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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6868
Lomas Financial Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-1043392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1600 Viceroy Drive, Dallas, Texas 75235
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 879-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K.
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At September 15, 1994 the aggregate market value of the registrant's
common stock held by non-affiliates was $87 million.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. YES X NO
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the registrant's Common Stock,
par value $1 per share, as of September 15, 1994: Common Stock--20,099,531
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates certain information by
reference from the registrant's 1994 Proxy Statement issued in connection
with its Annual Meeting of Stockholders to be held November 1, 1994.
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<PAGE>
LOMAS FINANCIAL CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1994
Table of Contents
Page
PART I
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . .15
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . .15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . .15
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . .16
Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA . . . . . .16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . .18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . .29
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . .73
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . .73
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . .74
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . .74
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . .74
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . .75
<PAGE>
LOMAS FINANCIAL CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1994
PART I
Item 1. BUSINESS
Lomas Financial Corporation was incorporated in Delaware in 1960, and
its principal executive offices are located at 1600 Viceroy Drive in Dallas,
Texas. Unless the context otherwise requires, the "Company," as used herein,
refers to Lomas Financial Corporation ("LFC") and its subsidiaries.
The Company through its wholly-owned subsidiary Lomas Mortgage USA,
Inc., a Connecticut corporation ("Lomas Mortgage"), is one of the nation's
largest participants in the mortgage banking industry. The Company's
principal line of business is the servicing on behalf of third-party
investors of single-family residential mortgages secured by properties
located in all 50 states and the District of Columbia. The Company also
services a relatively small number of commercial mortgage loans. As of June
30, 1994, the Company's mortgage servicing portfolio aggregated approximately
$34.0 billion in unpaid principal amount and included 565,531 loans, ranking
the Company as one of the twenty largest mortgage servicers in the United
States by unpaid principal amount. The Company also provides administrative
services to conduit issuers of mortgage-backed securities (sometimes referred
to as "master servicing"). In addition, the Company's mortgage banking
operations include mortgage and portfolio production activities, insurance
agency operations, property inspection, preservation and other field
operations.
Mortgage servicing involves collecting monthly mortgage payments on
behalf of investors, maintaining escrow accounts for the payment of ad
valorem taxes and insurance premiums on behalf of homeowners, remitting
payments of principal and interest to holders of the mortgages serviced by
the Company and reporting to those holders on financial transactions related
to the mortgages. Mortgage servicing rights entitle the servicer to collect
servicing fees and ancillary income over the term of the related mortgage
loans.
The Company's strategy is to maximize profits by continuing to acquire
servicing rights, to maintain and increase the principal amount of its
portfolio and to provide low cost and efficient services that are responsive
to the needs and requirements of its customers. The Company believes that
Excelis-MLS (a federally registered service mark), the automated data
processing system developed by the Company for use by Lomas Mortgage and
other mortgage bankers, has improved the Company's ability to be an efficient
low-cost provider of servicing and to deliver high quality and timely service
to homeowners, investors and other persons served by the Company.
In March 1994 the Company announced that it has retained an investment
banker to assist in evaluating strategic alternatives to maximize stockholder
values. Options being considered include the possibility of merging with or
being acquired by another institution. In May 1994 the Company announced its
intent to sell its wholly-owned information systems subsidiary, Lomas
Information Systems ("LIS"). In September 1994 the Company entered into a
letter of intent with an insurance company to sell substantially all the
assets of LIS. For more information, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company is
continuing its review with the investment banker of various strategic options
concerning its mortgage banking unit.
The Company acquires mortgage loans and mortgage servicing rights from
numerous sources referred to by the Company as its "gathering system." The
Company acquires mortgage servicing rights (sometimes involving the purchase
and subsequent sale of mortgage loans) on an ongoing basis from originators
of mortgage loans or intermediaries. The Company also obtains servicing
rights from its direct origination of a small volume of single-family
mortgage loans. The Company complements these acquisitions ("flow
production") by acquiring servicing rights in bulk from other financial
institutions ("bulk purchases"). The Company sells the mortgage loans that it
acquires through its gathering system and, in virtually all cases, retains
the related servicing or master servicing rights. In fiscal 1994 the
gathering system added an aggregate of $13.7 billion to the Company's
servicing portfolio. These additions, net of runoff, resulted in a
$1.3 billion increase in the portfolio balance, which at June 30, 1994
totaled $34.0 billion.
Financial Information and Narrative Description of Industry Segments
Financial information regarding revenues, operating profit and total
assets of the Company are included in "Item 8. Financial Statements and
Supplementary Data--Industry Segment Data of Continuing Operations" within
this report.
Mortgage Banking
Lomas Mortgage has provided mortgage servicing and mortgage-related
financial and administrative services since 1894. The primary mortgage
banking services and activities of the Company are discussed below.
Loan Administration
The Company's loan administration services consist of three principal
categories: "primary servicing" where the Company owns the servicing rights;
"master servicing" where the Company provides administrative services for
conduit issuers of mortgage-backed securities and monitors the work of
primary servicers who own the servicing rights; and "subservicing" where the
Company provides mortgage servicing on a subcontract basis for other parties
who own the servicing rights.
Primary Servicing. Primary servicing involves collecting monthly
mortgage payments, maintaining escrow accounts for the payment of ad valorem
taxes, hazard insurance and mortgage insurance premiums on behalf of
homeowners, remitting payments of principal and interest promptly to
investors in the underlying mortgages, reporting to those investors on
financial transactions related to such mortgages and generally administering
the loans. The servicing staff also must cause properties to be inspected
periodically, determine the adequacy of insurance coverage on each property,
monitor delinquent accounts for payment, and, in cases of extreme
delinquency, institute and complete either appropriate forbearance
arrangements or foreclosure proceedings on behalf of investors.
For providing these administrative services, the Company currently
receives a fee in an average amount of approximately .40 of 1 percent per
year on the unpaid principal amount of the primary servicing portfolio in the
case of single-family mortgage loans and commercial loans. Annual ancillary
servicing income, consisting principally of late charges, assumption and
foreclosure fees, and other miscellaneous charges, increases directly related
revenues to approximately .47 of 1 percent per year of the servicing
portfolio balance for residential and commercial loans. The Company also
receives a fee in an average amount of approximately .10 of 1 percent per
year on the unpaid principal amount of the subservicing portfolio. Servicing
fees are collected by the Company out of mortgage payments as they are
received. The Company also receives a benefit from the use as compensating
balances of escrow, agency and fiduciary funds, which varies based on the
level of prevailing interest rates.
At June 30, 1994 the Company's primary servicing portfolio totaled $34.0
billion in unamortized principal amount. The total includes $27.1 billion of
servicing rights owned directly by the Company, $4.0 billion of such rights
owned by Lomas Mortgage Partnership (which is owned one-third by the Company
and the portfolio of which is serviced entirely by the Company), and $2.9
billion of loans administered by the Company under subservicing contracts
with others.
As previously indicated, the Company from time to time undertakes
mortgage servicing on a subcontract basis for other parties who own the
servicing rights. Typically, the subservicer assumes responsibility for all
loan administration activities while the owner of the servicing rights
normally retains the benefits of accumulated escrow balances and retains the
risk of foreclosure losses. Subservicing fees are usually agreed to be paid
on a per-loan basis calculated as an annual dollar amount paid monthly.
Master Servicing. Master servicing was created and introduced by the
Company in 1978 to provide administrative services to conduit issuers of
mortgage-backed securities. Typically, mortgages underlying mortgage-backed
securities are serviced by a number of primary servicers. Under most master
servicing arrangements, these primary servicers retain principal
responsibility for administering the mortgage loans and the Company acts as
an intermediary in overseeing the work of the primary servicers, monitoring
their compliance with the issuer's standards and consolidating their
respective periodic accounting reports for transmission to the issuer of the
related securities.
For performing these services the Company receives administrative fees,
which, at an annualized rate for the year ended June 30, 1994, averaged
approximately $73 per loan. At June 30, 1994 the Company's master servicing
portfolio totaled approximately $8.4 billion in unpaid principal amount
representing 136,609 loans.
Data Processing System. In June 1991 the Company installed at Lomas
Mortgage the new automated servicing system, Excelis-MLS, developed by Lomas
Information Systems ("LIS"). Excelis-MLS provides benefits, such as faster
response time, real time updates, improved availability, expanded data
available on line and IBM-compatibility. The system also enables the Company
to generate monthly statements to mortgagors rather than the more traditional
coupon booklets.
Portfolio Production
The Company has been able to sustain and increase its mortgage servicing
portfolio during a period of significant levels of refinancings due in large
part to production from the variety of sources comprising the Company's
gathering system. From June 30, 1993 to June 30, 1994, the Company acquired
servicing rights to mortgage loans having an unpaid principal amount of $12.2
billion primarily through flow production. The Company also has complemented
its flow production from time to time by acquiring mortgage servicing rights
in bulk from other financial institutions. Bulk purchases totaled $1.5
billion of unpaid principal balance during fiscal 1994.
Through its gathering system, the Company acquires mortgage servicing
rights and, in certain cases, whole loans for the primary purpose of
retaining the servicing rights on such loans. Whole loans purchased by the
Company have been originated, underwritten and funded by retail originators
or wholesalers who make representations and warranties to the Company as to
compliance with required standards. In the event such representations and
warranties are breached, the originator or wholesaler is obligated to
repurchase the loan at its unpaid principal balance, thereby avoiding
principal loss by the Company.
The gathering system currently includes the sources set forth below. The
Company continuously seeks new sources for its gathering system and expects
that such sources, and their relative importance, will change over time.
Flow Production
Wholesale Originations. The Company purchases servicing rights with
respect to newly originated loans from wholesalers on an ongoing basis
through the "Lomega" unit of its loan production system.
Public Pension Fund. The Company is a party to an exclusive ongoing
arrangement for the purchase, for the account of a major public pension fund
and from 85 lenders affiliated with that fund's mortgage origination program,
of all mortgages originated under the program.
State and Local Housing Authorities. The Company has exclusive
ongoing arrangements for the purchase of mortgage servicing rights from
lenders originating loans for lower income housing pursuant to bond issuance
programs of 9 state and local housing authorities.
Consolidation of Servicing. From time to time, the Company replaces
disparate primary servicers with respect to loans in the master servicing
portfolio and becomes the primary servicer of such loans. This increases
efficiency for the Company's master servicing customers.
Subservicing. The Company contracts to perform loan administration
functions for various investors who own the servicing rights.
Direct Originations. The Company also originated in fiscal 1994 a
relatively small volume of single-family mortgage loans through telephone and
direct mail solicitation of existing homeowners in the mortgage servicing
portfolio through the "central funding unit" of its loan production system.
From these "flow" sources during fiscal 1994 the Company acquired
servicing rights to mortgage loans having an unpaid principal amount of $12.2
billion including $1.2 billion of servicing rights acquired by Lomas Mortgage
Partnership, which is owned one-third by Lomas Mortgage and the portfolio of
which is serviced by Lomas Mortgage. The Company's investment in the
partnership was approximately $5.4 million at June 30, 1994.
Bulk Purchases
When economically attractive and when capital is available, the Company
makes bulk purchases of mortgage servicing rights from financial
institutions. During the fiscal year ended June 30, 1994, the Company
acquired servicing rights to approximately $1.5 billion unpaid principal
amount of mortgage loans through bulk purchases.
The following table sets forth additions to and reductions from the
Company's mortgage servicing portfolio for the three years ended June 30,
1994 (in millions):
Years Ended June 30
--------------------------------
1994 1993 1992
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Portfolio balance at beginning
of period $ 32,677 $29,339 $26,943
Additions and reductions during period
Servicing rights acquired through:
Flow production 12,268 10,214 6,326
Bulk purchases 1,463 2,960 2,011
Amortizations, satisfactions and
foreclosures (10,906) (9,335) (5,674)
Sales and other servicing
releases (1,512) (501) (267)
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Portfolio balance at end
of period $ 33,990 $32,677 $29,339
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For the year ended June 30, 1994, the Company relied primarily on flow
production, which aggregated $12.2 billion in unpaid principal amount, to
sustain and increase the size of its mortgage servicing portfolio and to
replace amortizations, satisfactions, foreclosures and other servicing
releases which have occurred primarily as a result of low prevailing interest
rates during this period. As a result of acquisitions of servicing rights
during fiscal 1994 totaling $13.7 billion in unpaid principal amount, the
Company's primary servicing portfolio, net of runoff, increased from $32.7
billion at June 30, 1993 to $34.0 billion at June 30, 1994.
In fiscal 1993 and under the marketing name "Lomega," the Company
commenced a program for direct wholesale purchases of mortgage loans from
retail originators. Under this program the Company purchases conforming loans
from retail originators for packaging and resale to third party investors.
Retail originators from whom the Company purchases loans are required to meet
certain financial responsibility and underwriting criteria. The direct
wholesale purchase of loans from retail originators entails additional market
risk in connection with predicting the rate of closings of loan commitments
in the mortgage pipeline and obtaining forward purchase commitments for the
number of loans that are expected to close. The Company also added a central
funding unit to its loan production system in fiscal 1993.
The Company believes the variety of sources comprising the gathering
system and the Company's flexibility in allocating its production activities
among these sources to respond to market opportunities will provide
sufficient portfolio production to sustain and increase the portfolio in high
and low interest rate environments. No assurance can be given, however, that
this will be the case.
The prices paid for bulk purchases and servicing acquired through flow
production are based on the present value of the estimated future servicing
revenues, net of the expected servicing expenses, for each acquisition. Major
factors impacting the value of servicing rights include contractual service
fee rates, projected mortgage prepayment rates, projected delinquency and
foreclosure rates, investor servicing requirements, projected escrow, agency
and fiduciary funds to be held in connection with such servicing and
projected benefit to be realized from such funds, geographic distribution and
whether the loans are conforming or non-conforming conventional loans or
loans insured or guaranteed by the Federal Housing Administration ("FHA") or
Veterans Administration ("VA"), respectively. The Company bases its
assumptions with respect to these factors on historical and expected
experience rather than on conditions prevailing at any one point in time. The
Company employs computer simulations to project and value cash flow streams
after management has evaluated portfolio risks for application in the
simulations. Management determines an acceptable discount rate to apply to
the projected cash flow after considering both portfolio risk and market
conditions in evaluating potential acquisitions of servicing.
Warehousing and Sale of Loans
Under some of the Company's programs for purchasing servicing rights,
the Company also purchases whole loans from the originators and ultimately
packages such loans in the form of mortgage-backed securities. The primary
purpose of the Company's purchases of whole loans is to retain the servicing
rights on such loans after their sale to investors. The Company's current
policy is to limit its purchases of whole loans to loans which are the
subject of binding commitments by a third party to purchase such loans.
However, through Lomega, the Company commenced a program for direct wholesale
purchases of mortgage loans from retail investors since fiscal 1993. In the
period between the purchase of mortgage loans by the Company from originators
and their sale to investors as mortgage-backed securities, a period of
generally no more than three months, the Company warehouses such loans under
arrangements with commercial banks and investment banks. Under these
arrangements such banks advance funds against loans which have binding
purchase commitments from governmental agencies or private investors. During
this period the Company receives as net income the difference between the
interest received on mortgage loans held prior to sale and the interest paid
by the Company under the lines of credit or repurchase agreements provided by
such banks. Because the Company currently has binding commitments from third
parties to purchase loans held pending sale (at a predetermined price) during
the period of time that the Company holds such loans, the Company is
generally not subjected to any significant principal or interest rate risk.
The Company packages substantially all of its first mortgage loans that
are insured by the FHA or guaranteed by the VA into pools of loans and sells
these pools in the form of modified pass-through mortgage-backed securities
guaranteed by the Government National Mortgage Association ("GNMA") to
dealers in mortgage-backed securities. The Company generally pools
conventional conforming loans and exchanges such pools for securities issued
and guaranteed by the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") which are then sold to such
dealers. In connection with such exchanges, the Company pays fees for agency
guarantees of principal and interest payments to the guaranteeing agency. In
addition, conventional non-conforming loans are sold to private institutional
investors in the form of private pass-through securities. Loans are sold
pursuant to commitments negotiated with FNMA, FHLMC, GNMA and institutional
investors to purchase loans meeting defined criteria. The agreements
generally do not require the Company to deliver any specific amount of
mortgage loans. The Company expects to enter into new commitments with these
agencies and other investors in the ordinary course of business. The Company
generally retains the servicing rights (including master servicing rights) on
the mortgages underlying the mortgage-backed securities. Exchanges of loans
into agency securities and sales of loans are generally made without recourse
to the Company in the event of default by the borrower subject, in the case
of VA loans used to form GNMA pools, to limitations on the VA's loan
guarantees.
As of June 30, 1994, the Company had an aggregate of $257.3 million in
unpaid principal amount of mortgage loans pledged to secure warehouse debt
and repurchase agreements. The Company's commitments to purchase and
originate loans totaled $564.8 million of which approximately 79 percent, or
$444.1 million, had been committed for sale to financially responsible third
parties at the Company's cost. The remaining 21 percent, or $120.7 million,
of the Company's commitments to purchase and originate loans and $257 million
of loans held for sale were hedged by forward contracts to sell mortgage-
backed securities of approximately $258.1 million, which represented the
Company's best estimate of its market risk on such loans.
If secondary market interest rates decline after the Company commits to
an interest rate for a loan, the loan may not close and the Company may incur
a loss from the cost of covering its obligations under any related forward
commitments. If secondary market interest rates increase after the Company
commits to an interest rate for a loan and the Company has not obtained a
forward commitment, the Company may incur a loss when the loan is
subsequently sold.
The Servicing Portfolio
The following table sets forth certain information regarding the
Company's mortgage servicing portfolio for the periods indicated (dollars in
millions, except average loan size):
As of June 30
--------------------------------
1994 1993 1992
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Composition of servicing portfolio:
FHA-insured mortgage loans $ 6,256 $ 7,059 $ 6,899
VA-guaranteed mortgage loans 3,451 3,998 4,502
Conventional mortgage loans 24,283 21,620 17,938
------- ------- -------
Total servicing portfolio $33,990 $32,677 $29,339
Number of loans 565,531 605,655 600,205
Average loan size $60,103 $53,953 $48,881
At June 30, 1994 the portfolio included an aggregate of $25.6 billion
unpaid principal amount of loans securing payment of mortgage-backed
securities. Of the total, $8.0 billion unpaid principal amount consisted of
loans included in pools of GNMA securities, $9.6 billion unpaid principal
amount consisted of loans included in securities supported by conventional
mortgages and backed by either FNMA or FHLMC, and $8.0 billion consisted of
conventional loans securing payment of other collateralized mortgage
obligations.
The Company's mortgage servicing portfolio includes mortgage loans
secured by properties located in all 50 states and the District of Columbia,
with the greatest loan concentrations (in terms of unpaid principal amount)
at June 30, 1994 in the states of California, Texas, Florida, New Jersey,
Massachusetts, Arizona, Illinois and Washington, which together accounted for
approximately 76.8 percent of the aggregate unpaid principal amount of the
portfolio. The Company's average loan size increased from $48,881 at June 30,
1992 to $60,103 at June 30, 1994 and the percentage of its portfolio
comprised of VA-guaranteed loans declined from 15.3 percent to 10.2 percent
of the unpaid principal balance of the portfolio during the same period.
<PAGE>
The following table shows the geographic distribution of the mortgages
underlying the mortgage servicing portfolio at June 30, 1994 (dollars in
millions):
Geographic Distribution of Mortgage Servicing Portfolio
Unpaid
Number Principal
of Loans Balance
-------- ---------
Alabama 3,829 $ 124
Alaska 453 33
Arizona 19,945 802
Arkansas 2,005 56
California 148,945 16,455
Colorado 11,033 507
Connecticut 5,875 332
Delaware 1,131 41
District of Columbia 996 74
Florida 28,588 1,248
Georgia 10,912 426
Hawaii 1,515 176
Idaho 3,033 81
Illinois 15,986 661
Indiana 9,385 236
Iowa 3,909 88
Kansas 2,128 72
Kentucky 7,791 213
Louisiana 5,871 134
Maine 1,400 95
Maryland 7,874 526
Massachusetts 12,363 869
Michigan 10,445 159
Minnesota 9,742 334
Mississippi 2,070 47
Missouri 4,086 130
Montana 1,424 46
Nebraska 902 25
Nevada 4,237 297
New Hampshire 1,343 99
New Jersey 11,861 964
New Mexico 3,846 144
New York 6,668 492
North Carolina 4,009 161
North Dakota 599 14
Ohio 21,984 417
Oklahoma 7,934 207
Oregon 3,644 235
Pennsylvania 15,954 510
Rhode Island 1,269 81
South Carolina 2,332 58
South Dakota 260 7
Tennessee 10,129 260
Texas 104,867 4,462
Utah 6,290 222
Vermont 128 8
Virginia 9,159 556
Washington 11,261 642
West Virginia 1,259 28
Wisconsin 1,719 66
Wyoming 689 23
Other 454 47
565,531 $ 33,990
<PAGE>
The weighted average interest rate for the servicing portfolio was 8.3
percent at June 30, 1994. The following table sets forth information
regarding the interest rate breakdown of the mortgage servicing portfolio at
June 30, 1994:
Breakdown by Interest Rate of
Mortgage Servicing Portfolio
(percentage of unpaid principal balance)
Percentage
of Total
7.99% 11.00% Unpaid
and 8.00- 9.00- 10.00- and Principal
lower 8.99% 9.99% 10.99% higher Balance
----- ----- ----- ------ ------ ---------
FHA-insured mortgage
loans 4.73 6.02 3.91 2.24 1.50 18.40
VA-guaranteed
mortgage loans 2.01 3.95 2.59 .77 .84 10.16
Conventional
mortgage loans 38.62 11.95 11.73 7.01 2.13 71.44
Total 45.36 21.92 18.23 10.02 4.47 100.00
At June 30, 1994 approximately $8.4 billion or 25 percent of the primary
servicing portfolio consisted of adjustable rate mortgage loans.
The weighted average age of the servicing portfolio was 4.8 years at
June 30, 1994. The following table sets forth information regarding the aging
of the mortgage servicing portfolio at June 30, 1994:
Breakdown by Average Age of
Mortgage Servicing Portfolio
Percentage
Unpaid of Total
Percentage Principal Unpaid
Number of Number Amount Principal
Average Age of loans of Loans (in millions) Balance
- ----------- -------- ---------- ------------- ----------
1-5 years 189,533 33.5 $21,978 64.7
6-10 years 111,416 19.7 7,049 20.7
11-15 years 40,987 7.3 1,707 5.0
More than 15 years 223,595 39.5 3,256 9.6
Total 565,531 100.0 $33,990 100.0
The Company's operations are affected by changes in the level of
homebuilding activity and mortgage-backed security issuance activity in the
marketplace. In addition, operations are affected by declines in interest
rates, which increase mortgage prepayments and reduce the yield on the
related investment in such mortgage servicing rights. As a result of
portfolio production aggregating $13.7 billion, the Company's servicing
portfolio increased from $32.7 billion at June 30, 1993 to $34.0 billion at
June 30, 1994 despite the high rate of portfolio runoff during the period.
Portfolio runoff rates during fiscal 1994 and 1993 were 33.0 percent and 31.3
percent, respectively. Annualized portfolio runoff rates during the quarter
and month of June 30, 1994 were 20.7 percent and 18.6 percent, respectively.
Foreclosures and REO
The Company collects servicing fees from investors on a cash basis by
deducting the fee from mortgage payments as they are received. When a loan is
delinquent, and in the case of foreclosures, such income is not collected. In
some cases the Company is required to make guaranteed principal and interest
payments on certain mortgage-backed securities regardless of actual
collection from the underlying mortgage loans. In certain instances, the
Company will buy foreclosed loans out of a pool and either attempt to have
them reinstated or foreclose upon the secured properties. A portion of these
advances on GNMA loans are not recoverable. Mortgage guarantees and insurance
provided by the VA and the FHA, respectively, typically cover most of the
foreclosure expenses, interest and principal advances of the servicer. FHA
insurance covers 100 percent of the principal balance of any insured loan but
generally does not cover approximately two months of interest advances, the
interest differential between interest paid by the FHA on advances of
principal and interest and the rate at which the Company funds such advances,
and approximately one-third of the legal fees associated with the
foreclosure. Prior to 1985 the Company generally recovered 100 percent of the
loan balance plus accrued interest at any foreclosure of a VA-guaranteed
loan. Beginning in 1985, the VA, in certain cases known as VA No-Specified
Bids commonly called "VA no-bids," has elected to remit the maximum
liability under its guaranty rather than to purchase the foreclosed property.
