<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 and six months ended June 30, 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 0-28706
-------
FIRST ALLIANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0721183
------------------------------- --------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
17305 VON KARMAN AVENUE, IRVINE, CALIFORNIA 92614
-----------------------------------------------------------
(Address of principal executive offices including ZIP Code)
(949) 224-8500
------------------------------
(Registrant's telephone number
including area code)
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 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 July 31, 1998 registrant had outstanding 7,811,988 shares of Class A
Common Stock and 10,875,000 shares of Class B Common Stock.
================================================================================
<PAGE>
FIRST ALLIANCE CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited) as of
June 30, 1998 and December 31, 1997 ............................... 1
Consolidated Statements of Income (Unaudited) for the quarters
and six months ended June 30, 1998 and 1997........................ 2
Consolidated Statements of Comprehensive Income (Unaudited)
for the quarters and six months ended June 30, 1998 and 1997....... 3
Consolidated Statements of Cash Flows (Unaudited) for the quarters
and six months ended June 30, 1998 and 1997........................ 4
Notes to Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A")..................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................16
Item 2. Changes in Securities..............................................16
Item 3. Defaults Upon Senior Securities....................................16
Item 4. Submission of Matters to a Vote of Security Holders................16
Item 5. Other Information..................................................16
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits ..........................................17
b. Reports on Form 8-K................................18
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
-------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents................................................................ $ 14,032 $ 5,073
Restricted cash.......................................................................... 626
Receivable from trusts................................................................... 3,085 5,075
Loans held for sale...................................................................... 54,872 68,248
Warehouse financing receivable........................................................... 12,324 6,452
Loans receivable held for investment..................................................... 2,082 1,729
Residual interests in securities - at fair value......................................... 50,238 49,527
Mortgage servicing rights................................................................ 9,240 10,339
Property, net............................................................................ 8,587 10,685
Prepaid expenses and other assets........................................................ 3,687 2,639
-------------- --------------
Total assets.......................................................................... $ 158,147 $ 160,393
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse financing facilities........................................................... $ 57,742 $ 61,897
Accounts payable and accrued liabilities................................................. 4,794 10,759
Deferred taxes........................................................................... 4,334 6,908
-------------- --------------
Total liabilities..................................................................... 66,870 79,564
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 per value; 1,000,000 shares authorized: no shares outstanding......
Class A Common Stock, $.01 par value; 25,000,000 shares authorized; shares issued
and outstanding: 11,311,288 at June 30, 1998 and 11,265,375 at December 31, 1997..... 112 113
Class B Common Stock, $.01 par value; 15,000,000 shares authorized; shares issued
and outstanding: 10,875,000 at June 30, 1998 and 10,956,270 at December 31, 1997..... 110 110
Additional paid in capital............................................................... 65,321 65,298
Retained earnings........................................................................ 47,110 55,153
Treasury stock - at cost: 2,674,300 shares at June 30, 1998 and 1,169,300 shares
at December 31, 1997.................................................................. (20,544) (39,823)
Deferred stock compensation.............................................................. (765)
Foreign currency translation............................................................. (67) (22)
-------------- --------------
Total stockholders' equity............................................................ 91,277 80,829
-------------- --------------
Total liabilities and stockholders' equity......................................... $ 158,147 $ 160,393
============== ==============
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Loan origination and sale............................... $ 16,382 $ 8,969 $ 31,786 $ 26,271
Loan servicing and other fees........................... 1,911 786 3,855 2,488
Interest and other...................................... 4,951 6,055 9,040 12,421
-------------- -------------- -------------- --------------
Total revenue........................................ 23,244 15,810 44,681 41,180
-------------- -------------- -------------- --------------
EXPENSE
Compensation and benefits............................... 4,630 5,873 8,906 11,763
Advertising............................................. 1,499 2,245 2,657 4,101
Professional services and other fees ................... 838 931 1,448 2,043
Facilities and insurance................................ 765 1,165 1,422 2,142
Supplies................................................ 665 841 1,095 1,546
Depreciation and amortization........................... 207 486 376 898
Interest................................................ 400 1,810 712 3,632
Legal 551 515 779 875
Travel and training..................................... 418 428 799 795
Other 103 260 459 462
-------------- -------------- -------------- --------------
Total expense........................................ 10,076 14,554 18,653 28,257
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAX PROVISION......................... 13,168 1,256 26,028 12,923
INCOME TAX PROVISION....................................... 5,302 475 10,478 4,880
-------------- -------------- -------------- --------------
NET INCOME................................................. $ 7,866 $ 781 $ 15,550 $ 8,043
============== ============== ============== ==============
NET INCOME PER SHARE:
Basic $ .36 $ .04 $ .70 $ .39
============== ============== ============== ==============
Diluted................................................. $ .36 $ .04 $ .70 $ .39
============== ============== ============== ==============
Weighted average number of common shares outstanding:
Basic 21,949,489 20,104,670 22,063,504 20,440,311
Diluted................................................. 22,078,032 20,160,781 22,219,143 20,544,280
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET INCOME $ 7,866 $ 781 $ 15,550 $ 8,043
