Form 10-Q Quarterly Report
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
Commission File Number: 1-7614
-----------------------------
PMCC FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-3404072
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3 Expressway Plaza
Roslyn Heights, N.Y. 11577
(Address of Principal Executive Offices and Zip Code)
(516) 625-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ________
Number of shares outstanding of the issuer's Common Stock, par value $.01
per share, as of August 10, 1999: 3,724,800 shares.
<PAGE>
PMCC FINANCIAL CORP.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No
Part I - Financial Information
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, 1999 and 1998 3
Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Financial Condition (Unaudited)
June 30, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II - Other Information 17
Signatures 18
Exhibit Index 19
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
PMCC FINANCIAL CORP. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
<S> <C> <C>
Revenues:
Sales of residential rehabilitation properties $10,037,429 $8,546,493
Gains on sale of mortgage loans, net 4,078,815 3,676,417
Interest earned 1,036,909 1,449,670
--------- ---------
15,153,153 13,672,580
Expenses:
Costs of sales, residential rehabilitation properties 9,151,254 7,829,482
Compensation and benefits 2,874,131 2,281,622
Interest expense 1,018,959 1,473,049
Other general and administrative 1,207,836 948,232
--------- -------
14,252,180 12,532,385
Income before income tax expense 900,973 1,140,195
Income tax expense 369,000 467,000
------- -------
Net Income $531,973 $673,195
======== ========
Net income per share of common stock-basic 0.14 0.18
==== ====
Net income per share of common stock-diluted 0.14 0.18
==== ====
Weighted average number of shares and
share equivalents outstanding-basic 3,724,800 3,750,000
========= =========
Weighted average number of shares and
share equivalents outstanding-diluted 3,759,146 3,826,379
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
PMCC FINANCIAL CORP. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Revenues:
Sales of residential rehabilitation properties $18,582,407 $16,759,170
Gains on sale of mortgage loans, net 7,886,718 6,761,807
Interest earned 2,356,344 2,309,494
--------- ---------
28,825,469 25,830,471
Expenses:
Costs of sales, residential rehabilitation properties 16,955,448 15,418,658
Compensation and benefits 5,604,762 4,470,700
Interest expense 2,198,915 2,373,574
Other general and administrative 2,363,480 1,668,545
--------- ---------
27,122,605 23,931,477
Income before income tax expense 1,702,864 1,898,994
Income tax expense 698,000 1,595,000
------- ---------
Net Income 1,004,864 $303,994
========= ========
Pro forma information: $1,898,994
Provision for pro forma income taxes (779,000)
---------
Pro forma net income $1,119,994
==========
Net income/pro forma net income per share of common
stock-basic $0.27 $0.33
===== =====
Net income/pro forma net income per share of common
stock-diluted $0.27 $0.32
===== =====
Weighted average number of shares and
share equivalents outstanding-basic 3,724,800 3,418,508
========= =========
Weighted average number of shares and
share equivalents outstanding-diluted 3,759,146 3,489,381
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
PMCC FINANCIAL CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
Assets
Cash and cash equivalents $3,514,284 $3,596,002
Receivable from sales of loans 6,587,145 20,789,470
Mortgage loans held for sale, net 45,633,697 67,676,679
Mortgage loans held for investment, net 2,007,965 1,717,228
Interest and other receivables, net 1,794,239 1,208,454
Residential rehabilitation properties 16,293,682 16,491,514
Furniture & equipment, net 825,574 828,226
Prepaid expenses and other assets 969,447 501,587
------- -------
Total assets $77,626,033 $112,809,160
=========== ============
Liabilities and shareholders' equity Liabilities:
Notes payable-principally warehouse lines of credit 59,599,965 $94,673,739
Due to affiliates - 1,187,998
Distribution payable - 277,700
Accrued expenses and other liabilities 3,952,630 3,637,149
--------- ---------
Total liabilities 63,552,595 99,776,586
---------- ----------
Shareholders' equity
Common stock 37,500 37,500
Additional paid-in capital 10,882,033 10,846,033
Retained earnings 3,315,551 2,310,687
Treasury Stock (161,646) (161,646)
--------- ---------
Total shareholders' equity 14,073,438 13,032,574
---------- ----------
Total liabilities and shareholders' equity $77,626,033 $112,809,160
