<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[_] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-17292
WILSHIRE FINANCIAL SERVICES GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 93-1223879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1776 SW MADISON STREET, PORTLAND, OR 97205
(Address of principal executive offices) (Zip Code)
(503) 223-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 31, 1997
Common Stock, par value $.01 per share 7,570,000 Shares
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements.
Consolidated Statements of Financial Condition............. 3
Consolidated Statements of Operations...................... 4
Consolidated Statements of Cash Flows...................... 5
Consolidated Statements of Stockholders' Equity............ 8
Notes to Interim Financial Statements...................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk. 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities....................................... 19
Item 3. Defaults Upon Senior Securities............................. 19
Item 4. Submission of Matters to a Vote of Security-Holders......... 19
Item 5. Other Information........................................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 20
2
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
ASSETS
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 77,993 $152,298
Mortgage-backed securities available for sale, at fair value....... 201,325 31,270
Mortgage-backed securities held to maturity, at amortized cost..... 19,367 21,724
Securities held to maturity, at amortized cost..................... 7,442 7,429
Trading account securities......................................... 28,163 24,541
Loans, net......................................................... 173,524 176,026
Discounted loans, net.............................................. 350,460 206,740
Loans held for sale, net, at lower cost or market.................. 267,035 28,826
Stock in Federal Home Loan Bank of San Francisco,
at cost......................................................... 4,952 2,958
Real estate owned, net............................................. 146,464 78,200
Leasehold improvements and equipment, net.......................... 1,702 317
Due from affiliate, net............................................ 47,359 5,051
Accrued interest receivable........................................ 6,382 3,517
Prepaid expenses and other assets.................................. 37,501 10,769
Deferred tax asset, net............................................ 92 4,183
TOTAL.............................................................. $1,369,761 $753,849
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits........................................................... $ 407,768 $501,614
Short-term borrowings.............................................. 658,042 97,624
Notes payable...................................................... 184,245 75,000
Accounts payable and other liabilities............................. 19,937 18,589
Total liabilities................................................. 1,269,992 692,827
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock.................................................... 27,500 --
Common stock....................................................... 55,897 55,897
Retained earnings.................................................. 16,812 5,222
Unrealized loss on available-for-sale securities, net.............. (440) (97)
Total stockholders' equity........................................ 99,769 61,022
TOTAL.............................................................. $1,369,761 $753,849
</TABLE>
See notes to interim financial statements.
3
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME: (Dollars in thousands)
Loans............................................. $ 23,659 $ 11,250 $ 59,950 $ 31,686
Mortgage-backed securities........................ 5,450 382 12,484 1,280
Securities and federal funds sold................. 838 554 3,022 1,171
Total interest income......................... 29,947 12,186 75,456 34,137
INTEREST EXPENSE:
Deposits.......................................... 6,354 6,815 20,008 17,448
Borrowings........................................ 17,991 757 39,028 2,144
Total interest expense........................ 24,345 7,572 59,036 19,592
NET INTEREST INCOME................................ 5,602 4,614 16,420 14,545
PROVISION FOR ESTIMATED LOSSES ON LOANS............ 2,350 4,883 926 15,751
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR
ESTIMATED LOSSES ON LOANS....................... 3,252 (269) 15,494 (1,206)
OTHER INCOME (LOSS):
Bankcard income................................... 1,607 1,803 4,998 5,078
Bankcard processing expense....................... (1,089) (1,249) (3,419) (3,865)
Gain on sale of loans............................. 20,036 -- 31,252 1,983
Loan fees and charges............................. 211 585 662 1,217
Trading account-unrealized gain................... 1,157 -- 1,171 1,601
Real estate owned, net............................ 1,835 (116) 4,574 (231)
Servicing revenue................................. 1,395 -- 3,339 --
Gain on sale of securities........................ 3,053 -- 3,053 --
Other, net........................................ 426 117 1,087 363
Total other income............................ 28,631 1,140 46,717 6,146
OTHER EXPENSES:
Compensation and employee benefits................ 4,623 1,417 11,274 2,955
FDIC insurance premiums........................... 268 1,679 791 2,066
Occupancy......................................... 312 76 727 218
Professional services............................. 1,142 275 2,104 572
Data processing and equipment rentals............. 97 65 250 189
Loan service fees and expenses paid to affiliate.. 9,711 1,400 19,423 3,522
Other general and administrative expenses......... 3,425 386 6,419 1,152
Total other expenses.......................... 19,578 5,298 40,988 10,674
INCOME (LOSS) BEFORE INCOME TAX PROVISION.......... 12,305 (4,427) 21,223 (5,734)
INCOME TAX PROVISION (BENEFIT)..................... 5,237 (3,373) 8,981 (4,652)
NET INCOME (LOSS) ................................. $ 7,068 $ (1,054) $ 12,242 $ (1,082)
EARNINGS (LOSS) PER SHARE:
Primary........................................... $0.80 $(0.19) $1.47 $ (0.22)
Fully Diluted..................................... $0.78 $ -- $1.41 $ --
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary........................................... 8,014,230 5,500,000 7,882,555 4,923,784
Fully Diluted..................................... 8,239,094 --- 8,232,281 ---
</TABLE>
See notes to interim financial statements.