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency translation adjustment............... (3) (8) 35 45
-------------- -------------- -------------- --------------
COMPREHENSIVE INCOME.....................................$ 7,863 $ 773 $ 15,585 $ 8,088
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,866 $ 781 $ 15,550 $ 8,043
Adjustments to reconcile net income to net cash provided by
operating activities:
Capitalized residual interests and mortgage servicing rights. (5,413) (6,389) (10,388) (13,703)
Deferred income taxes........................................ (353) 1,480 2,190 6,529
Net accretion of residual interests in securities............ (365) 7,674 (216) 10,598
Amortization of mortgage servicing rights.................... 692 1,864 1,298 2,717
Depreciation and amortization ............................... 207 486 376 898
Deferred stock compensation.................................. 51 102 42
Accretion of discounts on loans receivable................... (60) (11) (98) (22)
Foreign currency transaction loss (gain)..................... (88) (25) 81 (35)
Loss on sales of property.................................... 6 5 39 5
Changes in assets and liabilities:
Restricted cash.............................................. (454) (626)
Receivable from trusts....................................... 870 (470) (922) (1,990)
Loans held for sale.......................................... (6,367) (7,536) (7,357) (12,935)
Prepaid expenses and other assets............................ 353 722 862 1,053
Accounts payable and accrued liabilities..................... 854 (917) 1,262 5,880
Income taxes payable......................................... 1,287 (1,157) 772 (3,664)
-------------- -------------- -------------- --------------
Net cash (used in) provided by operating activities....... (460) (3,947) 3,551 2,790
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayments (advances) on warehouse financing receivable......... 2,445 (3,686) (7,233) 5,872
Capital expenditures............................................ (1,314) (818) (2,215) (2,980)
Proceeds from sales of property................................. 361 50 361 50
Collections on loans receivable held for investment............. 180 234 515 310
-------------- -------------- -------------- --------------
Net cash provided by (used in) investing activities....... 1,672 (4,220) (8,572) 3,252
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on warehouse financing facilities... (117) 18,428 3,739
Purchase of treasury stock...................................... (5,612) (11,174) (5,612) (19,279)
Proceeds from issuance of stock................................. 17 295 324 521
-------------- -------------- -------------- --------------
Net cash (used in) provided by financing activities....... (5,712) 7,549 (5,288) (15,019)
-------------- -------------- -------------- --------------
Effect of exchange rate changes on cash......................... (16) (3) (12) 18
-------------- -------------- -------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS....................... (4,516) (621) (10,321) (8,959)
CASH AND CASH EQUIVALENTS, beginning of period.................. 21,609 5,694 27,414 14,032
-------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of period........................$ 17,093 $ 5,073 $ 17,093 $ 5,073
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Interest paid................................................$ 400 $ 1,819 $ 717 $ 3,649
============== ============== ============== ==============
Income taxes paid............................................$ 4,367 $ 152 $ 7,534 $ 2,055
============== ============== ============== ==============
SUPPLEMENTAL INFORMATION ON NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Cancellation of restricted stock............................. $ 543 $ 543
============== ==============
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
FIRST ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE 1. GENERAL
The accompanying unaudited consolidated financial statements, which
include the accounts of First Alliance Corporation ("FACO") and its subsidiaries
(collectively the "Company"), have been prepared in accordance with the
instructions to Form 10-Q and include all information and footnotes required for
interim financial statement presentation. All adjustments (consisting only of
various normal accruals) necessary to present fairly the Company's consolidated
financial position, results of operations and cash flows have been made. All
significant intercompany transactions and balances have been eliminated and
certain reclassifications have been made to prior periods' consolidated
financial statements to conform to the current period presentation. The results
of operations for the six months ended June 30, 1998 are not necessarily
indicative of the results of operations to be expected for the year ending
December 31, 1998.
The financial information provided herein, including the information
under the heading Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A"), is written with the presumption
that the users of these interim consolidated financial statements have read, or
have access to, the Company's most recent filing on Form 10-K which contains the
latest available audited consolidated financial statements and notes thereto, as
of and for the period ended December 31, 1997, together with the MD&A for such
period.
HEDGING ACTIVITIES
The Company regularly securitizes and/or sells fixed and variable rate
mortgage loans. As part of its interest rate risk management strategy, the
Company hedges its interest rate risk related to its fixed rate loans held for
sale and origination commitments by selling short or selling forward United
States Treasury Securities. For accounting purposes, short sales of United
States Treasury Securities are not considered to be a hedge. Therefore, when
selling short United States Treasury Securities, the Company recognizes realized
and unrealized gains and losses on hedging activities in the period in which
they occur. The Company classifies forward sales of United States Treasury
Securities as hedges of specific loans held for sale and commitments to fund
loans to be held for sale. The gains and losses derived from these transactions
are deferred and included in the carrying amounts of loans held for sale and are
recognized in earnings upon sale of loans hedged. Losses recognized on hedging
activities were $106,000 and $16,000 for the quarter and six months ended June
30, 1998, respectively, as compared to losses of $165,000 and $91,000 for the
corresponding periods in 1997. The notional amount of forward sales of United
States Treasury Securities was $8.1 million at June 30, 1998 with deferred
losses of $1,300.
STOCK REPURCHASE PROGRAM
In April 1997 the Board of Directors approved a share repurchase program
under which the Company was authorized to purchase up to 1.5 million shares of
its Class A Common Stock. In January 1998 the Board of Directors authorized the
purchase of an additional 2.0 million shares of Class A Common Stock. The
Company completed the purchase of its 3.5 million share repurchase program in
the third quarter of 1998. Subsequently, in July of 1998, the Company's Board of
Directors authorized an increase in the Company's share repurchase program
consisting of an additional 4.0 million shares.
