<PAGE>
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 000-22633
---------
NEW CENTURY FINANCIAL CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0683629
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18400 VON KARMAN, SUITE 1000, IRVINE, CALIFORNIA 92612
-------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 440-7030
---------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 NO X
______ ______
As of August 1, 1997, 14,110,324 shares of common stock of New Century Financial
Corporation were outstanding.
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBIT INDEX 21
Exhibit 10.1 Fifth Amendment to the Amended and Restated
Credit Agreement between the Company and
First Bank National Association dated June 25, 1997 22
Exhibit 11.1 Statement re Computation of Per Share Amounts 49
Exhibit 27.1 Financial Data Schedule 50
</TABLE>
Certain information included in this Form 10-Q may include "forward-looking"
statements under federal securities laws, and the Company intends that such
forward-looking statements be subject to the safe-harbor created thereby. There
are many important factors that could cause the Company's actual results to
differ materially from expected results in the forward-looking statements. Such
factors include, but are not limited to, the Company's limited operating
history, the Company's ability to sustain and manage its rate of growth, the
impact of increasing competition in the subprime mortgage banking industry, the
Company's ability to access funding sources, and other risks identified in the
Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission.
2
<PAGE>
Item 1. Financial Statements
New Century Financial Corporation and Subsidiary
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................................ $ 3,143,000 $ 3,041,000
Stock subscription receivable.................................... 32,045,000 -
Loans receivable held for sale, net (notes 2 and 4).............. 186,378,000 57,990,000
Residual interests in securitization (note 3).................... 42,273,000 -
Accrued interest receivable...................................... 900,000 786,000
Office property and equipment.................................... 2,595,000 1,620,000
Prepaid expenses and other assets................................ 3,985,000 1,201,000
----------------------------------
TOTAL ASSETS $271,319,000 $ 64,638,000
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Warehouse lines of credit (note 4)............................... $178,686,000 $ 55,659,000
Residual financing............................................... 23,392,000 -
Notes payable.................................................... 2,197,000 1,326,000
Income taxes payable............................................. 44,000 839,000
Accounts payable and accrued liabilities......................... 12,181,000 2,283,000
Deferred income taxes............................................ 5,318,000 128,000
----------------------------------
221,818,000 60,235,000
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 7,500,000 shares:
Series A Convertible Preferred Stock - issued and outstanding
0 and 5,500,000 shares at June 30, 1997 and December 31, 1996,
respectively.................................................... - 54,000
Series B Convertible Preferred Stock - issued and outstanding
0 and 320,000 shares at June 30, 1997 and December 31, 1996,
respectively.................................................... - 4,000
Common stock, $.01 par value. Authorized 45,000,000
shares; issued and outstanding 10,975,824 and 528,618
shares at June 30, 1997 and December 31, 1996, respectively;
subscribed, not issued 3,132,500 and 0 shares at June 30, 1997
and December 31, 1996, respectively............................. 141,000 6,000
Additional paid-in capital....................................... 43,386,000 3,086,000
Retained earnings, restricted.................................... 8,673,000 1,253,000
----------------------------------
52,200,000 4,403,000
Deferred compensation costs...................................... (2,699,000) -
----------------------------------
Total stockholders' equity............................ 49,501,000 4,403,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $271,319,000 $ 64,638,000
==================================
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
New Century Financial Corporation and Subsidiary
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30 Three Months Ended June 30
1997 1996 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of loans............................. $27,110,000 $ 830,000 $17,098,000 $ 830,000
Interest income................................... 7,344,000 287,000 5,073,000 248,000
Servicing fee income.............................. 1,164,000 - 862,000 -
---------------------------------------------------------------
Total revenues.................................. 35,618,000 1,117,000 23,033,000 1,078,000
---------------------------------------------------------------
Expenses:
Personnel......................................... 9,697,000 1,429,000 6,152,000 845,000
Interest.......................................... 5,715,000 183,000 3,907,000 169,000
General and administrative........................ 4,494,000 466,000 2,540,000 322,000
Advertising and promotion......................... 2,032,000 305,000 1,190,000 199,000
Servicing......................................... 623,000 24,000 389,000 24,000
Professional services............................. 264,000 112,000 108,000 61,000
---------------------------------------------------------------
Total expenses.................................. 22,825,000 2,519,000 14,286,000 1,620,000
Earnings (loss) before income taxes (benefit) 12,793,000 (1,402,000) 8,747,000 (542,000)
Income taxes (benefit).............................. 5,373,000 (587,000) 3,674,000 (225,000)
---------------------------------------------------------------
Net earnings (loss)................................. $ 7,420,000 $ (815,000) $ 5,073,000 $ (317,000)
===============================================================
Primary earnings (loss) per share................... $ 0.69 $ (0.13) $ 0.46 $ (0.05)
===============================================================
Fully-diluted earnings (loss) per share............. $ 0.65 $ (0.13) $ 0.43 $ (0.05)
===============================================================
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
New Century Financial Corporation and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1997 1996
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................................. $ 7,420,000 $ (815,000)
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Depreciation and amortization...................................... 1,017,000 70,000
Deferred income taxes.............................................. 5,190,000 -
Gain on sale of loans.............................................. (32,169,000) -
Net interest receivables collected................................. (1,313,000) -
Initial over-collateralization amount.............................. (10,559,000) -
Over-collateralization amount released............................. 1,313,000 -
Provision for losses............................................... 1,385,000 20,000
Loans originated or acquired for sale.............................. (686,786,000) (56,872,000)
Loan sales, net.................................................... 555,129,000 28,822,000
Principal payments on loans receivable held for sale............... 2,894,000 -
Increase in accrued interest receivable............................ (114,000) (138,000)
Increase in prepaid expenses and other assets...................... (2,442,000) (859,000)
Increase in warehouse lines of credit.............................. 123,027,000 29,016,000
Decrease in income taxes payable................................... (795,000) -
Increase in accounts payable and other liabilities................. 8,888,000 259,000
---------------------------
Net cash used in operating activities............................... (27,915,000) (497,000)
---------------------------
Cash flows from investing activities - purchase of office property
and equipment...................................................... (1,341,000) (678,000)
---------------------------
Cash flows from financing activities:
Net proceeds from notes payable.................................... 871,000 619,000
Net proceeds from residual financing............................... 23,392,000 -
Proceeds from issuance of stock.................................... 5,095,000 -
---------------------------
Net cash provided by financing activities........................... 29,358,000 619,000
---------------------------
Net increase (decrease) in cash and cash equivalents................ 102,000 (556,000)
Cash and cash equivalents, beginning of period...................... 3,041,000 3,029,000
---------------------------
Cash and cash equivalents, end of period............................ $ 3,143,000 $ 2,473,000
===========================
Supplemental cash flow disclosure:
Interest paid...................................................... $ 5,264,000 $ 106,000
Income taxes paid.................................................. $ 978,000 $ 3,000
Stock subscription receivable...................................... $ 32,045,000 $ -
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997 and 1996
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. 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 management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.
Recent Accounting Developments - In June 1996, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
125 (FASB No. 125), "Accounting for Transfer and Servicing of Financial Assets
and Extinguishment of Liabilities." FASB No. 125 addresses the accounting for
all types of securitization transactions, securities lending and repurchase
agreements, collateralized borrowing arrangements and other transactions
involving the transfer of financial assets. FASB No. 125 distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. FASB No. 125 requires the Company to allocate its basis in the
mortgage loans between the portion of the mortgage loans sold through mortgage
backed securities and the portion retained (the residual interests) based on the
relative fair values of those portions on the date of sale. The pronouncement
requires the Company to account for the residual interests as "held-for-trading"
securities which are to be recorded at fair value in accordance with SFAS No.
115. The Company adopted FASB No. 125 on January 1, 1997.
In February 1997, FASB issued Statement of Financial Accounting Standards No.
128, (FASB No. 128), "Earnings Per Share." FASB No. 128 supersedes APB Opinion
No. 15, (APB 15), "Earnings Per Share" and specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock or potential common stock. FASB No.
128 was issued to simplify the computation of EPS and to make the U.S. standard
more compatible with the EPS standards of other countries and that of the
International Accounting Standards Committee (IASC). It replaces the
presentation of primary earnings per share with a presentation of basic EPS and
fully diluted EPS with diluted EPS.
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the
6
<PAGE>
earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS
under APB No. 15.
FASB No. 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
After adoption, all prior-period EPS data presented shall be restated to conform
with FASB No. 128.
FASB No. 129, Disclosure of Information about Capital Structure, is effective
for financial statements for periods ending after December 15, 1997. It is not
expected that the issuance of FASB No. 129 will require significant revision of
prior disclosures since the Statement lists required disclosures that had been
included in a number of previously existing separate statements and opinions.
FASB No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components ( revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. FASB No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. FASB No. 130 does not require a specific format for
that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
FASB No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
FASB N0. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
FASB No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. FASB No. 131 supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
FASB No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on
7
<PAGE>
the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments.
FASB No. 131 requires that a public business enterprise report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. It requires reconciliations of total segment revenues, total segment
profit or loss, total segment assets, and other amounts disclosed for segments
to corresponding amounts in the enterprise's general-purpose financial
statements. It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or services (or groups
of similar products and services), about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of
whether that information is used in making operating decisions. However, FASB
No. 131 does not require an enterprise to report information that is not
prepared for internal use if reporting it would be impracticable.
FASB No. 131 also requires that a public business enterprise report descriptive
information about the way that the operating segments were determined, the
products and services provided by the operating segments, differences between
the measurements used in reporting segment information and those used in the
enterprise's general-purpose financial statements, and changes in the
measurement of segment amounts from period to period.
FASB No. 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. This Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second
year of application.
