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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 14, 1998
Date of report (Date of
earliest event reported)
WILSHIRE FINANCIAL SERVICES GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 0-17292 93-1223879
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(State or other Commission File Number (I.R.S. Employer
jurisdiction of Identification Number)
incorporation)
1776 SW Madison Street, Portland, OR97205
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(Address of principal executive offices)(Zip Code)
(503) 223-5600
Registrant's telephone number, including area code
Not Applicable
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(Former name or former address, if changed since
last report)
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
Between October 14 and October 16, 1998, Wilshire Financial Services Group
Inc. ("WFSG" or the "Company") sold certain real estate related assets at their
carrying value to various unrelated third parties for $276.5 million. The sales
price was determined through arms length negotiations between the various
purchasers and the Company. The cash proceeds from the sale were used to repay
principal and interest on the existing repurchase agreements for which these
securities served as collateral totaling $273.0 million.
The assets sold consisted of 1)68 classes of subordinate mortgage-backed
securities representing interests in 55 securitizations by 12 different issuers
which had a carrying value at the date of sale of $63.3 million, 2) a $211.8
million pool of non-performing mortgage loans and 3) $1.4 million of mortgage
servicing rights.
The market for mortgage-backed securities and, in particular, subordinate
credit related tranches of these securities has experienced dramatically
widening spreads throughout the last ten weeks. Liquidity problems affecting
certain Wall Street firms, hedge funds and other financial instruments investors
have exacerbated this market phenomenon through forced liquidations of their
assets. This has led to an increased need for liquidity at WFSG both to meet
collateral calls and as a preemptive measure to protect against future MBS
spread distortions that the Company expects may be experienced by the markets in
general.
As a result, the Company, through these asset sales, has reduced debt and
increased current liquidity, enabling it to meet collateral calls. The Company
recognized an impairment loss on certain of these assets totaling approximately
$43.3 million or $38.1 million net of tax benefit during the quarter ended
September 30, 1998. In addition, the Company may recognize impairment losses on
unsold assets and assets sold which are not required to be covered under Form
8-K.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro forma financial information related to the assets sold listed under
Item 2 is attached hereto, and incorporated herein by reference, as Exhibit 99.
(c) Exhibits
The following exhibits are filed as part of this report:
2.1 Purchase and Sale Agreement dated October 14, 1998, between
Salomon Brothers Realty Corp. and WMFC 1997- 4 Inc.
99 Pro forma financial information
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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 hereunto duly authorized.
WILSHIRE FINANCIAL SERVICES
GROUP INC.
Date: November 5, 1998 By: /S/ Chris Tassos
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Chris Tassos
Executive Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS FILED HEREWITH
EXHIBIT DESCRIPTION PAGE
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2.1 Purchase and Sale Agreement dated October 14, 1998, 5
between Salomon Brothers Realty Corp. and WMFC 1997-4 Inc.
99 PRO FORMA FINANCIAL INFORMATION - NARRATIVE FORMAT 9
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EXHIBIT 99
WILSHIRE FINANCIAL SERVICES GROUP INC.
PRO FORMA FINANCIAL INFORMATION - NARRATIVE FORMAT
The following unaudited pro forma financial information of Wilshire
Financial Services Group Inc. ("WFSG" or the "Company") gives effect to the
disposition of certain real estate related assets as if the transactions
occurred as of January 1, 1997 or the date of acquisition, whichever is later,
with respect to the unaudited pro forma condensed consolidated operating
information and as of June 30, 1998 with respect to the unaudited pro forma
condensed consolidated financial condition information.
The unaudited pro forma financial information reflects the effect of the
disposition of the assets along with pro forma adjustments. The unaudited pro
forma financial information should be read in conjunction with the historical
consolidated financial statements of WFSG, together with the related notes
thereto, which were filed August 14, 1998 on Form 10-Q for the six-months ended
June 30, 1998.
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Between October 14 and October 16, 1998, the Company sold certain real
estate related assets at their carrying value to various unrelated third parties
for $276.5 million. The sales price was determined through arms length
negotiations between the various purchasers and the Company. The cash proceeds
from the sale were used to repay principal and interest on the existing
repurchase agreements for which these securities served as collateral totaling
$273.0 million.
