<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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)
<TABLE>
<S> <C>
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 offices)
Registrant's telephone number, including area code (504) 987-0000
</TABLE>
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 August 3, 1998 was 28,811,117, excluding 1,180,117 treasury
shares.
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<PAGE> 2
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Financial Statements:
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997.............................................................. 2
Consolidated Statements of Income
Three months and six months ended June 30, 1998 and 1997......................................... 3
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997.......................................................... 4
Notes to Consolidated Financial Statements.......................................................... 5-9
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................ 10-22
Review by Independent Accountants................................................................... 23
Independent Accountants' Review Report.............................................................. 24
PART II - OTHER INFORMATION
Submission of Matters to a Vote of Security Holders................................................. 25
Exhibits and Reports on Form 8-K.................................................................... 25
Signatures.......................................................................................... 26
Index to Exhibits................................................................................... 27
</TABLE>
<PAGE> 3
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
Assets (Unaudited) 1997
----------- ------------
<S> <C> <C>
Cash and cash equivalents (Note 7) .................................... $ 159,566 $ 582
Interest-only and residual certificates -- net ........................ 941,173 882,116
Loans - net ........................................................... 254,039 206,598
Investment securities
Held-to-maturity ................................................. 1,781 --
Available-for-sale ............................................... 11,929 16,853
Accrued interest receivable ........................................... 94,385 85,373
Property - net ........................................................ 74,113 64,754
Capitalized mortgage servicing rights ................................. 57,564 48,760
Other assets .......................................................... 25,712 32,172
----------- -----------
Total assets ................................................ $ 1,620,262 $ 1,337,208
=========== ===========
Liabilities and Stockholders' Equity
Notes payable ......................................................... $ 924,485 $ 691,826
Deferred income taxes payable ......................................... 98,360 97,093
Managed cash overdraft ................................................ 15,847 11,363
Other liabilities ..................................................... 97,151 56,297
----------- -----------
Total liabilities ........................................... 1,135,843 856,579
----------- -----------
Stockholders' equity:
Preferred stock, $2 par value;
Authorized - 20,000,000 shares;
Issued - 1,898,070 shares of 6 3/4% PRIDES(SM) ($44 per share
liquidation preference) ................................ 3,796 3,796
Common stock, $2 par value;
Authorized - 100,000,000 shares;
Issued - 29,991,288 and 29,971,356 shares ................... 59,983 59,943
Additional paid-in capital ....................................... 187,289 187,418
Net unrealized gain on securities ................................ 111 98
Retained earnings ................................................ 253,369 250,429
Treasury stock ................................................... (7,409) (7,409)
ESOP debt ........................................................ (12,720) (13,646)
----------- -----------
Total stockholders' equity .................................. 484,419 480,629
----------- -----------
Total liabilities and stockholders' equity ............. $ 1,620,262 $ 1,337,208
=========== ===========
</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 Six months ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues:
Loan sale gains ........................... $ 68,520 $ 63,723 $ 123,613 $ 110,919
Finance income, fees earned and other
loan income .......................... 30,074 43,802 66,526 82,799
Investment income ......................... 8,976 6,133 17,822 10,881
Other ..................................... 1,228 1,571 2,523 3,052
--------- --------- --------- ---------
Total ................................ 108,798 115,229 210,484 207,651
--------- --------- --------- ---------
Expenses:
Personnel ................................. 39,278 32,261 77,379 59,010
Interest .................................. 20,718 14,101 38,554 26,318
Other operating ........................... 42,014 31,744 78,237 53,703
--------- --------- --------- ---------
Total ................................ 102,010 78,106 194,170 139,031
--------- --------- --------- ---------
Income before income taxes ..................... 6,788 37,123 16,314 68,620
Provision for income taxes ..................... 2,514 13,364 6,039 24,703
--------- --------- --------- ---------
Net income ..................................... $ 4,274 $ 23,759 $ 10,275 $ 43,917
========= ========= ========= =========
Basic earnings per share ....................... $ .14 $ .76 $ .33 $ 1.41
========= ========= ========= =========
Diluted earnings per share ..................... $ .13 $ .73 $ .32 $ 1.35
========= ========= ========= =========
</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>
Six Months Ended June 30,
-----------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 10,275 $ 43,917
Adjustments to reconcile income from continuing operations
to net cash used by continuing operating activities:
Increase in accrued interest receivable .................... (9,012) (7,864)
(Decrease) increase in other assets ........................ 6,460 (10,391)
Increase in other liabilities .............................. 40,796 22,495
Increase in interest-only and residual certificates ........ (59,057) (166,598)
Increase in capitalized mortgage servicing rights .......... (16,351) (14,303)
Amortization of capitalized mortgage servicing rights ...... 7,547 3,762
Loan loss provision on owned loans ......................... 1,995 1,454
Amortization and depreciation .............................. 3,315 3,042
Deferred income taxes ...................................... 1,260 20,842
Investment gains ........................................... (2,118) --
Proceeds from sales and principal collections of loans
held for sale ............................................ 1,755,545 1,362,942
Originations and purchases of loans held for sale .......... (1,804,981) (1,412,015)
Decrease in trading securities ............................. -- 17,418
----------- -----------
Net cash used by operating activities ................. (64,326) (135,299)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities ....... 7,187 --
Purchase of available-for-sale securities .................. (125) --
Proceeds from maturity of held-to-maturity securities ...... 4,004 577
Purchase of held-to-maturity securities .................... (5,785) --
Capital expenditures ....................................... (12,731) (12,455)
----------- -----------
Net cash used by investing activities ................. (7,450) (11,878)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of subordinated notes ............... -- 146,855
Increase in revolving credit facilities .................... 237,400 50,500
Proceeds from construction loan ............................ -- 3,846
Decrease in subordinated debentures ........................ (3,000) --
Payments on construction and mortgage loans ................ -- (12,612)
Increase in debt with maturities of three months or less ... -- (47,100)
Decrease in warehouse loan facility ........................ (1,025) (17,097)
Proceeds from ESOP debt .................................... -- 850
Payments on ESOP debt ...................................... (758) (759)
Cash dividends paid ........................................ (7,335) (7,382)
Increase in managed cash overdraft ......................... 4,484 17,760
Decrease (increase) in unearned ESOP compensation .......... 926 (1,184)
Proceeds from exercise of stock options .................... 68 27
----------- -----------
Net cash provided by financing activities ............. 230,760 133,704
----------- -----------
Increase (decrease) in cash and cash equivalents ................ 158,984 (13,473)
Cash and cash equivalents at beginning of period ................ 582 14,064
----------- -----------
Cash and cash equivalents at end of period ...................... $ 159,566 $ 591
=========== ===========
</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, 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,
1997, filed with the United States Securities and Exchange Commission ("the
Commission").
The consolidated results of operations for the six months ended June 30,
1998 are not necessarily indicative of the results to be expected for the
full year. Certain 1997 amounts have been reclassified to conform with the
current year presentations. Such reclassifications had no effect on net
income.
2. INTEREST-ONLY AND RESIDUAL CERTIFICATES -- NET.
A summary analysis of the changes in the Company's Interest-only and
residual certificates for the periods indicated is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of period ............................... $ 882,116 $ 604,474
Interest-only and residual certificates on loans sold ...... 176,945 355,743
Net increase in allowance for losses on loans sold ......... (31,255) (33,462)
Net increase in reserve accounts ........................... 35,095 138,070
Amortization of Interest-only and residual certificates .... (121,728) (182,709)
--------- ---------
Balance, end of period ..................................... $ 941,173 $ 882,116
========= =========
</TABLE>
The following table sets forth the components of the Interest-only and
residual certificates owned by the Company, which are recorded at fair
value, at June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
Certificated interests ..................................... $ 654,643 $ 599,426
Temporary investments - reserve accounts ................... 424,348 389,253
Allowance for losses on loans serviced ..................... (137,818) (106,563)
--------- ---------
Total ............................................ $ 941,173 $ 882,116
========= =========
</TABLE>
Certificated interests at June 30, 1998 and December 31, 1997 includes
$21.9 million and $5.6 million, respectively, of subordinated securities
retained by the Company in connection with manufactured housing contract
securitizations.