Residual interests in securitization - Residual interests in securitization of
real estate mortgage conduits (REMICs) are recorded as a result of the sale of
loans through securitization. At the closing of each securitization, the
Company removes from its balance sheet the mortgage loans held for sale and adds
to its balance sheet (i) the cash received; and (ii) the estimated fair value of
the residual interests from the securitization, which consists of (a) an
overcollateralization amount (OC) and (b) a net interest receivable (NIR). The
excess of the cash received and assets retained by the Company over the carrying
value of the loans sold, less transaction costs, equals the gain on sale of
loans recorded by the Company.
The Company allocates its basis in the mortgage loans between the portion of the
mortgage loans sold through mortgage-backed securities (the senior certificates)
and the portion retained (the residual interests) based on the relative fair
values of those portions on the date of sale.
The Company may recognize gains or losses attributable to the change in the fair
value of the residual interests, which are recorded at estimated fair value and
accounted for as "held-for-trading" securities. The Company is not aware of an
active market for the purchase or sale of residual interests; accordingly, the
Company estimates the fair value
8
<PAGE>
of the residual interests by calculating the present value of the estimated
expected future cash flows using a discount rate commensurate with the risks
involved.
NIRs are determined by using the amount of the excess of the weighted-average
coupon on the loans sold over the sum of: (1) the coupon on the senior
certificates; (2) a base servicing fee paid to the servicer of the loans; (3)
estimated losses to be incurred on the portfolio of loans sold over the
estimated lives of the loans; and (4) other expenses and revenues, which include
anticipated prepayment penalties. The significant assumptions used by the
Company to estimate NIR cash flows are anticipated prepayments and estimated
credit losses. The Company estimates prepayments by evaluating historical
prepayment performance of comparable loans and the impact of trends in the
industry. The Company estimates credit losses using available historical loss
data for comparable loans and the specific characteristics of the loans included
in the Company's securitizations.
The OC represents the portion of the loans which are held by the trust as
overcollateralization for the senior certificates sold and, along with a
certificate guarantor insurance policy, serves as credit enhancement to the
senior certificate holders. The OC initially consists of the excess of the
principal balance of the mortgage loans sold to the trust, less the principal
balance of the certificates sold to investors. The OC is required to be
maintained at a specified target level of the principal balance of the
certificates, which can be increased significantly in the event delinquencies
and/or losses exceed certain specified levels. Cash flows received by the trust
in excess of the obligations of the trust are deposited into the
overcollateralization account until the target OC is reached. Once the target
OC is reached, distributions of excess cash are remitted to the Company.
2. Loans Receivable Held for Sale
A summary of loans receivable held for sale, at the lower of cost or market at
June 30, 1997 and December 31, 1996 follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- -----------
<S> <C> <C>
Mortgage loans receivable................................... $186,014 $ 57,701
Net deferred origination costs.............................. 364 289
-------- --------
$186,378 $ 57,990
======== ========
</TABLE>
9
<PAGE>
3. Residual Interests in Securitization
Residual interests in securitization consist of the following components at June
30, 1997 (dollars in thousands):
<TABLE>
<S> <C>
Over-collateralization amount.................................... $10,559
Net interest receivable (NIR).................................... 31,714
-------
$42,273
=======
</TABLE>
The following table summarizes activity in the NIR interests at June 30, 1997
(dollars in thousands):
<TABLE>
<S> <C>
Balance, beginning of period..................................... $ -
NIR recognized................................................... 32,169
Amortization..................................................... (455)
-------
Balance, end of period........................................... $31,714
=======
</TABLE>
4. Warehouse Lines of Credit
Warehouse lines of credit consist of the following at June 30, 1997 and December
31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
A $125 million line of credit expiring in May 1998
secured by loans receivable held for sale, bearing
interest based on one month LIBOR (5.71% at
June 30, 1997)..................................... $114,897 $ 41,702
A $175 million master repurchase agreement bearing
interest based on one month LIBOR (5.71% at
June 30, 1997). The agreement may be terminated
by the lender giving 28 days written notice........ 63,789 13,957
-------- --------
$178,686 $ 55,659
======== ========
</TABLE>
The warehouse line of credit agreements contain certain restrictive financial
and other covenants which require the Company to, among other requirements,
restrict dividends, maintain certain levels of net worth, liquidity of $1.5
million, debt-to-net-worth ratios and compliance with regulatory and investor
requirements. At June 30, 1997, the Company was in compliance with these
financial and other covenants.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
New Century Financial Corporation (the "Company") is a specialty finance company
engaged in the business of originating, purchasing, selling and servicing
subprime mortgage loans secured primarily by first mortgages on single family
residences. The Company originates and purchases loans through its Wholesale and
Retail Divisions, and acquires loans through bulk acquisitions. The Company's
borrowers generally have substantial equity in the property securing the loan,
but have impaired or limited credit profiles or higher debt-to-income ratios
than traditional mortgage lenders allow. The Company's borrowers also include
individuals who, due to self-employment or other circumstances, have difficulty
verifying their income, as well as individuals who prefer the prompt and
personalized service provided by the Company. Because these borrowers typically
use the proceeds of the Company's loans to consolidate and refinance debt, and
to finance home improvements, education and other consumer needs, the Company
believes that its loan volume will be less dependent on general levels of
interest rates or home sales and therefore less cyclical than conventional
mortgage lending.
Loan Originations and Purchases
As of June 30, 1997, the Company's Wholesale Division operated through 22 sales
offices and 3 regional operating centers located in 18 states. The number of
account executives in the Wholesale Division grew to 58 at June 30, 1997, from
16 at June 30, 1996. The Company's Retail Division operated through 44 sales
offices located in 17 states and the number of loan officers grew to 149 at June
30, 1997, from 20 at June 30, 1996.
The Company originated and purchased $683.6 million in loans for the six months
ended June 30, 1997, compared to $56.8 million for the six months ended June 30,
1996. Loans originated and purchased through the Company's Wholesale Division
were $462.4 million, or 67.7%, of total originations and purchases for the six
months ended June 30, 1997. Loans originated through the Company's Retail
Division were $197.2 million, or 28.8%, of total originations and purchases for
the six month period. Loans purchased through bulk acquisition were $24.0
million, or 3.5%, of total originations and purchases for the six months ended
June 30, 1997. For the same period in 1996, Wholesale and Retail originations
and purchases totaled $47.7 million, or 84.0%, and $9.1 million, or 16.0%,
respectively, of total originations and purchases for such period. There were no
bulk acquisitions in the six months ended June 30, 1996.
11
<PAGE>
Loan Sales and Securitizations
The following table sets forth loan sales for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1997 1996 1997 1996
------------------- -------------------
<S> <C> <C> <C> <C>
Securitizations.................................... $232,211 $ -- $331,343 $ --
Whole loan sales................................... 128,070 28,822 223,786 28,822
------------------ ------------------
Total $360,281 $28,822 $555,129 $28,822
================== ==================
</TABLE>
In the six months ended June 30, 1997, the Company securitized $331.3 million,
or 59.7% of total loan sales. In the three months ended June 30, 1997,
securitizations represented 64.5% of total loan sales. The Company's loan sale
strategy includes both securitizations and whole loan sales in order to advance
the Company's goal of enhancing profits while managing cash flows. Loan sales
through securitizations permit the Company to enhance operating profits and to
benefit from future cash flows generated by the residual interests retained by
the Company. Whole loan sale transactions enable the Company to generate
current cash flow, protect against the potential volatility of the
securitization market and reduce the risks inherent in retaining residual
interests in securitizations.
Results of Operations
The Company began lending operations in February 1996. Accordingly, results for
the six month and three month periods ended June 30, 1996 primarily reflect
costs incurred in the startup and expansion of operations.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Total revenues for the six months ended June 30, 1997 increased to $35.6
million, from $1.1 million for the six months ended June 30, 1996, due primarily
to the increase in loan originations and purchases and sales in 1997. Gain on
sale of loans increased to $27.1 million for the six months ended June 30, 1997,
from $830,000 for the six months ended June 30, 1996, due to the increase in
loan sales in 1997. Interest income increased to $7.3 million for the six
months ended June 30, 1997, from $287,000 for the same period in 1996, primarily
due to increased interest income from loans held for sale. Servicing fee income
increased to $1.2 million for the six months ended June 30, 1997, from zero for
the six months ended June 30, 1996.
Gain on sale of loans of $27.1 million resulted from the sale of $555.1 million
in loans for the six month period ended June 30, 1997. Of these sales, $331.3
million, or 59.7%, were through loan securitizations and the remainder
represented whole loan sales.
12
<PAGE>
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
--------- ---------
<S> <C> <C>
Gain from whole loan sale transactions and
securitizations, net $ 32,611 $ 1,034
Unrealized gain on held-for-trading securities 3,848 --
Provision for repurchase losses (1,385) (20)
Non-refundable loan fees 8,359 559
Premiums paid (6,057) (76)
Origination costs (10,266) (667)
-------- -------
Gain on sale of loans $ 27,110 $ 830
======== =======
</TABLE>
Whole loan sales increased to $223.8 million for the six months ended June
30, 1997, from $28.8 million for the corresponding period in 1996. This
increase is the result of the increase in loan originations and purchases.
Interest income is earned on loans held in inventory for sale. Such interest
income accrues during periods when loans are accumulated for future
sales, and increases as loan originations and purchases increase. The increase
in interest income for the six months ended June 30, 1997 is the result of a
higher average inventory of loans held for sale compared to the corresponding
period in 1996. The average inventory of loans held for sale for the six months
ended June 30, 1997, based on quarter-end balances, was $119.2 million, compared
to $10.8 million for the corresponding period in 1996.
Servicing fee income reflects servicing fees received on loans sold or
securitized by the Company on which the Company has retained ownership of the
servicing rights. The increase in servicing fee income for the six months ended
June 30, 1997 is due to the fact that the Company securitized $331.3 million in
loans and retained the servicing rights, while the Company sold substantially
all of its loans through whole loan sale transactions on a servicing-released
basis in 1996.
