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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------- -------------
COMMISSION FILE NUMBER 1-12889
LONG BEACH FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0739843
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1100 TOWN & COUNTRY ROAD, SUITE 1650, ORANGE, CALIFORNIA 92868
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(714) 835-5743
- --------------------------------------------------------------------------------
(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 August 11, 1997, registrant had outstanding 25,000,000 shares of Common
Stock.
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LONG BEACH FINANCIAL CORPORATION
TABLE OF CONTENTS
TO FORM 10-Q
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Combined Statements of Financial Condition as of June 30, 1997 (Unaudited), 3
December 31, 1996 and June 30, 1996 (Unaudited)..............................
Combined Statements of Operations for the Three Months and Six Months Ended 4
June 30, 1997 and 1996 (Unaudited)...........................................
Combined Statements of Stockholders' Equity and Divisional Equity for the 5
Three Months and Six Months Ended June 30, 1997 (Unaudited)..................
Combined Statements of Cash Flows for the Three Months and Six Months Ended 6
June 30, 1997 and 1996 (Unaudited)...........................................
Notes to the Combined Financial Statements (Unaudited)....................... 7
Item 2. Management's Discussion and Analysis of Financial Condition, Results of 14
Operations, Liquidity and Capital Resources..................................
Item 3. Quantitative and Qualitative Disclosures About Market Risk................... 24
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 24
Item 2. Changes in Securities........................................................ 24
Item 3. Defaults upon Senior Securities.............................................. 24
Item 4. Submission of Matters to a Vote of Securities Holders........................ 24
Item 5. Other Information............................................................ 24
Item 6. Exhibits and Reports on Form 8-K............................................. 25
(a) Exhibits................................................................. 25
(b) Reports on Form 8-K...................................................... 25
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LONG BEACH FINANCIAL CORPORATION
COMBINED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
WHOLESALE WHOLESALE
DIVISION DIVISION
OF AMC OF AMC
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents........................... $ 7,723,000 $ -- $ --
Investments held for sale........................... 40,720,000 -- --
Loans held for sale................................. 34,885,000 49,580,000 36,666,000
Receivable from the sales of loans.................. 26,593,000 25,103,000 --
Premises and equipment.............................. 2,211,000 2,033,000 2,134,000
Deferred income taxes (Note 4)...................... 35,600,000 2,120,000 882,000
Prepaid expenses and other assets................... 1,603,000 914,000 404,000
------------ ----------- -----------
Total assets.............................. $149,335,000 $79,750,000 $40,086,000
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' AND DIVISIONAL EQUITY
Liabilities:
Warehouse financing facility...................... $ 65,477,000 $72,829,000 $35,755,000
Accounts payable and accrued liabilities.......... 3,237,000 5,784,000 3,918,000
Accrued taxes payable............................. 1,796,000 -- --
------------ ----------- -----------
Total liabilities......................... 70,510,000 78,613,000 39,673,000
Stockholders' and divisional equity:
Common stock, $.001 par value; 150,000,000 shares
authorized; 25,000,000 shares issued and
outstanding.................................... 25,000 -- --
Additional paid in capital........................ 75,307,000 -- --
Divisional equity................................. -- 1,137,000 413,000
Retained earnings................................. 3,493,000 -- --
------------ ----------- -----------
Total stockholders' and divisional equity........... 78,825,000 1,137,000 413,000
------------ ----------- -----------
Total liabilities and stockholders' and
divisional equity....................... $149,335,000 $79,750,000 $40,086,000
============ =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
3
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LONG BEACH FINANCIAL CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans.................. $19,941,000 $11,482,000 $37,179,000 $21,583,000
Interest income........................ 1,467,000 660,000 3,502,000 1,456,000
Interest expense....................... 1,322,000 550,000 2,885,000 1,234,000
----------- ----------- ----------- -----------
Net interest income.................... 145,000 110,000 617,000 222,000
----------- ----------- ----------- -----------
Net operating income................... 20,086,000 11,592,000 37,796,000 21,805,000
EXPENSES:
Compensation expense................... 6,803,000 4,358,000 12,984,000 8,006,000
Premises and equipment expenses........ 846,000 622,000 1,605,000 1,247,000
Other general and administrative
expenses............................ 1,350,000 1,244,000 2,365,000 1,703,000
Corporate administrative charges....... 610,000 2,072,000 2,294,000 4,099,000
Provision for losses................... 2,490,000 -- 2,928,000 --
----------- ----------- ----------- -----------
Total expenses................. 12,099,000 8,296,000 22,176,000 15,055,000
----------- ----------- ----------- -----------
Earnings before income taxes........... 7,987,000 3,296,000 15,620,000 6,750,000
Provision for income taxes............. 3,115,000 1,358,000 6,180,000 2,781,000
----------- ----------- ----------- -----------
Net earnings (Note 2).................. $ 4,872,000 $ 1,938,000 $ 9,440,000 $ 3,969,000
=========== =========== =========== ===========
Not Not
Combined earnings per share (Note 7)..... $ 0.19 Applicable $ 0.37 Applicable
=========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
4
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LONG BEACH FINANCIAL CORPORATION
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND DIVISIONAL EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL DIVISIONAL
COMMON PAID IN (DEFICIT) RETAINED
STOCK CAPITAL EQUITY EARNINGS TOTAL
------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1997:
Balance, April 1, 1997........................ $ -- $ -- $(1,296,000) $ -- $(1,296,000)
Net earnings (Note 2)......................... -- -- 1,379,000 3,493,000 4,872,000
Net change in divisional equity arising from
intracompany transactions................... -- -- 3,149,000 -- 3,149,000
Reorganization of Long Beach Financial
Corporation (Notes 1 and 3)................. 25,000 75,307,000 (3,232,000) -- 72,100,000
-------- ----------- ----------- ---------- -----------
Balance, June 30, 1997........................ $25,000 $75,307,000 $ -- $3,493,000 $78,825,000
======== =========== =========== ========== ===========
SIX MONTHS ENDED JUNE 30, 1997:
Balance, January 1, 1997...................... $ -- $ -- $ 1,137,000 $ -- $ 1,137,000
Net earnings (Note 2)......................... -- -- 5,947,000 3,493,000 9,440,000
Net change in divisional equity arising from
intracompany transactions................... -- -- (3,852,000) -- (3,852,000)
Reorganization of Long Beach Financial
Corporation (Notes 1 and 3)................. 25,000 75,307,000 (3,232,000) -- 72,100,000
-------- ----------- ----------- ---------- -----------
Balance, June 30, 1997........................ $25,000 $75,307,000 $ -- $3,493,000 $78,825,000
======== =========== =========== ========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
5
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LONG BEACH FINANCIAL CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net earnings (Note 2)............... $ 4,872,000 $ 1,938,000 $ 9,440,000 $ 3,969,000
Adjustments to reconcile net
earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization..... 141,000 242,000 319,000 504,000
Loans originated and purchased for
sale........................... (385,188,000) (263,963,000) (711,348,000) (450,590,000)
Proceeds from sales of loans held
for sale....................... 369,242,000 248,613,000 688,687,000 434,455,000
Noncash gain recognized on
capitalization of mortgage
servicing rights............... (2,030,000) (2,354,000) (5,004,000) (4,031,000)
Decrease in receivable from sales
of loans (Note 3).............. (12,927,000) -- (27,377,000) --
Other.......................... 2,804,000 1,302,000 1,430,000 2,620,000
------------- ------------- ------------- -------------
Net cash used in operating
activities................... (23,086,000) (14,222,000) (43,853,000) (13,073,000)
Cash Flows from Investing
Activities:
Purchases of premises and
equipment...................... (237,000) (629,000) (362,000) (751,000)
Purchase of investments securities
held for sale.................. (40,720,000) -- (40,720,000) --
------------- ------------- ------------- -------------
Net cash used in investing
activities................... (40,957,000) (629,000) (41,082,000) (751,000)
Cash Flows from Financing
Activities:
Net change in warehouse financing
facility (Note 3).............. 29,617,000 14,769,000 54,536,000 15,081,000
Cash provided (to)/by AMC......... 3,149,000 (2,272,000) (3,852,000) (5,288,000)
Proceeds from mortgage servicing
rights transferred to AMC...... 1,000,000 2,354,000 3,974,000 4,031,000
Cash contributed to LBFC.......... 38,000,000 -- 38,000,000 --
------------- ------------- ------------- -------------
Net cash provided by financing
activities................... 71,766,000 14,851,000 92,658,000 13,824,000
Net Increase in Cash................ 7,723,000 -- 7,723,000 --
Cash, beginning of the period..... -- -- -- --
------------- ------------- ------------- -------------
Cash, end of the period........... $ 7,723,000 $ -- $ 7,723,000 $ --
============= ============= ============= =============
Supplemental Disclosures of Cash
Flow Information
Cash paid during the period for
interest on warehouse financing
facility....................... $ 1,359,000 $ 620,000 $ 2,819,000 1,101,000
Supplemental Schedule of Non-Cash
Activities:
Deferred tax asset (Note 4)....... $ 36,000,000 -- $ 36,000,000 --
</TABLE>
See accompanying notes to the combined financial statements.