=========== ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
<PAGE>
PMCC FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $1,004,864 $303,994
Adjustments to reconcile net income to net cash used in operating
activities:
Residential rehabilitation properties (exclusive of cash paid directly
to/by independent contractors):
Contractual fees received (1,626,959) (1,340,512)
Proceeds from sales of properties 18,582,407 16,759,170
Costs of properties acquired (16,757,616) (18,245,290)
Depreciation and amortization 124,675 43,167
Increase in interest and other receivables (585,785) (1,200,571)
Decrease (increase) in mortgage loans held for sale 21,752,245 (21,680,417)
Decrease (increase) in receivable from sales of loans 14,202,325 (9,725,480)
Increase in prepaid expenses and other assets (467,860) (89,587)
Increase in accrued expenses and other liabilities 315,481 1,940,300
------- ---------
Net cash provided by (used in) operating activities 36,543,777 (32,796,532
---------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment (86,023) (421,099)
-------- ---------
Net cash used in investing activities (86,023) (421,099)
-------- ---------
Cash flows from financing activities:
Distributions to S corporation shareholders, net of
distribution payable (277,700) (2,006,435)
Net proceeds from sale of common stock - 9,183,325
(Decrease) increase in due to affiliates (1,187,998) 219,347
Net decrease in notes payable-shareholder - (293,163)
Net (decrease) increase in notes payable-warehouse lines of
credit (35,073,774) 29,459,706
------------ ----------
Net cash (used in) provided by financing activities (36,539,472) 36,562,780
------------ ----------
Net (decrease) increase in cash and cash equivalents (81,718) 2,906,455
Cash and cash equivalents at beginning of period 3,596,002 1,713,405
--------- ---------
Cash and cash equivalents at end of period $3,514,284 $4,619,860
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $2,270,757 $2,169,682
========== ==========
Income taxes $55,000 $ 13,651
======= ==========
Loans transferred from loans held for sale to loans $290,737 $ -
held for investment ======== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
<PAGE>
PMCC FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. Basis of Presentation
The unaudited condensed consolidated financial statements included herein
reflect all adjustments, which are, in the opinion of management necessary for a
fair presentation of PMCC Financial Corp. and subsidiaries (the "Company's")
financial condition as of the dates indicated and the results of operations for
the periods shown. In preparing the accompanying condensed consolidated
financial statements, management is required to make estimates and assumptions
that reflect the reported amounts of assets and liabilities as of the date of
the condensed consolidated statements of financial condition and of income and
expenses for the periods presented in the condensed consolidated statements of
operations. The results of operations for the three and six months ended June
30, 1999 are not necessarily indicative of the results of operations to be
expected for the remainder of the year. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to rules
and regulations of the Securities and Exchange Commission.
These unaudited condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1998.
Certain reclassifications have been made to conform the prior period's
presentation to the current presentation.
2. Initial Public Offering
On February 18, 1998 the shareholders of Premier Mortgage Corp. ("Premier")
exchanged all of their outstanding common shares of Premier for 2.5 million
common shares of the Company. Following this exchange, the Company completed an
initial public offering of 1.25 million common shares at a price of $9 per
share. The Company received gross proceeds of $11.3 million and net proceeds of
approximately $9.2 million.
At the time of the exchange, the Company agreed to make a cash distribution
to existing shareholders of $2.7 million which was equal to a portion of the
Company's undistributed subchapter S corporation earnings. Approximately $1.9
million of the distribution was paid during the quarter ended March 31, 1998, of
which $1 million was from the proceeds of the initial public offering. The
balance of the distribution was paid in installments including interest on the
undistributed balance at 10% per annum through February 18, 1999. The remaining
undistributed subchapter S Corporation earnings of approximately $1.0 million
were reclassified from retained earnings to additional paid in capital.