6
<PAGE>
FIRST ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET INCOME PER SHARE
A reconciliation of the numerators and denominators used in basic and
diluted net income per share are as follows for the periods indicated:
<TABLE>
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income: Basic and diluted (dollars in thousands)...... $ 7,866 $ 781 $ 15,550 $ 8,043
============ ============ ============ ============
Weighted average number of common shares:
Basic................................................... 21,949,489 20,104,670 22,063,504 20,440,311
Effect of dilutive securities - stock options........... 128,543 56,111 155,639 103,969
------------ ------------ ------------ ------------
Diluted................................................. 22,078,032 20,160,781 22,219,143 20,544,280
============ ============ ============ ============
Net income per share:
Basic................................................... $ .36 $ .04 $ .70 $ .39
Effect of dilutive securities - stock options........... 0 0 0 0
------------ ------------ ------------ ------------
Diluted................................................. $ .36 $ .04 $ .70 $ .39
============ ============ ============ ============
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
Beginning with the first quarter of 1998, the Company adopted Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income". This statement requires that
all items that are required to be recognized under accounting standards as
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
In June of 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" which is effective for annual periods
beginning after December 15, 1997. This statement established standards for the
method that public entities use to 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. It also establishes standards for related disclosures
about products and services, geographical areas, and major customers.
In February 1998, FASB issued SFAS No. 132 "Employers' Disclosure about
Pensions and Other Postretirement Benefits," which is effective for annual and
interim periods beginning after December 15, 1997. This statement standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis and eliminates certain disclosures that are no longer useful
as they were under previous statements. The adoption of this standard had no
impact on the Company's current presentation of financial statements.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective for annual and interim periods
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
adoption of this standard is not expected to have a material effect on the
Company's financial condition, results of operations and cash flows.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
OVERVIEW
The Company is a financial services organization principally engaged in
mortgage loan origination, purchases, sales and servicing. Loans originated by
the Company primarily consist of fixed and adjustable rate loans secured by
first mortgages on single family residences. The Company originates loans
through its retail branch network which is currently comprised of 32 offices in
the United States (eight of which are located in California, three of which are
located in New Jersey and New York, two of which are located in each of Florida,
Illinois, Maryland, and Ohio and one of which is located in each of Arizona,
Colorado, Georgia, Massachusetts, Minnesota, Oregon, Pennsylvania, Utah,
Virginia and Washington) and three offices in the United Kingdom. In addition,
the Company purchases loans from qualified mortgage originators. The Company
sells loans to wholesale purchasers or securitizes them in trusts. A significant
portion of the Company's loan production is securitized with the Company
retaining the right to service the loans.
The Company's strategy of originating, as compared to purchasing, the
majority of its loan volume results in the generation of a significant amount of
loan origination fees. This income has historically allowed the Company to
generate positive operating cash flow. There can be no assurance, however, that
the Company's operating cash flow will continue to be positive in the future.
As a fundamental part of its business and financing strategy, the Company
securitizes the majority of its loans in trusts, whereby the loans are exchanged
for regular and residual interests in the trusts. A portion of the Company's
income is associated with securitization activity.
Gains on servicing retained sales of loans through securitization
represent the difference between the net proceeds to the Company in the
securitization and the allocated cost of loans securitized. In accordance with
SFAS No. 125, the allocated cost of the loans securitized is determined by
allocating their acquisition cost (for purchased loans) or net carrying value
(for originated loans) between the loans securitized and the residual interests
and the mortgage servicing rights retained by the Company based upon their
relative fair values. At origination, the Company classifies the residual
interests as trading securities, which are carried at fair value. The difference
between the fair value of residual interests and their allocated cost is
recorded as gain on securitization and is included in loan origination and sale
revenue.
In a securitization, the Company exchanges loans for regular interests
and residual interests in trusts. The regular interests are immediately sold by
the Company to the public for cash. As the holder of the residual interest, the
Company is entitled to receive certain excess cash flows. These excess cash
flows are the difference between (a) principal and interest paid by borrowers
and (b) the sum of (i) scheduled principal and interest paid to holders of the
regular interests, (ii) trustee fees, (iii) third-party credit enhancement fees,
(iv) servicing fees and (v) loan losses. The Company begins receiving these
excess cash flows after certain overcollateralization requirements, which are
specific to each securitization and are used as a means of credit enhancement,
have been met.
RECENT DEVELOPMENTS
During 1997, the Company entered into an agreement with Fidelity Federal
Bank F.S.B. ("Fidelity"), under which Fidelity issues real estate secured credit
cards ("Credit Cards") that bear the Company's name and that the Company markets
and services. The Company believes the terms of the Credit Cards, including the
tax deductibility of interest paid on outstanding balances for most customers,
to be attractive to potential borrowers.
The Company markets the Credit Cards using procedures similar to those
used by the Company in originating its mortgage loan products. Many of the
individuals solicited for mortgage loan products are also solicited for the
Credit Cards, thereby resulting in relatively lower marketing expenditures for
the Credit Cards than would otherwise be expected. As of June 30, 1998, the
Company's servicing portfolio of Credit Cards totaled $10.8 million.
8
<PAGE>
In the first quarter of 1998, the Company began securitizing its loans in
the form of owner's trusts. By utilizing this securitization structure the
Company's securitization of loans will be treated as a borrowing for state and
federal tax purposes rather than as a sale. To the extent that the gain on sale
recorded on a securitization is greater than the net interest income realized in
the current period from the loans included in the related securitization, state
and federal taxes will be deferred. Over $6.9 million of state and federal taxes
were deferred at June 30, 1998.