During the first quarter of 1998, the Company entered into a $1.0 billion
interest rate cap transaction for hybrid home equity loans sold in
securitization transactions prior to 1998 to mitigate its exposure during
the initial two or three year period following the date of sale when the
coupon rates on the loans are fixed and the rates on the asset-backed
certificates backed by such loans are floating.
5
<PAGE> 7
During the first quarter of 1997, the Company implemented Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No.
125"). As a result of the implementation of SFAS No. 125, net income for
the first six months of 1997 was increased by $4.5 million or $.14 per
share on a diluted basis.
3. LOANS -- NET
Loans Owned. The following schedule sets forth the components of Loans --
net owned by the Company at June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Loans held for sale ...................... $ 197,506 $ 150,848
Other loans .............................. 55,793 54,067
--------- ---------
Total ............................. 253,299 204,915
Real estate owned:
Home equity .......................... 6,546 6,365
Commercial and other ................. 2,581 3,173
Manufactured housing contracts ....... 178 89
Nonrefundable loan fees .................. (3,587) (2,852)
Other .................................... (1,381) (1,401)
--------- ---------
Total ............................. 257,636 210,289
--------- ---------
Less:
Allowance for loan losses ............ (3,597) (3,691)
--------- ---------
$ 254,039 $ 206,598
========= =========
</TABLE>
Included in Other loans at June 30, 1998 and December 31, 1997 were
nonaccrual loans totaling $9.5 million and $10.1 million, respectively.
Loans Serviced. The following table sets forth the loans serviced by the
Company for third parties at June 30, 1998 and December 31, 1997, by type
of loan. Substantially all of these loans were originated by the Company:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Home equity ......................... $ 5,779,463 $ 5,353,429
Manufactured housing contracts(1) ... 585,166 295,012
Other ............................... 27,120 33,319
----------- -----------
Total ..................... $ 6,391,749 $ 5,681,760
=========== ===========
</TABLE>
(1) At December 31, 1997, approximately $135.9 million land-and-home
contracts were included in home equity loans that are classified
as manufactured housing contracts at June 30, 1998.
6
<PAGE> 8
4. NOTES PAYABLE
Notes payable consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Senior debt
7% Senior unsecured notes due July, 1998 .............. $ 100,000 $ 100,000
9.35% Senior unsecured notes due November, 1999 ....... 125,000 125,000
7.7% Senior unsecured notes due January, 2004 ......... 100,000 100,000
Revolving credit facility ............................. 429,950 192,550
Warehouse facilities .................................. 3,640 4,665
ESOP debt ............................................. 9,708 10,466
--------- ---------
Total Senior debt ................................ 768,298 532,681
--------- ---------
Subordinated debt
8.375% Subordinated unsecured notes due July, 2005 .... 149,187 149,145
Subordinated debentures ............................... 7,000 10,000
--------- ---------
Total ............................................ $ 924,485 $ 691,826
========= =========
</TABLE>
The Company's 7% Senior unsecured notes due July, 1998 having an aggregate
principal balance of $100 million were paid by the Company on July 15, 1998
with proceeds from the Company's revolving credit facility.
5. CASH PAID FOR INTEREST AND INCOME TAXES.
During the six months ended June 30, 1998 and 1997, the Company paid
interest on notes payable in the amount of $25.6 million and $20.1 million,
respectively. During the six months ended June 30, 1998 and 1997, the
Company paid income taxes in the amount of $.4 million and $9.7 million,
respectively.
7
<PAGE> 9
6. EARNINGS PER SHARE.
The following table sets forth the computations of basic and diluted
earnings per share for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to common shareholders:
Net income ................................................. $ 4,274 $ 23,759 $ 10,275 $ 43,917
======= ======== ======== ========
Weighted average number of common and
common equivalent shares:
Average common shares outstanding .......................... 28,099 27,959 28,087 27,989
Add: Dilutive effect of preferred stock
after application of "if converted" method ........ 3,136 3,230 3,136 3,230
------- -------- -------- --------
Total ...................................................... 31,235 31,189 31,223 31,219
======= ======== ======== ========
Earnings per share:
Net income ................................................. $ 0.14 $ 0.76 $ 0.33 $ 1.41
======= ======== ======== ========
Diluted Earnings Per Share
Income available to common shareholders:
Net income ................................................. $ 4,274 $ 23,759 $ 10,275 $ 43,917
======= ======== ======== ========
Weighted average number of common and
all dilutive shares:
Average common shares outstanding .......................... 28,099 27,959 28,087 27,989
Add: Dilutive effect of stock options after
application of treasury stock method ............. 548 524 493 686
Dilutive effect of preferred stock
after application of "if converted" method ....... 3,796 3,910 3,796 3,910
------- -------- -------- --------
Total ...................................................... 32,443 32,393 32,376 32,585
======= ======== ======== ========
Earnings per share:
Net income ...................................................... $ 0.13 $ 0.73 $ 0.32 $ 1.35
======= ======== ======== ========
</TABLE>
The weighted average anti-dilutive shares that were excluded from the
computation of diluted earnings per share were 1,378,296 and 901,399 for
the three months ended June 30, 1998 and 1997, respectively, and 1,460,798
and 375,504 for the six months ended June 30, 1998 and 1997, respectively.
7. COMMITMENTS AND CONTINGENCIES.
At June 30, 1998, Cash and cash equivalents includes $158 million of
temporarily restricted cash related to a commitment to deliver, prior to
July 20, 1998, loan documentation on loans sold in a private securitization
transaction in June, 1998. Upon delivery of such documentation, the Company
applied substantially all of such cash to reduce the outstanding balance of
its revolving credit facility.
As discussed in Notes 12 and 13 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, the Company has certain contingencies
in connection with the sale, during 1996, of its investment in United
General Title Insurance Company. There were no material changes in these
contingencies in the first six months of 1998.
8
<PAGE> 10
The Company used a prefunding feature in connection with its securitization
transactions during the second quarter of 1998. At June 30, 1998,
approximately $38.9 million was held in a prefunding account for the
purchase of the Company's home equity loans during the third quarter of
1998. In addition, at June 30, 1998, approximately $27.4 million was held
in a prefunding account for purchase of the Company's manufactured housing
contracts during the third quarter of 1998. Such manufactured housing
contracts were delivered in July, 1998 and it is anticipated that such home
equity loans will be delivered in August, 1998.
In a class action lawsuit pending in Alabama state district court involving
910 home equity loans alleged to be subject to the Alabama Mini Code,
Autrey v. United Companies Lending Corporation, the trial court has ruled
that retroactive application of the 1996 amendments to the Alabama Mini
Code would be unconstitutional as applied to the plaintiffs' class. The
1996 amendments, which in general limited the remedy for finance charges in
excess of the maximum permitted by the Alabama Mini Code, were expressly
made retroactive by the Alabama legislature. The Company strenuously
disagrees with the trial court's holding and believes that the liability,
if any, should be limited to $495,000, being the aggregate finance charges
allegedly exceeding the maximum permitted by the Alabama Mini Code, plus
interest thereon. If upheld after a trial on the merits and related
appeals, the trial court's holding could result in a liability for the
Company's subsidiary presently estimated by the Company to be approximately
$15 million. The Company further believes that it has other valid defenses
to the claims asserted in this suit and intends to continue its vigorous
defense of this matter.