In the case of VA no-bids, a VA loan guaranty typically covers only the
lesser of 25 to 50 percent of the unpaid principal balance or up to $46,000
for loans originated after February 1, 1990. Prior to 1989 the maximum amount
recoverable for VA no-bids was $27,500 regardless of the loan balance.
Accordingly, the Company is subject to increased foreclosure risk with
respect to the VA-guaranteed loans in its portfolio, which comprised
approximately 10.2 percent or $3.5 billion in unpaid principal amount at
June 30, 1994. The Company's losses in connection with VA no-bids (primarily
in connection with losses from unreimbursed interest advances, legal fees and
the liquidation of REO) were $3.6 million in fiscal 1994 and were $3.4
million for the year ended June 30, 1993. The Company's losses with respect
to VA-guaranteed loans other than pursuant to VA no-bids (primarily in
connection with unreimbursed interest advances and legal fees) were
$1.1 million in fiscal 1994 and $1.8 million for the year ended June 30,
1993. In addition, the Company's losses in connection with FHA-insured loans
(primarily in connection with unreimbursed interest advances and legal fees)
were $3.3 million in fiscal 1994 and were $4.1 million for the year ended
June 30, 1993. Substantially all of the remaining portfolio was serviced on
a non-recourse basis without risk of loss to the Company.
Property acquired through the foreclosure process, known as real estate
owned ("REO"), is frequently located in an area where real estate values have
declined significantly due to economic conditions. The Company then must
liquidate the property at an amount which, in most cases, results in a loss.
Losses occur primarily when foreclosure sale proceeds of the property
underlying a defaulted mortgage loan are less than the then outstanding
principal balance of such mortgage loan (net of the amount remitted by the
VA) and the costs of holding and disposing of such underlying property. This
loss, in the case of VA no-bids, is absorbed by the Company. The Company
believes its reserves are adequate to cover losses associated with all
anticipated VA no-bid cases.
In the case of loans backed by FNMA or FHLMC, the servicer has the
option to purchase insurance pursuant to which foreclosure losses are the
responsibility of FNMA or FHLMC, and not of the servicer. As is customary in
the industry, substantially all of the FNMA and FHLMC servicing in the
Company's portfolio is covered by such insurance. Additionally, substantially
all foreclosure risk on portfolios owned by private investors is borne by the
investors and not by the Company.
The following chart sets forth certain delinquency rates (expressed as
a percentage of the number of loans in the primary servicing portfolio) as at
each June 30 in the five years ended June 30, 1994:
<PAGE>
<TABLE>
Loan Delinquency Rates
of the Mortgage Servicing Portfolio
<CAPTION>
Year/Month 30-day 60-day 90-day 120+-day Net(1) Foreclosure Bankruptcies Gross(2)
- ---------- ------ ------ ------ -------- ------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 June 4.38 1.07 0.37 0.56 6.38 0.70 0.67 7.75
1991 June 5.34 1.06 0.32 0.28 7.00 0.72 0.68 8.40
1992 June 4.17 0.77 0.26 0.24 5.44 0.80 0.69 6.93
1993 June 3.72 0.86 0.33 0.29 5.20 0.79 0.83 6.82
1994 June 3.43 0.85 0.29 0.36 4.93 0.88 0.83 6.64
<FN>
(1) Includes all delinquencies and forbearances; excludes foreclosures and bankruptcies.
(2) Includes all delinquencies, forbearances, foreclosures and bankruptcies.
/TABLE
<PAGE>
Other Services
Insurance Agency Services. The Company provides brokerage services for
a variety of insurance products related to the Company's business and the
needs of the Company's homeowners. The products include temporary hazard
insurance, permanent fire, casualty and extended homeowner coverages and
mortgage life insurance, accidental death, disability and hospital indemnity
coverages. The Company sells insurance products as agent and does not retain
any underwriting risk.
Field Services. The Company monitors the condition of properties,
assures property preservation and interviews delinquent mortgagors. The
Company's field services unit, in addition to its work for the Company, also
serves approximately 35 leading mortgage servicers. The field services unit
currently inspects approximately 52,000 properties a month for outside
customers and 10,000 properties a month for the Company. Field services
employs approximately 132 field inspectors located throughout the United
States.
Discontinued Operations
Information Systems. Through LIS the Company provides information
management services and products to the mortgage banking industry. Its
products include software packages for mortgage loan servicing, loan
production, secondary marketing and master servicing, which it markets on
both a service bureau and licensing basis. These systems form the Excelis
line of products. In 1991 the Company introduced its Excelis mortgage loan
servicing system ("Excelis-MLS"). Excelis-MLS is a software package based on
an IBM-compatible system that automates a large portion of the previously
manual servicing functions and increases employee productivity. The Company's
servicing portfolio was converted to Excelis-MLS in June 1991 and conversion
of the Company's external service bureau customers' servicing portfolios
began in April 1991 and completed in fiscal 1993. The Company also provides
general accounting and other data processing, telecommunications and
information services and other software products for internal use by the
Company and its affiliates and for external customers. While Lomas Mortgage
is LIS' largest customer, approximately 46 percent of LIS' revenue was
derived outside the Company and its affiliates during the fiscal year ended
June 30, 1994.
At June 30, 1994 the Company's service bureau processed, for the Company
and its external customers, a combined total of approximately 1.3 million
mortgages and handled approximately one million transactions per day. The
Company's system processes payments collected from mortgagors, posts funds to
appropriate accounts, processes disbursements to the investors who own the
mortgages or mortgage-backed securities and monitors escrow accounts,
foreclosures and other items. The Company also maintains an extensive
telecommunications network to service its customers nationwide, and provides
voice communication systems and services for the Company and certain other
parties. LIS added, in fiscal 1993, outsourcing and computer utility services
to the service products it provides. The Company provided data processing
services to approximately 62 commercial banks, savings and loan associations
and mortgage banking concerns at June 30, 1994.
The Company recorded a provision at June 30, 1994 of $33.5 million
related to the sale proposed of the majority of the LIS assets. For more
information, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Information Systems."
Short Term Lending. The Company's short term construction, acquisition
and development lending portfolio and operations were transferred to its
wholly-owned subsidiary, ST Lending, Inc. ("STL"), a Delaware corporation
formed upon consummation of LFC's reorganization on January 31, 1992. The
Company discontinued its short term lending operations as of that date. Lomas
Management, Inc. ("LMI"), another wholly-owned subsidiary of the Company,
manages the assets of STL pursuant to a management agreement.
Over the past several years, STL has experienced significant defaults on
loans in its short term lending portfolio due to the continuing weakness in
real estate markets. Continued absence of liquidity in capital and credit
markets negatively impacts all sellers of real estate and could cause STL to
make additional provisions for losses in the future. During the fiscal year
ended June 30, 1994, STL made $10.1 million of provision for losses in the
short term lending portfolio, which resulted in a total reserve balance of
$14.7 million, or 13 percent, of the short term lending portfolio at June 30,
1994.
Substantially no new commercial loans and only a limited number of
residential single-family construction loans have been originated since
September 1989 and it is not contemplated that any new loans of either type
will be originated in the foreseeable future. New single-family construction
("SFC") commitments and loans have been made principally to retire
outstanding acquisition and development ("A&D") loans as construction of
homes commences on developed lots securing payment of such A&D loans.
STL is expected to close the sale of 12 of its properties on or about
September 30, 1994 for approximately $32 million. For more information, see
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Discontinued Operations."
The Company has also discontinued the operations of three small real
estate subsidiaries, LLG Lands, Inc., Vistamar, Inc. and Lomas Properties,
Inc., with combined net assets of $13.5 million at June 30, 1994.
Regulation
The Company is subject to the rules and regulations of, and examinations
by, FNMA, FHLMC, VA, GNMA and state regulatory authorities with respect to
originating, processing, underwriting, selling, securitizing and servicing
residential mortgage loans. In addition, there are other federal and state
statutes and regulations affecting such activities. These rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspection and appraisals of properties, regulate payment
features and, in some cases, fix maximum interest rates, fees and loan
amounts. The Company is required to submit annual audited financial
statements to investors, and GNMA requires the maintenance of specified net
worth levels. The Company's affairs are also subject to examination by the
Federal Housing Commissioner at all times to assure compliance with FHA
regulations, policies and procedures. Mortgage origination activities are
subject to the Equal Credit Opportunity Act, Federal Truth-In-Lending Act,
Real Estate Settlement Procedures Act ("RESPA") and the regulations
promulgated thereunder which prohibit discrimination and require the
disclosure of certain information to borrowers concerning credit and
settlement costs. Many of the aforementioned regulatory requirements are
designed to protect the interest of consumers, while others protect the
owners or insurers of mortgage loans. Failure to comply with these
requirements can lead to loss of approved status, termination of servicing
contracts without compensation to the servicer, demands for indemnification
or loan repurchases, class action lawsuits by borrowers and administrative
enforcement actions.
Certain states require that interest be paid to mortgagors on funds
deposited by them in escrow to cover mortgage-related payments such as
property taxes and insurance premiums. In late 1991, legislation was proposed
in the United States House of Representatives which would establish a uniform
interest payment requirement regarding the payment of interest on, and
otherwise regulate, escrow accounts. If this or similar legislation is
enacted in the future, it would reduce the benefit which the Company
currently derives from the use as compensating balances of that portion of
escrow, agency and fiduciary funds that relates to taxes and insurance. Other
proposed federal legislation, if enacted, would impose minimum capital
requirements on FNMA and FHLMC. To the extent this increases these agencies'
costs of operation and a portion of this cost is passed on to the Company,
the Company's results of operations could be adversely impacted.
The Company's information systems services are subject to oversight by
agencies of the federal government to the extent those services are performed
on behalf of federally insured financial institutions.
Competition--General
The business conducted by the Company is competitive. The Company
competes with other mortgage bankers, other providers of information systems
services to the mortgage banking industry, financial institutions and
subsidiaries of industrial corporations. The Company believes that it
competes in obtaining sources of servicing rights on the basis of price and
services provided. Many of the Company's competitors have financial resources
that are substantially greater than those of the Company. The Company
believes that because of the systems and personnel required of a large
servicer, certain economies of scale influence the cost of providing
servicing and that its infrastructure allows it to take advantage of these
economies of scale. In addition, the Company believes that it has a
competitive advantage in that it does not bear the incremental risk and
expense of supporting a large retail origination network.
Employees
At June 30, 1994 the Company had 2,146 full-time employees of which 419
were employed by LIS and 41 were employed by LMI. None of the Company's
employees were represented by any union.
Item 2. PROPERTIES
The Company's principal executive offices are located at 1600 Viceroy
Drive, Dallas, Texas. Its mortgage banking operations, data processing and
short term lending operations are located in nearby buildings in Dallas,
Texas, owned by the Company. The buildings owned by the Company are subject
to a first mortgage note executed in favor of an insurance company. At June
30, 1994 the Company's continuing operations had future minimum rental
commitments for noncancelable leases for office space extending beyond June
30, 1999 totaling $3.9 million.
Item 3. LEGAL PROCEEDINGS
On September 17, 1990 plaintiffs purporting to represent a class of
single-family mortgagors having escrow deposits computed by Lomas Mortgage
within the past ten years filed a class action complaint in the Circuit Court
of Cook County, Illinois. The complaint alleges that Lomas Mortgage is in
breach of mortgage contracts and is assessing excessive and unlawful escrow
deposits against the plaintiffs. In addition, the complaint asks for punitive
damages. On October 4, 1990 this lawsuit was removed to the United States
District Court for the Northern District of Illinois. Similar actions for
damages, fees and other relief were filed in California and Minnesota state
courts and class-action counterclaims have been filed in two pending Illinois
foreclosure actions. The state court actions were removed to federal court
and transferred to the Northern District of Illinois where they are currently
pending before the same judge as the original action. The state court
counterclaims are stayed.
On August 26, 1994, the United States District Court for the Northern
District of Illinois preliminarily approved a settlement that, if finally
approved, will result in the dismissal, with prejudice, of all claims that
were or could have been brought by the class. Pursuant to the terms of the
settlement, Lomas Mortgage has agreed to follow certain escrow servicing
procedures that result in lower escrow balances for certain of its mortgagors
and has already refunded the surplus escrow balance to its mortgagors that
resulted from the implementation of this procedure. Lomas Mortgage has also
agreed to implement certain special servicing procedures for its mortgagors
whose mortgages are written on older conventional mortgage forms. In addition
to these escrow servicing procedures, Lomas Mortgage has agreed to provide,
once the settlement is finally approved and the case dismissed, a one-time
rebate to its eligible present and former mortgagors. The total rebate is
currently estimated to be less than six-hundred thousand dollars ($600,000).
Finally, Lomas Mortgage has agreed to reimburse class counsel for their
reasonable attorneys' fees and costs. Lomas Mortgage has recorded a reserve
at June 30, 1994 for the estimated rebate and attorneys' fees.
A hearing to determine whether the Court should finally approve the
settlement is currently scheduled for November 21, 1994.
The Company is also involved in a number of other lawsuits considered to
be in the normal course of business. In management's opinion, the resolution
of these other disputes will not have a material adverse effect on the
financial position of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The New York Stock Exchange trading symbol for LFC's common stock is
LFC. The approximate number of holders of record of LFC's common stock at
June 30, 1994 was 2,800. In addition, depository companies held stock for
approximately 13,300 beneficial owners. There were approximately 2,300
holders of LFC's warrants and approximately 400 holders of LFC's 9 percent
Senior Convertible Notes. During the last two fiscal years, LFC has not
declared any dividends and the high and low prices per share have been as
follows:
1994 1993 Dividends Declared
------------- -------------- ------------------
High Low High Low 1993 1992
------ ----- ----- ----- ---- ----
First quarter 10-1/2 7-7/8 8-7/8 6-1/2 -- --
Second quarter 10-7/8 7-1/4 8-7/8 6-7/8 -- --
Third quarter 9-1/4 7-1/4 8-3/4 6-3/4 -- --
Fourth quarter 8-1/2 4-5/8 8-1/2 7 -- --
LFC is restricted from paying dividends on its common stock under the
terms of its $140 million 9 percent Senior Convertible Notes, which limits
any dividends to 50 percent of LFC's consolidated net income after January 1,
1992. For information concerning restrictions of Lomas Mortgage's $150
million 9.75 percent notes and $190 million 10.25 percent notes on dividend
payments and restrictions of warehouse and working capital lines of credit
agreements on advances to LFC, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Item 8. Financial Statements and Supplementary Data--
Debt."
Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
All periods presented below have been restated for discontinued
operations. See "Item 8. Financial Statements and Supplementary Data--
Discontinued Operations." Effective December 31, 1991 the Company adopted
fresh start reporting in connection with the Company's reorganization. See
"Item 8. Financial Statements and Supplementary Data--Accounting Policies."
Since January 1, 1992 a vertical black line has been placed to separate pre-
reorganization financial data from post-reorganization financial data since
they are not prepared on a comparable basis.<PAGE>
<TABLE>
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
|
Year Ended June 30 Six Months | Six Months Year Ended June 30
------------------- Ended | Ended --------------------
1994 1993 June 30, 1992 | December 31, 1991 1991 1990
--------- -------- ------------- | ----------------- --------- ---------
(in thousands, except share data)
<S> <C> <C> <C> | <C> <C> <C>
Statement of Operations Data: |
Revenues from continuing |
operations $271,058 $293,354 $132,613 | $129,699 $210,656 $196,996
Income (loss) from continuing |
operations $(108,502) $29,557 $11,558 | $(2,652) $32,194 $(41,302)
Loss from |
discontinued operations $(74,164) $(17,263) $(29,280) | $(20,211) $(151,263) $(654,150)
Extraordinary item -- -- -- | $932,238 -- --
Net income (loss) $(182,666) $12,294 $(17,722) | $909,375 $(119,069) $(695,452)
Earnings (losses) per share: |
Income (loss) from continuing |
operations (5.39) 1.47 .57 | * * *
Net income (loss) (9.07) .61 (.88) | * * *
Average number of shares 20,132 20,117 20,108 | * * *
<FN>
*Not meaningful due to different capital structure.
<CAPTION>
As of June 30 | As of June 30
------------------------------- | --------------------
1994 1993 1992 | 1991 1990
--------- --------- --------- | --------- ---------
(in thousands of dollars)
<S> <C> <C> <C> | <C> <C>
Balance Sheet Data: |
Assets of continuing operations 964,315 1,279,929 1,392,180 | 1,335,395 1,041,544
Purchased future mortgage servicing |
income rights 382,009 436,487 418,617 | 364,633 342,492
First mortgage loans held for sale 257,534 368,266 387,726 | 242,955 92,428
Term debt of continuing operations 523,229 532,198 515,020 | 62,020 92,684
Liabilities subject to Chapter 11 proceedings -- -- -- | 2,010,741 2,019,200
Stockholders' equity (deficit) 141,435 324,079 309,310 | (602,703) (485,009)
Escrow, agency and fiduciary funds 603,163 1,082,591 709,048 | 1,203,250 693,707
<CAPTION>
As of June 30
-------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(dollars in billions, except loan data)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Unpaid principal amount of mortgage loans serviced:
Mortgage servicing $34.0 $32.7 $29.3 $26.9 $23.8
Master servicing $8.4 $12.5 $10.1 $4.6 $6.0
Number of loans:
Mortgage servicing 565,531 605,655 600,205 628,734 602,114
Master servicing 136,609 169,302 120,864 84,680 96,836
Average loan size:
Mortgage servicing $60,103 $53,953 $48,881 $42,853 $39,508
Master servicing $61,816 $74,064 $83,193 $54,264 $62,170
Loans serviced per employee 980 920 886 916 887
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company reported losses from continuing operations in fiscal 1994 of
$108.5 million compared to pretax income of $33.4 million in fiscal 1993 and
income for the combined year ended June 30, 1992 of $10.0 million. The
Company also reported losses from discontinued operations of $74.2 million,
$17.3 million and $49.5 million for fiscal 1994 and 1993 and combined year
ended June 30, 1992, respectively.
Of the $108.5 million loss from continuing operations in Fiscal 1994,
$95.5 million or 88 percent was attributable to non-recurring charges taken
during the year (i) to reduce the carrying value of the Company's investment
in purchased mortgage servicing rights by $80 million and (ii) to cover the
$15.5 million cost of two workforce reductions and related restructurings,
which in aggregate involve the terminations of approximately 400 employees or
20 percent of the Company's workforce. The first of the reductions in force
was accomplished in January 1994 and the second is scheduled for completion
in November 1994. The remaining 12 percent or $12.9 million of the loss from
continuing operations, is attributable primarily to the fact that the
Company's mortgage banking division was plagued throughout the year by
unprecedented rates of portfolio runoff and as a result earned less (before
non-recurring charges) in fiscal 1994 than in the prior year. Of the $74.2
million loss from discontinued operations in fiscal 1994, $51 million or 69
percent derived from special charges (i) a $33.5 million provision related to
the pending sale of the Company's information system, and (ii) a $17.5
million related to the Company's discontinued short term lending operations.
The $23.2 million remainder derived from operating losses incurred in 1994 in
the Company's information systems business which is scheduled to be sold on
or about October 31, 1994.
The results of continuing operations of each of the Company's operating
divisions for the year ended June 30, 1994 and 1993, six months ended June
30, 1992, six months ended December 31, 1991 and combined year ended June 30,
1992 are set forth in the following table (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30 Six Months | Six Months Combined
------------------- Ended | Ended Year Ended
1994 1993 June 30, 1992 | December 31, 1991 June 30, 1992
--------- -------- ------------- | ----------------- -------------
<S> <C> <C> <C> | <C> <C>
Operating income (loss) |
Mortgage banking $ 6,895 $ 40,031 $14,411 | $ 11,530 $ 25,941
Other 2,653 13,207 8,423 | 6,792 15,215
--------- -------- ------ | -------- --------
Operating income 9,548 53,238 22,834 | 18,322 41,156
General and |
administrative (9,327) (7,232) (3,867) | (3,422) (7,289)
Corporate interest income |
(expense) (13,153) (12,637) (6,270) | 9,386 3,116
--------- -------- ------ | -------- --------
Operating income |
(loss) before |
provisions (12,932) 33,369 12,697 | 24,286 36,983
Provisions for |
restructuring (15,570) -- -- | -- --
Provisions for impairment |
of PMSRs (80,000) -- -- | -- --
--------- -------- ------ | -------- --------
Operating income |
(loss) before |
reorganization items |
and federal income |
tax equivalent |
provision (108,502) 33,369 12,697 | 24,286 36,983
Reorganization items--net -- -- -- | (26,938) (26,938)
--------- -------- ------ | -------- --------
Operating income |
(loss) before |
federal income tax |
equivalent provision (108,502) 33,369 12,697 | (2,652) 10,045
Federal income tax equivalent |
provision -- 3,812 1,139 | -- 1,139
--------- -------- ------ | -------- --------
Operating income |
(loss) from
continuing
operations $(108,502) $ 29,557 $11,558 | $ (2,652) $ 8,906
========= ======== ====== | ======== ========
Results of Operations--Year Ended June 30, 1994 Compared With Year Ended June 30, 1993
Mortgage Banking. During the years ended June 30, 1994 and 1993 and the combined year ended June 30, 1992, the operating
results of mortgage banking were as follows (in millions):
<CAPTION>
Year Ended June 30 Six Months | Six Months Combined Year
--------------- -------------- Ended | Ended Ended
1994 1993 June 30, 1992 | December 31, 1991 June 30, 1992
--------------- -------------- --------------- | ----------------- --------------
<S> <C> <C> <C> <C> <C> <C> | <C> <C> <C> <C>
Loan administration |
Primary servicing $135.7 $137.4 $ 71.2 | $ 70.8 $142.0
Master servicing 12.1 13.5 4.8 | 4.4 9.2
Expenses (66.3) (65.8) (32.0) | (35.9) (67.9)
Amortization (68.3) $ 13.2 (61.9) $ 23.2 (27.7) $ 16.3 | (24.8) $14.5 (52.5) $ 30.8
------ ------ ------- | ------ ------
Insurance |
Agency 8.9 8.2 4.8 | 3.5 8.3
Mortgage plans 4.7 4.4 2.0 | 2.3 4.3
Expenses (4.9) 8.7 (4.9) 7.7 (2.7) 4.1 | (2.3) 3.5 (5.0) 7.6
------ ------ ------- | ------ ------
Banking (including |
warehousing and |
investment income |
and interest |
expense) |
Revenues 44.8 50.3 20.4 | 22.5 42.9
Expenses (66.7) (21.9) (65.1) (14.8) (33.0) (12.6) | (31.0) (8.5) (64.0) (21.1)
------ ------ ------- | ------ ------
Portfolio Production |
Revenues 47.7 36.0 12.2 | 8.6 20.8
Expenses (28.9) 18.8 (12.7) 23.3 (4.0) 8.2 | (4.3) 4.3 (8.3) 12.5
------ ------ ------- | ------ ------
Field services |
Revenues 13.6 15.1 4.9 | 5.2 10.1
Expenses (13.1) 0.5 (13.8) 1.3 (4.3) 0.6 | (4.2) 1.0 (8.5) 1.6
------ ------ ------- | ------ ------
Fund and asset |
management |
Revenues 8.3 22.8 7.5 | 7.5 15.0
Expenses (2.2) 6.1 (6.0) 16.8 (3.1) 4.4 | (2.5) 5.0 (5.6) 9.4
------ ------ ------- | ------ ------
Other departments |
Revenues 1.8 1.0 1.5 | 1.3 2.8
Expenses (3.2) (1.4) (6.1) (5.1) (3.0) (1.5) | (3.2) (1.9) (6.2) (3.4)
------ ------ ------- | ------ ------
General and |
administrative |
expenses (17.1) (12.4) (5.1) | (6.4) (11.5)
------ ------ ------- | ------ ------
Operating income |
before provisions 6.9 40.0 14.4 | 11.5 25.9
Provisions for |
restructuring (9.1) -- -- | -- --
Provisions for impair- |
ment of PMSRs (80.0) -- -- | -- --
------ ------ ------- | ------ ------
Pretax income |
(loss) from |
continuing |
operations $(82.2) $ 40.0 $ 14.4 | $ 11.5 $ 25.9
====== ====== ======= | ====== ======
</TABLE>
<PAGE>
Loan administration operating income for fiscal 1994, before an $80.0
million provision to reduce the carrying value of the Company's investment
in PMSRs, was $13.2 million, down from $23.2 million in fiscal 1993,
principally because portfolio amortization at $68.3 million in fiscal 1994
before the $80.0 million provision for PMSR impairment was $6.4 million
higher than in fiscal 1993. The Company's portfolio runoff rate on an
annualized basis was 33.0 percent during fiscal 1994 compared to 31.3
percent during fiscal 1993. The runoff rate on an annualized basis for the
month of June 1994 had been reduced to 18.6 percent. The Company's booked
investment in its $34.0 billion primary mortgage servicing portfolio was
$382.0 million at June 30, 1994. The decrease in master servicing revenues
was principally a result of the decline in the master servicing portfolio
to $8.4 billion during fiscal 1994, down from $12.5 billion at June 30,
1993, which was caused by unusually high rates of runoff (particularly of
Capstead Mortgage Corporation ("Capstead") related mortgages) and the
cessation of additions of new Capstead related loans to the Company's
master servicing portfolio.