In April 1998, the Company discontinued its high loan-to-value ("LTV")
loan program because adverse changes in the secondary market for these loans
significantly reduced the profitability of this program. Since the inception of
the program in July 1997, less than $4.0 million of high LTV loans were
originated by the Company.
In June 1998, the Company discontinued its low LTV program. The Company's
decision to discontinue this program is attributable to lower than expected
results in marketing and converting the low LTV homeowners for additional
borrowing needs. The Company has purchased $7.5 million and $24.5 million in low
LTV loans for the quarter and six months ended June 30, 1998, respectively.
<TABLE>
LOAN ORIGINATIONS AND PURCHASES
<CAPTION>
AT OR FOR THE QUARTERS AT OR FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Loan originations and purchases:
<S> <C> <C> <C> <C>
Retail originations.......................................... $ 92,146 $ 99,968 $ 181,681 $ 220,768
Wholesale purchases.......................................... 22,659 19,215 38,441 47,878
------------ ------------ ------------ ------------
Total..................................................... $ 114,805 $ 119,183 $ 220,122 $ 268,646
============ ============ ============ ============
Number of retail branches as of the end of the period:
United States:
California................................................ 7 8
Other states.............................................. 19 24
United Kingdom............................................... 3 3
------------ ------------
Total..................................................... 29 35
============ ============
Weighted average initial interest rate.......................... 9.5% 9.5% 9.4% 9.5%
Weighted average initial combined loan-to-value ratio........... 63.3% 63.8% 63.5% 63.8%
Average loan size............................................... $ 87.0 $ 88.4 $ 87.2 $ 88.1
</TABLE>
Originations and purchases increased 4% and 22% for the quarter and six
months ended June 30, 1998, respectively, as compared with the corresponding
periods in the prior year. Retail originations increased 8% and 22% for the
quarter and six months ended June 30, 1998, respectively, as compared with the
corresponding periods in the prior year primarily as a result of the Company's
ongoing retail branch expansion. Wholesale purchases increased 25% for the six
months ended June 30, 1998 as compared to the prior year primarily due to a
$22.0 million increase in low LTV purchases for the six months ended June 30,
1998 as compared to the prior year.
<TABLE>
LOAN SALES
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securitizations.........................$ 75,002 $ 100,001 $ 148,003 $ 210,002
Whole loan sales........................ 35,417 23,617 66,519 64,903
------------ ------------ ------------ ------------
Total..............................$ 110,419 $ 123,618 $ 214,522 $ 274,905
============ ============ ============ ============
</TABLE>
Loan sales, including securitization of loans, increased 12% and 28% for
the quarter and six months ended June 30, 1998, respectively, as compared to the
corresponding prior year period. The increases in loan sales were the result of
the increased loan origination and purchases volume.
9
<PAGE>
COMPOSITION OF REVENUE AND EXPENSE
The following table summarizes certain components of the Company's
consolidated statements of income set forth as a percentage of total revenue for
the periods indicated:
<TABLE>
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Loan origination and sale:
Gain on sale of loans........................... 23.4% (.6)% 23.4% 12.2%
Net loan origination and other fees............. 47.1 57.3 47.8 51.6
Loan servicing and other fees...................... 8.2 5.0 8.6 6.0
Interest and other ................................ 21.3 38.3 20.2 30.2
------------ ------------ ------------ ------------
Total revenue................................... 100.0 100.0 100.0 100.0
------------ ------------ ------------ ------------
EXPENSE:
Compensation and benefits.......................... 19.9 37.1 19.9 28.6
Advertising........................................ 6.4 14.2 5.9 10.0
Professional services and other fees .............. 3.6 5.9 3.2 5.0
Facilities and insurance........................... 3.3 7.4 3.2 5.2
Supplies........................................... 2.9 5.3 2.5 3.8
Depreciation and amortization...................... .9 3.1 .8 2.2
Interest........................................... 1.7 11.4 1.6 8.8
Legal 2.4 3.3 1.7 2.1
Travel and training................................ 1.8 2.7 1.8 1.9
Other .4 1.7 1.1 1.0
------------ ------------ ------------ ------------
Total expense................................... 43.3 92.1 41.7 68.6
------------ ------------ ------------ ------------
Income before income tax provision.................... 56.7 7.9 58.3 31.4
Income tax provision.................................. 22.9 3.0 23.5 11.9
------------ ------------ ------------ ------------
Net income............................................ 33.8% 4.9% 34.8% 19.5%
============ ============ ============ ============
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
REVENUE
<TABLE>
The following table sets forth the components of the Company's revenue for the periods indicated:
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loan origination and sale:
Gain on sale of loans (1)............................ $ 5,442 $ (102) $ 10,436 $ 5,041
Net loan origination and other fees.................. 10,940 9,071 21,350 21,230
Loan servicing and other fees........................... 1,911 786 3,855 2,488
Interest and other...................................... 4,951 6,055 9,040 12,421
------------ ------------ ------------ ------------
Total revenue...................................... $ 23,244 $ 15,810 $ 44,681 $ 41,180
============ ============ ============ ============
</TABLE>
(1) Excludes net loan origination and other fees.
Total revenues decreased 32% or $7.4 million and 8% or $3.5 million for
the quarter and six months ended June 30, 1998, respectively, as compared to the
corresponding periods in 1997.