6
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LONG BEACH FINANCIAL CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 1. DESCRIPTION OF THE BUSINESS, INITIAL PUBLIC OFFERING AND BASIS OF
PRESENTATION
DESCRIPTION OF THE BUSINESS
Long Beach Financial Corporation ("LBFC"), through its subsidiary, Long
Beach Mortgage Company (collectively the "Company"), is currently engaged in the
business of originating, purchasing and selling sub-prime residential mortgage
loans secured by one-to-four family residences. The Company originates loans
primarily through independent mortgage loan brokers. The Company's core borrower
base consists of individuals who do not qualify for traditional "A" credit
because their credit history, income or other factors cause them not to conform
to standard agency lending criteria.
The Company follows a strategy of selling substantially all of its loan
originations (while retaining the related servicing rights in most cases) in the
secondary market through whole loan sales. Prior to each fiscal quarter, the
Company generally obtains from one or more loan purchasers a purchase commitment
for the volume of loans expected to be originated during such quarter. As a
result, the Company endeavors to have a buyer for each loan at the time it is
funded.
LBFC was incorporated in January 1997. At the time of incorporation, LBFC
was a wholly-owned subsidiary of a company now known as Ameriquest Mortgage
Company ("AMC"). AMC conducted its mortgage lending business through four
divisions: (i) the direct-sourced lending division, (ii) the broker-sourced
lending division, (iii) the loan sales division, and (iv) the loan servicing
division. LBFC was formed to facilitate the public sale of AMC's broker-sourced
lending division. All references to the "Wholesale Division" herein shall be
deemed to include the operations of the broker-sourced lending division of AMC
prior to the Reorganization (defined below).
INITIAL PUBLIC OFFERING
On April 28, 1997, LBFC's Registration Statement (No. 333-22013) on Form
S-1 under the Securities Act of 1933, as amended (the "Registration Statement"),
relating to the initial public offering of its common stock was declared
effective. The initial public offering of 22,504,000 shares of common stock
closed at a price of $6.50 per share on May 2, 1997. On May 14, 1997, the
underwriters purchased an additional 2,496,000 shares of common stock at a price
of $6.50 per share following their exercise of the overallotment option,
resulting in a total of 25,000,000 shares sold in the initial public offering
(the "Offering").
On May 2, 1997, immediately prior to the closing of the initial public sale
of LBFC's common stock, AMC reorganized its business operations (the
"Reorganization") by transferring certain assets (including: furniture,
leasehold improvements and equipment) and personnel relating to the
broker-sourced lending and the loan sales divisions and approximately $40.0
million in cash (less approximately $2.0 million in related expenses) to the
Company in exchange for 24,999,999 shares of common stock. The assets
transferred to the Company included loans in process as of May 2, 1997, but did
not include loans funded or servicing rights with respect to loans funded prior
to May 2, 1997. Additionally, the Company acquired a listing of independent
brokers and the right to the "Long Beach Mortgage Company" name. The Company did
not assume any liabilities of AMC other than certain liabilities associated with
equipment and property leases acquired by the Company and accrued vacation and
other employee benefits for personnel transferred to the Company. The
Reorganization has been accounted for in a manner similar to a pooling of
interests; therefore, the historical cost basis of the assets and liabilities
transferred to the Company was carried over from the Wholesale Division.
The transfer of the assets and personnel described above by AMC to the
Company was treated for federal income tax purposes as a taxable sale of assets.
As a result, the tax basis of the assets transferred from AMC to the Company in
the Reorganization was increased to their fair market value determined by
reference to the
7
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LONG BEACH FINANCIAL CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 1. DESCRIPTION OF THE BUSINESS, INITIAL PUBLIC OFFERING AND BASIS OF
PRESENTATION (CONTINUED)
Offering. As discussed more fully in Note 4 to the Combined Financial
Statements, such tax basis is generally expected to produce a tax benefit to the
Company in future tax years. Accordingly, the Company recorded a deferred tax
asset of $36.0 million (with a corresponding credit to additional paid in
capital) for the tax effect of the excess of the tax basis of the Company's
assets following the Reorganization and the Offering, over their net book value.
BASIS OF PRESENTATION
The Company had no operations through the date of the Reorganization and
all rights, benefits and obligations relating to the operations and net earnings
of the Wholesale Division of AMC, up to the date of the Reorganization, remained
with AMC. However, because the Reorganization has been accounted for in a manner
similar to a pooling of interests, the results of operations reported for the
three months ended June 30, 1997 include: (i) the results of the operations of
the Wholesale Division of AMC from April 1, 1997 through May 1, 1997 (the "1997
Second Quarter Operating Results of the Wholesale Division of AMC") and (ii) the
operating results of the Company from May 2, 1997 to June 30, 1997 (the
"Company's Results of Operations"). Collectively, the combination of the 1997
Second Quarter Operating Results of the Wholesale Division of AMC and the
Company's Results of Operations represent the "Combined Results of Operations
for the three months ended June 30, 1997".
The results of operations reported for the six months ended June 30, 1997
include: (i) the Results of Operations of the Wholesale Division of AMC from
January 1, 1997 through May 1, 1997 (the "1997 Operating Results of the
Wholesale Division of AMC") and (ii) the Company's Results of Operations.
Collectively, the combination of the 1997 Operating Results of the Wholesale
Division of AMC and the Company's Results of Operations represent the "Combined
Results of Operations for the six months ended June 30, 1997". As more fully
discussed in Note 2 to the Combined Financial Statements, the Combined Results
of Operations for the six months ended June 30, 1997 and the Combined Results of
Operations for the three months ended June 30, 1997 exclude the gain on sale of
loans originated prior to May 2, 1997 and sold on or after such date.
Cash flows for the three months ended June 30, 1997 include: (i) cash flows
of the Wholesale Division of AMC from April 1, 1997 through May 1, 1997 (the
"1997 Second Quarter Cash Flows of the Wholesale Division of AMC"), and (ii) the
Company's cash flows from May 2, 1997 through June 30, 1997 (the "Company's Cash
Flows"). Collectively, the combination of the 1997 Second Quarter Cash Flows of
the Wholesale Division of AMC and the Company's Cash Flows represent the
"Combined Cash Flows for the three months ended June 30, 1997".
Cash flows for the six months ended June 30, 1997 include: (i) cash flows
of the Wholesale Division of AMC from January 1, 1997 through May 1, 1997 (the
"1997 Cash Flows of the Wholesale Division of AMC"), and (ii) the Company's Cash
Flows. Collectively, the combination of the 1997 Cash Flows of the Wholesale
Division of AMC and the Company's Cash Flows represent the "Combined Cash Flows
for the six months ended June 30, 1997".
Also included in this report on Form 10-Q are: (i) the results of
operations for the Wholesale Division of AMC for the three months and six months
ended June 30, 1996, (ii) the financial condition of the Wholesale Division of
AMC as of December 31, 1996 and June 30, 1996 and (iii) the cash flows of the
Wholesale Division of AMC for the three months and six months ended June 30,
1996. All such information included or used in the preparation of this report
has been prepared from records maintained by AMC and provided to the Company by
AMC.
In the normal course of business, the Wholesale Division had various
transactions with other divisions of AMC that are material in amount. The
financial statements and financial data of the Wholesale Division of
8
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LONG BEACH FINANCIAL CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 1. DESCRIPTION OF THE BUSINESS, INITIAL PUBLIC OFFERING AND BASIS OF
PRESENTATION (CONTINUED)
AMC included in this report on Form 10-Q reflect key assumptions regarding the
allocation of certain revenue and expense items and certain balance sheet
accounts, many of which could be material. The financial data of the Wholesale
Division of AMC included in this report on Form 10-Q may not necessarily be
indicative of the conditions that would have existed if the Wholesale Division
of AMC had operated as an independent entity.
The accompanying financial statements include financial data of the
Wholesale Division of AMC and reflect the assets, liabilities, revenues and
expenses that were directly related to the continuing operations of the
Wholesale Division as they were operated by AMC. In cases involving assets,
liabilities, revenues and expenses not specifically identifiable to any
particular division of AMC, certain allocations were made to reflect the
operations of the Wholesale Division. Allocations have been made for, among
other things, accounting, information services, legal, compliance, and other
executive and administrative services. The accompanying financial statements are
also based on the following assumptions:
1. No cash balances were recorded as part of these historical
financial statements as it was the practice of AMC not to maintain separate
cash balances for the various divisions.