4
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
(Dollars in thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 7,068 $(1,054) $ 12,242 $(1,082)
Reconciliation of net income to net cash (used in) provided by
operating activities:
Provision for estimated loan losses...................... 2,350 4,883 926 15,751
Depreciation and amortization............................ 99 38 302 116
Gain on sale of real estate owned........................ (1,164) 207 (4,275) 164
Purchase of loans held for sale.......................... (182,835) --- (556,231) ---
Proceeds from loans held for sale........................ 184,214 --- 375,565 ---
Gain on sale of loans.................................... (19,639) --- (30,855) (1,983)
Gain on sale of securities............................... (3,053) --- (3,053) ---
Amortization of discounts and deferred fees.............. (16,092) 118 (26,795) (2,126)
Amortization of deferred credits......................... (116) (116) (328) (346)
FHLB stock dividend...................................... (70) (20) (161) (64)
Change in:
Trading account securities................................. (10,385) 566 (3,622) (6,526)
Accrued interest receivable.............................. 865 278 (2,865) (1,226)
Prepaid expenses and other assets........................ (18,940) (2,638) (26,732) (2,163)
Due from affiliate, net.................................. (13,009) (1,027) (15,460) (3,843)
Due to affiliate, net.................................... --- 1,527 --- 1,527
Deferred tax asset, net.................................. 5,245 (3,050) 4,091 (3,833)
Accounts payable and other liabilities................... 6,098 4,165 1,348 3,227
Minority interest........................................ 277 (323)
Other.................................................... --- 43 --- 43
Net cash used in operating activities.................. (59,364) 4,197 (275,903) (2,687)
</TABLE>
See notes to interim financial statements.
(Continued)
5
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
(Dollars in thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans.......................................... (26,903) (5,295) (316,931) (227,632)
Loan repayments, net of originations....................... 29,386 14,678 66,007 35,521
Proceeds from sale of loans................................ --- 2,767 --- 26,335
Proceeds from sale of mortgage-backed securities available
for sale.................................................. 12,148 --- 12,148 ---
Purchase of mortgage-backed securities available for sale.. (76,739) --- (184,393) ---
Repayments of mortgage-backed securities available for..... 3,733 157 4,163 1,871
sale
Proceeds from maturity of investment securities held to.... --- 5,000
maturity
Purchase of mortgage-backed securities held to maturity.... --- (11,182)
Repayments of mortgage-backed securities held to maturity.. 1,552 987 3,036 1,820
Change in unrealized (gain) loss on mortgage-backed
securities available for sale
Purchase of securities and FHLB stock...................... --- (23) (1,833) (7,344)
Proceeds from sale of real estate owned.................... 18,271 479 44,841 5,763
Purchases of leasehold improvements and equipment.......... (749) (60) (1,194) (177)
Net cash used in investing activities.................... (39,301) 13,690 (374,156) (170,025)
</TABLE>
See notes to interim financial statements.
(Continued)
6
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
(Dollars in thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits............................ (37,565) 54,473 (93,845) 184,011
Issuance of common stock......................................... --- --- --- 17,750
Proceeds from short-term borrowings.............................. 373,961 112,964 1,073,009 308,109
Repayments of short-term borrowings.............................. (299,382) (179,254) (512,587) (321,109)
Repayments of capital lease obligations.......................... (68) (68)
Proceeds from notes payable...................................... 100,000 --- 109,245 ---
Net cash provided by financing activities...................... 136,946 (11,817) 575,754 188,761
NET INCREASE (DECREASE) IN CASH AND CASH......................... 38,281 6,070 (74,305) 16,049
EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of period............................................ 39,712 14,461 152,298 4,482
End of period.................................................... $ 77,993 $ 20,531 $ 77,993 $ 20,531
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION-Cash paid during the quarter for:
Interest....................................................... $ 24,026 $ 8,156 $ 51,577 $ 18,772
Income taxes................................................... 600 --- 6,350 216
NONCASH INVESTING ACTIVITIES:
Additions to real estate owned acquired in settlement of loans... 27,588 573 108,831 4,377
Equipment acquired through capital lease......................... --- --- 493 ---
Transfer of securities from available for sale to trading
NONCASH FINANCING ACTIVITIES:
Exchange of subordinated debt for common stock................... --- --- --- 11,000
Paid in kind preferred stock dividend............................ 652 --- 652 ---
Preferred stock issued in exchange for cancellation of accounts.. 27,500 27,500
payable
</TABLE>
See notes to interim financial statements.
(Concluded)
7
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on
Retained Available-
PREFERRED STOCK COMMON STOCK Earnings for-Sale
(Accumulated Securities
SHARES AMOUNT SHARES AMOUNT Deficit) Net of Tax Total
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994.............. -- $ -- 366,288 $ 3,050 $ 915 $ (159) $ 3,806
Net loss............................. (1,252) (1,252)
Unrealized loss on available-for-..... (511) (511)
sale securities-net of tax
Issuance of stock.................... 1,000,000 1,000 934,575 3,750 4,750
BALANCE, December 31, 1994............ 1,000,000 1,000 1,300,863 6,800 (337) (670) 6,793
Net income............................ 592 592
Unrealized gain on available-for-..... 654 654
sale securities-net of tax
Exchange of preferred stock for...... (1,000,000) (1,000) (1,000)
subordinated debt
BALANCE, December 31, 1995............ -- -- 1,300,863 6,800 255 (16) 7,039
Net income........................... 4,967 4,967
Unrealized loss on available-for-..... (81) (81)
sale securities-net of tax
Exchange of subordinated debt for.... 1,606,618 11,000 11,000
common stock
Issuance of common stock............. 4,662,519 38,097 38,097
BALANCE, December 31, 1996............ -- -- 7,570,000 55,897 5,222 (97) 61,022
Net income............................ 12,242 12,242
Issuance of Preferred Stock........... 27,500 27,500 27,500
Preferred Stock dividend.............. (652) (652)
Unrealized loss on available-for-..... (343) (343)
sale securities-net of tax
BALANCE, September 30, 1997........... 27,500 $27,500 7,570,000 $55,897 $16,812 $ (440) $99,769
</TABLE>
See notes to interim financial statements.
8
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements of Wilshire Financial Services Group Inc.
and Subsidiaries (the "Company") should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996. A
summary of the Company's significant accounting policies is set forth in Note 1
to the Consolidated Financial Statements in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
In the opinion of management, all adjustments generally comprised of normal
recurring accruals necessary for fair presentations of the interim financial
statements have been included and all intercompany accounts and transactions
have been eliminated in consolidation. Operating results for the quarter and
nine months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
Certain reclassifications of 1996 amounts were made in order to conform to the
1997 presentation, none of which affect previously reported net income.
2. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
Financial Instruments Involving Off-Balance Sheet Risk-In hedging the interest
rate exposure of a fixed-rate or lagging-index asset, the Company may create a
hedge which matches the principal amortization of such an asset against the
maturity of the Company's liabilities generally by entering into short sales or
forward sales of U.S. Treasury securities, Government Securities, interest rate
futures contracts or interest rate swap agreements. This results in market gains
or losses on hedging instruments, in response to interest rate increases or
decreases, respectively, which approximate the amount of the corresponding
market losses or gains, respectively, on loans being hedged. At September 30,
1997, the notional amounts of interest rate swaps related to deposits were
$214.4 million. The weighted average fixed payments and floating-rate receipts
of interest were 6.06% and .29% over USD LIBOR, respectively.The notional
amounts of interest rate swaps related to the 13% Series A Notes were $20.0
million. The weighted average fixed receipts and floating rate payments of
interest were 13% and 1.25% over USD Libor, respectively. At September 30, 1997,
the Company also had open short positions on 40 U.S. Treasury Bond, 500 10-year
U.S. Treasury Note, 260 5-year U.S. Treasury Note, and 450 French Franc futures
contracts.
In October 1997, the Company established Wilshire Real Estate Investment Trust
Inc. ("WREIT"), which intends to qualify and will elect to be taxed as a Real
Estate Investment Trust. WREIT has filed a registration statement with
the Securities and Exchange Commission in connection with a proposed
underwritten offering of its common stock.
In September 1997, the Company entered into an agreement to acquire a portfolio
of loans from a European insurance company for a purchase price of approximately
$150 million. In August 1997, the Company purchased a portfolio of loans through
the acquisition of the stock of a French bank for a purchase price of
approximately $45 million. The Company has granted WREIT an option to purchase
all or a portion of the Company's 50% interest in such assets.
The Company entered into an agreement to purchase certain assets of an
unaffiliated mortgage originator for a purchase price of approximately $2.7
million. The Company also entered into an agreement to purchase an unaffiliated
manufactured housing loan originator for a purchase price of approximately $3.0
million. There can be no assurance as to when or if such transactions will
be consummated.
3. EARNINGS PER SHARE
The Company will adopt SFAS No. 128, "Earnings per Share," effective December
15, 1997. Management believes that implementation of this statement will not
materially effect presentation of Earnings Per Share.
9
<PAGE>
4. SIGNIFICANT TRANSACTIONS
During the quarter ended September 30, 1997, the Company completed a
securitization of approximately $146 million of loans resulting in a gain of
approximately $11.9 million. At the sale date, the Company allocated
approximately $1.7 million of original cost basis to retained servicing rights.
The Company also sold approximately $26.8 million of loans which resulted in a
gain of approximately $8.1 million, including approximately $0.5 million of
retained servicing rights.
On July 31, 1997, the Company issued to an affiliate shares of 14% cumulative,
pay in kind preferred stock with an aggregate liquidation value of $27.5
million in exchange for the cancellation of certain payables to that affiliate
aggregating approximately $27.1 million and $0.4 million in cash.
On August 15, 1997, the Company issued $100.0 million of its 13% Series A Notes
due 2004.
10
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
ITEM 2. 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 notes thereto.
Wilshire Financial Services Group Inc. is a diversified financial services
company. The Company conducts business in the U.S., U.S. Territories and
Europe, specializing in loan portfolio acquisition and securitization,
correspondent lending and servicing. It offers wholesale banking through two
subsidiaries, First Bank of Beverly Hills, F.S.B. and Girard Savings Bank,
F.S.B. (the "Savings Banks").
RESULTS OF OPERATIONS -- QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER
ENDED SEPTEMBER 30, 1996.
NET INCOME
The Company's net income was approximately $7.1 million for the quarter
ended September 30, 1997 compared with a net loss of approximately $1.1 million
for the quarter ended September 30, 1996. The Company's asset base was
significantly larger in the 1997 period as a result of the Company going public
in December 1996 and significantly higher levels of borrowing and investment
opportunities.
NET INTEREST INCOME
The Company's net interest income was approximately $5.6 million for the
quarter ended September 30, 1997 compared to approximately $4.6 million for the
quarter ended September 30, 1996, an increase of 21.4%.
Interest Income. The Company's interest income was approximately $29.9
million for the quarter ended September 30, 1997 compared with approximately
$12.2 million for the quarter ended September 30, 1996, an increase of 145.7%.
The increase in the Company's interest income was due primarily to an increase
in the Company's interest earning assets from approximately $508.3 million at
September 30, 1996 to approximately $1.1 billion at September 30, 1997.
Interest Expense. The Company's interest expense was approximately $24.3
million for the quarter ended September 30, 1997 compared with approximately
$7.6 million for the quarter ended September 30, 1996, an increase of 221.5%.
The increase in interest expense resulted from an increase in interest-bearing
liabilities to $1.3 billion at September 30, 1997 from $487.5 million at
September 30, 1996 and includes the issuance in the fourth quarter of 1996 and
early 1997 of $84.2 million of the Company's 13% Notes due 2004 and the issuance
in the third quarter of 1997 of $100.0 million of the Company's 13% Series A
Notes due 2004. In addition, the Company's weighted average cost of funds
increased from 5.81% at September 30, 1996 to 7.68% at September 30, 1997
principally reflecting the issuance of the 13% Notes due 2004 and the 13% Series
A Notes due 2004.
PROVISION FOR ESTIMATED LOSSES ON LOANS
Provision for estimated losses on loans for the quarter ended September
30, 1997 was approximately $2.4 million compared with a provision for
estimated losses on loans of $4.9 million for the quarter ended September 30,
1996. The additional provision for losses in the third quarter of 1997 was
primarily due to the establishment of reserves for certain consumer loans as a
result of lower than previously anticipated yields.