The Company periodically monitors its servicing portfolio to determine
if adjustments should be made to its amortization schedules or carrying
values of its PMSRs due to changes in interest rates, current prepayment
rates, expected future prepayment rates and certain other factors. The
amortization and impairment analyses are performed for individual mortgage
tranches with similar economic characteristics on an undiscounted basis.
If an individual mortgage tranche's estimated undiscounted net cash flow is
less than the carrying value of the tranche, that tranche is written down
to the projected amount of the undiscounted cash flow. In addition, the
Company amortizes the capitalized PMSRs in proportion to, and over the
period of, the estimated net servicing income. This policy causes a larger
portion of the PMSRs to be amortized in earlier periods. The expected life
of the estimated net servicing income is based on the expected prepayment
rates of the underlying mortgages within the tranches. See "Item 8.
Financial Statements and Supplementary Data--Accounting Policies--Purchased
Future Mortgage Servicing Income Rights."
The following is an analysis of servicing fee income for the three
years ended June 30, 1994 (in thousands).
Year Ended June 30
-----------------------------
1994 1993 1992
--------- -------- --------
Servicing fee income:
Primary:
Directly owned $129,578 $134,241 $141,206
Subservicing for others 6,079 3,238 774
--------- -------- --------
135,657 137,479 141,980
Master servicing portfolio 12,103 13,456 9,207
--------- -------- --------
Total $147,760 $150,935 $151,187
========= ======== ========
<PAGE>
The following table sets forth certain information regarding the
Company's servicing portfolio (dollars in millions):
June 30
----------------
1994 1993
------- -------
Portfolio principal balances:
Primary:
Directly owned $27,126 $27,760
Subservicing for others 6,864 4,917
------- -------
33,990 32,677
Master servicing portfolio 8,445 12,539
------- -------
$42,435 $45,216
======= =======
Portfolio loan count:
Primary:
Directly owned 474,461 530,706
Subservicing for others 91,070 74,949
------- -------
565,531 605,655
Master servicing portfolio 136,609 169,302
------- -------
702,140 774,957
======= =======
Weighted average interest rate 8.3% 8.8%
The banking unit's net expense of $21.9 million for fiscal 1994 was
$7.1 million higher than the $14.8 million net expense reported for fiscal
1993. Paid-in-full ("PIF") interest, which is incurred when loans securing
payment of mortgage-backed securities in the Company's primary servicing
portfolio are prepaid prior to the end of a given month, was $18.7 million
for both fiscal 1994 and 1993. Net interest savings from the Company's
reverse interest rate swaps declined from $17.7 million in fiscal 1993 to
$13.9 million in fiscal 1994. Increased warehouse credit line commitment
fees and service charges resulted in $2.6 million increase in net expense.
Such fees and charges totaled $4.5 million in fiscal 1994 as compared to
$1.6 million in fiscal 1993, principally due to increased warehouse credit
facilities from $317.5 million at June 30, 1993 to $580.0 million at June
30, 1994.
The Company renegotiated its mortgage loan warehouse credit facilities
with various banks to reduce the total bank warehouse lines of credit from
$580 million to $120 million, and the Company's banking fees will be
reduced in future periods. After giving effect to the reduction in the
Company's warehouse related bank lines, currently available credit for
warehousing, including committed lines with investment bankers, aggregates
$320 million, its short term working capital lines total $50 million and
its investment lines aggregate $600 million. For more information, see
"Liquidity and Capital Resources" of this section.
Income from portfolio production for fiscal 1994 was $18.8 million,
down from $23.3 million in fiscal 1993. Revenues and expenses were $11.7
million and $16.2 million higher in fiscal 1994 than in 1993, respectively.
The principal reason for the higher revenues and expenses in fiscal 1994
was because of the higher portfolio production in fiscal 1994 than in 1993.
The Company added $12.2 billion principal amount of mortgages through flow
production to its servicing portfolio in fiscal 1994 and net of record
portfolio runoff, increased the unpaid principal balance of its primary
servicing portfolio from $32.7 billion at June 30, 1993. However, during
fourth quarter of fiscal 1994, as a result of higher interest rates,
portfolio production was $1.6 billion as compared to $4.4 billion in March
quarter, $3.5 billion in December quarter and $2.7 billion in September
quarter. The decrease in portfolio production in the fourth quarter of
fiscal 1994 accounted for the decline in operating income in portfolio
production operations in fiscal 1994 as compared to fiscal 1993. Total
portfolio production through flow acquisition was $10.2 billion in fiscal
1993. Portfolio production revenues for fiscal 1994 and 1993 included $24.3
million and $14.3 million, respectively, of gains from sales of first
mortgage loans and related servicing income rights.
Due to termination of the management agreement between the Company and
Capstead, Capstead became self-administered at September 30, 1993. The fund
and asset management unit received $4.8 million in fiscal 1994 as a result
of the termination of the management agreement. The Company recorded
Capstead related fee income totaling $6.1 million and $16.8 million in
fiscal 1994 and 1993, respectively.
Other departments include mortgage banking division's real estate
production, real estate investment banking, property exchange and quality
management operations. Operating losses for fiscal 1994 were $1.4 million
compared to $5.1 million in fiscal 1993. During fiscal 1994 image
processing operations, which were included in the quality management unit
until June 30, 1993, were separated from the mortgage banking operations
and became a wholly-owned subsidiary of LFC. Operating losses of the image
processing operations were $2.4 million in fiscal 1993. Image processing
loss during fiscal 1994 totaling $4.9 million was included in LFC's other
income.
The mortgage banking division's general and administrative costs
increased during fiscal 1994 principally as a result of increased legal
expenses, other external professional fees and corporate absorbed costs
relating to unallocated office space. In fiscal 1993 these costs were
charged to its affiliates.
The Company established provisions of $80.0 million in fiscal 1994 for
impairment in the carrying value of its PMSRs in response to unprecedented
level of mortgage prepayments in such periods. In addition, the mortgage
banking division also established in fiscal 1994 provisions to cover the
cost of the reduction-in-force that occurred in January 1994 and reduction-
in-force and restructuring that was approved in June 1994.
Interest Rate Fluctuations and Market Factors
Lower long term interest rates normally increase new mortgage loan
production volume, which in turn increases fee income and the net interest
spread as a result of the higher average volume of mortgages held for sale.
Lower long term rates also increase prepayment speeds of mortgages on which
PMSRs are currently held, which lowers yields realized on the Company's
investment in PMSRs. Increased prepayment speeds also accelerate PIF
interest expense owed to certain investors. PIF interest is the partial
monthly interest in the month of payoff that is not payable by the
mortgagor, but is receivable by the mortgage security holder.
Higher long term interest rates normally decrease the general volume
of new mortgage originations, decreasing the volume of mortgages held for
sale. These conditions result in reduced fee income and reduced net
interest income. However, the Company's average net yield as a percentage
of the balance held may increase if short term rates do not change by a
corresponding degree. Higher long term rates also decrease the prepayment
speed of mortgages on which PMSRs are currently held, which in turn would
increase the yield on the Company's investment in PMSRs. Decreased
prepayment speeds will also decrease PIF interest expense due to loans
which payoff.
The value of the Company's loan servicing portfolio may be adversely
affected if mortgage interest rates decline and loan prepayments increase.
Period of accelerated prepayments may result in future declines of income
generated from the Company's loan servicing portfolio. Conversely, if
mortgage interest rates increase, the value of the Company's loan servicing
portfolio may be positively affected.
Lower short term interest rates increase the Company's net interest
spread on mortgages held for sale and higher short term interest rates
decrease the net yield on mortgages held for sale unless there is a
corresponding increase in long term interest rates.
Other Income. Other income of the Company was $2.7 million and $13.2
million in fiscal 1994 and 1993, respectively. Other income for fiscal 1994
included $2.1 million of gains on sale of a promissory note, which had been
received by the Company in connection with the sale of its life insurance
operations and sale of an option to purchase 500,000 shares of Capstead
common stock. Amendments to certain contractual provisions related to the
Company's 1991 sale of ELLCO Leasing Corporation added $3.9 million in
other income in fiscal 1994. Other income for fiscal 1994 also included
$4.9 million loss from the Company's image processing operations.
Other income during the year ended June 30, 1993 included a $2.2
million of gain on sale of securities, amendments to the Company's
relationship with Capstead also contributed $3.0 million in other income.
In addition, other income included $4.9 million of investment income and
$3.1 million derived from other sources.
Reduction in Force and Restructuring. During the second quarter of
fiscal 1994, the Company announced a plan to restructure its operations
with a view to decreasing expenses and enhancing productivity. Under the
plan, the Company's workforce was reduced by approximately 10 percent or
approximately 200 employees. In connection with the plan, the Company's
continuing operations recorded a charge of $5.7 million of which $5.1
million was recorded by the mortgage banking division. Management projected
that this plan would reduce the future operating costs by approximately
$8.0 million.
Higher interest rates since February 1994 has resulted in the
cessation of the mortgage refinancing boom and decline in mortgage
servicing portfolio runoff rates. As a result, the Company's mortgage
production activity and revenues also have precipitously declined. To
offset the significant declines in production-related revenues, to reduce
its servicing-related costs and to move the Company toward a single-company
operation, the Company initiated another restructuring plan in June 1994.
Under the plan, the Company intends to reduce its workforce by another 10
percent or approximately 200 employees through terminations or a voluntary
early retirement program. The planned reduction in force will be completed
by December 1, 1994. In connection with the plan, the Company's continuing
operations provided a reserve of $10.0 million effective June 30, 1994 (of
which $4.0 million was recorded by the mortgage banking division). Of the
$10.0 million, $2.9 million represents the benefits to be paid on
terminations and approximately $1.3 million is the estimated pension plan
curtailment loss related to voluntarily early retiring employees. Employees
to be terminated include employees in mortgage production and servicing-
related areas and in corporate general and administrative areas. The
remaining $5.8 million reserves were provided to cover planned termination
of certain lease agreements and writedown of certain fixed assets. The
projected annualized cost savings is approximately $10 million. These
savings will derive from a number of sources including approximately $6.6
million from reduction in force and early retirement and approximately
$2.6 million from renegotiation of the Company's warehouse agreements with
various banks.
Results of Operations--Year Ended June 30, 1993 Compared With Combined Year
Ended June 30, 1992
Mortgage Banking. Loan administration contributed operating profit of
$23.2 million in fiscal 1993 compared to $30.8 million for the combined
year ended June 30, 1992. The primary reason for the decrease was an
increase in amortization of the Company's purchased mortgage servicing
rights ("PMSRs"). The amortization increased from $52.5 million for the
combined year ended June 30, 1992 to $61.9 million for the year ended
June 30, 1993. The annual rate at which loans in Lomas Mortgage's primary
servicing portfolio were retired was 31.3 percent in fiscal 1993 compared
to 19.8 percent in fiscal 1992. The Company added $13.2 billion principal
amount of mortgages to its servicing portfolio in fiscal 1993 and, net of
record portfolio runoff, increased the unpaid principal balance of its
primary servicing portfolio by 11.6 percent from $29.3 billion at June 30,
1992 to $32.7 billion at June 30, 1993.
Banking, which includes warehousing and investment income and interest
expense, produced an operating loss of $14.8 million in fiscal 1993
compared to a loss of $21.1 million for the combined year ended June 30,
1992. The $6.3 million net reduction in interest expense in fiscal 1993
resulted primarily from the increased utilization of warehouse credit
facilities and the positive impact of the Company's reverse interest rate
swap program. The Company's paid-in-full ("PIF") interest expense, which
is related to prepayments of loans securing mortgage-backed securities in
the Company's primary mortgage servicing portfolio, totaled $18.7 million
in fiscal 1993 which was $9.6 million higher than in the prior year. The
Company reduced its net interest expense in 1993 by a total of
approximately $17.7 million from its reverse interest rate swap program
during fiscal 1993 and also generated approximately $11.9 million of
deferred income.
The Company's portfolio and mortgage production units contributed net
operating income of $23.3 million in fiscal 1993, up from the $12.5 million
generated in the combined year ended June 30, 1992. The Company expanded
its loan production system in fiscal 1993 with the additions of: (i) Lomega
which, since its operations commenced in November 1992, established in
fiscal 1993 correspondent relationships with over 100 mortgage originators;
(ii) major and continuing relationships with certain mortgage brokers and
other financial institutions; and (iii) a central funding unit through
which the Company expected to increase its direct loan originations in the
future.
Fund and asset management recorded operating income of $16.8 million
in fiscal 1993 compared to $9.4 million in the combined year ended June 30,
1992. This was a result of the amendments to the contractual relationship
between the Company and Capstead and the related acceleration of payments
to the Company by Capstead. Capstead became entirely self-managed
effective September 30, 1993 and the management agreement terminated on
September 30, 1993. See "Item 8. Financial Statements and Supplementary
Data--Transactions with Affiliates."
Other Income. Other income during the year ended June 30, 1993
totaled $13.2 million, which included $2.2 million of gains on the sale of
securities, $7.9 million of investment income and $3.1 million derived from
other sources. This compares to other income for the combined year ended
June 30, 1992 of $15.2 million. Other income for the combined year ended
June 30, 1992 included $5.8 million of gains on sale of securities and
investment income of $9.4 million.
Corporate Interest Income (Expense). At the corporate level during
fiscal 1993, the Company incurred net interest expense of $12.6 million,
which compares to net interest income of $3.1 million for the combined year
ended June 30, 1992. During the combined year ended June 30, 1992,
corporate interest was impacted by: (a) accrual of interest expense on
LFC's senior convertible notes did not commence until November 1, 1991 and
(b) the Company held and received interest payments aggregating $11.6
million on approximately $300 million principal amount of intercompany
indebtedness of Lomas Mortgage. The intercompany debt was extinguished
when LFC's plan of reorganization was consummated in January 1992 and,
therefore, did not generate comparable corporate income during fiscal 1993.
The $12.6 million of corporate interest expense in fiscal 1993 related to
the outstanding senior convertible notes.
Discontinued Operations
Discontinued operations include the Company's short term lending
operations and LIS. Short term lending operations include ST Lending, Inc.
("STL"), Lomas Management, Inc. ("LMI"), which manages the assets of STL,
and other real estate operations. For the six months ended December 31,
1991, discontinued operations also included the Company's real estate
development operations as held and operated by Vista Properties, Inc.
("Vista"), which was spun off in connection with LFC's reorganization.
Operating results from discontinued operations for the years ended June 30,
1994 and 1993, six months ended June 30, 1992 and six months ended December
31, 1991 were as follows (in millions):
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30 Six Months | Six Months Combined
------------------ Ended | Ended Year Ended
1994 1993 June 30, 1992 | December 31, 1991 June 30, 1992
-------- -------- ------------- | ----------------- -------------
<S> <C> <C> <C> | <C> <C>
Operating income (loss): |
LIS $(23,164) $(14,293) $ (5,810) | $(12,253) $(18,063)
STL and LMI (16,552) (14,391) (16,524) | 109 (16,415)
Other real estate operations (636) 260 315 | 1,184 1,499
Vista -- -- -- | (9,251) (9,251)
-------- -------- -------- | -------- --------
Loss from operations (40,352) (28,424) (22,019) | (20,211) (42,230)
Provision for short term |
lending operations future losses (17,500) (4,500) (8,400) | -- (8,400)
Operating loss charged to reserves 17,188 14,220 -- | -- --
Provision for future LIS losses (8,500) -- -- | -- --
Estimated loss on disposition of LIS (25,000) -- -- | -- --
Tax benefit applicable to discontinued |
operations -- 1,441 1,139 | -- 1,139
-------- -------- -------- | -------- --------
Loss from discontinued operations $(74,164) $(17,263) $(29,280) | $(20,211) $(49,491)
======== ======== ======== | ======== ========
<PAGE>
Information Systems. The operating results of information systems for the years ended June 30, 1994 and 1993 and combined
year ended June 30, 1992 were as follows (in millions):
<CAPTION>
Year Ended June 30 Six Months | Six Months Combined
------------------ Ended | Ended Year Ended
1994 1993 June 30, 1992 | December 31, 1991 June 30, 1992
-------- -------- ------------- | ----------------- -------------
<S> <C> <C> <C> | <C> <C>
Revenues: |
External $ 17,727 $ 13,933 $ 8,617 | $ 9,520 $ 18,137
Internal 20,752 21,106 10,249 | 9,438 19,687
-------- -------- -------- | -------- --------
38,479 35,039 18,866 | 18,958 37,824
-------- -------- -------- | -------- --------
Cash expenses: |
Personnel and contract labor (20,846) (22,014) (10,980) | (17,569) (28,549)
Equipment/software rent and |
maintenance (18,313) (17,096) (8,736) | (9,431) (18,167)
Voice communications (4,887) (3,812) (2,480) | (2,609) (5,089)
General and administrative (9,442) (10,630) (5,201) | (5,810) (11,011)
-------- -------- -------- | -------- --------
(53,488) (53,552) (27,397) | (35,419) (62,816)
-------- -------- -------- | -------- --------
Net cash requirement (15,009) (18,513) (8,531) | (16,461) (24,992)
Noncash items: |
Depreciation and amortization (9,080) (8,484) (4,330) | (4,442) (8,772)
Enhancement capitalization 1,050 4,298 111 | 131 242
Charges to conversion reserves -- 8,530 7,954 | 8,644 16,598
Provision for losses (125) (124) (1,014) | (125) (1,139)
-------- -------- -------- | -------- --------
Loss from operations $(23,164) $(14,293) $ (5,810) | $(12,253) $(18,063)
======== ======== ======== | ======== ========
</TABLE>
<PAGE>
LIS recorded operating loss of $23.2 million in fiscal 1994 compared
to $14.3 million in fiscal 1993. External revenues increased to $17.7
million in fiscal 1994 from $13.9 million in fiscal 1993 principally as a
result of increased outsourcing businesses since the fourth quarter of
fiscal 1993 which allow external customers to utilize LIS' hardware to run
their own software.
During fiscal 1993 $8.5 million of expenses incurred relating to the
conversion of existing customers to the MLS system were charged to
previously provided conversion reserves and costs incurred relating to
enhancement of the MLS system of $4.3 million were capitalized. For fiscal
1994 capitalized enhancement of the MLS system was $1.1 million. On a net
cash basis, LIS' loss in fiscal 1994 was $15.0 million or $3.5 million less
than the $18.5 million cash loss reported for fiscal 1993.
The Company recorded a provision of $33.5 million at June 30, 1994
related to the planned disposition of the assets of the Company's
information systems business. Of this provision, $25.0 million is to
reduce the net asset of the segment to be sold to their estimated fair
value less estimated selling expenses and to cover the remainder of the
projected operating losses of LIS during the first four months of fiscal
1995, as well as expenses in connection with the disposition. The Company,
on September 19, 1994, entered into a definitive letter of intent pursuant
to which, subject to completion of mutually satisfactory documentation,
substantially all of the assets of LIS are scheduled to be sold on or about
October 31, 1994 in exchange for $2.5 million in cash; and $8.0 million
note due five years after closing, which can be adjusted based on future
financial performance of the information systems unit; and 35 percent of
the purchaser's revenues in excess of $55 million per year generated during
the seven years ending December 31, 2001. The calculation of the present
value of the estimated discounted cash flow considerations from this
transaction is approximately $40 million. The Company will not retain
operational or management control of the successor entity. The Company
believes that during the period involved, it will recover its remaining
$37.5 million of investment. The Company will apply all subsequent
receipts, related to the transaction to reduce its remaining book basis
until the entire $37.5 million is recovered. After full recovery of the
remaining basis, all subsequent revenues will be treated as income as they
are received.
Information systems recorded a loss of $14.3 million for the fiscal
year ended 1993 compared to a loss of $18 million for the combined year
ended June 30, 1992. In fiscal 1993 LIS completed the conversions of its
service bureau customers to its new mortgage loan servicing system,
Excelis-MLS, and reduced its annual cash expenditure rate by approximately
$9 million.
Short Term Lending. In fiscal 1992 and 1993 the Company provided $15.4
million of reserves to cover future operating losses of STL and an
additional $17.5 million during fiscal 1994. For the years ended June 30,
1994 and 1993, operating losses of $17.2 million and $14.2 million,
respectively, were charged to these reserves. Operating losses of the short
term lending operations included $10.1 million, $9.0 million and $18.9
million to provide for foreclosure losses and additional allowance for
uncollectible receivables for the years ended June 30, 1994 and 1993 and
combined year ended June 30, 1992, respectively. Provision for losses for
fiscal 1994 also included a $6.5 million of reserve provided for the loss
to be realized on the sales of property in early fiscal 1995 and for
restructuring. The Company projects future operating losses from its short
term lending operations of approximately $2.1 million through June 30,
1995, which has been provided for as of June 30, 1994.
STL is expected to close a sale of 12 of its properties on or about
September 30, 1994, which would generate cash of approximately $31.1
million. STL currently has on hand approximately $16.3 million in cash and
its public debt has been reduced at this time to $19.0 million, resulting
in a net difference between cash on hand and debt of only $2.6 million.
The sale price of $31.1 million would be reduced with a retention deposit
to secure a limited six months buyback undertaking, which was escrowed at
$4.5 million, resulting in net cash of $26.6 million. This will leave net
cash, after repayment of the public debt, of $24.0 million. This cash
would be available to LFC and the consolidated operations. The assets of
ST Lending adjusted after this transaction would result in a portfolio
balance, net of reserves of $45.1 million, other assets of $10.7 million
and cash of $24.0 million or total assets of $79.8 million.
Liquidity and Capital Resources
The outstanding capital and credit resources of the Company at June
30, 1994 included (in millions):
Short term debt (self-liquidating) of Lomas Mortgage:
--Secured by first mortgage loans pending delivery
to permanent investors $ 239.6
--Secured by reverse repurchase agreements 5.9
--Secured by high quality short term investments 72.1
--Borrowings under working capital line of credit 22.0
--Other short term debt 1.4
--------
341.0
--------
Term debt of Lomas Mortgage:
--Notes due in 1997 150.0
--Notes due in 2002 190.0
--Other 43.3
--------
383.3
--------
Term notes of STL due in 1996 62.0
Convertible notes of LFC due in 2003 139.9
Stockholders' equity 141.4
--------
$1,067.6
========
Short term debt was $341.0 million at June 30, 1994, including $72.1
million principal amount borrowed under investment lines of credit and
$239.6 million principal amount of warehouse debt secured by single-family
mortgage loans pending delivery to permanent investors. Investment lines of
credit were secured by high quality short term investments purchased with
the proceeds of such lines of credit. The short term notes payable under
reverse repurchase agreements are secured by single-family mortgage loans
which, at that date, were committed for sale to institutional investors.
Such short term notes (and therefore the related warehouse indebtedness)
normally are self-liquidating and require no supplemental liquidity support
from LFC or any of its subsidiaries. Commercial paper and bank certificates
of deposit of non-affiliated commercial banks are funded with proceeds
from, and are pledged as collateral for, investment lines of credit. The
commercial paper and bank certificates of deposit have fixed rates of
interest and generally mature within 31 days, at which time the investment
lines of credit are paid down. As a result, all short term indebtedness is
self-liquidating and none of it constitutes any burden on operating cash
flow.
Lomas Mortgage had outstanding at June 30, 1994 interest rate swaps in
the aggregate notional amount of $800 million, all of which were designated
as hedges. For more information on the interest rate swaps, see "Item 8.
Financial Statements and Supplementary Data--Financial Instruments With
Off-Balance Sheet Risks--Reverse Interest Rate Swaps."
Coverage for the term notes payable of Lomas Mortgage is provided by
cash internally generated by that subsidiary. Lomas Mortgage's operations
during fiscal 1994, after paying interest on its short term debt, generated
$111.7 million in cash available for (i) payment of interest on the
subsidiary's $383.3 million term debt, (ii) investment in portfolio
maintenance and growth, (iii) intercompany advances or payment of dividends
to LFC (subject to restricted payment limitations described below), and
(iv) addition to Lomas Mortgage's working capital.
