SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 17, 2000
----------------
American Home Mortgage Holdings, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-27081 13-4066303
- --------------------------------------------------------------------------------
(State of other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
12 East 49th Street New York, NY 10017
- --------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (212) 755-8600
- --------------------------------------------------------------------------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
EXPLANATORY NOTE
This Current Report on Form 8-K/A amends and restates in its entirety Item
7 of the Current Report on Form 8-K of American Home Mortgage Holdings, Inc.
(the "Company"), filed with the Securities and Exchange Commission on February
1, 2000 (the "Original 8-K").
THE PROFORMA COMBINED FINANCIAL DATA SET FORTH HEREIN GIVE EFFECT TO THE
PENDING MERGER OF AMERICAN HOME MORTGAGE HOLDINGS, INC. ("AMERICAN HOME") AND
FIRST HOME MORTGAGE CORP., INC. AS OF MARCH 31, 2000 THIS MERGER HAD NOT BEEN
COMPLETED, AND REMAINS SUBJECT TO CERTAIN CLOSING CONDITIONS, INCLUDING, BUT NOT
LIMITED TO, REGULATORY APPROVALS. AMERICAN HOME CURRENTLY ANTICIPATES THAT THE
MERGER WILL BE CONSUMMATED LATE IN THE SECOND QUARTER OF 2000, BUT THERE CAN BE
NO ASSURANCES THAT THE MERGER WILL BE CONSUMMATED BY SUCH TIME, OR AT ALL.
FORWARD-LOOKING STATEMENTS
This Form 8-K/A contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. The words "believe," "will be able," or
similar words are intended to identify forward-looking statements. Such
statements involve risks and uncertainties that exist in the Company's
operations and business environment that could render actual outcomes and
results materially different than predicted. The Company's forward-looking
statements are based on assumptions about many factors, including, but not
limited to, general volatility of the capital markets; changes in the real
estate market, interest rates or the general economy of the markets in which the
Company operates; economic, technological or regulatory changes affecting the
use of the Internet and changes in government regulations that are applicable to
the Company's regulated brokerage and property management businesses. These and
other factors are more fully discussed in the Company's prospectus filed with
the Securities and Exchange Commission as part of its Registration Statement on
Form S-1 (Registration No. 333-82409). While the Company believes that its
assumptions are reasonable at the time forward-looking statements were made, it
cautions that it is impossible to predict the actual outcome of numerous factors
and, therefore, readers should not place undue reliance on such statements.
Forward-looking statements speak only as of the date they are made, and the
Company undertakes no obligation to update such statements in light of new
information or future events.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
------------------------------------------------------------------
(a) Financial Statements of Business Acquired
The audited balance sheets of First Home as of December 31, 1999,
1998 and 1997 and the related consolidated statements of income and
comprehensive income, stockholders' equity and cash flows for the
years then ended appear as Exhibit 99.2 to this Form 8-K/A and are
incorporated herein by reference.
(b) Pro Forma Financial Information
The pro forma financial information for the years ended December 31,
1999, 1998 and 1997 appear as Exhibit 99.3 to this Form 8-K/A and
are incorporated herein by reference.
(c) Exhibits
2
<PAGE>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------
2.1* Agreement and Plan of Merger, dated as of
January 17, 2000, by and among American Home
Mortgage Holdings, Inc., American Home
Mortgage Sub II, Inc., First Home Mortgage
Corp., Inc., and the Stockholders of First
Home Mortgage Corp., Inc. listed on the
signature pages thereto.
10.1* Employment Agreement, dated January 17,
2000, between John A. Manglardi and American
Home Mortgage Holdings, Inc.
10.2* Employment Agreement, dated January 17,
2000, between Vincent Manglardi and American
Home Mortgage Holdings, Inc.
10.3* Employment Agreement, dated January 17,
2000, between Jeffrey L. Lake and American
Home Mortgage Holdings, Inc.
10.4* Employment Agreement, dated January 17,
2000, between Thomas J. Fiddler and American
Home Mortgage Holdings, Inc.
10.5* Non-Competition Agreement, dated January 17,
2000, between John A. Manglardi and American
Home Mortgage Holdings, Inc.
10.6* Non-Competition Agreement, dated January 17,
2000, between Vincent Manglardi and American
Home Mortgage Holdings, Inc.
10.7* Non-Competition Agreement, dated January 17,
2000, between Jeffrey L. Lake and American
Home Mortgage Holdings, Inc.
10.8* Non-Competition Agreement, dated January 17,
2000, between Thomas J. Fiddler and American
Home Mortgage Holdings, Inc.
23.1 Consent of Morrison & Morrison, Ltd.,
Certified Public Accountants.
99.1* Press Release of the Registrant dated
January 18, 2000.
3
<PAGE>
99.2 First Home Mortgage Corp., Inc. audited
financial statements for the years ended
December 31, 1999, 1998 and 1997.
99.3 Pro forma financial information for the
years ended December 31, 1999, 1998 and
1997.
- -----------------
* = Previously filed with the Original 8-K on February 1, 2000 with the SEC.
4
<PAGE>
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.
AMERICAN HOME MORTGAGE HOLDINGS, INC.
March 31, 2000
By: /s/ Michael Strauss
---------------------------------
Michael Strauss
5
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1* Agreement and Plan of Merger, dated as of January 17,
2000, by and among American Home Mortgage Holdings,
Inc., American Home Mortgage Sub II, Inc., First Home
Mortgage Corp., Inc., and the Stockholders of First Home
Mortgage Corp., Inc. listed on the signature pages
thereto.
10.1* Employment Agreement, dated January 17, 2000, between
John A. Manglardi and American Home Mortgage Holdings,
Inc.
10.2* Employment Agreement, dated January 17, 2000, between
Vincent Manglardi and American Home Mortgage Holdings,
Inc.
10.3* Employment Agreement, dated January 17, 2000, between
Jeffrey L. Lake and American Home Mortgage Holdings,
Inc.
10.4* Employment Agreement, dated January 17, 2000, between
Thomas J. Fiddler and American Home Mortgage Holdings,
Inc.
10.5* Non-Competition Agreement, dated January 17, 2000,
between John A. Manglardi and American Home Mortgage
Holdings, Inc.
10.6* Non-Competition Agreement, dated January 17, 2000,
between Vincent Manglardi and American Home Mortgage
Holdings, Inc.
10.7* Non-Competition Agreement, dated January 17, 2000,
between Jeffrey L. Lake and American Home Mortgage
Holdings, Inc.
10.8* Non-Competition Agreement, dated January 17, 2000,
between Thomas J. Fiddler and American Home Mortgage
Holdings, Inc.
23.1 Consent of Morrison & Morrison, Ltd., Certified Public
Accountants.
99.1* Press Release of the Registrant dated January 18, 2000.
99.2 First Home Mortgage Corp., Inc. audited financial
statements for the years ended December 31, 1999, 1998
and 1997.
99.3 Pro forma financial information for the years ended
December 31, 1999, 1998 and 1997.
- -----------------
* = Previously filed with the Original 8-K on February 1, 2000.
6
[Morrison & Morrison, Ltd. Letterhead]
March 31, 2000
First Home Mortgage Corp.
950 North Elmhurst Road
Mount Prospect, Illinois 60056
Gentlemen:
We consent to the use of our reports dated February 21, 2000 and February
18, 1999, with respect to the financial statements of First Home Mortgage
Corporation that are made part of this Current Report on Form 8-K.
/s/ Morrison & Morrison, Ltd.
----------------------------------
MORRISON & MORRISON, LTD.
Chicago, Illinois
FIRST HOME
MORTGAGE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
DECEMBER 31, 1999 AND 1998
<PAGE>
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY INFORMATION
CONSOLIDATED SCHEDULES OF OPERATING EXPENSES
<PAGE>
MORRISON & MORRISON, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
105 West Adams-Bankers Building - Chicago, Illinois 60603-6278
312/346-2141 FAX 312/346-2183
E-mail: [email protected]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders
of First Home Mortgage Corporation and Subsidiaries
Mount Prospect, Illinois
We have audited the accompanying consolidated balance sheets of First Home
Mortgage Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income and comprehensive income,
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Home Mortgage Corporation
and Subsidiaries as of December 31, 1999 and 1998, and the results of its
operations, changes in stockholders' equity and cash flows for the years then
ended in conformity with generally accepted accounting principles.
/S/ MORRISON & MORRISON, LTD.