OTHER INCOME
The Company's other income was approximately $28.6 million for the
quarter ended September 30, 1997 compared with approximately $1.1 million for
the quarter ended September 30, 1996. The components of the Company's
non-interest income are reflected in the following table:
For the Quarter
ended
September 30,
-----------------------
1997 1996
---- ----
(Dollars in thousands)
Other income:
Bankcard income ...................... $ 1,607 $ 1,803
Bankcard processing expense .......... (1,089) (1,249)
Gain on sale of loans ................ 20,036 --
Loan fees and charges ................ 211 585
Trading account-unrealized gain ...... 1,157 --
Real estate owned, net ............... 1,835 (116)
Servicing revenue .................... 1,395 --
Gain on sale of securities ........... 3,053 --
Other, net ........................... 426 117
--------- --------
Total other income ....................$ 28,631 $ 1,140
========= ========
The increase in other income for the quarter ended September 30, 1997 is
primarily attributable to (i) the sale of loans, which resulted in a gain of
approximately $20.0 million, (ii) the sale of securities, wich resulted in a
gain of approximately $3.1 million, (iii) income from real estate owned, net,
resulting from the ongoing disposition of assets from a $72.3 million pool of
properties acquired in the fourth quarter of 1996 and other real estate owned,
and (iv) an increase in servicing fees collected from others.
Gain on Sale of Loans. The gain on sale of loans for the quarter ended
September 30, 1997 is the result of the sale of loans with a book value of
approximately $173 million, of which approximately $26.8 million were sold
through whole loan trades and approximately $146 million were sold through
securitizations. For the quarter ended September 30, 1997, gain on the sale of
whole loans totaled approximately $8.1 million and gains from securitizations
totaled approximately $11.9 million. Gains or losses on loan portfolios sold as
whole loans or through securitization transactions are based on the difference
between the cash proceeds and market value of securities received on the loans
sold to outside investors and the Company's cost basis allocated to the loans.
Gain on the Sale of Securities. The gain on the sale of securities is a
result of the sale of approximately $9.1 million of mortgage-backed securities
which resulted in a gain of approximately $3.1 million. This gain reflects the
Company's strategy of investing in subordinate classes of mortgage-backed
securities which the Company believes are likely to experience a ratings upgrade
as a result of payment history, prepayment or default experience or otherwise.
The Company believes that its experience in acquiring pools of loans allows it
to more effectively evaluate the risks associated with a pool of loans that
supports an issue of mortgage-backed securities being considered for purchase
and price those securities. As part of this strategy, the Company may also seek
to acquire mortgage-backed securities which management believes are likely to
experience a ratings upgrade as a result of payment history, prepayment or
default experience of the underlying loans or otherwise. The Company intends to
sell a portion of its portfolio of mortgage-backed securities and grant a right
of first refusal on future acquisitions of mortgage-backed securities to WREIT,
a company established by the Company to invest in U.S. commercial real estate
assets (other than U.S. commercial performing loans), international real estate
assets, mortgage-backed securities and other real estate assets. WREIT has filed
a registration statement with the Securities and Exchange Commission in
connection with a proposed underwritten public offering of its common stock. The
sale of the mortgage-backed securities and the grant of a right of first refusal
are expected to occur simultaneously with the consummation of the WREIT's
proposed public offering. There can be no assurance, however, as to when or if
any such public offering, sale of mortgage-backed securities and grant of a
right of first refusal will occur.
Real Estate Owned, net. The increase in income from real estate owned,
net is primarily due to gains on the disposition of real estate acquired
through foreclosure (or deed in lieu thereof) from the Company's portfolio of
non-performing loans ("Discounted Loans") or from the properties acquired in the
fourth quarter of 1996.
Servicing Revenue. The increase in servicing revenue of approximately
$1.4 million in the quarter ended September 30, 1997 was primarily the result of
contracting for servicing rights on loan portfolios owned by unaffiliated third
parties and arranging such loan portfolios to be serviced by Wilshire Credit
Corporation ("WCC"), an affiliate of the Company, at a rate which is lower than
the rate received by the Company.
OTHER EXPENSE
The Company's other expenses totaled approximately $19.6 million for the
quarter ended September 30, 1997 compared with approximately $5.3 million for
the quarter ended September 30, 1996, an increase of 269.5%, which reflects
the significant growth of the Company's asset base and operations.
Loan Service Fees and Expenses Paid to Affiliate. The largest
component of other expenses for the quarter ended September 30, 1997 was loan
service fees and expenses, which includes servicing fees paid to WCC and
collection-related expenses incurred directly by the Company. Loan service fees
and expenses paid to affiliate were approximately $9.7 million for the quarter
ended September 30, 1997 compared to approximately $1.4 million for the quarter
ended September 30, 1996, an increase of approximately 593.6%. The increase in
loan servicing fees and expenses paid to affiliate was primarily the result of
the increase in the unpaid principal balance of loans being serviced by WCC on
behalf of the Company to approximately $1.2 billion at September 30, 1997 from
approximately $502.0 million at September 30, 1996 and an increase in sub-
servicing fees of approximately $1.1 million. Also, collection-related expenses
increased from the quarter ended September 30, 1996 to the comparable period in
1997 due to the substantial increase in Discounted Loans, most of which were
acquired at the end of 1996 and the first quarter of 1997. Discounted Loan
portfolios generally require higher expenditures than performing and
sub-performing loans.
Compensation and Employee Benefits. Compensation and employee benefits
was approximately $4.6 million for the quarter ended September 30, 1997 compared
to approximately $1.4 million for the quarter ended September 30, 1996, an
increase of 226.3%. The increase was primarily due to an increase in the number
of full-time equivalent employees from 46 at September 30, 1996 to 205 at
September 30, 1997, reflecting the expansion of business activities,
particularly loan acquisition activities and the growth of activities at the
non-bank subsidiaries.
Other general and administrative expenses increased from approximately
$0.4 million for the quarter ended September 30, 1996 to approximately $3.4
million for the quarter ended September 30, 1997 due primarily to the expansion
of business activities, particularly loan acquisition activities such as due
diligence costs.