Total expenses increased to $22.8 million for the six months ended June 30,
1997, from $2.5 million for the six months ended June 30, 1996. Interest
expense increased due to the higher level of loan inventory and corresponding
warehouse borrowing, while all other expense components increased from 1996 to
1997 due primarily to (1) higher loan origination volume in the six months ended
June 30, 1997 compared to the same period in 1996; (2) an increase in staffing
from 105 employees at June 30, 1996 to 623 at June 30, 1997; and (3) the
addition of 21 wholesale sales offices and 39 retail sales offices from June 30,
1996 to June 30, 1997.
13
<PAGE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
The Company originated and purchased $433.0 million in loans in the three months
ended June 30, 1997, compared to $52.5 million for the three months ended June
30, 1996. Loans originated and purchased through the Company's Wholesale
Division were $286.2 million, or 66.1%, of total originations and purchases for
the three months ended June 30, 1997. Loans originated through the Company's
Retail Division were $122.8 million, or 28.4%, of total originations and
purchases for the three month period. Loans acquired through bulk purchases
were $24.0 million, or 5.5%, of total originations and purchases for the three
months ended June 30, 1997. Loans originated and purchased through the
Wholesale and Retail Divisions for the three months ended June 30, 1996 totaled
$45.4 million, or 86.5%, and $7.1 million, or 13.5%, respectively, of total
originations and purchases for such period. There were no bulk purchases of
loans in the quarter ended June 30, 1996.
Total revenues for the three months ended June 30, 1997 increased to $23.0
million, from $1.1 million for the three months ended June 30, 1996, due
primarily to the increase in loan originations and purchases and sales in 1997.
Gain on sale of loans increased to $17.1 million for the three months ended June
30, 1997, from $830,000 for the three months ended June 30, 1996, due to the
increase in loan sales in 1997. Interest income increased to $5.1 million for
the three months ended June 30, 1997, from $248,000 for the same period in 1996,
primarily due to increased interest income from loans held for sale. Servicing
fee income increased to $862,000 for the three months ended June 30, 1997, from
zero for the three months ended June 30, 1996.
Gain on sale of loans of $17.1 million resulted from the sale of $360.3 million
in loans for the three month period ended June 30, 1997. Of these sales, $232.2
million, or 64.5%, were through loan securizations and the remainder represented
whole loan sales. The components of the gain on sale of loans are illustrated
in the following table (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
-------- -------
<S> <C> <C>
Gain from whole loan sale transactions and
securitizations, net $20,708 $1,034
Unrealized gain on held-for-trading securities 2,581 --
Provision for repurchase losses (890) (20)
Non-refundable loan fees 5,048 559
Premiums paid (4,254) (76)
Origination costs (6,095) (667)
------- ------
Gain on sale of loans $17,098 $ 830
======= ======
</TABLE>
Whole loan sales increased to $128.1 million for the three months ended June 30,
1997, from $28.8 million for the corresponding period in 1996. This increase is
the result of the increase in loan originations and purchases.
14
<PAGE>
Interest income is earned on loans held in inventory for sale. Such interest
income accrues during periods when loans are accumulated for future
sales, and increases as loan originations and purchases increase. The increase
in interest income for the three months ended June 30, 1997 is the result of a
higher average inventory of loans held for sale compared to the corresponding
period in 1996.
Servicing fee income reflects servicing fees received on loans sold or
securitized by the Company on which the Company has retained ownership of the
servicing rights. The increase in servicing fee income for the three months
ended June 30, 1997 is due to the fact that, as of June 30, 1997, the Company
had securitized $331.3 million in loans and retained the servicing rights, while
the Company sold substantially all of its loans through whole loan sale
transactions on a servicing-released basis in 1996.
Total expenses increased to $14.3 million for the three months ended June 30,
1997, from $1.6 million for the three months ended June 30, 1996. Interest
expense increased due to the higher level of loan inventory and corresponding
warehouse borrowing, while all other expense components increased primarily due
to the increase in sales offices and staffing to support the increased loan
originations and purchases in the three months ended June 30, 1997, compared to
the same period in 1996.
Liquidity and Capital Resources
The Company requires access to short-term warehouse and aggregation credit
facilities in order to fund loan originations and purchases pending the pooling
and sale of such loans. As of June 30, 1997, the Company had a $125.0 million
warehouse line of credit led by First Bank National Association which expires in
May 1998 and bore interest at a rate equal to the one month LIBOR plus 1.50%.
At June 30, 1997, the balance outstanding under the warehouse line of credit was
$114.9 million. As of June 30, 1997, the Company also had a $175.0 million
aggregation facility with Salomon Brothers, which is subject to renewal by
Salomon on a monthly basis and bore interest at a rate generally equal to the
one month LIBOR plus 1.25%. At June 30, 1997, the balance outstanding under the
aggregation facility was $63.8 million. The Company utilizes the First Bank
warehouse line to finance the actual funding of its loan originations and
purchases. After loans are funded by the Company utilizing the First Bank
warehouse line and all loan documentation is complete, the loans are generally
transferred to the Salomon aggregation facility. The aggregation facility is
paid down with the proceeds of loan sales and securitizations. The Company
expects to continue to expand its credit facilities to finance its increasing
levels of loan production.
The Company has a residual financing arrangement with Salomon pursuant to which
Salomon provides financing of the Company's residual interests in
securitization, when Salomon is the lead underwriter. The amount of residual
financing provided upon each securitization is determined pursuant to a formula
set forth in the agreement and is subject to repayment as a result of changes in
the market value of the residual interest as determined by Salomon. The facility
bears interest at a rate equal to the one month LIBOR plus 1.25%. The Company
intends to add new credit facilities, as well as expand this credit facility, in
order to finance future securitization transactions. At June 30, 1997, the
balance outstanding under this facility was $23.4 million.
15
<PAGE>
The Company has a discretionary, non-revolving $2.5 million line of credit with
an affiliate of First Bank secured by the Company's furniture and equipment.
Advances under this facility are made periodically at the discretion of the
lender, and bear interest at a fixed rate established at the time of each
advance for a term of three years. As of June 30, 1997, the balance outstanding
under this facility was $2.2 million, and the weighted-average interest rate was
9.0%.
In March 1997, the Company established a $2.5 million unsecured line of credit
with First Bank for working capital purposes. In June 1997, the line was
increased to $4.0 million. As of June 30, 1997, the balance outstanding was $1.3
million and the interest rate was 10.25%.
The Company's business requires substantial cash to support its operating
activities and growth plans. Securitizations of the Company's loans, as well as
continued growth in loan production volume, create negative operating cash flow
primarily as a result of (1) the difference between the cash required to fund
loans and the financing received under the warehouse line of credit; and (2) the
Company's securitization strategy, pursuant to which cash gains are received
over the life of the loans securitized. The Company believes that its current
credit facilities are adequate to finance its anticipated operations.
In July 1997, the Company completed its Initial Public Offering, raising an
aggregate of $31.0 million, net of offering expenses. The Company believes that
its current liquidity and capital resources are adequate to support its
anticipated operations for the foreseeable future.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company occasionally becomes involved in litigation arising in the
normal course of business. Management believes that any liability with
respect to such legal actions, individually or in the aggregate, will
not have a material adverse effect on the Company's financial position
or results of operations.
Item 2. Change in Securities
In May 1997, the Company issued to the following stockholders the
following number of shares of Common Stock upon the exercise by such
stockholders of certain Warrants to Purchase Common Stock of the
Company: Cornerstone Fund I, L.L.C. (220,656 shares at an exercise
price of $3.50 per share), Westrec Rollover PS Plan (11,032 shares at
an exercise price of $3.50 per share), Harlan W. Smith (11,032 shares
at an exercise price of $3.50 per share), Harcol Limited Partnership
(11,032 shares at an exercise price of $3.50 per share), David Krinsky
(11,032 shares at an exercise price of $3.50 per share), Cornerstone
Equity Partners, L.L.C. (11,032 shares at an exercise price of $3.50
per share), Oak Craft Employees Profit Sharing Plan (2,758 shares at
an exercise price of $3.50 per share), Martin F. Ryan, Ltd. Defined
Benefit Pension Plan (8,274 shares at an exercise price of $3.50 per
share), Robert K. Cole (321,545, 275,610, 229,675 and 31,250 shares at
exercise prices of $1.00, $2.00, $3.00 and $3.50 per share,
respectively), Brad A. Morrice (321,545, 275,610, 229,675 and 30,630
shares at exercise prices of $1.00, $2.00, $3.00 and $3.50 per share,
respectively), Samantha H. Morrice Trust (1,103 shares at an exercise
price of $3.50 per share), Edward F. Gotschall (321,545, 275,610,
229,675 and 28,148 shares at exercise prices of $1.00, $2.00, $3.00
and $3.50 per share, respectively) and Steven G. Holder (321,545,
275,610, 229,675 and 26,907 shares at exercise prices of $1.00, $2.00,
$3.00 and $3.50 per share, respectively). The sale and issuance of
securities described in this paragraph were exempt from the
registration requirements of the Securities Act by virtue of Section
4(2) of the Securities Act and Regulation D thereunder.
