SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ___________ TO __________
COMMISSION FILE NUMBER 000-27081
AMERICAN HOME MORTGAGE HOLDINGS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-4066303
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
12 EAST 49TH STREET, NEW YORK, NY 10017
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 755-8600
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
Common Stock, $0.01 par value NASDAQ National Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] or No [ ].
As of June 30, 2000, 8,776,551 shares of the Registrant's Common Stock,
$.01 par value were outstanding.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
QUARTER ENDED JUNE 30, 2000
INDEX
PART I-FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
ITEM 1.
FINANCIAL STATEMENTS
<TABLE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,045,899 $ 3,414,017
Accounts receivable 9,950,419 7,102,546
Mortgage loans held for sale, net 98,027,645 65,115,356
Mortgage loans held for investment, net 164,457 153,534
Real estate owned 150,214 112,865
Mortgage servicing rights, net 33,356 34,470
Premises and equipment, net 6,282,331 3,419,693
Prepaid expenses and security deposits 2,247,012 2,034,234
Goodwill 12,615,944 4,497,537
------------ ------------
TOTAL ASSETS $131,517,277 $ 85,884,252
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Warehouse lines of credit $ 87,837,023 $ 56,804,901
Drafts payable 5,021,510 3,313,686
Accrued expenses and other 11,142,738 5,262,997
Notes payable 2,410,121 1,947,578
Mortgage payable - building 1,349,384
Deferred income tax liability 923,705 532,025
------------ ------------
Total liabilities 108,684,481 67,861,187
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST 526,700 23,372
STOCKHOLDERS' EQUITY:
Preferred stock $1.00 per share, 1,000,000 shares
authorized, none issued and outstanding -- --
Common stock, $.01 per share par value, 19,000,000
shares authorized, 8,776,551 issued and outstanding 87,765 82,534
Additional paid-in capital 19,478,890 17,249,390
Retained earnings 2,739,441 667,769
------------ ------------
Total stockholders' equity 22,306,096 17,999,693
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $131,517,277 $ 85,884,252
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of mortgage loans, net $ 9,837,688 $ 5,631,696 $17,869,795 $10,822,214
Interest income, net 980,619 484,898 1,920,073 708,368
Other 648,415 392,650 1,144,386 636,715
----------- ----------- ----------- -----------
Total revenues 11,466,722 6,509,244 20,934,254 12,167,297
----------- ----------- ----------- -----------
EXPENSES:
Salaries, commissions and benefits, net 5,224,015 2,700,527 9,596,751 5,823,515
Marketing and promotion 490,361 439,761 935,227 868,948
Occupancy and equipment 1,303,153 548,254 2,379,331 1,023,058
Data processing and communications 610,361 347,841 1,117,958 616,662
Provision for loss 48,500 -- 48,500 27,967
Other 1,682,226 525,638 3,230,387 1,102,801
----------- ----------- ----------- -----------
Total expenses 9,358,616 4,562,021 17,308,154 9,462,951
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 2,108,106 1,947,223 3,626,100 2,704,346
INCOME TAXES 929,960 94,113 1,627,660 131,266
INCOME BEFORE MINORITY INTEREST 1,178,146 1,853,110 1,998,440 2,573,080
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURE (5,547) 31,402 (73,232) 44,491
NET INCOME $ 1,183,693 $ 1,821,708 $ 2,071,672 $ 2,528,589
=========== =========== =========== ===========
Earnings per share - basic $ 0.14 $ 0.36 $ 0.25 $ 0.51
Earnings per share - diluted $ 0.14 $ 0.36 $ 0.25 $ 0.51
Weighted average number of shares - basic 8,292,129 4,999,900 8,289,438 4,999,900
=========== =========== =========== ===========
Weighted average number of shares - diluted 8,292,129 4,999,900 8,289,438 4,999,900
=========== =========== =========== ===========
Unaudited pro forma information:
Provision for proforma income taxes 762,000 1,058,000
----------- -----------
Pro forma earnings $ 1,059,708 $ 1,470,589
=========== ===========
Pro forma basic and diluted earnings per share $ 0.14 $ 0.20
=========== ===========
Pro forma weighted average number of shares
- basic and diluted 7,500,000 7,500,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income $ 2,071,672 $ 2,528,589
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 581,270 170,185
Provision for loss 48,500 27,967
Origination of mortgage loans held for sale (1,132,031,131) (600,376,762)
Proceeds on sale of mortgage loans 1,102,877,569 592,959,527
Increase in accrued expenses and other liabilities 3,345,900 165,563
Deferred income taxes 902,680 --
(Increase) / decrease in:
Accounts receivable (1,749,153) (1,252,865)
Mortgage servicing rights 1,114 (1,000)
Prepaid expenses and security deposits 457,739 (81,522)
--------------- ---------------
Net cash used in operating activities (23,493,840) (5,860,318)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate owned, net (37,349) --