8. ACCOUNTING STANDARDS.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes disclosure
standards for reporting comprehensive income in a full set of general
purpose financial statements. Comprehensive income for the three months and
six months ended June 30, 1998 and 1997 was $4.3 million and $23.8 million
(net of income taxes) and $10.3 million and $43.9 million (net of income
taxes), respectively.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employer's Disclosures about Pensions and Other
Postretirement Benefits -- an amendment of FASB Statements Nos. 87, 88 and
106" ("SFAS No. 132") which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 132 establishes standards for disclosures about
pension and other postretirement benefit plans and does not change the
current methods of measurement or recognition of those plans. The adoption
of this standard is not expected to have a material impact on the Company's
financial statement presentation and related disclosures.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting for
derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities. It requires that an entity
recognize, at fair value, all derivatives as either assets or liabilities.
The accounting for changes in the fair value of a derivative is dependent
upon the intended use of the derivative. SFAS No. 133 is effective for all
periods beginning after June 15, 1999. Earlier application of the
provisions of SFAS No. 133 is encouraged, but is permitted only as of the
beginning of any quarter that begins after issuance of the Statement.
Retroactive application is not allowed. The Company is reviewing the
provisions of this pronouncement but has not yet determined the effect of
its implementation on the Company's financial condition or results of
operations.
9. SUBSEQUENT EVENTS.
On July 21, 1998, the Company announced that a Special Committee of its
Board of Directors had engaged Salomon Smith Barney to assist the Company
in seeking a potential strategic partner that could improve the Company's
ability to access additional capital to accelerate its growth.
9
<PAGE> 11
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 and identifies the major factors which influenced the results of
operations of the Company during the indicated periods.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The Company's operations primarily consist of the production (by
origination or purchase), sale and servicing of first mortgage,
non-conventional, home equity loans ("loans") and manufactured housing loan
contracts ("contracts"). The principal home equity loan products are fixed rate,
adjustable rate ("ARM") and hybrid (i.e., the rate is fixed for a specified
period and becomes adjustable thereafter). Fundamental to the profitability and
funding of the Company's operations is the sale of loans and contracts with
servicing rights retained. The majority of the Company's revenue is derived from
the gain recognized on the sale of loans and contracts and the recognition of
net loan fees at the time of sale of the loans and contracts. Net loan fees on
loans and contracts owned by the Company are recognized over the lives of the
loans and contracts as an adjustment to yield using the interest method.
The Company sells substantially all of its loan and contract production
in securitization transactions. During the first six months of 1998 and 1997,
the Company sold $1.548 billion and $1.160 billion, respectively, of its home
equity loans and $185 million and $145 million, respectively, of its
manufactured housing contracts.
The weighted average interest spread on home equity loans sold to third
parties (the difference between the stated rate on the loan and the rate paid to
purchasers of the securities backed by these loans, less recurring fees) was
4.64% and 4.79% in the first six months of 1998 and 1997, respectively. The
weighted average interest spread on contracts sold to third parties was 2.19%
and 3.68% in the first six months of 1998 and 1997, respectively. The weighted
average interest spread on loans and contracts sold is determined without regard
to credit losses, which are provided for separately by the Company.
Net income for the six months ended June 30, 1998 was $10.3 million
($.32 per share based on 32.4 million weighted average shares outstanding)
compared to $43.9 million for the same period of 1997 ($1.35 per share based on
32.6 million weighted average shares outstanding). The decrease in net income in
the first six months of 1998 resulted primarily from a $10 million negative
adjustment to the valuation of the Company's Interest-only and residual
certificates in the second quarter, an increase in the amortization of these
certificates and increased expenses related to continued expansion of the
Company's retail infrastructure. In addition, during the second quarter of 1998,
the Company recorded a $10 million increase in the allowance for loan losses on
loans serviced. Further, net income for the first six months of 1997 was
increased by $4.5 million as the result of the implementation by the Company of
Statement of Financial Accounting Standards No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS
No. 125").
Revenues. The following table sets forth information regarding the
components of the Company's revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Loan sale gains ....................................... $ 123,613 $ 110,919
Finance income, fees earned and other loan income ..... 66,526 82,799
Investment income ..................................... 17,822 10,881
Other ................................................. 2,523 3,052
--------- ---------
Total ....................................... $ 210,484 $ 207,651
========= =========
</TABLE>
10
<PAGE> 12
The Company sells substantially all loans which it originates or
purchases and generally retains the servicing rights on loans sold. Under the
sales/servicing agreements, the buyer receives the principal collected on the
loan and an agreed upon rate on the outstanding principal balance, and the
Company retains the excess of the interest at the contractual rate over the sum
of the rate paid to the buyer (the "investor" rate), a normal servicing fee and,
where applicable, the trustee fee and surety bond fee. At the time of sale, the
Company allocates a portion of its basis in the loans to mortgage servicing
rights which is recorded as an asset (Capitalized mortgage servicing rights),
records as an asset the fair value of the excess interest retained by it
(Interest-only and residual certificates), makes a provision for an allowance
for losses on the loans sold for which it retains the servicing, and recognizes
the resulting loan sale gain as revenue. The fair value of the Company's
Interest-only and residual certificates, which is net of the allowance for loan
losses on serviced loans, is determined at the time of sale by the Company by
computing the present value of the cash flows of the excess interest retained by
the Company expected to be received by it (using the expected dates that such
interest is to be released from the related reserve accounts), discounted at an
interest rate that the Company believes an unaffiliated third-party purchaser
would require as a rate of return on a financial instrument comprised of such
cash flows. These amounts are calculated using prepayment and default
assumptions based on the actual experience of the Company's owned and serviced
portfolio for home equity loans and comparable industry prepayment statistics
for manufactured housing contracts. On a quarterly basis, the Company reviews
the fair value of the Interest-only and residual certificates by analyzing its
prepayment and other assumptions in relation to its actual experience, and, if
necessary, adjusts the carrying value of the Interest-only and residual
certificates to such fair value through a charge or credit to earnings. In the
second quarter of 1998 the Company increased the prepayment ("CPR") assumptions
used to calculate loan sale gains and value the Interest-only and residual
certificates on its ARM and hybrid products. These revised assumptions were
applied to previously securitized loans and loans sold during the quarter. A
negative adjustment of $10 million was made as of June 30, 1998 and charged to
earnings for the quarter then ended. The prepayment assumptions used by the
Company as of June 30, 1998 in computing loan sale gains and the carrying value
of the Interest-only and residual certificates related to its home equity
products were as follows:
o With its fixed rate product, the Company assumes a life-to-date
prepayment speed of 24.1% based on a seasoning curve that begins at 9%
in month one, increases to 27% in month 12, increases to 30% in month
20 and stays constant until month 36, ramps down to 17% by month 53
and remains constant at this rate until maturity. At June 30, 1998,
the Company had $3.4 billion in fixed rate home equity loans in its
servicing portfolio.
o The Company assumes a life-to-date prepayment speed of 29.5%, based on
a seasoning curve, for its adjustable rate product ("ARMs"). The curve
begins at 14% in month one, peaks at 39% in month 12, decreases
slightly to 34% by month 19 and stays constant until month 28 when it
declines to 33% and remains at this rate until month 48, then ramps
down to 17% by month 56 and remains constant at this rate until
maturity. At June 30, 1998, the Company had $1.0 billion in ARMs in
its servicing portfolio.
o The Company assumes a life-to-date prepayment speed of 25.1%, based on
a seasoning curve, for its hybrid loan products, i.e., products that
have rates fixed for three years and become adjustable thereafter. The
curve begins at 4% in month one, increases to 27% in month 12,
continues to increase to 30% in month 30 and stays constant until
month 40, ramps down to 20% by month 56 and remains constant at this
rate until maturity. At June 30, 1998, the Company had $1.5 billion in
hybrid loans in its servicing portfolio, of which $1.1 billion have
rates fixed for three years.
