<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period from to
----------------- -------------------
Commission file number 1-7067
UNITED COMPANIES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 71-0430414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4041 Essen Lane 70809
Baton Rouge, Louisiana (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code (504) 924-6007
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of shares of $2.00 par value common stock issued and
outstanding as of November 3, 1995 was 28,141,754, excluding 1,159,682 treasury
shares.
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<PAGE> 2
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15d OF
THE SECURITIES EXCHANGE ACT OF 1934
UNITED COMPANIES FINANCIAL CORPORATION
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Form 10-Q for the quarter ended
September 30, 1995, as set forth in the pages attached hereto, to reflect its
notification on November 14, 1995, after its filing of such Form 10-Q on
November 13, 1995, of a decision by the U.S. Fifth Circuit Court of Appeals,
rendered on November 9, 1995, discussed in Notes 2 and 10 of the Notes to
Consolidated Financial Statements.
<TABLE>
<S> <C>
PART I - Financial Information Page
Financial Statements:
Notes to Consolidated Financial Statements 5-10
Independent Accountants' Report 26
Exhibit 15
Letter of Deloitte and Touche LLP 30
For convenience, the following items, which have not been amended, are
also included in the amended Quarterly Report on Form 10-Q.
PART I - Financial Information
Financial Statements:
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 2
Consolidated Statements of Income
Three months and nine months ended September 30, 1995 and 1994 3
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and 1994 4
Management's Discussion and Analysis of Financial Condition and Results
of Operations 11-24
Review by Independent Accountants 25
PART II - OTHER INFORMATION
Exhibits and Current Reports on Form 8-K 27
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED COMPANIES FINANCIAL CORPORATION
By: /s/ Sherry E. Anderson
-------------------------------------
Sherry E. Anderson
Senior Vice President and Secretary
Date: November 16, 1995
<PAGE> 3
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
1995 December 31,
(Unaudited) 1994
------------ -----------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 31,975 $ 56,359
Temporary investments - reserve accounts . . . . . . . . . . . . . . 130,229 81,980
Investment securities
Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 679
Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . 1,119,486 960,100
Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . 51,918 57,391
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,300 26,672
Loans - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,993 369,382
Capitalized excess servicing income . . . . . . . . . . . . . . . . . 255,614 179,065
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . 92,009 91,915
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . 49,618 37,200
Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,344 30,565
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . - 7,420
Net assets of discontinued operations . . . . . . . . . . . . . . . . 6,680 9,736
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,324 69,791
------------ -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 2,267,401 $ 1,978,255
============ ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Annuity reserves . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,429,276 $ 1,425,973
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,555 213,668
Insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . 114,574 120,992
Deferred income taxes payable . . . . . . . . . . . . . . . . . . . . 47,815 -
Allowance for loss on loans serviced . . . . . . . . . . . . . . . . 40,032 26,822
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 55,106 35,550
------------ -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . 1,919,358 1,823,005
------------ -----------
Stockholders' equity:
Preferred stock, $2 par value;
Authorized - 20,000,000 shares;
Issued - 1,955,000 shares of 6 3/4% PRIDES(SM) . . . . . . . 3,910 -
Common stock, $2 par value;
Authorized - 100,000,000 shares;
Issued -29,301,216 and 28,541,154 shares . . . . . . . . . . . . 58,602 57,082
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 179,284 94,129
Net unrealized gain (loss) on securities . . . . . . . . . . . . 12,618 (46,858)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 106,561 62,025
Treasury stock and ESOP debt . . . . . . . . . . . . . . . . . . (12,932) (11,128)
------------ -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . 348,043 155,250
------------ -----------
Total liabilities and stockholders' equity . . . . . . . . $ 2,267,401 $ 1,978,255
============ ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1995 1994 1995 1994
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Interest, charges and fees on loans . . . . . $ 34,160 $ 30,331 $ 96,540 $ 85,345
Loan sale gains . . . . . . . . . . . . . . . 42,032 22,204 102,664 65,550
Investment income . . . . . . . . . . . . . . 27,031 22,094 79,759 61,024
Loan servicing income . . . . . . . . . . . . 989 4,927 9,640 14,927
Net insurance premiums . . . . . . . . . . . . 1,897 2,497 6,217 8,199
--------- ---------- ----------- ---------
Total. . . . . . . . . . . . . . . . . 106,109 82,053 294,820 235,045
--------- ---------- ----------- ---------
Expenses:
Interest on annuity policies . . . . . . . . . 19,882 18,261 59,470 54,115
Personnel . . . . . . . . . . . . . . . . . . 19,196 14,770 54,732 42,419
Interest . . . . . . . . . . . . . . . . . . . 7,107 3,973 20,878 9,672
Loan loss provision . . . . . . . . . . . . . 4,633 3,400 12,454 9,711
Insurance commissions . . . . . . . . . . . . 3,265 3,278 10,093 10,220
Insurance benefits . . . . . . . . . . . . . . 2,383 2,569 7,759 9,056
Other operating . . . . . . . . . . . . . . . 15,573 12,514 45,436 32,979
--------- ---------- ----------- ---------
Total 72,039 58,765 210,822 168,172
--------- ---------- ----------- ---------
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . 34,070 23,288 83,998 66,873
Provision for income taxes . . . . . . . . . . . 12,606 8,162 30,572 23,330
--------- ---------- ----------- ---------
Income from continuing operations . . . . . . . . 21,464 15,126 53,426 43,543
Loss from discontinued operations:
Loss from discontinued operations, net of
income tax expense (benefit) of $(116),
$72, $(811) and $77, respectively . . . . (216) 127 (1,412) 119
Loss on disposal, net of income tax benefit
of $1,791 . . . . . . . . . . . . . . . . - - (1,645) -
--------- ---------- ----------- ---------
Total . . . . . . . . . . . . . . . . (216) 127 (3,057) 119
--------- ---------- ----------- ---------
Net income . . . . . . . . . . . . . . . . . . . $ 21,248 $ 15,253 $ 50,369 $ 43,662
========= ========== =========== =========
Per share data:
Income from continuing operations . . . . . . $ .66 $ .53 $ 1.77 $ 1.53
Loss from discontinued operations . . . . . . (.01) - (.10) -
--------- ---------- ----------- ---------
Net income . . . . . . . . . . . . . . . . . . $ .65 $ .53 $ 1.67 $ 1.53
========= ========== =========== =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from continuing operating activities:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . $ 53,426 $ 43,543
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operating activities:
Increase in deferred policy acquisition costs . . . . . . . . . . . . . . (94) (5,582)
Increase in accrued interest receivable . . . . . . . . . . . . . . . . . . . (12,418) (4,160)
Decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5,643 586
Decrease in insurance reserves . . . . . . . . . . . . . . . . . . . . . . . (6,418) (9,552)
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . 5,508 (1,082)
Loan sale gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (119,213) (65,550)
Amortization of capitalized excess servicing income . . . . . . . . . . . . . 51,713 27,962
Investment gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (323) (329)
Interest on annuity policies . . . . . . . . . . . . . . . . . . . . . . . . 59,470 54,115
Loan loss provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,454 9,711
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . . . 3,251 2,197
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,175 3,104
Proceeds from sales and principal collections of loans
held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,069,317 732,877
Originations and purchases of loans held for sale . . . . . . . . . . . . . . (1,126,501) (685,821)
Net cash flows from trading investment securities . . . . . . . . . . . . (232) -
----------- ------------
Net cash provided by continuing operating activities . . . . . . . . 21,758 102,019
----------- ------------
Cash flows from investing activities:
Principal collected on loans held for investment . . . . . . . . . . . . . 47,742 64,845
Proceeds from sales of loans held for investment . . . . . . . . . . . . . - 1,300
Originations and acquisition of loans held for investment . . . . . . . . (22,463) (4,144)
Increase in reserve accounts . . . . . . . . . . . . . . . . . . . . . . . (48,249) (41,024)
Proceeds from sales of investment securities . . . . . . . . . . . . . . . 26,408 9,201
Proceeds from maturities or calls of investment securities . . . . . . . . 40,479 62,090
Purchase of held-to-maturity securities . . . . . . . . . . . . . . . . . (76) -
Purchases of available-for-sale securities . . . . . . . . . . . . . . . . (126,528) (248,065)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,807) (3,143)
----------- ------------
Net cash used by investing activities . . . . . . . . . . . . . . . . (91,494) (158,940)
----------- ------------
Cash flows from financing activities:
Proceeds from senior debt mortgage loan . . . . . . . . . . . . . . . . . 102,858 970
Increase (decrease) in revolving credit debt . . . . . . . . . . . . . . . (72,163) 30,000
Decrease in repurchase agreement . . . . . . . . . . . . . . . . . . . . . - (9,378)
Increase (decrease) in debt with maturities of three months or less . . . (13,856) 10,650
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (41) -
Deposits received from annuities . . . . . . . . . . . . . . . . . . . . . 110,932 186,972
Payments on annuities . . . . . . . . . . . . . . . . . . . . . . . . . . (167,099) (139,761)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,833) (3,771)
Increase in managed cash overdraft . . . . . . . . . . . . . . . . . . . . 4,903 14,262
Proceeds from issuance of stock . . . . . . . . . . . . . . . . . . . . . . 83,254 4,545
Loan made to ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (682) -
Proceeds from exercise of stock options and warrants . . . . . . . . . . . 3,079 539
----------- ------------
Net cash provided by financing activities . . . . . . . . . . . . . . 45,352 95,028
----------- ------------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . (24,384) 38,107
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 56,359 39,942
----------- ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . $ 31,975 $ 78,049
=========== ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of
only normal accruals, except for discontinued operations, necessary to
present fairly the financial position, the results of operations and the
cash flows for the interim periods presented.