3. Income Taxes
Prior to February 18, 1998, certain of the Company's subsidiaries had
elected to be treated as S corporations for both federal and state income tax
purposes. As a result, the income of the subsidiaries through February 18, 1998
was taxed directly to the individual shareholders. On February 18, 1998, in
conjunction with the Company's initial public offering, the S corporation
elections were terminated and the Company's subsidiaries became C corporations
for federal and state income tax purposes and, as such, became subject to
federal and state income taxes on their taxable income for the periods after
February 18, 1998. Therefore, the provision for income taxes for the six months
ended June 30, 1998 includes a provision for deferred income taxes of $1,081,000
related to the temporary differences existing at the termination of the S
corporation elections, and pro forma net income for the six months ended June
30, 1998 include pro forma income taxes as if the Company had been taxed as a C
corporation throughout the periods.
4. Earnings Per Share of Common Stock
Basic EPS is determined by dividing net income for the period by the
weighted average number of common shares outstanding during the same 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 which would then share in the
earnings of the Company. The additional number of shares included in the
calculation of diluted EPS arising from issued stock options was 34,346 shares
and 70,873 shares, respectively, for the six months ended June 30, 1999 and 1998
and 34,346 and 76,379 shares, respectively, for the three months ended June 30,
1999 and 1998.
Actual earnings per share data for periods prior to February 18, 1998 have
not been presented in the accompanying unaudited condensed consolidated
statement of operations because the Company was not a public company. Actual
earnings per share data for the periods February 18, 1998 to March 31, 1998 and
February 18, 1998 to June 30, 1998 have not been presented in the accompanying
unaudited condensed consolidated statement of operations because management
believes that such data would not be meaningful given the relatively short
period and the impact of the recognition of a deferred tax liability in
connection with the change in tax status. Therefore, the earnings per share data
presented for the six months ended June 30,1998 is based on proforma net income.
5. Supplemental Information
The Company's operations consist of two principal activities (a) mortgage
banking and (b) funding the purchase, rehabilitation and resale of residential
real estate. The following table sets forth-certain information concerning these
activities (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Revenues:
Residential rehabilitation properties $ 18,582 $ 16,759
Mortgage banking 10,243 9,071
------- ---------
$ 28,825 $ 25,830
======== =========
Less: (1)
Expenses allocable to residential rehabil-
itation properties (cost of sales, interest
expense and compensation and benefits) 17,902 16,168
Expenses allocable to mortgage banking
(all other) 9,221 7,763
-------- ---------
$ 27,123 $ 23,931
======== =========
Operating Profit:
Residential rehabilitation properties 680 591
Mortgage banking 1,022 1,308
-------- ----------
$1,702 $ 1,899
======= ==========
Identifiable Assets (at June 30, 1999 and
June 30, 1998, respectively):
Residential rehabilitation properties $ 16,294 $ 14,411
Mortgage banking 61,332 92,823
--------- ---------
$ 77,626 $ 107,234
========= =========
</TABLE>
(1) In managing its business, the Company does not allocate corporate expenses
other than interest and compensation and benefits to its various activities.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Quarterly Report on Form
10-Q may contain forward-looking statements, which reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The words "believe,"
"expect," "anticipate," "intend," "estimate," and other expressions which
indicate future events and trends identify forward-looking statements. Readers
are cautioned not to place undue reliance upon these forward-looking statements,
which speak only as of their dates. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as the result
of new information, future events or otherwise. The following factors could
cause actual results to differ materially from historical results or those
anticipated: (1) the level of demand for mortgage credit, which is affected by
such external factors as the level of interest rates, the strength of various
segments of the economy and demographics of the Company's lending markets; (2)
the direction of interest rates; (3) the relationship between mortgage interest
rates and cost of funds; (4) federal and state regulation of the Company's
mortgage banking operations; (5) competition within the mortgage banking
industry and (6) the potential adverse effects of Y2K (year 2000) (7) the
Company's management of rapid growth and expansion.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30,
1998
General Overview
Due to continuing adverse conditions in the sub-prime (BCD) market, the
Company, during the second quarter 1999 closed its Roslyn, New York sub-prime
division and transferred its remaining sub-prime operations to its New Jersey
office. However, while the Company's conservative posture on these loans has
reduced loss exposure to almost zero, originations of these loans have been
reduced by approximately 80% from the corresponding quarter.