Loan origination and sale revenue decreased $7.4 million and $5.5 million
for the quarter and six months ended June 30, 1998, respectively, from $16.4
million and $31.8 million during the corresponding periods in 1997.
Gain on sale of loans decreased $5.5 million and $5.4 million for the
quarter and six months ended June 30,1998, respectively, as compared to the
corresponding prior year period. The decrease in gain on sale is primarily
related to a $4.5 million write down of residual interest retained in
securitizations and a reduction in current period gain on sale as a percentage
of loans sold. Such was a result of an increase in the Company's prepayment
rates primarily related to its adjustable rate loans. Excluding the write down,
gain on sale of loans as a percent of loans sold decreased to 3.6% and 3.5% for
the quarter and six months ended June 30, 1998, respectively, as compared to
4.9% for the corresponding periods in the prior year. The decrease in gain on
sale as a percentage of loans sold is primarily due to increased prepayment
rates experienced by the Company. The Company increased the weighted average
constant prepayment rate "CPR" assumption for adjustable rate loans from 35% in
1997 to 48% and 43% for the quarter and six months ended June 30, 1998,
respectively.
Net loan origination and other fees decreased 17% or $1.9 million for the
quarter ended June 30, 1998 as compared to the same period in 1997 and remained
at approximately $21 million for the six months ended June 30, 1998 and 1997.
The decrease during the 1998 quarter was primarily related to the composition of
loans securitized and sold which comprised of 8% less loans originated and more
wholesale loans as compared to the prior year quarter. The consistency in net
loan origination and other fees for the six months ended June 30, 1998 as
compared to the corresponding prior year period is the combined result of a 7%
increase in sale of originated loans partially offset by a decrease in average
fees.
Loan servicing and other fees decreased 59% or $1.1 million and 36% or
$1.4 during the quarter and six months ended June 30, 1998, respectively, when
compared to the corresponding periods in 1997. Such decrease was primarily due
to an increase in amortization of mortgage servicing rights. Amortization of
mortgage servicing rights increased $1.2 million and $1.4 million for the
quarter and six months ended June 30, 1998, respectively, as compared to the
corresponding periods in 1997. The increase was primarily the result of a $0.8
million increase in accelerated amortization caused by increases in prepayments
of adjustable rate loans, coupled with an increase in the average balance of
mortgage servicing rights outstanding as compared to the prior year. Excluding
amortization of mortgage servicing rights, loan servicing and other fees
remained consistent with the prior year despite an increase in the average
servicing portfolio. This can primarily be attributable to the composition of
the Company's servicing portfolio when compared to the prior year. The Company
earns higher management servicing fees on loans serviced for private investors
and for securitizations consummated prior to 1996. As the proportion of loans
serviced for this group of loans has decreased in relation to the total
portfolio balance, so has the related servicing income.
11
<PAGE>
Interest and other income increased $1.1 million or 22% and $3.4 million
or 37% for the quarter and six months ended June 30, 1998, respectively, as
compared to the corresponding prior year periods.
Interest income derived from loans held for sale increased 114% or $1.4
million and 126% or $2.9 million for the quarter and six months ended June 30,
1998, respectively, as compared with the corresponding prior year periods. Such
increase in interest was a direct result of an increase in the average balance
of loans held for sale when compared to the prior year periods.
Other income increased $0.8 million and $1.1 million for the quarter and
six months ended June 30, 1998, respectively, as compared to the corresponding
periods in 1997. The increase in other income is related to the commencement of
the Company's credit card operations with activity beginning in the fourth
quarter of 1997. Income derived from credit card activity totaled $0.9 million
and $1.0 million for the quarter and six months ended June 30, 1998,
respectively.
Interest income from residual interest decreased by 33% or $1.0 million
and 9% of $0.5 million during the quarter and six months ended June 30, 1998,
respectively, as compared to the corresponding periods in 1997. Such decrease is
primarily attributable to greater than expected prepayment rates.
EXPENSE
<TABLE>
The following table sets forth the components of the Company's expense for the periods indicated:
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Compensation and benefits................................. $ 4,630 $ 5,873 $ 8,906 $ 11,763
Advertising............................................... 1,499 2,245 2,657 4,101
Professional services and other fees...................... 838 931 1,448 2,043
Facilities and insurance.................................. 765 1,165 1,422 2,142
Supplies.................................................. 665 841 1,095 1,546
Depreciation and amortization............................. 207 486 376 898
Interest.................................................. 400 1,810 712 3,632
Legal..................................................... 551 515 779 875
Travel and training....................................... 418 428 799 795
Other..................................................... 103 260 459 462
------------ ------------ ------------ ------------
Total expense.......................................... $ 10,076 $ 14,554 $ 18,653 $ 28,257
============ ============ ============ ============
</TABLE>
Total expense increased 44% or $4.5 million and 52% or $9.6 million for
the quarter and six months ended June 30, 1998, respectively, as compared with
the corresponding periods in 1997.
The increase in compensation and benefits of 27% to $5.9 million and 32%
to $11.8 million for the quarter and six months ended June 30, 1998,
respectively, as compared to the corresponding periods in 1997 is the result of
an increase in personnel to support the Company's retail branch expansion and
the Company's credit card operations.
Advertising expense increased 50% to $2.2 million and 54% to $4.1 million
for the quarter and six months ended June 30, 1998, respectively, as compared to
the corresponding periods in 1997. This increase is primarily related to an
increase in marketing activity, including purchases of marketing databases
associated with the Company's retail branch expansion and credit card
operations.