Net purchases of loans held for investment (10,923) (80,448)
Acquisition of First Home Mortgage Corp. (7,339,605) --
Purchases of premises and equipment, net (584,219) (691,280)
Decrease in minority interest (73,232) (30,509)
--------------- ---------------
Net cash used in investing activities (8,045,328) (802,237)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in warehouse lines of credit 28,103,407 (8,756,826)
Increase in drafts payable 1,605,100 15,502,122
Increase in notes payable 462,543 --
Distributions -- (881,823)
--------------- ---------------
Net cash provided by financing activities 30,171,050 5,863,473
--------------- ---------------
NET DECREASE IN CASH (1,368,118) (799,082)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,414,017 2,891,513
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,045,899 $ 2,092,431
=============== ===============
SUPPLEMENTAL DISCLOSURE--CASH PAID FOR:
Interest $ 2,378,913 $ 1,065,132
Taxes 912,592 374,933
</TABLE>
NON CASH ACTIVITIES
On June 30, 2000, the Company issued 489,804 shares of common stock in
exchange for 100% of the outstanding shares of First Home Mortgage Corp. See
Notes to Consolidated Financial Statements.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of American
Home Mortgage Holdings, Inc. and its subsidiaries, American Home Mortgage Corp.
("American Home Mortgage") and Marina Mortgage Company, Inc. ("Marina")
(collectively the "Company") reflect all adjustments which, in the opinion of
management, are necessary for a fair presentation of the results of the interim
periods presented. All such adjustments are of a normal recurring nature. All
intercompany accounts and transactions have been eliminated. Operating results
for the six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the full year ended December 31, 2000.
The unaudited interim consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 1999, included in the Company's
annual report on Form 10-K for the year then ended.
NOTE 2-INCOME TAXES
Prior to September 29, 1999, the Company was treated as an S corporation for
income tax purposes. Effective September 29, 1999, the Company changed its
income tax treatment to a C corporation. Income tax expense of approximately
$94,000 and $131,000 has been recorded for the second quarter and six months
ending June 30, 1999, respectively. On a pro forma basis income tax expense
would have been approximately $856,000 and $1.2 million for the second quarter
and six months ending June 30, 1999, respectively. Pro forma income tax
provisions have been presented as if the Company was taxable as a C corporation
for Federal and state income tax purposes for all periods presented.
The pro forma financial information has been presented to show the effect on the
historical results of operations of the Company had it been treated as a C
corporation for Federal and state income tax purposes as of the beginning of the
earliest period presented. The pro forma earnings per share has been presented
as if the shares issued at the time of the Offering were outstanding as of the
beginning of each period.
NOTE 3-EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of shares
outstanding and excludes the dilutive effect of common stock equivalents.
Diluted earnings per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of common stock equivalents. There
was a de minimus dilutive effect as of June 30, 2000.
NOTE 4-INCORPORATION TRANSACTION
On June 15, 1999, the Company was formed to serve as a holding company for
American Home Mortgage. In conjunction with the closing of its Offering, all of
the issued and outstanding shares of stock of American Home Mortgage were
exchanged for 4,999,900 shares of the Company's Common Stock.
NOTE 5-ACQUISITION
On June 30, 2000, the Company completed its acquisition of First Home Mortgage
Corp. ("First Home"), an Illinois corporation, which was merged into American
Home Mortgage Corp. The shareholders of First Home received an aggregate of
489,804 shares of the company's common stock and $3.6 million, to be paid over a
period of two years. In addition, the shareholders of First Home may receive
additional consideration consisting of cash and shares of the company's common
stock based on the future results of the financial performance of the First Home
division of the Company (please see the Company's current report on Form 8-K
filed with the Securities and Exchange Commission on February 1, 2000 for
further information). First Home is an independent mortgage lender based in
metropolitan Chicago. Formed in 1987, First Home originates primarily
residential mortgage loans. It operates 21 branch offices in 4 states and
employs approximately 255 full time employees, including sales personnel. At
June 30, 2000, First Home had assets of $9.7 million. This transaction generated
goodwill of approximately $8.1 million to be amortized over 20 years.