February 21, 2000
<PAGE>
<TABLE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
------
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents (Note 1) $ 1,175,552 $ 1,837,484
Commissions receivable 188,762 154,464
Inventory - mortgages held for sale to investors (Notes 2 and 4) 16,528,819 98,723,825
Loans receivable - Frost, current portion (Note 17) 301,459 -
Notes receivable - other (Note 7) 470,173 318,074
Due from CTX Mortgage (Note 16) 183,287 -
Due from officer (Note 13) 133,135 -
Receivable from affiliates (Note 8) 2,931 154,004
Advances to employees 18,699 38,229
Prepaid insurance 20,823 25,716
------------ ------------
Total current assets 19,023,640 101,251,796
------------ ------------
Property and equipment (Notes 1 and 5)
Land 612,996 612,996
Building 1,730,016 1,728,951
Furniture and equipment 1,444,693 1,120,525
Leasehold improvements 19,923 11,520
Automobile - 21,500
------------ ------------
3,807,628 3,495,492
Less accumulated depreciation 1,056,697 830,319
------------ ------------
Net property and equipment 2,750,931 2,665,173
------------ ------------
Investments
Securities (Notes 1 and 3) 144,421 140,397
Equity in undistributed earnings of affiliates (Note 19) 300,279 -
------------ ------------
Total investments 444,700 140,397
------------ ------------
Other assets
Loans receivable - Frost (Note 17) 60,811 -
Real estate tax escrow 51,551 52,963
Security deposits 27,342 2,100
------------ ------------
Total other assets 139,704 55,063
------------ ------------
$ 22,358,975 $104,112,429
============ ============
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Current liabilities
Notes payable - lines of credit (Note 4) $ 15,725,024 $ 97,203,703
Note payable - other (Note 18) 90,137 -
Current maturities of long-term debt (Note 5) 50,620 21,415
Accounts payable 633,301 457,678
Accrued expenses
Interest 269,828 415,544
Commissions and salaries 571,394 203,186
Employer 401(k) contribution - 172,666
Other 191,918 244,330
Deferred income (Note 6) 499,196 1,151,960
Notes payable - stockholders (Note 8) 399,592 -
Escrow holdback - 12,623
Security deposit 2,400 2,300
------------ ------------
Total current liabilities 18,433,410 99,885,405
------------ ------------
Long-term debt, net of current maturities (Note 5) 1,293,777 1,196,093
------------ ------------
Commitments and contingencies (Note 7)
Minority interest 400,296 -
------------ ------------
Stockholders' equity
Common stock - $1 par value, 10,000 shares authorized;
836 and 789 shares issued and outstanding at
December 31, 1999 and 1998 836 789
Paid-in capital 1,401,682 946,322
Retained earnings 747,247 2,002,151
Unrealized gain on marketable securities (Note 3) 81,727 81,669
------------ ------------
Total stockholders' equity 2,231,492 3,030,931
------------ ------------
$ 22,358,975 $104,112,429
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------ ------------
Income
Fees, commissions and interest $ 20,649,409 $ 24,793,460
------------ ------------
Operating expenses
Selling expense 7,695,241 9,161,287
Personnel expense 5,415,514 3,764,143
Occupancy expense 772,932 465,445
Office expense 1,454,235 1,175,757
Interest expense - lines of credit 4,247,381 4,516,501
------------ ------------
Total operating expenses 19,585,303 19,083,133
------------ ------------
Income before executive compensation 1,064,106 5,710,327
Executive compensation 1,584,831 1,717,022
------------ ------------
Income (loss) from operations (520,725) 3,993,305
------------ ------------
Other income (expense)
Equity in earnings of affiliates (Note 19) 128,898 -
Frost reimbursement (Note 17) 146,027 -
Interest and dividend income 267,241 148,726
Rental income (Notes 8 and 11) 89,870 70,147
Miscellaneous income (expense) (38,538) 286
Interest expense (127,942) (111,630)
------------ ------------
Total other income 465,556 107,529
------------ ------------
Income (loss) before Illinois replacement
tax and minority interest (55,169) 4,100,834
Illinois replacement tax benefit (expense) 14,572 (82,303)
------------ ------------
Income (loss) before minority interest (40,597) 4,018,531
Minority interest in income of subsidiary (247,009) -
------------ ------------
Net income (loss) (287,606) 4,018,531
Other comprehensive income, net of tax
Unrealized (loss) gain on securities 58 (32,977)
------------ ------------
Comprehensive income (loss) $ (287,548) $ 3,985,554
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
Unrealized
Gain on Total
Common Paid-In Retained Marketable Stockholders'
Stock Capital Earnings Securities Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998
(as previously reported) $ 750 $ 1,084,444 $ 1,972,082 $ 114,646 $ 3,171,922
Adjustment for overstatement of 1997
commission income - - (284,880) - (284,880)
----------- ----------- ----------- ----------- -----------
Balance January 1, 1998 as restated 750 1,084,444 1,687,202 114,646 2,887,042
Net income - 1998 (as restated in 1999)
*(see below) - - 4,018,531 - 4,018,531
Unrealized loss on investments (Note 3) - - - (32,977) (32,977)
Distributions - - (3,703,582) - (3,703,582)
Acquisition of Legacy Financial, Inc. and
merger into First Home
Mortgage (Note 12) 39 (138,122) - - (138,083)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998
(as restated in 1999) 789 946,322 2,002,151 81,669 3,030,931
Net loss - 1999 - - (287,606) - (287,606)
Unrealized gain on investments (Note 3) - - - 58 58
Distributions - - (967,298) - (967,298)
Acquisition of VJJ Corp. and merger into
First Home Mortgage (Note 19) 3 191,404 - - 191,407
Issuance of 44 shares of common
stock (Note 13) 44 263,956 - - 264,000
----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 $ 836 $ 1,401,682 $ 747,247 $ 81,727 $ 2,231,492
=========== =========== =========== =========== ===========
* Restatement of 1998 net income
------------------------------
Net income - 1998 (as previously reported) $ - $ - $ 4,207,695 $ - $ 4,207,695
Adjustment for overstatement of 1998 - - (189,164) - (189,164)
commission income
----------- ----------- ----------- ----------- -----------
Net income - 1998 (as restated in 1999) $ - $ - $ 4,018,531 $ - $ 4,018,531
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash provided from (used for) operating activities
Net income (loss) $ (287,606) $ 4,018,531
Adjustments to reconcile net income to net cash
provided from (used for) operating activities
Minority interest 247,009 -
Equity in income of affiliates (128,898) -
Depreciation 230,217 168,960
Changes in operating assets and liabilities
Inventory - mortgages held for sale 82,195,006 (63,060,712)
Commissions receivable and advances (14,768) 88,032
Real estate tax escrow 1,412) (26,781)
Prepaid expenses 4,893 (15,289)
Accounts payable 175,623 274,315
Accrued expenses (2,586) 358,131
Deferred income (652,764) 800,066
Escrow holdback (12,623) (967)
Security deposits (25,142) (4,600)
------------ ------------
Net cash provided from
(used for) operating activities 81,729,773 (57,400,314)
------------ ------------
Cash provided from (used for) investing activities
Note receivable - Legacy Financial, Inc. - (63,000)
Checking account - Legacy Financial, Inc. - 15,877
Purchases of property and equipment (315,975) (329,836)
Increase in notes receivable (514,369) (277,974)
Distribution from investment in affiliate 20,026 -
Purchase of marketable securities (3,966) (3,464)
Repayments of (loans to) affiliates 151,073 (116,142)
------------ ------------
Net cash used for investing activities (663,211) (774,539)
------------ ------------
Cash provided from (used for) financing activities
Repayments of cash received from lines of credit, net (81,478,679) 62,047,055
Distributions to stockholders (866,433) (3,328,254)
Proceeds from other note payable 90,137 -
Proceeds from mortgage 171,279 -
Payments of long-term notes payable (44,390) (28,279)
Proceeds (payments of) notes payable to stockholders 399,592 (201,465)
------------ ------------
Net cash provided from (used for) financing
activities (81,728,494) 58,489,057
------------ ------------
Net increase (decrease) in cash and cash equivalents (661,932) 314,204
Cash and cash equivalents, at the beginning of the year 1,837,484 1,523,280
------------ ------------
Cash and cash equivalents, at the end of the year $ 1,175,552 $ 1,837,484
============ ============
Supplemental disclosures:
Interest paid $ 4,521,039 $ 4,349,355
============ ============
Income taxes paid $ 79,000 $ 34,902
============ ============
Non-cash investing and financing activities:
Acquisition of Legacy Financial, Inc. $ - $ 213,000
============ ============
Receivable from affiliates transferred to distributions $ - $ 375,328
============ ============
Acquisition of VJJ Corp. $ 191,407 -
============ ============
Capital contribution - subsidiaries $ 183,287 -
============ ============
Issuance of capital stock $ 264,000 -
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - Nature of operations and significant accounting policies
--------------------------------------------------------
Nature of operations
--------------------
The company is a wholesale mortgage banker. The company also performs
the services of a mortgage broker. It is licensed in the states of
Illinois, Wisconsin, Arizona, Connecticut, Iowa, Kansas, Louisiana and
Texas. The subsidiary companies are licencsed in the states of New
Mexico and Arizona.
In 1999, the company originated over $1,000,000,000 in new loans and
closed approximately $718,000,000 in its retail division. The
wholesale division closed $801,000,000 of new loans during 1999.
In 1998, the company originated over $1,100,000,000 in new loans and
closed approximately $787,000,000 in its retail division. The
wholesale division closed $1,095,000,000 in new loans during 1998.
The subsidiary companies originated approximately $41,000,000 of loans
for the period April 16, 1999 through December 31, 1999.
The following is a summary of significant accounting policies:
Principles of consolidation
---------------------------
The 1999 consolidated financial statements include the accounts of the
company and its 50.01% owned subsidiaries, PHS Mortgage Company and
Harvard Mortgage Company Limited Parnership beginning on April 16,
1999, the date of acquisition. All significant intercompany accounts
and transactions have been eliminated.
Method of accounting
--------------------
The company prepares its financial statements on the accrual basis of
accounting. Commission income is recognized upon closing of a
mortgage, application income is recognized upon receipt of funds, and
related application fee disbursements are recognized as the liability
is incurred. Fees end service release and discount premium received
for the funding of mortgages held for sale to investors are recognized
when the mortgages are sold to the investor.
Use of estimates
----------------
The process of preparing financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and cash equivalents
-------------------------
Cash and cash equivalents include checking accounts, money market
accounts and short-term certificates of deposit.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - Nature of operations and significant accounting policies (continued)
--------------------------------------------------------------------
Investments in securities
-------------------------
The investment in marketable securities is classified as
available-for-sale and is recorded at fair market value. The
corresponding unrealized gain is recorded as a separate component of
stockholders' equity.
Investments in affiliates
-------------------------
The company has a 50% ownership interest in the following companies:
Mortgage First Advantage, L.L.C.
Mortgage First Premier, L.L.C.
Mortgage First Elite, L.L.C.
Mortgage First Limited, L.L.C.
The company's investments in these facilities are recorded on the
equity method.
Property and equipment
----------------------
Property and equipment are recorded at cost and are being depreciated
using the straight-line method over the following lives:
Building and improvements 30 and 39 years
Furniture and equipment 3, 5 and 7 years
Leasehold improvements 7 years
Automobile 5 years
Income taxes
------------
The stockholders of the company have elected to have the company
treated as an "S" Corporation under the provisions of the Internal
Revenue Code. Accordingly, each stockholder will report his pro rata
share of the taxable income of the corporation on his individual
income tax return.
Advertising
-----------
Advertising costs, which are principally included in selling expenses,
are expensed as incurred. Advertising expense was $416,099 and
$167,105 for the years ended December 31, 1999 and 1998, respectively.
NOTE 2 - Inventory - mortgages held for sale to investors
------------------------------------------------
The company's wholesale division funds mortgages through advances
under line of credit agreements with various banks and savings
institutions. The loans are sold to investors, usually within two
weeks of the initial closing, together with the servicing rights.
Mortgages are valued at the lower of cost or market value determined
as of the balance sheet date. Mortgages held for sale as of December
31, 1999 and 1998, amounted to $16,528,819 and $98,723,825,
respectively.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - Investments
-----------
The company is an investor in a publicly traded common stock of a
bank. Cost, unrealized gain and fair market value as of December 31,
1999 and 1998 are as follows:
1999 1998
----------- -----------
Original cost $ 37,694 $ 33,728
Unrealized gain 81,727 81,669
----------- -----------
Fair market value $ 119,421 $ 115,397
=========== ===========
The unrealized gains on marketable securities are recorded as a credit
in the stochkholders' equity section of the balance sheet.
The increase in unrealized gains during 1999 was $58. During 1998
there was a decrease in unrealized gains of $32,977.
In addition, the company invested in common stock of a privately held
bank in 1997. The cost of the investment, in the amount of $25,000,
approximates fair value as of December 31, 1999 and 1998.
NOTE 4 - Notes payable - lines of credit
-------------------------------
Advances outstanding under lines of credit consist of the following at
December 31, 1999 and 1998:
1999 1998
------------ ------------
Line of credit agreement with a bank
providing for maximum borrowings of
$1,000,000. Interest is payable at
the prime rate plus 1% (9.5% at
December 31, 1999). Payable on
demand. Secured by mortgage loans
and substantially all assets of the
company. $ 947,854 $ -
Line of credit agreement with a bank
providing for maximum borrowings of
$200,000. Interest is payable at
7.3%. The agreement expires on
November 15, 2000. Secured by a
certificate of deposit, and
guaranteed by a stockholder of
the company. 200,000 -
Line of credit agreement with a
financial services company providing
for maximum borrowings of $750,000.