2. The net change in divisional equity arising from intracompany
transactions, as reflected in the statements of divisional equity,
includes: (i) the aggregate intracompany allocations of costs and expenses
incurred by the Wholesale Division and paid by AMC, (ii) cash generated by
the Wholesale Division and collected by AMC during the periods presented,
and (iii) cash advanced by AMC on behalf of the Wholesale Division. The net
change in divisional equity arising from intracompany transactions also
includes all liabilities of the Wholesale Division, such as income taxes
payable, that are not separate legal obligations of the Wholesale Division
but have been charged to the Wholesale Division.
The Company's combined financial statements have been prepared in
conformity with the instructions to Form 10-Q and on a consistent basis with the
Company's Registration Statement. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ materially
from those estimated. The Company's combined financial statements and notes to
the financial statements, along with management's discussion and analysis of
financial condition, results of operations, liquidity and capital resources
should be read in conjunction with the Company's Registration Statement.
NOTE 2. STATEMENT OF OPERATIONS, PRESENTATION AND ANALYSIS OF PRO FORMA
OPERATIONS
The statements of operations for the three months and six months ended June
30, 1997, presented in this report on Form 10-Q include the 1997 Operating
Results of the Wholesale Division of AMC and the Company's Results of
Operations. All rights, benefits and obligations relating to the 1997 Operating
Results of the Wholesale Division of AMC up to the time of the Reorganization
remain with AMC.
The rights to loans which were originated by the Wholesale Division but
remained unsold at May 2, 1997 were retained by AMC (the "Retained Loans"). The
costs relating to the production of these loans were incurred and recorded by
the Wholesale Division of AMC and these loans were included as part of the loan
production for the month of April 1997. Subsequent to the Reorganization, the
Company purchased the Retained Loans from AMC at the same price and at the same
time that the Company sold these loans to an
9
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LONG BEACH FINANCIAL CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 2. STATEMENT OF OPERATIONS, PRESENTATION AND ANALYSIS OF PRO FORMA
OPERATIONS (CONTINUED)
independent third party purchaser. Because the gain from the sale of the
Retained Loans was recorded after the Reorganization, the Company did not
include the gain from the sale of the Retained Loans as part of the Company's
Results of Operations. Had the Reorganization not occurred, or if the Retained
Loans had been sold prior to May 2, 1997, the gain from the sale of such loans
would have been included in the operating results of the Wholesale Division. The
principal amount of the Retained Loans was approximately $33.8 million and the
after tax gain from the sale of these loans was approximately $807,000. The
gains from the sale of the Retained Loans are not reflected either as income
from the Wholesale Division of AMC or as income from the Company.
The following table presents separately the operations of the Wholesale
Division of AMC and the Company, and the combined effect of their results for
each respective period. Additionally, the gain from the sale of the Retained
Loans is presented for informational purposes, with corresponding earnings and
per share data presented on a pro forma basis.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1997
------------------------------------------ -------------------------------------------
WHOLESALE WHOLESALE
DIVISION OF THE DIVISION OF THE
AMC COMPANY COMBINED AMC COMPANY COMBINED
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans............ $8,366,000 $11,575,000 $19,941,000 $25,604,000 $11,575,000 $37,179,000
Interest income.................. 271,000 1,196,000 1,467,000 2,306,000 1,196,000 3,502,000
Interest expense................. 575,000 747,000 1,322,000 2,138,000 747,000 2,885,000
---------- ----------- ----------- ----------- ----------- -----------
Net interest income.............. (304,000) 449,000 145,000 168,000 449,000 617,000
---------- ----------- ----------- ----------- ----------- -----------
Net operating income............. 8,062,000 12,024,000 20,086,000 25,772,000 12,024,000 37,796,000
EXPENSES:
Compensation expense............. 2,061,000 4,742,000 6,803,000 8,242,000 4,742,000 12,984,000
Premises and equipment
expenses....................... 347,000 499,000 846,000 1,106,000 499,000 1,605,000
Other general and administrative
expenses....................... 376,000 974,000 1,350,000 1,391,000 974,000 2,365,000
Corporate administrative
charges........................ 610,000 -- 610,000 2,294,000 -- 2,294,000
Provision for losses............. 2,370,000 120,000 2,490,000 2,808,000 120,000 2,928,000
---------- ----------- ----------- ----------- ----------- -----------
Total expenses................... 5,764,000 6,335,000 12,099,000 15,841,000 6,335,000 22,176,000
---------- ----------- ----------- ----------- ----------- -----------
Earnings before income taxes..... 2,298,000 5,689,000 7,987,000 9,931,000 5,689,000 15,620,000
Provision for income taxes....... 919,000 2,196,000 3,115,000 3,984,000 2,196,000 6,180,000
---------- ----------- ----------- ----------- ----------- -----------
Net earnings..................... $1,379,000 $ 3,493,000 $ 4,872,000 $ 5,947,000 $ 3,493,000 $ 9,440,000
========== =========== =========== =========== =========== ===========
Pro forma net gain from sale of
Retained Loans net of taxes.... 807,000 -- 807,000 807,000 -- 807,000
---------- ----------- ----------- ----------- ----------- -----------
Pro forma net earnings inclusive
of gain from retained loans.... $2,186,000 $ 3,493,000 $ 5,679,000 $ 6,754,000 $ 3,493,000 $10,247,000
========== =========== =========== =========== =========== ===========
Net earnings per share........... $ 0.06 $ 0.13 $ 0.19 $ 0.24 $ 0.13 $ 0.37
========== =========== =========== =========== =========== ===========
Pro forma net earnings per share
inclusive of gain from Retained
Loans.......................... $ 0.09 $ 0.13 $ 0.22 $ 0.27 $ 0.13 $ 0.40
========== =========== =========== =========== =========== ===========
</TABLE>
10
<PAGE> 11
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 3. BASIS OF PRESENTING THE COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND
DIVISIONAL EQUITY AND CASH FLOWS
In connection with the Reorganization described in Note 1, AMC transferred
to the Company certain assets and liabilities relating to the Wholesale
Division. AMC, however, retained certain assets and liabilities reflected on the
books of the Wholesale Division as of May 1, 1997 including: (i) loans held for
sale totaling $39.3 million, (ii) receivables from the sales of loans totaling
$25.9 million, (iii) servicing rights and (iv) borrowings under the warehouse
financing facility totaling $62.0 million. Accordingly, the balances of these
assets and liabilities at May 1, 1997 are not reflected in the beginning
balances of the Company as of May 2, 1997. The Combined Statements of
Stockholders' Equity and Divisional Equity and Cash Flows reflect a non-cash
adjustment to eliminate these assets and liabilities retained by AMC. The
Combined Statements of Cash Flows include changes in balances from January 1,
1997 through May 1, 1997 combined with changes in balances from May 2, 1997
through June 30, 1997.
NOTE 4. DEFERRED TAX ASSET
In connection with the Reorganization, AMC transferred certain tangible and
intangible assets to the Company, and immediately thereafter sold shares of the
Company's common stock in the Offering. The transfer of these assets and
personnel was treated, for federal income tax purposes, as a taxable sale of
assets. As a result, the tax basis of the assets transferred from AMC to the
Company in the Reorganization was increased to their fair market value by
reference to the Offering. In general, Section 197 of the Internal Revenue Code
allows for the amortization over a 15-year period of intangible assets
(including goodwill and going concern value) acquired in a transaction such as
the Reorganization. The so-called "anti-churning" rules set forth in Section
197(f)(9) of the Internal Revenue Code, however, prohibit the amortization of
goodwill, going concern value and intangible assets, the useful lives of which
cannot be determined with reasonable accuracy where such assets are transferred
between related parties and the transferor held or used such intangible assets
at any time on or after July 25, 1991, and on or before August 10, 1993.
The Company believes that the anti-churning rules should not apply to any
intangible assets (whether goodwill, going concern value or otherwise)
transferred from AMC to the Company in the Reorganization. Because the IRS could
assert that the anti-churning rules apply to the Reorganization, the Company
will limit the value of the deferred tax asset that is recorded, solely for
financial accounting and reporting purposes, to the amount that would be
recorded assuming the application of the anti-churning rules. The Company has
appraised the value of certain intangible assets transferred in the
Reorganization that are of a type not subject to the anti-churning
rules -- i.e., assets that can be valued and to which the Company can reasonably
ascertain useful lives ("Amortizable Intangibles"). Based in part upon such
valuation, the Company recorded a $36.0 million net deferred tax asset solely
for financial accounting and reporting purposes. No assurance can be given,
however, that the IRS will not challenge the value of the Amortizable
Intangibles. If such a challenge were successful, the Company may be prevented
from realizing all or a portion of the future tax benefits reflected by the net
deferred tax asset. Any adjustment to the net deferred tax asset, arising from
IRS challenge or other ruling concerning the deductibility of the deferred tax
asset or the valuation of the Amortizable Intangibles, will be charged or
credited to additional paid in capital and will have no impact on earnings.