In May 1997, the Company issued to the following stockholders the
following number of shares of Common Stock upon the conversion by such
stockholders of shares of Series A and B Preferred Stock of the
Company: Cornerstone Fund I, L.L.C. (4,000,000 shares), Westrec
Rollover PS Plan (200,000 shares), Michael M. Sachs (300,000 shares),
Harlan W. Smith (200,000 shares), Harcol Limited Partnership (200,000
shares), David Krinsky (200,000 shares), Cornerstone Equity Partners,
L.L.C. (200,000 shares), Oak Craft Inc. Employees Profit Sharing Plan
(50,000 shares), Martin F. Ryan, Ltd. Defined Benefit Pension Plan
(150,000 shares), Robert K. Cole (140,000 shares), Brad A. Morrice
(120,000 shares), Samantha H. Morrice Trust (20,000 shares) and Edward
17
<PAGE>
F. Gotschall (40,000 shares). The sale and issuance of securities
described in this paragraph were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) of the
Securities Act and Regulation D thereunder.
In May 1997, the Company issued to Comerica Incorporated ("Comerica")
545,000 shares of Common Stock for $4,087,500. In May 1997, the
Company also issued to Comerica Warrants to purchase 100,000 shares
of Common Stock in exchange for certain services by Comerica with
respect to servicing the Company's loans and developing leads for the
Company. The Warrants are exercisable over five years at $11.00 per
share, subject to vesting in equal installments on December 31, 1997,
1998 and 1999. Accelerated vesting will occur upon (1) certain
changes in control of the Company or (2) the inclusion of the shares
underlying the Warrants in a registration statement, subject to
certain limitations, upon exercise of Comerica's registration rights.
The sale and issuance of securities described in this paragraph were
exempt from the registration requirements of the Securities Act by
virtue of Section 4(2) of the Securities Act and Regulation D
thereunder.
In May 1997, pursuant to the Company's 1995 Stock Option Plan and
certain Restricted Stock Award Agreements, the Company issued 92,500
shares of restricted stock to each of Robert K. Cole, Brad A.
Morrice, Edward F. Gotschall and Steven G. Holder. The issuance of
the shares of restricted stock was exempt from registration by virtue
of Section 4(2) of the Securities Act, and Rule 701 promulgated
thereunder in that they were offered and sold pursuant to a written
compensatory benefit plan and pursuant to written contracts relating
to compensation, as provided in Rule 701.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
By Written Consent of Stockholders of the Company, dated May 30,
1997, the stockholders of the Company unanimously authorized and
approved (i) the First Amended and Restated Certificate of
Incorporation of the Company, which, among other things, increased
the authorized capital stock of the Company and deleted certain
super-majority voting provisions, (ii) certain amendments to the
Company's 1995 Stock Option Plan, which, among other things,
increased the number of authorized but unissued shares of the
Company's Common Stock reserved for issuance thereunder, and (iii)
the classification of the Board of Directors of the Company into
three classes, designated Class I, Class II and Class III directors.
In addition, pursuant to such written consent, the stockholders
designated (i) Martin Ryan, Harlan Smith and Edward Gotschall as
initial Class I directors, whose terms of office terminate at the
annual meeting of the stockholders to be held in 1998, (ii) Sherman
Chu, Brad Morrice and Michael Sachs as initial Class II directors,
whose terms of office terminate at the annual meeting of the
stockholders to be held in 1999, and (iii) John Bentley, Robert Cole
and Steven Holder as initial Class III directors, whose terms of
office terminate at the annual meeting of the stockholders to be held
in 2000.
Item 5. Other Information
None
Item 6.(a) Exhibits required by Item 601 of Regulation S-K
See "Exhibit Index."
(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 hereunto duly authorized.
NEW CENTURY FINANCIAL CORPORATION
DATE: August 13, 1997 /s/ BRAD A. MORRICE
----------------------------------
Brad A. Morrice
President
DATE: August 13, 1997 /s/ EDWARD F. GOTSCHALL
----------------------------------
Edward F. Gotschall
C.O.O. - Finance
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of Sequentially
Number Exhibit Numbered Page
- ------- --------------- -------------
<C> <S> <C>
* 3.1 First Amended and Restated
Certificate of Incorporation of the
Company
* 3.2 First Amended and Restated Bylaws of
the Company
** 4.1 Specimen Stock Certificate
10.1 Fifth Amendment to the Amended and
Restated Credit Agreement between the
Company and First Bank National
Association, dated June 25, 1997
11.1 Statement re Computation
of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from Amendment No. 1 to the Registration
Statement on Form S-1 of the Company as filed with the SEC on June 2, 1997.
** Incorporated by reference from Amendment No. 2 to the Registration Statement
on Form S-1 of the Company as filed with the SEC on June 18, 1997.
20
<PAGE>
FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------------------
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment") dated as of June 25, 1997 by and among NEW CENTURY MORTGAGE
CORPORATION, a California corporation (the "Company"), FIRST BANK NATIONAL
ASSOCIATION, a national banking association ("First Bank"), GUARANTY FEDERAL
BANK, FSB, a federal savings bank ("GFB"), (First Bank, GFB and any other
financial institutions which may hereafter become parties hereto being
hereinafter referred to collectively as the "Banks" and individually as a
"Bank"), and FIRST BANK NATIONAL ASSOCIATION, a national banking association, in
its capacity as agent for the Banks (in such capacity, together with any
successor agents appointed hereunder, the "Agent"). Terms not otherwise
expressly defined herein shall have the meanings set forth in the Credit
Agreement.
WITNESSETH THAT:
WHEREAS, the Company, the Banks and the Agent are parties to an Amended and
Restated Credit Agreement dated as of October 25, 1996, as amended by a First
Amendment dated as of December 31, 1996, by a Second Amendment dated as of March
14, 1997, by a Third Amendment dated as of March 28, 1997, and by a Fourth
Amendment dated as of April 16, 1997 (as so amended, the "Credit Agreement"),
pursuant to which the Banks provided the Company with revolving mortgage
warehousing and working capital credit facilities; and
WHEREAS, the Company and the Banks have agreed to amend the Credit
Agreement upon the terms and conditions herein set forth.
NOW THEREFORE, for value received, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Banks agree as follows:
1. Certain Defined Terms. Each capitalized term used herein without
---------------------
being defined herein that is defined in the Credit Agreement shall have the
meaning given to it therein.
2. Amendment to Credit Agreement. The Credit Agreement is hereby amended
-----------------------------
as follows:
2.1 The definitions of the terms "Applicable Margin," "Change of
Control," "Fixed Rate Advance," "Leverage Ratio," "Reference Rate
Advance," "Tangible Net Worth" and "Total Indebtedness" set forth in
Section 1.01 thereof are amended to read as follows:
"Applicable Margin": with respect to:
-----------------
<PAGE>
(a) Reference Rate Advances, 0%; and
(b) Eurodollar Advances, 1.50% prior to the IPO Date,
and 1.25% thereafter.
"Change of Control": the occurrence, after the Signing Date,
-----------------
of any of the following circumstances: (a) NCFC not owning,
directly or indirectly, all of the issued and outstanding capital
stock of the Company; or (b) any Person, or two or more Persons
acting in concert, other than the Management Shareholders,
acquiring beneficial ownership (within the meaning of Rule 13d-3
of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended), directly or indirectly, of
securities of NCFC (or other securities convertible into such
securities) representing 35% or more of the combined voting power
of all securities of NCFC entitled to vote in the election of
directors; (c) any Person, or two or more Persons acting in
concert, other than the Management Shareholders, acquiring by
contract or otherwise, or entering into a contract or arrangement
which upon consummation will result in its or their acquisition
of, control over securities of NCFC (or other securities
convertible into such securities) representing 35% or more of the
combined voting power of all securities of NCFC entitled to vote
in the election of directors; or (d) Robert Cole ceasing to be
Chairman and CEO of NCFC.
"Fixed Rate Advance": an outstanding Warehousing Loan
------------------
that bears interest as provided in Section 2.02(a)(i) or a
Working Capital Loan that bears interest as provided in Section
2.02A(a).
"Reference Rate Advance": an outstanding Warehousing
----------------------
Loan or a Swingline Loan that bears interest as provided in
Section 2.02(a)(ii) or a Working Capital Loan that bears interest
as provided in Section 2.02A(a).
"Leverage Ratio": on any date of determination, the
--------------
ratio of (a) Total Indebtedness to (b) Tangible Net Worth.
"Tangible Net Worth": as of any date of determination
------------------
(i) prior to the IPO Date, the consolidated Net Worth of NCFC and
its subsidiaries, less the consolidated net book value of all
assets of NCFC and its subsidiaries (to the extent reflected as
an asset in the balance sheet of NCFC or any subsidiary at such
date) which will be treated as intangibles under GAAP, including,
without limitation, such items as deferred financing expenses,
net leasehold improvements, good will, trademarks, trade names,
service marks, copyrights, patents, licenses
-2-
<PAGE>
and unamortized debt discount and expense and (ii) thereafter,
the consolidated Net Worth of the Company and its subsidiaries,
less the consolidated net book value of all assets of the Company
and its subsidiaries (to the extent reflected as an asset in the
balance sheet of the Company or any subsidiary at such date)
which will be treated as intangibles under GAAP, including,
without limitation, such items as deferred financing expenses,
net leasehold improvements, good will, trademarks, trade names,
service marks, copyrights, patents, licenses and unamortized debt
discount and expense; provided, that interest-only or residual
--------
interests in Mortgage-backed Securities or asset-backed
securities issued by the Company shall not be treated as
intangibles for purposes of this definition.
"Total Indebtedness": at any time of determination (i)
------------------
prior to the IPO Date, the amount, on a consolidated basis, of
the liabilities of NCFC and its subsidiaries, determined in
accordance with GAAP, minus obligations under gestation
repurchase agreements or similar arrangements under which NCFC or
its subsidiaries are required to repurchase Mortgage-backed
Securities or Mortgage Loans from any Bank or other counterparty
reasonably satisfactory to the Agent, whether or not such
obligations are reflected on NCFC's balance sheet and (ii)
thereafter, the amount, on a consolidated basis, of the
liabilities of the Company and its subsidiaries, determined in
accordance with GAAP, minus obligations under gestation
repurchase agreements or similar arrangements under which the
Company or its subsidiaries are required to repurchase Mortgage-
backed Securities or Mortgage Loans from any Bank or other
counterparty reasonably satisfactory to the Agent, whether or not
such obligations are reflected on the Company's balance sheet;
provided, that such gestation repurchase agreements are entered
into in the ordinary course of business in contemplation of the
subsequent non-recourse sale of such Mortgage-backed Securities
or Mortgage Loans.