Interest payable at the 30-day dealer
commercial paper rate plus 2.75%
(8.45% at December 31, 1999). The
agreement expires, and any balance
payable on the line is due on October
31, 2000. Secured by substantially
all assets of the company, and
guaranteed by certain stockholders of
the company. 146,555 -
------------ ------------
Forward 1,294,409 -
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - Notes payable - lines of credit (continued)
-------------------------------------------
1999 1998
------------ ------------
Forwarded 1,294,409 -
Line of credit agreement with a bank
providing for maximum borrowings of
$3,500,000. Interest is payable at
the prime rate plus 1% (9.5% at
December 31, 1999). Payable on
demand. Secured by mortgage loans
and substantially all assets of the
company, and guaranteed by certain
stockholders of the company. - -
Funding agreement with American Home
Mortgage Holdings, Inc., whereby
the company closes loans and
American Home Mortgage Holdings, Inc.
has committed to deposit funds and
purchase the loans. The balance at
December 31, 1999, represents loans
closed for which the fund transfer
from American Home Mortgage was
outstanding. Funds were transferred
and the loans purchased by American
Home during the first week of
January 2000. 3,066,907 -
Line of credit agreement with a bank
providing for borrowings of
$50,000,000. Interest is payable
at the LIBOR rate plus 2.125%.
Interest is payable at the LIBOR rate
plus 1.75% for borrowings under the
repurchase agreement. The agreement
expires on March 1, 2000. Subject to
certain covenants including a minimum
net worth requirement and maximum
debt to tangible net worth ratio.
Secured by related mortgages held
for sale to investors, and
guaranteed by certain stockholders
of the company. 10,941,771 36,446,931
Line of credit agreement with a bank
providing for maximum borrowings of
$25,000,000 and $11,000,000 at
December 31, 1999 and 1998,
respectively. The agreement
expires on May 31, 2000. Subject to
certain covenants including a minimum
net worth, current ratio, debt
service coverage and a maxium debt
to tangible net worth ratio. Secured
by related mortgages held for sale
to investors, and guaranteed by
certain stockholders of the company. 379,817 4,099,132
------------ ------------
Forward 15,682,904 40,546,063
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - Notes payable - lines of credit (continued)
-------------------------------------------
1999 1998
------------ ------------
Forwarded 15,682,904 40,546,063
Line of credit agreement with a bank
providing for borrowings up to
$8,000,000. The agreement expired
on December 31, 1999. Interest is
payable at the LIBOR rate, plus
2%. Secured by related mortgages
held for sales to investors. 42,120 4,720,898
Line of credit agreement with a bank
providing for borrowings up to
$24,000,000 at December 31, 1998.
Interest is payable at the LIBOR
rate, plus 2% to 4% for sub prime.
The agreement expired on April 30,
1999. Subject to certain covenants
including minimum net worth
requirements and maximum specific
warehouse borrowings to net worth
ratio. Secured by related mortgages
held for sale to investors and
personal guarantees by certain
stockholders of the company. - 17,580,408
Line of credit agreement with a bank
providing for borrowings up to
$37,500,000 at December 31, 1998.
The agreement expired on June 24,
1999. Interest is payable at the
LIBOR rate plus 1.75% to 2.5%.
Secured by related mortgages held
for sale to investors. Subject to
certain covenants including a minimum
net worth requirement and maximum
distributions and debt to net worth
ratio. Guaranteed by certain
stockholders of the company. - 34,356,334
------------ -----------
$ 15, 725,024 $ 97,203,703
============= ============
NOTE 5 - Long-term debt
--------------
Long-term debt as of December 31,1999 and 1998, consists of the
following:
1999 1998
------------ ------------
Mortgage payable to a bank in monthly
installments of $12,862 including
interest at 7.5%. Final payment of
$1,096,442 is due in March 2004.
Secured by real estate. $ 1,344,397 $ -
Mortgage payable to a bank in monthly
installments of $9,577 including
interest at 8.25%, final payment of
$1,216,113 was due in January 1999.
The mortgage was refinanced in
March 1999. Secured by a building.
Guaranteed by certain stockholders
of the company. - 1,213,272
------------ ------------
Forward $ 1,344,397 $ 1,213,272
------------ ------------
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - Long-term debt (continued)
--------------------------
1999 1998
------------ ------------
Forwarded 1,344,397 1,213,272
Note payable to a bank in monthly
installments of $1,077, including
interest at 8.5%. Final installment
was paid in April 1999. Secured by
equipment, accounts receivable and
inventory. Guaranteed by a
stockholder of the ompany. - 4,236
------------ ------------
1,344,397 1,217,508
Less current maturities 50,620 21,415
------------ ------------
$ 1,293,777 $ 1,196,093
============ ============
Future maturities of long-term debt are as follows:
2000 $ 50,620
2001 59,326
2002 63,932
2003 68,895
2004 1,101,624
------------
$ 1,344,397
============
NOTE 6 - Deferred income
---------------
Deferred income represents the excess of the face value of mortgages
held for sale to investors over the related amount borrowed on the
warehouse lines of credit. This amount includes fees which are
recognized upon sale of the mortgage to investors. Deferred income
amounted to $499,196 and $1,151,960 at December 31, 1999 and 1998,
respectively.
NOTE 7 - Commitments and Contingencies
-----------------------------
Office Leases
-------------
The company leases 5 branch offices in the Chicago area under leases
expiring April 2000 through April 2003 at monthly rents totaling
$18,735. In addition, 7 branch offices in the Chicago area are leased
on a month-to-month basis at monthly rents totaling $12,516.
One branch office is leased in Colorado under a lease expiring in
November 2002. Monthly rent under this lease is $3,106.
Three branch offices are leased in New Mexico on a month-to-month
basis with monthly rent of $13,279.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 7 - Commitments and contingencies (continued)
-----------------------------------------
Office Leases (continued)
-------------------------
One of the subsidiaries leases three offices in New Mexico from a
company related through common ownership, on a month-to-month basis,
with monthly rents totaling $833.
The other subsidiary leases six offices on a month-to-month basis from
a company related through common owenrship. Two of the offices are
located in New Mexico with monthly rents totaling $759. The other four
offices are located in Arizona, with monthly rents totaling $1,431.
Rent expense during 1999, under the above leases, plus several other
leases terminated during 1999, totaled $373,977. Rent expense during
1998, totaled $130,379. Some of the leases require payments of real
estate taxes and utilies in addition to the rents. Future minimum
rents under the above leases are as follows:
2000 $ 255,027
2001 238,946
2002 160,634
2003 3,593
----------
$ 658,200
==========
Office equipment leases
-----------------------
The company leases copiers under leases expiring March 2000, through
January 2003. Total rent expense, under these leases included in
office equipment rental was $63,204 and $25,847 for 1999 and 1998,
respectively.
Minimum future rental payments under these leases are as follows:
2000 $ 75,534
2001 53,977
2002 27,100
2004 318
----------
$ 156,929
==========
Loan guarantees
---------------
Retail division
---------------
The company places its retail loans with various lending institutions.
It generally agreed to guarantee or repurchase these loans should a
mortgage default within a six month period from the date of placement.
There were no defaults since inception to the date of this financial
statement.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 7 - Commitments and contingencies (continued)
-----------------------------------------
Wholesale division
------------------
The company entered into master sales agreements with various
financial institutions to sell its wholesale mortgage inventory to
them. The company has agreed to indemnify the financial institutions
if they incur a loss due to the company's negligence. The company has
agreed to assume any mortgages which may go into default within one
year. There were six defaults since inception to the date of these
financial statements. Four of these were in default as of December
31, 1998. These mortgages totaling $306,256 (net of allowance for bad
debts of $75,000) are included in notes receivable - other.
As of December 31, 1998, the total of the four loans in default was
$180,648.
Stockholders' agreement
-----------------------
The company entered into an agreement with the stockholders under
which it is obligated to purchase the shares of any stockholder, and
the affected stockholder or his personal representative is obligated
to sell his shares to the company in the event of death, disability,
bankruptcy or termination of employment at a price determined in the
agreement. In addition, the company has the right of first refusal
should a shareholder receive an offer from an unrelated party to
purchase any of his shares. The agreement is partially funded by life
insurance on the life of each shareholder.
NOTE 8 - Related party transactions
--------------------------
During 1999 and 1998, the company leased space to various related
companies on a month-to-month basis. Total rents received from these
companies during 1999 and 1998 amounted to $36,450 and $60,900,
respectively.
The company advanced funds and paid expenses on behalf of companies
related through common ownership. The amount receivable from these
companies amounted to $2,931 and $154,004 at December 31,1999 and
1998, respectively.
The company had notes payable to stockholders in the amount of $399,592
as of December 31, 1999. The notes are due on demand and bear interest
at 8% per annum.
Exclusive services agreement
---------------------------
First Home Mortgage corporation has entered into an exclusive services
agreement with six companies in which the company has a 50% ownership
interest. The agreements require that First Home Mortgage Corporation
process, underwrite and fund the loans which have been originated by
these companies.
In connection with the above agreements, commissions in the amount of
$74,764 and $60,064 were due to the related companies at December
31, 1999 and 1998, respectively.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 - Concentration of credit risk - cash deposits
--------------------------------------------
The company had funds on deposit in financial institutions in excess of
federally insured limits totaling $1,384,498 and $2,727,453 at
December 31, 1999 and 1998, respectively.
NOTE 10 - Employee profit sharing plan
----------------------------
The company has a 401(k) plan covering all full time employees over 21
years of age. The plan provides for salary deferral contributions by
employees and discretionary employer matching contributions. In
addition, the company may contribute an additional discretionary
amount. The company's contributions during 1998 consisted of matching
contributions in the amount of $172,666. No matching contributions
were made during 1999.
NOTE 11 - Rental income under operating leases
-------------------------------------
The company leased a portion of its office building to two tenants
under operating leases.
One of the leases provides for monthly rents in the amount of $2,963
through December 2004. In addition, the tenant is required to pay
utilities and maintenance.
The other lease provides for monthly rents in the amount of $4,075
increasing to $4,717 in the final year of the lease term, which ends
May 2004. The tenant is required to pay real estate taxes in excess
of a base amount.
Minimum future rental income to be received under the new
noncancelable operating leases is as follows:
Year Ending
-----------
2000 $ 84,456
2001 85,882
2002 88,399
2003 91,041
2004 59,143
------------
$ 408,921
============
NOTE 12 - Acquisition of Legacy Financial, Inc.
-------------------------------------
On July 1, 1998, a loan to Legacy Financial, Inc. was applied towards
the acquisition of Legacy Financial, Inc. The company exchanged 39
shares of its common stock of the company plus the $150,000 note
receivable and $63,000 cash for all the outstanding common stock of
Legacy Financial, Inc. The acquisition was accounted for as a
purchase. The cost of the acquisition includes $54,033 of equipment
and other net assets amounting to $20,884. The net assets and
operations of Legacy Financial, Inc. were merged with the company on
July 1,1998.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 13 - Employment agreement
--------------------
On July 1, 1998, the company entered into a five year employment
agreement with the former owner of Legacy Financial Services, Inc. The
agreement provides for compensation to the employee during each
calendar year 1999 through 2002 equal to $150,000 plus additional
compensation for meeting certain profit goals. In addition, during
1999 through 2002, the employee shall receive options to purchase up
to 211 shares of First Home Mortgage Corp. common stock at a price of
$6,000 per share.
In December 1999, the employee exercised his option and purchased 44
shares of stock at a total cost of $264,000. The balance due from him
for the stock purchase was $133,135 at December 31, 1999.
NOTE 14 - Financing agreement covenants
-----------------------------
The financing agreements include financial covenants, including
requirements to maintain defined levels of tangible net worth, debt to
tangible net worth and current assets to current liabilities. In
addition certain agreements include limitations on dividends and
additional debt.