Professional services and other fees increased 41% or $0.6 million for the six
months ended June 30, 1998 as compared to 1997, primarily due to costs incurred
under the Company's credit card program.
12
<PAGE>
Combined, facilities and insurance, supplies and depreciation and
amortization increased 52% or $0.9 million and 59% or $1.7 million for the
quarter and six months ended June 30 1998, respectively, as compared to
corresponding prior year periods. Such increase is primarily attributable to the
increase in the number of retail branches and the Company's new centralized
telemarketing facility. The Company increased its number of retail branches from
29 at June 30, 1997 to 35 at June 30, 1998.
Interest expense increased 353% to $1.8 million and 410% to $3.6 million
for the quarter and six months ended June 30, 1998, respectively, as compared to
the corresponding periods in 1997 primarily due to an increase in interest
expense on the warehouse financing facilities. As a result of funding of the
increased balances of loans held for sale, including loans originated in the
United Kingdom, and as a result of cash utilized by the Company in its share
repurchase program, the average balance outstanding on the warehouse line
increased 290% and 354% for the quarter and six months ended June 30, 1998,
respectively, as compared to the corresponding periods in 1997. Additionally,
the weighted average interest rate on the warehouse financing facility increased
in 1998 when compared to 1997.
INCOME TAXES
The Company's estimated tax rate for the quarters ended June 30, 1998 and
1997 was 37.75% and 40.25%, respectively. The lower rate in 1998 is a result of
decreases in the amount of income apportioned to the state of California.
During 1998, the Company's securitization was in the form of owner's
trusts. Prior to 1998, all of the Company's securitizations had been in the form
of real estate mortgage investment conduit trusts. Under this securitization
structure the securitization of loans will be treated as a borrowing for state
and federal tax purposes rather than as a sale. To the extent that the gain on
sale recorded on a securitization is greater than the net interest income
realized in the current period from the loans included in the related
securitization, state and federal taxes will be deferred. These deferred taxes
will be payable in future periods as net interest income is realized for tax
purposes. The company anticipates that under this securitization structure its
securitizations will significantly increase operating cash flow in 1998.
SERVICING
<TABLE>
The following tables provide data on loan delinquency, real estate owned (REO) and net losses for the Company's
servicing portfolio:
<CAPTION>
AS OF
---------------------------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1997 JUNE 30, 1998
------------------------- ------------------------- -------------------------
% of % of % of
(Dollars in Servicing (Dollars in Servicing (Dollars in Servicing
thousands) Portfolio Thousands) Portfolio thousands) Portfolio
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio............................ $ 692,243 $ 799,085 $ 852,030
=========== =========== ===========
30-59 days delinquent.......................... $ 7,100 1.0% $ 7,994 1.0% $ 9,234 1.1%
60-89 days delinquent.......................... 5,350 0.8 7,654 0.9 6,675 0.8
90 days or more delinquent..................... 16,075 2.3 17,378 2.2 22,488 2.6
----------- ----------- ----------- ----------- ----------- -----------
Total delinquencies......................... 28,525 4.1% $ 33,026 4.1% $ 38,397 4.5%
============ =========== =========== =========== =========== ===========
REO (1)........................................ $ 4,989 0.7% $ 1,688 0.2% $ 1,565 0.2%
============ =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average servicing portfolio balance outstanding (2)................. $ 679,200 $ 846,284 $ 666,437 $ 833,048
Net losses (3)...................................................... $ 520 $ 170 $ 1,000 $ 400
Percentage of average servicing portfolio - annualized.............. .31% .08% .30% .10%
</TABLE>
(1) Includes REO of the Company as well as REO of the securitization trusts
serviced by the Company; however, excludes private investor REO not
serviced by the Company.
(2) Average servicing portfolio balance equals the quarterly average of the
servicing portfolio computed as the average of the balances at the
beginning and end of each quarter.
(3) Net losses means actual net losses realized with respect to the
disposition of REO, which does not include carry cost.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has generated positive cash flow. The Company's
sources of cash include loan sales, sales of regular interests, borrowings under
its warehouse financing facilities, distributions received from residual
interests, interest income and loan servicing income. The Company's uses of cash
include the funding of loan originations and purchases, payments of interest,
repayment of its warehouse financing facilities, capital expenditures, operating
and administrative expenses and payment of income taxes.