These notes reflect only the major changes from those disclosures contained
in the Company's Annual Report on Form 10-K for the year ended December
31, 1994, as amended by Amendment Nos. 1 and 2 on Form 10-K/A, filed with
the United States Securities and Exchange Commission.
The consolidated results of operations for the three months and nine months
ended September 30, 1995 and 1994 are not necessarily indicative of the
results to be expected for the full year. Certain 1994 amounts have been
reclassified to conform with the current year presentations. Such
reclassifications had no effect on net income.
2. DISCONTINUED OPERATIONS.
United General Title Insurance Company. On April 10, 1995, the Company made
a decision to dispose of its investment in United General Title Insurance
Company ("UG Title"), a wholly owned subsidiary of the Company, and, on May
1, 1995, approved a formal plan of disposal. The decision to dispose of UG
Title is independent of the consummation of the sale thereof pursuant to
the definitive stock sale agreement referred to below. As a result, the
operations of UG Title have been classified as discontinued operations,
and, accordingly, the consolidated financial statements and the related
notes of the Company segregate continuing and discontinued operations. It
is anticipated that the disposal will be completed during 1995.
In connection with the Company's decision to dispose of UG Title, a letter
of intent to sell UG Title was signed in April 1995 which initially
provided for a reduction of the sale price for certain claims relating to
transactions occurring prior to the date of sale and discovered within
twelve months thereafter. On July 14, 1995, the Company and the
prospective purchaser agreed to certain amendments to the terms of the
letter of intent, including a reduction of the sale price to equal the
statutory capital and surplus of UG Title at closing and a provision making
the Company liable to UG Title for claims from defalcations and fraud
losses incurred by UG Title which are unknown and occur prior to closing
and are discovered within 24 months thereafter. On August 11, 1995, the
Company signed a definitive stock sale agreement which incorporated these
provisions and provided for the sale of 100% of the stock of UG Title. The
Company recorded a loss from discontinued operations (net of income tax
benefit) of $2.7 million in the second quarter of 1995 primarily to reflect
the reduction in the anticipated sale price and losses currently estimated
through completion of disposal. Additionally, the Company has estimated
the risk of loss related to the potential claims from defalcations and
fraud losses incurred by UG Title and recorded a provision for such loss.
Should such claims materially exceed the Company's estimates for such
losses, such consequence will have an adverse impact on the Company's
operations. The transaction is subject to the satisfaction of certain
conditions, including receipt of necessary regulatory approvals. The
Company believes that the failure to consummate this transaction should not
have a material adverse effect on the Company's financial condition or
results of operations.
5
<PAGE> 7
Foster Mortgage Corporation. On May 7, 1993, the Company decided to
divest its subsidiary Foster Mortgage Corporation ("FMC"). As of November
30, 1993, the servicing rights owned by FMC, which constituted
substantially all of its assets, were sold. On December 21, 1993, the
institutional lenders under FMC's primary credit facility (the "FMC
Institutional Lenders") filed a petition in the U.S. bankruptcy court to
cause the remaining affairs of FMC to be wound up under the supervision of
the bankruptcy court. The FMC Institutional Lenders filed and the
bankruptcy court approved a plan of liquidation for FMC providing for the
appointment of a trustee selected by the FMC Institutional Lenders. The FMC
Institutional Lenders allege that FMC has certain claims against the
Company, including a claim with respect to the Company's alleged failure to
remit all sums due FMC regarding federal income taxes estimated by the FMC
Institutional Lenders to range from $2.1 million to $29 million. FMC and
the Company executed, subject to the approval of the bankruptcy court, a
settlement agreement relating to payments between FMC and the Company in
connection with the federal income tax benefits resulting from FMC's losses
and to certain prior intercompany payments between FMC and the Company.
The settlement agreement included a release by FMC in favor of the Company
of any and all claims relating to federal income taxes. The FMC
Institutional Lenders opposed the proposed settlement agreement. At the
conclusion of a hearing on the proposed settlement on August 18, 1994, the
bankruptcy court approved the portion of the settlement providing for a net
payment by the Company of $1.65 million to FMC in satisfaction of the
federal income tax benefits resulting from FMC's losses and the release of
any claims regarding federal income taxes. The Company had previously
recorded substantially all of the impact of this portion of the settlement
in its prior financial statements. The bankruptcy court declined to
approve the other portion of the proposed settlement relating to payments
received by the Company from FMC within twelve months of the bankruptcy
filing. These matters may be pursued by the trustee under the plan of
liquidation approved by the bankruptcy court. If the Company were required
to refund such payments, the Company has estimated the potential additional
loss to be $1.9 million, net of tax benefits. The decision of the
bankruptcy court on the settlement is not final and was appealed by the FMC
Institutional Lenders to the U.S. District Court which affirmed the
bankruptcy court's decision. The FMC Institutional Lenders appealed this
decision to the U.S. Fifth Circuit Court of Appeals. On November 14, 1995,
the Company received notification of the decision rendered on November 9,
1995 by the U.S. Fifth Circuit Court of Appeals which reversed the district
court, vacated the settlement between FMC and the Company and remanded the
matter for further proceedings. Management of the Company does not believe
that any additional amounts are owed by the Company to FMC and intends to
vigorously contest any claims which may be brought against it for such
amounts. The Company did not guarantee any debt of FMC and believes, based
upon advice of its counsel, that it has no responsibility for the
obligations of FMC under FMC's primary credit facility or (excluding
potential consequences of the bankruptcy filing on certain prior
intercompany transactions or potential additional payment for tax benefits
as discussed above) for any other liabilities to FMC's lenders.
3. CASH PAID FOR INTEREST AND INCOME TAXES.
During the nine months ended September 30, 1995 and 1994, the Company paid
interest on notes payable in the amount of $17.1 million and $9.9 million,
respectively. During the nine months ended September 30, 1995 and 1994
the Company paid income taxes in the amount of $4.5 million and $22.2
million, respectively.
6
<PAGE> 8
4. INVESTMENT SECURITIES.
At September 30, 1995, the Company's investment securities consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trading
Common stock . . . . . . . . . . . . . . . . $ 612 $ 303 $ 4 $ 911
============ =========== =========== ===========
Available-for-sale
Debt securities
Corporate . . . . . . . . . . . . . . . $ 323,506 $ 14,203 $ 1,404 $ 336,305
U.S. Treasury . . . . . . . . . . . . . 11,512 227 11,739
Mortgage-backed . . . . . . . . . . . . 743,582 11,592 6,136 749,038
Foreign governments . . . . . . . . . . 20,421 1,247 21,668
Other . . . . . . . . . . . . . . . . . 425 22 447
------------ ----------- ----------- -----------
Total . . . . . . . . . . . . . . . 1,099,446 27,291 7,540 1,119,197
------------ ----------- ----------- -----------
Equity securities . . . . . . . . . . . . . 629 69 409 289
------------ ----------- ----------- -----------
Total . . . . . . . . . . . . . . . $ 1,100,075 $ 27,360 $ 7,949 $ 1,119,486
============ =========== =========== ===========
Held-to-maturity
Debt securities
Corporate . . . . . . . . . . . . . . . $ 7,046 $ 483 $ - $ 7,529
Mortgage-backed . . . . . . . . . . . . 44,872 1,201 1,041 45,032
------------ ----------- ----------- -----------
Total . . . . . . . . . . . . . . . $ 51,918 $ 1,684 $ 1,041 $ 52,561
============ =========== =========== ===========
Other
Investment in limited
partnership . . . . . . . . . . . . . . . . $ 24,300 $ 24,300
============ ===========
</TABLE>
Net unrealized gains on available-for-sale securities in stockholders'
equity at September 30, 1995 are presented net of deferred income taxes of
$6.8 million. Realized investment gains for the nine months ended
September 30, 1995 and 1994 were $.6 million and $.3 million, respectively,
and are included in investment income.