INCOME TAX PROVISION (BENEFIT)
Income tax provision amounted to an expense of approximately $5.2
million during the quarter ended September 30, 1997 compared with a benefit of
approximately $3.4 million during the quarter ended September 30, 1996. The
change was primarily due to the utilization of net operating loss deductions in
1996 and a normalized tax provision in 1997.
RESULTS OF OPERATIONS --- NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
NET INCOME
The Company's net income was approximately $12.2 million for the nine
months ended September 30, 1997 compared to a net loss of approximately $1.1
million for the nine months ended September 30, 1996.
NET INTEREST INCOME
The Company's net interest income was approximately $16.4 million for the
nine months ended September 30, 1997 compared to approximately $14.5 million for
the nine months ended September 30, 1996, an increase of 12.9%. The Company's
asset base was significantly larger in the 1997 period as a result of the
Company's going public in December 1996 and significantly higher levels of
borrowing and investment opportunities.
Interest Income. The Company's interest income was approximately $75.5
million for the nine months ended September 30, 1997, compared to approximately
$34.1 million for the nine months ended September 30, 1996, an increase of
121.0%. The increase in the Company's interest income was due primarily to an
increase in the Company's interest earning assets from approximately $508.3
million at September 30, 1996 to approximately $1.1 billion at September 30,
1997.
Interest Expense. The Company's interest expense was approximately $59.0
million for the nine months ended September 30, 1997, compared with
approximately $19.6 million for the nine months ended September 30, 1996, an
increase of 201.3%. The increase in interest expense resulted from an increase
in interest-bearing liabilities to approximately $1.3 billion at September 30,
1997 from approximately $487.5 million at September 30, 1996 and includes the
issuance in the fourth quarter of 1996 and early 1997 of $84.2 million of the
Company's 13% Notes due 2004 and the issuance in the third quarter of 1997 of
$100 million of the Company's 13% Series A Notes due 2004.
11
<PAGE>
In addition, the Company's weighted average cost of funds increased from 5.81%
at September 30, 1996 to 7.68% at September 30, 1997 principally reflecting the
issuance of the 13% notes due 2004 and the 13% series A notes due 2004.
PROVISION FOR ESTIMATED LOSSES ON LOANS
Provision for estimated losses on loans for the first nine months of 1997
was a net provision of approximately $0.9 million resulting from additional
provision of approximately $3.4 million, which was partially offset by the
reversal of approximately $2.5 million of excess reserves on loans previously
sold. This compares with a provision for estimated losses on loans of
approximately $15.8 million for the first nine months of 1996 from reserves
established primarily for certain sub-prime auto loans and loans held by the
Savings Banks at the time they were acquired.
OTHER INCOME
The Company's other income was approximately $46.7 million for the nine
months ended September 30, 1997 compared with approximately $6.1 million for the
nine months ended September 30, 1996, an increase of 660.1%. The components of
the Company's non-interest income are reflected in the following table:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Other income:
Bankcard income....................... $ 4,998 $ 5,078
Bankcard processing expense........... (3,419) (3,865)
Gain on sale of loans................. 31,252 1,983
Loan fees and charges................. 662 1,217
Trading account-unrealized gain....... 1,171 1,601
Real estate owned, net................ 4,574 (231)
Servicing revenue..................... 3,339 --
Gain on sale of securities............ 3,053 --
Other, net............................ 1,087 363
Total other income.................... $46,717 $ 6,146
</TABLE>
The increase in other income for the nine months ended September 30, 1997
is primarily attributable to (i) sales of loans, which resulted in gains of
approximately $31.3 million, (ii) the sale of securities, which resulted in a
gain of approximately $3.1 million, (iii) income from real estate owned, net,
resulting from the ongoing disposition of assets from a $72.3 million pool of
properties acquired in the fourth quarter of 1996 and from disposition of real
estate relating to discounted loans, and (iv) an increase in servicing fees
paid by unaffiliated third parties.
12
<PAGE>
Gain on Sale of Loans. The gain on sale of loans for the nine months ended
September 30, 1997 is the result of the sale of loans with a book value of
approximately $350 million, of which approximately $204 million were sold
through whole loan trades and approximately $146 million were sold through
securitizations. For the nine months ended September 30, 1997, gain on the sale
of whole loans totaled approximately $19.4 million and gains from
securitizations totaled approximately $11.9 million. Gains or losses on loan
portfolios sold as whole loans or through securitization transactions are based
on the difference between the cash proceeds received on the loans sold to
outside investors and the Company's cost basis allocated to the loans.
Gain on the Sale of Securities. The gain on the sale of securities for the
nine months ended September 30, 1997 is a result of the sale of approximately
$9.1 million of mortgage-backed securities which resulted in a gain of
approximately $3.1 million. This gain reflects the Company's strategy of
investing in subordinate classes of mortgage-backed securities.
Real Estate Owned, net. The increase in income from real estate owned, net
is primarily due to gains on the disposition of real estate acquired through
foreclosure (or deed in lieu thereof) from the Company's discounted loan
portfolio or from the properties acquired in the fourth quarter of 1996.
Servicing Revenue. The increase in servicing revenue of approximately
$3.3 million in the nine months ended September 30, 1997 was primarily the
result of contracting for servicing rights on loan portfolios owned by
unaffiliated third parties and arranging such loan portfolios to be serviced by
WCC at a rate which is lower than the rate received by the Company.
13
<PAGE>
OTHER EXPENSE
The Company's other expenses totaled approximately $41.0 million for the
nine months ended September 30, 1997 compared with approximately $10.7 million
for the nine months ended September 30, 1996, an increase of 284.0% which
reflects the significant growth of the Company's asset base and operations.