NOTE 15 - Branch employment agreements
----------------------------
St. Charles, Illinois
---------------------
The company has entered into a branch employment agreement with two
employees for the period September 1, 1999 through May 1, 2000,
automatically renewable for successive one-year terms. The employees
will manage the operations of a branch office in St. Charles. The
company receives service fees totalling $895 for each loan closed. The
agreement requires the company to pay the employees the profit and
loss of the branch after deducting the $895 service fee.
New Mexico
----------
The company entered into a branch employment agreement with Frost
Enterprises (Frost), an individual proprietorship, whereby Frost will
manage operations of four branch offices located in New Mexico. The
agreement continues through May 1, 2000. The company collects all loan
commissions and fees and pays all of the expenses of the branch. The
company receives service fees totaling $805 for each loan closed. The
agreement requires the company to pay Frost the profit or loss of the
branch after deducting the $805 service fees.
For the period ended December 31, 1999, the branches incurred losses
totaling $393,134. These have been recorded as a reimbursement due
from Frost in the other income section of the income statement. This
amount is included as a note receivable-Frost on the balance sheet and
is netted with other amounts receivable from and payable to Frost.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 16 - Acquisition of mortgage companies
---------------------------------
On April 16, 1999, the company acquired a 50.01% ownership interest
in PHS Mortgage Company and Harvard Mortgage Company Limited
Partnership. These companies operate six offices in New Mexico and two
offices in Arizona. Frost manages the company's operations under an
agreement similar to the New Mexico agreement discribed on the prior
page.
As of December 31, 1999, $183,287 was due from CTX Mortgage Ventures
Corporation which represents capital of the minority partners as of
April 15, 1999. The funds were received in January 2000.
50.01% of the combined net income of PHS Mortgage Company and Harvard
Mortgage Company Limited Partnership amounted to $247,107, for period
ended December 31, 1999. This amount netted with other amounts payable
to and receivable from Frost. The combination of these amounts results
in a note receivable from Frost (see NOTE 17).
NOTE 17 - Loans receivable - Frost
------------------------
Funds were advanced, in the amount of $95,000 to Frost for the
acquisition of equipment, furniture and fixtures used at the New
Mexico branch offices and PHS Mortgage Company and Harvard Mortgage
Company Limited Partnership. This note is collectible in monthly
installments of $2,988 including interest at 8.25%. The final
installment is collectible in October 2002. The company is to be
reimbursed from Frost for an additional loan which First Home is
paying related to the above acquisition in the amount of $107,435.
In addition, the loans receivable - Frost include the reimbursement
due from Frost for the New Mexico branch losses in the amount of
$393,134 less the amount payable to Frost for the income from PHS
Mortgage Company and Harvard Mortgage Company Limited Partnership of
$247,107. These amounts net to $146,027 and are reflected on income
statement under the caption "Frost reimbursement".
The loans receivable balance was $362,270 at December 31, 1999.
NOTE 18 - Note payable - other
--------------------
The company and Frost, together, entered into a short-term note
payable for Frost's acquisition of equipment, furniture and fixtures
used at the above offices, with a balance of $90,137 at December 31,
1999. The note is payable in monthly installments of $9,358 including
interest at 8.25%, with a final payment due in October 2000.
NOTE 19 - Investment in affiliates
------------------------
On June 4, 1999, the company purchased VJJ Corporation from certain
stockholders of the company in exchange for 3 shares of common stock
of the company. VJJ Corporation was merged into the company resulting
in the acquisition of a 50% ownership interest in six mortgage
companies with a value of $191,407. Two of the mortgage companies
discontinued business in December 1999.
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 19 - Investments in affiliates (continued)
-------------------------------------
The affiliates have reported the following information as of December
31, 1999, and for the period June 4, 1999 through December 31, 1999.
Continuing Discontinued
Total Operations Operations
-------- ---------- ------------
Revenues $923,195 $727,621 $195,574
======== ======== ========
Net income $257,796 $220,186 $ 37,610
======== ======== ========
Companies equity in earnings $128,898 $110,096 $ 18,802
======== ======== ========
Investments and equity in undistributed earnings of affiliates as of
December 31, 1999, are as follows:
Original investment $191,407
Equity in undistributed earnings 108,872
--------
Total $300,279
========
The accounts of the company include accounts payable to the affiliates
totaling $74,764.
NOTE 20 - Subsequent event
----------------
In January 2000, the stockholders of First Home entered into an
agreement with American Home Mortgage Holdings, Inc.,
(Nasdaq/AHMH)("American Home"), an unrelated mortgage company, to sell
all of their stock in the company in exchange for cash and stock of
American Home. First Home would then be merged into American Home
Mortgage Sub II, Inc. a wholly-owned subsidiary of American Home.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
MORRISON & MORRISON, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
105 WEST ADAMS-BANKERS BUILDING - CHICAGO, ILLINOIS 60603-6278
312/346-2141 FAX 312/346-2183
E-MAIL: [email protected]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY INFORMATION
--------------------------------------------------
To the Board of Directors and Stockholders
of First Home Mortgage Corporation and Subsidiaries
Mount Prospect, Illinois
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole of FIRST HOME MORTGAGE
CORPORATION and SUBSIDIARIES for the years ended December 31,1999 and 1998,
which are presented in the preceding section of this report. The supplementary
information presented hereinafter is presented for the purposes of additional
analysis and is not a required part of the basic consolidated financial
statements. Such information has been subjected to the audit procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
consolidated financial Statements taken as a whole.
/s/ Morrison & Morrison, Ltd.
February 21, 2000
<PAGE>
FIRST HOME MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------ ------------
Selling expenses
Advertising and promotion $ 454,800 $ 246,096
Commissions expense 3,749,223 5,689,407
Credit check charges 381,296 384,126
Appraisal and other fees paid 1,388,739 1,265,980
Document preparation 1,097 7,280
Processing fees 70,866 102,492
Loan recapture - 21,853
Flood certification 67,112 86,506
Outside services 252,151 342,193
Freight and postage 248,314 365,129
Communications expense 420,764 219,223
Entertainment and travel 398,620 290,566
Vehicle expense 93,464 56,908
Selling supplies 76,085 83,528
Bad debt expense 92,710 -
------------ ------------
Total selling expenses $ 7,695,241 $ 9,161,287
============ ============
Personnel expenses
Salaries $ 4,356,229 $ 2,807,635
Payroll taxes 600,239 544,974
Group insurance 441,591 224,203
Profit sharing, 401(k) match - 172,666
Officer life insurance 17,455 14,665
------------ ------------
Total personnel expenses $ 5,415,514 $ 3,764,143
============ ============
Occupancy expenses
Office rental $ 373,977 $ 130,379
Depreciation - building and improvements 58,809 58,714 *
Utilities 100,378 56,628
Repairs and maintenance 129,984 105,840
Real estate tax 109,784 113,884
------------ ------------
Total occupancy expenses $ 772,932 $ 465,445
============ ============
Office expenses
Bank charges $ 10,766 $ 1,840
Office supplies and expense 496,693 410,312
Professional fees 254,670 118,153
Depreciation 171,408 110,246 *
Dues and subscriptions 36,732 19,395
Donations 42,249 28,485
Office equipment rental 95,590 55,475
Computer system expenses 206,510 339,240
Permits and licenses 27,512 14,508
Meetings 2,315 3,777
Continuing education 38,023 46,559
Insurance 66,829 30,033
Miscellaneous expenses 4,938 (2,266)
------------ ------------
Total office expense $ 1,454,235 $ 1,175,757
============ ============
* Reclassified to conform to 1999 presentation.
<PAGE>
FIRST HOME
MORTGAGE CORPORATION
FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
DECEMBER 31, 1998 AND 1997
<PAGE>
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
AUDITED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
BALANCE SHEETS
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
STATEMENTS OF STOCKHOLDERS' EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTARY INFORMATION REQUIRED BY HUD
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY INFORMATION
COMPUTATION OF ADJUSTED NET WORTH
SCHEDULES OF OPERATING EXPENSES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON INTERNAL CONTROL
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS
CERTIFICATION OF STOCKHOLDERS
<PAGE>
MORRISON & MORRISON, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
105 WEST ADAMS BANKERS BUILDING - CHICAGO, ILLINOIS 60603-6278
312/346-2141 FAX 312/346-2183
E-MAIL: [email protected]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders
of First Home Mortgage Corporation
Mount Prospect, Illinois
We have audited the accompanying balance sheets of First Home Mortgage
Corporation as of December 31, 1998 and 1997, and the related statements of
income and comprehensive income, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Home Mortgage Corporation
as of December 31, 1998 and 1997, and the results of its operations, changes in
stockholders' equity and cash flows for the years then ended in conformity with
generally accepted accounting principles.
In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 18, 1999, on our
consideration of the company's internal control and a report dated February 18,
1999, on its compliance with specific requirements applicable to major HUD
programs.
/S/ MORRISON & MORRISON, LTD.