Under the terms of the warehouse agreement, servicing payment
agreement and working capital line of credit that contains the most
restrictive covenants, Lomas Mortgage is restricted from making dividend
payments to LFC if, after giving effect thereto, the aggregate amount of
such payments should exceed the sum of (i) $25 million (less any
intercompany advances); plus (ii) 50 percent of Lomas Mortgage's
accumulated consolidated income before tax since October 1, 1992; or
reduced by 100 percent of consolidated loss before income taxes; plus
(iii) (a) before November 30, 1993, the fair value of the aggregate net
proceeds received by Lomas Mortgage from the issuance or sale after October
1, 1992 of its capital stock (b) after November 30, 1993, the aggregate net
cash proceeds received from the issuance or sale of capital stock and
warrants, options and rights to purchase its capital stock. The minimum
net worth requirement, as defined, under these covenants at June 30, 1994
was $200 million and Lomas Mortgage's net worth as defined at that date
before the amendment described below was $196.8 million which restricted
Lomas Mortgage from declaring dividends or making additional advances to
LFC. Pursuant to the amended debt agreements which were executed in
September 1994, but effective June 30, 1994, the minimum net worth
requirement was reduced to $175 million and, therefore, Lomas Mortgage
could transfer as intercompany advances to LFC approximately $12.0 million.
The total warehouse lines of credit available was reduced to $120 million
per its amendment.
Coverage for interest payments on LFC's $140 million of convertible
notes due 2003 and general corporate expenses have been and in the future
are expected to be provided by (a) LFC's current cash resources, (b)
dividends (if available) and intercompany advances from Lomas Mortgage, (c)
cash dividends and interest income from other investments, (d) the
reinstated liquidity support agreement that is provided by STL, and (e)
periodic liquidations of other assets. During fiscal 1994 the Company
reinstated its liquidity support agreement with STL. Under the reinstated
agreement, STL, during fiscal 1994, advanced $6.2 million to LFC for the
interest payment on LFC's $140 million of convertible notes due 2003. After
the STL public debt is repaid, the liquidity support agreement will be
terminated, and STL can make cash advances or dividends directly to LFC to
the extent of STL liquidity. Also, because of the pending sale of LIS, LFC
will not be required in the future to fund LIS' cash losses which were
approximately $15.0 million in fiscal 1994.
As of June 30, 1994, the Company's failure to meet certain ratio
requirements contained in the covenants of the Company's $140 million
senior convertible note indenture, while not an event of default, limits
the Company's ability to issue additional term debt.
STL's term notes are related to the Company's discontinued short term
lending operations and are without recourse to the general credit and
resources of LFC or its other subsidiaries. The STL notes are secured by
STL's investments in short term real estate loans and related assets and
will be self-liquidating as the collateral is retired or otherwise
liquidated over the next two years. At June 30, 1994 the outstanding
balance of STL's notes was $62.0 million. Subsequent to June 30, 1994 STL
has made additional principal payments of $43.0 million therefore reducing
the balance to $19.0 million. For information on the current status of
STL's liquidity, see "Discontinued Operations--Short term Lending" of this
section.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Lomas Financial Corporation
We have audited the accompanying consolidated balance sheet of Lomas
Financial Corporation and subsidiaries as of June 30, 1994 and 1993, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the two years in the period ended June 30, 1994, six
months ended June 30, 1992 and six months ended December 31, 1991. Our
audits also included the financial statement schedules listed in the index
at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lomas Financial Corporation and subsidiaries at June 30, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each
of the two years in the period ended June 30, 1994, six months ended June
30, 1992 and six months ended December 31, 1991, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
September 22, 1994
<PAGE>
CONSOLIDATED BALANCE SHEET
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands)
June 30
------------------------
1994 1993
----------- ----------
ASSETS
Cash and cash equivalents $ 7,206 $ 34,368
First mortgage loans held for sale 257,534 368,266
Investments 117,452 245,860
Receivables 84,155 85,119
Foreclosed real estate 8,934 18,550
---------- ----------
468,075 717,795
Less allowance for losses (12,262) (10,831)
---------- ----------
455,813 706,964
Purchased future mortgage servicing income
rights--net 382,009 436,487
Fixed assets--net 89,154 69,897
Prepaid expenses and other assets 30,133 32,213
Net assets of discontinued operations 113,258 174,582
---------- ----------
$1,077,573 $1,454,511
========== ==========
Escrow, agency and fiduciary funds--see contra $ 603,163 $1,082,591
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 71,862 $ 82,914
Notes payable 341,047 416,180
Repurchase agreements -- 99,140
Term notes payable 383,311 392,280
Senior convertible notes payable 139,918 139,918
---------- ----------
936,138 1,130,432
---------- ----------
Stockholders' equity:
Common stock--20,100 and 20,097 shares issued
and outstanding 20,100 20,097
Other paid-in capital 309,429 309,410
Retained earnings (deficit) (188,094) (5,428)
---------- ----------
141,435 324,079
---------- ----------
$1,077,573 $1,454,511
========== ==========
Liability for escrow, agency and fiduciary
funds--see contra $ 603,163 $1,082,591
========== ==========
See notes to consolidated financial statements.
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED OPERATIONS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands, except per share amounts)
<CAPTION>
| Predecessor
Reorganized Company | Company
---------------------------------- | -----------------
Year Ended June 30 Six Months | Six Months
------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
--------- -------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Revenues: |
Mortgage servicing $ 146,312 $148,736 $ 74,462 | $ 73,334
Interest 35,609 39,617 16,722 | 13,964
Commissions and fees 28,288 27,616 13,020 | 12,126
Gain on sales 24,479 16,365 3,341 | 1,902
Investment 21,763 28,207 14,439 | 18,491
Management fees--affiliates 2,952 10,925 7,106 | 6,598
Other--affiliates 5,028 13,537 -- | --
Other 6,627 8,351 3,523 | 3,284
--------- -------- -------- | --------
271,058 293,354 132,613 | 129,699
--------- -------- -------- | --------
Expenses: |
Interest 80,431 75,717 37,923 | 20,516
Personnel 74,428 69,333 29,904 | 33,332
Other operating 42,424 40,587 18,859 | 16,906
Depreciation and amortization 155,310 69,021 31,197 | 28,018
Provision for losses 11,397 5,327 2,033 | 6,641
Provisions for restructuring 15,570 -- -- | --
--------- -------- -------- | --------
379,560 259,985 119,916 | 105,413
--------- -------- -------- | --------
Income (loss) from continuing operations |
before reorganization items and federal |
income tax equivalent provision (108,502) 33,369 12,697 | 24,286
--------- -------- -------- | --------
Reorganization items: |
Interest earned on cash accumulated -- -- -- | 9,184
Professional fees and other -- -- -- | (36,122)
--------- -------- -------- | --------
-- -- -- | (26,938)
--------- -------- -------- | --------
Income (loss) from continuing operations |
before federal income tax equivalent |
provision (108,502) 33,369 12,697 | (2,652)
Federal income tax equivalent provision -- 3,812 1,139 | --
--------- -------- -------- | --------
Income (loss) from continuing operations (108,502) 29,557 11,558 | (2,652)
Loss from discontinued operations net of |
federal income tax equivalent provision (74,164) (17,263) (29,280) | (20,211)
--------- -------- -------- | --------
Income (loss) before extraordinary item (182,666) 12,294 (17,722) | (22,863)
Extraordinary gain--discharge of debt -- -- -- | 932,238
--------- -------- -------- | --------
Net income (loss) $(182,666) $ 12,294 $(17,722) | $909,375
========= ======== ======== | ========
Earnings (loss) per share: |
Income (loss) from continuing operations $(5.39) $1.47 $.57 | *
Net income (loss) $(9.07) $.61 $(.88) | *
Average number of shares 20,132 20,117 20,108 | --
<FN>
*Earnings per share for the six months ended December 31, 1991 is neither comparable nor meaningful
since the Company
was recapitalized on December 31, 1991.
See notes to consolidated financial statements.
<PAGE>
<CAPTION>
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
Years Ended June 30, 1994 and 1993
Six Months Ended June 30, 1992 and
Six Months Ended December 31, 1991
(in thousands)
Shares Outstanding Stated Par Other Retained
-------------------- Value Value Paid-in Earnings
Preferred Common Preferred Common Capital (Deficit) Total
--------- -------- --------- -------- --------- ----------- ---------
Balance at July 1, 1991 471 29,629 $ 294,166 $ 59,258 $ 196,989 $(1,153,116) $(602,703)
Net income for six months ended December 31, 1991 -- -- -- -- -- 909,375 909,375
Issuance of reorganized Lomas stock -- 20,076 -- 20,076 -- -- 20,076
Exchange of stock of Predecessor (471) (29,629) (294,166) (59,258) 353,708 -- 284
Fresh start reclassification of retained earnings -- -- -- -- (243,741) 243,741 --
---- -------- --------- -------- --------- ----------- ---------
Balance at December 31, 1991 -- 20,076 -- 20,076 306,956 -- 327,032
Net loss for six months ended June 30, 1992 -- -- -- -- -- (17,722) (17,722)
---- -------- --------- -------- --------- ----------- ---------
Balance at June 30, 1992 -- 20,076 -- 20,076 306,956 (17,722) 309,310
Net income -- -- -- -- -- 12,294 12,294
Federal income tax benefit recognized from
application of pre-reorganization deductible
temporary differences -- -- -- -- 2,371 -- 2,371
Issuance of stock under stock plans -- 33 -- 33 220 -- 253
Common stock canceled -- (12) -- (12) (137) -- (149)
---- -------- --------- -------- --------- ----------- ---------
Balance at June 30, 1993 -- 20,097 -- 20,097 309,410 (5,428) 324,079
Net loss -- -- -- -- -- (182,666) (182,666)
Issuance of stock under stock plans -- 3 -- 3 19 -- 22
---- -------- --------- -------- --------- ----------- ---------
Balance at June 30, 1994 -- 20,100 $ -- $ 20,100 $ 309,429 $ (188,094) $ 141,435
==== ======== ========= ======== ========= =========== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED CASH FLOWS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands)
<CAPTION>
| Predecessor
Reorganized Company | Company
----------------------------------- | -----------------
Year Ended June 30 Six Months | Six Months
-------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
--------- --------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Operating activities: |
Income (loss) from continuing operations $(108,502) $ 29,557 $ 11,558 | $ (2,652)
Noncash items included in the |
determination of income (loss) from |
continuing operations: |
Depreciation and amortization 155,310 69,021 31,197 | 28,018
Provision for losses 11,397 5,327 2,033 | 6,641
Provisions for restructuring 15,570 -- -- | --
Gain on sales of mortgage servicing |
rights (4,841) (2,439) (92) | (2)
Federal income tax equivalent |
provision -- 3,812 1,139 | --
--------- ----------------|--------
Cash provided by operations |
before working capital changes 68,934 105,278 45,835 | 32,005
Net change in first mortgage loans |
held for sale 128,812 30,494 (131,382) | (13,527)
Net change in sundry receivables, |
payables and other assets (46,383) (13,945) (38,296) | 3,050
Net cash used by discontinued operations (21,216) (28,680) (18,081) | (8,195)
--------- ----------------|--------
Net cash provided (used) by |
operating activities 130,147 93,147 (141,924) | 13,333
--------- ----------------|--------
|
Investing activities: |
Purchases of investments (15,929) (130,013) (294,043) | (34,026)
Maturities/sales of investments 147,411 273,171 41,656 | 56,446
Purchases of loans from pools (18,026) (34,981) (11,543) | (10,975)
Sales of foreclosed real estate 19,598 15,143 6,897 | 8,323
Net additions to fixed assets (24,673) (8,878) (2,097) | (2,551)
Purchases of future mortgage |
servicing income rights (108,071) (85,181) (32,504) | (61,135)
Sales of future mortgage |
servicing income rights 17,073 9,788 105 | 2
Cash proceeds from sales of subsidiaries -- -- -- | 4,990
Other 172 26 96 | 148
Net cash provided by discontinued |
operations 70,789 114,416 7,791 | 40,524
--------- ----------------|--------
Net cash provided (used) by |
investing activities 88,344 153,491 (283,642) | 1,746
--------- ----------------|--------
<CAPTION>
STATEMENT OF CONSOLIDATED CASH FLOWS
(Continued)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands)
| Predecessor
Reorganized Company | Company
----------------------------------- | -----------------
Six Months | Six Months
Year Ended June 30 Ended | Ended
-------------------- |
1994 1993 June 30, 1992 | December 31, 1991
--------- --------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Financing activities: |
Net borrowings (repayments) of |
notes payable $ (75,133) $ (50,948) $286,958 | $ 50,963
Net borrowings (repayments) of |
repurchase agreements (99,140) (85,820) 148,687 | (28,887)
Term debt borrowings -- 348,899 -- | --
Term debt repayments (8,968) (331,639) (729) | (16,276)
Payment of Chapter 11 claims -- -- -- | (363,256)
Net cash provided (used) by |
discontinued operations (60,005) (118,008) 839 | (8,177)
--------- ----------------|--------
Net cash provided (used) by |
financing activities (243,246) (237,516) 435,755 | (365,633)
--------- ----------------|--------
Net increase (decrease) in cash and |
cash equivalents (24,755) 9,122 10,189 | (350,554)
Net change in cash of discontinued |
operations (2,407) 1,820 (2,216) | (45,020)
Cash and cash equivalents at beginning |
of period 34,368 23,426 15,453 | 411,027
--------- ----------------|--------
Cash and cash equivalents at end |
of period $ 7,206 $ 34,368 $ 23,426 | $ 15,453
========= ================|========
Supplemental cash flow information
Interest paid $ 90,597 $ 71,776 $ 38,376 $ 12,077
Federal income tax paid -- -- -- --
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
June 30, 1994
Accounting Policies
Principles of Consolidation and Basis of Presentation--The
consolidated financial statements include the accounts of Lomas Financial
Corporation ("LFC") and its subsidiaries (collectively, the "Company").
Significant intercompany balances and transactions have been eliminated.
In fiscal 1990, LFC and its real estate development subsidiaries filed
petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code. In December 1991, the bankruptcy court confirmed the
Company's plan of reorganization and subsequently the Company emerged from
Chapter 11 proceedings. The Company adopted fresh start reporting in
accordance with the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") 90-7, "Financial Reporting by
Entities in Reorganization Under The Bankruptcy Code" as of December 31,
1991. As a result of the adoption of fresh start reporting, the Company's
assets and liabilities were restated to reflect their fair values and the
accumulated retained earnings deficit was reclassified to other paid-in
capital. Accordingly, since January 1, 1992 the Company's financial
statements have been prepared as if it were a new reporting entity
(referred to herein as the "Reorganized Company") and a vertical black line
has been placed to separate pre-reorganization consolidated financial
statements from post-reorganization consolidated financial statements since
they are not prepared on a comparable basis. The exchange in securities in
connection with the reorganization resulted in a gain that was reported as
an extraordinary item.
Cash and Cash Equivalents--Cash and cash equivalents include cash on
hand and investments with original maturities of three months or less. Cash
balances having restrictions as to withdrawals and usage are recorded in
the balance sheet as investments.
First Mortgage Loans Held for Sale--First mortgage loans held for sale
are carried at the lower of cost or market determined on a net aggregate
basis. Adjustments to market are made by charges or credits to income.
Foreclosed Real Estate--Foreclosed real estate is carried at the lower
of cost or fair value minus estimated selling costs.
Allowance for Losses--Possible losses are provided for based on
management's evaluation of each situation, including the determination of
collectibility and net realizable value of the asset or underlying
collateral.
Fixed Assets--Depreciation is computed on the straight-line method
over the estimated useful lives of the related assets.
Purchased Future Mortgage Servicing Income Rights--Purchased future
mortgage servicing income rights ("PMSRs") represent the portion of the
purchase price of mortgage servicing portfolios acquired from others
allocated to future net servicing income to be derived from servicing such
mortgages.
The Company periodically monitors its servicing portfolio to determine
if adjustments should be made to its amortization schedules or carrying
values of its PMSRs due to changes in interest rates, current prepayment
rates, expected future prepayment rates and certain other factors. The
amortization and impairment analyses are performed for individual mortgage
tranches with similar economic characteristics on an undiscounted basis. If
an individual mortgage tranche's estimated undiscounted net cash flow is
less than the carrying value of the tranche, that tranche is written down
to the projected amount of the undiscounted cash flow. In addition, the
Company amortizes the capitalized PMSRs in proportion to, and over the
period of, the estimated net servicing income. This policy causes a larger
portion of the PMSRs to be amortized in earlier periods. The expected life
of the estimated net servicing income is based on the expected prepayment
rates of the underlying mortgages within the tranches.
Pursuant to fresh start reporting, the PMSRs at December 31, 1991 (the
"Fresh Start PMSRs"), reflected their fair value at that date and were
considered as a single individual mortgage tranche for impairment and
amortization analyses. Effective April 1, 1993 the Company changed its
methodology of measuring the impairment and amortization of its Fresh Start
PMSRs and disaggregated the Fresh Start PMSRs into individual mortgage
tranches with similar economic characteristics. Discounted cash flows were
estimated for each tranche, and the former December 31, 1991 aggregated
value, net of accumulated amortization, was allocated among the
disaggregated tranches in proportion to their relative discounted projected
net cash flows as of March 31, 1993. Also effective April 1, 1993, the
Company refined its estimates of prepayment speeds for loans serviced from
using adjusted static published generic prepayment tables to using a
simulation methodology that considers the specific characteristics of the
Company's servicing portfolio and changes in future median interest rates.
Management believes that this refined estimate more accurately estimates
the future prepayments of the Company's servicing portfolio.
Sales of Servicing Rights--The Company recognizes gain or loss on the
sales of servicing rights when all risks and rewards have irrevocably
passed to the purchasers and there are no significant unresolved
contingencies.
Mortgage Servicing--Fees received for servicing mortgage loans owned
by investors are generally based on a stipulated percentage of the
outstanding monthly principal balance of such loans and are payable only
out of interest collected from mortgagors. Servicing fees, late charges and
miscellaneous other fees collected from mortgagors and others are
recognized as income when collected. Servicing costs are charged to expense
as incurred.
Reverse Repurchase Agreements--The Company enters into reverse
repurchase agreements with financially responsible parties. Mortgage assets
purchased under agreements to resell are carried at the amounts of the
original purchase price which is calculated at a percentage of the market
price. The reverse repurchase agreements generally mature within 60 days
and are covered 100 percent by binding purchase commitments issued by
responsible financial institutions. The counterparty is obligated to
repurchase the underlying mortgage assets at the Company's costs plus
interest differential. The Company finances the reverse repurchase
agreements through a third party based on a percentage of the repurchase
commitments.
Reverse Interest Rate Swap Agreements--The Company enters into
interest rate swap agreements as a means of managing its exposure to
changes in interest rates. Interest rate swaps that reduce the exposure of
the Company, as a whole, to changes in interest rates are designated as
hedges of the Company's fixed rate debt and treated as a hedge of the debt.
Swap agreements that do not reduce the Company's exposure to changes in
interest rates are not considered to be hedges. The interest differential
to be paid or received on swap agreements that are treated as hedges is
accrued over the life of the agreements as an adjustment to the interest
expense of the related debt. Gains or losses on early termination of
interest rate swap agreements designated as hedges are recognized over the
remaining term of the swap agreement. Interest rate swaps that are not
considered hedges are marked to market quarterly with the unrealized gain
or loss, together with the accrued interest differential, treated as a gain
or loss on such swaps.
Federal Income Taxes--Income taxes have been provided in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109") since January 1, 1992. Under SFAS 109, the
deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax basis of assets and liabilities and
enacted tax rates that will be in effect for the years in which the
differences are expected to reverse. Prior to January 1, 1992, the Company
accounted for income taxes under Accounting Principles Board Opinion No.
11.
Escrow, Agency and Fiduciary Funds--The Company maintains certain cash
balances on behalf of its servicing customers and investors as part of its
servicing operations. These funds are held in trust in segregated generally
noninterest bearing bank accounts and are excluded from the corporate
assets and liabilities of the Company.
Earnings (Loss) Per Share--Primary earnings (loss) per share data for
the years ended June 30, 1994 and 1993 and six months ended June 30, 1992
is computed using the weighted average number of shares of common and
common stock equivalents outstanding during the period. Common stock
equivalents include units and shares granted under the Lomas Financial
Corporation 1991 Long Term Incentive Plan for Nonemployee Directors (the
"Directors Plan"), the 1991 Stock Incentive Program (the "1991 Program")
and the 1993 Intermediate and Long Term Incentive Plan (the "1993
Program"). Common stock equivalents also include the assumed exercise of
dilutive stock options. For the years ended June 30, 1994 and 1993 and six
months ended June 30, 1992, assumed exercise of stock options is
antidilutive and is, therefore, excluded from the computation. Fully
diluted per share data is computed on the same basis as primary, but it
also assumes (if dilutive) the conversion of senior convertible notes with
related adjustments for interest and federal income tax expense. For the
years ended June 30, 1994 and 1993 and six months ended June 30, 1992, the
fully diluted per share data is antidilutive.
Information for the six months ended December 31, 1991 was prior to
reorganization when the Company had a different capital structure than that
of the Reorganized Company. Per share data pertaining to the predecessor
company is, therefore, not meaningful and is not presented.
Reclassifications--Certain reclassifications have been made to prior
years' financial statements to conform to the 1994 presentation.
Potential Sale of the Company
In March 1994 the Company announced that it has retained an investment
banker to assist in evaluating strategic alternatives to maximize
stockholder values. Options being considered include the possibility of
merging with or being acquired by another institution. However, in May 1994
the Company announced its intent to sell its wholly-owned information
systems subsidiary, Lomas Information Systems ("LIS"). In September 1994,
the Company entered into a letter of intent with a subsidiary of an
insurance company to sell substantially all the assets of LIS. The Company
recorded a provision of $33.5 million at June 30, 1994 related to the
planned disposition of the Company's information systems business. This
provision is to reduce the net assets of the segment to their estimated
fair value and to cover the projected operating losses of LIS during the
first four months of fiscal 1995, as well as expenses in connection with
the sale. The transaction is expected to close on or about October 31,
1994. The Company is continuing its review with the investment banker of
various strategic options concerning its mortgage banking unit.
Reduction in Force and Restructuring
During the second quarter of fiscal 1994, the Company announced a plan
to restructure its operations with a view to decreasing expenses and
enhancing productivity. Under the plan, the Company's workforce was reduced
by approximately 10 percent or approximately 200 employees. In connection
with the plan, the Company's continuing operations recorded a charge of
$5.7 million of which $5.1 million was recorded by the mortgage banking
division.
Higher interest rates since February 1994 have resulted in the
cessation of the mortgage refinancing boom and decline in mortgage
servicing portfolio runoff rates. As a result, the Company's mortgage
production activity and revenues also have precipitously declined. To
offset the significant declines in production-related revenues, to reduce
its servicing-related costs and to move the Company toward a single-company
operation, the Company approved another restructuring plan in June 1994.
Under the plan, the Company intends to reduce its workforce by another 10
percent or approximately 200 employees through terminations or a voluntary
early retirement program. The planned reduction in force will be completed
by December 1, 1994. In connection with the plan, the Company's continuing
operations provided a reserve of $10.0 million effective June 30, 1994 (of
which $4.0 million was recorded by Lomas Mortgage). Of the $10.0 million,
$2.9 million represents the benefits to be paid on terminations and
approximately $1.3 million is the estimated pension plan curtailment loss
related to voluntarily early retiring employees. Employees to be terminated
include employees in mortgage production and servicing-related areas and in
corporate general and administrative areas. The remaining $5.8 million
reserves were provided to cover planned termination of certain lease
agreements and writedown of certain fixed assets.
First Mortgage Loans Held For Sale
At June 30, 1994 the Company's first mortgage loans held for sale
totaled $257.5 million in principal amount, of which $252.4 million, or
98%, was committed for sale to third parties. Approximately two-thirds of
the Company's commitments to sell mortgage loans held for sale are related
to exclusive ongoing commitments from a major public pension fund and
various state and local housing authorities to purchase, at the Company's
cost, loans or FNMA-guaranteed, mortgage-backed securities collateralized
by loans originated under programs sponsored by those investors. At
June 30, 1994 and 1993, first mortgage loans held for sale included
approximately $138.6 million and $176.0 million, respectively, of FNMA
mortgage-backed securities. At June 30, 1994 approximately 79% of the
Company's pipeline (i.e., commitments to purchase loans or extend credit)
was not subject to significant market risk as it has been committed for
sale to the major public pension fund or various state and local housing
authorities at the Company's cost. The remaining 21% of the Company's
pipeline was hedged by commitments by third parties to purchase such loans
based on the Company's best estimate of its market risk on its pipeline.