2.2 Section 1.01 thereof is further amended by adding thereto,
in alphabetical order, the following new defined terms:
"IPO Date": the first day of the month following the
--------
date on which NCFC shall have received and contributed to the
Company proceeds of the initial public offering of NCFC's stock
in an amount sufficient to increase the Company's Tangible Net
Worth to not less than $35,000,000.
2.3 Section 1.01 thereof is further amended by deleting the term
"Adjusted Tangible Net Worth."
-3-
<PAGE>
2.4 Section 2.01(i) thereof is hereby amended in its entirety to
read as follows:
(i) Facility Fees. The Company shall pay each Bank a
-------------
facility fee on the average daily amount of such Bank's
Warehousing Commitment Amount, whether used or unused, payable
monthly in arrears on the third Business Day of each month in an
amount equal to (i) one-half of one percent (0.5%) per annum
prior to the IPO Date and (ii) one-quarter of one percent (0.25%)
per annum thereafter.
2.5 Section 2.01A(b) thereof is hereby amended in its entirety
to read as follows:
(b) Manner of Borrowing. The Company shall give First Bank
-------------------
telephonic notice of each request for a Working Capital Loans not later than
3:30 p.m. (Minneapolis time) on the requested Borrowing Date. Each request for a
Working Capital Loan shall specify the amount of such Working Capital Loan and,
after the IPO Date, whether such Loans to be made are to be funded as Fixed Rate
Advances or Reference Rate Advances; provided, that any portion of a Loan not so
designated shall be funded as a Reference Rate Advance. The Company shall
promptly confirm any such request by delivering to First Bank a duly completed
and executed Confirmation of Borrowing/Paydown/Conversion. On the Borrowing Date
of such requested Working Capital Loan, First Bank shall deposit into the
Collateral Account in Immediately Available Funds by not later than 4:00 p.m.
(Minneapolis time) on such Borrowing Date the amount of the requested Working
Capital Loan. Each request for a Working Capital Loan shall be deemed to be a
representation by the Company that (i) no Event of Default or Unmatured Event of
Default has occurred or will exist upon the making of the requested Working
Capital Loan and (ii) the representations and warranties contained in Section 3
hereof, in Section 5 of the Pledge and Security Agreement, and in Section 15 of
the Guaranty are true and correct with the same force and effect as if made on
and as of the date of such request.
2.5 Section 2.01A(f) thereof is hereby amended in its entirety
to read as follows:
(f) Facility Fees. The Company shall pay First Bank
-------------
a facility fee on the average daily amount of the Working Capital
Commitment Amount, whether used or unused, payable monthly in
arrears on the third Business Day of each month in an amount
equal to (i) one-half of one percent (0.5%) per annum prior to
the IPO Date and (ii) one-quarter of one percent (0.25%) per
annum thereafter.
-4-
<PAGE>
2.6 The preamble to Section 2.02(a) thereof is hereby amended in
its entirety to read as follows:
(a) Interest Rates; Balances Deficiency Fees. The Company
----------------------------------------
will pay each Bank monthly in arrears on the third Business Day of
each month interest on the unpaid principal balance of each Advance of
such Bank from time to time outstanding as follows:
2.7 Section 2.02(a)(i) thereof is hereby amended in its entirety
to read as follows:
(i) with respect to Fixed Rate Advances, at the per annum
rate of (x) 1.50% prior to the IPO Date and (y) 1.25% thereafter
(the "Fixed Rate"); provided, that if for any Balance Calculation
Period the average daily Reserve-Adjusted Balances maintained by
the Company with any Bank are less than an amount equal to the
average daily aggregate unpaid principal balance of the Fixed
Rate Advances owed to such Bank during such Balance Calculation
Period (such deficiency being herein referred to as the "Balances
Deficiency"), the Company will pay such Bank a fee (the "Balances
Deficiency Fee") for said Balance Calculation Period on the
Balances Deficiency at a per annum rate equal to (A) prior to the
IPO Date, 1.50%, and (B) thereafter, 1.25%, below the average
daily Reference Rate in effect during said Balance Calculation
Period; and provided further, that if the weighted average
Reserve-Adjusted Balances maintained by the Company with any Bank
for any Balance Calculation Period exceeds the weighted average
daily aggregate unpaid principal balance of the Fixed Rate
Advances owed to such Bank during such Balance Calculation Period
(such excess being defined herein as the "Balances Surplus"),
then such Balances Surplus, or, if the Company and such Bank
shall so agree, the charges reduction benefit for such Balances
Surplus (as determined by such Bank), may be carried forward and
applied to succeeding Balance Calculation Periods (but not to any
Balance Calculation Period occurring in any subsequent calendar
year);
2.7 Section 2.02A(a) thereof is hereby amended in its entirety
to read as follows:
2.02A Interest on the Working Capital Note.
------------------------------------
(a) Interest Rate. The Company will pay First Bank
-------------
interest on the unpaid principal balance of the Working Capital
Note, (i) prior to the IPO Date, at a rate per annum equal to the
Reference Rate plus one percent (1.0%) per annum, as adjusted
automatically on and as of the
-5-
<PAGE>
effective date of any change in the Reference Rate and (ii)
thereafter, with respect to (x) Fixed Rate Advances, at the per
annum rate (the "Fixed Rate") of 2.0%; provided, that if for any
Balance Calculation Period the average daily Reserve-Adjusted
Balances maintained by the Company with any Bank are less than an
amount equal to the average daily aggregate unpaid principal
balance of the Fixed Rate Advances owed to such Bank during such
Balance Calculation Period (such deficiency being herein referred
to as the "Balances Deficiency"), the Company will pay such Bank
a fee (the "Balances Deficiency Fee") for said Balance
Calculation Period on the Balances Deficiency at a per annum rate
equal to 1.5% below the average daily Reference Rate in effect
during said Balance Calculation Period; and provided further,
that if the weighted average Reserve-Adjusted Balances maintained
by the Company with any Bank for any Balance Calculation Period
exceeds the weighted average daily aggregate unpaid principal
balance of the Fixed Rate Advances owed to such Bank during such
Balance Calculation Period (such excess being defined herein as
the "Balances Surplus"), then such Balances Surplus, or, if the
Company and such Bank shall so agree, the charges reduction
benefit for such Balances Surplus (as determined by such Bank),
may be carried forward and applied to succeeding Balance
Calculation Periods (but not to any Balance Calculation Period
occurring in any subsequent calendar year) and (y) Reference Rate
Advances, the Reference Rate plus one-half of one percent (0.5%)
per annum, as adjusted automatically on and as of the effective
date of any change in the Reference Rate; provided, however, that
-------- -------
any payment of principal of or interest on the Working Capital
Note that is not paid when due shall bear interest, to the extent
permitted by law, at a rate equal to the applicable rate plus two
percent (2.0%) per annum.
2.08 Section 4.08 thereof is hereby amended in its entirety to
read as follows:
4.08 Indebtedness. The Company and NCFC will not,
------------
directly or indirectly, create, incur, assume, guarantee, or
otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:
(a) the Obligations and the Letter of Credit Obligations;
(b) current liabilities not more than 90 days overdue,
unless contested in good faith by appropriate proceedings and any
reserves required by GAAP have been established, incurred by NCFC
or the
-6-
<PAGE>
Company in the ordinary course of business otherwise than for
money borrowed; and
(c) Indebtedness incurred to finance the purchase of
equipment and secured solely by Liens on such equipment, in an
aggregate amount not to exceed $4,000,000;
(d) Indebtedness incurred to finance interest-only or
residual interests in Mortgage-backed Securities or asset-backed
securities issued by the Company and which Indebtedness is
secured only by such residual interests, provided, such
--------
Indebtedness shall not exceed 75% of the GAAP value of such
interest-only or residual interests;
(e) intercompany Indebtedness of NCFC to the Company
incurred after the IPO Date in an aggregate amount not to exceed
$1,000,000; and
provided, that in no event shall the Leverage Ratio be greater
than (i) prior to the IPO Date, 10 to 1 as of the last day of
each fiscal month of the Company and (ii) thereafter, 8 to 1 as
of the last day of each fiscal quarter of the Company.
2.09 Section 4.10 thereof is hereby amended in its entirety to
read as follows:
4.10 Investments. The Company and NCFC will not,
-----------
directly or indirectly, make or own any Investment, except
Investments in (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or
issued by any agency thereof and backed by the full faith and
credit of the United States, in each case maturing within one
year from the date of acquisition thereof, (b) marketable direct
obligations issued by any state of the United States of America
or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having the
highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., (c) commercial
paper maturing no more than one year from the date of creation
thereof and, at the time of acquisition, having the highest
rating obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Inc., (d) in the case of the Company,
Mortgage Loans originated or acquired by the Company in the
ordinary course of the Company's business, and in the case of
NCFC, other consumer debt obligations originated or acquired by
NCFC in the ordinary course of NCFC's business, (e) certificates
of
-7-
<PAGE>
deposits or bankers acceptances issued by any of the Banks or
any other commercial bank organized under the laws of the United
States or any State thereof and having a combined capital and
surplus of at least $500,000,000, or by United States offices of
foreign banks having the highest rating obtainable from a
nationally recognized rating agency, in each case maturing within
one year from the date of acquisition thereof, (f) investments in
mutual funds that invest substantially all of their assets in
Investments of the types described in subsections (a), (b), (c)
and (e) of this Section 4.10, (g) in the case of NCFC, the
capital stock of the Company, and (h) in the case of the Company,
loans to NCFC after the IPO Date in an aggregate amount not to
exceed $1,000,000.