11
<PAGE> 13
The following table provides life-to-date prepayment rates and pool
factors as of June 30, 1998, with respect to the Company's home equity loan
securitizations by year of securitization for the years indicated:
<TABLE>
<CAPTION>
Fixed ARM Hybrid
------------------------------- ------------------------------ --------------------------------------
Life- Life- Life-
Year of Original to-Date Pool Original to-Date Pool Original to-Date Pool
Securitization Balance CPR Factor (1) Balance CPR Factor (1) Balance CPR Factor (1)
- -------------- ----------- ------- ---------- -------- ------- ---------- -------- ------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $ 415,525 27% 18.97% $ 34,990 36% 11.27% -- __ __
1994 935,568 26% 29.66% 74,987 37% 17.30% -- __ __
1995 1,030,698 26% 39.78% 391,652 30% 36.97% -- __ __
1996 1,350,058 24% 57.96% 732,762 32% 50.48% $ 142,308 30% 50.23%
1997 1,224,998 21% 81.43% 479,294 31% 74.73% 1,020,707 18% 86.33%
1998(2) 324,984 17% 96.58% 71,474 25% 95.27% 228,525 15% 97.12%
</TABLE>
(1) Pool Factor - Percentage of the securitization remaining outstanding at June
30, 1998.
(2) 1998 amounts relate only to first quarter 1998 securitization.
The following table provides life-to-date prepayment rates and pool
factors as of June 30, 1998, with respect to the Company's manufactured housing
contract securitizations by year of securitization for the years indicated:
<TABLE>
<CAPTION>
Real Estate Chattel
--------------------------------------------- ---------------------------------------------
Year of Original Life-to-Date Pool Original Life-to-Date Pool
Securitization Balance CPR Factor (1) Balance CPR Factor (1)
- ---------------- ------------- ------------- -------------- ------------- --------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1996 $ 55,031 20% 67.46% $ 109,968 7% 86.58%
1997 100,403 16% 87.51% 204,573 6% 94.03%
1998(2) 34,531 6% 98.85% 65,468 7% 98.72%
</TABLE>
(1) Pool Factor - Percentage of the securitization remaining outstanding at June
30, 1998.
(2) 1998 amounts relate only to first quarter 1998 securitization.
Loan sale gains constitute the largest component of the Company's
revenues. The increase in the amount of loan sale gains in the first six months
of 1998 compared to the same period of 1997 was due primarily to a $390 million
increase in the amount of home equity loans sold. Loan sale gains for the first
six months of 1998 also include $2.6 million as the result of the sale of
approximately $185 million in manufactured housing contracts compared to $10.6
million recognized in the first six months of 1997 resulting from the sale of
approximately $145 million in manufactured housing contracts. The decline in
loan sale gain recognized on the sale of manufactured housing contracts during
the first six months of 1998 compared to the same period of 1997 resulted from a
decrease in the interest spread retained on contracts sold as the manufactured
housing products originated and sold during the first six months of 1998
generally have a lower coupon interest rate and higher loan origination fees
than products originated and sold during the same period of 1997. Loan sale
gains are reduced by estimated future credit losses on loans sold, transaction
expenses and loan acquisition premiums. Loan sale gains for the six months ended
June 30, 1998 and 1997 were reduced by $34.3 million and $24.7 million,
respectively, to provide for estimated future losses on loans sold. The
capitalization of mortgage servicing rights is also included in loan sale gains
and totaled $16.4 million during the first six months of 1998 compared to $14.3
million for the same period of 1997. During the second quarter of 1997, loan
sale gains were reduced by $6.4 million resulting from costs incurred in a
series of rate hedge mechanisms implemented in connection with the Company's
1997 second quarter securitization transactions.
12
<PAGE> 14
The following table presents information regarding loan sale
transactions for the periods indicated:
<TABLE>
<CAPTION>
HOME EQUITY LOANS MANUFACTURED HOUSING CONTRACTS
-------------------------- --------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------------
1998 1997 1998 1997
----------- ----------- -------------- ------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans sold servicing retained .......... $ 1,477,545 $ 1,159,687 $ 185,379 $ 144,586
Average coupon ......................... 10.72% 11.12% 9.09% 10.99%
Interest spread retained ............... 4.64% 4.79% 2.19% 3.68%
Loans sold servicing released .......... $ 70,923 -- -- --
Loan sale gains ........................ $ 121,052 $ 100,354 $ 2,561 $ 10,565
</TABLE>
The Company has securitized certain home equity loans that have a fixed
coupon rate for two or three years and then convert into an adjustable rate for
the remaining lives of the loans ("hybrid loans") of which $1.5 billion were
outstanding as of June 30, 1998. The investor rate on the asset-backed
securities backed by these hybrid loans is based on a floating interest rate and
is calculated monthly by reference to the London interbank offered rate for
one-month U.S. dollar deposits ("1-month LIBOR"). During the first quarter of
1998, the Company entered into a $1.0 billion interest rate cap transaction for
hybrid loans securitized prior to 1998 to mitigate its exposure during the
initial two or three year period when the coupon rates are fixed and the
investor rates are floating. In addition, certain classes of the asset-backed
securities of the Company's 1996, 1997 and 1998 securitizations backed by fixed
rate home equity loans provide for floating investor rates based on 1-month
LIBOR. These securitizations were structured so that the maturity of these
floating investor rate securities is anticipated to be approximately one year.
As of June 30, 1998, $165 million of such 1997 securities and $254 million of
such 1998 securities remain outstanding.
Fluctuations in and the level of market interest rates will impact the
interest spread retained by the Company on loans sold (which includes for
purposes hereof manufactured housing contracts) and, potentially, the amount of
its loan sale gains. As reflected in the table above, the average coupon on
loans and contracts originated during the respective periods has declined, which
decline the Company believes resulted from a lower interest rate environment and
increased competition in the sub-prime lending industry.
In connection with loan securitization transactions, the Company has
used a prefunding feature which "locks in" the rate that the Company will pay to
the investor on a predetermined amount of loans for future delivery. The Company
is obligated for the difference between the investment earnings on the prefunded
amount and the interest at the investor rate paid to the investor during the
period from the date of the closing of the securitization transaction until the
date of delivery of the loans. In connection with the securitization
transactions which closed in the second quarter of 1998, approximately $38.9
million was held in prefunding accounts for purchase of the Company's home
equity loans and $27.4 million for the purchase of manufactured housing
contracts during the third quarter of 1998. Such manufactured housing contracts
were delivered in July, 1998 and it is anticipated that such home equity loans
will be delivered in August, 1998.