Based upon the Offering of $6.50 per share, the excess of the tax basis of
the Company's net assets over their net book value is approximately $117.5
million resulting in a gross deferred tax asset of $47.0 million. The Company
recorded a net deferred tax asset of $36.0 million to take into account the
potential that the IRS may disallow some portion of the resulting deduction. For
income tax purposes, the Company intends to amortize over a 15-year period the
intangible assets acquired from AMC in the Reorganization. The Company
11
<PAGE> 12
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 4. DEFERRED TAX ASSET (CONTINUED)
believes that based upon historical earnings levels it is probable that the
Company will generate sufficient taxable income to realize the benefits
associated with the net deferred tax asset through future tax deductions. As the
Company realizes the benefits associated with the deferred tax asset, there will
be a corresponding reduction in income taxes payable by the Company. The
deferred tax benefit is realized through a reduction in the current tax payable
resulting in no effect on net income. If the Company determines that estimated
future earnings are not sufficient to realize the deferred tax benefit, the
Company will establish a valuation allowance for the impairment of the deferred
tax assets, through a charge to the income tax provision, which will result in a
reduction of net earnings.
NOTE 5. CORPORATE ALLOCATION OF GENERAL AND ADMINISTRATIVE EXPENSES
The Wholesale Division of AMC was charged for certain corporate expenses
incurred by AMC on behalf of the Wholesale Division. These charges included,
among other items, information services, accounting, legal, compliance, and
other executive and administrative services. These allocations were prepared by
AMC, and AMC informed the Company that these allocations were based upon a
variety of factors, including loan origination volume, employee headcount and
historical ratios of expenses incurred by the various divisions to total direct
expenses. There can be no assurance that future expenses incurred by the
Company, as an independent entity, will be comparable to the historical levels
allocated by AMC to the Wholesale Division.
NOTE 6. AGREEMENTS WITH RELATED PARTIES
Administrative Services Agreements -- On April 28, 1997, the Company and
AMC entered into an administrative services agreement under which AMC agreed to
provide various services to the Company, including certain employee benefits
administration services, information services and data processing functions and
mail services. The agreement has a one-year term from the effective date of the
Reorganization unless earlier terminated by the Company upon 30 days written
notice. The Company is being charged a fixed fee of approximately $142,000 per
month for these services. Any failure by AMC to provide such administrative
services to the Company during the term of the administrative services agreement
could have a material adverse effect on the Company's results of operations and
financial condition.
In addition, on April 28, 1997, the Company and AMC entered into a second
administrative services agreement pursuant to which the Company will assist AMC
in selling the mortgage loans originated by AMC and provide investor
coordination and information for the existing loan portfolio as well as new loan
originations. The agreement will have a one-year term from the effective date of
the Reorganization, unless earlier terminated by AMC upon 30 days written
notice. The Company will receive a fixed monthly fee of approximately $55,000
for providing such services. Once AMC develops internal capability to perform
these functions, it is anticipated that AMC will terminate the second
administrative services agreement.
Loan Sub-servicing Agreement -- On April 28, 1997, the Company and AMC
entered into a three-year loan subservicing agreement pursuant to which AMC
agreed to sub-service mortgage loans originated or purchased by the Company
after the Reorganization. Sub-servicing activities include collecting and
remitting loan payments, accounting for principal and interest, holding escrow
or impound funds for payment of taxes and insurance, if applicable, making
required inspections of the mortgaged property, contacting delinquent borrowers,
and supervising foreclosures and property dispositions. The agreement provides
that either party has the right to terminate the agreement effective at any time
after 18 months, upon six months prior written notice to the other party. The
Company has agreed to pay AMC a 45 basis points annual servicing fee on the
declining principal balance of each loan sub-serviced.
12
<PAGE> 13
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 6. AGREEMENTS WITH RELATED PARTIES (CONTINUED)
Income Taxes -- In connection with the Reorganization, AMC agreed to
indemnify and hold the Company harmless from any tax liability attributable to
periods ending on or before the Reorganization. For periods ending after the
Reorganization, the Company will pay its tax liability directly to the
appropriate taxing authorities.
The agreements between the Company and AMC were developed in the context of
a related party relationship and, therefore, may not necessarily reflect the
same business terms as might have been obtained in arm's length negotiations
between independent parties.
NOTE 7. COMBINED NET EARNINGS PER SHARE
The Company did not have any independent operations through the date of the
Reorganization, and all rights, benefits and obligations relating to the net
earnings of the Wholesale Division up to the date of the Reorganization remained
with AMC. Additionally, only one share of LBFC's common stock was issued and
outstanding from LBFC's incorporation in January 1997 until the Reorganization
and no shares were issued or outstanding at any time during 1996. The earnings
per share data presented in the following table was prepared under the
assumption that the Company's 25,000,000 shares of common stock were issued and
outstanding as of January 1, 1997 through June 30, 1997, and by using the common
stock equivalents for all stock options issued by the Company from the
Reorganization through June 30, 1997.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1997 FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------- -----------------------------------------------
WHOLESALE WHOLESALE
DIVISION THE DIVISION THE
OF AMC COMPANY COMBINED OF AMC COMPANY COMBINED
APRIL 1 THROUGH MAY 2 THROUGH RESULTS OF JANUARY 1 THROUGH MAY 2 THROUGH RESULTS OF
MAY 1, 1997 JUNE 30, 1997 OPERATIONS MAY 1, 1997 JUNE 30, 1997 OPERATIONS
--------------- ------------- ----------- ----------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net earnings......... $ 1,379,000 $ 3,493,000 $ 4,872,000 $ 5,947,000 $ 3,493,000 $ 9,440,000
=========== =========== =========== =========== =========== ===========
Common stock
outstanding........ 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000
Common stock
equivalents --
employee stock
options............ -- 570,500 398,600 -- 570,500 198,200
----------- ----------- ----------- ----------- ----------- -----------
Total common stock
equivalents(B)..... 25,000,000 25,570,500 25,398,600 25,000,000 25,570,500 25,198,200
=========== =========== =========== =========== =========== ===========
Combined net earnings
per share (A)...... $ 0.06 $ 0.13 $ 0.19 $ 0.24 $ 0.13 $ 0.37
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------------
(A) Combined net earnings per share on both a primary and fully diluted basis
resulted in the same effective earnings per share amount for all periods
presented. The net gain from the sale of the Retained Loans is not included
in the net earnings of the Wholesale Division of AMC or the Company for any
period presented above. Please refer to Note 2 of the Combined Financial
Statements for further information.
(B) Represents per share data on the assumption that the Company's 25,000,000
shares of common stock were issued and outstanding during the entire period
from January 1, 1997 through May 1, 1997.
13
<PAGE> 14
LONG BEACH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
ITEM 2. OVERVIEW
The Company is a specialty finance company engaged in the business of
originating, purchasing and selling sub-prime residential mortgage loans secured
by one-to-four family residences. The Company's core borrower base consists of
individuals who do not qualify for traditional "A" credit because their credit
history, income or other factors cause them not to conform to standard agency
lending criteria. The Company originates loans through independent mortgage
brokers and, to a lesser extent, purchases loans from mortgage companies and
commercial banks. Substantially all of the Company's loan originations and
purchases are sold in the secondary market through whole loan sales in which the
Company disposes of its economic interest in the loans for cash, except for the
related servicing rights, which it retains in most cases.
Management's discussion and analysis of financial condition, results of
operations, liquidity and capital resources contained within this report on Form
10-Q is more clearly understood when read in conjunction with the Notes to the
Combined Financial Statements. The Notes to the Combined Financial Statements
define certain terms that are used throughout this discussion and provide
information on the Company's initial public offering and the basis of
presentation used in this report on Form 10-Q.
The Company's operations for the three months and six months ended June 30,
1997 have two components:
1. Operations as a division of AMC for the period January 1, 1997
through May 1, 1997; and
2. Operations as an independent company for the period May 2, 1997
through June 30, 1997.
Because the Reorganization was accounted for in a manner similar to a
pooling of interests, this report on Form 10-Q presents the combined results of
operations for the three months and six months ended June 30, 1997.