February 18, 1999
<PAGE>
<TABLE>
FIRST HOME MORTGAGE CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
------
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents (Note 1) $ 2,311,528 $ 1,808,160
Commissions receivable 154,464 267,178
Inventory - mortgages held for sale to investors (Notes 2 and 4) 98,723,825 35,663,113
Note receivable - Legacy Financial, Inc. (Note 12) - 150,000
Notes receivable - other (Note 7) 318,074 40,100
Receivable from affiliates (Note 8) 154,004 413,190
Advances to employees 38,229 13,547
Prepaid insurance 25,716 10,427
------------ ------------
Total current assets 101,725,840 38,365,715
------------ ------------
Property and equipment (Notes 1 and 5)
Land 612,996 612,996
Building 1,728,951 1,724,939
Furniture and equipment 1,120,525 704,526
Leasehold improvements 11,520 1,560
Automobile 21,500 -
------------ ------------
3,495,492 3,044,021
Less accumulated depreciation 830,319 593,758
------------ ------------
Net property and equipment 2,665,173 2,450,263
------------ ------------
Investments (Notes 1 and 3) 140,397 169,911
------------ ------------
Other assets
Real estate tax escrow 52,963 26,182
Security deposit 2,100 4,500
------------ ------------
55,063 30,682
------------ ------------
Total other assets $104,586,473 $ 41,016,571
============ ============
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current liabilities
Notes payable - lines of credit (Note 4) $ 97,203,703 $ 35,156,648
Current maturities of long-term debt (Note 5) 21,415 25,251
Accounts payable 457,678 183,363
Accrued expenses
Interest 415,544 136,768
Commissions 203,186 249,082
Employer 401(k) contribution 172,666 104,641
Other 244,330 195,133
Deferred income (Note 6) 1,151,960 351,894
Notes payable - stockholders (Note 8) - 201,465
Escrow holdback 12,623 13,590
Security deposit 2,300 9,300
------------ ------------
Total current liabilities 99,885,405 36,627,135
------------ ------------
Long-term debt, net of current maturities (Note 5) 1,196,093 1,217,514
------------ ------------
Commitments and contingencies (Note 7)
Stockholders' equity
Common stock - $1 par value, 10,000 shares authorized;
789 and 750 shares issued and outstanding at
December 31, 1998 and 1997 789 750
Paid-in capital 946,322 1,084,444
Retained earnings 2,476,195 1,972,082
Unrealized gain on marketable securities (Note 3) 81,669 114,646
------------ ------------
Total stockholders' equity 3,504,975 3,171,922
------------ ------------
$104,586,473 $ 41,016,571
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIRST HOME MORTGAGE CORPORATION
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
Income
Fees, commissions and interest $ 24,982,624 $ 12,383,607
------------ ------------
Operating expenses
Selling expense 9,161,287 5,381,091
Personnel expense 3,764,143 2,080,622
Occupancy expense 540,049 424,086
Office expense 1,101,153 508,768
Interest expense - lines of credit 4,516,501 1,077,124
------------ ------------
Total operating expenses 19,083,133 9,471,691
------------ ------------
Income before executive compensation 5,899,491 2,911,916
Executive compensation 1,717,022 1,074,471
------------ ------------
Income from operations 4,182,469 1,837,445
------------ ------------
Other income (expense)
Interest and dividend income 148,726 26,443
Rental income 70,147 187,271
Miscellaneous income 286 2,865
Interest expense (111,630) (112,099)
------------ ------------
Total other income 107,529 104,480
------------ ------------
Income before Illinois replacement tax 4,289,988 1,941,925
Illinois replacement tax 82,303 34,889
------------ ------------
Net income 4,207,695 1,907,036
Other comprehensive income, net of tax
Unrealized (loss) gain on securities (32,977) 51,405
------------ ------------
Comprehensive income $ 4,174,718 $ 1,958,441
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FIRST HOME MORTGAGE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>
Unrealized
Gain on Total
Common Paid-In Retained Marketable Stockholders'
Stock Capital Earnings Securities Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 750 $ 1,084,444 $ 470,046 $ 63,241 $ 1,618,481
Net income - 1997 - - 1,907,036 - 1,907,036
Unrealized gain on investments (Note 3) - - - 51,405 51,405
Distributions - - (405,000) - (405,000)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 750 1,084,444 1,972,082 114,646 3,171,922
Net Income - 1998 - - 4,207,695 - 4,207,695
Unrealized loss on investments (Note 3) - - - (32,977) (32,977)
Distributions - - (3,703,582) - (3,703,582)
Acquisition of Legacy Financial, Inc. and
merger into First Home
Mortgage (Note 12) 39 (138,122) - - (138,083)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 789 $ 946,322 $ 2,476,195 $ 81,669 $ 3,504,975
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FIRST HOME MORTGAGE CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash provided from (used for) operating activities
Net income $ 4,207,695 $ 1,907,036
Adjustments to reconcile net income to net cash
used for operating activities
Depreciation 168,960 148,175
Changes in operating assets and liabilities
Inventory - mortgages held for sale (63,060,712) (25,933,758)
Commissions receivable and advances 88,032 (202,205)
Real estate tax escrow (26,781) 20,805
Prepaid expenses (15,289) (3,316)
Accounts payable 274,315 38,762
Accrued expenses 358,131 517,395
Deferred income 800,066 182,773
Escrow holdback (967) (16,785)
Security deposits (4,600) (1,500)
------------ ------------
Net cash used for operating activities (57,211,150) (23,342,618)
------------ ------------
Cash provided from (used for) investing activities
Note receivable - Legacy Financial, Inc. (63,000) (150,000)
Checking account - Legacy Financial, Inc. 15,877 -
Purchases of property and equipment (329,836) (118,124)
Increase in notes receivable - other (277,974) (40,100)
Collections on notes receivable - 4,354
Purchase of marketable securities (3,464) (27,877)
Loans to affiliates (116,142) (31,393)
------------ ------------
Net cash used for investing activities (774,539) (363,140)
------------ ------------
Cash provided from (used for) financing activities
Net cash receivable from lines of credit 62,047,055 25,596,414
Distributions to stockholders (3,328,254) (405,000)
Proceeds from note payable - 23,700
Payments of long-term notes payable (28,279) (74,058)
Payments of notes payable to stockholders (201,465) (8,035)
------------ ------------
Net cash provided from financing activities 58,489,057 25,133,021
------------ ------------
Net increase in cash and cash equivalents 503,368 1,427,263
Cash and cash equivalents, at the beginning of the year 1,808,160 380,897
------------ ------------
Cash and cash equivalents, at the end of the year $ 2,311,528 $ 1,808,160
============ ============
Supplemental disclosures:
Interest paid $ 4,349,355 $ 1,106,343
============ ============
Income taxes paid $ 34,902 $ 5,389
============ ============
Non-cash investing and financing activities:
Acquisition of Legacy Financial, Inc. $ 213,000 $ -
============ ============
Receivable from affiliates transferred to distributions $ 375,328 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - Nature of operations and significant accounting policies
--------------------------------------------------------
Nature of operations
--------------------
The company is a wholesale mortgage banker. The company also performs
the services of a mortgage broker. Substantially all of its operations
are in Northeastern Illinois. It is licensed in the states of
Illinois, Wisconsin, Indiana, Texas, Kentucky, Arkansas, Missouri and
Kansas.
In 1998, the company originated over $1,100,000,000 in new loans and
closed approximately $787,000,000 in its retail division. The
wholesale division closed $1,095,000,000 in new loans during 1998.
In 1997, the company originated over $624,000,000 in new loans and
closed approximately $395,400,000 in its retail division. The
wholesale division closed $432,000,000 of new loans during 1997.
The following is a summary of significant accounting policies:
Method of accounting
--------------------
The company prepares its financial statements on the accrual basis of
accounting. Commission income is recognized upon closing of a
mortgage, application income is recognized upon receipt of funds, and
related application fee disbursements are recognized as the liability
is incurred. Fees and service release and discount premium received
for the funding of mortgages held for sale to investors are recognized
when the mortgages are sold to the investor.
Use of estimates
----------------
The process of preparing financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and cash equivalents
-------------------------
Cash and cash equivalents include checking accounts, money market
accounts and short-term certificates of deposit.
Investments
-----------
The investment in marketable securities is classified as
available-for-sale and is recorded at fair market value. The
corresponding unrealized gain is recorded as a separate component of
stockholders' equity.
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - Nature of operations and significant accounting policies (continued)
--------------------------------------------------------------------
Property and equipment
----------------------
Property and equipment are recorded at cost and are being depreciated
using the straight-line method over the following lives:
Building and improvements 30 and 39 years
Furniture and equipment 3, 5 and 7 years
Leasehold improvements 7 years
Automobile 5 years
Income taxes
------------
The stockholders of the company have elected to be treated as an "S"
Corporation under the provisions of the Internal Revenue Code.
Accordingly, each stockholder will report his pro rata share of the
taxable income of the corporation on his individual income tax return.
Advertising
-----------
Advertising costs, which are principally included in selling expenses,
are expensed as incurred. Advertising expense was $167,105 and
$117,165 for the years ended December 31, 1998 and 1997, respectively.
NOTE 2 - Inventory - mortgages held for sale to investors
------------------------------------------------
The company's wholesale division funds mortgages through advances
under line of credit agreements with various banks and savings
institutions. The loans are sold to investors, usually within two
weeks of the initial closing, together with the servicing rights.
Mortgages are valued at the lower of cost or market value determined
as of the balance sheet date. Mortgages held for sale as of December
31, 1998 and 1997 amounted to $98,723,825 and $35,663,113,
respectively.
NOTE 3 - Investments
-----------
The company is an investor in common stock of a publicly traded bank.
Cost, unrealized gain and fair market value as of December 31, 1998
and 1997 are as follows:
1998 1997
----------- -----------
Original cost $ 33,728 $ 30,265
Unrealized gain 81,669 114,646
----------- -----------
Fair market value $ 115,397 $ 144,911
=========== ===========
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - Investments (continued)
-----------------------
The unrealized gains on marketable securities are recorded as a credit
in the stockholders' equity section of the balance sheet.
The decrease in unrealized gains during 1998 was $32,977. The increase
in unrealized gains during 1997 was $51,405.
In addition, the company invested in common stock of a privately held
bank in 1997. The cost of the investment, in the amount of $25,000,
approximates fair value as of December 31, 1998 and 1997.
NOTE 4 - Notes payable - lines of credit
-------------------------------
Advances outstanding under lines of credit consist of the following at
December 31, 1998 and 1997:
1998 1997
------------ ------------
Line of credit agreement with a bank
providing for maximum borrowings of
$50,000,000. Interest is payable at
the LIBOR rate plus 2.125%. Interest
is payable at the LIBOR rate plus
1.75% for borrowings under the
repurchase agreement. The agreement
expires on December 14, 1999. Subject
to certain covenants including a
minimum net worth requirement and
maximum debt to tangible net worth
ratio. Secured by related mortgages
held for sale to investors, and
guaranteed by certain stockholders of
the company. $ 36,446,931 $ -
Line of credit agreement with a bank
providing for maximum borrowings up to
$11,000,000. Interest is payable at
the prime rate, minus 1%. The
agreement expires on May 31, 1999.
Subject to certain convenants
including a minimum net worth, current
ratio, debt service coverage and a
maximum debt to tangible net worth
ratio. Secured by related mortgages
held for sale to investors, and
guaranteed by certain stockholders of
the company. 4,099,132 -
------------ ------------
Forward 40,546,063 -
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - Notes payable - lines of credit (continued)
-------------------------------------------
1998 1997
------------ ------------
Forwarded 40,546,063 -
Line of credit agreement with a savings
and loan association providing for
borrowings up to $8,000,000 as of
December 31, 1998 and $1,000,000 as of
December 31, 1997. The agreement
expires on December 31, 1999. Interest
is payable at the LIBOR rate, plus 2%.
Secured by related mortgages held for
sales to investors. 4,720,898 -
Line of credit agreement with a bank
providing for borrowings up to
$24,000,000 at December 31, 1998 and
$15,000,000 at December 31, 1997.
Interest is payable at the LIBOR rate,
plus 2% to 4% for sub prime. The
agreement expires in April 30, 1999.
Subject to certain covenants including
minimum net worth requirements and
maximum specific warehouse borrowings
to net worth ratio. Secured by related
mortgages held for sale to investors
and personal guarantees by certain
stockholders of the company. 17,580,408 12,440,686
Line of credit agreement with a bank
providing for borrowings up to
$37,500,000 at December 31, 1998 and
$20,000,000 at December 31, 1997,
payable upon demand. The agreement
expires on June 24, 1999. Interest is
payable at the LIBOR rate plus 1.75%
to 2.5%. Secured by related mortgages
held for sale to investors. Subject to
certain covenants including a minimum
net worth requirement and maximum
distributions and debt to net worth
ratio. Guaranteed by certain
stockholders of the company. 34,356,334 16,742,729
------------ ------------
Forward 97,203,703 29,183,415
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - Notes payable - lines of credit (continued)
-------------------------------------------
1998 1997
------------ ------------
Forwarded 97,203,703 29,183,415
Accelerated funding program whereby a
bank has agreed to purchase mortgage
loans from the company immediately
after closing. The bank agreed to fund
98% of loan amounts upon receipt of
the collateral package. The sale is
contingent upon the bank's receipt of
the closed loan package within a
specified period of time, and their
acceptance. Upon acceptance by the
bank the balance of funds, consisting
of 2% plus or minus escrow funds and
any premium, will be transferred to
the company. Interest is due at an
annual rate of 8.395%. The outstanding
balance at December 31, 1997
represents loans funded by the bank
which have not yet been accepted. - 5,973,233
------------ ------------
$ 97,203,703 $ 35,156,648
============ ============
NOTE 5 - Long-term debt
--------------
Long-term debt as of December 31,1998 and 1997, consists of the
following:
1998 1997
------------ ------------
Mortgage payable to a bank in monthly
installments of $9,577 including
interest at 8.25%, final payment of
$1,216,113 is due in January, 1999.