7
<PAGE> 9
5. LOANS - NET
The following schedule sets forth the components of Loans owned by the
Company at September 30, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
(in thousands)
<S> <C> <C>
Home equity . . . . . . . . . . . . . . . .$ 219,969 $ 202,551
Commercial . . . . . . . . . . . . . . . . 166,050 155,271
Conventional . . . . . . . . . . . . . . . 1,161 1,106
Foreclosed properties . . . . . . . . . . . 27,013 31,073
Nonrefundable loan fees . . . . . . . . . . (4,724) (4,538)
Other . . . . . . . . . . . . . . . . . 683 1,536
------------- -------------
Total . . . . . . . . . . . . . . . . .$ 410,152 $ 386,999
============= =============
</TABLE>
Included in Loans owned at September 30, 1995 and December 31, 1994 were
nonaccrual loans totaling $21.4 million and $21.7 million, respectively.
The following schedule summarizes the composition of Loans - net at
September 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
(in thousands)
<S> <C> <C>
Loans . . . . . . . . . . . . . . . . . . .$ 410,152 $ 386,999
Allowance for loan losses . . . . . . . . . (16,429) (16,508)
Unearned discount . . . . . . . . . . . . . (730) (1,109)
------------- -------------
Loans - net . . . . . . . . . . . .$ 392,993 $ 369,382
============= =============
</TABLE>
6. MORTGAGE SERVICING RIGHTS.
On May 12, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" ("SFAS No. 122"). SFAS No. 122 requires that a mortgage
banking enterprise recognize as separate assets rights to service mortgage
loans for others that have been acquired through either the purchase or
origination of such loans. With respect to loans originated, this is
accomplished by allocating total costs incurred between the loan and the
servicing rights based on their relative fair values. The estimated fair
value of the servicing rights is determined by discounting expected future
cash flows using a discount rate commensurate with the risk involved.
Prior to the adoption of SFAS No. 122, the cost of originated mortgage
servicing rights was charged to earnings as the loan was sold. The Company
elected to implement the provisions of this statement on a prospective
basis during the third quarter of 1995 and in connection therewith
capitalized $2.8 million of mortgage servicing rights. The assumptions
used by the Company included estimates of the cost of servicing the loans,
the discount rate, float value, inflation rate, ancillary income per loan,
prepayment speeds and default rates. The amount capitalized is included in
"other assets". Net income for the three months and nine months ended
September 30, 1995 was increased by $1.7 million, or $.05 and $.06 per
share, respectively, on a fully diluted basis as a result of the Company's
implementation of SFAS No. 122.
7. OTHER ASSETS AND OTHER LIABILITIES.
At September 30, 1995, other assets included amounts due from reinsurers of
$34.0 million and policy loans
8
<PAGE> 10
of $19.8 million compared to $35.0 million and $20.2 million, respectively,
at December 31, 1994. In addition, included in other assets at September
30, 1995 and December 31, 1994 was a federal income tax receivable of $9.9
million and $6.2 million, respectively.
Other liabilities included a $17.7 million and $12.8 million managed cash
overdraft at September 30, 1995 and December 31, 1994, respectively.
8. NOTES PAYABLE.
Notes payable consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- --------------
(in thousands)
<S> <C> <C>
9.35% Senior unsecured notes due 7/15/98 . . . . $ 125,000 $ 125,000
7% Senior unsecured notes due 11/1/99 . . . . . . 100,000 -
Warehouse facility . . . . . . . . . . . . . . . 894 -
Guaranteed bank loan to ESOP . . . . . . . . . . 1,549 -
Revolving credit agreement . . . . . . . . . . . - 72,163
Construction loan . . . . . . . . . . . . . . . . 5,112 1,755
Short-term borrowings . . . . . . . . . . . . . . - 14,750
------------- --------------
Total . . . . . . . . . . . . . . . . . $ 232,555 $ 213,668
============= ==============
</TABLE>
9. CAPITAL STOCK.
On August 23, 1995, the Company's Board of Directors declared a two-for-one
common stock split effected in the form of a 100% common stock dividend
payable to shareholders of record on October 9, 1995. The additional
shares were distributed on October 20, 1995. All per share amounts,
numbers of shares and related amounts for all periods in the accompanying
financial statements, and notes thereto, have been retroactively adjusted
to reflect the effect of the common stock dividend.
10. COMMITMENTS AND CONTINGENCIES.
On March 21, 1994, the United States Court of Appeals for the Eleventh
Circuit, in Rodash v. AIB Mortgage Company, held, in part, that a lender
improperly disclosed the collection of the Florida state intangible tax from
the borrower, thereby subjecting the loan to rescission under the Federal
Truth-in-Lending Act (the "TILA") by the borrower for three years after it
was made. Subsequently, the Florida Legislature amended the language of the
intangible tax to clarify that the intangible tax be disclosed for purposes
of the TILA in the manner that had been followed by most lenders in Florida,
including the Company. This court decision may also apply to a similar
intangible tax imposed by other states. On October 1, 1995, the Truth in
Lending Amendments Act of 1995 (the "1995 Act") was signed into law. One
provision of the 1995 Act amends the TILA to render proper the manner in
which the lender in this court decision had disclosed the intangible tax and
bars claims under the TILA for disclosures made in such manner prior to the
amendment which had not been filed on dates prior to October 1, 1995 as
specified in the 1995 Act. To its knowledge, as of November 9, 1995 no
claims have been filed against the Company under this court decision (other
than as a defense in foreclosure proceedings) and no notice of a breach of a
representation has been received under the Company's loan sale agreements
requesting it to repurchase, cure or substitute other loans for the loans
sold. In view of the foregoing provisions of the 1995 Act, management of the
Company does not believe that any material adverse contingency exists
relative to the foregoing court decision.
9
<PAGE> 11
Amendments to the TILA which became effective on October 1, 1995, impose
additional disclosure requirements and prohibit certain prepayment penalty
charges, among other requirements, on loans with a specified level of
origination fees or a specified interest rate level. A portion of the
Company's loans as currently originated are subject to the requirements of
this legislation. The Company has implemented procedures to comply with
the additional disclosure requirements of the legislation. Management of
the Company does not believe that the requirements of this legislation will
have a material effect on the Company's financial condition or results of
operations.
As discussed in Note 2 above, the Company has formalized a plan of
disposition of its investment in UG Title. In connection therewith, a
definitive stock sale agreement has been signed which includes a provision
making the Company liable to UG Title for claims from defalcations and
fraud losses incurred by UG Title which are unknown and occur prior to
closing and are discovered within 24 months thereafter. The Company has
estimated the risk of loss related to such potential claims and recorded a
provision for such loss. Should such claims materially exceed the
Company's estimates for such losses, such consequence will have an adverse
impact on the Company's financial condition or results of operations.
As also discussed in Note 2 above, the U.S. Fifth Circuit Court of Appeals
reversed the lower court decision approving the settlement agreement
between FMC and the Company, vacated the settlement between FMC and the
Company and remanded the matter for further proceedings.
The Company used a prefunding feature in connection with its loan
securitization transaction during the third quarter of 1995. At September
30, 1995, approximately $143 million was held in a prefunding account for
the purchase of the Company's home equity loans during the fourth quarter
of 1995. Pursuant to this commitment, home equity loans with a remaining
principal balance of approximately $143 million must be delivered prior to
December 10, 1995.
11. POSSIBLE SALE OF UNITED COMPANIES LIFE INSURANCE COMPANY.
On October 20, 1995, the Company publicly announced that, as part of its
continuing efforts to maximize shareholder value, it is evaluating
strategic alternatives regarding its life insurance subsidiary, United
Companies Life Insurance Company, including the possible sale of such
subsidiary.
The Company has received unsolicited indications of interest from, and is
engaged in discussions with, third parties regarding a possible sale of
such subsidiary. These discussions are continuing, but there can be no
assurance that an agreement will be reached. If an agreement is reached,
it will be subject to approval by the Company's Board of Directors and
shareholders and by regulatory authorities.
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the
Company's consolidated financial statements and accompanying notes presented
elsewhere herein.
RESULTS OF OPERATIONS
The Company's financial statements present United General Title
Insurance Company ("UG Title") as discontinued operations (see Note 2 to
Consolidated Financial Statements). Discussed below are results of continuing
operations for the periods presented and certain financial data by business
segment for such periods.
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Income from continuing operations for the first nine months of 1995
was $53.4 million ($1.77 per share based on 30.1 million weighted average
shares outstanding) compared to $43.5 million ($1.53 per share based on 28.5
million shares outstanding) for the same period of 1994. Net income for the
first nine months of 1995 was positively affected by a $324 million increase in
the amount of loans sold during the period as compared to the same period of
1994 and the recognition of loan sale gains and loan fees in connection with
such sales. The effect on income of these items was reduced by increased costs
in the Company's mortgage lending division associated with expansion of
operations, as personnel costs increased $12 million and advertising expense
increased $5 million. In addition, during the third quarter of 1995, income
for the Company's mortgage lending operations was impacted by the use of higher
prepayment assumptions, primarily related to adjustable rate mortgage loans, in
calculating the gain on sale of loans. The impact of the change in assumptions
reduced income before income taxes by approximately $3.2 million when compared
to the second quarter of 1995. In addition, as further discussed in Note 6,
during the third quarter of 1995 the Company implemented a new accounting
pronouncement related to mortgage servicing rights ("MSRs") on loans originated
by the Company. The implementation of the pronouncement had a positive effect
on income before income taxes for this quarter of approximately $2.8 million.