Loan Service Fees and Expenses Paid to Affiliate. The largest component of
other expenses was loan service fees and expenses, which includes servicing
fees paid to WCC and collection-related expenses incurred directly by WCC
and reimbursed by the Company. Loan service fees and expenses paid to affiliate
were approximately $19.4 million for the nine months ended September 30, 1997
compared to approximately $3.5 million for the nine months ended September 30,
1996, an increase of approximately 451.5%. The increase in loan servicing fees
and expenses paid to affiliate was primarily the result of the increase in the
unpaid principal balance of loans being serviced by WCC on behalf of the Company
to approximately $1.2 billion at September 30, 1997 from approximately $502.0
million at September 30, 1996 and an increase in sub-servicing fees of
approximately $2.7 million. Also, collection-related expenses increased from
the nine months ended September 30, 1996 to the comparable period in 1997 due to
the substantial increase in Discounted Loans, most of which were acquired at the
end of 1996 and the first nine months of 1997. Discounted Loan portfolios
generally require more significant expenditures than performing and sub-
performing loans.
Compensation and Employee Benefits. Compensation and employee benefits was
approximately $11.3 million for the nine months ended September 30, 1997,
compared to approximately $3.0 million for the nine months ended September 30,
1996, an increase of 281.5%. The increase was primarily due to an increase in
the number of full-time equivalent employees from 46 at September 30, 1996 to
205 at September 30, 1997, reflecting the expansion of business activities,
particularly loan acquisition activities and the growth of activities at the
non-bank subsidiaries.
Other general and administrative expenses increased from approximately $1.2
million for the nine months ended September 30, 1996 to approximately $6.4
million for the nine months ended September 30, 1997 due primarily to the
expansion of business activities at the non-bank subsidiaries, particularly loan
acquisition activities such as due diligence costs.
INCOME TAX PROVISION (BENEFIT)
Income tax provision amounted to an expense of approximately $9.0 million
during the nine months ended September 30, 1997 compared with a benefit of
approximately $4.7 million during the nine months ended September 30, 1996. The
change was primarily due to the utilization of net operating loss deductions in
1996 and a normalized tax provision in 1997.
CHANGES IN FINANCIAL CONDITION
Mortgage-Backed and Other Securities. The Company's mortgage-backed and
other securities increased approximately $171.3 million during the nine months
ended September 30, 1997, primarily as a result of purchasing subordinated
classes of mortgage-backed securities in connection with the Company's strategy
of purchasing mortgage-backed securities which (i) management believes are
likely to experience a ratings upgrade as a result of payment history,
prepayment or default experience or otherwise, or (ii) are secured by pools of
mortgage loans originated under guidelines with which management is familiar due
to previous acquisitions of pools of loans originated thereunder. The increase
in mortgage-backed and other securities was partially offset by the sale of
approximately $9.1 million of mortgage-backed securities.
14
<PAGE>
See "Other Income-Gain on the Sale of Securities."
Loans net. The Company's total loan portfolio, net of discounts
and allowances, increased by approximately $379.4 million during the nine months
ended September 30, 1997, primarily as a result of the Company's business
strategy of aggressively acquiring Discounted Loans and other mortgage loans.
Real Estate Owned, net. Real estate owned, net consists of properties
acquired by foreclosure or deed-in-lieu thereof on loans in the Company's total
loan portfolio or purchased directly. Real estate owned increased by
approximately $68.3 million during the nine months ended September 30, 1997
primarily as a result of the foreclosure of certain Discounted Loans acquired in
the fourth quarter of 1996 and the first nine months of 1997. The Company
actively manages its real estate owned.
Due from Affiliate, net. Due from affiliate, net of approximately $47.4
million at September 30, 1997 was primarily attributable to payments received in
the normal course of servicing operations by WCC, which had not been remitted to
the Company.
Deposits. Deposits decreased by approximately $93.8 million or 18.7% during
the nine months ended September 30, 1997. Pursuant to the Cease and Desist
Orders, as amended (the "Orders"), imposed upon First Bank and Girard, by the
Office of Thrift Supervision (the "OTS"), First Bank and Girard are prohibited
from increasing their total assets, as measured at the end of each calendar
quarter above $145 million and $408 million, respectively, unless such increase
is an amount that represents the total net interest credited on deposit
liabilities earned during that quarter plus any increase permitted by the Orders
in prior quarters. The Savings Banks have complied with these requirements.
Accordingly, the Company has determined to let deposits decline to the extent
not necessary to fund asset growth.
Notes Payable. In the fourth quarter of 1996 and early 1997, the Company
issued $84.2 million of 13% Notes due 2004. In the third quarter of 1997, the
Company issued $100.0 million of 13% Series A Notes due 2004.
Short-Term Borrowings. Short-term borrowings increased by approximately
$560.4 million during the nine months ended September 30, 1997, resulting from
increased use of repurchase agreements and warehouse financing instead of
deposits to fund the purchases of loans and securities.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash flow include certificates of deposit,
securitizations, net interest income, borrowings under its warehouse and
repurchase financing facilities from institutional investors and other lenders
and public and private debt offerings, including the 13% Notes due 2004 and 13%
Series A Notes due 2004. In certain limited circumstances, the Company also has
borrowed money from WCC in order to fund the acquisition of loans. The Company
repaid such borrowings with the issuance of $27.5 million of its Cumulative
Redeemable PIK Preferred Stock ("Preferred Stock") on July 31, 1997. In
addition, the Savings Banks obtain funding through FHLB advances. The Company's
liquidity is managed on a daily basis and reviewed periodically by the Company's
Board of Directors. This process is intended to ensure the maintenance of
sufficient funds to meet the needs of the Company, including adequate cash flows
for off-balance sheet instruments.
At the Savings Banks, sources of liquidity include wholesale and brokered
certificates of deposit and certain credit facilities. As of September 30, 1997,
the Savings Banks had approximately $400.4 million of certificates of deposit.
As of September 30, 1997, scheduled maturities of certificates of deposit during
the twelve months ending September 30, 1998 and thereafter amounted to
approximately $370.4 million and approximately $30.0 million, respectively.