Comparatively, the 1997 Operating Results of the Wholesale Division of AMC are
presented for the three months and six months ended June 30, 1996. It is
important to note that all of the benefits, rights and obligations relating to
the operations and net earnings of the Wholesale Division of AMC, up to the date
of the Reorganization, remained with AMC.
A summary of the combined net earnings for the three months and six months
ended June 30, 1997 are presented below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET EARNINGS:
As the Wholesale Division of AMC.......... $1,379,000 $1,938,000 $5,947,000 $3,969,000
As an independent company................. 3,493,000 -- 3,493,000 --
---------- ---------- ---------- ----------
Combined net earnings..................... $4,872,000 $1,938,000 $9,440,000 $3,969,000
========== ========== ========== ==========
</TABLE>
The net earnings of the Company for the three months ended June 30, 1997,
include the 1997 operations of the Wholesale Division of AMC from April 1, 1997
through May 1, 1997.
Combined net earnings for the three months ended June 30, 1997 totaled $4.9
million or $0.19 per share. The combined net earnings exclude $807,000 or $0.03
per share of net after tax gains from the sale of the Retained Loans. Combined
net earnings during the three months ended June 30, 1997 increased by $2.9
million or 151% over net earnings of the Wholesale Division as compared to $1.9
million during the same period of 1996. Combined net earnings for the six months
ended June 30, 1997 totaled $9.4 million, an increase of $5.4 million or 137.8%
over net earnings of the Wholesale Division for the same period of 1996.
14
<PAGE> 15
The primary factors that led to the improvement in net earnings recorded
during 1997 as compared to 1996 include:
- An increase in loan production during 1997 as compared to 1996. Loan
production increased by $121.2 million or 45.9% to $385.2 million during
the three months ended June 30, 1997, as compared to the same period of
1996. Additionally, loan production increased by $260.8 million or 57.9%
to $711.3 million during the six months ended June 30, 1997.
- An increase in loans sold during both the three months and six months
ended June 30, 1997, as compared to the same period of 1996. Loans sold
during the three months ended June 30, 1997, totaled $369.2 million, an
increase of $120.6 million or 48.5% over the same period of 1996.
Additionally, loan sales totaled $688.7 million during the six months
ended June 30, 1997, an increase of $254.2 million or 58.5% over loan
sales of $434.5 million for the same period of 1996.
- Higher premiums received on the sale of loans. In each of the three
months and six months ended June 30, 1997, net premiums on the sale of
loans totaled 5.40%. Comparatively, net premiums on the sale of loans
totaled 4.61% for the three months and 4.97% for the six months ended
June 30, 1996, respectively.
- An improvement in operational efficiency during both the three months and
six months ended June 30, 1997, as compared to the same periods of 1996.
General and administrative expenses as a percent of loan production
declined to 2.49% and 2.71% during the three months and six months ended
June 30, 1997, respectively. Comparatively, during the same periods of
1996, general and administrative expenses as a percentage of loan
production totaled 3.14% and 3.34%, respectively.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
AND 1996
Revenue is derived primarily from gain on sale of loans and net interest
income from loans held for sale in excess of the cost of funding such loans. The
key factors that affect the Company's revenue are: (i) the volume of loans
originated and purchased, (ii) the premium over principal amount received in
loan sales, (iii) origination points received or paid, (iv) origination fees
received, and (v) the differential between the interest rate on borrowings under
the revolving warehouse credit facility and the interest rate of loans held for
sale and on the Company's investments. Loan sales premium is affected by, among
other things, the interest rate and/or margin of the loans sold.
Expenses are incurred for, among other things, compensation and employee
benefits, rent and other occupancy costs, office supplies, courier service,
depreciation, legal and professional services and provisions for losses.
LOAN PRODUCTION AND SALES
The Company's primary channel of loan production is through its
relationship with a network of approved independent mortgage brokers. The
Company has established a sales force to serve as the principal contact between
the Company and the independent mortgage brokers ("Account Executives"). The
Company offers a variety of loan programs and products; however, substantially
all loans originated by the Company are secured by first-lien mortgages on
residential properties consisting of one-to-four family units. In addition to
originating loans through independent mortgage brokers, the Company purchases
loans on a correspondent basis. Loan purchases totaled 6.7% of production for
the six months ended June 30, 1997.
15
<PAGE> 16
During 1997, loan production increased significantly over 1996 levels. For
the three months ended June 30, 1997, loan production totaled $385.2 million, an
increase of $121.2 million or 45.9%. Loan production for the six months ended
June 30, 1997, totaled $711.3 million, an increase of $260.8 million or 57.9% as
compared to the same period of 1996. The increase in loan production is
primarily the result of: (i) an increase in the number of Account Executives
during 1997 as compared to 1996, and (ii) an expansion in the number of approved
independent mortgage brokers. The following table reports loan production for
the periods presented:
<TABLE>
<CAPTION>
LOAN PRODUCTION
FOR THE THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
INTEREST INTEREST
AMOUNT UNITS RATE(A) AMOUNT UNITS RATE(A)
------------ ------ -------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate........................... $112,406,000 1,280 10.13% $122,239,000 1,266 10.48%
Adjustable rate...................... 117,575,000 1,025 8.86% 130,044,000 1,195 9.67%
Fixed/Adj. rate...................... 155,207,000 1,109 9.64% 11,681,000 84 9.81%
------------ ----- ----- ------------ ----- -----
Total loan production................ $385,188,000 3,414 9.54% $263,964,000 2,545 10.05%
============ ===== ===== ============ ===== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
INTEREST INTEREST
AMOUNT UNITS RATE(A) AMOUNT UNITS RATE(A)
------------ ------ -------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate........................... $203,959,000 2,298 10.18% $171,664,000 1,771 10.41%
Adjustable rate...................... 259,239,000 2,172 8.95% 256,462,000 2,470 9.84%
Fixed/Adj. rate...................... 248,149,000 1,860 9.71% 22,464,000 178 9.90%
------------ ----- ----- ------------ ----- -----
Total loan production................ $711,347,000 6,330 9.57% $450,590,000 4,419 10.06%
============ ===== ===== ============ ===== =====
</TABLE>
- ---------------
(A) The interest rate for adjustable rate loans represents the initial start
rate.
The following table presents the number of the Account Executives,
independent mortgage brokers and loan offices at the dates presented:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, DECEMBER 31, JUNE 30, MARCH 31,
1997 1997 1996 1996 1996
-------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Account Executives....................... 177 143 120 91 74
Mortgage brokers......................... 8,900 8,000 7,500 6,100 5,800
Loan offices............................. 61 63 63 60 50
</TABLE>
During the first half of 1997, the Company originated loans in 47 states.
Loan originations in California represented 35.5% of total loan production.