The following table summarizes the required disclosures of the pro forma
combined entity, as if the merger occurred at the beginning of the year for the
quarter and six months ended June 30, 2000:
Three month ended Six months ended
June 30, 2000 June 30, 2000
------------- -------------
Revenue................................... $18,085,719 $30,745,595
Income before income taxes................ 1,779,034 2,856,530
Net income................................ 996,259 1,599,657
Earnings per share - basic................ $0.11 $0.18
Earnings per share - diluted.............. $0.11 $0.18
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading independent retail mortgage banking company primarily
engaged in the business of originating and selling residential mortgage loans.
The Company offers a broad array of residential mortgage products targeted
primarily to high-credit-quality borrowers over the Internet, as well as through
its 220 primarily commission-compensated loan originators. The Company operates
from 14 loan offices in the New York metropolitan area and five other eastern
states, 13 loan offices in California and one in Arizona. The Company operates
primarily as a mortgage banker, underwriting, funding and selling its loan
products to more than 45 different buyers. In January of 1999, the Company began
marketing its mortgage products over the Internet through its Internet site,
MORTGAGESELECT.COM. Mortgage products are originated online through arrangements
with a number of popular Web sites and through the Company's own Web site,
established in 1999.
Net income for the second quarter of 2000 totaled $1.2 million or $0.14 per
share on a diluted basis, compared to $1.1 million or $0.14 per share on a pro
forma basis in the 1999 second quarter. For the first six months of 2000, net
income was $2.1 million, or $0.25 per share on a diluted basis, up from $1.5
million or $0.20 per share on a pro forma basis in the same period a year ago.
Loan originations increased 117.2% in the second quarter of 2000 totaling $718.1
million compared to $330.6 in the 1999 second quarter. Originations from our
MORTGAGESELECT.COM Internet Web site totaled $144.5 million in the second
quarter.
On June 30, 2000, the Company completed its acquisition of First Home Mortgage
Corp. ("First Home"), an Illinois corporation, which was merged into American
Home Mortgage Corp. First Home is a full service retail lender. First Home
originates and purchases mortgage loans for sale in the secondary mortgage
market. It operates 21 branch offices in 4 states.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth information derived from the Company's
Consolidated Statements of Income expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Gain on sale of mortgage loans........................................... 85.8% 86.5% 85.4% 88.9%
Interest income, net..................................................... 8.6 7.5 9.2 5.8
Other.................................................................... 5.6 6.0 5.4 5.2
----- ----- ----- -----
100.0 100.0 100.0 100.0
----- ----- ----- -----
Total revenues...........................................................
Expenses
Salaries, commissions and benefits, net.................................. 45.6 41.5 45.8 47.9
Marketing and promotion.................................................. 4.3 6.8 4.5 7.1
Occupancy and equipment.................................................. 11.4 8.4 11.4 8.4
Data processing and communications....................................... 5.3 5.3 5.3 5.1
Provision for loss....................................................... 0.4 -- 0.2 0.2
Other.................................................................... 14.6 8.1 15.5 9.1
----- ----- ----- -----
Total expenses........................................................... 81.6 70.1 82.7 77.8
----- ----- ----- -----
Income before income taxes and minority interest......................... 18.4 29.9 17.3 22.2
Income taxes............................................................. 8.1 0.4 7.8 1.1
Minority interest 0.0 0.5 (0.3) 0.3
----- ----- ----- -----
Net income............................................................... 10.3% 28.0% 9.8% 20.8%
===== ===== ===== =====
Provision for pro forma income taxes..................................... 11.7 8.7
===== =====
Pro forma net income..................................................... 16.3% 12.1%
===== =====
</TABLE>
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1999
REVENUES
Revenues for the second quarter of 2000 were $11.5 million, compared to
$6.5 million in 1999, an increase of 76.2%. The increase was a result of
increased gains on sale of mortgage loans, net interest income and volume
incentive bonuses.
Gain on sale increased by 74.7% to $9.8 million from $5.6 million a year
earlier, generally a result of an increase in loan volume, due in large part to
the Marina acquisition and Internet-generated loan closings. Loans sold in the
second quarter of 2000 were $693.6 million compared to $299.4 million in the
like quarter in 1999 (which amounts include $54.0 million and $9.0 million of
originations in which we acted as broker, respectively).