13
<PAGE> 15
Finance income, fees earned and other loan income, which constitutes
the second largest component of the Company's revenues, was comprised of the
following items for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Servicing fees and excess interest collected ............... $ 122,728 $ 91,966
Loan origination fees ...................................... 79,995 50,282
Loan interest .............................................. 9,080 10,317
Other loan income .......................................... 7,620 5,984
Amortization of Interest-only and residual certificates .... (121,730) (70,887)
Amortization of Capitalized mortgage servicing rights ...... (7,547) (3,762)
Provision for losses on serviced loans ..................... (23,620) (1,101)
--------- --------
Total ............................................ $ 66,526 $ 82,799
========= ========
</TABLE>
The increase in servicing fees and excess interest collected reflects
the growth in the portfolio of loans serviced for third party investors. The
average portfolio of loans serviced for third party investors was $6.0 billion
and $4.4 billion for the six months ended June 30, 1998 and 1997, respectively.
Loan origination fees in excess of direct origination costs on each
loan originated by the Company are recognized over the life of the loan or
earlier at the time of sale of the loan to a third party. During the first six
months of 1998 and 1997, the Company sold approximately $1.5 billion and $1.2
billion, respectively, in home equity loans and recognized approximately $65.0
million and $42.4 million, respectively, in loan origination fees (which relate
primarily to fixed rate retail production) in connection with these sales.
The increase in servicing fees earned and loan origination fees for the
first six months ended June 30, 1998, as compared to the same period of 1997,
was offset by a $50.8 million increase in amortization of Interest-only and
residual certificates and a $3.8 million increase in amortization of Capitalized
mortgage servicing rights, primarily as the result of an increase in the amount
of loans refinanced or prepaid. In addition, during the second quarter of 1998,
the Company increased the prepayment ("CPR") assumptions used by it in valuing
the Interest-only and residual certificates on its ARM and hybrid products
resulting in a $7.7 million increase in amortization of the Company's
Interest-only and residual certificates. During the first quarter of 1997,
amortization of the Company's Interest-only and residual certificates was
positively effected by the implementation of SFAS No. 125 which increased
finance income by $8.9 million.
The provision for losses on serviced loans increased $22.5 million
during the first six months of 1998 compared to the same period of 1997 and
includes an additional $10 million provision for loan losses during the second
quarter of 1998 on loans securitized in prior quarters.
The Company estimates that nonaccrual loans reduced finance income for
the first six months of 1998 and 1997 by approximately $25.2 million and $16.3
million, respectively. The Company is generally obligated to advance interest on
delinquent loans serviced for third party investors until satisfaction of the
note, liquidation of the collateral or charge off of the delinquent loan. During
the first six months of 1998, the average amount of nonaccrual loans owned
and/or serviced by the Company was approximately $423.4 million compared to
$265.7 million in the same period of 1997.
Investment income totaled $17.8 million for the first six months of
1998 compared to investment income of $10.9 million during the same period of
1997. Investment income is primarily related to interest earned on temporary
investments in reserve accounts established in connection with loan sales in
securitization transactions.
14
<PAGE> 16
Other income relates to income earned by the Company's
telecommunications business and property management with respect to its office
park.
Expenses. The following table presents the components of the Company's
expenses for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1998 1997
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Personnel ............... $ 77,379 $ 59,010
Interest ................ 38,554 26,318
Other operating ......... 78,237 53,703
-------- ---------
Total ......... $194,170 $ 139,031
======== =========
</TABLE>
The increase in personnel costs are primarily associated with the
continued expansion of the Company's lending operations. The remaining increase
is primarily related to incentive compensation related to an increase in home
equity loan production.
Interest expense for the first six months of 1998 increased
approximately $12.2 million compared to the same period of 1997 principally due
to an increase in the average amount of debt outstanding.
Other operating expenses increased approximately $24.5 million during
the first six months of 1998 compared to the same period of 1997 primarily as
the result of costs associated with the expansion of the Company's lending
operations. During the six months ended June 30, 1998 and 1997, advertising
expense totaled $25.4 million and $14.3 million and occupancy and equipment
expenses were $17.7 million and $12.2 million, respectively.
ASSET QUALITY AND RESERVES
The quality of the loans owned and those 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 without
limitation 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
and reductions in collateral values.
Substantially all of the home equity loans and manufactured housing
contracts produced by the Company are sold in securitization transactions in
which securities backed by these loans and contracts ("asset-backed securities")
are sold, with servicing rights retained. In public securitization transactions
consummated through shelf registration statements of the Company's subsidiaries,
the purchasers of the asset-backed securities receive a security which is credit
enhanced, in part, in such home equity loan securitizations and one manufactured
housing contract securitization, through a guaranty provided by a third party
insurer or, in connection with the other manufactured housing contract
securitizations, through a senior/subordinated structure. Credit enhancement for
such home equity asset-backed securities is also provided by subordinating a
cash deposit and the excess interest spread retained by the Company, up to a
specified amount (the "Subordinated Amount"), to the payment of scheduled
principal and interest on the securities. The subordination of the cash deposit
and the excess interest spread retained by the Company relates to credit losses
which may occur after the sale of the loans and generally 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 payment defaults exceed the
Subordinated Amount, a third party insurer is obligated to pay any further
losses experienced by the owners of the asset-backed securities. Except for one
manufactured housing contract securitization in which credit enhancement is
provided by a third party insurer and subordination of the retained excess
interest spread, such losses are borne first by the subordinated asset-backed
securities in the Company's manufactured housing contract securitizations. The
Company has retained some of the subordinated securities in such
securitizations. In a sale by
15
<PAGE> 17
the Company of approximately $451 million of loans pursuant to a private
securitization transaction in the second quarter of 1998, credit enhancement for
the asset-backed securities sold thereunder was provided by subordination of the
excess interest spread retained by the Company and limited recourse against the
Company.
The Company is also obligated to cure, repurchase or replace loans and
contracts 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. For loans and contracts sold, the Company records a
provision for the estimated amount of credit losses at the time of sale, and
records such amount on its balance sheet in the allowance for loan losses as a
reduction of the Interest-only and residual certificates. Estimated losses on
the owned portfolio are also provided for by an increase in the allowance for
loan losses through a charge to current operating income. At June 30, 1998, the
allowance for loan losses on loans serviced was $137.8 million and $3.6 million
on loans owned by the Company. The maximum recourse associated with sales of
home equity loans and manufactured housing contracts according to terms of the
sale agreements totaled approximately $1.5 billion at June 30, 1998,
substantially all of which relates to the subordinated cash and excess interest
spread. Should credit losses on loans and contracts sold materially exceed the
Company's estimates for such losses, such consequence will have a material
adverse impact on the Company's operations.
At June 30, 1998, the contractual balance of home equity loans serviced
was approximately $5.9 billion, substantially all of which are owned by and
serviced for third party investors. The portfolio is geographically diversified.
Although the Company services loans in 50 states and the District of Columbia,
at June 30, 1998 a substantial portion of the home equity loans serviced were
originated in California (9.4%), Louisiana (7.9%), Florida (7.2%), Ohio (6.4%)
and North Carolina (5.3%), respectively, and no other state accounted for more
than 4.7% of the serviced portfolio. In addition, at June 30, 1998, the Company
serviced approximately $651 million of manufactured housing contracts, 16.9% of
which were originated in South Carolina, 16.3% in Texas and 13.3% in North
Carolina. The risk inherent in geographic 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.