During the second quarter the Company sold a substantial amount of
sub-prime loans in the secondary market at par or slightly below as opposed to a
normal markup of these loans at between 4 and 6 points above par. The Company
estimates that the above inventory losses coupled with employee termination
costs approximate $400,00.00 and are non-recurring.
Revenues. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
<S> <C> <C>
Sales of residential rehabilitation properties $ 10,037,429 $ 8,546,493
Gains on sales of mortgage loans, net 4,078,815 3,676,417
Interest earned 1,036,909 1,449,670
------------ ------------
Total revenue $ 15,153,153 $ 13,672,580
============ ============
</TABLE>
Revenues from the sale of residential rehabilitation properties increased
$1.5 million, or 17%, to $10.0 million for the three months ended June 30, 1999
from $8.5 million for the three months ended June 30, 1998. This increase was
primarily the result of the increase in the number of residential rehabilitation
properties sold to 64 for the three months ended June 30, 1999 from 56 for the
three months ended June 30, 1998.
Gains on sales of mortgage loans increased $ 0.4 million, or 11 %, to $ 4.1
million for the three months ended June 30, 1999 from $3.7 million for the three
months ended June 30, 1998. This increase was primarily due to increased loan
originations from the Company's existing retail offices offset by an 80%
decrease in subprime loan originations. Mortgage loan originations were $144.4
million and $139.6 million for the three months ended June 30, 1999 and 1998,
respectively. For the three months ended June 30, 1999, approximately 55% of the
Company's mortgage originations were derived from its retail mortgage operations
and approximately 45% from its wholesale operations. The following table
summarizes the Company's mortgage originations (in millions):
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
<S> <C> <C>
Conventional $ 91,915 $ 93,120
FHA/VA 48,581 26,876
BCD 3,943 19,576
--------- --------
Total $144,439 $139,572
========= ========
</TABLE>
Although there can be no assurance thereof, the Company expects mortgage
originations to increase and therefore believes its gains on sales of mortgage
loans will increase.
Interest earned decreased $0.4 million, or 28%, to $1.0 million for the
three months ended June 30, 1999 from $1.4 million for the three months ended
June 30, 1998. This decrease was primarily due to decreased subprime mortgages
generally held for sale longer than conventional mortgages.
Expenses. The following table sets forth the Company's expenses for the
periods indicated:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
<S> <C> <C>
Cost of sales - residential rehabilitation properties $ 9,151,254 $ 7,829,482
Compensation and benefits 2,874,131 2,281,622
Interest expense 1,018,959 1,473,049
Other general and administrative 1,207,836 948,232
----------- -----------
Total expenses $14,252,180 $12,532,385
=========== ===========
</TABLE>
Cost of sales - residential rehabilitation properties increased $1.3
million, or 17%, to $9.2 million for the three months ended June 30, 1999 from
$7.8 million for the three months ended June 30, 1998. This increase was
primarily due to the increase in the number of properties purchased,
rehabilitated and sold.
Compensation and benefits increased $0.6 million, or 26%, to $2.9 million
for the three months ended June 30, 1999 from $2.3 million for the three months
ended June 30,1998. This increase was primarily due to increased sales salaries
and commission, which are based substantially on mortgage loan originations.
Total personnel increased to 172 employees at June 30, 1999 from 126 at June 30,
1998.
Interest expense decreased $0.5 million, or 31%, to $1.0 million for the
three months ended June 30, 1999 from $1.5 million for the three months ended
June 30, 1998. This decrease was primarily attributable to the decrease in
subprime loan originations funded through the Company's warehouse lines of
credit.
Other general and administrative expense increased $0.3 million, or 27%, to
$1.2 million for the three months ended June 30, 1999 from $0.9 million for the
three months ended June 30, 1998. This increase was primarily due to increased
expenses incurred in connection with the growth in the operations of the Company
including rent and facilities expense, telephone and marketing.
Although there can be no assurance thereof, the Company believes that the
expected increase in mortgage origination volume and residential rehabilitation
activities will result in increased expenses.