Additionally, the following tables present the Company's loan production for the
three months ended June 30, 1997, by credit risk, loan-to-value ratio and
interest rate:
16
<PAGE> 17
<TABLE>
<CAPTION>
LOAN PRODUCTION
RISK CHARACTERISTIC AND INTEREST RATE
FOR THE THREE MONTHS ENDED JUNE 30, 1997
- ---------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
PRODUCT/RISK % OF INTEREST AVERAGE
CHARACTERISTIC VOLUME TOTAL RATE MARGIN
- ------------------------------------------------ ------------ ------ -------- --------
<S> <C> <C> <C> <C>
Fixed Rate:
A-............................................ $ 77,189,000 68.67% 9.89% n/a
B+............................................ 11,170,000 9.94% 10.21% n/a
B............................................. 11,089,000 9.86% 10.48% n/a
B-............................................ 5,258,000 4.68% 10.66% n/a
C............................................. 7,243,000 6.44% 11.53% n/a
C-............................................ 457,000 0.41% 10.76% n/a
------------ ------ ----- ----
Total................................. $112,406,000 100.00% 10.13% n/a
Adjustable Rate:
A-............................................ $ 77,762,000 66.14% 8.49% 6.34%
B+............................................ 9,622,000 8.18% 8.92% 5.93%
B............................................. 8,338,000 7.09% 9.31% 6.62%
B-............................................ 7,053,000 6.00% 9.23% 6.41%
C............................................. 9,976,000 8.48% 9.98% 6.54%
C-............................................ 4,824,000 4.10% 11.00% 6.94%
------------ ------ ----- ----
Total................................. $117,575,000 100.00% 8.86% 6.37%
Fixed/Adjustable Rate:
A-............................................ $105,101,000 67.72% 9.41% 6.07%
B+............................................ 15,275,000 9.84% 9.68% 6.10%
B............................................. 12,401,000 7.99% 9.92% 6.35%
B-............................................ 7,261,000 4.68% 10.04% 6.24%
C............................................. 13,814,000 8.90% 10.79% 6.52%
C-............................................ 1,355,000 0.87% 11.00% 6.72%
------------ ------ ----- ----
Total................................. $155,207,000 100.00% 9.64% 6.15%
All Products:
A-............................................ $260,052,000 67.51% 9.28% 6.19%
B+............................................ 36,068,000 9.36% 9.64% 6.03%
B............................................. 31,828,000 8.26% 9.96% 6.45%
B-............................................ 19,572,000 5.08% 9.92% 6.32%
C............................................. 31,032,000 8.06% 10.70% 6.53%
C-............................................ 6,636,000 1.72% 10.98% 6.89%
------------ ------ ----- ----
Total................................. $385,188,000 100.00% 9.54% 6.25%
============ ====== ===== ====
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
LOAN PRODUCTION
RISK CHARACTERISTIC AND LOAN-TO-VALUE RATIO
FOR THE THREE MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------------------------------------------
RISK 0 TO 55.01 60.01 65.01 70.01 75.01 80.01 85.01
CHARACTERISTIC 55% TO 60% TO 65% TO 70% TO 75% TO 80% TO 85% TO 90+% TOTAL
- ----------------------------- ------- ------- ------- ------- ------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A-....................... $ 9,927 $ 6,173 $ 8,589 $19,346 $33,563 $ 74,133 $57,158 $51,163 $260,052
B+....................... 1,198 1,632 1,173 2,047 6,356 9,671 13,858 133 36,068
B........................ 1,746 1,096 1,183 2,940 7,656 12,865 4,342 -- 31,828
B-....................... 998 1,022 1,621 2,168 3,819 8,651 1,293 -- 19,572
C........................ 2,611 1,620 3,147 3,268 9,523 10,191 672 -- 31,032
C-....................... 2,379 711 866 985 1,070 625 -- -- 6,635
------- ------- ------- ------- ------- -------- ------- ------- --------
Total.................... $18,859 $12,254 $16,579 $30,754 $61,987 $116,136 $77,323 $51,296 $385,188
======= ======= ======= ======= ======= ======== ======= ======= ========
</TABLE>
The increase in loan production during the three months and six months
ended June 30, 1997, as compared to the same periods of 1996 contributed to an
increase in loan sales. As indicated by the following table, the Wholesale
Division experienced a substantial increase in loan sales:
<TABLE>
<CAPTION>
LOAN SALES
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
INTEREST INTEREST
AMOUNT UNITS RATE (A) AMOUNT UNITS RATE (A)
------------ ------ -------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate............................... $102,374,000 1,192 10.14% $101,783,000 1,072 10.47%
Adjustable rate.......................... 266,869,000 2,123 9.31% 146,831,000 1,365 9.82%
------------ ----- ----- ------------ ----- -----
Total loan sales......................... $369,243,000 3,315 9.54% $248,614,000 2,437 10.09%
============ ===== ===== ============ ===== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
INTEREST INTEREST
AMOUNT UNITS RATE (A) AMOUNT UNITS RATE (A)
------------ ------ -------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate............................... $194,689,000 2,211 10.21% $149,162,000 1,550 10.43%
Adjustable rate.......................... 493,998,000 3,957 9.35% 285,293,000 2,722 9.91%
------------ ----- ----- ------------ ----- -----
Total loan sales......................... $688,687,000 6,168 9.60% $434,455,000 4,272 10.09%
============ ===== ===== ============ ===== =====
</TABLE>
- ---------------
(A) The interest rate for adjustable rate loans represents the initial start
rate.
The Company generally follows the practice of entering into forward
commitments to sell its production. These forward commitments are typically made
for the next 30 to 90 days of production. Prior to entering into a forward
commitment, the Company evaluates prospective purchasers in order to assess
their ability to fulfill the terms of the agreement. In the event that the
coupon rate, loan-to-value ratio, margins and other factors of the loans
originated and delivered to the purchaser are materially different from the
terms of the forward commitment, the sales price of the loans will be adjusted
accordingly.
Loan sales are made on a non-recourse basis pursuant to a purchase
agreement containing customary representations and warranties regarding
underwriting criteria and the origination process. In the event of a breach of a
representation or a warranty, the Company may be required to repurchase or
substitute a new loan. Additionally, the Company may be required to repurchase
or substitute a loan if the borrower defaults on the first payment due after the
loan is funded or if the loan documentation contains fraudulent
misrepresentations made by the borrower. Such repurchase or substitution may
result in the Company recording a reduction in the gain on sale that it
previously recognized and/or a loss.
The primary components of the net gain on sale of loans are: (i) the excess
of the cash selling price over the outstanding principal balance of the loan
(the "Gross Sales Premium"), (ii) less the fees and other compensation paid to
the independent mortgage brokers (the "Broker Fees"), (iii) the capitalized
servicing rights and (iv) points and fees received from the borrower, offset by
direct loan origination costs. Gross Sales
18
<PAGE> 19
Premiums are affected by loan type, credit quality, interest rate and other
factors as negotiated between the Company and an independent purchaser. The
recorded net gain on sale of loans, as expressed as a percentage of loans sold,
is the "Net Premium" realized for that period.
The following table presents the primary components of the gain on sales
recorded for the periods presented:
<TABLE>
<CAPTION>
GAIN ON SALE OF LOANS
-------------------------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------------------- -------------------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Sales Premium................. $21,699,000 5.88% $10,201,000 4.10% $39,037,000 5.67% $19,792,000 4.56%
Broker Fees......................... (4,496,000) -1.22% (1,807,000) -0.73% (8,237,000) -1.20% (3,209,000) -0.74%
Capitalized servicing rights........ 2,030,000 0.55% 2,354,000 0.95% 5,004,000 0.73% 4,031,000 0.93%
Other............................... 708,000 0.19% 734,000 0.30% 1,375,000 0.20% 969,000 0.22%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Net gain on sale of loans........... $19,941,000 5.40% $11,482,000 4.61% $37,179,000 5.40% $21,583,000 4.97%
=========== ===== =========== ===== =========== ===== =========== =====
</TABLE>
Gain on sale of loans totaled $19.9 million and $37.2 million during the
three months and six months ended June 30, 1997, respectively. During the three
months and six months ended June 30, 1996, gain on sale of loans totaled $11.5
million and $21.6 million, respectively. The increase in gain on sales of loans
during 1997 as compared to 1996 is due to: (i) a higher level of loans sold
during 1997 as compared to 1996 and (ii) a higher level of Gross Sales Premiums
received on the 1997 sales.
The Net Premium realized on loan sales was 5.40% for both the three months
and six months ended June 30, 1997. Comparatively, during the three months and
six months ended June 30, 1996, the net premium totaled 4.61% and 4.97%,
respectively.
At June 30, 1997, the Company had recorded $1.0 million of capitalized
servicing rights, net of amortization. The Company does not currently have the
internal capacity to service its loans. Therefore, the Company has contracted
with AMC to provide loan servicing in exchange for an annual fee of 45 basis
points on the declining principal balance of each loan sub-serviced. When the
Company sells its loans, it typically retains approximately 50 basis points of
servicing. Additionally, the Company generally retains the right to receive late
fees and other charges in connection with the servicing of the loans. The
Company anticipates that it will develop an internal capacity to service its
loans in the future. Its current arrangement with AMC may be terminated at any
time after 18 months, upon six months prior written notice. Capitalized
servicing rights are included as a component of prepaid expenses and other
assets on the Company's Statement of Financial Condition. Capitalized servicing
rights are subject to downward adjustment in the event that the related loans
have higher characteristics of default and loss and/or prepayment than had been
predicted at the time of sale.
NET INTEREST INCOME
Net interest income is the difference between the interest that is earned
on loans and other interest earning assets over the interest that is paid under
the revolving warehouse credit facility. Net interest income can be affected by
the volatility of interest rates, the level of interest earned on interest
earning assets, the cost of interest on the revolving warehouse credit facility,
the average amount of interest earning assets outstanding, and the average
amount of borrowings outstanding. The Company received approximately $38.0
million of cash as part of the Reorganization. The Company has adopted an
investment policy which limits its investment activities to high quality
short-term investments. During the month of June, the Company began to utilize a
portion of its liquidity to fund loans with cash. This strategy has resulted in
lowering the Company's interest expense, as the Company avoids financing costs
associated with the warehouse line. During the three months ended June 30, 1997,
the Company recorded $145,000 of net interest income as compared to $110,000
during the same period of 1996. The increase in net interest income is the
result of the Company holding a higher level of investments and loans held for
sale three months ended March 31, 1997 as compared to the same period of 1996.
Additionally, during the three months ended June 30, 1997, AMC's allocations of
interest expense exceeded the allocation of interest income by $304,000.