The following two tables set forth information relating to certain
contractual delinquency, default and loss experience for home equity loans
serviced as of the dates indicated in the first table and for the periods
indicated in the second table, including loans owned by the Company and loans
serviced for others:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------------------------- -------------------------------
% OF % OF
CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL
BALANCE BALANCE BALANCE BALANCE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Home equity loans
serviced ................... $ 5,930,552 $ 5,528,923
=========== ===========
Delinquency
30-59 days ................. $ 139,880 2.36% $ 176,882 3.20%
60-89 days ................. 57,294 .96 57,975 1.05
90+ days ................... 90,014 1.52 46,873 0.85
----------- ----- ----------- -----
287,188 4.84 281,730 5.10
----------- ----- ----------- -----
Defaults
Foreclosures in
process ................. 195,210 3.29 189,801 3.43
Bankruptcy ................. 131,113 2.21 115,856 2.10
----------- ----- ----------- -----
326,323 5.50 305,657 5.53
----------- ----- ----------- -----
Total delinquency
and defaults .............. $ 613,511 10.34% $ 587,387 10.63%
=========== ===== =========== =====
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------- -------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Average dollar amount of home equity loans
outstanding during period ..................... $ 5,729,738 $ 4,354,667 $ 4,784,531 $ 3,370,810
=========== =========== =========== ===========
Net losses
Gross losses(1) ........................ $ 23,133 $ 15,030 $ 32,984 $ 19,484
Recoveries(2) .......................... (1,164) (861) (1,937) (2,371)
----------- ----------- ----------- -----------
Net Losses ............................. $ 21,969 $ 14,169 $ 31,047 $ 17,113
=========== =========== =========== ===========
Net losses for the last four quarters as a
percentage of average amount outstanding ...... 0.72% 0.61% 0.65% 0.51%
</TABLE>
(1) "Gross Losses" are amounts which have been determined to be uncollectible
relating to home equity loans for each respective period.
(2) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
The contractual balances exclude home equity real estate owned and/or
serviced which totaled $117.4 million and $98.9 million at June 30, 1998 and
December 31, 1997, respectively. The Company believes that the decrease in the
total percentage of delinquencies and defaults at June 30, 1998 compared to
December 31, 1997 is not attributable to any single factor, but rather reflects
a combination of factors, including the seasonal nature of delinquencies
inherent in the portfolio.
The following tables provide certain contractual delinquency and
default data with respect to home equity loans serviced by the Company, by year
of loan origination, as of the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------------------------------------------------------------
DEFAULTS
DELINQUENCY ---------------------------- TOTAL
CONTRACTUAL --------------------------------- FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ----------- ------- -------- ------- ------- ------------ ------ -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 & prior...... $ 94,769 2.57% 1.01% 2.18% 5.76% 4.77% 6.39% 11.16% 16.92%
1993.............. 110,407 3.64% 1.18% 1.35% 6.17% 5.07% 5.71% 10.78% 16.95%
1994.............. 248,967 3.41% 1.25% 2.19% 6.85% 5.76% 7.41% 13.17% 20.02%
1995.............. 571,575 3.56% 1.30% 2.59% 7.45% 8.23% 6.66% 14.89% 22.34%
1996.............. 1,180,228 3.41% 1.65% 2.40% 7.46% 6.55% 3.61% 10.16% 17.62%
1997.............. 2,245,338 2.54% 0.99% 1.63% 5.16% 2.06% 0.87% 2.93% 8.09%
1998.............. 1,479,268 0.50% 0.18% 0.09% 0.77% 0.01% 0.01% 0.02% 0.79%
------------
Total......... $ 5,930,552 2.36% 0.96% 1.52% 4.84% 3.29% 2.21% 5.50% 10.34%
============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------------------------
DEFAULTS
DELINQUENCY ---------------------------- TOTAL
CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ----------- ------- ------- ------- -------- ----------- ------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 & prior...... $ 75,114 4.79% 1.06% 1.56% 7.41% 4.92% 5.72% 10.64% 18.05%
1992.............. 43,134 5.21% 1.72% 2.28% 9.21% 4.82% 5.23% 10.05% 19.26%
1993.............. 135,399 4.59% 1.12% 1.01% 6.72% 4.79% 5.30% 10.09% 16.81%
1994.............. 302,819 4.95% 1.54% 1.47% 7.96% 6.17% 6.79% 12.96% 20.92%
1995.............. 710,685 5.04% 1.59% 1.46% 8.09% 7.80% 5.66% 13.46% 21.55%
1996.............. 1,544,278 4.54% 1.50% 1.22% 7.26% 5.39% 2.28% 7.67% 14.93%
1997.............. 2,717,494 1.62% 0.58% 0.35% 2.55% 0.74% 0.23% 0.97% 3.52%
------------
Total......... $ 5,528,923 3.20% 1.05% 0.85% 5.10% 3.43% 2.10% 5.53% 10.63%
============
</TABLE>
17
<PAGE> 19
The following table provides certain pool factors and cumulative losses
with respect to the Company's home equity loans by year of production for the
periods indicated:
<TABLE>
<CAPTION>
CUMULATIVE
YEAR HOME-EQUITY NET LOSSES AS
OF LOAN POOL % OF
PRODUCTION PRODUCTION FACTOR(1) PRODUCTION
- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FIXED
1993 $ 500,900 20.83% 2.20%
1994 $ 837,901 28.59% 2.58%
1995 $ 1,130,715 38.15% 1.74%
1996 $ 1,383,714 54.84% 0.33%
1997 $ 1,373,984 74.76% 0.01%
1998 $ 768,351 95.92% 0.00%
ARM
1993 $ 38,968 15.61% 1.73%
1994 $ 70,920 13.25% 0.70%
1995 $ 410,922 34.11% 0.98%
1996 $ 860,744 48.96% 0.22%
1997 $ 1,513,667 80.48% 0.01%
1998 $ 770,358 96.35% 0.00%
</TABLE>
(1) Pool Factor - Percentage of the year's production remaining outstanding at
June 30, 1998.
The following two tables provide certain contractual delinquency,
default and loss experience information for manufactured housing contracts
serviced as of the dates indicated in the first table and for the periods
indicated in the second table, including manufactured housing contracts owned by
the Company and contracts serviced for others.:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------- -------------------------
1998 1997 1997 1996
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Number of manufactured
housing contracts........................... 17,956 9,814 13,816 5,412
Delinquency period (1)(2)(3)
30-59 days............................. 2.36% 2.67% 3.13% 1.88%
60-89 days............................. 0.88 0.78 1.11 .57
90 days and over....................... 1.73 0.64 1.49 .16
--------- ---------- ---------- ---------
4.97% 4.09% 5.73% 2.61%
========= ========== ========== =========
Dollar amount (in thousands) of
manufactured housing contracts in
repossession at the end of period(3)........ $ 8,558 $ 1,719 $ 4,797 $ 725
</TABLE>
(1) As a percentage of the number of manufactured housing contracts as of the
date indicated and excluding contracts already in repossession.
(2) The delinquency period is based on the number of days payments are
contractually past due (assuming 30-day months). Therefore, a manufactured
housing contract with a payment due on the first day of a month is not 30
days delinquent until the first day of the next month. The information
includes as current those manufactured housing contracts whose borrowers
have entered bankruptcy proceedings and had their scheduled payment changed
under a bankruptcy payment plan, provided that the borrowers are current
under their bankruptcy payment plan.
(3) Manufactured housing contracts in the process of foreclosure but not yet
repossessed have been included in the appropriate delinquency period.
18
<PAGE> 20
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------------ ------------------------
1998 1997 1997 1996
---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Dollar amount of manufactured housing
contracts outstanding at end of period............ $ 650,729 $ 309,686 $ 456,937 $ 170,869
Net Losses
Gross Losses (1).............................. $ 2,397 $ 287 $ 866 $ 32
Recoveries (2)................................ (17) (3) (7) (10)
---------- ---------- ----------- ----------
Net Losses.................................... $ 2,380 $ 284 $ 859 $ 22
========== ========== =========== =========
Net Losses for the last four quarters as a
percentage of average amount outstanding.......... 0.63% 0.24% 0.27% 0.03%
</TABLE>
(1) "Gross Losses" are amounts which have been determined to be uncollectible
relating to manufactured housing contracts for each respective period.