The Company generated operating cash flow of $5.9 million and $15.1
million in the quarter and six months ended June 30, 1998, respectively, and
$2.5 million and $8.9 million for the corresponding 1997 period. The following
table shows the computation of operating cash flow and provides a reconciliation
of operating cash flow to net cash provided by operating activities as it is
included in the consolidated statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
FOR THE QUARTERS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income..............................................................$ 7,866 $ 781 $ 15,550 $ 8,043
Non-cash adjustments to reconcile net income to operating
cash flow:
Capitalized residual interests and mortgage
servicing rights..................................................... (5,413) (6,389) (10,388) (13,703)
Net accretion of residual interests in securities.................... (365) 7,674 (216) 10,598
Amortization of mortgage servicing rights............................ 692 1,864 1,298 2,717
Deferred income taxes................................................ (353) 1,480 2,190 6,529
Depreciation and amortization........................................ 207 486 376 898
Other................................................................ (91) (31) 124 (10)
------------ ------------ ------------ ------------
Operating cash flow.....................................................$ 2,543 $ 5,865 $ 8,934 $ 15,072
============ ============ ============ ============
Reconciliation to consolidated statements of cash flows:
Operating cash flow..................................................$ 2,543 $ 5,865 $ 8,934 $ 15,072
Increase in loans held for sale...................................... (6,367) (7,536) (7,357) (12,935)
Changes in other assets and liabilities.............................. 3,364 (2,276) 1,974 653
------------ ------------ ------------ ------------
Net cash provided by operating activities...............................$ (460) $ (3,947) $ 3,551 $ 2,790
============ ============ ============ ============
</TABLE>
The loan origination and processing fees charged to the borrower are
included in the principal balance of the loan originated. The Company funds such
loans out of available cash or through its warehouse financing facilities. For
loans financed through available cash, the Company receives its loan origination
and processing fees in cash upon sale of the loan. For loans financed through
the warehouse financing facilities, the Company generally receives substantially
all of the loan origination and processing fees in cash at the time of the
warehouse financing facility borrowing. The Company's warehouse financing
facilities provide, in the aggregate, up to $300 million in the United States
and up to (pound)50 million in the United Kingdom in repurchase agreements or
secured revolving lines of credit which are used to finance loan originations
and purchases.
The Company's ability to continue to originate and purchase loans is
dependent upon adequate credit facilities and upon its ability to sell the loans
in the secondary market in order to generate cash proceeds for new originations
and purchases. The value of and market for the Company's loans are dependent
upon a number of factors, including general economic conditions, interest rates
and governmental regulations. Adverse changes in such factors may affect the
Company's ability to sell loans for acceptable prices within a reasonable period
of time. A prolonged, substantial reduction in the size of the secondary market
for loans of the type originated or purchased by the Company may adversely
affect the Company's ability to sell loans in the secondary market with a
consequent adverse impact on the Company's results of operations, financial
condition and ability to fund future originations and purchases.
14
<PAGE>
The Company's warehouse financing facilities consist of three separate
agreements: a $175 million facility, a $125 million facility and a (pound)50
million facility. The Company's $175 million master repurchase agreement, which
is secured by loans originated or purchased by the Company and currently bears
interest at a rate ranging from 0.25% to 0.50% over 30 day US dollar denominated
London Interbank Offered Rate ("LIBOR"), expires in October 1998. The Company's
$125 million warehouse financing facility, which is secured by loans originated
or purchased by the Company and currently bears interest at a rate of 0.80% over
the 30 day US dollar denominated LIBOR, expires in December 1998. The Company's
(pound)50 million credit facility, which is secured by loans originated or
purchased by the Company in the United Kingdom and currently bears interest at a
rate of 0.925% over 30 day sterling denominated LIBOR, expires in August 1998.
Management expects, although there can be no assurance, that the Company will be
able to maintain these warehouse financing facilities (or obtain comparable
replacement or additional financing) in the future.
In February 1997, the Company entered into master repurchase agreements
to provide warehouse financing facilities to two mortgage banking companies
("Borrowers") that are controlled by related parties. These facilities are
secured by loans originated by the Borrowers and by personal guarantees provided
by stockholders of the Borrowers, bear interest at 10% per annum, have a
combined borrowing limit of $20 million and expire in October 1998. As of June
30, 1998, an aggregate of $6.5 million was outstanding on these lines.
As a part of the Company's credit card program, the Company is required
to maintain a cash balance restricted for the purpose of reserving for credit
losses. The Company had a cash balance of $0.6 million related to this at June
30, 1998.
The Company has performed a preliminary review of its computer systems
and hardware to identify processes which may be affected by Year 2000 problems.
During 1998 and 1999, the Company plans to complete this review, make changes
where needed and test its computer systems and hardware to ensure the Company's
systems are Year 2000 compliant. During 1998 and 1999, the Company will also
complete a Year 2000 review of its relationships with suppliers and financial
institutions and obtain assurance, where necessary, that these entities are Year
2000 compliant. Because the majority of the Company's computer systems and
hardware have been purchased or developed recently and were designed to be Year
2000 compliant, the Company does not expect to incur significant costs in
addressing the Year 2000 issue.
As of June 30, 1998 the Company had commitments to fund loans of $4.5
million. Historically, approximately 55% of such commitments have ultimately
been funded.
Capital expenditures totaled $0.8 million and $3.0 million for the quarter and
six months ended June 30, 1998, respectively, as compared to $1.3 million and
$2.2 million for the corresponding periods in 1997. In the first quarter of
1998, the Company's new telemarketing center was opened in a 40,000 square foot
office building in Irvine, California which the Company purchased in July 1997.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1998, Leon Rasachack and Philip A. Ettedgui filed a class action
suit on behalf of all purchasers of the Company's Class A common stock between
April 24, 1997 through May 15, 1998. The suit was filed in the Superior Court of
California in the County of Orange against the Company, Brian Chisick, Sarah
Chisick and Mark Mason. The complaint alleges that the Company conspired against
the purchasers of the stock during the class period by failing to disclose known
material adverse conditions in making certain public statements about the
Company's growth prospects for the future. The plaintiffs in this class action
suit are seeking an unspecified amount for damages.
The Company is also a party to various legal proceedings arising out of
the ordinary course of its business including 19 lawsuits alleging misleading
lending practices, some of which have been filed either as a class action or
under private attorney general statutes. In one of these cases there is a motion
pending filed by the American Association of Retired Persons to join as a party
plaintiff and to amend the complaint seeking damages including revocation of
business licenses and disgorgement of profits.