19
<PAGE> 20
Net interest income totaled $617,000 during the six months ended June 30,
1997, an increase of $395,000 over the same period of 1996. The increase in net
interest income resulted from: (i) a higher level of loans held for sale during
the period, and (ii) investment returns from the Company's short-term
investments.
EXPENSES
Expenses include general and administrative expenses, provisions for losses
and income tax expense. Additionally, prior to the Reorganization, certain
expenses, not specifically identifiable to any particular division of AMC, were
allocated to AMC's various divisions, including the Wholesale Division. These
allocations were prepared by AMC. AMC informed the Company that these
allocations were based on a variety of factors which took into consideration the
loan origination volume, employee headcount, and historical ratios of direct
expenses incurred by the divisions to total direct expenses. There can be no
assurance provided that future expenses incurred by the Company, as an
independent entity, will be comparable to the historical levels allocated by AMC
to the Wholesale Division. The following table reports general and
administrative expenses for the periods presented:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Compensation expense.................... $6,803,000 $4,358,000 $12,984,000 $ 8,006,000
Premises and equipment expenses......... 846,000 622,000 1,605,000 1,247,000
Other general and administrative
expenses.............................. 1,350,000 1,244,000 2,365,000 1,703,000
---------- ---------- ----------- -----------
Total direct expenses................... 8,999,000 6,224,000 16,954,000 10,956,000
Allocated expenses from AMC............. 610,000 2,072,000 2,294,000 4,099,000
---------- ---------- ----------- -----------
Total general and administrative
expenses.............................. $9,609,000 $8,296,000 $19,248,000 $15,055,000
========== ========== =========== ===========
</TABLE>
Compensation expense increased 56.1% or $2.4 million during the three
months ended June 30, 1997, as compared to the same period of 1996. The
increased level of compensation expense represents 88.1% of the total increase
in direct general and administrative expenses between the three months ended
June 30, 1997 and 1996. The primary reason for the increase is the increase in
the number of employees in support of the Company's expansion of its loan
production capabilities. Additionally, compensation expense increased because of
increases in commissions paid to employees. The growth of the employee base and
the additional commission expense is directly related to the increase in loan
production during the three months ended June 30, 1997, as compared to 1996.
Although total general and administrative expenses increased during the three
months ended June 30, 1997, as compared to the same period of 1996, such
expenses declined as a percentage of loan production to 2.49% as compared to
3.14% for the same period of 1997.
Premises and equipment expenses increased during both the three months and
six months ended June 30, 1997, as compared to the same periods of 1996,
primarily because of additional loan offices added in support of the loan
production function. Other general and administrative expenses increased during
both the three months and six months ended June 30, 1997, as compared to the
same periods of 1996.
Prior to the Reorganization, the Wholesale Division received an allocation
of expenses from AMC, as detailed in Note 2 to the Company's financial
statements. Subsequent to the Reorganization, the Company as an independent
entity was no longer responsible for such costs, but incurred all of its
expenses directly. Thus, allocated expenses from AMC declined by 71% during the
three months ended June 30, 1997, as compared to the same period of 1996. Other
general and administrative expenses increased by $106,000 or 8.52% and by
$662,000 or 38.9% during the three months and six months ended June 30, 1997, as
compared to the same periods of 1996. As more fully discussed in Note 6 to the
Combined Financial Statements, since the Reorganization, the Company has entered
into several agreements with AMC, pursuant to which AMC provides data
processing, human resources and mail room services to the Company. The Company
has paid $284,000 to AMC for such services since the Reorganization. The Company
intends to develop an internal capacity for these functions in the near future
and is currently evaluating various alternatives before committing its capital
resources to these initiatives. In addition, the Company provides certain
services to
20
<PAGE> 21
AMC, as described in Note 6 to the Company's Combined Financial Statements. The
Company has received $110,000 from AMC for such services since the
Reorganization.
PROVISIONS FOR LOSSES
The Company sells its loans to institutional purchasers and does not retain
residual interests in the loans that it sells other than the servicing rights
that it retains. The Company offers customary representations and warranties
with respect to the loans that it sells. In the event that a purchaser can
demonstrate that a breach of a representation or a warranty has occurred, the
Company may be required to repurchase the loan and then subsequently resell it.
The Company realizes that such repurchases are inherent in its operations and
that the Company may realize a reduction in the previously recognized gain on
sale or sustain a loss from such repurchases.
During the three months ended June 30, 1997, AMC allocated $2.4 million of
provision for losses to the Wholesale Division. These provisions related to
losses sustained by the Wholesale Division during April 1997. The loss was
sustained from the repurchase and sale of certain loans, which were originated
by the Wholesale Division over the past several years.
INCOME TAXES
Prior to the Reorganization, the Wholesale Division was not a separate
legal entity for tax purposes. Because the Wholesale Division was part of AMC
until the Reorganization, AMC is responsible for payment of federal and state
income taxes attributable to income earned by the Wholesale Division of AMC
prior to the Reorganization.
Financial Condition
The Reorganization was accounted for in a manner similar to a pooling of
interests. Therefore, for financial reporting purposes, the Company recorded the
assets, transferred from AMC, at their historical cost basis. The assets
transferred from AMC to the Company included approximately $38.0 million in cash
and $1.7 million in furniture, equipment and other fixed assets. The Company
assumed certain liabilities relating to lease obligations associated with
equipment and property acquired by the Company and accrued vacation and other
employee benefit obligations associated with personnel transferred to the
Company. The Company did not acquire or assume any of the rights or obligations
relating to: (i) loans funded prior to the Reorganization, (ii) servicing rights
related to loans funded prior to the Reorganization, or (iii) any other
liability arising from operations of the Wholesale Division of AMC prior to the
Reorganization.
Additionally, the Company acquired a number of intangible assets at the
time of the Reorganization. These intangible assets include: (i) rights to the
Long Beach Mortgage name, (ii) the listing of independent mortgage brokers that
had been developed by the Wholesale Division of AMC, (iii) the employees of the
Wholesale Division, and (iv) other intangible assets. As discussed in Note 4 to
the Combined Financial Statements, for federal income tax purposes, the transfer
of assets at the time of the Reorganization was treated as a taxable sale of
assets. Based upon the Offering price of $6.50 per share, the excess of the tax
basis of the Company's net assets over their book value is approximately $117.5
million, resulting in a gross deferred tax asset of $47.0 million. The Company
recorded a net deferred asset of $36.0 million to take into account the
potential that the IRS may disallow some portion of the resulting deduction. The
Company intends to amortize the deferred asset over a 15 year period. Such
amortization will have no impact on the Company's reported net earnings, but
will reduce the amount of taxable liability due to the IRS. The Company
currently believes that it is probable that the Company will generate sufficient
taxable income to realize the benefits associated with the net deferred tax
asset through future tax deductions. However, if the Company determines that
estimated future earnings are not sufficient to realize the deferred tax
benefit, the Company will establish a valuation allowance for the impairment of
the deferred tax assets, through a charge to the income tax provision, which
will result in a reduction of net earnings.
21
<PAGE> 22
A substantial portion of the Company's cash and cash equivalents are
maintained in an account with the agent for its warehouse line of credit. The
Company earns interest on these funds at a yield that approximates the 30 day
reserve adjusted London Inter-Bank Offered Rate ("LIBOR").
As discussed in more detail in the liquidity and capital resources section
of this report, the Company's investment portfolio consists of short term, high
quality, liquid securities. At June 30, 1997, the largest component of the
Company's investment portfolio consisted of a money market mutual fund, which
limits it holdings to government securities. These securities may be sold by the
Company at any time, and their market value approximated their historical cost
basis at June 30, 1997.
Loans held for sale are valued at the lower of their historical cost basis
or market value. At June 30, 1997, the market value of these loans exceeded
their historical cost basis. Receivable from the sales of loans represent the
proceeds from the sales of loans that have not been received by the Company. The
Company collected the entire amount of these receivables by July 10, 1997.
Liquidity and Capital Resources
Sources of cash flow include loan sales, net interest income and
borrowings. Uses of cash include the funding of loan originations and purchases,
repayment of borrowings and related interest expenses, operating and
administrative expenses, income taxes and capital expenditures.
