL-REVENUES> 41,154
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,066
<INCOME-PRETAX> 13,101
<INCOME-TAX> 4,850
<INCOME-CONTINUING> 8,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,251
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF INCOME FOUND IN THE COMPANY'S FORM 10-Q FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 19,112
<SECURITIES> 0
<RECEIVABLES> 15,094
<ALLOWANCES> 0
<INVENTORY> 76,566
<CURRENT-ASSETS> 0
<PP&E> 3,401
<DEPRECIATION> 0
<TOTAL-ASSETS> 259,785
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 102,871
<TOTAL-LIABILITY-AND-EQUITY> 259,785
<SALES> 0
<TOTAL-REVENUES> 27,305
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,170
<INCOME-PRETAX> 12,240
<INCOME-TAX> 5,250
<INCOME-CONTINUING> 6,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,990
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