The corresponding capitalized amount of $2.8 million of MSRs will reduce income
in future periods as it is amortized.
The table below sets forth income from continuing operations before
income taxes for each of the Company's business segments and certain home
equity loan data for the indicated periods:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1995 1994
----------- ----------
(dollars in thousands)
<S> <C> <C>
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . $ 77,716 $ 64,086
Life insurance . . . . . . . . . . . . . . . . . . . . . 10,404 7,207
Corporate, other operations and eliminations . . . . . . (4,122) (4,420)
----------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . $ 83,998 $ 66,873
=========== ==========
Home equity loan production . . . . . . . . . . . . . . . $ 1,091,260 $ 656,742
Home equity loans sold . . . . . . . . . . . . . . . . . 1,046,535 722,799
Interest spread retained on home equity
loans sold . . . . . . . . . . . . . . . . . . . . 4.99% 4.63%
</TABLE>
11
<PAGE> 13
The following table sets forth certain financial data for the periods
indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1995 1994
----------- -----------
(in thousands)
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . . . . $ 294,820 $ 235,045
Total expenses . . . . . . . . . . . . . . . . . . . . . . 210,822 168,172
Income from continuing operations
before income taxes . . . . . . . . . . . . . . . . . . . 83,998 66,873
Income from continuing operations . . . . . . . . . . . . . 53,426 43,543
</TABLE>
Revenues. The following table sets forth information regarding the
components of the Company's revenues for the nine months ended
September 30, 1995 and 1994.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1995 1994
----------- -----------
(in thousands)
<S> <C> <C>
Interest, charges and fees on loans . . . . . . . . . . . . $ 96,540 $ 85,345
Loan sale gains . . . . . . . . . . . . . . . . . . . . . . 102,664 65,550
Investment income . . . . . . . . . . . . . . . . . . . . . 79,759 61,024
Loan servicing income . . . . . . . . . . . . . . . . . . . 9,640 14,927
Net insurance premiums . . . . . . . . . . . . . . . . . . 6,217 8,199
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 294,820 $ 235,045
=========== ===========
</TABLE>
Interest, charges and fees on loans increased $11.2 million for the
first nine months of 1995 compared to the same period of 1994. This line item
includes interest on mortgage loans owned by the mortgage and life insurance
divisions and loan origination fees earned by the mortgage division. Loan
origination fees in excess of direct origination costs on loans held by the
Company are recognized over the life of the loan and are recognized at the time
of sale on loans sold to third parties. During the nine months ended September
30, 1995 and 1994, the Company sold approximately $1.0 billion and $723
million, respectively, in home equity loans and recognized approximately $27.3
million and $24.4 million, respectively, in net loan origination fees in
connection with these sales.
The following table presents the composition of interest, charges and
fees on loans for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1995 1994
----------- ------------
(in thousands)
<S> <C> <C>
Loan origination fees . . . . . . . . . . . . . . . . . . . $ 51,416 $ 42,409
Mortgage loan interest . . . . . . . . . . . . . . . . . . 32,857 37,619
Other loan income . . . . . . . . . . . . . . . . . . . . . 12,267 5,317
----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 96,540 $ 85,345
=========== ============
</TABLE>
12
<PAGE> 14
The Company estimates that non-accrual loans reduced mortgage loan
interest for the first nine months of 1995 and 1994 by approximately $9.4
million and $7.6 million, respectively. During the nine months ended September
30, 1995 the average amount of non-accrual loans owned by the Company was $21.6
million compared to approximately $26.6 million during the same period of 1994.
In addition, the average balance of loans serviced for third parties which were
on a non-accrual basis or in foreclosure was $77.3 million and $53.6 million
during the first nine months of 1995 and 1994, respectively, representing 3.9%
and 4.2%, respectively, of the average amount of loans serviced for third
parties. The Company is generally obligated to advance interest on delinquent
loans which have been sold until satisfaction of the note, liquidation of the
collateral or charge off of the delinquent loan. At September 30, 1995, the
Company owned approximately $8.2 million of commercial loans which were on an
accrual status, but which the Company considers as potential problem loans,
compared to $8.0 million at September 30, 1994. The Company evaluates each of
these commercial loans to estimate its risk of loss in the investment and
provides for such loss through a charge to earnings.
Loan sale gains increased $37.1 million during the first nine months
of 1995 over the same period in 1994. Loan sale gains approximate the present
value over the estimated lives of the loans of the excess of the contractual
rates on the loans sold, over the sum of the pass through rate paid to the
buyer, a normal servicing fee, a trustee fee, a surety bond fee, if any, in
mortgage-backed securitization transactions, and an estimate of future credit
losses. The increase in the amount of loan sale gains was due primarily to a
$324 million increase in the amount of loans sold. In addition, as further
discussed in Note 6, during the third quarter of 1995, the Company implemented
a new accounting pronouncement related to mortgage servicing rights on loans
originated by the Company. The implementation of the pronouncement increased
loan sale gains by approximately $2.8 million during this quarter. Loan sale
gains during the third quarter of 1995 were reduced by the use of higher
prepayment assumptions, primarily related to adjustable rate mortgage loans, in
calculating the gain on sale of loans compared to the second quarter of 1995.
The impact of the change in assumptions reduced income before income taxes by
approximately $3.2 million. Loan sale gains during the first nine months of
1995 was reduced by approximately $5.5 million as the result of the utilization
of interest hedge mechanisms to protect the Company against an increase in
market interest rates on the pass-through certificates sold in the second
quarter securitization transaction. The reduction in income resulted from a
decline in interest rates prior to the pricing of this securitization
transaction.
The following table presents information regarding home equity loan
sale transactions for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1995 1994
------------- --------------
(dollars in thousands)
<S> <C> <C>
Home equity loans sold . . . . . . . . . . . . . . . . . . $ 1,046,535 $ 722,799
Average coupon on home equity loans sold . . . . . . . . . 11.96% 11.67%
Interest spread retained on home equity loans sold . . . . 4.99% 4.63%
Home equity loan sale gains . . . . . . . . . . . . . . . . $ 102,664 $ 65,550
</TABLE>
Fluctuations in and the level of market interest rates will impact the
interest spread retained by the Company on loans sold, and, potentially, the
amount of its loan sale gains. An increase in the level of market interest
rates will generally adversely affect the interest spread on loans sold,
whereas such interest spread generally widens during a declining interest rate
environment. Although actions have been taken by the Company during a rising
interest rate environment to mitigate the impact on earnings of fluctuations in
market rates, such as increasing the coupon rate charged on its loan products,
the effect of such actions will generally lag the impact of market rate
fluctuations. In connection with the loan securitization transactions, the
Company has used a prefunding feature which "locks in" the pass-through rate
that the Company will pay to investors on a
13
<PAGE> 15
prefunded amount which will be used to acquire loans at a future date. The
Company is obligated for the difference between the earnings on the prefunded
amount and the pass-through interest paid to the investors during the period
from the date of closing of the securitization transaction until the date of
delivery of the loans. In connection with the home equity loan securitization
transaction which closed during the third quarter of 1995, approximately $143
million was held in prefunding accounts for purchase of the Company's home
equity loans during the fourth quarter of 1995. Pursuant thereto, home equity
loans with a remaining principal balance of approximately $143 million must be
delivered prior to December 10, 1995.
Investment income totaled $79.8 million for the first nine months of
1995 compared to investment income of $61.0 million during the same period of
1994. Investment income during the first nine months of 1995 was positively
affected by a $5.2 million increase in income related to the Company's
investment in a limited partnership and a $3.5 million increase in interest
earned on temporary investments - reserve accounts. At September 30, 1995 the
amortized cost of the fixed income portfolio totaled $1.2 billion and was
comprised principally of $788 million in investment grade mortgage-backed
securities and $346 million in investment grade bonds. At September 30, 1995,
the weighted average rating of the publicly traded bond portfolio according to
nationally recognized rating agencies was "AA". During 1994, the Company
established a trading account for a portion of its investment portfolio
invested in common stocks. At September 30, 1995, the carrying value of
investments in the Company's trading account was $.9 million reflecting a $.3
million net unrealized gain which is included in investment income for the
first nine months of 1995.
Loan servicing income for the nine months ending September 30, 1995
totaled $9.6 million compared to $14.9 million for the same period of 1994.