The Company funds its operations through its cash reserves, loan sales, net
earnings and a revolving warehouse credit facility under which it borrows money
to finance the origination and purchase of loans. Additionally, the Company may
utilize its cash reserves to fund its loan production in order to maximize the
return on its excess liquidity. The Company repays borrowings with the proceeds
of its loan sales. Prior to the Reorganization, the Wholesale Division funded
loans by borrowing under AMC's revolving warehouse credit facility. Since the
date of the Reorganization, the Company has in place a $200.0 million warehouse
financing facility provided by a syndicate of banks led by Texas Commerce Bank
National Association. Borrowings under the warehouse financing facility for a
particular loan may remain outstanding for no more than 120 days, except for an
aggregate amount not to exceed $10.0 million, which may remain outstanding for
up to 180 days. Borrowings under the warehouse financing facility are permitted
up to 98% of the principal balance of the originated and purchased loans and
bear interest at rates ranging from 1.375% to 1.625% over LIBOR, depending on
the level of loan documentation the Company has delivered to the agent for the
syndicate of banks providing credit under the warehouse financing facility. The
warehouse financing facility also includes a $60.0 million subline for loans not
covered by a forward purchase commitment, a $15.0 million subline for principal
and interest advances, a $10.0 million subline for other servicing advances made
primarily to security holders in connection with securitizations by purchasers
of the Company's loans in which the Company serves as the master servicer, and a
$5.0 million subline which may be used to finance mortgage loans owned by the
Company that are in the process of collection or resale to investors. The
sublines bear interest at rates ranging from 1.875% to 2.0% over LIBOR. The
warehouse financing facility will expire on March 31, 1999, unless earlier
terminated or extended in accordance with its terms. The warehouse financing
facility contains a number of financial covenants including the requirements
that: (i) Long Beach Mortgage Company maintain tangible net worth, as defined in
the facility, equal to at least $25.0 million, plus 25% of cumulative positive
net earnings, (ii) delinquencies on Long Beach Mortgage Company's mortgage
servicing portfolio not to exceed 12%, and (iii) the ratio of total liabilities
to adjusted tangible net worth not to exceed 9 to 1. The warehouse financing
facility also contains other affirmative, negative and financial covenants
typical of similar credit facilities. At June 30, 1997, the weighted average
interest rate on the warehouse line was 7.14%.
22
<PAGE> 23
Subsequent to the Reorganization, the Company adopted an investment program
for its available liquidity. The objectives of this program include: (i) to
preserve the capital of the Company and (ii) to maintain flexibility for
strategic opportunities. The Company's investment strategy seeks to maximize its
returns within the policy's objectives. The Company's investment policy limits
the overall maturity of its investment portfolio to 18 months or less; however,
the Company has not yet invested in any security with a maturity in excess of
twelve months. The Company's investment portfolio at June 30, 1997 was as
follows:
<TABLE>
<CAPTION>
AMOUNT YIELD
----------- -----
<S> <C> <C>
US Government securities -- money market mutual fund................... $34,103,000 5.33%
FHLB debentures maturing June.......................................... 6,517,000 5.57%
----------- ----
Total investment securities held for................................... $40,620,000 5.37%
=========== ====
</TABLE>
During the latter portion of the three months ended June 30, 1997, the
Company utilized a portion of its available liquidity to fund loan production.
This strategy enabled the Company to avoid the finance charges associated with
funding of the loans through the warehouse line. The interest cost of the
warehouse line was substantially higher than the yields of high quality short to
medium term securities, and utilizing its available liquidity allowed the
Company to increase its net interest income.
The Company's desire to retain its flexibility with respect to its
available liquidity is due, in part, to certain of the Company's strategic plans
for the future. The Company is evaluating various strategies for developing: (i)
a retail loan production operation, (ii) an internal computer data center (iii)
a loan servicing operation. Each of these strategies will require substantial
capital investment at the time of implementation.
The Company believes that it will generate sufficient cash from its
operations and borrowings to fund its operations. However, the Company's ability
to continue to originate and purchase loans is dependent in large part upon its
ability to sell the loans at a premium in order to generate cash proceeds to
repay borrowings under the warehouse financing facility, thereby creating
borrowing capacity to fund new originations and purchases. The value of and
market for the Company's loans are dependent upon a number of factors, including
the loan-to-value ratios and interest rates on the loans, 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.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities as of January 1, 1997. The adoption of SFAS No.
125 did not have a material impact on the Company's financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. Under SFAS 128, the Company will be required to
disclose basic earnings per share ("EPS") and diluted EPS for all periods for
which income is presented, which will replace disclosure currently being made
for primary EPS and fully-diluted EPS. SFAS No. 128 requires adoption for fiscal
periods ending after December 15, 1997. The Company will adopt the provisions of
SFAS No. 128 within the 1997 year-end consolidated financial statements. EPS, as
computed under SFAS No. 128, is not materially different than EPS presented in
the Combined Statement of Operations for the three months and six months ended
June 30, 1997 and 1996.
23
<PAGE> 24
LONG BEACH FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable
24
<PAGE> 25
LONG BEACH FINANCIAL CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of Long Beach Financial
Corporation
*3.2 Bylaws of Long Beach Financial Corporation
*4.1 Specimen of the Common Stock of Long Beach Financial Corporation
*10.1 Administrative Services Agreement among Long Beach Mortgage Company, Long
Beach Financial Corporation and Ameriquest Mortgage Corporation
*10.2 Form of Master Sub-Servicing Agreement, between Long Beach Mortgage Company
and Ameriquest Mortgage Corporation
*10.3 4/97 Senior Secured Credit Agreement, among Ameriquest Mortgage Corporation
and Texas Commerce Bank National Association, as Lender and Agent
*10.4 Form of Director/Officer Indemnification Agreement
*10.5 Contribution Agreement, between Ameriquest Capital Corporation, Long Beach
Mortgage Company, Long Beach Financial Corporation and Ameriquest Mortgage
Corporation
*10.6 1997 Stock Incentive Plan
*10.7 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and M. Jack Mayesh
*10.8 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and Edward Resendez
*10.9 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and Frank J. Curry
*10.10 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and James H. Leonetti
*10.11 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and James J. Sullivan
*10.12 Department of Justice Settlement Agreement
*10.13 Employment Agreement, between Long Beach Financial Corporation, Long Beach
Mortgage Company and William K. Komperda.
27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
(b) Reports on Form 8-K
None.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized, in the City of Orange, State of California.
LONG BEACH FINANCIAL CORPORATION
(Registrant)
<TABLE>
<S> <C>
By: August 11, 1997
- ----------------------------------------------- Date
M. Jack Mayesh
Chairman and Chief Executive Officer
August 11, 1997
- ----------------------------------------------- Date
James H. Leonetti
Senior Vice President and Chief Financial
Officer
</TABLE>
26
<PAGE> 27
EXHIBITS INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ -------------------------------------------------------------------- ------------
<S> <C> <C> <C>
*3.1 Amended and Restated Certificate of Incorporation of Long Beach
Financial Corporation...............................................
*3.2 Bylaws of Long Beach Financial Corporation..........................
*4.1 Specimen of the Common Stock of Long Beach Financial Corporation....
*10.1 Administrative Services Agreement among Long Beach Mortgage Company,
Long Beach Financial Corporation and Ameriquest Mortgage
Corporation.........................................................
*10.2 Form of Master Sub-Servicing Agreement, between Long Beach Mortgage
Company and Ameriquest Mortgage Corporation.........................
*10.3 4/97 Senior Secured Credit Agreement, among Ameriquest Mortgage
Corporation and Texas Commerce Bank National Association, as Lender
and Agent...........................................................
*10.4 Form of Director/Officer Indemnification Agreement..................
*10.5 Contribution Agreement, between Ameriquest Capital Corporation, Long
Beach Mortgage Company, Long Beach Financial Corporation and
Ameriquest Mortgage Corporation.....................................
*10.6 1997 Stock Incentive Plan...........................................
*10.7 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and M. Jack Mayesh..................
*10.8 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and Edward Resendez.................
*10.9 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and Frank J. Curry..................
Employment Agreement, between Long Beach Financial Corporation,
*10.10 Ameriquest Mortgage Corporation and James H. Leonetti...............
Employment Agreement, between Long Beach Financial Corporation,
*10.11 Ameriquest Mortgage Corporation and James J. Sullivan...............
Department of Justice Settlement Agreement..........................
*10.12
Employment Agreement, between Long Beach Financial Corporation, Long
*10.13 Beach Mortgage Company and William K. Komperda......................
27 Financial Data Schedule.............................................
</TABLE>
- ---------------
* Previously filed.
27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,723
<SECURITIES> 40,720
<RECEIVABLES> 61,478
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,321
<DEPRECIATION> 110
<TOTAL-ASSETS> 149,335
<CURRENT-LIABILITIES> 0
<BONDS> 65,477
0
0
<COMMON> 25
<OTHER-SE> 78,800
<TOTAL-LIABILITY-AND-EQUITY> 149,335
<SALES> 0
<TOTAL-REVENUES> 21,408
<CGS> 0
<TOTAL-COSTS> 8,287
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,490
<INTEREST-EXPENSE> 1,332
<INCOME-PRETAX> 7,987
<INCOME-TAX> 3,115
<INCOME-CONTINUING> 4,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,872
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