At June 30, 1994 first mortgage loans held for sale also included $6.0
million of loans held under reverse repurchase agreements.
Investments
Investments consisted of the following (in thousands):
June 30
------------------
1994 1993
-------- --------
Commercial paper and bank certificates of deposit $ 72,104 $168,109
Restricted investments 32,281 53,173
Mortgage servicing partnership 5,377 3,367
Other investments 4,973 7,046
Fixed maturity securities 71 9,540
Marketable equity securities 2,646 4,625
-------- --------
$117,452 $245,860
======== ========
Commercial paper and bank certificates of deposit are funded with
proceeds from, and are pledged as collateral for, investment lines of
credit. The commercial paper and bank certificates of deposit have fixed
rates of interest and generally mature within 31 days, at which time the
investment lines of credit are paid down. Revenue from the net interest
spread on these transactions totaled approximately $14.2 million, $11.5
million, $7.1 million and $10.1 million for the years ended June 30, 1994
and 1993, six months ended June 30, 1992 and six months ended December 31,
1991, respectively. Investment income for the years ended June 30, 1994 and
1993 also included $2.3 million and $9.3 million, respectively, of gains,
fees and interest income received on reverse interest rate swaps which were
not accounted for as hedges.
Restricted investments at June 30, 1994 includes $10 million held in
escrow deposits securing the Company's indemnification obligations in
connection with the sale on April 30, 1990 of the Company's commercial
leasing subsidiary, ELLCO Leasing Corporation. Restricted investments at
June 30, 1994 and 1993 also included $10.4 million and $8.2 million,
respectively, of marketable securities purchased to fund certain benefit
plans and treasury notes and certificates of deposit of $7.3 million and
$11.7 million at June 30, 1994 and 1993, respectively, pledged to secure
contingent repurchase obligations. Also at June 30, 1994 and 1993, cash and
certificates of deposit of $2.9 million and $13.3 million, respectively,
were either held on behalf of others or pledged to secure various letters
of credit.
Receivables
Receivables consisted of the following (in thousands):
June 30
----------------
1994 1993
------- -------
Escrow deficiencies $40,016 $35,111
Advances on mortgage-backed securities 7,935 14,118
Receivables for servicing related advances and
settlements 6,259 7,898
Mortgage notes receivable 9,284 7,361
Foreclosure claims 5,395 5,733
Accrued interest 2,685 4,109
Amounts due from officers 643 1,034
Other accounts receivable 7,788 6,466
Servicing sales receivable 4,150 3,289
------- -------
$84,155 $85,119
======= =======
Escrow deficiencies and advances on mortgage-backed securities
represent the advances the Company makes in connection with its loan
servicing activities. The Company makes certain payments for property taxes
and insurance premiums in advance of collecting them from specific
mortgagors. Also, in connection with servicing mortgage-backed securities
guaranteed by GNMA or FNMA, the Company advances certain principal and
interest payments to security holders prior to collection from mortgagors.
<PAGE>
<TABLE>
Allowance for Losses
Activity in the allowance account was as follows (in thousands):
| Predecessor
Reorganized Company | Company
------------------------------------- | -----------------
Year Ended June 30 Six Months | Six Months
---------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
--------- --------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Beginning balance $ 10,831 $ 16,101 $ 31,395 | $ 50,321
Provisions for losses 11,397 5,327 2,033 | 6,641
Charge-offs net of recoveries (12,857) (10,001) (15,750) | (30,589)
Other changes--net 2,891 (596) (1,577) | 5,022
--------- --------- -------- | --------
Ending balance $ 12,262 $ 10,831 $ 16,101 | $ 31,395
========= ========= ======== | ========
/TABLE
<PAGE>
The allowance for losses was allocated as follows (in thousands):
June 30
----------------
1994 1993
------- -------
Foreclosed real estate $ 3,529 $ 5,491
Receivables 6,311 3,824
Other 2,422 1,516
------- -------
$12,262 $10,831
======= =======
Purchased Future Mortgage Servicing Income Rights
During the year ended June 30, 1994, the Company established
provisions of $80.0 million related to impairment in the carrying value of
PMSRs. This provision resulted from the unprecedented prepayments that the
Company has experienced and the related revision of estimated future
prepayment speeds.
PMSRs consisted of the following (in thousands):
June 30
-------------------
1994 1993
--------- --------
Cost of PMSRs $ 535,307 $521,738
Capitalized excess servicing fees 3,003 2,966
--------- --------
538,310 524,704
Less: Accumulated amortization (156,301) (88,217)
--------- --------
$ 382,009 $436,487
========= ========
<PAGE>
<TABLE>
Purchased Future Mortgage Servicing Income Rights--(Continued)
Changes in PMSRs were as follows (in thousands):
| Predecessor
Reorganized Company | Company
------------------------------------ | -----------------
Year Ended June 30 Six Months | Six Months
--------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
-------- -------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Beginning balance $436,487 $418,617 $412,679 | $364,633
Additions 110,665 88,384 34,026 | 62,704
Fresh start allocation |
from goodwill -- -- -- | 10,309
Sales and writeoffs (16,896) (7,350) -- | --
Amortization (68,247) (63,164) (28,088) | (24,967)
Impairment writeoff (80,000) -- -- | --
-------- -------- -------- | --------
Ending balance $382,009 $436,487 $418,617 | $412,679
</TABLE>
<PAGE>
At June 30, 1994, 1993 and 1992 the Company serviced 565,531, 605,655
and 600,205 loans, respectively. The aggregate unpaid principal balance of
the Company's servicing portfolio was $34.0 billion, $32.7 billion and
$29.3 billion at June 30, 1994, 1993 and 1992, respectively.
Fixed Assets
Fixed assets, at cost, consisted of the following (in thousands):
June 30
------------------
1994 1993
-------- --------
Land $ 10,754 $ 10,388
Buildings 59,311 42,679
Furniture, equipment and leasehold improvements 31,208 23,488
Capitalized computer software 2,703 1,664
-------- --------
103,976 78,219
Accumulated depreciation (14,822) (8,322)
-------- --------
$ 89,154 $ 69,897
======== ========
In fiscal 1993 the Company acquired an office building and adjacent
land and improved the building for its intended use during fiscal 1993 and
1994 at a total capitalized cost of $25.9 million including imputed
capitalized interest expense of approximately $1.0 million.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consisted of the following (in
thousands):
June 30
----------------
1994 1993
------- -------
Prepaid pension expense $16,797 $17,978
Other prepaid expenses 1,857 2,590
Unamortized debt issuance cost 8,656 10,325
Other assets 2,823 1,320
------- -------
$30,133 $32,213
======= =======
At June 30, 1994 and 1993, the Company's discontinued operations had
prepaid pension expense of $1,784,000 and $1,749,000, respectively, which
were included in net assets of discontinued operations.
<PAGE>
<TABLE>
Debt
Outstanding balances and average interest rates were as follows (dollars in thousands):
Average Annual Average Annual
Interest Rate for Interest Rate for
Year Ended Year Ended
June 30, 1994 June 30, 1993
June 30, 1994 (%) June 30, 1993 (%)
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Notes Payable:
Warehouse lines of credit $245,570 3.5 $248,071 1.8
Investment lines of credit 72,105 1.0 168,109 1.1
Senior secured working capital
credit agreements 22,000 7.3 -- --
Other 1,372 2.0 -- --
-------- ---- -------- ----
$341,047 3.2 $416,180 1.5
======== ==== ======== ====
Repurchase agreements $ -- -- $ 99,140 3.5
======== ==== ======== ====
Term Notes Payable:
Notes payable due 1997 $150,000 9.8 $150,000 9.8
Notes payable due 2002 190,000 10.3 190,000 10.3
Mortgage note payable due 1996* 40,026 10.0 41,163 10.0
Other term notes payable 3,285 2.5 11,117 6.7
-------- ---- -------- ----
$383,311 10.3 $392,280 10.0
======== ==== ======== ====
Senior convertible notes due 2003 $139,918 9.0 $139,918 9.0
======== ==== ======== ====
<FN>
*The mortgage note is payable in monthly installments and matures March 1, 1996. It is secured by
the Company's headquarter buildings.
</TABLE>
<PAGE>
Warehouse lines of credit are used to support warehouse fundings and
are principally fee-based arrangements that are calculated as a percentage
of the total commitments and/or a percentage of the outstanding balance.
Substantially all first mortgage loans held for sale are pledged as
collateral. The Company also has entered into investment lines of credit
arrangements with several financial institutions. Borrowings under these
lines of credit are invested in and are secured by commercial paper and
bank certificates of deposit. Escrow, agency and fiduciary funds maintained
in trust accounts normally serve as compensating balances under the
warehouse and investment lines of credit arrangements, and the Company
incurs a reduced interest rate on borrowings as a result of these
compensating balances. At June 30, 1994 amounts available under the
investment lines of credit were $630.0 million, of which $72.1 million were
in use.
Mortgage-backed securities held for sale to investors are financed
from time to time through repurchase agreements with securities dealers in
the business of providing such financing. These repurchase agreements,
which generally mature in 60 days or less, conform to the standard form of
agreement utilized by the Public Securities Association. The terms and
conditions of these repurchase agreements, including interest rate, are
negotiated on a transaction-by-transaction basis. At June 30, 1994, amounts
available under the warehouse lines of credit and repurchase agreements
were $780 million, of which $245.6 million were in use.
During the year ended June 30, 1994, the Company, through Lomas
Mortgage, entered into a Senior Secured Working Capital Credit Agreement
(the "3/94 Credit Agreement") with a bank (the "Lender"). Under the 3/94
Credit Agreement, the Lender agreed to provide up to $25 million of secured
working capital financing through March 20, 1995 at prime rate. Assets
securing this working capital line include servicing receivables,
foreclosure claims, notes receivables and other receivables with a total
carrying value of $49.3 million at June 30, 1994.
On October 1, 1992 the Company, through Lomas Mortgage, issued $340
million principal amount of unsecured notes. The notes were issued in two
tranches: $150 million of 9.75% notes due 1997 and $190 million of 10.25%
notes due 2002. The blended interest cost on these notes is 10.03%. The net
proceeds of this offering were used to retire $330 million of increasing
rate term notes due 1999 which Lomas Mortgage issued pursuant to LFC's plan
of reorganization.
The senior convertible notes due 2003 bear interest at 9% and are
convertible into approximately 8,000,000 shares of LFC's common stock at a
conversion price of $17.50 per share. The notes may be redeemed in whole or
in part at the option of the Company on or after October 31, 1993 at prices
ranging from 107.2% decreasing to 100% on or after October 31, 2001.
Beginning in 1997 the Company is required to provide sinking fund payments
of $10 million principal each year until 2002. Dividends are restricted to
50% of LFC's accumulated consolidated net income, as defined in the
indenture, since January 1, 1992. As of June 30, 1994, the Company's
failure to meet certain ratio requirements contained in the covenants,
while not an event of default, limits the Company's ability to issue
additional term debt.
Under the terms of the warehouse agreement, servicing payment
agreement and working capital line of credit that contains the most
restrictive covenants, Lomas Mortgage is restricted from making dividend
payments to LFC if, after giving effect thereto, the aggregate amount of
such payments should exceed the sum of (i) $25 million (less any
intercompany advances); plus (ii) 50 percent of Lomas Mortgage's
accumulated consolidated income before tax since October 1, 1992; or
reduced by 100 percent of consolidated loss before income taxes; plus
(iii) (a) before November 30, 1993, the fair value of the aggregate net
proceeds received by Lomas Mortgage from the issuance or sale after October
1, 1992 of its capital stock (b) after November 30, 1993, the aggregate net
cash proceeds received from the issuance or sale of capital stock and
warrants, options and rights to purchase its capital stock. The minimum
net worth requirement, as defined, under these covenants at June 30, 1994
was $200 million and Lomas Mortgage's net worth as defined at that date
before the amendment described below was $196.8 million which restricted
Lomas Mortgage from declaring dividends or making additional advances to
LFC. Pursuant to the amended debt agreements which were executed in
September 1994, but effective June 30, 1994, the minimum net worth
requirement was reduced to $175 million and, therefore, Lomas Mortgage
could transfer as intercompany advances to LFC approximately $12.0 million.
The total warehouse lines of credit available was reduced to $120 million
per its amendment.
At June 30, 1994 Notes Payable and Repurchase Agreements are due
within one year and maturities of the term notes payable and the senior
convertible notes payable were as follows in the following fiscal years (in
thousands):
1995 $ 4,541
1996 38,770
1997 --
1998 150,000
1999 --
Thereafter 329,918
--------
$523,229
========
Federal Income Taxes
The Company files a consolidated federal income tax return. All
companies included in the consolidated federal income tax return are
jointly and severally liable for any tax assessments based on such
consolidated return.
Fresh start reporting requires the Company to report federal income
tax expense when in a taxable position before utilization of pre-
reorganization net operating loss carryforwards and recognition of the
benefit of pre-reorganization deductible temporary differences. Benefits
realized in the consolidated tax return from utilization of pre-
reorganization net operating loss carryforwards and recognition of pre-
reorganization deductible temporary differences existing at confirmation of
LFC's plan of reorganization but for which a net deferred tax asset was not
recorded are reported as direct additions to paid-in capital under fresh
start reporting.
The federal income tax equivalent provision (benefit) is reflected in
the statement of consolidated operations as follows (in thousands):
<PAGE>
<TABLE>
<CAPTION>
| Predecessor
Reorganized Company | Company
------------------------------------ | -----------------
Year Ended June 30 Six Months | Six Months
--------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
-------- -------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Tax (benefit) applicable to: |
Continuing operations $ -- $ 3,812 $ 1,139 | $ --
Discontinued operations -- (1,441) (1,139) | --
-------- -------- -------- | --------
Total tax (benefit) $ -- $ 2,371 $ -- | $ --
======== ======== ======== | ========
Utilization of tax benefits |
of pre-reorganization deductible |
temporary differences and net |
operating loss carryforwards as |
a direct addition to paid-in |
capital pursuant to fresh |
start reporting $ -- $ 2,371 -- | N/A
/TABLE
<PAGE>
<TABLE>
The difference between actual tax expense on continuing operations and the amount computed by
applying the statutory rate to income consisted of the following components (in thousands):
| Predecessor
Reorganized Company | Company
------------------------------------ | -----------------
Year Ended June 30 Six Months | Six Months
--------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
-------- -------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Tax (benefit) at statutory rate $ -- $ 6,485 $ 2,375 | $ (7,773)
Book/tax difference in |
amortization of purchased |
future mortgage servicing |
income and goodwill -- (2,673) (1,236) | (1,184)
Reorganization expenses -- -- -- | 9,805
Other -- -- | (848)
Actual tax expense $ -- $ 3,812 $ 1,139 | $ --
</TABLE>
<PAGE>
The Company had a consolidated tax net operating loss carryforward at
June 30, 1994 totaling approximately $500 million. Of this total $317 million
arose prior to the reorganization and will be subject to the limitations of
Internal Revenue Code Section 382. These carryovers expire in the years 2003
through 2009.
The Company and its subsidiaries have a total deferred tax liability of
$53 million as of June 30, 1994. Deferred tax assets totaled $253 million as
of June 30, 1994 subject to a valuation allowance of approximately
$200 million. Of this valuation allowance, approximately $88.6 million
relates to pre-reorganization tax attributes. Future utilization of these tax
attributes on a consolidated basis will result in adjustments to paid-in
capital. The net change in the valuation allowance of $70 million for the
fiscal year ended June 30, 1994 was primarily attributable to the current
year net operating loss and adjustments to the net deferral tax asset for
enacted changes in the tax rates.
Deferred tax assets (deductible temporary differences) prior to the
allocation of the valuation allowance consisted of the following (in
thousands):
June 30
------------------
1994 1993
-------- --------
Post-reorganization net operating loss carryover $ 64,355 $ 36,654
Pre-reorganization net operating loss carryover 110,950 107,780
Loss reserves 39,926 24,835
Deferred income on terminated swap agreements 3,253 4,430
Purchased servicing writedown 28,446 --
Employee benefits 3,594 2,995
Partnership income 114 583
Uniform capitalization expense 2,331 1,348
Miscellaneous assets 39 --
Total deferred tax assets $253,008 $178,625
Deferred tax liabilities (taxable temporary differences) consisted of the
following (in thousands):
June 30
------------------
1994 1993
-------- --------
Software development costs $ 20,918 $ 20,501
Pension overfunding 4,913 4,734
Accelerated depreciation 17,995 17,433
Partnership loss 686 945
Excess mortgage servicing fees 3,660 3,675
Lease payments 794 954
Miscellaneous liabilities 4,025 389
-------- --------
$ 52,991 $ 48,631
======== ========
Stockholders' Equity
At June 30, 1994 LFC had 100,000,000 shares of $1 par value common stock
(the "Common Stock") authorized and 20,100,000 shares issued and outstanding.
The Common Stock has no preemptive or other subscription rights and there are
no conversion rights, redemption or sinking fund provisions with respect to
such shares.
In connection with the plan of reorganization, LFC issued warrants to
its pre-reorganization equity holders to purchase an aggregate of 7,000,000
shares of Common Stock at a price equal to $29.75 per share. The warrants
expire October 31, 2001.
At June 30, 1994 there were 17,300,000 shares reserved for future
issuance for the conversion of senior convertible notes, the warrants and
stock plans (see "Stock Plans" below).
Stock Plans
The Company has three stock incentive plans, namely the Directors Plan,
the 1991 Program and the 1993 Program.
Directors Plan--Directors of the Company who are not employees
participate in the Directors Plan. On November 2, 1993 each participating
director was granted 500 units under the Directors Plan and an additional 500
units will be granted to each participating director at the 1994 Annual
Stockholders Meeting and at each annual stockholders meeting thereafter. Each
unit represents the right of the holder thereof to be paid one share of
Common Stock at the earlier of (i) the date such holder terminates service as
a director of the Company and (ii) the tenth anniversary of the date of the
award. The number of shares of Common Stock that may be granted under the
Directors Plan is 100,000, and at June 30, 1994 there were 35,000 units
outstanding.
1991 Program--The 1991 Program provides for the grant of non-qualified
and incentive stock options as well as the grant of performance-restricted
stock and other stock-based awards to key personnel and executives based on
the Company's preset performance goals approved in the confirmation of the
Company's plan of reorganization. The 1991 Program authorized the grant of a
maximum of 500,000 shares of Common Stock, of which 100,000 were subject to
awards upon LFC's emergence from reorganization, and of which no more than
75,000 shares may be awarded as performance-restricted stock subject to
intermediate term awards. The 1991 Program expired January 31, 1994.
1993 Program--The 1993 Program provides for the grant of any or all of
the following types of awards: (1) stock options, including incentive stock
options and non-qualified stock options; (2) stock appreciation rights,
either in tandem with stock options or freestanding; (3) restricted stock
awards; (4) performance shares; (5) performance units; (6) dividend
equivalents; and (7) other stock-based awards to key personnel and executives
based on each such individual's present and potential contribution to the
success of the Company. The 1993 Program authorizes the issuance of Common
Stock (or with respect to which awards may be granted) up to a maximum of
1,800,000 shares; provided, no more than 300,000 shares may be granted in any
one fiscal year.
During fiscal 1994 options for 287,936 shares had been granted and
1,512,064 options remained available for grant under the 1993 Program and
options for 13,314 shares had been granted (net of 76,250 options canceled)
under the 1991 Program prior to its expiration on January 31, 1994.
<PAGE>
Information on stock options is summarized below (in thousands, except
price per share):
Number of Price Aggregate
Shares Per Share Option Price
--------- --------- ------------
Outstanding at July 1, 1992 193 $8.25 $1,592
Granted 141 $8.25 1,163
Canceled (8) $8.25 (66)
---- ------
Outstanding at June 30, 1993 326 $8.25 2,689
Granted 301 $8.25 2,485
Canceled (76) $8.25 (629)
---- ------
Outstanding at June 30, 1994 551 $8.25 $4,545
==== ======
The options expire at various dates beginning February 13, 2002 and
ending January 25, 2004. At June 30, 1994 and 1993 options for 276,000 and
132,000 shares, respectively, were exercisable.
Mortgage Servicing Portfolio Risks
The Company's combined primary servicing and subservicing portfolios
include mortgage loans secured by properties located in all 50 states and the
District of Columbia with the heaviest loan concentrations (in terms of
principal amount) in the states of California, Texas, Florida, New Jersey,
Massachusetts and Arizona. The Company's servicing portfolio is comprised of
the following:
June 30, 1993 June 30, 1992
----------------------- -----------------------
Principal Principal
Number Balance Number Balance
of Outstanding of Outstanding
Loans (in millions) Loans (in millions)
------- ------------- ------- -------------
FHA--insured mortgage
loans 166,885 $ 4,861 202,255 $ 5,991
VA--guaranteed
mortgage loans 106,572 2,970 128,839 3,615
Conventional mortgage
loans 201,004 19,295 199,612 18,155
------- ------- ------- -------
474,461 27,126 530,706 27,761
Subservicing 91,070 6,864 74,949 4,916
------- ------- ------- -------
565,531 $33,990 605,655 $32,677
======= ======= ======= =======
Upon foreclosure, an FHA/VA property is typically conveyed to HUD or VA.
However, when it is in the VA's financial interest, it has the authority to
deny conveyance of the foreclosed property to the VA ("VA no-bids"). The VA
instead reimburses the Company based on a percentage of the loan's
outstanding principal balance. For GNMA loans or VA no-bids, the foreclosed
property is conveyed to the Company, and the Company assumes the market risk
of disposing of the property.
In some cases, the Company is required to make guaranteed principal and
interest payments on certain mortgage-backed securities regardless of actual
collection from the underlying mortgage loans. In certain instances, the
Company will buy foreclosed loans out of a pool and either attempt to have
them reinstated or foreclose upon the secured properties. A portion of these
advances on GNMA loans are not recoverable. As of June 30, 1994 and 1993, a
reserve for GNMA loans on unrecoverable advances and VA no-bids of
approximately $3.1 million and $4.0 million, respectively, had been
established.
GNMA losses, including advances and VA no-bids, for the years ended June
30, 1994 and 1993, six months ended June 30, 1992 and six months ended
December 31, 1991 were $8.0 million, $9.3 million, $6.5 million and $5.2
million, respectively.
At June 30, 1994 the Company is servicing approximately $13.9 million in
recourse loans that relate to servicing purchased from third parties. The
Company is obligated to purchase individual mortgages from investors if such
mortgages are foreclosed.
Financial Instruments With Off-Balance Sheet Risks
Reverse Interest Rate Swaps--The Company, through Lomas Mortgage, has
entered into reverse interest rate swap agreements since July 1992. Under the
terms of these swap agreements, the Company receives an annual fixed rate of
interest and pays a floating rate of interest based on the 30-day average
A1/P1 commercial paper rate. At June 30, 1994 interest rate swaps in the
aggregate notional amount of $800 million were outstanding, all of which were
designated as hedges. These swaps will mature in October 1998. The Company
receives an average fixed interest rate of 4.765 percent on these swaps. The
floating interest rate, which the Company pays, at June 30, 1994 was 4.5
percent. The Company has not entered into any additional interest rate swap
agreements since October 1993. During the year ended June 30, 1994 and 1993,
the swaps resulted in net interest savings of $13.9 million and $17.7
million, including gains of $2.3 million and $7.2 million, respectively,
recognized on termination of swaps which were accounted for as speculative.
Since its inception in July 1992 and through June 30, 1994, the swap
program has generated net cash of $43.1 million, including $11.5 million of
deferred income which currently is being amortized as an offset to future net
interest expense at the rate of $3.3 million per year.
The terms of the swaps provide that the counterparty, under certain
circumstances, can demand collateral from Lomas Mortgage to protect against
mark-to-market exposure attributable to the agreements. During fiscal 1994,
as a result of increases in interest rates, Lomas Mortgage, at the request of
the counterparty, pledged servicing rights related to approximately $4.8
billion of mortgage loans as collateral which had a carrying value of $98.7
million at June 30, 1994. According to an amended pledge agreement, the
counterparty can demand additional collateral from Lomas Mortgage up to $2.0
billion unpaid principal balance of mortgage loans if unrealized swap
termination liabilities in the future exceed $80 million.