The pro forma effect of this transaction on the June 30, 1998 statement of
financial condition would have resulted in a decrease in total assets from
$1,948.9 million to $1,667.2 million and a decrease in total liabilities from
$1,811.1 million to $1,559.6 million. The decrease in total assets of $281.7
million is the result of the following: 1) sale of discounted loans for $211.8
million, 2) sale of mortgage-backed securities for $26.3 million, 3) sale of
mortgage servicing rights for $1.4 million, 4) recognition of an impairment loss
of $32.5 million, 5) decrease in income tax receivable of $2.3 million and 6)
decrease of $12.7 million of the assets sold from June 30, 1998 to the sale date
due to normal cash collections. These were offset, in part, by $5.3 million of
additional cash provided by the pro forma after tax income effect of the
disposed assets. Liabilities decreased as a result of terminating the short-term
financing on the assets sold.
The pro forma effect of this transaction on Stockholders' Equity on June
30, 1998 would be a decrease from $137.7 million to $107.6 million. The $30.1
million decrease is due to an impairment provision on certain of the assets of
$32.5 million net of tax benefit and a $0.6 million pro forma effect on
unrealized losses for available for sale securities, offset in part, by the pro
forma effect of adjusting retained earnings by $3.0 million for the disposal of
certain assets.
Additionally, the pro forma effect of these transactions would give effect
to the following changes to the operations of the Company for the year ended
December 31, 1997 and the six months ended June 30, 1998:
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* Decrease in net interest income of $0.6 million and $3.7 million for the
year ended December 31, 1997 and the six months ended June 30, 1998,
respectively.
* Decrease in mortgage servicing rights amortization expense of $0.2 million
and $0.3 million for the year ended December 31, 1997 and for the six
months ended June 30, 1998, respectively.
* Decrease in loan service fees and expenses of $3.1 million and $5.9 million
for the year ended December 31, 1997 and the six months ended June 30,
1998, respectively.
* Increase in the impairment provision on loans and securities of $32.3
million for the year ended December 31, 1997 and $4.6 million the six
months ended June 30, 1998. Additionally, $6.4 million in impairment
provision was reflected in the quarter ended September 30, 1998 for certain
assets sold that were acquired after June 30, 1998.
* Increase/(decrease) in income tax provision of ($2.8) million for the year
ended December 31, 1997 and $0.6 million for the six months ended June 30,
1998.
* Net income/(loss) for the year ended December 31, 1997 would have decreased
from $15.2 million to ($11.7) million. Basic and diluted earnings per share
of $1.79 and $1.69, respectively, would decrease to ($1.76) basic and
diluted earnings per share.
* Net income for the six-months ended June 30, 1998 would have decreased from
$7.2 million to a $4.6 million. Basic and diluted earnings per share of
$0.65 and $0.61 would decrease to $0.40 and $0.38, respectively.
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 report which are not identified as historical should be
considered forward-looking. In connection with certain forwardlooking statements
contained in this report 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 availability
of real estate assets at acceptable prices, the availability of financing,
interest rates, and European expansion. Accordingly, there can be no assurance
that the forward-looking statements contained in this report 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 report
should consider these facts in evaluating the information contained herein. The
inclusion of the forward-looking statements contained in this report should not
be regarded as a representation by the Company or any other person that the
forward-looking statements contained in this report will be achieved. In light
of the foregoing, readers of this report are cautioned not to place undue
reliance on the forwardlooking statements contained herein.
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EXHIBIT 2.1
October 14, 1998
WMFC 1997-4 Inc.
1776 S. W. Madison Street
Portland, Oregon 97205
Attention: Andrew Weiderhorn
Ladies and Gentlemen:
Salomon Brothers Realty Corp. ("Salomon") hereby confirms our agreement to
purchase and the agreement of WMFC 1997-4 Inc. ("WMFC") to sell on October 13,
1998 (the "Settlement Date"), on a mandatory delivery, servicing-released basis,
and without recourse, the mortgage loans identified on the mortgage loan
schedule (the "Mortgage Loan Schedule") attached hereto as Exhibit A (the
"Mortgage Loans", which term includes all contractual and possessory rights of
WMFC and any other person to administer or service such Mortgage Loans and to
possess directly or indirectly any instruments, agreements, other documents,
books, records and other media for storing information relating to such Mortgage
Loans) having an aggregate unpaid principal balance as of the Settlement Date of
approximately $266,508,621.39 (the "Settlement Date Principal Balance") after
application of principal payments collected through September 30, 1998. The
terms and provisions of the agreement for the purchase and sale of the Mortgage
Loans are as described below.