Loan servicing income was negatively affected by a $4.6 million increase in the
amortization of capitalized excess servicing income as the result of an
adjustment in the estimated prepayment assumptions of certain mortgage loans
serviced by the Company, primarily adjustable rate mortgage loans. This
adjustment offset the impact of an increase of approximately $750 million in
the average amount of home equity loans serviced by the Company for third
parties during the first nine months of 1995 compared to the same period of
1994. The industry accepted "normal servicing fee" was defined during the
second quarter of 1994 as 50 basis points. Effective July 1, 1994, the Company
reduced its estimate of normal servicing fee and began using 50 basis points in
computing loan sale gains. The reduction in the normal servicing fee for home
equity loans from 75 to 50 basis points has the impact of increasing current
revenues (loan sale gains) while reducing future revenues (loan servicing
income). The following table reflects the components of loan servicing income
for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1995 1994
---------- -----------
(in thousands)
<S> <C> <C>
Servicing fees earned . . . . . . . . . . . . . . . . . . . $ 61,353 $ 42,889
Amortization of capitalized excess
servicing income . . . . . . . . . . . . . . . . . . . . (51,713) (27,962)
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,640 $ 14,927
========== ===========
</TABLE>
Net insurance premiums declined $2.0 million for the first nine months
of 1995 compared with the same period of 1994. Net insurance premiums
primarily result from the recognition of credit life premiums on policies sold
in prior years.
14
<PAGE> 16
Expenses. The following table presents the components of the
Company's expenses for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1995 1994
----------- -----------
(in thousands)
<S> <C> <C>
Interest on annuity policies . . . . . . . . . . . . . . . $ 59,470 $ 54,115
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . 54,732 42,419
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 20,878 9,672
Loan loss provision . . . . . . . . . . . . . . . . . . . . 12,454 9,711
Insurance commissions . . . . . . . . . . . . . . . . . . . 10,093 10,220
Insurance benefits . . . . . . . . . . . . . . . . . . . . 7,759 9,056
Other operating . . . . . . . . . . . . . . . . . . . . . . 45,436 32,979
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 210,822 $ 168,172
=========== ===========
</TABLE>
Interest on annuity policies increased $5.4 million for the first nine
months of 1995 when compared to the same period of 1994 primarily as the result
of an increase in annuity reserves. Average annuity reserves were $1.4
billion during the first nine months of 1995, an increase of approximately $90
million from the same period of 1994.
Personnel expenses increased approximately $12.3 million primarily
because of costs associated with the expansion of the Company's mortgage
operations and an increase in incentive bonuses based on loan production.
Interest expense for the first nine months of 1995 increased $11.2
million from the same period of 1994 primarily as the result of a $135 million
increase in the average amount of debt outstanding and of an increase in the
weighted average interest rate on debt outstanding.
The provision for loan losses increased $2.7 million during the first
nine months of 1995 compared to the same period of 1994. During the first nine
months of 1994, the amount of loans owned by the Company declined by
approximately $128 million compared to an increase of $29 million in the amount
of loans owned during the same period of 1995.
Insurance commissions for the first nine months of 1995 was $10.1
million compared to $10.2 million for the same period of 1994. Commissions
paid on issuance of the Company's deferred annuity products are generally
capitalized as deferred policy acquisition costs ("DPAC") and amortized over
the estimated life of the policy. During the nine months ended September 30,
1995, the Company capitalized approximately $9.6 million in commissions and
expenses paid on sales of annuities compared to $15.3 million during the same
period of 1994. Amortization of capitalized costs on annuities in prior
periods was $7.9 million during the nine months ended September 30, 1995,
compared to $6.6 million during the same period of 1994.
Other operating expenses for the nine months ended September 30, 1995
increased approximately $12.5 million when compared to the same period of 1994
primarily as the result of expansion of the Company's mortgage operations,
including a $5.0 million increase in advertising expenses and a $1.9 million
increase in occupancy expenses.
15
<PAGE> 17
FINANCIAL INFORMATION ON BUSINESS SEGMENTS
The following tables reflect income from continuing operations before
income taxes for each of the Company's business segments for the nine months
ended September 30, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Nine months ended September 30, 1995
------------------------------------------------------------
Corporate,
Life Other Operations
Mortgage Insurance & Eliminations Total
------------ --------- --------------- -----
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Interest, charges and fees on loans . $ 62,925 $ 29,136 $ 4,479 $ 96,540
Loan sale gains . . . . . . . . . . . 102,664 - - 102,664
Investment income . . . . . . . . . . 4,972 76,046 (1,259) 79,759
Loan servicing income . . . . . . . . 13,162 (1,099) (2,423) 9,640
Net insurance premiums . . . . . . . . - 6,217 - 6,217
------------ --------- ---------- -----------
Total . . . . . . . . . . . . . . 183,723 110,300 797 294,820
------------ --------- ---------- -----------
Expenses:
Interest on annuity policies . . . . . 59,470 59,470
Personnel . . . . . . . . . . . . . . 46,006 3,996 4,730 54,732
Interest . . . . . . . . . . . . . . . 14,163 2,617 4,098 20,878
Loan loss provision . . . . . . . . . 9,308 3,146 - 12,454
Insurance commissions . . . . . . . . - 9,914 179 10,093
Insurance benefits . . . . . . . . . . - 7,759 - 7,759
Other operating . . . . . . . . . . . 36,530 12,994 (4,088) 45,436
------------ --------- ---------- -----------
Total . . . . . . . . . . . . . . 106,007 99,896 4,919 210,822
------------ --------- ---------- -----------
Income (loss) from continuing operations
before income taxes . . . . . . . . . . . $ 77,716 $ 10,404 $ (4,122) $ 83,998
============ ========== ========== ===========
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Nine months ended September 30, 1994
------------------------------------------------------------
Corporate,
Life Other Operations
Mortgage Insurance & Eliminations Total
------------ --------- --------------- -----
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Interest, charges and fees on loans . $ 47,402 $ 34,428 $ 3,515 $ 85,345
Loan sale gains . . . . . . . . . . . 65,550 - - 65,550
Investment income . . . . . . . . . . 1,461 60,702 (1,139) 61,024
Loan servicing income . . . . . . . . 18,394 (190) (3,277) 14,927
Net insurance premiums . . . . . . . . - 8,199 - 8,199
------------ --------- ---------- -----------
Total . . . . . . . . . . . . . . 132,807 103,139 (901) 235,045
------------ --------- ---------- -----------
Expenses:
Interest on annuity policies . . . . . 54,115 54,115
Personnel . . . . . . . . . . . . . . 34,019 3,731 4,669 42,419
Interest . . . . . . . . . . . . . . . 4,230 1,606 3,836 9,672
Loan loss provision . . . . . . . . . 5,346 4,365 - 9,711
Insurance commissions . . . . . . . . - 9,740 480 10,220
Insurance benefits . . . . . . . . . . - 9,056 - 9,056
Other operating . . . . . . . . . . . 25,126 13,319 (5,466) 32,979
------------ --------- ---------- -----------
Total . . . . . . . . . . . . . . 68,721 95,932 3,519 168,172
------------ --------- ---------- -----------
Income (loss) from continuing operations
before income taxes . . . . . . . . . . . $ 64,086 $ 7,207 $ (4,420) $ 66,873
============ ========= ========== ===========
</TABLE>
17
<PAGE> 19
ASSET QUALITY AND RESERVES
The quality of the Company's loan and bond portfolios and of the loan
portfolio serviced for third parties significantly affects the profitability of
the Company. The values of and markets for these assets are dependent on a
number of factors, including general economic conditions, interest rates and
governmental regulations. Adverse changes in such factors, which become more
pronounced in periods of economic decline, may affect the quality of these
assets and the Company's resulting ability to sell these assets for acceptable
prices. General economic deterioration can result in increased delinquencies
on existing loans, reductions in collateral values and declines in the value of
investments in fixed income securities resulting from a reduced capacity of
issuers to repay the bonds.
Loans. Substantially all of the loans owned by the Company were
produced through the Company's branch (i.e., retail) network or wholesale loan
programs. In connection with its origination of home equity loans, the
Company relies on thorough underwriting and credit review procedures, a
mortgage on the borrower's residence and, in some cases, other security, and,
in its retail origination program, contact with borrowers through its branch
office system to manage credit risk on its loans. In addition to servicing the
loans owned by the Company, the mortgage division serviced approximately $2.3
billion in loans for third parties at September 30, 1995, $2.2 billion of which
are home equity loans. Substantially all of the home equity loans serviced for
third parties were publicly sold as mortgage backed securities ("pass-through
certificates"). The purchasers of the pass-through certificates receive a
credit enhanced security which is generally achieved in part by subordinating
the excess interest spread retained by the Company to the payment of principal
and interest on the certificates. Such subordination relates to credit losses
which may occur after the sale of the loans and continues until the earlier of
the payment in full of the loans or termination of the agreement pursuant to
which the loans were sold. If cumulative credit losses exceed the amount
subordinated, a third party insurer is obligated to pay any further losses
experienced by the owners of the pass-through certificates.