Net income decreased $0.2 million or 21%, to $0.5 million for the three
months ended June 30, 1999 from $0.7 million for the three months ended June 30,
1998.
Six Months Ended June 30, 1999 Compared to Quarter Ended June 30, 1998
Revenues. The following table sets forth the components of the Company's
revenues for the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Sales of residential rehabilitation properties $ 18,582,407 $ 16,759,170
Gains on sales of mortgage loans, net 7,886,718 6,761,807
Interest earned 2,356,344 2,309,494
------------- -------------
Total revenue $ 28,825,469 $ 25,830,471
============= =============
</TABLE>
Revenues from the sale of residential rehabilitation properties increased
$1.8 million, or 11%, to $18.6 million for the six months ended June 30, 1999
from $16.8 million for the six months ended June 30, 1998. This increase was
primarily the result of the increase in the number of residential rehabilitation
properties sold to 116 for the six months ended June 30, 1999 from 109 for the
six months ended June 30, 1998.
Gains on sales of mortgage loans increased $1.1 million, or 17%, to $7.9
million for the six months ended June 30, 1999 from $6.8 million for the six
months ended June 30, 1998. This increase was primarily due to increased loan
originations and loan sales from the Company's existing retail offices offset by
a 74% decrease in subprime loan originations. Mortgage loan originations were
$279.3 million and $240.1 million for the six months ended June 30, 1999 and
1998, respectively. For the six months ended June 30, 1999, approximately 56% of
the Company's mortgage originations were derived from its retail mortgage
operations and approximately 44% from its wholesale operations. The following
table summarizes the Company's mortgage originations (in millions):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Conventional $181,358 $155,503
FHA/VA 88,387 48,403
BCD 9,537 36,201
-------- --------
Total $279,282 $240,107
======== ========
</TABLE>
Although there can be no assurance thereof, the Company expects mortgage
originations to increase and therefore believes its gains on sales of mortgage
loans will increase.
Expenses. The following table sets forth the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Cost of sales - residential rehabilitation properties $16,955,448 $15,418,658
Compensation and benefits 5,604,762 4,470,700
Interest expense 2,198,915 2,373,574
Other general and administrative 2,363,480 1,668,545
----------- -----------
Total expenses $27,122,605 $23,931,477
=========== ===========
</TABLE>
Cost of sales - residential rehabilitation properties increased $1.5
million, or 10%, to $17.0 million for the six months ended June 30, 1999 from
$15.4 million for the six months ended June 30, 1998. This increase was
primarily due to the increase in the number of properties purchased,
rehabilitated and sold.
Compensation and benefits increased $1.1 million or 25%, to $5.6 million
for the six months ended June 30, 1999 from $4.5 million for the six months
ended June 30,1998. This increase was primarily due to increased sales salaries
and commission, which are based substantially on mortgage loan originations.
Interest expense decreased $0.2 million, or 7%, to $2.2 million for the
six months ended June 30, 1999 from $2.4 million for the six months ended June
30, 1998. This decrease was attributable to the decrease in subprime mortgage
originations funded through the Company's warehouse lines of credit.
Other general and administrative expense increased $0.7 million, or 42%, to
$2.4 million for the six months ended June 30, 1999 from $1.7 million for the
six months ended June 30, 1998. This increase was primarily due to increased
expenses incurred in connection with the growth in the operations of the Company
including rent and facilities expense, telephone and marketing.
Although there can be no assurance thereof, the Company believes that
the expected increase in mortgage origination volume and residential
rehabilitation activities will result in increased expenses.
Net income decreased $0.1 million or 10% to $1.0 million from $1.1 million
for the six months ended June 30, 1999.
Liquidity and Capital Resources
The Company's principal financing needs consist of funding mortgage loan
originations and residential rehabilitation properties. To meet these needs, the
Company currently relies on borrowings under warehouse lines of credit and cash
flow from operations. The amount of outstanding borrowings under warehouse lines
of credit at June 30, 1999 was $59.6 million. The mortgage loans and residential
rehabilitation properties, funded with the proceeds from such borrowings, secure
warehouse lines of credit.