Brokered and other wholesale deposits generally are more responsive to changes
in interest rates than core deposits and, thus, are more likely to be withdrawn
by the investor upon maturity as changes in interest rates and other factors are
perceived by investors to make other investments more attractive. However,
management of the Savings Banks believes that it can adjust the rates paid on
certificates of deposit to retain deposits in changing interest rate
environments and that brokered and other wholesale deposits can be both a
relatively cost-effective and stable source of funds.
At September 30, 1997, the Company's sources of borrowings included (i)
uncommitted master repurchase agreements between each of the Savings Banks and
Bear Stearns Mortgage Capital Corporation as to which the parties have orally
agreed that approximately $210 million in aggregate would be available for the
purchase of loans, (ii) a committed $150 million warehouse lending agreement
with Prudential Securities Credit Corporation, and (iii) certain repurchase
arrangements including $350 million (committed) under a repurchase agreement
with Credit Suisse First Boston Mortgage Capital LLC, $60.9 million (committed)
under a repurchase agreement with Salomon Brothers Realty Corp. and $102.4
million (committed) under a repurchase agreement with Salomon Brothers Realty
Corp. Sources of borrowings also include FHLB advances, which are required to
be secured by eligible securities collateral, and reverse repurchase agreements.
As of September 30, 1997, the Savings Banks had no FHLB advances outstanding,
and were eligible to borrow up to an aggregate of $5.4 million from the FHLB of
San Francisco and had approximately $5.4 million of unencumbered mortgage-backed
and related securities which could be used to secure such borrowings.
The Company's uses of cash include the funding of loan purchases and
origination, acquisitions of mortgage-backed securities, payment of interest
expenses, repayment of loans, funding of initial over-collateralization
requirements for securitizations, operating and administrative expenses, income
taxes and capital expenditures. The Company's purchases of loans are expected
to utilize secured borrowings and be highly leveraged. The actual dollar amount
of secured borrowings incurred by the Company will vary depending on a number of
factors, including the amount of leverage lenders are willing to make available
(which will be effected by market conditions), and management's determination as
to the appropriate amount of leverage. With respect to pools of Discounted
Loans and Non-Discounted Loans, the Company generally seeks to fund 90% and 95%,
respectively, of the market value of such loan portfolios with borrowed money.
The Company draws on a number of sources to obtain such funds, including
certificates of deposit and
16
<PAGE>
repurchase agreements with major investment banks. Capital expenditures by the
Company have been immaterial.
The Company is party to various off-balance sheet financial instruments in
the normal course of business to manage its interest rate risk. The Company
conducts business with a variety of financial institutions and other companies
in the normal course of business, including counterparties to its off-balance
sheet financial instruments. The Company is subject to potential financial
loss if the counterparty is unable to complete an agreed upon transaction. The
Company seeks to limit counterparty risk through financial analysis and
monitoring procedures.
Adequate credit facilities and other sources of funding, including the
ability of the Company to securitize loans, are essential to the continuation of
the Company's ability to purchase pools of loans, mortgage-backed securities and
newly originated mortgage and manufactured housing loans. The Company believes
that cash flows from operations, the proceeds of certificates of deposit, the
availability under the warehouse financing facility, repurchase facilities and
other borrowings, and the net proceeds from securitizations will be sufficient
to fund current operating needs, commitments and capital expenditures in the
near term.
Given the Company's rapid growth and assuming that the Company continues to
experience such growth, management believes that additional debt/or equity
financing may be required in the medium term to sustain this level of growth.
The 13% Notes due 2004 and the 13% Series A Notes due 2004 contain certain
limitations on indebtedness which may restrict the ability of the Company to
issue additional indebtedness in the future and the Company may be obligated to
seek equity financing. There can be no assurance that any such debt or equity
financing will be available to the Company on financially attractive terms in
the future.
The Company is required to maintain one year of interest on its 13% Notes
due 2004 and its 13% Series A Notes due 2004 in liquid assets. In addition, the
Savings Banks are required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other investments having maturities of five years or less.
Current OTS regulations require that a savings association maintain liquid
assets of not less than 5% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less, of which short-term
liquid assets must consist of not less than 1%. Monetary penalties may be
imposed for failure to meet applicable liquidity requirements. The Company and
the Savings Banks have complied with these requirements.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. All of the
statements contained in this Quarterly Report on Form 10-Q which are not
identified as historical should be considered forward-looking. In connection
with certain forward-looking statements contained in this Quarterly Report on
Form 10-Q and those that may be made in the future by or on behalf of the
Company which are identified as forward-looking, the Company notes that there
are various factors that could cause actual results to differ materially from
those set forth in any such forward-looking statements. Such factors include
but are not limited to, the real estate market, the cease and desist orders, the
availability of loan portfolios at acceptable prices, the availability of
financing for loan portfolio acquisitions, interest rates and expansion outside
the U.S. Accordingly, there can be no assurance
17
<PAGE>
that the forward-looking statements contained in this Quarterly Report on Form
10-Q will be realized or that actual results will not be significantly higher or
lower. The forward-looking statements have not been audited by, examined by or
subjected to agreed-upon procedures by independent accountants, and no third-
party has independently verified or reviewed such statements. Readers of this
Quarterly Report on Form 10-Q should consider these facts in evaluating the
information contained herein. The inclusion of the forward-looking statements
contained in this Quarterly Report on Form 10-Q should not be regarded as a
representation by the Company or any other person that the forward-looking
statements contained in this Quarterly Report on Form 10-Q will be achieved. In
light of the foregoing, readers of this Quarterly Report on Form 10-Q are
cautioned not to place undue reliance on the forward-looking statements
contained herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
18
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
Effective July 31, 1997, the Company issued 27,500 shares of its Cumulative
Redeemable Senior PIK Preferred Stock, par value $.01 per share (the "Preferred
Stock"), to WCC in exchange for certain accounts payable of approximately $27.1
million and a cash payment of approximately $400,000.