(2) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
The following tables reflect, as of the periods indicated, the
allowance for loan losses for loans owned by the Company and loans serviced for
third parties. These allowance accounts are deducted in the Company's balance
sheet from the asset to which they apply.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------
OWNED SERVICED TOTAL
------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Allowance for loan losses, beginning of period ........ $ 3,691 $ 106,563 $ 110,254
Provision for loan losses ............................. 1,995 53,757 55,752
Net loans charged off ................................. (2,089) (22,502) (24,591)
--------- --------- ---------
Allowance for loan losses, end of period .............. $ 3,597 $ 137,818 $ 141,415
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------
OWNED SERVICED TOTAL
------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Allowance for loan losses, beginning of period ........ $ 4,141 $ 73,102 $ 77,243
Provision for loan losses ............................. 1,454 25,831 27,285
Net loans charged off ................................. (2,146) (13,082) (15,228)
Reserve reclassification .............................. 394 -- 394
-------- -------- --------
Allowance for loan losses, end of period .............. $ 3,843 $ 85,851 $ 89,694
======== ======== ========
</TABLE>
The above delinquency, default and loan loss experience represents the
Company's experience for the periods reported. However, the delinquency, default
and loss percentages may be affected by the increase in the size and aging of
the portfolio. In addition, the Company can neither quantify the impact of
property value declines, if any, on the home equity loans and manufactured
housing contracts nor predict whether or to what extent or how long such
declines may exist. In a period of such declines, the rates of delinquencies,
defaults and losses on the home equity loans and manufactured housing contracts
could be higher than those theretofore experienced in the sub-prime residential
mortgage and manufactured housing lending industries 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 manufactured housing contracts and,
accordingly, the actual rates of delinquencies, defaults 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,
defaults or losses in the future and no
19
<PAGE> 21
assurance can be given that the delinquency, default and loss experience
presented in the tables will be indicative of such experience.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements arise from loan originations,
deposits to reserve accounts, repayments of debt borrowed under the Company's
senior and subordinated notes and credit facilities, payments of operating and
interest expenses, and income taxes. The Company uses the proceeds of its
revolving credit facility (the "Credit Facility") as the primary source of
funding of loan production pending sales in securitizations. In July, 1998, the
commitment amount of the Credit Facility was increased from $800 million to $850
million. Proceeds of the Credit Facility may be used for general corporate
purposes, including the interim funding of loan originations, and to refinance
existing debt. The Company's borrowings are in turn repaid with cash proceeds
received from selling such loans through securitizations. The Credit Facility is
provided by a group of 22 banks, matures in April 2000, and provides for
revolving loans and letters of credit. During 1997 and the first six months of
1998, the Credit Facility was primarily used to fund the origination of home
equity loans and manufactured housing contracts. These borrowings were repaid
upon the delivery of the loans and contracts into the securitization
transactions. As a result of the March, 1998 downgrade by Standard and Poor's, a
division of McGraw-Hill Companies, Inc. ("S&P"), of its ratings of the Company's
long-term unsecured debt, the rate of interest payable by the Company under the
terms of the Credit Facility has increased. See "Ratings" below. At June 30,
1998, letters of credit in the aggregate maximum amount of $100 million (of
which the available draw amount at June 30, 1998 was $54 million) were
outstanding under the Credit Facility for the Company's account and were
deposited in 1997 in lieu of cash into the related reserve accounts established
in connection with the Company's 1997 third and fourth quarter home equity loan
securitization transactions.
In addition to the Credit Facility, the Company maintains three sources
of financing for its home equity loan originations: a master repurchase facility
provided by a major national bank (the "Master Repo"), a warehouse facility
provided by the investment banker which acted as lead underwriter for the
Company's 1998 second quarter home equity loan securitization (the "Investment
Bank Warehouse"), and a warehouse facility provided by United Companies Life
Insurance Company ("UCLIC"). The Master Repo provides funding for up to $300
million of eligible home equity loans and is committed until April, 2000. As of
June 30, 1998, no repurchase obligations were outstanding under the Master Repo.
The Investment Bank Warehouse was directly related to the 1998 second quarter
fixed rate home equity loan securitizations, initially provided for funding up
to $300 million of eligible home equity loans for such securitizations and
terminated upon the closing of the last delivery of loans under the prefunding
accounts related to the fixed rate securitization. As of June 30, 1998, $150
million was available and no amounts were outstanding under the Investment Bank
Warehouse. The UCLIC warehouse facility which was established upon the sale of
UCLIC in 1996, provides for the purchase of up to $150 million in first mortgage
residential loans and has a maturity of July, 1999. The Company has the right
for a limited time to repurchase certain loans which are eligible for
securitization and as of June 30, 1998, $3.6 million in loans eligible for
securitization were funded under this facility. The Company has issued $100
million, $125 million and $100 million of senior unsecured notes which mature in
1998, 1999 and 2004, respectively, and in June 1997 sold $150 million of
unsecured subordinated notes maturing in 2005 (such senior and subordinated
unsecured notes collectively referred to as the "Notes"). During July 1998, the
Company utilized the Credit Facility to pay $100 million of the senior unsecured
notes which matured July 15, 1998. The Credit Facility and the Notes require the
Company to maintain a minimum consolidated fixed charge coverage ratio. The
Company has experienced a declining trend in this ratio. Management of the
Company presently expects that results of the operations for the 1998 third
quarter will not result in a decline in this ratio below the amount required by
the Credit Facility and the Notes. However, in the event the consolidated fixed
charge coverage ratio as of September 30, 1998 is less than the minimum
required, an event of default will occur under the Credit Facility and the Notes
and payment of the outstanding principal balance thereof will be due unless,
prior to the expiration of cure periods provided therein, waivers are obtained
by the Company.
Substantially all of the home equity loans and manufactured housing
contracts originated or acquired by the Company are sold. Net cash from
operating activities of the Company in the first six months of 1998 and 1997
reflects approximately $1.8 billion and $1.4 billion, respectively, in cash used
for loan originations and acquisitions
20
<PAGE> 22
of home equity loans and manufactured housing contracts. The primary source of
funding for loan originations is derived from the reinvestment of proceeds from
the ultimate sale of these products in the secondary market which totaled
approximately $1.8 billion and $1.4 billion in the first six months of 1998 and
1997, respectively. In connection with the home equity loan and one manufactured
housing contract transactions in the secondary market, third-party surety bonds
and subordination of cash deposits and excess interest retained by the Company
have been provided as credit enhancements. The loan sale transactions have
required the subordination of certain cash flows retained by the Company from
the loans sold to the payment of principal and interest due to holders of the
asset-backed securities. In connection with these transactions, the Company has
been required, in some instances, to fund an initial deposit, and thereafter, in
each transaction, other than the private securitization transaction consummated
in the second quarter of 1998, a portion of the amounts receivable by the
Company 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 excess spread
retained by 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 and contracts
underlying the asset-backed securities issued until the total of the Company's
deposits into the reserve account equal the maximum subordination amount. 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, if any, in excess of the specified
levels required to be maintained in the reserve accounts, which may be
distributed periodically to the Company). In certain home equity loan
securitizations, the excess interest spread on the fixed rate loans included
therein is utilized initially to cover current losses, and then to pay down the
principal of the related asset-backed securities until a specified level of
overcollateralization is reached, and thus is unavailable to the Company until
such time. With respect to certain home equity loan securitization transactions
which closed in 1994, 1995 and 1996 for which the aggregate unpaid principal
balance as of June 30, 1998 of the loans sold thereby was approximately $739
million, the delinquency and loss experiences of such loans, pursuant to levels
thereof set forth in the related pooling and servicing agreements, have resulted
in an increase in the required amount of excess interest spread to be maintained
in the related reserve accounts. As a result, the Company's cash flow has been
negatively affected by the increased minimum reserve account requirements. At
June 30, 1998, the amounts on deposit in reserve accounts totaled $424.3
million, exclusive of the letters of credit issued under the Credit Facility in
the amount of $100 million discussed above.