The swap agreements contain certain default and termination provisions
whereby the counterparty can terminate the agreements prior to their
maturity, including a provision which permits the counterparty to terminate
if, in its reasonable business judgment, there has been a material adverse
change since April 1, 1994 in the business, assets, operations or financial
condition of Lomas Mortgage.
The Company estimates that if the swap agreements had been terminated as
of June 30, 1994, Lomas Mortgage would have incurred a liability, net of
$11.5 million related deferred gains, of approximately $54.0 million.
Loans Sold With Recourse--The Company has sold, with recourse, single-
family mortgages with unpaid principal balances aggregating $48.5 million at
June 30, 1994. The Company is obligated to repurchase individual mortgages if
such mortgages reach specified stages of delinquency. At June 30, 1994
restricted cash balances of $1.4 million and treasury notes totaling
$4.7 million had been pledged to secure the Company's contingent repurchase
obligations.
Commitments to Purchase and to Sell Loans--At June 30, 1994 the
Company's commitments to purchase and originate loans totaled $564.8 million
of which approximately 79%, or $444.1 million, had been committed for sale to
financially responsible third parties at the Company's cost. The remaining
21%, or $120.7 million, of the Company's commitments to purchase and
originate loans and $257 million of loans held for sale were hedged by
forward contracts to sell mortgage-backed securities of approximately $258.1
million, which represented the Company's best estimate of its market risk on
such loans.
If secondary market interest rates decline after the Company commits to
an interest rate for a loan, the loan may not close and the Company may incur
a loss from the cost of covering its obligations under any related forward
commitments. If secondary market interest rates increase after the Company
commits to an interest rate for a loan and the Company has not obtained a
forward commitment, the Company may incur a loss when the loan is
subsequently sold.
Paid-in-Full Interest--In connection with servicing certain mortgage-
backed securities under most of the Company's servicing agreements, the
Company is required to pay to investors a full month's interest on each loan
although the loan may be paid off other than on a month-end basis. Therefore,
the Company is obligated to pay the investor interest at the agreed rate from
the date of loan payoff through the end of the calendar month without
reimbursement. At June 30, 1994 the unpaid principal balance of the Company's
mortgage servicing portfolio that is subject to paid-in-full interest totaled
$16.1 billion.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") 107 requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for those that it is practicable to
estimate fair value. Fair value estimates are made as of a specific point in
time based on the characteristics of the financial instruments and the
relevant market information. Where available quoted market prices are used,
and in other cases, fair values are based on estimates using present value or
other valuation techniques. These techniques involve uncertainties and are
significantly affected by the assumptions used and the judgments made
regarding risk characteristics of various financial instruments, discount
rates, estimates of future cash flows, future expected loss experience and
other factors. Changes in assumptions could significantly affect these
estimates and the resulting fair values. The derived fair value estimates
cannot be substantiated by comparison to independent markets and could not be
realized in an immediate sale of the instruments.
Under SFAS 107 fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The aggregate fair value amounts presented do not
represent the underlying market value of the Company.
Described below are the methods and assumptions used by the Company in
estimating fair values.
Cash and Cash Equivalents--The carrying amounts reported in the
consolidated balance sheet approximate the fair values as maturities are less
than three months.
First Mortgage Loans Held For Sale--Fair value is estimated using the
quoted market prices for securities backed by similar types of loans and
current commitments to purchase such loans.
Investments--Commercial paper and bank certificates of deposit generally
mature within 31 days; therefore, the carrying amounts reported in the
consolidated balance sheet are the approximate fair value. Restricted cash
balances approximate the fair value. Fair value on mortgage loans held for
investment is estimated using the quoted market prices for securities backed
by similar loans adjusted for differences in financial characteristics. Fair
value on fixed-maturity debt securities are based on quoted market prices.
Discontinued Operations--The carrying amounts for cash represent the
fair value. Notes receivable's fair value is estimated by discounting cash
flows at interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality. Debt securities' fair value is
estimated using the quoted market price.
Notes Payable and Repurchase Agreements--The carrying amounts
approximate fair values due to the short term maturity of these instruments.
Term Notes and Senior Convertible Notes Payable--Fair value is based on
the quoted market prices.
Reverse Interest Rate Swaps--Fair values are obtained from dealer
quotes. These values represent the estimated amount the Company would receive
or pay to terminate the agreements at the reporting date.
Commitments to Purchase and to Sell Loans--The fair value of commitments
to purchase loans is based upon the difference between the current value of
similar loans and the price at which the Company has committed to purchase
the loans. The fair value of commitments to sell loans contracts is the
estimated amount that the Company would receive or pay to terminate the
commitments at the reporting date based on market prices for similar
financial instruments.
The estimated fair values of the Company's on-balance sheet and off-
balance sheet financial instruments were as follows (in thousands of
dollars):
<PAGE>
June 30, 1994 June 30, 1993
-------------------- --------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Financial Assets:
Cash and cash
equivalents $ 7,206 $ 7,206 $ 34,368 $ 34,368
First mortgage loans
held for sale 257,534 258,067 367,383 368,272
Investments 109,418 107,614 238,957 242,763
Net assets of
discontinued
operations:
Cash 41,371 41,371 31,800 31,800
Notes receivable 39,048 38,400 91,772 88,553
Debt securities 61,987 52,689 121,992 108,268
Financial Liabilities:
Notes payable and
repurchase agreements 341,047 341,047 515,320 515,320
Term notes and senior
convertible notes
payable 523,229 483,921 532,198 540,977
Off-balance sheet items:
Reverse interest rate
swaps (liability) -- (65,505) -- --
Commitments to purchase
loans (liability) -- (46) -- 422
Commitments to sell loans -- 6 -- 473
Contingent Liabilities
On September 17, 1990 plaintiffs purporting to represent a class of
single-family mortgagors having escrow deposits computed by Lomas Mortgage
within the past ten years filed a class-action complaint in the Circuit Court
of Cook County, Illinois. The complaint alleges that Lomas Mortgage is in
breach of mortgage contracts and is assessing excessive and unlawful escrow
deposits and in addition the complaint asks for punitive damages. On
October 4, 1990 this lawsuit was removed to the United States District Court
for the Northern District of Illinois. Similar actions for damages, fees and
other relief were filed in California and Minnesota state courts and class-
action counterclaims have been filed in two pending Illinois foreclosure
actions. The state court actions were removed to federal court and
transferred to the Northern District of Illinois where they are currently
pending before the same judge as the original action. The state court
counterclaims are stayed.
On August 26, 1994, the United States District Court for the Northern
District of Illinois preliminarily approved a settlement that, if finally
approved, will result in the dismissal, with prejudice, of all claims that
were or could have been brought by the class. Pursuant to the terms of the
settlement, Lomas Mortgage has agreed to follow certain escrow servicing
procedures that result in lower escrow balances for certain of its mortgagors
and has already refunded the surplus escrow balance to its mortgagors that
resulted from the implementation of this procedure. Lomas Mortgage has also
agreed to implement certain special servicing procedures for its mortgagors
whose mortgages are written on older conventional mortgage forms. In addition
to these escrow servicing procedures, Lomas Mortgage has agreed to provide,
once the settlement is finally approved and the case dismissed, a one-time
rebate to its eligible present and former mortgagors. The total rebate is
currently estimated to be less than six-hundred thousand dollars ($600,000).
Finally, Lomas Mortgage has agreed to reimburse class counsel for their
reasonable attorneys' fees and costs. Lomas Mortgage recorded a provision at
June 30, 1994 for the estimated rebate and attorneys' fees.
A hearing to determine whether the Court should finally approve the
settlement is currently scheduled for November 21, 1994.
The Company is also involved in a number of other lawsuits considered to
be in the normal course of business. In management's opinion, the resolution
of these other disputes will not have a material adverse effect on the
financial position of the Company.
Leases
The Company's continuing operations incurred rental expense and had
future minimum rental commitments at June 30, 1994 for noncancelable leases
as follows (in thousands):
Office
Space Equipment Total
------ --------- ------
Expense for the year ended June 30:
Six months ended December 31, 1991 $2,661 $ 415 $3,076
Six months ended June 30, 1992 $1,499 $ 434 $1,933
1993 $3,316 $ 811 $4,127
1994 $2,977 $1,054 $4,031
Commitments for the years ending June 30:
1995 $1,052 $1,107 $2,159
1996 971 1,023 1,994
1997 733 338 1,071
1998 632 42 674
1999 501 9 510
------ ------ ------
Total minimum lease payments $3,889 $2,519 $6,408
====== ====== ======
Pension Plans
Defined Benefit Plan--The Company's pension plan is sponsored by Lomas
Mortgage. The plan is a noncontributory plan which covers substantially all
employees of the Company. Benefits are based on the employee's years of
service and compensation. Pension plan assets consist principally of listed
stocks and bonds and United States government securities. The Company makes
contributions to the plan which equal or exceed the minimum amounts required
by the Employee Retirement Income Security Act of 1974.
<PAGE>
Credits to expense related to the defined benefit plan included the
following components (in thousands):
Year Ended June 30
-------------------------
1994 1993 1992
------- ------- -------
Actual return on plan assets $ 4,009 $ 3,927 $ 4,066
Net amortization and deferrals 132 195 428
Service costs--benefits earned (1,768) (1,557) (1,417)
Interest on projected benefit obligations (2,259) (2,206) (2,335)
Curtailment (1,260) -- --
------- ------- -------
Net credit (expense) recognized $(1,146) $ 359 $ 742
======= ======= =======
During the quarter ended June 30, 1994, the Company approved a plan
of restructuring including a reduction in its workforce. As a result a group
of employees covered by the defined benefit plan are to be terminated or
accept early retirement benefits. An expense of $1,260,000 from the
curtailment had been included in the 1994 expense.
The funded status of the Company's defined benefit plan after giving
effect to accruals and contributions was as follows (in thousands):
June 30
------------------
1994 1993
-------- --------
Plan assets at market value $ 45,385 $ 48,290
Actuarial present value of projected benefit
obligations (29,872) (29,192)
-------- --------
Excess plan assets 15,513 19,098
Unrecognized excess plan assets being amortized
over 15 years (6,077) (6,917)
Unrecognized actuarial loss 11,574 7,787
Unrecognized prior service cost (1,169) (241)
Loss on curtailment (1,260) --
-------- --------
Prepaid pension expense recorded in the financial
statements $ 18,581 $ 19,727
======== ========
Actuarial present value of accumulated benefit
obligations $ 25,452 $ 24,649
Actuarial present value of vested benefit
obligations $ 23,316 $ 22,705
Assumptions used in the accounting were:
June 30
------------------
1994 1993 1992
---- ---- ----
Discount/settlement rates 7.5% 8.0% 8.5%
Rates of increase in compensation levels 8.1% 8.1% 5.5%
Expected long term rate of return on assets 9.0% 9.0% 9.0%
Defined Contribution Plan--The Company has also established a 401(k)
savings plan effective April 1, 1993. Substantially all employees of the
Company are eligible to participate in the plan. Eligible employees are
entitled to contribute up to 12% of salary, and the Company matches up to 35%
of an employee's contributions up to 6% of salary. The total amount of
contributions made by the Company during fiscal 1994 and 1993 was $445,000
and $108,000, respectively.
Management Security Plan
The Company adopted a Management Security Plan ("MSP") to aid the
Company in its continuous effort to attract, motivate and retain outstanding
employees. Key employees of the Company who elected to participate in MSP
will be paid in the event of retirement or death that portion of the
employee's salary which such employee chooses as the basis for computation of
his retirement or death benefits. The Company ceased new enrollments in 1985.
Funds contributed to the plan are held in a trust. The assets of the trust
were included in Investments and totaled $7.3 million at June 30, 1994. The
trust's assets are invested at the discretion of the outside trustee. At
June 30, 1994 the assets consisted primarily of listed common stocks and
fixed-income investments. Marketable securities held by the trust are carried
at the lower of aggregate cost or market value. Income and expenses of the
trust are included in the Company's consolidated income and expenses. The
trust is irrevocable and subject only to the claims of creditors in the event
of the insolvency of the Company.
Discontinued Operations
Discontinued operations include the Company's short term lending
operations and information systems operations. For the six months ended
December 31, 1991, discontinued operations also included the Company's real
estate development operations as held and operated by Vista Properties, Inc.
("Vista"), which was spun off in connection with LFC's reorganization.
In May 1994 the Company announced its intent to sell LIS. In September
1994, the Company entered into a letter of intent with a subsidiary of an
insurance company to sell substantially all the assets of LIS, therefore, LIS
has been accounted for as discontinued operation. The 1993 and 1992 financial
statements have been restated to reflect LIS as discontinued operations.
The Company's discontinued short term lending operations include ST
Lending, Inc. ("STL"), Lomas Management, Inc. ("LMI"), which manages the
assets of STL, and certain other real estate operations. The Company is
discontinuing its short term lending operations by orderly liquidation of its
portfolio of construction, acquisition and development loans, and foreclosed
real estate. Substantially no new commercial loans and only a limited number
of residential single-family construction loans have been originated since
June 1989. The Company projects future operating losses from its short-term
lending operations of approximately $2.1 million through June 30, 1995, which
has been provided for as of June 30, 1994.
Operating results from discontinued operations for the years ended June
30, 1994 and 1993, six months ended June 30, 1992 and six months ended
December 31, 1991 were as follows (in thousands):
<PAGE>
<TABLE>
| Predecessor
Reorganized Company | Company
------------------------------------ | -----------------
Year Ended June 30 Six Months | Six Months
--------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
-------- -------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Revenues $ 49,039 $ 51,800 $ 29,990 | $ 36,428
Operating income (loss): |
LIS $(23,164) $(14,293) $ (5,810) | $(12,253)
STL and LMI (16,552) (14,391) (16,524) | 109
Other real estate operations (636) 260 315 | 1,184
Vista -- -- -- | (9,251)
Loss from operations (40,352) (28,424) (22,019) | (20,211)
Provisions for future short term |
lending operations losses (17,500) (4,500) (8,400) | --
Operating loss charged to reserves 17,188 14,220 -- | --
Provision for future LIS losses (8,500) -- -- | --
Estimated loss on disposition |
of LIS (25,000) -- -- | --
Tax benefit applicable to |
discontinued operations -- 1,441 1,139 | --
Loss from discontinued operations $(74,164) $(17,263) $(29,280) | $(20,211)
</TABLE>
<PAGE>
Operating losses of the short term lending operations included $10.1
million, $9 million, $13.6 million and $5.3 million to provide for
foreclosure losses and additional allowances for uncollectible receivables
for the years ended June 30, 1994 and 1993, six months ended June 30, 1992
and six months ended December 31, 1991, respectively.
Provision for future losses for fiscal 1994 also included a $6.5 million
of reserve provided for losses to be realized on STL sales of property in
early fiscal 1995 and for restructuring. The sales in early fiscal 1995 would
generate net cash of approximately $27.7 million. STL currently has cash on
hand of $16.4 million. After prepaying the balance of the secured notes of
$19.0 million, STL would have $24.0 million of cash available to advance to
the Company.
In May 1993 the Financial Accounting Standards Board issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). SFAS
114 requires impairment of a loan be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient at the loan's observable market price or the
fair value of the collateral if the loan is collateral-dependent. The Company
is currently evaluating the impact from the adoption of this standard. The
Company is required to adopt this standard on July 1, 1995.
Net assets of discontinued operations of short term lending were as
follows (in thousands):
June 30
-------------------
1994 1993
-------- ---------
Assets:
Mortgage notes receivable and foreclosed
real estate, net of allowance for
losses of $17,904 and $31,821, respectively $111,432 $ 202,911
Cash and restricted cash investments 39,292 31,799
Other assets 2,491 3,079
-------- ---------
153,215 237,789
Less:
Secured notes payable (61,987) (121,992)
Accrued interest payable and other (3,257) (4,224)
Other reserves (2,092) (1,180)
-------- ---------
$ 85,879 $ 110,393
======== =========
STL was organized in January 1992 in connection with LFC's plan of
reorganization to service, manage and orderly dispose of certain mortgage
loans, participations in mortgage loans and foreclosed real estate. In
connection with the reorganization, STL issued $240 million of non-recourse
notes secured by its assets (the "Collateral") which will mature in 1996. The
interest rate on STL's secured non-recourse notes is subject to adjustment
for changes in the 90-day LIBOR rate. Principal, interest, rents and income
received on the Collateral are used to fund STL's operating expenses and
provide for debt service payments. Substantially all of the net assets of STL
($79.9 million at June 30, 1994) are restricted pursuant to provisions of the
secured non-recourse notes.
The yield on STL's earning loans (totaling $34.5 million at June 30,
1994) was approximately 8.84%, on its earning real estate (totaling $29.0
million at June 30, 1994) was approximately 9.0%, and on its cash (invested
primarily in high-grade commercial paper) was approximately 4.06%. The
interest rate on STL's debt outstanding at that date was 6.25%.
Prepayments on the STL notes are required prior to 1996 to the extent
STL's cash flow permits. During the year ended June 30, 1994, STL made
principal payments aggregating $60.0 million on its secured notes, thereby
reducing the balance thereof to $62.0 million. Subsequent to June 30, 1994,
STL made additional principal payments of $43.0 million. The outstanding
balance of the notes after application of these principal payments was
$19.0 million. The secured notes are without recourse to the Company or any
subsidiary thereof other than STL.
During the year ended June 30, 1994, LFC reinstated its liquidity
support agreement with STL. Under the terms of the agreement, STL, through a
trustee, will make quarterly cash deposits (governed by the STL note
indenture agreement) into the liquidity support trust account. Amounts
deposited into the account are available to LFC for interest shortfalls on
LFC's $140 million senior convertible notes. The interest shortfalls are
calculated on a predetermined formula. As of June 30, 1994 STL has advanced
$6.2 million to LFC for such interest shortfall. The agreement limits the
aggregate advances which can be made to $20.0 million.
Loan commitments are made to accommodate the financial needs of the
Company's borrowers and are subject to the Company's normal credit policies.
Guarantees and other commitments include standby letters of credit, financial
guarantees and performance guarantees made by the Company to third parties on
behalf of borrowers in connection with the Company's short term lending
operations. Even though this segment of business is discontinued, the
guarantees remain in effect. These arrangements have credit risk essentially
the same as that involved in extending loans.
Outstanding commitments and guarantees at June 30, 1994 were as follows
(in thousands):
Loan commitments on existing short term construction,
acquisition and development loans $1,326
Guarantees and other commitments $766
The Company's LIS discontinued operations provide information management
services and products to the mortgage banking industry. Its products include
software packages for mortgage loan servicing, loan production, secondary
marketing and master servicing, which it markets on both a service bureau and
licensing basis. At June 30, 1994 LIS' service bureau processed, for Lomas
Mortgage and its external customers, a total of approximately 1.3 million
mortgages. The Company recorded a provision of $33.5 million at June 30, 1994
related to the planned disposition of this segment of the Company's business.
This provision is to reduce the net assets of the segment expected to be sold
to their estimated fair value and to cover the projected operating losses of
LIS during the first four months of fiscal 1995, as well as expenses in
connection with the sale. The transaction is expected to close on or about
October 31, 1994. Net assets of discontinued LIS were as follows (in
thousands):
<PAGE>
June 30
----------------
*1994 1993
------- -------
Capitalized computer software $31,433 $61,361
Other assets 9,548 7,210
------- -------
40,981 68,571
Less: Accounts payable and other (3,502) (4,382)
Future operating losses and selling costs (10,100) --
------- -------
$27,379 $64,189
======= =======
_______________
* The amounts for June 30, 1994 are adjusted to reflect the net assets after
recording the loss provision on the sale as discussed above.
Transactions With Affiliates
On September 30, 1993 the contractual relationship between the Company
and Capstead Mortgage Corporation ("Capstead"), a real estate investment
trust managed by a wholly-owned subsidiary of Lomas Mortgage, was terminated
and Capstead became entirely self-managed on September 30, 1993. However,
Lomas Mortgage will continue to service Capstead's mortgage servicing
portfolio existing at the termination of the management agreement which at
June 30, 1994 totaled $6.1 billion. In connection with the early termination
provision included in the amended management agreement, the Company received
a final payment of $4.8 million, which represented the discounted value of
payments previously scheduled to be made by Capstead to the Company during
the balance of fiscal 1994 and 1995. The Company's contractual relationship
with Capstead resulted in the following (in thousands):
<PAGE>
<TABLE>
| Predecessor
Reorganized Company | Company
------------------------------------ | -----------------
Year Ended June 30 Six Months | Six Months
--------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
-------- -------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Management fee income $ 2,952 $ 9,854 $ 6,092 | $ 5,500
Servicing and master servicing fee |
income $ 10,042 $ 15,809 $ 5,222 | $ 2,456
Sale of first mortgage loans $ 4,516 $ 14,160 $ 9,077 | $ 2,630
Purchase of servicing rights $ 3,379 $ 33,475 $ 22,009 | $ 14,544
Other income $ 5,028 $ 13,537 -- | --
</TABLE>
<PAGE>
Operating costs related to the Capstead management fee income were
approximately $2.1 million, $5.8 million, $2.6 million and $2.1 million for
the year ended June 30, 1994 and 1993, six months ended June 30, 1992 and six
months ended December 31, 1991, respectively.
During fiscal 1993 and 1994 the contractual relationship between
Capstead and the Company was amended and shortened to provide for Capstead's
move to a self-administered status on September 30, 1993. Pursuant to the
amendments, the Company received management fees based on an amount equal to
the Company's costs plus a fixed profit aggregating $9.4 million. The Company
also agreed that for a period of one year after the termination of the
agreement not to compete, organize or provide management services to any real
estate investment trust. The Company received $5.3 million in connection with
the non-compete agreement and a six-year option to acquire 750,000 shares of
Capstead common stock at $32.625 per share which the Company recorded at $3.0
million and was included in income from other affiliates. The Company also
received $4.8 million fees for early termination of the management agreement.
During fiscal 1994 and 1993, the Company recognized total income of $6.0
million and $17.2 million, respectively (excluding reimbursed expenses), from
the amended management agreement and the non-compete agreement.
The Company, through a wholly-owned subsidiary (which is accounted for
as a discontinued operation), is a manager of Liberte Investors ("Liberte"),
a real estate investment trust. During the year ended June 30, 1993, the
Company amended its management agreement with Liberte. Under the amended
agreement, Liberte pays the Company management fees equal to 1% of Liberte's
invested assets net of reserves. The management agreement may be terminated
by either party for cause at any time upon 60-days written notice or without
cause upon 90-days written notice. For the years ended June 30, 1994 and
1993, the Company received management fees of $1.9 million and $2.9 million,
respectively, under the amended management agreement. For the six months
ended June 30, 1992 and six months ended December 31, 1991, the Company
received management fees of $880,000 and $1.0 million under the old
management agreement.
The Company, through Lomas Mortgage, is a partner and manager of Lomas
Mortgage Partnership (the "Partnership"). The Company owns one-third of the
Partnership and at June 30, 1994 the Company's investment in the Partnership
approximated $5.4 million. The Partnership is engaged primarily in acquiring
mortgage servicing rights and servicing single-family mortgages. The Company
subservices all mortgages in the Partnership's mortgage servicing portfolio
for its usual subservicing fees. During the year ended June 30, 1994 and
1993, the Company sold to the Partnership approximately $1.2 billion and
$361.8 million in unpaid principal balance of mortgage servicing income
rights with a carrying value of $13.7 million and $4.7 million for $12.1
million and $4.7 million, respectively. The PMSRs sold in fiscal 1994 had
been acquired in 1994 and were expected to yield the Company an annual return
of approximately 13.6 percent. The Company received subservicing fees of
approximately $3.9 million and $1.4 million from the Partnership during
fiscal 1994 and 1993, respectively.
<PAGE>
Subsequent Events
In September 1994 the Company entered into a letter of intent with an
insurance company to sell substantially all the assets of LIS. For more
information, see the "Discontinued Operations" footnote.
Also for information on the sale of certain assets of STL that is
expected to occur in early fiscal 1995, see the "Discontinued Operations"
footnote.
Quarterly Results (Unaudited)
The following is a summary of the unaudited quarterly results of
operations for the two years ended June 30, 1994 (in thousands of dollars,
except per share amounts).
Year Ended June 30, 1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenues from continuing operations 80,064 65,761 63,833 61,400
Loss from continuing operations (39,698) (42,503) (4,746) (21,555)
Loss from discontinued operations (9,869) (5,635) (12,923) (45,737)
Net loss (49,567) (48,138) (17,669) (67,292)
Earnings (loss) per common share:
Loss from continuing operations (1.97) (2.11) (.24) (1.07)
Net loss (2.46) (2.39) (.88) (3.34)
During the first quarter and second quarter of fiscal 1994, the Company
established provisions of $50.0 million and $30.0 million, respectively,
related to impairment in the carrying value of PMSRs.