1. Purchase of Mortgage Loans: The Mortgage Loans are to be sold in
whole loan format on a servicing released basis; provided, however, that WMFC
shall service and administer the Mortgage Loans for the benefit of Salomon as
provided in Section 3 hereof, the cost of which shall be paid as described in
Section 3 hereof. At your expense, and as a condition to the closing on the
Settlement Date, the original mortgage notes properly endorsed, mortgages or
deeds of trust, modification,
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extension and/or assumption agreements, assignments of mortgage or deed of
trust, intervening assignments of mortgage, title insurance policies and
mortgage insurance policies, if any, for the Mortgage Loans shall be delivered
to Salomon or, at Salomon's direction, to a third-party document custodian (the
"Custodian"), on or before the Settlement Date. The Custodian will be selected
by Salomon and the fees for its initial review shall be paid by WMFC.
2. Representations and Warranties; Repurchase: With respect to each
Mortgage Loan, WMFC hereby makes the representations and warranties set forth on
Exhibit B attached hereto. WMFC hereby agrees to repurchase any Mortgage Loan as
to which a representation and warranty has been breached and is not cured within
thirty (30) days of the discovery of such breach and further agrees to indemnify
Salomon in connection with any such breach. The repurchase price for any
Mortgage Loan for which a representation or warranty has been breached shall be
equal to the product of (a) the Purchase Price Percentage (as defined below) and
(b) unpaid principal balance of such Mortgage Loans. The repurchase price shall
be remitted to Salomon via wire transfer of immediately available funds within
five (5) business days of the expiration of such cure period.
3. Servicing of the Mortgage Loans: WMFC shall transfer and deliver
the servicing of the Mortgage Loans to Salomon or its designee (the
"Transferee") on the second month anniversary of the date hereof, or if such day
is not a business day on the following business day (the "Transfer Date");
provided however, that the Transfer Date shall be deemed extended for an
additional calendar month for each calendar month (commencing November 1, 1998)
in which Salomon shall not have specified to WMFC in writing the identify of the
Transferee (such writing to refer to this paragraph of this letter). Pending the
Transfer Date, the Mortgage Loans shall be serviced by Wilshire Servicing
Corporation (the "Servicer") and subserviced by Wilshire Credit Corporation in
accordance with accepted and prudent mortgage servicing practices of prudent
mortgage lending institutions which service mortgage loans of the same type as
the Mortgage Loans in the jurisdictions in which the related mortgaged
properties are located and in a manner at least equal in quality to the
servicing the Servicer provides to mortgage loans which it owns in its own
portfolio. The Servicer shall service the Mortgage Loans for a servicing fee
equal to 0.50% per annum payable monthly on the then-outstanding principal
balance of each Mortgage Loan and payable solely out of collections on a
loan-by-loan basis. Notwithstanding the foregoing, Salomon shall not be
responsible for reimbursing the Servicer for advances or other expenses or
amounts with respect to the Mortgage Loans, as set forth on Schedule I attached
hereto, which accrued or were paid prior to the date hereof, but will be
responsible for any advances or other expenses or amounts accruing after the
date hereof.
4. Purchase Price: The purchase price for the Mortgage Loans on the
Settlement Date shall be equal to the product of (a) 79.475767% (the "Purchase
Price Percentage") and (b) the Settlement Date Principal Balance.
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5. Mandatory Delivery: The sale and delivery of all of the Mortgage
Loans on the Settlement Date is mandatory from the date of the execution of this
letter agreement, it being specifically understood and agreed that each Mortgage
Loan is unique and identifiable on the date hereof and that an award of money
damages would be insufficient to compensate Salomon for the losses and damages
incurred by Salomon (including damages to prospective purchasers of the Mortgage
Loans) in the event of WMFC's failure to deliver each of the Mortgage Loans to
Salomon on the Settlement Date.
6. Entire Agreement: This letter agreement supersedes and integrates
all previous negotiations, contracts, agreements and understandings between the
parties relating to the Mortgage Loans and contains the entire final agreement
of the parties. No prior negotiation, agreement, understanding or prior contract
shall have any validity hereafter. This letter agreement may only be amended by
a written document signed by each of the parties hereto.
7. GOVERNING LAW: THIS LETTER AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW.
This letter may be executed in any number of counterparts, each of
which (including any copy hereof delivered by facsimile) shall constitute one
and the same original instrument, and either party hereto may execute this
letter by signing any such counterpart.
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Please confirm that the foregoing specifies the terms of our agreement by
signing and returning the enclosed copy of this letter to Salomon Brothers
Realty Corp., Seven World Trade Center, New York, New York 10048, Attention:
Susan Mills (facsimile number: 212-783-3895).
Very truly yours,
SALOMON BROTHERS REALTY CORP.
By: _____________________________________
Name:
Title:
Accepted and Agreed:
WMFC 1997-4 INC.
By: _______________________________
Name:
Title:
WILSHIRE SERVICING CORPORATION
By: _______________________________
Name:
Title:
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