RATINGS.
On July 21, 1998 the Company announced that its Board of Directors had
decided it was desirable to seek a potential strategic partnership that could
improve the Company's ability to access additional capital to accelerate its
growth, and that the Board of Directors had appointed a Special Committee to
explore this strategic alternative and retained an investment banker to
assist in the process. In addition, the announcement set forth the Company's
expected 1998 second quarter results.
On July 21, 1998, following this announcement, Duff & Phelps Credit
Rating Co. ("DCR") added the Company's ratings to Rating Watch -- Uncertain, and
Standard and Poor's ("S&P") placed the ratings of the Company on CreditWatch
with "developing" implications, meaning the ratings could be raised, lowered, or
affirmed, depending on the outcome of the strategic review. DCR's present
ratings are "BBB" for the Company's senior debt, "BBB-" for its subordinated
debt and "BBB-" for its preferred stock. S&P currently rates the Company's
senior unsecured debt "BB+", its subordinated debt "BB-" and its preferred stock
"B+". Also on July 21, 1998, following the announcement, Moody's Investor's
Service ("Moody's") lowered the debt and preferred stock ratings of the Company
and maintained its negative outlook for the Company. Moody's lowered the
Company's senior debt ratings to "Ba3" from "Ba1", its subordinated debt ratings
to "B2" from "Ba3" and its preferred stock ratings to "b2" from "ba3". On July
22, 1998, Fitch IBCA placed the Company's ratings on RatingAlert with evolving
implications, which reflects
21
<PAGE> 23
the ratings could be raised, lowered or maintained depending on the terms of the
intended partnership. The Company's current ratings with Fitch IBCA are "BBB-"
for its senior notes and "BB+" for its subordinated notes.
YEAR 2000
As discussed in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company's Report on Form
10-K for the year ended December 31, 1997, the Company has constituted a Year
2000 task force (the "Task Force") with members of its Management Information
Services and Internal Audit departments as well as other employees of the
Company. In July, 1998, the Task Force reported to the Audit Committee of the
Board of Directors of the Company that the assessment phase of the project has
been completed and that test plans and long and short term contingency plans
have been written for all identified mission critical systems. The Task Force
also reported that the project is on schedule to either correct or be in the
process of replacing all non-Year 2000 compliant systems by year end 1998. At
the present time, the Company estimates that the cost of completing the Year
2000 compliance project will not be material to the Company's financial
condition or results of operations.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The statements contained herein
that are not historical facts are forward-looking statements based on the
Company's current expectations and beliefs concerning future developments and
their potential effects on the Company. There can be no assurance that future
developments affecting the Company will be those anticipated by the Company.
Actual results may differ from those projected in the forward-looking
statements. These forward-looking statements involve significant risks and
uncertainties (some of which are beyond the control of the Company) and are
subject to change based upon various factors, including but not limited to the
following risks and uncertainties: changes in the asset securitization industry
and in the performance of the financial markets, in the demand for and market
acceptance of the Company's products, and in general economic conditions,
including interest rates; the presence of competitors with greater financial
resources and the impact of competitive products and pricing; the effect of the
Company's policies, including the amount and rate of growth of Company expenses;
the continued availability to the Company of adequate funding sources; actual
prepayment rates and credit losses on loans sold as compared to prepayment rates
and credit losses assumed by the Company at the time of sale for purposes of its
gain on sale computations; the effect of changes in market interest rates on the
spread between the coupon rate on loans sold and the rate on the asset-backed
securities backed by such loans issued by the Company in securitization
transactions and on the discount rate assumed by the Company in its gain on sale
computations; timing of loan sales; the quality of the Company's owned and
serviced loan portfolio including levels of delinquencies, customer bankruptcies
and charge-offs; ratings; and various legal, regulatory and litigation risks.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as the result of new information, future
events or otherwise. For a more detailed discussion of some of the foregoing
risks and uncertainties, see Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Investment Considerations", in
the Company's Annual Report on Form 10-K for the year ending December 31, 1997
and other Company filings with the Securities and Exchange Commission.
22
<PAGE> 24
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 June 30,
1998 and the related consolidated statements of income and cash flows for the
three months and six months ended June 30, 1998 and 1997, and previously audited
and expressed an unqualified opinion dated March 4, 1998 on the consolidated
financial statements of the Company and its subsidiaries as of December 31,
1997, from which the consolidated balance sheet as of this date is derived.
23
<PAGE> 25
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
United Companies Financial Corporation:
We have reviewed the accompanying consolidated balance sheet of United Companies
Financial Corporation and subsidiaries as of June 30, 1998 and the related
consolidated statements of income and cash flows for the three-month and
six-month periods then ended. 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, 1997, 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 March 4, 1998,
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, 1997 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
August 7, 1998
24
<PAGE> 26
PART II
OTHER INFORMATION
Items 1 through 3. Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was
held on May 12, 1998. The only matter voted upon at
the Annual Meeting of Shareholders was the election
of members to the Board of Directors of the
Company.
Item 5. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - (15) Letter of Deloitte & Touche LLP
- (27) Financial Data Schedule
(b) Reports on Form 8-K
On July 23, 1998, the Company filed a Current
Report on Form 8-K to report expected earnings for
the second quarter of 1998 and to announce that the
Company is seeking a potential strategic
partnership that could improve the Company's
ability to access additional capital to accelerate
its growth.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED COMPANIES FINANCIAL CORPORATION
Date: 8/12/98 By: /s/ J. Terrell Brown
-------------------------------------------
J. Terrell Brown
Chairman and Chief Executive Officer
Date: 8/12/98 By: /s/ Dale E. Redman
-------------------------------------------
Dale E. Redman
Executive Vice President and Chief
Financial Officer
26
<PAGE> 28
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT NO.
15 Letter of Deloitte & Touche LLP
27 Financial Data Schedule
<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 June 30, 1998 and 1997, as indicated in our report dated
August 7, 1998; 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 June 30, 1998, is being
incorporated by reference in the following: 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. 33-60367 on Form S-3 pertaining to the
registration of $200 million of United Companies Financial Corporation Debt
Securities and Preferred 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. 33-63069 on Form S-8
pertaining to the United Companies Financial Corporation Management Incentive
Plan, Registration Statement No. 333-21985 on Form S-3 pertaining to the
registration of $500 million of United Companies Financial Corporation Debt
Securities, Preferred Stock and Common Stock and Registration Statement No.
333-33347 on Form S-8 pertaining to the 1996 Long-Term Incentive Compensation
Plan and the 1996 Non-Employee Director Stock 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
August 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 159,566
<SECURITIES> 13,710
<RECEIVABLES> 254,039
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 74,113
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,620,262
<CURRENT-LIABILITIES> 0
<BONDS> 924,485
0
3,796
<COMMON> 59,983
<OTHER-SE> 420,640
<TOTAL-LIABILITY-AND-EQUITY> 1,620,262
<SALES> 0
<TOTAL-REVENUES> 210,484
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 155,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,554
<INCOME-PRETAX> 16,314
<INCOME-TAX> 6,039
<INCOME-CONTINUING> 10,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,275
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