Renewal and increase of the mortgage
was approved by the bank in January
1999. Monthly payments on the new
mortgage amount of $1,500,000 will be
$8,966 including principal and
interest at 7.5%. The final payment
will be due in January 2004. Secured
by a building. Guaranteed by certain
stockholders of the company. $ 1,213,272 $ 1,227,478
------------ ------------
Forward 1,213,272 1,227,478
------------ ------------
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - Long-term debt (continued)
--------------------------
1998 1997
------------ ------------
Forwarded 1,213,272 1,227,478
Note payable to a bank in monthly
installments of $1,077, including
interest at 8.5%. Final installment is
due April 1999. Secured by equipment,
accounts receivable and inventory.
Guaranteed by a stockholder of the
company. 4,236 15,287
------------ ------------
1,217,508 1,242,765
Less current maturities 21,415 25,251
------------ ------------
$ 1,196,093 $ 1,217,514
============ ============
Future maturities of long-term debt are as follows:
1999 $ 21,415
2000 18,512
2001 19,950
2002 21,498
2003 23,167
2004 1,112,966
------------
$ 1,217,508
============
NOTE 6 - Deferred income
---------------
Deferred income represents loan fees and a portion of the service
release and discount premium received for the funding of mortgages
held for sale to investors. The loan fees and service release and
discount premium will be recognized as income when the mortgages are
sold to investors. Deferred income amounted to $1,151,960 and $351,894
at December 31, 1998 and 1997, respectively.
NOTE 7 - Commitments and Contingencies
-----------------------------
Office Leases
-------------
The company leases an office in Oak Lawn, Illinois under a lease
expiring in May 1999, requiring monthly rental payments in the amount
of $2,995 until May 1998 and $3,115 monthly for June 1998 through May
1999. The company is required to pay its portion of increases in real
estate taxes over the 1995 base year amount.
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - Commitments and contingencies (continued)
-----------------------------------------
Office Leases (continued)
-------------------------
An office is leased in Wheaton, Illinois under a lease expiring in
August 2000, with monthly rents in the amount of $3,000. In addition,
the company leases an office in Chicago, Illinois under a lease
expiring in May, 1999. Monthly rents are $3,435.
Minimum future rental payments under these leases are as follows:
1999 $ 68,748
2000 24,000
----------
$ 92,748
==========
This company is currently renting an office in Geneva, Illinois on a
month-to-month basis. Monthly rental on this office is $3,000.
During January through April 1998, an office was leased in Naperville,
Illinois, with monthly rental payments of $600. In addition, the
company leased an office in Oak Brook, Illinois on a month-to-month
basis with monthly rental payments of $3.000. The company discontinued
leasing this office in November 1997.
Rent expense under all office leases totaled $130,379 and $68,100
during 1998 and 1997, respectively.
Office equipment leases
-----------------------
The company leases several copiers under leases expiring September
1998 through December 2001. Total rent expense, under these leases
during 1998, included in office equipment rental, was $25,847.
Minimum future rental payments under these leases are as follows:
1999 $ 32,858
2000 25,542
2001 13,732
----------
$ 72,132
==========
Vehicle lease
-------------
The company leases a vehicle under a lease expiring February 2000.
Minimum future rental payments under this lease are as follows:
1999 $ 7,353
2000 1,225
----------
$ 8,578
==========
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - Commitments and contingencies (continued)
-----------------------------------------
Loan guarantees
---------------
Retail division
---------------
The company places its retail loans with various lending institutions.
It generally agreed to guarantee or repurchase these loans should a
mortgage default within a six month period from the date of placement.
There were no defaults since inception to the date of this financial
statement.
Wholesale division
------------------
The company entered into master sales agreements with various
financial institutions to sell its wholesale mortgage inventory to
them. The company has agreed to indemnify the financial institutions
if they incur a loss due to the company's negligence. The company has
agreed to assume any mortgages which may go into default within one
year. There were four defaults since inception to the date of this
financial statement. These mortgages totaling $180,648 are included in
notes receivable-other.
It is the opinion of management that the company will experience no
significant loss regarding these defaults.
Stockholders' agreement
-----------------------
The company entered into an agreement with the stockholders under
which it is obligated to purchase the shares of any stockholder, and
the affected stockholder or his personal representative is obligated
to sell his shares to the company in the event of death, disability,
bankruptcy or termination of employment at a price determined in the
agreement. In addition, the company has the right of first refusal
should a shareholder receive an offer from an unrelated party to
purchase any of his shares. The agreement is partially funded by life
insurance on the life of each shareholder.
Consulting agreement
--------------------
In 1997, the company entered into a license and consulting agreement
with an individual. The agreement provides a license to the company to
use software useful in the mortgage origination process. The
consultant agreed to provide training to employees of the company in
use of the software in the mortgage origination process and in sale
and marketing approaches as they relate to the software. The remaining
term of the agreement requires compensation to the consultant in the
amount of $50,000 in 1999 for services performed and to be performed
during that period.
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - Related party transactions
--------------------------
The company used the services of an appraisal company owned in part by
its stockholders. Appraisal fees paid to the related company totaled
$12,135 in 1997.
During 1998 and 1997, the company leased space to various related
companies on a month-to-month basis. Total rents received from these
companies during 1998 and 1997 amounted to $60,900 and $69,375,
respectively.
During 1996, a partnership owned by the stockholders of the corporation
leased space in the company's main office which it subleased to other
tenants. The balance due from the partnership for rent was $165,000 at
December 31, 1997.
The company advanced funds and paid expenses on behalf of companies
related through common ownership. The amount receivable from these
companies amounted to $154,004 and $248,190 at December 31, 1998 and
1997, respectively.
The company had notes payable to stockholders in the amount of $201,465
as of December 31, 1997. The notes were non-interest bearing and were
paid in full during 1998.
Exclusive service agreement
---------------------------
First Home Mortgage corporation has entered into an exclusive services
agreement with six companies related through common ownership. The
agreements require that First Home Mortgage Corporation process,
underwrite and fund the loans which have been originated by these
companies.
In connection with the above agreements, commissions in the amount of
$60,064 and $4,027 were due to the related companies at December
31, 1998 and 1997, respectively.
NOTE 9 - Concentration of credit risk - cash deposits
--------------------------------------------
The company had funds on deposit in financial institutions in excess of
federally insured limits totaling $2,727,453 and $1,772,015 at
December 31, 1998 and 1997, respectively.
NOTE 10 - Employee profit sharing plan
----------------------------
The company has a 401(k) plan covering all full time employees over 21
years of age. The plan provides for salary deferral contributions by
employees and discretionary employer matching contributions. In
addition, the company may contribute an additional discretionary
amount. The company's contributions during 1998 and 1997, consisted of
matching contributions in the amount of $172,666 and $104,641,
respectively.
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - Rental income under operating leases
-------------------------------------
The company leased a portion of its office building to two tenants
under operating leases. One lease provides for monthly rents in the
amount of $7,350 through March 1998, increasing 5% each year through
March 2000. This tenant is required to pay increases in real estate
taxes in excess of a base amount. The second lease required monthly
rents in the amount of $2,540 through September 1998. Both tenants left
during 1998.
During December 1998, the company entered into a lease agreement with a
new tenant providing for monthly rents in the amount of $2,400
beginning January 1999 Through December 2004. In addition, the tenant
is required to pay utilities and maintenance.
Minimum future rental income to be received under the new noncancelable
operating leases is as follows:
Year Ending
-----------
1999 $ 28,800
2000 28,800
2001 28,800
2002 28,800
2003 28,800
2004 28,800
------------
$ 172,800
============
NOTE 12 - Acquisition of Legacy Financial, Inc.
-------------------------------------
At December 31, 1997, notes receivable included a loan to an unrelated
mortgage company in the amount of $150,000. On July 1,1998, the loan
was applied towards the acquisition of Legacy Financial, Inc. The
company exchanged 39 shares of its common stock of the company plus the
$150,000 note receivable and $63,000 cash for all the outstanding
common stock of Legacy Financial, Inc. The acquisition was accounted
for as a purchase. The cost of the acquisition includes $54,033 of
equipment and other net assets amounting to $20,884. The net assets and
operations of Legacy Financial, Inc. were merged with the company on
July 1,1998.
NOTE 13 - Employment agreement
--------------------
On July 1, 1998, the company entered into a five year employment
agreement with the former owner of Legacy Financial Services, Inc. The
agreement provides for compensation to the employee during each
calendar year 1999 through 2002 equal to $150,000 plus additional
compensation for meeting certain profit goals. In addition, during 1999
through 2002, the employee shall receive options to purchase up to 211
shares of First Home Mortgage Corp. common stock at a price of $6,000
per share.
<PAGE>
FIRST HOME MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 14 - Financing agreement covenants
-----------------------------
The financing agreements include financial covenants including
requirements to maintain defined levels of tangible net worth, debt to
tangible net worth and current assets to current liabilities. In
addition certain agreements include limitations on dividends and
additional debt. The company was in violation of certain covenants at
December 31, 1998. Management of the company is in the process of
obtaining waivers of the covenants and feels strongly that they will
be obtained. In addition, management feels that the company is
currently in compliance with the covenants and is in the process of
compiling the financial information necessary to verify current
compliance.
<PAGE>
SUPPLEMENTARY INFORMATION REQUIRED BY HUD
<PAGE>
MORRISON & MORRISON, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
105 WEST ADAMS-BANKERS BUILDING - CHICAGO, ILLINOIS 60603-6278
312/346-2141 FAX 312/346-2183
E-MAIL: [email protected]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY INFORMATION
--------------------------------------------------
To the Board of Directors and Stockholders
of First Home Mortgage Corporation
Mount Prospect, Illinois
Our report on our audit of the basic financial statements of FIRST HOME
MORTGAGE CORPORATION for the year ended December 31, 1998, is presented in the
preceding section of this report. That audit was conducted for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
accompanying supplementary computation of adjusted net worth and schedule of
operating expenses are presented for the purpose of additional analysis and to
comply with the U.S. Department of Housing and Urban Development's reporting
requirements and are not a required part of the basic financial statements.
Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken
as a whole.
/s/ Morrison & Morrison, Ltd.