The Company is also obligated to cure, repurchase or replace loans
which may be determined after the sale to violate representations and
warranties relating to them and which are made by the Company at the time of
the sale. The Company regularly evaluates the quality of the loan portfolio
and estimates its risk of loss based upon historical loss experience,
prevailing economic conditions, estimated collateral value and such other
factors which, in management's judgment, are relevant in estimating the credit
risk in owned and/or serviced loans. Estimated losses on the owned portfolio
are provided for by an increase in the allowance for loan losses through a
charge to current operating income. At September 30, 1995, the Company's
allowance for loan losses was $16.4 million. For loans sold, the Company
reduces the amount of gain recognized on the sale by the estimated amount of
credit losses, and records such amount on its balance sheet in the allowance
for loss on loans serviced. At September 30, 1995, the allowance for loss on
loans serviced was $40.0 million. The maximum recourse associated with sales
of home equity loans according to terms of the loan sale agreements totaled
approximately $441 million, of which amount approximately $431 million relates
to the subordinated cash and excess interest spread. Should credit losses on
loans sold materially exceed the Company's estimates for such losses, such
consequence will have a material adverse impact on the Company's operations.
At September 30, 1995, the contractual balance of loans serviced was
approximately $2.7 billion comprised of approximately $381 million serviced for
the Company and approximately $2.3 billion serviced for investors. The
portfolio is geographically diversified. Although the Company services loans
in 48 states, at September 30, 1995 a substantial portion of the loans serviced
were originated in Florida (11.4%), Ohio (10.8%), Louisiana (9.3%), and North
Carolina (7.5%), respectively, and no other state accounted for more than 6.5%
of the serviced portfolio. Included in the serviced portfolio are commercial
loans originated by the Company, a substantial portion of which were originated
in Florida (26.8%) , Georgia (17.2%), and Colorado (8.9%) and no other state
accounted for more than 8.0% of the commercial loans serviced. The risk
inherent in such concentrations is dependent not only upon regional and general
economic stability which affects property values, but also the financial
well-being and creditworthiness of the borrower.
18
<PAGE> 20
The following table provides a summary of loans owned and/or serviced
which are past due 30 days or more, foreclosed properties and loans charged off
as of the dates indicated.
<TABLE>
<CAPTION>
Foreclosed Properties
---------------------
Contractual Delinquencies % of Owned Serviced for Net Loans % of
Balance Contractual Contractual by the Third Party Charged Average
Period Ended of Loans Balance Balance Company Investors Off Loans*
- ------------ ------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1995
- ------------------
Home equity . . . . . $ 2,413,276 $ 189,784 7.86% $ 7,325 $ 16,905 $ 8,746 0.57%
Commercial . . . . . 251,867 3,593 1.43% 19,689 6,891 2,816 1.43%
Conventional . . . . 62,677 3,062 4.89% - - 107 0.25%
------------ --------- --------- -------- --------
Total . . . . . $ 2,727,820 $ 196,439 7.20% $ 27,014 $ 23,796 $ 11,669
============ ========= ========= ======== ========
December 31, 1994
- -----------------
Home equity . . . . . $ 1,683,698 $ 129,203 7.67% $ 8,791 $ 11,837 $ 11,694 0.84%
Commercial . . . . . 274,413 5,377 1.96% 22,131 8,784 5,658 1.83%
Conventional . . . . 74,294 2,672 3.60% 35 - 100 0.16%
------------ --------- --------- -------- --------
Total . . . . . $ 2,032,405 $ 137,252 6.75% $ 30,957 $ 20,621 $ 17,452
============ ========= ========= ======== ========
September 30, 1994
- ------------------
Home equity . . . . . $ 1,529,496 $ 113,498 7.42% $ 10,687 $ 9,415 $ 9,252 0.93%
Commercial . . . . . 284,380 8,299 2.92% 28,433 9,363 2,965 1.25%
Conventional . . . . 78,586 3,307 4.20% 35 - (17) -
------------ --------- --------- -------- --------
Total . . . . . $ 1,892,462 $ 125,104 6.61% $ 39,155 $ 18,778 $ 12,200
============ ========= ========= ======== ========
</TABLE>
*Annualized for the nine months ended September 30, 1995 and 1994,
respectively.
Management continues to focus on reducing the level of non-earning
assets owned and/or serviced by expediting the foreclosure process. The
balance of foreclosed home equity loans owned and/or serviced as a percentage
of the owned and/or serviced portfolio was 1.0% at September 30, 1995 compared
to 1.3% at September 30, 1994.
The above delinquency and loan loss experience represents the
Company's recent experience. However, the delinquency, foreclosure and net
loss percentages may be affected by the increase in the size and relative lack
of seasoning of the portfolio. In addition, the Company can neither quantify
the impact of property value declines, if any, on the home equity loans nor
predict whether or to what extent or how long such declines may exist. In a
period of such declines, the rates of delinquencies, foreclosures and losses on
the home equity loans could be higher than those theretofore experienced in the
mortgage lending industry in general. Adverse economic conditions (which may
or may not affect real property values) may affect the timely payment by
borrowers of scheduled payments of principal and interest on the home equity
loans and, accordingly, the actual rates of delinquencies, foreclosures and
losses. As a result, the information in the above tables should not be
considered as the only basis for assessing the likelihood, amount or severity
of delinquencies or losses in the future on home equity loans and no assurance
can be given that the delinquency and loss experience presented in the tables
will be indicative of such experience on home equity loans.
19
<PAGE> 21
A summary analysis of the changes in the Company's allowance for loan
losses for the indicated periods is as follows.
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------------
1995 1994
---------- ---------
(in thousands)
<S> <C> <C>
Balance at beginning of period . . . . . . . . . . . $ 16,508 $ 21,017
Loans charged to allowance
Home equity . . . . . . . . . . . . . . . . . . . (10,070) (10,027)
Commercial . . . . . . . . . . . . . . . . . . . . (2,816) (2,968)
Conventional . . . . . . . . . . . . . . . . . . . (143) (28)
---------- ----------
(13,029) (13,023)
Recoveries on loans previously
charged to allowance . . . . . . . . . . . . . . . . 1,360 823
---------- ----------
Net loans charged off . . . . . . . . . . . . . . . . (11,669) (12,200)
Loan loss provision . . . . . . . . . . . . . . . . . 12,454 9,711
Reserve reclassification . . . . . . . . . . . . . . . (864) (166)
---------- ----------
Balance at end of period . . . . . . . . . . . . . . . $ 16,429 $ 18,362
========== ==========
Specific reserves . . . . . . . . . . . . . . . . . . $ 6,845 $ 8,549
Unallocated reserves . . . . . . . . . . . . . . . . . 9,584 9,813
---------- ----------
Total reserves . . . . . . . . . . . . . . . . . . . . $ 16,429 $ 18,362
========== ==========
</TABLE>
Specific reserves are provided for foreclosures in which the
carrying value of the loan exceeds the market value of the collateral.
Unallocated reserves are provided for loans not in foreclosure and are
calculated primarily using objective measurement techniques. Unallocated
reserves also include reserves for active loans which have been modified or
indicate potential problems as well as reserves for a $32.5 million
subordinated position the Company acquired in connection with the
securitization and sale of approximately $230 million in commercial real estate
mortgage loans in 1990. At September 30, 1995, the Company owned $27.0 million
of property acquired in settlement of loans, excluding the specific reserves
attributed to these properties. These balances are included in the loans owned
by the Company. The specific reserve in the table above is provided to reduce
the carrying value of these properties to their market value.
A summary of the amounts provided by the Company for future credit
losses on loans and foreclosed properties owned by the Company and loans sold
with recourse (including for purposes hereof loans sold with limited guarantees
and subordination of cash and excess interest spread owned by the Company) as
of the dates indicated is as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
-------------- --------------- --------------
(in thousands)
<S> <C> <C> <C>
Allowance for loan losses
(Applicable to loans and foreclosed properties
owned by the Company) . . . . . . . . . . . . . $ 16,429 $ 16,508 $ 18,362
Allowance for loss on loans serviced
(Applicable to loans
sold with recourse) . . . . . . . . . . . . . . 40,032 26,822 24,171
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . $ 56,461 $ 43,330 $ 42,533
======== ======== ========
</TABLE>
20
<PAGE> 22
As of September 30, 1995, approximately $2.1 billion of home equity
loans sold were serviced by UC Lending under agreements substantially all of
which provide for the subordination of cash and excess interest spread owned by
the Company for credit losses ("loans sold with recourse"). The maximum
recourse associated with sales of home equity loans according to terms of the
loan sales agreements was approximately $441 million at September 30, 1995, of
which $431 million relates to the subordinated cash and excess interest spread.
The Company's estimate of its losses, based on historical loan loss experience,
was approximately $40.0 million at September 30, 1995 and is recorded in the
Company's allowance for loss on loans serviced. Should credit losses on loans
sold with limited recourse, or subordination of cash and excess interest spread
owned by the Company, materially exceed the Company's estimate for such losses,
such consequence will have a material adverse impact on the Company's
operations.
Legal developments related to mortgage loans. On March 21, 1994, the
United States Court of Appeals for the Eleventh Circuit, in Rodash v. AIB
Mortgage Company, held, in part, that a lender improperly disclosed the
collection of the Florida state intangible tax from the borrower, thereby
subjecting the loan to rescission under the Federal Truth-in-Lending Act (the
"TILA") by the borrower for three years after it was made. Subsequently, the
Florida Legislature amended the language of the intangible tax to clarify that
the intangible tax be disclosed for purposes of the TILA in the manner that had
been followed by most lenders in Florida, including the Company. This court
decision may also apply to a similar intangible tax imposed by other states.