For information concerning the Company's reduction in force and
restructuring in the second quarter and fourth quarter, see "Reduction in
Force and Restructuring" footnote.
In the fourth quarter of fiscal 1994, the Company recorded a provision of
$33.5 million relating to the pending sale of substantially all the assets of
LIS.
Year Ended June 30, 1993
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenues from continuing operations 73,616 70,463 73,352 75,923
Income from continuing operations 8,149 6,791 7,580 7,037
Loss from discontinued operations (3,740) (3,481) (4,077) (5,965)
Net income 4,409 3,310 3,503 1,072
Earnings per common share:
Income from continuing operations .41 .34 .38 .35
Net income .22 .16 .17 .05
<PAGE>
<TABLE>
INDUSTRY SEGMENT DATA OF CONTINUING OPERATIONS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands)
<CAPTION>
| Predecessor
Reorganized Company | Company
---------------------------------- | -----------------
Year Ended June 30 Six Months | Six Months
------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
--------- -------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Revenues |
Mortgage banking $ 262,019 $279,874 $124,996 | $122,937
Other 9,039 13,880 7,911 | 6,920
--------- -------- -------- | --------
|
271,058 293,754 132,907 | 129,857
Intersegment revenues eliminated |
in consolidation -- (400) (294) | (158)
--------- -------- -------- | --------
Total revenues per statement of |
consolidated operations $ 271,058 $293,354 $132,613 | $129,699
========= ======== ======== | ========
|
Operating profit (loss) |
Mortgage banking $ 6,895 $ 40,031 $ 14,411 | $ 11,530
Other 2,653 13,207 8,423 | 6,792
--------- -------- -------- | --------
Operating income (loss) 9,548 53,238 22,834 | 18,322
General and administrative (9,327) (7,232) (3,867) | (3,422)
Corporate interest income (expense) (13,153) (12,637) (6,270) | 9,386
--------- -------- -------- | --------
Operating income (loss) before |
provisions (12,932) 33,369 12,697 | 24,286
Provisions for restructuring (15,570) -- -- | --
Provisions for impairment of PMSRs (80,000) -- -- | --
--------- -------- -------- | --------
Operating income (loss) before |
reorganization items (108,502) 33,369 12,697 | 24,286
Reorganization items -- -- -- | (26,938)
--------- -------- -------- | --------
Operating income (loss) before |
federal income tax equivalent |
provision (108,502) 33,369 12,697 | (2,652)
<PAGE>
Federal income tax equivalent |
provision -- 3,812 1,139 | --
--------- -------- -------- | --------
Income (loss) from continuing |
operations $(108,502) $ 29,557 $ 11,558 | $ (2,652)
========= ======== ======== | ========
<FN>
Corporate interest income for the six months ended December 31, 1991 reflected interest charged
to subsidiaries for their borrowings from LFC in excess of corporate interest expense.
/TABLE
<PAGE>
<TABLE>
INDUSTRY SEGMENT DATA OF CONTINUING OPERATIONS
(Continued)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands)
<CAPTION> | Predecessor
Reorganized Company | Company
------------------------------------- | -----------------
June 30 |
---------------------- |
1994 1993 June 30, 1992 | December 31, 1991
---------- ---------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Identifiable Assets |
Mortgage banking $ 926,995 $1,217,498 $1,311,113 | $ 869,252
Other 37,320 62,431 81,067 | 124,686
964,315 1,279,929 1,392,180 | 993,938
Net assets of discontinued operations 113,258 174,582 165,335 | 183,462
Total assets per consolidated |
balance sheet $1,077,573 $1,454,511 $1,557,515 | $1,177,400
| Predecessor
Reorganized Company | Company
------------------------------------- | -----------------
Year Ended June 30 Six Months | Six Months
---------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
---------- ---------- ------------- | -----------------
<S> <C> <C> <C> | <C>
Depreciation and Amortization Expense |
Mortgage banking $ 153,787 $ 68,342 $ 30,817 | $ 27,595
Other 1,523 679 380 | 423
$ 155,310 $ 69,021 $ 31,197 | $ 28,018
Net Charges to Allowance for Losses |
Mortgage banking $ 12,410 $ 9,897 $ 15,499 | $ 13,062
Other 447 104 251 | 17,527
$ 12,857 $ 10,001 $ 15,750 | $ 30,589
Capital expenditures |
Mortgage banking $ 24,042 $ 9,021 $ 2,658 | $ 3,836
Other 1,016 576 86 | 128
$ 25,058 $ 9,597 $ 2,744 | $ 3,964
/TABLE
<PAGE>
<TABLE>
INDUSTRY SEGMENT DATA OF CONTINUING OPERATIONS
(Continued)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands)
Intersegment charges to Lomas Mortgage operations are as follows (in thousands):
<CAPTION> | Predecessor
Reorganized Company | Company
------------------------------------- | -----------------
Year Ended June 30 Six Months | Six Months
---------------------- Ended | Ended
1994 1993 June 30, 1992 | December 31, 1991
---------- ---------- ------------- | -----------------
<S> <C> <C> <C> | <C>
LIS for data processing and
telecommunications $ 17,061 $ 17,918 $ 9,052 $ 8,178
Lomas Administrative Services, Inc.
("LAS") for various administrative
services 7,487 8,064 3,882 3,950
LAS for office space 6,026 1,717 686 686
Intellifile, Inc. for image processing 2,926 -- -- --
LFC for management fees 1,630 1,970 725 700
LFC for interest expense (income) (518) 166 136 11,486
$ 34,612 $ 29,835 $ 14,481 $ 25,000
<FN>
During fiscal 1994 LAS changed its method of allocating office space costs. Prior to fiscal
1994 Lomas Mortgage received credit for depreciation and interest expense related to the office space
occupied by other affiliates and unallocated office space totalling approximately $4.2 million. These
costs were absorbed by Lomas Mortgage during fiscal 1994.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
-------------- ---------- ---------- --------------------------- ------------------------
Deductions Balance at End of Period
--------------------------- ------------------------
Balance at (1) (2)
Beginning Amounts Amounts (1) (2)
Name of Debtor of Period Additions Collected Written Off Current Not Current
-------------- ---------- ---------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30, 1994:
Receivable from employees of continuing operations:
Receivable from current employees--
Bridge notes and first mortgage loans
Robert E. Byerley, Jr. $ -- $ 106,000(A) $ -- $ -- $ -- $106,000
*John Giliam 36,000 158,000 (159,000) -- -- 35,000
*Gary Kell 61,000 -- (61,000) -- -- --
Gary White -- 102,000(A) (102,000) -- -- --
Other employees individually less
than $100,000 166,000 35,000(A) (48,000) -- -- 153,000
Open advances
Employees individually less than
$100,000 7,000 43,000 (46,000) -- 4,000 --
Total receivables from current
employees 270,000 444,000 (416,000) -- 4,000 294,000
Receivables from terminated employees--
Bridge notes and first mortgage loans
Henry Hortenstine 175,000 -- -- -- -- 175,000
David Stephens 445,000 -- (445,000)(B) -- -- --
Other terminated employees individually
less than $100,000 144,000 67,000 (41,000) -- -- 170,000
Total receivables from terminated
employees 764,000 67,000 (486,000) -- -- 345,000
Total receivables from employees of
continuing operations $1,034,000 $ 511,000 $ (902,000) $ -- $ 4,000 $639,000
<FN>
*Officers of subsidiaries.
(A) Includes accrued interest of $9,000 added to notes principal.
(B) Includes mortgage loans of $264,000 sold to FNMA.
Note: Beginning balance of each category is different from previous year's ending balance due to the change in employment status
during the year.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES--(Continued)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
-------------- ---------- ---------- --------------------------- ------------------------
Deductions Balance at End of Period
--------------------------- ------------------------
Balance at (1) (2)
Beginning Amounts Amounts (1) (2)
Name of Debtor of Period Additions Collected Written Off Current Not Current
-------------- ---------- ---------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30, 1993:
Receivable from employees of continuing operations:
Receivable from current employees--
Bridge notes and first mortgage loans
*Gary Kell $ 114,000 $ -- $ (53,000) $ -- $ -- $ 61,000
*Ronn Lytle 34,000 -- (34,000) -- -- --
*David Stephens 464,000 12,000 (31,000) -- -- 445,000
Other employees individually less
than $100,000 127,000 74,000 (39,000) -- -- 162,000
Open advances
Employees individually less
than $100,000 74,000 74,000 (69,000) -- 79,000 --
Total receivables from current
employees 813,000 160,000 (226,000) -- 79,000 668,000
Receivables from terminated employees--
Bridge notes and first mortgage loans
Henry Hortenstine 175,000 -- -- -- -- 175,000
Richard Marshall 153,000 -- (153,000) -- -- --
Other terminated employees individually
less than $100,000 107,000 84,000(A) (79,000) -- -- 112,000
Total receivables from terminated
employees 435,000 84,000 (232,000) -- -- 287,000
Total receivables from employees
of continuing operations $1,248,000 $ 244,000 $ (458,000) $ -- $79,000 $955,000
<FN>
*Officers of subsidiaries and affiliates.
(A) Includes accrued interest of $9,000 added to notes principal.
/TABLE
<PAGE>
<TABLE>
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES--(Continued)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
-------------- ---------- ---------- --------------------------- ------------------------
Deductions Balance at End of Period
--------------------------- ------------------------
Balance at (1) (2)
Beginning Amounts Amounts (1) (2)
Name of Debtor of Period Additions Collected Written Off Current Not Current
-------------- ---------- ---------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30, 1992:
Receivable from employees of continuing operations:
Receivable from current employees--
Career Executive Stock Plan(C)
*Ted Enloe $1,298,000 $ -- $ (43,000) $(1,255,000)(A) $ -- $ --
Jess Hay 2,435,000 -- -- (2,435,000)(B) -- --
*David Stephens 100,000 -- -- (100,000)(B) -- --
Gary White 168,000 -- -- (168,000)(B) -- --
*Carey B. Wickland 252,000 -- -- (252,000)(B) -- --
Other employees individually less
than $100,000 267,000 -- -- (267,000)(B) -- --
Bridge notes and first mortgage loans
*Gary Kell 118,000 -- (4,000) -- -- 114,000
*Ronn Lytle 133,000 -- (99,000) -- -- 34,000
*David Stephens 459,000 11,000 (6,000) -- -- 464,000
Other employees individually less
than $100,000 123,000 15,000 (11,000) -- -- 127,000
Open advances
Ted Enloe 106,000 4,000 (110,000) -- -- --
Other employees individually less
than $100,000 84,000 28,000 (38,000) -- 74,000 --
Total receivables from current
employees 5,543,000 58,000 (311,000) (4,477,000) 74,000 739,000
Receivable from terminated employees--
Bridge notes and first mortgage loans
Henry Hortenstine 175,000 -- -- -- -- 175,000
Richard Marshall 155,000 -- (2,000) -- -- 153,000
H. H. Miller, Jr. (deceased) 81,000 -- (64,000) (17,000) -- --
Other terminated employees individually
less than $100,000 187,000 8,000(D) (79,000) (9,000) -- 107,000
Open advances
Other terminated employees individually
less than $100,000 $ 4,000 $ -- $ -- $ (4,000) $ -- $ --
Total receivables from terminated
employees 602,000 8,000 (145,000) (30,000) -- 435,000
Total receivables from employees
of continuing operations $6,145,000 $ 66,000 $ (456,000) $(4,507,000) $74,000 $1,174,000
<FN>
*Officers of subsidiaries and affiliates.
(A) Mr. Enloe terminated his employment with the Company in fiscal 1992, this indebtedness to the Company was sold to a third part
(B) Employees surrendered stock in lieu of cash payment to satisfy receivable in accordance with the terms of the Career Executive
Stock Plan.
(C) Career Executive Stock Plan receivables were written off to reserves established in 1989.
(D) Represents accrued interest added to notes principal.
Note: Beginning balance of each category is different from previous year's ending balance due to the change in employment status
during the year.
</TABLE>
<PAGE>
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Registrant's condensed financial statements for periods prior to
reorganization are not presented as the Registrant had different capital
structure and information for these periods is not meaningful.
LOMAS FINANCIAL CORPORATION
CONDENSED BALANCE SHEET
(in thousands)
June 30, 1994 and 1993
ASSETS
June 30
1994 1993
Cash $ (1,237) $ 1,925
Receivables (including $7,062 and $1,476,
respectively, due from subsidiaries eliminated
in consolidation) 7,689 2,097
Investments (including $170,234 and $262,578,
respectively, investments in subsidiaries
eliminated in consolidation) 188,702 300,857
Less: Allowance for losses (2,383) (633)
194,008 302,321
Fixed assets, prepaid expenses and other assets 4,748 5,061
Net assets of discontinued operations 113,258 174,582
$ 310,777 $483,889
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses
(including $15,295 and $4,070, respectively,
due to subsidiaries eliminated in consolidation) $ 29,424 $ 19,892
Senior convertible notes payable 139,918 139,918
169,342 159,810
Stockholders' Equity:
Common stock 20,100 20,097
Other paid-in capital (including $1,300
eliminated in consolidation) 309,429 309,410
Retained earnings (deficit) (188,094) (5,428)
141,435 324,079
$ 310,777 $483,889
<PAGE>
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Continued)
LOMAS FINANCIAL CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(in thousands)
Years Ended June 30, 1994 and 1993 and Six Months Ended June 30, 1992
Year Ended Six Months
June 30 Ended
1994 1993 June 30, 1992
Revenues:
Investment (excluding dividends
from subsidiaries) $ 3,234 $ 6,244 $ 4,980
Other 4,098 6,644 331
7,332 12,888 5,311
Expenses:
Interest 13,260 12,898 6,428
General and administrative 13,957 7,232 3,867
27,217 20,130 10,295
Loss before federal income tax
equivalent provision and equity
income (loss) of subsidiaries (19,885) (7,242) (4,984)
Federal income tax equivalent benefit -- 7,265 3,439
Equity in net income (loss)
of subsidiaries (88,617) 29,534 13,103
Income (loss) from continuing
operations (108,502) 29,557 11,558
Loss from discontinued operations (74,164) (17,263) (29,280)
Net income (loss) $(182,666) $ 12,294 $(17,722)
Dividends paid by subsidiaries $ 744 $ 21,083 $ 3,985
<PAGE>
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Continued)
LOMAS FINANCIAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
Years Ended June 30, 1994 and 1993 and Six Months Ended June 30, 1992
Year Ended Six Months
June 30 Ended
1994 1993 June 30, 1992
Operating activities:
Income (loss) from continuing
operations $(108,502) $ 29,557 $ 11,558
Noncash items included in the
determination of income (loss)
from continuing operations:
Depreciation and amortization 232 226 108
Provision for losses and
restructuring 4,630 -- --
Equity (income) loss of
subsidiaries 88,617 (29,534) (13,103)
Federal income tax
equivalent benefit -- (7,265) (3,439)
Cash used by operations
before working capital
changes (15,023) (7,016) (4,876)
Net change in receivables, payables
and other assets (3,912) (7,219) (29,348)
(18,935) (14,235) (34,224)
Investing activities:
Purchases of investments (3,525) (997) --
Sales of investments 26,467 4,681 29,583
Other 31 (151) (145)
22,973 3,533 29,438
Financing activities:
Change in receivables/payables
from/(to) subsidiaries 5,639 34,197 13,497
Funding of discontinued LIS
operations (19,854) (23,998) (13,903)
Change in receivables/payables
from/(to) discontinued short term
lending and other real estate
operations 7,015 (6,455) 1,669
(7,200) 3,744 1,263
Net decrease in cash and cash
equivalents (3,162) (6,958) (3,523)
Cash and cash equivalents at
beginning of period 1,925 8,883 12,406
Cash and cash equivalents (deficit)
at end of period $ (1,237) $ 1,925 $ 8,883
<PAGE>
<TABLE>
SCHEDULE IX -- SHORT TERM BORROWINGS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
<CAPTION>
COL. B COL. C COL. D COL. E COL. F
Maximum Average Weighted
Amount Amount Average
Balance at Weighted Outstanding Outstanding Interest Rate
End of Average During the During the During the
Period Interest Rate Period Period(1) Period(2)
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1994:
Notes payable to banks and others $245,570,000 3.64% $428,567,000 $302,531,000 2.46%
Investment lines of credit 72,105,000 1.00% 174,805,000 128,073,000 1.34%
Repurchase agreements -- -- 328,304,000 169,310,000 4.33%
Senior secured working capital credit agreements 22,000,000 7.25% 25,000,000 5,417,000 7.36%
Other 1,372,000 2.00% 8,775,000 2,514,000 2.20%
Year Ended June 30, 1993:
Notes payable to banks and others $248,071,000 1.59% $254,014,000 $213,283,000 1.79%
Investment lines of credit 168,109,000 1.22% 328,294,000 217,704,000 1.11%
Repurchase agreements 99,140,000 3.38% 333,441,000 233,411,000 3.46%
Six Months Ended June 30, 1992:
Notes payable to banks and others $178,104,000 1.60% $224,284,000 $197,374,000 3.06%
Investment lines of credit 289,024,000 1.16% 289,024,000 219,343,000 1.18%
Repurchase agreements 184,960,000 4.01% 184,960,000 141,611,000 4.14%
Six Months Ended December 31, 1991:
Notes payable to banks and others $180,170,000 3.11% $180,170,000 $148,795,000 3.19%
Investment lines of credit -- -- 237,480,000 197,731,000 1.13%
Repurchase agreements 36,273,000 5.25% 134,593,000 95,530,000 5.54%
<FN>
(1) The average amount outstanding during the period was computed using the sum of the actual amount outstanding on each day
divide by the actual days of the year.
(2) The weighted average interest rate during the period was computed by dividing the actual interest expense for the year by
the average short term debt outstanding.
/TABLE
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required for Directors is included in the registrant's
1994 Proxy Statement dated October 3, 1994 issued in connection with its
Annual Meeting to be held November 1, 1994 on pages 6 through 8 under the
caption "Election of Directors," and is incorporated herein by reference,
pursuant to General Instruction G(3).
Executive Officers of the Registrant
JESS HAY--Chief Executive Officer of the Company since 1965; Chairman of
the Board of Directors of LFC since 1969; Chairman of the Board of Directors
of Lomas Mortgage since 1990. Age 63.
JAMES L. CROWSON--Executive Vice President of the Company since 1994;
Director of the Company since 1993; prior thereto, Senior Vice President--
General Counsel of the Company since 1987; Vice Chancellor and General
Counsel of The University of Texas System from 1980 to 1987; previously,
Executive Vice President and Professor of Political Economy at The University
of Texas at Dallas; also a director of Lomas Mortgage. Age 56.
ROBERT E. BYERLEY, JR.--Senior Vice President--Finance and Treasurer of
the Company since 1990; President of Lomas Administrative Services since
1993; Executive Vice President of Lomas Mortgage since 1994; prior thereto,
Vice President--Finance and Treasurer of the Company from 1988 to 1990; Vice
President--Control from 1986 to 1988 and Assistant Vice President--Control of
Lomas Mortgage from 1984 to 1986. Age 34.
M. ROBERT ROOFNER--Senior Vice President--Tax of the Company since 1990;
prior thereto, Vice President--Tax from 1984 to 1990 and Manager of the Tax
Department of the Company from 1983 to 1984. Age 48.
RAMONA TAYLOR--Senior Vice President and Corporate Secretary of the
Company since 1990; prior thereto, Corporate Secretary of the Company from
1975 to 1990. Age 64.
GARY WHITE--Senior Vice President and Controller and Principal
Accounting Officer of the Company since 1981; Executive Vice President and
Controller and Principal Accounting Officer of Lomas Mortgage since 1994;
prior thereto, Vice President--Control from 1979 to 1981 and Treasurer of the
Company from 1974 to 1979; also a director of Lomas Mortgage. Age 59.
GARY H. KELL--President of Lomas Mortgage since 1994; prior thereto,
Executive Vice President--Portfolio Production of Lomas Mortgage from 1985 to
1994; Senior Vice President of Lomas Mortgage from 1979 to 1985. Employed by
Lomas Mortgage since 1969. Age 53.
THOMAS J. CLOONEY--Executive Vice President--Operations of LIS since
1992; previously, Senior Vice President--Accounting of the Company from 1991
to 1992 and, prior thereto, Senior Vice President--Audit from July 1990 to
November 1990, Vice President--Audit from 1988 to June 1990 and Assistant Vice
President--Audit from 1987 to 1988 of the Company. Age 46.
BERT P. HEADDEN--Executive Vice President of Lomas Mortgage since 1994;
prior thereto, Senior Vice President of Lomas Mortgage from 1992 to 1994. Age
51.
FLOYD L. MCGLOTHLIN--Executive Vice President--Sales, Marketing and
Customer Service of LIS since 1992; prior thereto, Senior Vice President from
1985 to 1992 and Vice President from 1982 to 1985 of LIS. Age 45.
LYNDA-ROSS VEGA--Executive Vice President--Systems of LIS since 1992;
prior thereto, Senior Vice President from 1988 to 1992, Vice President from
1986 to 1988 and Second Vice President from 1984 to 1986 of LIS. Age 44.
CAREY B. WICKLAND--President and Chief Operating Officer of LMI since
1987, prior thereto, Executive Vice President of LMI from 1982 to 1987.
Age 53.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is included in the registrant's
1994 Proxy Statement dated October 3, 1994 issued in connection with its
Annual Meeting of Stockholders to be held November 1, 1994 on pages 11
through 20 under the caption "Executive Compensation," and is incorporated
herein by reference, pursuant to General Instruction G(3).
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the registrant's
1994 Proxy Statement dated October 3, 1994 issued in connection with its
Annual Meeting of Stockholders to be held November 1, 1994 on pages 2 through
6 under the caption "Security Ownership of Certain Beneficial Owners and
Management," and is incorporated herein by reference, pursuant to General
Instruction G(3). Notwithstanding the foregoing incorporation by reference to
the registrant's 1994 Proxy Statement, neither (i) the registrant's
"Compensation Committee Report on Executive Compensation" pursuant to Item
402(k) of Regulation S-K nor (ii) the registrant's "Share Investment
Performance" graph pursuant to Item 402(l) of Regulation S-K are incorporated
from the registrant's 1994 Proxy Statement into this Form 10-K, nor shall
such items be deemed "filed" with the Securities and Exchange Commission.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the registrant's
1994 Proxy Statement dated October 4, 1994 issued in connection with its
Annual Meeting of Stockholders to be held November 1, 1994 on pages 21
through 22 under the caption "Transactions with Management and Others," and
is incorporated herein by reference, pursuant to General Instruction G(3).
See also "Item 8. Financial Statements and Supplementary Data--Transactions
with Affiliates."
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) The following consolidated financial statements are included
in Item 8.
Pages
Consolidated Balance Sheet--June 30, 1994 and 1993 31
Statement of Consolidated Operations--Years Ended
June 30, 1994 and 1993, Six Months Ended
June 30, 1992 and Six Months Ended
December 31, 1991 32
Statement of Consolidated Stockholders' Equity--
Years Ended June 30, 1994 and 1993, Six Months
Ended June 30, 1992 and Six Months Ended
December 31, 1991 33
Statement of Consolidated Cash Flows--
Year Ended June 30, 1994 and 1993, Six Months
Ended June 30, 1992 and Six Months Ended
December 31, 1991 34
Notes to Consolidated Financial Statements--
June 30, 1994 36
(2) The following financial statement schedules are included in
Item 8.
Schedule II--Amounts Receivable from Related Parties
and Underwriters, Promoters, and Employees
Other than the Related Parties 65
Schedule III--Condensed Financial Information of
Registrant 69
Schedule IX--Short Term Borrowings 72
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
Financial statements (and summarized financial information) of
unconsolidated subsidiaries and 50-Percent-or-Less-Owned Persons accounted
for by the equity method are not presented because they do not, individually
or in aggregate, constitute a significant subsidiary.
<PAGE>
(3)(a)Exhibits:
Exhibit
Number
(10.1) Amendment No. 1 to Amended and Restated Pledge
Agreement, dated May 25, 1994, between Lomas
Mortgage USA, Inc. and Lehman Brothers Special
Financing Inc.
(10.2) Amendment No. 1 to the Interest Rate and Currency
Exchange Agreement, dated May 25, 1994, between
Lomas Mortgage USA, Inc. and Lehman Brothers
Special Financing Inc.