2.10 Section 4.12 thereof is hereby amended in its entirety to
read as follows:
4.12 Net Worth. NCFC and the Company will at all times:
---------
(a) prior to the IPO Date, maintain Tangible Net Worth of
not less than $15,000,000; and
(b) thereafter, maintain Tangible Net Worth of not less
than the greater of (i) $25,000,000 or (ii) eighty-five percent
(85%) of the Tangible Net Worth at the end of its most recently
completed fiscal year (or, in the case of the Tangible Net Worth
at the end of any fiscal year, its prior fiscal year) plus ninety
----
percent (90%) of capital contributions made during such fiscal
year plus fifty percent (50%) of year-to-date net income.
----
2.11 The Address for Notices for the Company specified below its
name on the signature pages thereto is hereby amended in its entirety
to read as follows:
18400 Von Karman
Suite 1000
Irvine, CA 92612
Attention: Brad A. Morrice
Telephone Number: (714) 440-7030
Telecopier Number: (714) 440-7033
2.12 Schedule 1.01(b) is amended in its entirety in the form of
Schedule 1.01(b) hereto, which is made a part of the Credit Agreement
as Schedule 1.01(b) thereto.
-8-
<PAGE>
2.13 Exhibit E is amended in its entirety in the form of Exhibit
E hereto, which is made a part of the Credit Agreement as Exhibit E
thereto.
2.14 All references in the Credit Agreement and the other Loan
Documents to GFB's "Warehousing Note" shall be deemed to be references
to, and all references in the Credit Agreement and the other Loan
Documents including GFB's Warehousing Notes shall be deemed to
include, the restated Warehousing Note delivered by the Company to GFB
pursuant to Section 3(d)(i) of this Amendment.
2.15 All references in the Credit Agreement and the other Loan
Documents to First Bank's "Warehousing Note" shall be deemed to be
references to, and all references in the Credit Agreement and the
other Loan Documents including First Bank's Warehousing Notes shall be
deemed to include, the restated Warehousing Note delivered by the
Company to First Bank pursuant to Section 3(d)(ii) of this Amendment.
2.16 All references in the Credit Agreement and the other Loan
Documents to First Bank's "Working Capital Note" shall be deemed to be
references to, and all references in the Credit Agreement and the
other Loan Documents including First Bank's Working Capital Note shall
be deemed to include, the restated Working Capital Note delivered by
the Company to First Bank pursuant to Section 3(d)(iii) of this
Amendment.
3. Conditions to Effectiveness of this Amendment. This Amendment shall
---------------------------------------------
become effective when the Agent shall have received at least four (4)
counterparts of this Amendment, duly executed by the Company and the Banks and
acknowledged by New Century Financial Corporation ("NCFC"), provided the
following conditions are satisfied:
(a) Before and after giving effect to this Amendment, the
representations and warranties of the Company in Section 3 of the
Credit Agreement and Section 5 of the Pledge and Security Agreement
shall be true and correct as though made on the date hereof, except
for changes that are permitted by the terms of the Credit Agreement.
(b) Before and after giving effect to this Amendment, no Event of
Default and no Unmatured Event of Default shall have occurred and be
continuing under the Credit Agreement.
(c) No material adverse change in the business, assets, financial
condition or prospects of the Company shall have occurred since the
Effective Date.
-9-
<PAGE>
(d) The following shall have been delivered to the Agent, each
duly executed or certified, as the case may be, and dated as of the
date of delivery thereof:
(i) a restated Warehousing Note payable to GFB in the
principal amount of GFB's Warehousing Commitment Amount, as
increased by this Amendment, in the form of Exhibit F hereto,
duly executed by the Company;
(ii) a restated Warehousing Note payable to First Bank in
the principal amount of First Bank's Warehousing Commitment
Amount, as increased by this Amendment, in the form of Exhibit F
hereto, duly executed by the Company;
(iii) a restated Working Capital Note payable to First
Bank in the principal amount of First Bank's Working Capital
Commitment Amount, in the form of Exhibit F-1 hereto, duly
executed by the Company;
(iv) certified copies of resolutions of the Board of
Directors of the Company authorizing or ratifying the execution,
delivery and performance of this Amendment;
(v) a certified copy of any amendment or restatement of
the Articles of Incorporation or the By-laws of the Company made
or entered following the date of the most recent certified
copies thereof furnished to the Banks;
(vi) certified copies of all documents evidencing any
necessary corporate action, consent or governmental or
regulatory approval (if any) with respect to this Amendment;
(vii) a favorable opinion of Brad A. Morrice, counsel to
the Company and NCFC, addressed to the Banks, as to the matters
and to the effect set forth on Exhibit H hereto;
(viii) a commitment fee payable to First Bank in respect of
the increase in the Working Capital Commitment Amount pursuant to
this Amendment in the amount of $30,000; and
(ix) such other documents, instruments, opinions and
approvals as the Banks may reasonably request.
-10-
<PAGE>
4. Acknowledgments. The Company and the Banks each acknowledges that, as
---------------
amended hereby, the Credit Agreement remains in full force and effect with
respect to the Company and the Banks, and that each reference to the Credit
Agreement in the Loan Documents shall refer to the Credit Agreement, as amended
hereby. The Company confirms and acknowledges that it will continue to comply
with the covenants set out in the Credit Agreement and the other Loan Documents,
as amended hereby, and that its representations and warranties set out in the
Credit Agreement and the other Loan Documents, as amended hereby, are true and
correct as of the date of this Amendment. The Company further represents and
warrants that (i) the execution, delivery and performance of this Amendment and
said Warehousing Notes and Working Capital Note by the Company are within its
corporate powers and have been duly authorized by all necessary corporate
action; (ii) this Amendment and said Warehousing Notes and Working Capital Note
have been duly executed and delivered by the Company and constitute the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with their terms (subject to limitations as to enforceability which
might result from bankruptcy, insolvency, or other similar laws affecting
creditors' rights generally) and (iii) no Events of Default or Unmatured Events
of Default exist.
5. General.
-------
(a) The Company agrees to reimburse the Banks upon demand for all
reasonable expenses (including reasonable attorneys fees and legal
expenses) incurred by the Banks in the preparation, negotiation and
execution of this Amendment and any other document required to be furnished
herewith, and to pay and save the Banks harmless from all liability for any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Amendment, which obligations of the Company shall survive
any termination of the Credit Agreement.
(b) This Amendment may be executed in as many counterparts as may be
deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
(c) Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
-11-
<PAGE>
(d) This Amendment shall be governed by, and construed in accordance
with, the internal law, and not the law of conflicts, of the State of
Minnesota, but giving effect to federal laws applicable to national banks.
(e) This Amendment shall be binding upon the Company, the Banks and
their respective successors and assigns, and shall inure to the benefit of
the Company, the Banks and the successors and assigns of the Banks.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
NEW CENTURY MORTGAGE CORPORATION
By /s/ Brad A. Morrice
---------------------------------------------
Its Chief Executive Officer
-----------------------------------------
FIRST BANK NATIONAL ASSOCIATION
By /s/ Edwin D. Jenkins
---------------------------------------------
Its Vice President
-----------------------------------------
GUARANTY FEDERAL BANK, FSB
By /s/ James B. Clapp
---------------------------------------------
Its Assistant Vice President
-----------------------------------------
[Signature Page for Fifth Amendment to
Amended and Restated Credit Agreement]
-13-
<PAGE>
SCHEDULES
1.01(b) Warehousing Commitment Amounts
<PAGE>
SCHEDULE 1.01(b)
BANK COMMITMENTS
----------------
<TABLE>
<CAPTION>
Working
Warehousing Capital
Bank Commitment Commitment
- ---- ----------- ----------
<S> <C> <C>
First Bank
National Association $75,000,000 $4,000,000
Guaranty Federal Bank,
F.S.B. $50,000,000 -0-
</TABLE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
EXHIBITS
E Formula for Determining Warehousing Collateral Value
F Form of Warehousing Note
F-1 Form of Working Capital Note
H Matters to be Covered by Opinion of Counsel to the Company and NCFC
<PAGE>
Exhibit E
to Fifth Amendment to Amended
and Restated Credit Agreement
FORMULA FOR DETERMINING
WAREHOUSING COLLATERAL VALUE
----------------------------
"Warehousing Collateral Value": at the time of any determination as it
----------------------------
pertains to the following described types or kinds of assets which constitute
Warehousing Collateral:
(1) A Mortgage Loan the entire interest in which is owned by the
Company and which is an Eligible Mortgage Loan covering a completed residential
property, provided that such Mortgage Loan has been pre-approved for purchase
--------
under a Take-Out Commitment and the aggregate available amount of such TakeOut
Commitment is not less than the aggregate outstanding principal amount of
Mortgage Loans pre-approved for delivery thereunder, and provided that at the
time such Mortgage Loan was pledged under the Pledge and Security Agreement not
more than 180 days had elapsed from the date such Mortgage Loan was closed: the
lesser of: (i) ninety-seven percent (97%) of the purchase price under the Take-
Out Commitment to which such Mortgage Loan has been assigned or, if such
Mortgage Loan has not been so assigned, the weighted average purchase price for
Mortgage Loans under Take-Out Commitments under which such Mortgage Loan has
been pre-approved for delivery, (ii) ninety-seven percent (97%) of the unpaid
principal amount of such Mortgage Loan, (iii) ninety-seven percent (97%) of the
Acquisition Cost of such Mortgage Loan, or (iv) at the election of the Agent,
ninety-seven percent (97%) of the Fair Market Value of such Mortgage Loan.