On October 1, 1995, the Truth in Lending Amendments Act of 1995 (the "1995
Act") was signed into law. One provision of the 1995 Act amends the TILA to
render proper the manner in which the lender in this court decision had
disclosed the intangible tax and bars claims under the TILA for disclosures
made in such manner prior to the amendment which had not been filed on dates
prior to October 1, 1995 as specified in the 1995 Act. To its knowledge, as of
November 9, 1995 no claims have been filed against the Company under this court
decision (other than as a defense in foreclosure proceedings) and no notice of
a breach of a representation has been received under the Company's loan sale
agreements requesting it to repurchase, cure or substitute other loans for the
loans sold. In view of the foregoing provisions of the 1995 Act, management of
the Company does not believe that any material adverse contingency exists
relative to the foregoing court decision.
Amendments to the TILA which became effective on October 1, 1995,
impose additional disclosure requirements and prohibit certain prepayment
penalty charges, among other requirements, on loans with a specified level of
origination fees or a specified interest rate level. A portion of the
Company's loans as currently originated will be subject to the requirements of
this legislation. The Company has reviewed this legislation in its final form
and intends to comply with the additional disclosure requirements of the
legislation. Management of the Company does not believe that the requirements
of this legislation will have a material effect on the Company's financial
condition or results of operations.
Investment securities. The Company's investment portfolio consists
primarily of mortgage backed securities and corporate bonds, comprising 67.0%
and 28.1% of the portfolio at September 30, 1995, respectively. At September
30, 1995, approximately 93.4% of the Company's portfolio of investment
securities were classified in an available-for-sale category and the carrying
value adjusted to fair value by means of an adjustment to stockholders' equity.
The remainder of the portfolio consists primarily of private placements made
either directly or through an investment partnership and are classified as
held-to-maturity and valued at cost. At September 30, 1995, the Company owned
$.9 million in equity securities classified as trading securities. The net
unrealized gain in the debt securities portfolio (fair value over amortized
cost) at September 30, 1995 was $20.4 million compared to an unrealized loss of
$73.9 million at December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements consist of funding loan
originations in its mortgage operations and the payment of policyholder claims
and surrenders incurred in its life insurance operations. The Company's
21
<PAGE> 23
mortgage operations require continued access to short and long-term sources of
debt financing and the sale of loans and asset-backed securities. The
liquidity requirements for the Company's insurance operations are generally met
by funds provided from the sale of annuities and cash flow from its investments
in fixed income securities and mortgage loans.
The following discussion reflects the primary sources of liquidity and
capital for each of the Company's primary operating divisions.
Mortgage. The principal cash requirements of the Company's mortgage
operations arise from loan originations, deposits to reserve accounts,
repayments of inter-company debt borrowed under the Company's senior notes,
payments of operating and interest expenses, and income taxes related to loan
sale transactions. Loan originations are funded principally through proceeds
from the issuance of the Company's senior notes, short-term bank facilities and
warehouse facilities, pending loan sales. Warehouse facilities include a
secured warehouse facility provided to UC Lending by an investment bank that
acted as lead underwriter of the Company's third quarter public loan
securitization transaction. This facility was directly related to the third
quarter securitization transaction and initially provided funding for up to
$150 million of eligible home equity loans for such securitization and will
terminate with the closing of the last delivery of loans under the prefunding
accounts relative to this securitization. As of September 30, 1995, $150
million was available and no amounts were outstanding under this warehouse
facility. In addition, UC Lending and other mortgage lending subsidiaries of
the Company entered into a credit agreement dated as of May 23, 1995 with First
Union National Bank of North Carolina and certain other lenders signatory
thereto. Under this facility, UC Lending and the other mortgage lending
subsidiaries may borrow up to $150 million on a revolving basis secured by home
equity loans eligible thereunder. Loans under this facility are subject to the
satisfaction of certain borrowing conditions, including a minimum borrowing
base and will bear interest at a floating rate. Borrowings under this facility
are required to be repaid from the proceeds of the sale or other disposition of
the home equity loan collateral. The lenders' commitment under this facility
is scheduled to terminate on May 23, 1997. As of September 30, 1995,
approximately $.9 million was outstanding under the Warehouse Facility.
Substantially all of the loans originated or acquired by UC Lending
are sold. Net cash from operating activities of the Company in the first nine
months of 1995 and 1994 reflects approximately $1.1 billion and $685 million,
respectively, in cash used for loan originations and acquisitions. The primary
source of funding for loan originations is derived from the reinvestment of
proceeds from the ultimate sale of loans in the secondary market which totaled
approximately $1.1 billion and $733 million in the nine months ended September
30, 1995 and 1994. In connection with the loan sale transactions in the
secondary market, third-party surety bonds and cash deposits by the Company as
credit enhancements have been provided. The loan sale transactions have
required the subordination of certain cash flows payable to UC Lending and its
subsidiaries to the payment of principal and interest due to certificate
holders. In connection with these transactions, UC Lending has been required,
in some instances, to fund an initial deposit, and thereafter, in each
transaction, a portion of the amounts receivable by UC Lending and its
subsidiaries from the excess interest spread has been required to be placed and
maintained in a reserve account to the extent of the subordination
requirements. The subordination requirements generally provide that the excess
interest spread is payable to a reserve account until a specified level of
cash, which is less than the maximum subordination amount, is accumulated
therein. The capitalized excess servicing income of the Company is subject to
being utilized first to replenish cash paid from the reserve account to fund
shortfalls in collections from borrowers who default on the payment of
principal or interest on the loans underlying the pass-through certificates
issued until the total of the Company's deposits into the reserve account equal
the maximum subordination amount. In connection with the issuance and sale of
approximately $2.6 billion of pass-through certificates through September 30,
1995 under the Company sponsored shelf-registration statement, the
subordination amounts aggregate approximately $431 million. After the
Company's deposits into the reserve account equal the maximum subordination
amount for a transaction, the subordination of the related excess interest
spread (including the guarantee fee payable therefrom) for these purposes is
terminated. The excess interest spread required to be deposited and maintained
in the respective reserve accounts will not be available to support the cash
flow requirements of the Company until such amount exceeds the maximum
subordinated amount (other than amounts,
22
<PAGE> 24
if any, in excess of the specified levels required to be maintained in the
reserve accounts, which may be distributed periodically to the Company). At
September 30, 1995, amounts on deposit in such reserve accounts totaled $130
million.
The expansion of the Company's mortgage division and the increase in
the amount of loans originated are capital intensive operations; therefore,
adequate credit facilities and other sources of funding, including the ability
of the Company to sell loans and asset backed securities, are essential for the
continuation of and the growth in the Company's loan operations. At September
30, 1995, the Company's debt facilities available to fund general operating
needs, excluding warehouse facilities discussed above, totaled $270 million, of
which $225 million was outstanding, resulting in available, but unfunded debt
capacity for general operating needs of $45 million.
Life insurance. The principal cash requirement of UC Life consists of
contractual obligations to policyholders, principally through policy claims and
surrenders. The primary sources of funding these obligations, in addition to
cash flow from investments, are the sale of annuities. Net cash flow from
annuity operations is used to build an investment portfolio, which in turn
produces future cash flows from investment income and provides a secondary
source of liquidity for this division. Net cash provided by operating
activities of the insurance division (which excludes annuity sales and
surrenders) in the first nine months of 1995 and 1994 was approximately $68
million and $47 million, respectively, resulting primarily from cash earnings
on investments. The Company monitors available cash and cash equivalents to
maintain adequate balances for current payments while maximizing cash available
for longer term investment activities. The Company's financing activities
during the first nine months of 1995 and 1994 reflect approximately $111
million and $187 million, respectively, in cash received primarily from sales
by UC Life of its annuity products. The Company believes that the decrease in
annuity sales in the first nine months of 1995 compared to the same period of
1994 is due in part to the interest rate environment, particularly the relative
relationship between short term and intermediate term interest rates, and to
the focus of the Company's resources on development of its variable annuity
product. In addition, a financial institution which produced approximately 10%
of UC Life's annuity sales in 1994 discontinued the sale of annuities for UC
Life in 1995 subsequent to the merger of such financial institution. As
reflected in the net cash used by investing activities during the same periods,
investment purchases were approximately $127 million and $248 million,
respectively, reflecting the investment of these funds and the reinvestment of
proceeds from maturities of investments. Cash used by financing activities
during these nine month periods also reflects payments of $167 million and $140
million primarily on annuity products resulting from policyholder surrenders
and claims. The increase in annuity surrenders during the 1995 was expected,
due in part to an increase in the amount of annuity policies which were beyond
the surrender penalty period. Should annuity surrenders continue to exceed
annuity sales, such consequence will decrease the liquidity of UC Life and
potentially result in the sale of certain assets, such as bonds and loans,
prior to their maturity, which may be at a loss. UC Life's investments at
September 30, 1995 included approximately $307 million in residential and
commercial mortgage loans, and the amortized cost of its bond portfolio
included $342 million in corporate and government bonds and private debt
placements and $788 million in mortgage-backed securities.