Net interest income increased to $981,000 from $484,000 a year ago, an increase
of 102.2%. The improvement resulted from increased loan originations and from
more efficient cash management, including the implementation of sweep accounts,
which use existing cash balances overnight to reduce outstanding borrowings.
Other income was $648,000 for the current quarter, an increase of 65.1% compared
to $393,000 for the second quarter of 1999. Other income primarily consists of
volume incentive bonuses received from loan purchasers. These bonus payments are
earned and recognized when the Company achieves volume targets specified in
agreements with these purchasers.
EXPENSES
Salaries, commissions and benefits increased by 93.4% to $5.2 million from $2.7
million from the 1999 second quarter. The increase was largely due to the
inclusion of Marina expenses following the acquisition and increased staffing
levels related to our MORTGAGESELECT.COM Internet Web site.
Marketing and promotion expenses totaled $490,000 in the current quarter, up
11.5% from $440,000 in the second quarter of 1999. Increased advertising expense
in support of retail operations accounted for the increase.
Occupancy and equipment costs increased by 137.7% to $1.3 million for the
current quarter from $548,000 in the like period in 1999. The increase in costs
is reflective of the acquisition of Marina and opening of new community loan
offices and Internet call centers and greater depreciation charges as a result
of the Company's increased investments in computer networking.
Data processing and communications increased by 75.5% to $610,000 from $348,000
in the second quarter of 1999. The increase was a result of the Marina
acquisition, the growth in our MORTGAGESELECT.COM Internet Web site and opening
new office locations.
Other expenses increased by 220.0% to $1.7 million, from $526,000 in 1999. These
expenses, which consist generally of office supplies, travel, professional fees
and insurance, have increased as a result of the growth in our
MORTGAGESELECT.COM Internet Web site, the acquisition of Marina, new office
openings and higher employment levels.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1999
REVENUES
Revenues for the six months ended June 30 increased to $20.9 million in 2000
from $12.2 million in 1999 a year earlier, an increase of 72.1%. The increase
was a result of increased gains on sale of mortgage loans, net interest income
and volume incentive bonuses.
For the first six months of 2000, gain on sale totaled $17.9 million compared to
$10.8 million a year earlier, an increase of 65.1%. The increase primarily
resulted from an increased loan volume, due in large part to the Marina
acquisition and Internet-generated loan closings. The Company sold $1.2 billion
of loans on a year-to-date basis compared to $608.3 million for the same period
in 1999 (which amounts include $86.0 million and $20.4 million of originations
in which we acted as broker, respectively).
Net interest income increased by 171.1% to $1.9 million from $708,000 a year
ago. Increased loan origination volume and more efficient cash management
accounted for the improvement.
Other income was $1.1 million for the six month period, an increase of 79.7%
compared to $637,000 in the like period of 1999. Other income primarily consists
of volume incentive bonuses received from loan purchasers.
EXPENSES
Salaries, commissions and benefits amounted to $9.6 million in the current six
month period, compared to $5.8 million in 1999, an increase of 64.8%. The
increase was largely due to the inclusion of Marina expenses following the
acquisition and increased staffing levels related to our MORTGAGESELECT.COM
Internet Web site.
Marketing and promotion expenses totaled $935,000 in the current period, up 7.6%
from $869,000 in the first six months of 1999. Increased advertising expense in
support of retail operations accounted for the increase.
Occupancy and equipment costs increased by 132.6% to $2.4 million for the first
six months of 2000 from $1.0 million in like period in 1999. The increase in
costs is reflective of the acquisition of Marina and opening of new community
loan offices and Internet call centers and greater depreciation charges as a
result of the Company's increased investments in computer networking.
Data processing and communications increased by 81.3% to $1.1 million from
$617,000 in the six month period of 1999. The increase was a result of the
Marina acquisition, the growth in our MORTGAGESELECT.COM Internet Web site and
opening new office locations.
Other expenses increased by 192.9% to $3.2 million, from $1.1 million in 1999.
These expenses, which consist generally of office supplies, travel, professional
fees and insurance, have increased as a result of the growth in our
MORTGAGESELECT.COM Internet Web site, the acquisition of Marina, new office
openings and higher employment levels.