On August 7, 1998, the Company entered into a Senior Secured Credit
Agreement with Chase Bank of Texas, National Association and PNC Bank (the
"Warehouse Line"). The Warehouse Line provides a warehouse line of credit of
$120 million ($90 million committed at August 11, 1998) for its mortgage
originations and residential rehabilitation purchases. The Warehouse Line is
secured by the mortgage loans and residential rehabilitation purchases funded
with the proceeds of such borrowings. The Company has also pledged the stock of
its residential rehabilitation subsidiaries as additional collateral. Borrowings
for residential rehabilitation purchases are guaranteed by Ronald Friedman
(President, Chief Executive Officer and a Director of the Company) and Robert
Friedman (Chairman of the Board of Directors, Chief Operating Officer, Secretary
and Treasurer of the Company). The interest rate charged for borrowings under
the Warehouse Line is LIBOR plus 1 1/4%-2 1/4 depending upon the collateral
type. The Warehouse Line expires on October 5, 1999.
The warehouse lines of credit contains certain covenants limiting
indebtedness, liens, mergers, changes in control and sales of assets and
requires the Company to maintain minimum net worth and other financial ratios.
The Company expects to be able to renew or replace the Warehouse Line and its
other warehouse line of credit when the current terms expire.
On February 18, 1998 the Company completed an initial public offering of
new shares of common stock at a price of $9 per share. The Company received
gross proceeds of $11.3 million and net proceeds of approximately $9.2 million.
The proceeds from this offering were used for funding mortgage originations and
residential rehabilitation properties, working capital and an S Corporation
distribution.
Net cash substantially provided by operations for the six months ended June
30, 1999 was $36.5 million. The funds were provided by a $21.8 million net
decrease in mortgage loans held for sale, and a $14.2 million net decrease in
receivable from sales of loans. These funds were used to finance a decrease in
warehouse borrowings of $35.1 million and decreases in loans to affiliates and
distributions payable to stockholders.
Impact of New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 applies to all
entities and is effective for fiscal quarters of fiscal years beginning after
June 15, 2000. This statement establishes accounting and auditing standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. This statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
company does not expect any material impact to its financial condition or
results of operations upon its adoption of SFAS No. 133.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Held for Sale by a Mortgage Banking Enterprise". SFAS
No. 134 conforms the accounting for securities retained after securitization of
mortgage loans by a mortgage banking enterprise with the accounting for
securities retained after the securizitation of other types of assets by a
non-mortgage banking enterprise. SFAS No. 134 is effective for the first quarter
beginning after December 31, 1998. Management of the Company believes the
implementation of SFAS No. 134 will not have a material impact on the Company's
financial condition or results of operations.
Year 2000 Compliance
The Company is currently in the process of updating its information
technology infrastructure for the Year 2000 ("Y2000") compliance. The Company
has contacted the venders of its information systems and has been informed that
these systems are Y2000 compliant. The Company's existing workstations and
fileservers are substantially Y2000 compliant and those workstations that are
not Y2000 compliant will be replaced during 1999. The Company does not believe
that the cost to modify its information technology infrastructure to be material
to its financial condition or results of operations nor does the Company
anticipate any material disruption of its operations as a result of a failure by
the Company to be Compliant. However, there can be no assurance that there will
not be a delay in, or increased costs, associated with the need to address Y2000
issues. The Company also relies, directly and indirectly, on the business of
other entities, such as third party service providers, creditors, financial
institutions and government agencies. Even if the Company's computer systems are
not materially adversely affected by Y2000 issues, the Company's business and
operations could me materially adversely affected by disruptions in the
operations of other entities with which the Company interacts.
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant is a defendant in certain litigation arising in the normal
course of its business. In the opinion of the Registrant, any potential
liability with respect to such legal actions will not, individually or in the
aggregate, be material to the Registrant's financial position, liquidity or
future results of operations.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Ex-27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PMCC FINANCIAL CORP.
(Registrant)
By /s/ Ronald Friedman
-------------------
Ronald Friedman
President and Chief Executive Officer
By /s/ Robert Friedman
--------------------
Robert Friedman
Chief Financial Officer
(Principal Accounting Officer)
Dated: August 16, 1999
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