ITEM 2. CHANGES IN SECURITIES
In July, the Company announced that Brian Chisick, Chairman and Chief
Executive Officer, will be converting all of his Class B Common Stock to which
four votes per share applies in matters requiring a stockholder vote, into Class
A Common Stock, which carries one vote per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Effective August 4, 1998 George Gibbs, Jr. resigned as a member of the
Board of Directors of the Company.
Effective June 30, 1998 Edwin Summers resigned as Vice President, General
Counsel and Corporate Secretary of the Company.
Effective June 30, 1998 the Company appointed Richard Taylor as General
Counsel and Corporate Secretary of the Company.
Effective July 20, 1998 the Company appointed Francisco Nebot as Executive
Vice President and Chief Financial Officer.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--- ----------------------
3.1 Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1,
Commission File No. 333-3633)
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, Commission File No.
333-3633)
4.1 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1, Commission File No.
333-3633)
4.1.1 Form of Incentive Stock Option Agreement for use with 1996 Stock
Incentive Plan (Incorporated by reference to Exhibit 4.1.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 0-28706)
4.1.2 Form of Non-qualified Stock Option Agreement for use with 1996 Stock
Incentive Plan (Incorporated by reference to Exhibit 4.1.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 0-28706)
10.1 Warehouse Financing Facility dated October 29, 1993 (Incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement on Form
S-1, Commission File No. 333-3633)
10.2 Form of Pooling and Servicing Agreement (Incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form S-1,
Commission File No. 333-3633)
10.3 Corporate Headquarters Lease (Incorporated by reference to Exhibit 10.3
to the Company's Registration Statement on Form S-1, Commission File No.
333-3633)
10.4 S Distribution Notes (Incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-1, Commission File No.
333-3633)
10.5 Mason Employment Agreement (Incorporated by reference to Exhibit 10.5 to
the Company's Registration Statement on Form S1, Commission File No.
333-3633)
10.5.1 Mason Loan (Incorporated by reference to Exhibit 10.5.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
Commission File No. 0-28706)
10.6 Form of Directors' and Officers' Indemnity Agreement (Incorporated by
reference to Exhibit 10.7 to the Company's Registration Statement on Form
S-1, Commission File No. 333-3633)
10.7 Master Repurchase Agreement dated as of October 31, 1997 between
Nationscapital Mortgage Corporation and the Company (Incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, Commission File No. 0-28706)
10.8 Master Repurchase Agreement dated as of October 31, 1997 between Coast
Security Mortgage Inc. and the Company (Incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, Commission File No. 0-28706)
10.9 Chisick Employment Agreement (Incorporated by reference to Exhibit 10.10
to the Company's Registration Statement on Form S-1, Commission File No.
333-3633)
10.10 Reimbursement Agreement (Incorporated by reference to Exhibit 10.11 to
the Company's Registration Statement on Form S-1, Commission File No.
333-3633)
10.11 Warehouse Financing Facility dated September 5, 1996 (Incorporated by
reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1996, Commission File No. 0-28706)
10.12 Interim Warehouse and Security Agreement dated as of February 15, 1997
between Nationscapital Mortgage Corporation and the Company (Incorporated
by reference to Exhibit 10.12 to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1997, Commission File No. 0-28706)
10.13 Interim Warehouse and Security Agreement dated as of February 15, 1997
between Coast Security Mortgage Inc. and the Company (Incorporated by
reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1997, Commission File No. 0-28706)
10.14 Smith Loan (Incorporated by reference to Exhibit 10.14 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997,
Commission File No. 0-28706)
10.15 Building Purchase and Sale Agreement between Amresco Residential Mortgage
Corporation and the Company (Incorporated by reference to Exhibit 10.15
to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997, Commission File No. 0-28706)
17
<PAGE>
10.16 Warehouse Credit Facility Agreement dated August 18, 1997 between
Prudential Securities Credit Corporation and the Company (Incorporated by
reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1997, Commission File No. 0-28706)
10.17 Master Repurchase Agreement dated as of October 27, 1997 between First
Union National Bank and the Company (Incorporated by reference to Exhibit
10.17 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 0-28706)
10.18 Amendment to Warehouse Credit Facility Agreement dated August 18, 1997
between Prudential Securities Credit Corporation and the Company.
27 Financial Data Schedule *
- ----------------
* Filed herewith.
(b) Reports on Form 8-K:
None
18
<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.
FIRST ALLIANCE CORPORATION
REGISTRANT
Date: 8/13/98 /s/ BRIAN CHISICK
-------------------------- ---------------------------
Brian Chisick
President and Chief Executive Officer
Date: 8/13/98 /s/ FRANCISCO NEBOT
-------------------------- -----------------------------
Francisco Nebot
Executive Vice President
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,073
<SECURITIES> 0
<RECEIVABLES> 11,527
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 87,487
<PP&E> 10,685
<DEPRECIATION> 0
<TOTAL-ASSETS> 160,393
<CURRENT-LIABILITIES> 72,641
<BONDS> 0
0
0
<COMMON> 223
<OTHER-SE> 80,606
<TOTAL-LIABILITY-AND-EQUITY> 160,393
<SALES> 26,271
<TOTAL-REVENUES> 41,180
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,632
<INCOME-PRETAX> 12,923
<INCOME-TAX> 4,880
<INCOME-CONTINUING> 8,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,043
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