LIQUIDITY AND CAPITAL RESOURCES
To originate a mortgage loan, the Company draws against a syndicated warehouse
facility its subsidiaries, American Home Mortgage Corp. and Marina Mortgage
Company, Inc., have entered into with First Union National Bank and a committed
facility with Morgan Stanley Dean Witter Mortgage Capital, Inc. ("Morgan
Stanley"). The First Union warehouse facility was originally for $60 million.
During the quarter the Company replaced this facility with a new $100 million
warehouse facility that is agented by First Union. The Morgan Stanley facility
is for $75 million. The Company's warehouse facilities are secured by the
mortgages it originates and certain of its other assets. Loans under its
warehouse facilities bear interest at rates that vary depending on the type of
underlying loan, and these loans are subject to sublimits, advance rates and
terms that vary depending on the type of underlying loan and the ratio of the
Company's liabilities to its tangible net worth.
In addition to the First Union and Morgan Stanley warehouse facilities, the
Company has purchase and sale agreements with Fannie Mae, Prudential Securities
Funding Corp. and Paine Webber Real Estate Securities, Inc. Pursuant to these
arrangements, the Company obtains commitments from the ultimate buyer to
purchase our loans. These loans are then sold together with the commitment from
the end investor to one of the four institutions above, who subsequently take
responsibility for consummating the final transaction. These agreements allow
the Company to accelerate the sale of its mortgage loan inventory resulting in a
more effective use of the warehouse facility. The combined capacity available
under the Company's purchase and sale agreements is $272 million.
For the six months ended June 30, 2000, net cash provided by (used in)
operating, investing and financing activities was $(23.5) million, $(8.0)
million and $30.2 million respectively. Net cash used in operating activities
was primarily due to loan originations exceeding loan sales and an increase in
accounts receivable, offset by an increase in accrued expenses and other
liabilities and net income. Net cash used in investing activities was primarily
due to the acquisition of First Home and the purchase of furniture and
equipment. Net cash provided by financing activities was a result of an increase
in warehouse lines of credit which are collateral for mortgage loans held for
sale, the issuance of capital stock related to the First Home acquisition and an
increase in drafts payable.
For the comparable period a year ago, net cash provided by (used in) operating,
investing and financing activities was $(5.9) million, $(0.8) million and $5.9
million respectively. Net cash used in operating activities was primarily due to
loan originations exceeding loan sales and an increase in accounts receivable,
offset by an increase in accrued expenses and other liabilities and net income.
Net cash used in investing activities was primarily due to the purchase of
furniture and equipment. Net cash provided by financing activities was a result
of an increase in drafts payable offset by a decrease in warehouse lines of
credit.
The Company's existing cash balances and funds available under its working
capital credit facilities, together with cash flows from operations, are
expected to be sufficient to meet its liquidity requirements for at least the
next 12 months.
On June 30, 2000, the Company acquired First Home Mortgage Corp. ("First Home"),
an Illinois corporation, which was immediately merged into American Home
Mortgage Corp. The shareholders of First Home received an aggregate of 489,804
shares of the company's common stock and $3.6 million over a period of two
years. This transaction generated goodwill of approximately $8.1 million to be
amortized over 20 years. For further information, see Notes to Consolidated
Financial Statements, Note 5.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," . This statement, as amended, requires that
all derivatives be carried on the balance sheet at fair value and that changes
in the fair value of derivatives be recognized in income when they occur. If a
derivative qualifies as a hedge, a company can elect to use hedge accounting.
The potential impact varies depending upon whether the nature of the exposure
that is being hedged is classified as one of three hedged risks defined in the
statement: change in fair value, change in cash flows and change in
foreign-currency. If the derivatives qualify as hedges in accordance with the
standard, the Company anticipates that the adjustments to the basis of the
hedged risk (asset or liability) will mostly offset the changes in fair value of
the derivatives. This statement's implementation has been delayed to be
effective for all fiscal quarters of fiscal years beginning after June 15, 2000
and cannot be applied retroactively. The Company has not yet determined the
impact SFAS No. 133 will have on its financial position or results of operations
after this statement is adopted.
SEC Staff Accounting Bulletin, No. 101 - "Revenue Recognition in Financial
Statements" (SAB 101) outlines the accounting literature on revenue recognition
as including both broad conceptual discussions as well as certain
industry-specific guidance. Based on these guidelines, it states that revenue
should not be recognized until it is realized or realizable and earned. The
Company will implement SAB 101 on or before October 1, 2000. The Company
believes that the implementation will not have a material impact on the results
of operations.