February 18, 1999
<PAGE>
FIRST HOME MORTGAGE CORPORATION
COMPUTATION OF ADJUSTED NET WORTH
FOR RECERTIFICATION OF NONSUPERVISED MORTGAGEES
OTHER THAN LOAN CORRESPONDENTS
DECEMBER 31, 1998
1. Servicing Portfolio December 31, 1998 $ -
-------------
2. Add:
Originated during fiscal year $ 135,635,385
Purchased from Loan Correspondent $ 39,979,789
-------------
Sub-total $ 175,615,714
-------------
3. Less:
Servicing retained $ -
-------------
Loan Corresp. Purchased Retained $ -
-------------
Sub-Total $ -
-------------
4. TOTAL $ 175,615,174
=============
5. 1% of line 4 $ 1,756,152
-------------
6. Minimum Net Worth Required $ 1,756,152
-------------
7. Net Worth Required $ 1,000,000
=============
Stockholders Equity (Net Worth)
per Balance Sheet $ 3,504,975
------------
Less Unacceptable Assets $ 175,609
------------
Adjusted Net Worth $ 3,329,366
-------------
Adjusted Net Worth ABOVE
Amount Required $ 2,329,366
-------------
Adjusted Net Worth BELOW
Amount Required $ -
-------------
<PAGE>
FIRST HOME MORTGAGE CORPORATION
SCHEDULES OF OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
Selling expenses
Advertising and promotion $ 246,096 $ 196,192
Commissions expense 5,689,407 3,259,842
Credit check charges 384,126 180,360
Appraisal and other fees paid 1,265,980 669,712
Document preparation 7,280 57,700
Processing fees 102,492 155,606
Loan recapture 21,853 20,896
Flood certification 86,506 44,812
Outside services 342,193 254,848
Freight and postage 365,129 142,734
Communications expense 219,223 106,813
Entertainment and travel 290,566 169,329
Vehicle expense 56,908 78,746
Selling supplies 83,528 43,501
----------- ------------
Total selling expenses $ 9,161,287 $ 5,381,091
=========== ===========
Personnel expenses
Salaries $ 2,807,635 $ 1,514,996
Employee recruiting - 31,700
Payroll taxes 544,974 317,542
Group insurance 224,203 94,729
Profit sharing, 401(k) match 172,666 104,641
Officer life insurance 14,665 17,014
------------ ------------
Total personnel expenses $ 3,764,143 $ 2,080,622
============ ===========
Occupancy expenses
Office rental $ 130,379 $ 68,100
Depreciation - building and improvements 133,318 132,623
Utilities 56,628 42,285
Repairs and maintenance 105,840 30,958
Real estate tax 113,884 150,120
------- -----------
Total occupancy expenses $ 540,049 $ 424,086
============= ===========
Office expenses
Bank charges $ 1,840 $ 10,223
Office supplies and expense 410,312 206,087
Professional fees 118,153 71,066
Depreciation 35,642 15,553
Dues and subscriptions 19,395 1,754
Donations 28,485 20,379
Office equipment rental 55,475 33,298
Computer system expenses 339,240 83,245
Permits and licenses 14,508 8,899
Meetings 3,777 15,272
Continuing education 46,559 25,734
Insurance 30,033 15,785
Miscellaneous expenses (2,266) 1,473
----------- ------------
Total office expense $ 1,101,153 $ 508,768
=========== ============
<PAGE>
MORRISON & MORRISON, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
105 WEST ADAMS-BANKERS BUILDING - CHICAGO, ILLINOIS 80403-5278
312/346-2141 FAX 312/346-2183
E-MAIL: [email protected]
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON INTERNAL CONTROL
---------------------------------------
To the Board of Directors and Stockholders
of First Home Mortgage Corporation
Mount Prospect, Illinois
We have audited the financial statements of First Home Mortgage Corporation as
of and for the year ended December 31,1998, and have issued our report thereon
dated February 18, 1999. We have also audited First Home Mortgage Corporation's
compliance with requirements applicable to major HUD-assisted programs and have
issued our report thereon dated February 18, 1999.
We conducted our audits in accordance with generally accepted auditing
standards, Government Auditing Standards, issued by the Comptroller General of
the United States, and the Consolidated Audit Guide for Audits OF HUD Programs
(the "Guide"), issued by the U.S. Department of Housing and Urban Development,
Office of the Inspector General. Those standards and the Guide require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and about whether the
company complied with laws and regulations, noncompliance with which would be
material to a major HUD-assisted program.
The management of First Home Mortgage Corporation is responsible for
establishing and maintaining internal control. In fulfilling this
responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs of controls. The objectives of internal
control are to provide management with reasonable, but not absolute, assurance
that assets are safeguarded against loss from unauthorized use or disposition,
that transactions are executed in accordance with management's authorization
and recorded properly to permit the preparation of financial statements in
accordance with generally accepted accounting principles, and that HUD-assisted
programs are managed in compliance with applicable laws and regulations. Because
of inherent limitations in any internal control, errors, irregularities, or
instances of noncompliance may nevertheless occur and not be detected. Also,
projection of any evaluation of internal control to future periods is subject to
the risk that procedures may become inadequate because of changes in conditions
or that the effectiveness of the design and operation of controls may
deteriorate.
In planning and performing our audits, we obtained an understanding of the
design of relevant internal controls and determined whether they had been placed
in operation, and we assessed control risk in order to determine our auditing
procedures for the purpose of expressing our opinions on the company's financial
statements and on its compliance with specific requirements applicable to its
major HUD-assisted programs and to report on internal control in accordance with
the provisions of the Guide and not to provide any assurance on internal
control.
<PAGE>
PAGE TWO
We performed tests of controls, as required by the Guide, to evaluate the
effectiveness of the design and operation of controls that we considered
relevant to preventing or detecting material noncompliance with specific
requirements applicable to the company's major HUD-assisted programs. Our
procedures were less in scope than would be necessary to render an opinion on
internal control. Accordingly, we do not express such an opinion.
Our consideration of the internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or more
of the internal control components does not reduce to a relatively low level the
risk that errors or irregularities in amounts that would be material in relation
to the financial statements or that noncompliance with laws and regulations that
would be material to a HUD-assisted program may occur and not be detected within
a timely period by employees in the normal course of performing their assigned
functions. We noted no matters involving internal control and its operation that
we consider to be material weaknesses as defined above.
This report is intended solely for the information and use of the audit
committee, board of directors, management, and the Department of Housing and
Urban Development and is not intended to be and should not be used by anyone
other than these specified parties.
/s/ Morrison & Morrison, Ltd.
February 18, 1999
<PAGE>
MORRISON & MORRISON, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
105 WEST ADAMS-BANKERS BUILDING - CHICAGO, ILLINOIS 60603-6278
312/346-2141 FAX 312/346-2183
E-MAIL: [email protected]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON COMPLIANCE WITH SPECIFIC REQUIREMENTS
APPLICABLE TO MAJOR HUD PROGRAMS
--------------------------------------------------
To the Board of Directors and Stockholders
of First Home Mortgage Corporation
Mount Prospect, Illinois
We have audited the financial statements of First Home Mortgage Corporation as
of and for the year ended December 31, 1998, and have issued our report thereon
dated February 18, 1999.
We have also audited the company's compliance with the specific program
requirements governing the quality control plan, branch office operations, loan
origination, loan settlement, federal financial and activity reports, kickbacks
and mortgage approval requirements that are applicable to its major HUD-assisted
program for the year ended December 31, 1998. The management of First Home
Mortgage Corporation is responsible for compliance with those requirements. Our
responsibility is to express an opinion on compliance with those requirements
based on our audit.
We conducted our audit of compliance with those requirements in accordance with
generally accepted auditing standards, Government Auditing Standards, issued by
the Comptroller General of the United States, and the Consolidated Audit Guide
for Audits of HUD Programs (the "Guide") issued by the U.S. Department of
Housing and Urban Development, Office of the Inspector General. Those standards
and the Guide require that we plan and perform the audit to obtain reasonable
assurance about whether material noncompliance with the requirements referred to
above occurred. An audit includes examining, on a test basis, evidence about the
company's compliance with those requirements. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, First Home Mortgage Corporation complied, in all material
respects, with the requirements described above that are applicable to its major
HUD-assisted program for the year ended December 31, 1998.
This report is intended solely for the information and use of the audit
committee, board of directors, management, and the Department of Housing and
Urban Development and is not intended to be and should be not be used by anyone
other than these specified parties.
/s/ Morrison & Morrison, Ltd.
February 18, 1999
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
THE PROFORMA COMBINED FINANCIAL DATA SET FORTH HEREIN GIVE EFFECT TO THE PENDING
MERGER OF AMERICAN HOME MORTGAGE HOLDINGS, INC. ("AMERICAN HOME") AND FIRST HOME
MORTGAGE CORP., INC. AS OF MARCH 31, 2000 THIS MERGER HAD NOT BEEN COMPLETED,
AND REMAINS SUBJECT TO CERTAIN CLOSING CONDITIONS, INCLUDING, BUT NOT LIMITED
TO, REGULATORY APPROVALS. AMERICAN HOME CURRENTLY ANTICIPATES THAT THE MERGER
WILL BE CONSUMMATED LATE IN THE SECOND QUARTER OF 2000, BUT THERE CAN BE NO
ASSURANCES THAT THE MERGER WILL BE CONSUMMATED BY SUCH TIME, OR AT ALL.
The pro forma combined financial data set forth herein give effect to the
pending merger of American Home Mortgage Holdings, Inc. ("American Home") and
First Home Mortgage Corp., Inc ("First Home") as if the merger had been
consummated on January 1, 1997 for income statement information and December 31,
1999 for balance sheet information. As of March 31, 2000 this merger had not
been completed. This pro forma also gives effect to the merger with Marina
Mortgage Co., Inc. ("Marina") as set forth on Form 8-K filed with the Securities
and Exchange Commission on March 14, 2000 and is hereby incorporated by
reference. The unaudited pro forma combined consolidated balance sheet as of
December 31, 1999 and the unaudited pro forma combined consolidated statements
of income for the three years in the period ended December 31, 1999 are based
upon the historical consolidated financial statements of American Home as
previously filed with the Commission under the Exchange Act, and should be read
in conjunction with those consolidated financial statements and related notes.
These unaudited pro forma combined financial statements are not necessarily
indicative of the operating results that would have been achieved had the
American Home/First Home merger been consummated as of the beginning of the
periods presented and should not be construed as representative of future
operating results. These unaudited pro forma combined financial statements give
effect to the American Home/First Home merger by combining the results of
operations of American Home and First Home using the "purchase" method of
accounting.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN HOME
-------------------------------------
PROFORMA
American Home First Home (c) Year Ended December 31, 1999
------------- -------------- -------------------------------------
Combined Year Ended Combined
December 31, December 31, Proforma December 31,
1999 1999 Adjustments 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 3,414,017 $ 1,319,973 $ (3,010,804) $ 1,723,186
Mortgage loans held for sale, net 65,115,356 16,528,819 81,644,175
Mortgage loans held for investment, net 153,534 - 153,534
Real estate owned 112,865 - 112,865
Accounts receivable 7,102,546 1,359,257 8,461,803
Mortgage servicing rights, net 34,470 - 34,470
Premises and equipment 3,419,693 2,750,931 6,170,624
Prepaid expenses and security deposits 2,022,494 99,716 (600,000)(b) 1,522,210
Investment in Affiliate 300,279 300,279
Goodwill 4,497,537 - 5,809,346 (a) (b) 10,306,883
------------ ------------ ------------ -------------
Total assets $ 85,872,512 $ 22,358,975 $ 2,198,542 $ 110,430,029
============ ============ ============ =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Warehouse lines of credit $ 60,118,587 $ 15,725,024 $ - $ 75,843,611
Notes payable 1,947,578 1,173,396 (a) 3,120,974
Accrued expenses and other 5,170,022 5,170,022
Deferred income tax liability 625,000 4,002,163 4,627,163
------------ ------------ ------------ -------------
Total liabilities 67,861,187 $ 19,727,187 $ 1,173,396 88,761,770
MINORITY INTEREST 23,372 400,296 423,668
STOCKHOLDERS' EQUITY
Common stock 82,534 836 4,080 (a) 87,450
Additional paid-in capital 17,249,390 1,401,682 1,850,040 (a) 20,501,112
Retained earnings 656,029 747,247 (747,247)(a) 656,029
Unrealized gain in marketable securities - 81,727 (81,727)(a) -
------------ ------------ ------------ -------------
Total stockholders' equity 17,987,953 2,231,492 1,025,146 21,244,591
------------ ------------ ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 85,872,512 $ 22,358,975 $ 2,198,542 $ 110,430,029
============ ============ ============ =============
</TABLE>
See notes to unaudited proforma combined consolidated balance sheet.