As a Louisiana domiciled insurance company, UC Life is subject to
certain regulatory restrictions on the payment of dividends. UC Life had the
capacity at September 30, 1995 to pay dividends of $8.2 million. UC Life did
not pay any dividends to the Company during 1992, 1993 or 1994 in order to
retain capital in UC Life.
POSSIBLE SALE OF UC LIFE
On October 20, 1995, the Company publicly announced that, as part of
its continuing efforts to maximize shareholder value, it is evaluating
strategic alternatives regarding its life insurance subsidiary, United
Companies Life Insurance Company, including the possible sale of such
subsidiary.
The Company has received unsolicited indications of interest from, and
is engaged in discussions with, third parties regarding a possible sale of such
subsidiary. These discussions are continuing, but there can be no assurance
23
<PAGE> 25
that an agreement will be reached. If an agreement is reached, it will be
subject to approval by the Company's Board of Directors and shareholders and by
regulatory authorities.
RATINGS
On July 25, 1995 the Company issued $100 million of its unsecured and
unsubordinated 7% senior notes due July 15, 1998. The notes received ratings
of "BBB" from Duff & Phelps Credit Rating Co., "BBB-" from Standard & Poor's
Rating Group, a division of The McGraw Hill Companies, Inc. and "Ba2" from
Moody's Investors Service, Inc.
On October 24, 1995, Duff & Phelps Credit Rating Co. ("Duff & Phelps")
placed the 'A+' (Single-A-Plus) claims paying ability rating of UC Life on
Rating Watch--Uncertain. This rating action is based upon the recent
announcement by the Company that it is evaluating strategic alternatives
regarding UC Life, including the possible sale of UC Life. Duff and Phelps
reported that the claims paying ability rating would remain on Rating
Watch--Uncertain until more information becomes known about UC Life's ultimate
position within the Company's organization or another organization.
24
<PAGE> 26
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Deloitte & Touche LLP, have performed a
review of the accompanying unaudited consolidated balance sheet as of September
30, 1995 and the related consolidated statements of income and cash flows for
the three months and nine months ended September 30, 1995 and 1994 and
previously audited and expressed an unqualified opinion dated February 28, 1995
on the consolidated financial statements of the Company and its subsidiaries as
of December 31, 1994, from which the consolidated balance sheet as of this date
is derived.
25
<PAGE> 27
INDEPENDENT ACCOUNTANTS' REPORT
United Companies Financial Corporation:
We have reviewed the accompanying consolidated balance sheet of United
Companies Financial Corporation and subsidiaries as of September 30, 1995, and
the related consolidated statements of income and cash flows for the
three-month and nine- month periods ended September 30, 1995 and 1994. These
financial statements are the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United Companies Financial
Corporation and subsidiaries as of December 31, 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated February 28,
1995, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1994 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
November 9, 1995
(November 14, 1995 as to Notes 2 and 10)
26
<PAGE> 28
PART II
OTHER INFORMATION
Item 1-5 Inapplicable
Item 6. Exhibits and Current Reports on Form 8-K
(a) Exhibits-
(11) Statement re computation of earnings per share
(15) Letter of Deloitte & Touche LLP
(27) Financial data schedules
(b) Current reports on Form 8-K
During the quarter ended September 30, 1995, the following
Current Report on Form 8-K was filed with the Commission:
(1) Current Report on Form 8-K dated June 27, 1995, filed on July
26, 1995, enclosing the following exhibits:
1.1 Underwriting Agreement -- Basic Provisions dated June
27, 1995 for Securities.
1.2 Terms Agreement dated July 20, 1995 for 7% Senior
Notes due July 15, 1998.
4.11 Second Supplemental Indenture dated as of July 25,
1995 for 7% Senior Notes due July 15, 1998.
4.12 7% Senior Notes due July 15, 1998
27
<PAGE> 29
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
11 Statement re computation of 29
earnings per share
15 Letter of Deloitte & Touche LLP 30
27 Financial data schedules 31
</TABLE>
28
<PAGE> 1
EXHIBIT 11
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------------------
1995 1994 1995 1994
-------- -------- -------- ----------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
Primary Earnings Per Share
- --------------------------
Income available to common shareholders:
----------------------------------------
Income from continuing operations . . . . . . . . . . . . . $ 21,464 $ 15,126 $ 53,426 $ 43,543
Less: Income (loss) from discontinued operations . . . . . (216) 127 (3,057) 119
-------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,248 $ 15,253 $ 50,369 $ 43,662
======== ======== ======== ==========
Weighted average number of common and
common equivalent shares:
--------------------------------------------
Average common shares outstanding . . . . . . . . . . . . . 27,750 27,374 27,499 27,269
Add: Dilutive effect of stock options after
application of treasury stock method . . . . . . . 908 1,174 896 1,274
Dilutive effect of preferred stock
after application of "if converted" method . . . . 3,230 - 1,254 -
-------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,888 28,548 29,649 28,543
======== ======== ======== ==========
Earnings per share:
-------------------
Income from continuing operations . . . . . . . . . . . . . $ .68 $ .53 $ 1.80 $ 1.53
Loss from discontinued operations . . . . . . . . . . . . . (.01) - (.10) -
-------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .67 $ .53 $ 1.70 $ 1.53
======== ======== ======== ==========
Fully Diluted Earnings Per Share
- --------------------------------
Income available to common shareholders:
----------------------------------------
Income from continuing operations . . . . . . . . . . . . . $ 21,464 $ 15,126 $ 53,426 $ 43,543
Less: Income (loss) from discontinued operations . . . . . (216) 127 (3,057) 119
-------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,248 $ 15,253 $ 50,369 $ 43,662
======== ======== ======== ==========
Weighted average number of common and
all dilutive contingent shares:
-----------------------------------------------
Average common shares outstanding . . . . . . . . . . . . . 27,750 27,374 27,499 27,269
Add: Dilutive effect of stock options after
application of treasury stock method . . . . . . . 960 1,174 1,067 1,274
Dilutive effect of preferred stock
after application of "if converted" method . . . . 3,910 - 1,518 -
-------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,620 28,548 30,084 28,543
======== ======== ======== ==========
Earnings per share:
-------------------
Income from continuing operations . . . . . . . . . . . . . $ .66 $ .53 $ 1.77 $ 1.53
Loss from discontinued operations . . . . . . . . . . . . . (.01) - (.10) -
-------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .65 $ .53 $ 1.67 $ 1.53
======== ======== ======== ==========
</TABLE>
29
<PAGE> 1
EXHIBIT 15
United Companies Financial Corporation:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim
consolidated financial information of United Companies Financial Corporation
and subsidiaries for the periods ended September 30, 1995 and 1994, as
indicated in our report dated November 9, 1995 (November 14, 1995 as to Notes 2
and 10); because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, is
being incorporated by reference in the following: Registration Statement No.
33-15326 on Form S-8 pertaining to the United Companies Financial Corporation
1986 Employee Incentive Stock Option Plan, Registration Statement No. 33-17366
on Form S-8 pertaining to the United Companies Financial Corporation Employees'
Savings Plan and Trust, Registration Statement No. 33-29994 on Form S-8
pertaining to the 1989 Stock Incentive Plan and the 1989 Non-Employee Director
Stock Option Plan, Registration Statement No. 33-54955 on Form S-8 pertaining
to the 1993 Stock Incentive Plan and the 1993 Non-Employee Director Stock
Option Plan, Registration Statement No. 33-68626 on Form S-3 pertaining to the
registration of 1,951,204 shares of United Companies Financial Corporation
Common Stock, Registration Statement No. 33-52739 on Form S-3 pertaining to the
registration of 200,000 shares of United Companies Financial Corporation Common
Stock; Registration Statement No. 33-60367 on Form S-3 pertaining to the
registration of $200 million of United Companies Financial Corporation Debt
Securities and Preferred Stock and Registration Statement No. 33-63069 on Form
S-8 pertaining to the United Companies Financial Corporation Management
Incentive Plan.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
/s/ DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
November 14, 1995
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 31,975
<SECURITIES> 1,196,815
<RECEIVABLES> 409,422
<ALLOWANCES> 16,429
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 37,344
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,267,401
<CURRENT-LIABILITIES> 0
<BONDS> 232,555
<COMMON> 58,602
0
3,910
<OTHER-SE> 285,531
<TOTAL-LIABILITY-AND-EQUITY> 2,267,401
<SALES> 0
<TOTAL-REVENUES> 294,820
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 177,490
<LOSS-PROVISION> 12,454
<INTEREST-EXPENSE> 20,878
<INCOME-PRETAX> 83,998
<INCOME-TAX> 30,572
<INCOME-CONTINUING> 53,426
<DISCONTINUED> (3,057)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,369
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.67
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