(2) Such other assets of the Company as the Company shall offer to
the Agent and as the Agent shall accept in its sole discretion as Warehousing
Collateral: the amount of Warehousing Collateral Value which the Agent in its
sole discretion assigns thereto.
Notwithstanding the foregoing:
(i) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans which have been closed and funded under Agreements to Pledge, and
with respect to which the Agent has not received the instruments and documents
described in paragraph 2 of the related Collateral Identification Letters, shall
be not more than (a) during each Month-End Period, forty percent of the
Warehousing Commitment Amount and (b) at all other times, twenty-five percent of
the Warehousing Commitment Amount;
(ii) the maximum aggregate Warehousing Collateral Value of:
<PAGE>
(a) Mortgage Loans with original principal balances in excess of
$207,000 but less than $500,000 shall not exceed thirty-five percent
(35%) of the Warehousing Commitment Amount;
(b) Mortgage Loans with original principal balances of $500,000
or greater but less than $750,000 shall not exceed twenty percent
(20%) of the Warehousing Commitment Amount; and
(c) Mortgage Loans with original principal balances of $750,000
or greater but not in excess of $1,000,000 shall not exceed ten
percent (10%) of the Warehousing Commitment Amount;
(iii) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans with a Risk Rating of C- or C shall not exceed thirty-five
percent of the Warehousing Commitment Amount;
(iv) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans with a Risk Rating of C- shall not exceed fifteen percent of the
Warehousing Commitment Amount;
(v) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans secured by Second Mortgages shall not exceed ten percent of the
Warehousing Commitment Amount; and
(vi) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans secured by Second Mortgages which have a Loan-to-Value Ratio of
greater than 100% shall not exceed five percent of the Warehousing Commitment
Amount.
A Mortgage Loan, or Mortgage-backed Security issued in consideration
of a Mortgage Loan, will be considered as having no Warehousing Collateral Value
if, as to any such Mortgage Loan, any of the following events occur:
(a) more than 90 days elapse from the date on which the Mortgage Note
and other documents relating to such Mortgage Loan were delivered to the Bank in
accordance with Sections 4.01 and 4.02 of the Pledge and Security Agreement;
(b) 21 or more days elapse from the date a document relating to such
Mortgage Loan was delivered to the Company for correction in accordance with
Section 10.01 of the Pledge and Security Agreement and such document has not
been returned to the Agent;
(c) 45 or more days elapse from the date such Mortgage Loan was
delivered to an Investor pursuant to Section 10.02 of the Pledge and Security
<PAGE>
Agreement for examination and purchase under a Take-Out Commitment and such
Mortgage Loan has not been returned to the Agent;
(d) more than one payment on such Mortgage Loan is delinquent, as
reported on any Compliance/Borrowing Base Certificate delivered to each Bank
pursuant to Section 4.01(c)(ii) of the Credit Agreement, such Mortgage Loan has
been rescinded, canceled or avoided, or such Mortgage Loan is subject to any
rights of rescission, cancellation or avoidance or to any counterclaims, offsets
or defenses, whether by operation of law or otherwise;
(e) the Company fails to deliver any document relating to such
Mortgage Loan within five Business Days after being requested to do so by the
Agent pursuant to Section 4.03 of the Pledge and Security Agreement;
(f) such Mortgage Loan was listed on a Loan Detail Listing delivered
to the Agent with an Agreement to Pledge and a Collateral Identification Letter,
and such Mortgage Loan shall not have closed on or before the close of business
on the Business Day on which such Loan Detail Listing was delivered;
(g) such Mortgage Loan was closed and funded with the proceeds of a
Warehousing Loan under an Agreement to Pledge and the Company fails to deliver
to the Agent, with respect to such Mortgage Loan, within seven Business Days
after the date of such Agreement to Pledge, the documents referred to in Section
4.02 of the Pledge and Security Agreement;
(h) the Agent, for the benefit of the Banks, does not have a
perfected, first priority security interest in such Mortgage Loan; or
(i) the Agent notifies the Company that in its reasonable opinion
such Mortgage Loan is not marketable and will not be given Warehousing
Collateral Value.
As used in the foregoing definition of Warehousing Collateral Value
and all defined terms used therein and in the following defined terms, all terms
defined in the Credit Agreement are used as therein defined and, in addition,
the following terms shall have the following respective meanings:
"Acquisition Cost": means, with respect to any Mortgage Loan, the cash
----------------
purchase price paid by the Company to any unaffiliated Person to acquire such
Mortgage Loan.
"Agreement to Pledge": as such term is defined in the Pledge and
-------------------
Security Agreement.
"Appraised Value": with respect to an interest in real estate, the
---------------
then current fair market value thereof as of a recent date, as determined in
accordance
<PAGE>
with accepted methods of appraising by a qualified appraiser who is a member of
the American Institute of Real Estate Appraisers or other group of professional
appraisers.
"Approved Second Mortgage Investor": an Investor that has been
---------------------------------
approved in writing by Agent for the purchase of Mortgage Loans secured by
Second Mortgages.
"Collateral Identification Letter": as such term is defined in the
--------------------------------
Pledge and Security Agreement.
"Eligible Mortgage Loan": a closed-end Mortgage Loan secured by a
----------------------
First Mortgage or a Second Mortgage on improved real estate in an original
principal amount not in excess of (a) in the case of Mortgage Loans secured by
First Mortgages, 80% of the Appraised Value of such real estate, and (b) in the
case of Mortgage Loans secured by Second Mortgages, 80% of the Appraised Value
of such real estate minus the amount of the Mortgage Loan secured by the First
Mortgage thereon, unless either (i) the amount of such Mortgage Loan in excess
of the maximum set forth above is insured, or is subject to a commitment to be
insured, by an insurer approved by the Agent, or (ii) such Mortgage Loan (A)
satisfies the underwriting guidelines or other applicable standards of the
Investor referenced in clause (C) below for a Risk Rating of at least "C-", (B)
has a Loan-to-Value Ratio of not more than 125%, (C) has been pre-approved by an
Approved Second Mortgage Investor for purchase under a Take-Out Commitment, (D)
is originated or acquired pursuant to a program offered by such Approved Second
Mortgage Investor and (E) has an original principal amount of not more than
$1,000,000.
"Fair Market Value": at any date with respect to any Mortgage Loan,
-----------------
the bid price quoted in writing to the Agent as of the computation date by two
nationally recognized dealers selected by the Agent who at the time are making a
market in similar Mortgage Loans, multiplied, in any case, by the outstanding
principal amount thereof.
"First Mortgage": a Mortgage which is subject to no prior or superior
--------------
mortgage.
"Loan-to-Value Ratio": with respect to a Mortgage Loan secured by a
-------------------
Second Mortgage on improved real estate, the ratio (expressed as a percentage)
which (a) the sum of the original principal amount of such Mortgage Loan plus
the original principal amount of the Mortgage Loan that is secured by the First
Mortgage on such real estate bears to (b) the Appraised Value of such real
estate.
"Month-End Period": the period beginning on the third to the last
----------------
Business Day of each month and ending on the fifth Business Day of the following
month.
<PAGE>
"Risk Rating": the risk rating of a Mortgage Loan, determined using
-----------
the Underwriting Guidelines or other applicable standards of the Investor to
which such Mortgage Loan is to be sold by the Company under a Take-Out
Commitment previously issued to the Company by such Investor, provided such
underwriting guidelines or other applicable standards comply with industry
standards in the sole judgment of the Agent.
"Second Mortgage": a Mortgage which is subject to one prior or
---------------
superior Mortgage.
"Take-Out Commitment": a current, written commitment issued to the
-------------------
Company by an Investor to purchase Mortgage Loans, at a definite price or yield,
within a specified time period.
<PAGE>
Exhibit F
to Third Amendment to Amended
and Restated Credit Agreement
FORM OF PROMISSORY NOTE
-----------------------
(Warehousing Note)
June __, 1997
$___________ Minneapolis, Minnesota
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of ___________________ (the
"Bank") at the main office of the Agent in Minneapolis, Minnesota, in lawful
money of the United States of America in Immediately Available Funds (as such
term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to), the principal sum of ___ MILLION AND NO/100
DOLLARS ($_______) or the aggregate unpaid principal amount of all Warehousing
Loans made by the Bank pursuant to the Credit Agreement described below,
whichever is less, and to pay interest in like funds from the date hereof on the
unpaid balance thereof at the rates per annum and at such times as are specified
in the Credit Agreement. Interest (computed on the basis of actual days elapsed
and a year of 360 days) shall be payable at said office at the times specified
in the Credit Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Credit Agreement.
This note is one of the Warehousing Notes referred to in the Amended
and Restated Credit Agreement dated as of October 25, 1996, between the
undersigned the Bank, the other banks party thereto and First Bank National
Association, as Agent (as the same may be amended, modified or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings given to such terms in the
Credit Agreement. This note is subject to certain mandatory and voluntary
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in the Credit Agreement.
The undersigned hereby waives diligence, presentment, demand, protest,
and notice (except such notice as is required under the Loan Documents) of any
kind whatsoever. The nonexercise by the Bank of any of its rights hereunder or
under the other Loan Documents in any particular instance shall not constitute a
waiver thereof in any subsequent instance.
<PAGE>
This note is entitled to the benefit of the Guaranty, the Pledge and
Security Agreement and the other Loan Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of
default hereunder, the undersigned agrees to pay all costs and expenses of
collection, including but not limited to reasonable attorneys' fees.