YEAR 2000
The Company was successful in its approach to the year 2000 computer compliance
project. The year-end transition from 1999 to year 2000 has not presented any
issues to date. Although considered unlikely, the Company could be affected by
third party systems that were not as well prepared. Management will continue to
monitor the situation and take action as necessary to remediate any problems
that might occur and ensure that all business processes continue to function
properly.
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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 "plan," "believe," "anticipate,"
"estimate," "expect," "objective," "projection," "forecast," "goal" 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 during the past 12 months. 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.
<PAGE>
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Movements in interest rates can pose a major risk to the Company in either a
rising or declining interest rate environment. When interest rates rise, loans
held for sale and any applications in process with locked-in rates decrease in
value. To preserve the value of such loans or applications in process with
locked-in rates, agreements are executed for mandatory loan sales to be settled
at future dates with fixed prices. These sales take the form of forward sales of
mortgage-backed securities.
When interest rates decline, fallout may occur as a result of customers
withdrawing their applications. In those instances, the Company may be required
to purchase loans at current market prices to fulfill existing mandatory loan
sale agreements, thereby incurring losses upon sale. The Company uses an
interest rate hedging program to manage these risks. Through this program,
mortgage-backed securities are purchased and sold forward and options are
acquired on mortgage and treasury securities.
The board of directors establishes thresholds which limit exposure to such risk.
An analysis is performed daily to determine the risk exposure under various
interest rate scenarios and such risk is managed by executing the program
discussed above. All derivatives are obtained for hedging (or other than
trading) purposes, and management evaluates the effectiveness of the hedges on
an on-going basis.
The following table summarizes the Company's interest rate sensitive
instruments:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
NOTIONAL AMOUNT FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Instruments:
Commitments to fund mortgages at agreed-upon rates............. $210,388,156 $4,776,649 $147,482,380 $1,391,777
Forward delivery commitments.............................. 129,483,000 (1,547,381) 33,634,595 (379,248)
Option contracts to buy securities........................ 30,000,000 130,224 35,000,000 439,856
</TABLE>
In the event that the Company does not deliver into the forward delivery
commitments or exercise its option contracts, the instruments can be settled on
a net basis. Net settlement entails paying or receiving cash based upon the
change in market value of the existing instrument. All forward delivery
commitments and option contracts to buy securities are to be contractually
settled within six months of the balance sheet date.
The following methods and assumptions are used in estimating fair values of the
aforementioned financial instruments:
Fair value estimates are made as of a specific point in time
based on estimates using present value or other valuation
techniques. These techniques involve uncertainties and are
significantly affected by the assumptions used and the
judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future
cash flows, future expected loss experience, and other
factors.
Changes in assumptions can significantly affect the Company's
estimates and the resulting fair values. Derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, cannot be realized in an immediate
sale of the instrument. Also, as a result of differences in
methodologies and assumptions used to estimate fair values,
the Company's fair values should not be compared to those of
other companies.
The fair value of commitments to fund with locked-in rates are
estimated using the fees and rates currently charged to enter
into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of
the counterparties. For fixed rate loan commitments, fair
value also considers the difference between current market
interest rates and the existing committed rates.
The fair value of these instruments is estimated using current
market prices for dealer or investor commitments relative to
existing positions.
The Company's hedging program contains an element of risk since the
counterparties to its mortgage and treasury securities transactions may be
unable to meet their obligations. While the Company does not anticipate
nonperformance by any counterparty, it is exposed to potential credit losses in
the event that the counterparty fails to perform. The exposure to credit risk in
the event of default by a counterparty is the difference between the contract
and the current market price. This credit risk is minimized by limiting the
counterparties to well-capitalized banks and securities dealers who meet
established credit and capital guidelines.
<PAGE>
PART II-OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders was held on April 12, 2000, for the purpose of
approving the change of the Company's name from American Home Mortgage Holdings,
Inc. to MortgageSelect.com, Inc. 5,731,916 shares were voted in favor of the
name change, no shares were voted against and there were no abstentions or
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibit is filed as part of this Quarterly Report on
Form 10-Q:
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURE
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.
-------------------------------------
(Registrant)
Date: August 14, 2000 By: /s/ ROBERT E. BURKE
---------------------------------
Robert E. Burke
Chief Financial Officer
Date: August 14, 2000 By: /s/ RICHARD D. SILVER
---------------------------------
Richard D. Silver
Controller
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
FORM 10-Q
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule