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED
BALANCE SHEET
(1) The pro forma adjustments reflected in the unaudited pro forma combined
consolidated balance sheet of American Home Including First Home as of December
31, 1999 give effect to the following adjustments:
(a) Stockholders' equity of First Home has been adjusted to give effect
to the exchange of 836 shares of First Home Common Stock for 491,568
shares of shares of American Home Common Stock. Pro forma adjusting
entry is as follows:
DEBIT CREDIT
----- ------
Goodwill 5,209,346
Common Stock 836
Additional paid-in capital 1,401,682
Retained Earnings 747,247
Unrealized gain in marketable 81,727
securities
Cash 3,010,804
Notes Payable 1,173,396
Common Stock 4,916
Additional paid-in capital 3,251,722
(b) Merger-related Expenses. Merger-related expenses anticipated to be
recorded by American Home are included in the pro forma combined
consolidated balance sheet as of December 31, 1999. Merger-related
expenses expected to be recorded by American Home are summarized in
the following table:
DEBIT CREDIT
----- ------
Goodwill 600,000
Capitalized expenses 600,000
(c) The pro forma financial information of First Home has been
reclassified to conform with the American Home presentation.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN HOME
-------------------------------
AMERICAN PROFORMA
Home Marina (5) First Home (5) Year Ended December 31, 1999
------------ ------------ ------------ -------------------------------
Year Ended Year Ended Year Ended First Home Combined
December 31, December 31, December 31, Proforma December 31,
1999 1999 1999 Adjustments 1999
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of mortgage loans $ 21,957,076 $ 14,579,977 $ 20,649,409 $ - $ 57,186,462
Interest income, net 1,703,498 161,788 - 1,865,286
Other 1,201,436 50,915 465,556 - 1,717,907
------------ ------------ ------------ ------------ ------------
Total revenues 24,862,010 14,792,680 21,114,965 - 60,769,655
------------ ------------ ------------ ------------ ------------
EXPENSES:
Salaries, commissions and benefits, net 11,611,275 9,843,347 13,110,755 (3,069,671)(1) 31,495,706
Marketing and promotion 1,774,169 703,010 1,584,831 4,062,010
Occupancy and equipment 2,428,870 1,878,152 772,932 4,307,022
Data processing and communications 1,132,970 734,176 627,274 2,640,078
Provision for loss 27,967 175,000 202,967
Amortization of goodwill - - 512,272 (2) 512,272
Other 2,549,636 2,305,965 5,074,284 - 10,557,159
------------ ------------ ------------ ------------ ------------
Total expenses 19,524,887 15,639,650 21,170,076 (2,557,399) 53,777,214
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 5,337,123 (846,970) (55,111) 2,557,399 6,992,441
INCOME TAXES 1,441,125 (339,553) (14,572) - 1,087,000
------------ ------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 3,895,998 (507,417) (40,539) 2,557,399 5,905,441
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURE 35,112 247,009 - 282,121
------------ ------------ ------------ ------------ ------------
NET INCOME $ 3,860,886 $ (507,417) $ (287,548) $ 2,557,399 $ 5,623,320
============ ============ ============ ============ ============
PRO FORMA INCOME TAXES (3) $ 878,875 $ (9,075) $ 869,800
PRO FORMA NET INCOME $ 2,982,011 $ (278,473) $ 4,753,520
Pro forma earnings per share - basic $ 0.40 $ 0.54
Pro forma earnings per share - diluted $ 0.39 $ 0.54
Weighted average number of shares - basic (4) 7,533,334 8,776,514
Weighted average number of shares - diluted (4) 7,564,776 8,807,956
</TABLE>
See notes to unaudited proforma combined consolidated statements of income.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN HOME
-----------------------------
AMERICAN PROFORMA
Home Marina (5) First Home (5) Year Ended December 31, 1998
------------ ------------ ------------ ------------------------------
Year Ended Year Ended Year Ended First Home Combined
December 31, December 31, December 31, Proforma December 31,
1998 1998 1998 Adjustments 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of mortgage loans $ 18,980,534 $ 18,707,166 $ 24,793,460 $ - $ 62,481,160
Interest income, net 734,179 288,234 - 1,022,413
Other 502,223 90,406 107,529 - 700,158
------------ ------------ ------------ ------------ ------------
Total revenues 20,216,936 19,085,806 24,900,989 - 64,203,731
------------ ------------ ------------ ------------ ------------
EXPENSES:
Salaries, commissions and benefits, net 9,430,382 11,886,945 12,925,430 (2,995,668)(1) 31,247,089
Marketing and promotion 1,236,461 683,025 1,717,022 3,636,508
Occupancy and equipment 1,653,709 1,031,478 465,445 2,685,187
Data processing and communications 951,508 889,804 558,463 2,306,757
Provision for loss 152,955 330,000 482,955
Amortization of goodwill - - 512,272 (2) 512,272
Other 1,542,997 3,009,865 5,166,772 - 10,278,097
------------ ------------ ------------ ------------ ------------
Total expenses 14,968,012 17,831,117 20,833,132 (2,483,396) 51,148,865
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 5,248,924 1,254,689 4,067,857 2,483,396 13,054,866
INCOME TAXES 328,209 533,041 82,303 - 943,553
------------ ------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 4,920,715 721,648 3,985,554 2,483,396 12,111,313
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURE 50,760 - - - 50,760
------------ ------------ ------------ ------------ ------------
NET INCOME $ 4,869,955 $ 721,648 $ 3,985,554 $ 2,483,396 $ 12,060,553
============ ============ ============ ============ ============
PRO FORMA INCOME TAXES (3) $ 1,982,000 $ 1,536,000 $ 3,518,000
PRO FORMA NET INCOME $ 2,887,955 $ 2,449,554 $ 8,542,553
Pro forma earnings per share - basic $ 0.38 $ 0.97
Pro forma earnings per share - diluted $ 0.38 $ 0.97
Weighted average number of shares - basic (4) 7,533,334 8,776,514
Weighted average number of shares - diluted (4) 7,564,776 8,807,956
</TABLE>
See notes to unaudited proforma combined consolidated statements of income.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN HOME
------------------------------
AMERICAN PROFORMA
Home Marina (5) First Home (5) Year Ended December 31, 1997
------------ ------------ ------------ ------------------------------
Year Ended Year Ended Year Ended First Home Combined
December 31, December 31, December 31, Proforma December 31,
1997 1997 1997 Adjustments 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of mortgage loans $ 10,596,604 $ 12,211,745 $ 12,383,607 $ - $ 35,191,956
Interest income, net 368,808 79,190 - 447,998
Other 356,018 96,599 104,480 - 557,097
------------ ------------ ------------ ------------ ------------
Total revenues 11,321,430 12,387,534 12,488,087 - 36,197,051
------------ ------------ ------------ ------------ ------------
EXPENSES:
Salaries, commissions and benefits, net 5,315,732 7,146,187 7,461,713 (1,148,866)(1) 18,774,766
Marketing and promotion 962,475 556,646 1,074,471 2,593,592
Occupancy and equipment 909,216 684,659 424,086 1,593,875
Data processing and communications 611,699 638,540 190,058 1,674,325
Provision for loss 116,837 105,000 221,837
Amortization of goodwill - - 512,272 (2) 512,272
Other 946,270 2,284,581 1,344,429 - 4,765,338
------------ ------------ ------------ ------------ ------------
Total expenses 8,862,229 11,415,613 10,494,757 (636,594) 30,136,005
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 2,459,201 971,921 1,993,330 636,594 6,061,046
INCOME TAXES 139,887 397,710 34,889 - 572,486
------------ ------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 2,319,314 574,211 1,958,441 636,594 5,488,560
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURE - - - - -
------------ ------------ ------------ ------------ ------------
NET INCOME $ 2,319,314 $ 574,211 $ 1,958,441 $ 636,594 $ 5,488,560
============ ============ ============ ============ ============
PRO FORMA INCOME TAXES (3) $ 942,000 $ 763,550 $ 1,705,550
PRO FORMA NET INCOME $ 1,377,314 $ 1,194,891 $ 3,783,010
Pro forma earnings per share - basic $ 0.18 $ 0.43
Pro forma earnings per share - diluted $ 0.18 $ 0.43
Weighted average number of shares - basic (4) 7,533,334 8,776,514
Weighted average number of shares - diluted (4) 7,564,776 8,807,956
</TABLE>
See notes to unaudited proforma combined consolidated statements of income.
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(1) Pro forma adjustment for salaries in excess of current employment
contracts and duplicative efforts resulting from the merger:
1999 1998 1997
---------- ---------- ----------
First Home Mortgage Corp. $ 826,675 $ 958,866 $ 336,844
Marina Mortgage Co., Inc. 2,242,996 2,036,802 812,022
---------- ---------- ----------
$3,069,671 $2,995,668 $1,148,866
========== ========== ==========
(2) Pro forma adjustment for goodwill amortization, over a 20-year
period.
1999 1998 1997
-------- -------- --------
First Home Mortgage Corp. $287,395 $287,395 $287,395
Marina Mortgage Co., Inc. 224,877 224,877 224,877
-------- -------- --------
$512,272 $512,272 $512,272
======== ======== ========
(3) Per Share Data is calculated using pro forma net income, which
accounts for American Home Mortgage's S-Corporation status prior to
their Initial Public Offering.
1999 1998 1997
AMERICAN HOME $ 878,875 $1,982,000 $ 942,000
FIRST HOME MORTGAGE CORP. $ (9,075) $1,536,000 $ 763,550
Prior to the fourth quarter of 1999, American Home had elected to be
taxed as an S-Corporation. Pro forma taxes reflect an additional
provision for taxes as if American Home had been a C-Corporation for
the entire year in 1999, 1998 and 1997. The provision in 1999
excludes a $625,000 one-time non-cash, non-recurring tax expense
resulting from the conversion from the S-Corporation to
C-Corporation status.
(4) Average common shares used to calculate net income per common share
for the each of the years ended December 31, 1999, 1998 and 1997
were calculated using the following information:
1999 1998 1997
AMERICAN HOME
Primary 7,533,334 7,533,334 7,533,334
Dilutive effect of stock 31,442 31,442 31,442
options
Fully diluted 7,564,776 7,564,776 7,564,776
PRO FORMA INCLUDING MARINA
AND FIRST HOME
Primary 8,776,514 8,776,514 8,776,514
Dilutive effect of stock 31,442 31,442 31,442
options
Fully diluted 8,807,956 8,807,956 8,807,956
(5) The pro forma financial information of Marina and First Home has
been reclassified to conform with the American Home presentation.