Notwithstanding the foregoing paragraphs and all other provisions of
this note and the Credit Agreement, none of the terms and provisions of this
note or the Credit Agreement shall ever be construed to create a contract to pay
to the Bank, for the use, forbearance or detention of money, interest in excess
of the maximum amount of interest permitted to be charged by the Bank to the
undersigned under applicable state or federal law from time to time in effect,
and the undersigned shall never be required to pay interest in excess of such
maximum amount. If, for any reason, interest is paid hereon in excess of such
maximum amount (whether as a result of the payment of this note prior to its
maturity or otherwise), then promptly upon any determination that such excess
has been paid the Bank will, at its option, either refund such excess to the
undersigned or apply such excess to the principal owing hereunder. All interest
paid shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period of the Company's credit
relationship with the Bank until payment in full of the principal (including the
period of any renewal or extension) so that the interest for such full period
shall not exceed the maximum rate of interest permitted by applicable law.
This note amends and restates in its entirety an existing promissory
note dated _______________________, 199____, in the original principal amount of
$______ issued by New Century Mortgage Corporation to the order of the Bank (the
"Prior Note"). It is expressly intended, understood and agreed that all amounts
outstanding under said Prior Note as of the date hereof shall be considered
outstanding hereunder from and after the date hereof and shall not be considered
paid (nor shall the undersigned's obligation to pay the same be considered
discharged or satisfied) as a result of the issuance of this note.
NEW CENTURY MORTGAGE CORPORATION
By____________________________________
Its_________________________________
2
<PAGE>
Exhibit F-1
to Fifth Amendment to Amended
and Restated Credit Agreement
FORM OF PROMISSORY NOTE
-----------------------
(Working Capital Note)
June __, 1997
$4,000,000 Minneapolis, Minnesota
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank") at the main office of the Agent in Minneapolis,
Minnesota, in lawful money of the United States of America in Immediately
Available Funds (as such term and each other capitalized term used herein are
defined in the Credit Agreement hereinafter referred to), the principal sum of
FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00) or the aggregate unpaid
principal amount of all Working Capital Loans made by the Bank pursuant to the
Credit Agreement described below, whichever is less, and to pay interest in like
funds from the date hereof on the unpaid balance thereof at the rates per annum
and at such times as are specified in the Credit Agreement. Interest (computed
on the basis of actual days elapsed and a year of 360 days) shall be payable at
said office at the times specified in the Credit Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Credit Agreement.
This note is the Working Capital Note referred to in the Amended and
Restated Credit Agreement dated as of October 25, 1996, between the undersigned
the Bank, the other banks party thereto and First Bank National Association, as
Agent (as the same may be amended, modified or restated from time to time, the
"Credit Agreement"). Unless otherwise defined herein, capitalized terms used
herein shall have the meanings given to such terms in the Credit Agreement.
This note is subject to certain mandatory and voluntary prepayments and its
maturity is subject to acceleration, in each case upon the terms provided in the
Credit Agreement.
The undersigned hereby waives diligence, presentment, demand, protest,
and notice (except such notice as is required under the Loan Documents) of any
kind whatsoever. The nonexercise by the Bank of any of its rights hereunder or
under the other Loan Documents in any particular instance shall not constitute a
waiver thereof in any subsequent instance.
<PAGE>
This note is entitled to the benefit of the Guaranty, the Pledge and
Security Agreement and the other Loan Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of
default hereunder, the undersigned agrees to pay all costs and expenses of
collection, including but not limited to reasonable attorneys' fees.
Notwithstanding the foregoing paragraphs and all other provisions of
this note and the Credit Agreement, none of the terms and provisions of this
note or the Credit Agreement shall ever be construed to create a contract to pay
to the Bank, for the use, forbearance or detention of money, interest in excess
of the maximum amount of interest permitted to be charged by the Bank to the
undersigned under applicable state or federal law from time to time in effect,
and the undersigned shall never be required to pay interest in excess of such
maximum amount. If, for any reason, interest is paid hereon in excess of such
maximum amount (whether as a result of the payment of this note prior to its
maturity or otherwise), then promptly upon any determination that such excess
has been paid the Bank will, at its option, either refund such excess to the
undersigned or apply such excess to the principal owing hereunder. All interest
paid shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period of the Company's credit
relationship with the Bank until payment in full of the principal (including the
period of any renewal or extension) so that the interest for such full period
shall not exceed the maximum rate of interest permitted by applicable law.
NEW CENTURY MORTGAGE CORPORATION
By__________________________________
Its_______________________________
2
<PAGE>
Exhibit H
to Fifth Amendment to Amended
and Restated Credit Agreement
MATTERS TO BE
COVERED BY THE OPINION OF COUNSEL
TO THE COMPANY AND NCFC
The opinions of Brad A. Morrice, counsel to NCFC and the Company, which are
called for by Section 3(d)(vii) of the Fifth Amendment to Credit Agreement,
shall be satisfactory in form and substance to the Agent and shall cover the
matters set forth below, subject to such assumptions, exceptions and
qualifications as may be acceptable to the Agent and counsel to the Agent:
1. Each of NCFC and the Company (collectively, the "Transaction Parties"
and each, individually, a "Transaction Party") has been duly incorporated, is a
validly existing corporation and in good standing under the laws of its
respective jurisdiction of incorporation, and has the requisite corporate power
to own its respective properties and to conduct its respective businesses as
currently conducted by it. The Company is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in which the
character of the business conducted by it or the location of the properties
owned or leased by it make such qualification necessary, except in jurisdictions
in which failure to be in good standing will not preclude it from enforcing its
rights with respect to any material asset or expose it to any material
liability.
2. The execution, delivery and performance by the Company, and the
acknowledgment by NCFC, of the Fifth Amendment, the execution, delivery and
performance by the Company of the restated Warehousing Notes payable to GFB and
First Bank by the Company, the execution, delivery and performance by the
Company of the restated Working Capital Note payable to First Bank (the
Warehousing Notes and the Working Capital Note are collectively referred to as
the "New Notes") by the Company and the consummation of the transactions
contemplated thereby are within the corporate powers of each Transaction Party,
have been duly authorized by all necessary corporate action and do not, and the
consummation of the transactions contemplated thereby and compliance by each
Transaction Party with the applicable provisions thereof will not, conflict
with, constitute a default under or violate (a) any of the terms, conditions or
provisions of its Articles or Certificate of Incorporation or bylaws, (b) any of
the terms, conditions or provisions of any document, agreement or other
instrument which is known to me to which it is a party or by which it is bound,
(c) any judgment, writ, injunction, decree, order or ruling of any court or
governmental authority binding on it and
H-1
<PAGE>
known to me, or (d) any statute, rule or regulation of any governmental
authority binding on it.
3. The Fifth Amendment and the New Notes have been duly executed and
delivered by the Company. The Credit Agreement, as amended by the Fifth
Amendment, and the New Notes are the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with their respective
terms, and other giving effect to the Fifth Amendment and the New Notes, the
Guaranty will remain the legal, valid and binding obligation of NCFC enforceable
against NCFC in accordance with its terms, in each case subject to limitations
as to enforceability which might result from general equitable principles or
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws affecting creditors' rights generally.
4. No consent, approval, waiver, license or authorization or other action
by or filing with any governmental authority is required in connection with the
execution, delivery and performance or acknowledgment by either Transaction
Party of the Fifth Amendment or the New Notes, the validity or enforceability of
the Fifth Amendment or the New Notes or the consummation of the transactions
contemplated thereby except for those which have already been obtained and are
in full force and effect.
5. To the best knowledge of such counsel, there are no actions, suits or
proceedings pending or threatened against or affecting either Transaction Party
or any of its properties before any court or arbitrator, or any governmental
department, board, agency or other instrumentality which (i) challenge the
legality, validity or enforceability of any Loan Document, or (ii) if determined
adversely to such Transaction Party, would have a material adverse effect on the
business, operations, property or condition (financial or otherwise) of either
Transaction Party or on the ability of either Transaction Party to perform its
obligations under the Loan Documents.
H-2
<PAGE>
Exhibit 11.1
------------
New Century Financial Corporation
Statement Re Computation of Per Share Earnings (Loss)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30 Three Months Ended June 30
-----------------------------------------------------------------------
1997 1996 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary:
Net earnings (loss) $ 7,420,000 $ (815,000) $ 5,073,000 $ (317,000)
=======================================================================
Weighted average number of common and
common equivalent shares outstanding:
Weighted average common shares
outstanding 7,373,226 6,348,618 8,182,306 6,348,618
Dilutive effect of stock options and
warrants after application 3,390,780 - 2,882,944 -
-----------------------------------------------------------------------
10,764,006 6,348,618 11,065,250 6,348,618
Earnings (loss) per share $ 0.69 $ (0.13) $ 0.46 $ (0.05)
=======================================================================
Fully Diluted:
Net earnings (loss) $ 7,420,000 $ (815,000) $ 5,073,000 $ (317,000)
=======================================================================
Weighted average number of common and
common equivalent shares outstanding:
Weighted average common shares
outstanding 7,373,226 6,348,618 8,182,306 6,348,618
Dilutive effect of stock options
and warrants after application 4,062,074 - 3,484,470 -
------------------------------------------------------------------------
11,435,300 6,348,618 11,666,776 6,348,618
Earnings (loss) per share $ 0.65 $ (0.13) $ 0.43 $ (0.05)
=======================================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of New Century Financial Corporation and Subsidiary for the
three-month period ended June 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,143,000
<SECURITIES> 42,273,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 186,378,000
<CURRENT-ASSETS> 0
<PP&E> 3,209,000
<DEPRECIATION> 614,000
<TOTAL-ASSETS> 271,319,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 141,000
<OTHER-SE> 49,360,000
<TOTAL-LIABILITY-AND-EQUITY> 271,319,000
<SALES> 27,110,000
<TOTAL-REVENUES> 35,618,000
<CGS> 0
<TOTAL-COSTS> 17,110,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,715,000
<INCOME-PRETAX> 12,793,000
<INCOME-TAX> 5,373,000
<INCOME-CONTINUING> 7,420,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,420,000
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.65
</TABLE>