Dividends on the Preferred Stock are cumulative from the date of original
issuance and are payable semiannually in arrears. Any dividend accruing in
respect of the Preferred Stock shall be paid by issuing additional shares of
Preferred Stock, and the issuance of such additional shares of Preferred Stock
shall constitute full payment of the dividend. The Company may redeem the
Preferred Stock, in whole or in part, at any time, at a redemption price per
share equal to liquidation value of the Preferred Stock, plus all dividends
accrued and unpaid on the Preferred Stock so redeemed up to the date fixed for
redemption.
In connection with the issuance and sale of Preferred Stock, the Company
filed with the Secretary of State of the State of Delaware a Certificate of
Designations of Cumulative Redeemable Senior PIK Preferred Stock (the
"Certificate of Designations") which established the designations, powers,
preferences and rights of the shares of such preferred stock, and the
qualifications, limitations or restrictions thereof (in addition to the
designations, powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation which may be applicable to the Company's preferred stock). The
Certificate of Designation provides that, with respect to dividend rights and
rights upon liquidation, winding up and dissolution, the Preferred Stock shall
rank senior to: (a) any other series of preferred stock, unless the holders of
the Preferred Stock agree that such shares shall rank pari passu with or senior
to the shares of Preferred Stock and (b) all other equity securities of the
Company, including the Common Stock, par value $.01 per share. The liquidation
value of shares of the Preferred Stock, in case of the voluntary or involuntary
liquidation, dissolution or winding up of the Company, shall be $1,000 per
share, plus an amount equal to the dividends accrued and unpaid thereon, whether
or not declared, to the payment date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the period
covered by this report.
ITEM 5. OTHER INFORMATION.
19
<PAGE>
In October 1997, the Company established WREIT, which intends to qualify
and will elect to be taxed as a Real Estate Investment Trust. WREIT has filed a
registration statement with the Securities and Exchange Commission in connection
with a proposed underwritten public offering of 20 million shares of its common
stock at a proposed offering range of $14 to $16 per share. Upon the
consummation of the proposed public offering, the Company or its affiliates
intend to sell to WREIT (i) certain of its U.S. commercial real estate assets
for approximately $52.8 million, (ii) certain of its mortgage-backed securities
for approximately $98.4 million, and (iii) certain of its international
Discounted and Non-Discounted Loans in the United Kingdom for approximately $5.4
million. The Company intends to grant WREIT an option to purchase all or a
portion of the Company's interest in two portfolios of loans in France for a
purchase price of up to $110.0 million. In addition, the Company intends to
grant WREIT a right of first refusal on future acquisitions of U.S. commercial
real estate assets (other than U.S. commercial performing loans), certain
mortgage-backed securities and international real estate assets. There can be no
assurance, however, as to when or if any such public offering, sale of
securities and grant of a right of first refusal will occur.
In October 1997, the Savings Banks entered into amended Cease and Desist
Orders with the Office of Thrift Supervision which modified certain restrictive
provisions of the original Cease and Desist Orders. The Savings Banks continue
to remain subject to growth restrictions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 11 Statement re Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K was filed on August 14, 1997, with respect to the
Company's issuance of (i) 27,500 shares of Cumulative Redeemable PIK Preferred
Stock, par value $.01 per share of the Company and (ii) $100.0 million of its
13% Series A Notes due 2004.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WILSHIRE FINANCIAL SERVICES GROUP INC.
Date: November 19, 1997 By: /s/ Lawrence A. Mendelsohn
--------------------------
Lawrence A. Mendelsohn
President
By: /s/ Chris Tassos
----------------
Chris Tassos
Chief Financial Officer
21
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Primary net income per share:
Net income............................................. $ 12,242 $ (1,082)
Preferred stock dividend............................... 652 -
Net income available to common shareholders............ 11,590 (1,082)
Average number of shares outstanding................... 7,570,000 4,923,784
Net effect of dilutive stock options-based on
treasury stock method using average market price...... 312,555 -
Total average shares................................... 7,882,555 4,923,784
Primary net income per share........................... $ 1.47 $ (0.22)
Fully diluted net income per share:
Net income............................................. $ 12,242 $ (1,082)
Preferred Stock dividend............................... 652 ---
Net income available to common shareholders............ 11,590 (1,082)
Average number of shares outstanding................... 7,570,000 4,923,784
Net effect of dilutive stock options-based on.......... 662,281 ---
treasury stock method using ending share price
Total average shares................................... 8,232,281 4,923,784
Fully diluted net income per share..................... $1.41 $(0.22)
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND STATEMENT OF EARNINGS FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 77,993
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 28,163
<INVESTMENTS-HELD-FOR-SALE> 201,325
<INVESTMENTS-CARRYING> 26,809
<INVESTMENTS-MARKET> 0
<LOANS> 791,019
<ALLOWANCE> 89,371
<TOTAL-ASSETS> 1,369,761
<DEPOSITS> 407,768
<SHORT-TERM> 658,042
<LIABILITIES-OTHER> 19,937
<LONG-TERM> 184,245
0
27,500
<COMMON> 55,897
<OTHER-SE> 16,372
<TOTAL-LIABILITIES-AND-EQUITY> 1,369,761
<INTEREST-LOAN> 59,950
<INTEREST-INVEST> 15,506
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 75,456
<INTEREST-DEPOSIT> 20,008
<INTEREST-EXPENSE> 59,036
<INTEREST-INCOME-NET> 16,420
<LOAN-LOSSES> 926
<SECURITIES-GAINS> 3,053
<EXPENSE-OTHER> 40,988
<INCOME-PRETAX> 21,223
<INCOME-PRE-EXTRAORDINARY> 21,223
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,242
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.41
<YIELD-ACTUAL> 0
<LOANS-NON> 77,836
<LOANS-PAST> 0
<LOANS-TROUBLED> 27,997
<LOANS-PROBLEM> 10,637
<ALLOWANCE-OPEN> 37,555
<CHARGE-OFFS> 19,419
<RECOVERIES> 982
<ALLOWANCE-CLOSE> 89,371
<ALLOWANCE-DOMESTIC> 89,371
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