(10.3) Eleventh Amendment to Servicing Payments Loan and
Security Agreement dated June 30, 1994 among Lomas
Mortgage USA, Inc., the bank signatories thereto
and Bank One, Texas, N.A., as agent.
(10.4) Sixth Amendment to Restated Loan and Security
Agreement dated _____ among Lomas Mortgage USA,
Inc., the bank signatories thereto and Bank One,
Texas, N.A., as administrative agent, and Texas
Commerce Bank National Association, as syndication
agent.
(10.5) Seventh Amendment to Restated Loan and Security
Agreement dated June 30, 1994 among Lomas Mortgage
USA, Inc., the bank signatories thereto and Bank
One, Texas, N.A., as administrative agent, and
Texas Commerce Bank National Association, as
syndication agent.
(10.6) 6/94 Senior Secured Working Capital Credit
Agreement dated June 30, 1994 between Lomas
Mortgage USA, Inc. and Texas Commerce Bank National
Association.
(10.7) 6/94 (third) Amendment to 6/93 Servicing Purchase
Loan Agreement dated June 30, 1994 between Lomas
Mortgage USA, Inc. and Texas Commerce Bank National
Association.
(11) Computation of earnings per share.
(21) List of subsidiaries of the registrant.
(23) Consent of independent auditors.
(b) Reports on Form 8-K:
Form 8-K dated August 2, 1994 reporting the intended retirement
of Jess Hay, the Company's chairman and chief executive
officer, on December 31, 1994. There were no financial
statements filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LOMAS FINANCIAL CORPORATION
Registrant
Date: September 19, 1994 By /S/GARY WHITE
--------------------------
Gary White
Senior Vice President--Control
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: September 19, 1994 By JESS HAY
--------------------------
Jess Hay
Principal Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934 and
in response to General Instruction D to Form 10-K, this report has been
signed below on behalf of the registrant by the following directors on the
dates indicated.
Date: September 21, 1994 By Gene H. Bishop
--------------------------
(Gene H. Bishop)
Date: September 21, 1994 By Robert G. Boucher
--------------------------
(Robert G. Boucher)
Date: September 21, 1994 By Dolph Briscoe
--------------------------
(Dolph Briscoe)
Date: September 19, 1994 By James L. Crowson
--------------------------
(James L. Crowson)
Date: September 19, 1994 By Rod Dammeyer
--------------------------
(Rod Dammeyer)
Date: September 19, 1994 By Mark M. Feldman
--------------------------
(Mark M. Feldman)
Date: September 19, 1994 By Jess Hay
--------------------------
(Jess Hay)
Date: September 19, 1994 By Robert LeBuhn
--------------------------
(Robert LeBuhn)
Date: September 19, 1994 By Robert V. Lindsay
--------------------------
(Robert V. Lindsay)
Date: September 20, 1994 By Reid Nagle
--------------------------
(Reid Nagle)
Date: September 19, 1994 By Diana Natalicio
--------------------------
(Diana Natalicio)
Date: September 20, 1994 By Hugh G. Robinson
--------------------------
(Hugh G. Robinson)
Date: September 21, 1994 By Douglas L. Rock
--------------------------
(Douglas L. Rock)
Date: September 19, 1994 By Harvey M. Schuster
--------------------------
(Harvey M. Schuster)
Date: September 19, 1994 By Paul T. Walker
--------------------------
(Paul T. Walker)
Date: September 20, 1994 By W. Ray Wallace
--------------------------
(W. Ray Wallace)
Date: September 26, 1994 By Paul S. Wolansky
--------------------------
(Paul S. Wolansky)
EXHIBIT 10.1
AMENDMENT NO. 1 TO AMENDED AND RESTATED PLEDGE AGREEMENT
AMENDMENT NO. 1, dated as of May
25, 1994, to the AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of April 7,
1994 (the "Pledge Agreement"), made by Lomas Mortgage USA, Inc. ("Pledgor")
to Lehman Brothers Special Financing Inc. ("Pledgee"). Capitalized terms
used but not defined herein shall have the meanings assigned to them in the
Pledge Agreement.
WHEREAS, Pledgor has entered
into the Pledge Agreement with Pledgee and has agreed to pledge and deliver
any collateral that Pledgor is required to deliver to secure its obligations
under the Agreement or any Swap Transaction pursuant to the terms of the
Pledge Agreement; and
WHEREAS, Pledgor and Pledgee now
wish to amend the Pledge Agreement;
NOW, THEREFORE, for due
consideration, the receipt and sufficiency of which are hereby acknowledged
by Pledgor and Pledgee, the Pledgor and the Pledgee agree that Exhibit A of
the Pledge Agreement, and consequently the definitions of "Mortgage Notes"
and "Mortgage Servicing Collateral" in the Pledge Agreement, shall be amended
by (i) adding the mortgage notes which are described by Pool Number on Annex
I hereto and (ii) upon Pledgor's pledge of the Third Mortgage Servicing
Collateral as described in the letter agreement (the "Letter Agreement")
dated the date hereof between the Pledgor and the Pledgee, by adding the
mortgage notes which are described by pool number on an Annex 2 hereto
delivered to Pledgee substantially in the form of Annex 1 hereto.
As amended by this Amendment No.
1, the Pledge Agreement is in all respects ratified and confirmed and the
Agreement (as supplemented by Confirmations of Swap Transactions and amended
by the Letter Agreement) and the Pledge Agreement (as supplemented by
Confirmations of Swap Transactions and as amended by this Amendment No. 1)
will form a single agreement between Pledgor and Pledgee.
IN WITNESS WHEREOF, Pledgor has
caused this Amendment No. 1 to be duly executed and delivered on the day and
year first above written.
LOMAS MORTGAGE USA, INC.
By: /s/PAUL D. FLETCHER
------------------------------
- ----
Title: Senior Vice President
and
Assistant Treasurer
----------------------------
- -----
EXHIBIT 10.2
LEHMAN BROTHERS
May 25, 1994
Lomas Mortgage USA, Inc.
1600 Viceroy Drive
Dallas, Texas 75235
Attention: Paul Fletcher
Gentlemen:
Reference is made to the
Interest Rate and Currency Exchange Agreement, dated as of July 2, 1992, as
amended by this letter agreement (the "Agreement"), between Lomas Mortgage
USA, Inc. ("Lomas") and Lehman Brothers Special Financing Inc. ("LBSF") and
to the Amended and Restated Master Pledge Agreement, dated as of April 8,
1994, as amended by Amendment No. 1 thereto dated the date hereof (the
"Pledge Agreement"), by Lomas in favor of LBSF.
LBSF hereby demands that Lomas
deliver to LBSF the additional Mortgage Servicing Collateral (as defined in
the Pledge Agreement) described in Amendment No. 1 to the Pledge Agreement
(the "Second Mortgage Servicing Collateral") to be held as Collateral under
and as defined in the Pledge Agreement. This demand is made without limiting
any other rights we may have under the Agreement or the Pledge Agreement,
except that we and you agree that:
(i) for purposes of the
Additional Termination Event in Section 5(b) (iv) (C) of the Agreement and
for purposes of the Credit Support Event specified in Paragraph (3) of Part
5 of the Schedule to the Agreement, the determination of whether Party B has
experienced or is experiencing a material adverse change shall be measured
against the business, assets, operations and financial condition of Party B
on April 1, 1994;
(ii) in addition to the rights
of Party A under the Agreement, unless one or more outstanding Senior Debt
Issues of Party B is rated at least Baa3 as determined by Moody's, or BBB- as
determined by S&P, LBSF shall have the right to retain the Mortgage Servicing
Collateral previously delivered by you (the "Original Mortgage Servicing
Collateral"), LBSF shall have the right to receive and retain the Second
Mortgage Servicing Collateral
LEHMAN BROTHERS SPECIAL FINANCING INC.
LEHMAN BROTHERS INC. AN AMERICAN EXPRESS COMPANY
AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER
NEW YORK 10285-1200 212 640-8811 FAX 212 528 6927
Lomas Mortgage USA, Inc. -2- May 25, 1994
and, at any time the Aggregate Exposure Amount (as defined in the Pledge
Agreement) equals or exceeds $80,000,000, LBSF shall have the right to demand
that you deliver additional Mortgage Servicing Collateral substantially
equivalent to that previously provided or otherwise acceptable to us
("Acceptable Mortgage Servicing Collateral"), relating to a maximum of
$2,000,000,000 principal amount of mortgage notes (the "Third Mortgage
Servicing Collateral") which agreed Third Mortgage Servicing Collateral shall
be listed by pool numbers in an annex which you will furnish to us in the
form contemplated by Amendment No. 1 to the Pledge Agreement;
(iii) upon receipt of
satisfactory evidence of the proper filing of financing statements relating
to the Second Mortgage Servicing Collateral, LBSF will release to you all
amounts held by LBSF and owed to you under the Agreement;
(iv) You agree to deliver to
LBSF not later than the fifteenth day of the month following each calendar
quarter in which Mortgage Servicing Collateral is pledged to us under the
Agreement additional Acceptable Mortgage Servicing Collateral, in an amount
at least equal to the aggregate principal paydown in such quarter on all such
Mortgage Servicing Collateral, to be held as Collateral under the Agreement;
(v) Notwithstanding any
provision of the Pledge Agreement, LBSF shall not be required to release to
you any Mortgage Servicing Collateral unless (x) you have one or more
outstanding Senior Debt Issues that is rated Baa3 or higher as determined by
Moody's, BBB- or higher as determined by S&P, or an equivalent investment
grade rating from an Alternative Rating Service (as defined in the Pledge
Agreement, or (y) no Swap Transactions are outstanding under the Agreement;
and
(vi) You agree that with
respect to each delivery of Mortgage Servicing Collateral contemplated hereby
you will cause appropriate financing statements to be filed and notified to
us as soon as practical and that you will furnish to us an opinion of your
General Counsel substantially in the form previously furnished to us.
This letter shall constitute an
amendment to the Agreement and shall supersede any inconsistent provisions of
the Agreement. Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Agreement.
LEHMAN BROTHERS SPECIAL FINANCING INC.
LEHMAN BROTHERS INC. AN AMERICAN EXPRESS COMPANY
AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER
NEW YORK 10285-1200 212 640-8811 FAX 212 528 6927
Lomas Mortgage USA, Inc. -3- May 25, 1994
Please execute this letter in
the space provided below to indicate your agreement to the terms stated
above.
Very truly yours,
LEHMAN BROTHERS SPECIAL
FINANCING INC.
By:
Name:
Title:
Accepted and Agreed
LOMAS MORTGAGE USA, INC.
By:
Name:
Title:
LEHMAN BROTHERS SPECIAL FINANCING INC.
LEHMAN BROTHERS INC. AN AMERICAN EXPRESS COMPANY
AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER
NEW YORK 10285-1200 212 640-8811 FAX 212 528 6927
EXHIBIT 10.3
SIXTH AMENDMENT TO RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT is entered into as of June 8, 1994, between LOMAS
MORTGAGE USA, INC., a Connecticut corporation (the "Company"), the banks
listed on the signature pages below ("Lenders"), BANK ONE, TEXAS, N.A., as
Administrative Agent (in that capacity "Administrative Agent"), and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, as Syndication Agent (together with
Administrative Agent "Agents").
The Company, Lenders, and Agents have entered into the Restated
Loan and Security Agreement dated as of July 8, 1993 (as amended through the
date of this amendment and as further renewed, extended, amended, and
restated, the "Loan Agreement"), providing for loans to the Company on a
revolving basis. The Company has requested an amendment to the Loan
Agreement in order to approve the addition of certain "Investors" under the
Loan Agreement. Accordingly, for adequate and sufficient consideration, the
parties agree as follows:
1. Certain Definitions. Unless otherwise specified in this
amendment (a) all terms defined in the Loan Agreement have the same meanings
when used in this amendment and (b) all references to "Sections" and
"Schedules" are references to the Loan Agreement's sections and schedules.
2. Amendment. Schedule 1.1(b) is entirely amended in the form of
- -- and all references in the Loan Papers to it shall be to -- the attached
Second Amended 1.1(b)
3. Conditions Precedent. The foregoing is not effective unless
(a) Agents have received counterparts of this amendment executed by the
Company, by Agents, and at least by Determining Lenders and (b) all of the
representations and warranties -- in this amendment and in all other Loan
Papers are true and correct as of -- as if made on -- the date of this
amendment.
4. Ratifications. This amendment modifies and supersedes all
inconsistent terms and provisions of the other Loan Papers. Except as
expressly modified and superseded by this amendment, the terms and provisions
of the other Loan Papers are ratified and confirmed and continue in full
force and effect. The Company, Determining Lenders, and Agents agree that
the Loan Papers, as amended by this amendment, continue to be legal, valid,
binding, and enforceable in accordance with their respective terms. The
Company ratifies and confirms that all Liens granted to Agents, on behalf of
Lenders, were intended to, do, and continue to secure the full payment and
performance of the Obligations. The Company shall perform such acts and duly
authorize, execute, acknowledge, deliver, file, and record such additional
documents as either Agent or any Lender may reasonably request in order to
perfect and protect such Liens and preserve and protect the rights of Agents
and Lenders in respect of all present and future Collateral.
5. Representations and Warranties. The Company represents and
warrants to Lenders and Agents that (a) this amendment and the other Loan
Papers to be delivered under this amendment have been duly authorized,
executed, and delivered by the Company, (b) no action of, or filing with, any
Tribunal is required to authorize, or is otherwise required in connection
with, the execution, delivery, and performance by the Company of this
amendment and those other Loan Papers (c) this amendment and those other Loan
Papers are valid and binding upon the Company and are enforceable against the
Company in accordance with their respective terms, except as limited by the
Bankruptcy Code of the United States of America and all other similar Laws
affecting the rights of creditors generally, (d) the execution, delivery, and
performance by the Company of this amendment and those other Loan Papers do
not require the consent of any other Person and do not and will not
constitute a violation of any Laws, agreement, or understanding to which the
Company is a party or by which the Company is bound, (e) the representations
and warranties in the Loan Agreement, as amended by this amendment, and each
other Loan Paper are true and correct in all material respects on and as of
the date of this amendment as though made as of the date of this amendment,
and (f) as of the date of this amendment, no Default or Potential Default
exists.
6. References. All references in the Loan Papers to the "Loan
Agreement" refer to the Loan Agreement as amended by this amendment. Because
this amendment is a "Loan Paper" referred to in the Loan Agreement, then the
provisions relating to Loan Papers in Section 10 are incorporated in this
amendment by reference, the same as if included in this amendment verbatim.
7. Counterparts. This amendment may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document, and all of those counterparts must be construed together to
constitute one and the same document.
8. Parties Bound. This amendment binds and inures to the
Company, Agents, each Lender, and (subject to Section 10.10) their respective
successors and assigns.
9. ENTIRETY. THIS AMENDMENT, THE LOAN AGREEMENT AS AMENDED BY
IT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES FOR THE TRANSACTIONS THEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXECUTED as of the date first stated.
Lomas Mortgage USA, Inc. LOMAS MORTGAGE USA, INC., as the Company
1600 Viceroy Drive
Dallas, Texas 75235
Attn: Robert E. Byerley, Jr.,
Executive Vice President
and Assistant Treasurer By /s/ROBERT E. BYERLEY, JR.
-------------------------------------
Telecopy: 214/879-7018 Robert E. Byerley, Jr.,
Executive Vice President and Treasurer
Third Floor, 1717 Main Street BANK ONE, TEXAS, N.A.,
Mortgage Finance Group as Administrative Agent and a Lender
Dallas, Texas 75201
Attn: Kathleen C. Stewart,
Vice President
Telecopy: 214/290-2275 By /s/KATHLEEN C. STEWART
-------------------------------------
Kathleen C. Stewart, Vice President
Texas Commerce Bank National TEXAS COMMERCE BANK NATIONAL
Association ASSOCIATION, as Syndication Agent
717 Travis Street and a Lender
Houston, Texas 77002
Attn: Carlotta M. Hudler,
Vice President
Telecopy: 713/216-2082 By /s/CARLOTTA M. HUDLER
-------------------------------------
Carlotta M. Hudler, Vice President
First Bank Place, FIRST BANK NATIONAL ASSOCIATION,
2nd Floor MPFP0801 as a Lender
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attn: Lee L. Weber
Assistant Vice President
Telecopy: 612/973-0826 By /s/LEE L. WEBER
-------------------------------------
Lee L. Weber, Assistant Vice President
8333 Douglas Avenue GUARANTY FEDERAL BANK, F.S.B.,
Dallas, Texas 75255 as a Lender
Attn: Abbie Y. Tidmore,
Vice President
Telecopy: 214/360-1660 By /s/ABBIE Y. TIDMORE
-------------------------------------
Abbie Y. Tidmore, Vice President
280 Park Avenue, 23 West BANKERS TRUST COMPANY, as a Lender
New York, New York 10017
Attn: Glenn Minkoff
Vice President
Telecopy: 212/454-3821 By /s/GLENN MINKOFF
-------------------------------------
Matthew C. Bernstein, Vice President
313 Carondelet HIBERNIA NATIONAL BANK, as a Lender
Suite 1400
New Orleans, Louisiana 70130
Attn: Mark L. Freeman,
Assistant Vice President
Telecopy: 504/584-2042 By /s/MARK L. FREEMAN
-------------------------------------
Mark L. Freeman, Assistant Vice
President
6222 Wilshire Blvd. BANK HAPOALIM, B.M.,
Los Angeles, California 90048 LOS ANGELES BRANCH, as a Lender
Attn: Robert Pollak,
Vice President
Telecopy: 213/937-1439 By /s/ROBERT POLLAK
-------------------------------------
Robert Pollak, Vice President
By /s/SHUMEL SHABKED
-------------------------------------
Name Shumel Shabked
----------------------------------
Title Senior Vice President and
Manager
----------------------------------
75 Wall Street DRESDNER BANK, AG, NEW YORK BRANCH,
New York, New York 10005-2889 as a Lender
Attn: Charles H. Hill,
Vice President
Telecopy: 212/574-0129 By /s/CHARLES H. HILL
-------------------------------------
Name Charles H. Hill
----------------------------------
Title Vice President
---------------------------------
By /s/R. MATTHEW SCHERER
-------------------------------------
Name R. Matthew Scherer
----------------------------------
Title Vice President
---------------------------------
100 Federal Street 01-32-041 THE FIRST NATIONAL BANK OF BOSTON,
Boston, MA 02110 as a Lender
Attn: Corinne M. Barrett,
Vice President
Telecopy: 617/434-7108 By
-------------------------------------
Corinne M. Barrett, Vice President
One Marine Midland Center, MARINE MIDLAND BANK, as a Lender
15th Floor
Buffalo, New York 14203
Attn: William F. Dentinger
Vice President
Telecopy: 716/841-2707 By /s/WILLIAM F. DENTINGER
-------------------------------------
William F. Dentinger, Vice President
380 Madison Avenue BANK OF SCOTLAND, as a Lender
New York, New York 10017
Attn: Catherine M. Oniffrey,
Vice President
Telecopy: 212/557-9460 By
-------------------------------------
Catherine M. Oniffrey, Vice President
1601 Elm Street, 2nd Floor COMERICA BANK - TEXAS, as a Lender
Dallas, Texas 75201
Attn: W. James Meintjes,
Banking Officer
Telecopy: 214/979-8344 By
-------------------------------------
W. James Meintjes, Banking Officer
1230 Peachtree Street, NE, COMMERZBANK AKTIENGESELLSCHAFT,
Suite 3500 ATLANTA AGENCY, as a Lender
Atlanta, Georgia 30309
Attn: Harry P. Yergey,
Vice President
Telecopy: 404/888-6539 By /s/ANDREAS BREMER
-------------------------------------
Andreas Bremer, Senior Vice President
By /s/HARRY P. YERGEY
-------------------------------------
Harry P. Yergey, Vice President
499 Thornall Street MIDLANTIC NATIONAL BANK, as a Lender
Edison, New Jersey 08837
Attn: Glenn A. Hedde,
Vice President
Telecopy: 908/321-2094 By
-------------------------------------
Glenn A. Hedde, Vice President
7485 New Horizon Way THE PRUDENTIAL HOME MORTGAGE
Frederick, Maryland 21701 COMPANY, INC., as a Lender
Attn: Russell R. Anderson,
Vice President
Telecopy: 301/696-7405 By /s/RUSSELL R. ANDERSON
-------------------------------------
Russell R. Anderson, Vice President
640 Fifth Avenue, 15th Floor BANK OF IRELAND GRAND CAYMAN BRANCH,
New York, New York 10019 as a Lender
Attn: Roger M. Burns,
Vice President
Telecopy: 212/586-7752 By
-------------------------------------
Roger M. Burns, Vice President
15 South 20th Street, 15th Floor COMPASS BANK, as a Lender
Birmingham, Alabama 35233
Attn: John D. West,
Mortgage Banking Officer
Telecopy: 205/715-7994 By /s/JOHN D. WEST
-------------------------------------
John D. West, Mortgage Banking Officer
231 South LaSalle Street CONTINENTAL BANK N.A., as a Lender
Chicago, Illinois 60697
Attn: Mary Jo Hoch,
Vice President
Telecopy: 312/987-5833 By /s/MARY JO HOCH
-------------------------------------
Mary Jo Hoch, Vice President
1 Mercantile Center MERCANTILE BANK OF ST. LOUIS NATIONAL
7th & Washington ASSOCIATION, as a Lender
St. Louis, Missouri 63101
Attn: Michael P. Lane,
Assistant Vice President
Telecopy: 314/425-2162 By /s/MICHAEL P. LANE
-------------------------------------
Michael P. Lane, Assistant Vice
President
66th Floor, NationsBank Plaza NATIONSBANK OF TEXAS, N.A., as a Lender
901 Main Street
Dallas, Texas 75202
Attn: Beth Sorensen
Senior Vice President
Telecopy: 214/508-0604 By /s/BETH SORENSEN
-------------------------------------
Beth Sorensen, Senior Vice President
800 East Main Street SIGNET BANK/MARYLAND, as a Lender
Richmond, Virginia 26260
Attn: Susan Rare,
Vice President
Telecopy: 804/771-7151 By /s/SUSAN RARE
-------------------------------------
Susan Rare, Vice President
<PAGE>
THIRD AMENDED SCHEDULE 1.1(b)
INVESTORS
I. Bond Programs
Program Trustee
Bexar County Housing Finance Corp.,
Series 1990 Ameritrust Texas, N.A.
Brevard County Housing Finance
Authority, Series 1991C Sun Bank, N.A.
East Texas Housing Finance Corp.,
Series 1992A Ameritrust Texas, N.A.
Harris County Housing Finance
Corporation, Series 1991 Texas Commerce Bank, N.A.
Housing Finance Authority of Manatee
County, FL; Series 1991A NationsBank Trust Co. (FL), N.A.
Housing Finance Authority of
Palm Beach County, FL; Series 1992A NationsBank Trust Co. (FL), N.A.
New Orleans Home Mortgage Authority,
Series 1991A First National Bank of Commerce
Travis County Housing Finance
Corp., Series 1991, A&B Ameritrust Texas, N.A.
Orange County Housing Finance
Authority, Series 1992 A & B Sun Bank, N.A.
Housing Finance Authority of
Pinellas County, Series 1991 B NationsBank Trust Co. (FL), N.A.
Central Texas Housing Finance
Corp., Series 1991 NCNB Texas National Bank Ft. Worth
Escambia County Housing Finance
Authority, Series 1992 NationsBank Trust Co. (FL)
Northeast Texas Housing Finance
Corp., Series 1991 NCNB Texas National Bank Ft. Worth
Texas Dept. of Housing & Community
Affairs; No.45 Team Bank, Ft. Worth
Texas Dept. of Housing & Community
Affairs Bond Program No. 44,
Series 1991 Team Bank, Ft. Worth
II. Pension Funds
California Public Employees Retirement System
III. Investment Banks
Donaldson, Lufkin & Jenrette Securities Corp.
Goldman, Sachs & Company
Paine Webber, Inc.
Rauscher Pierce Refsnes, Inc.
Salomon Brothers, Inc.
The First Boston Corporation
Shearson/Lehman Brothers, Inc.
Smith Barney Harris Hupham & Company, Inc.
Kidder, Peabody, Inc.
Merrill Lynch & Company, Inc.
Merrill Lynch Government Securities, Inc.
IV. Other
Veterans Land Board of the State of Texas
Prudential Securities Realty Funding Corporation
Guaranty Federal Bank, F.S.B.
Capstead Mortgage Corporation
Citibank, N.A.
Citicorp Securities, Inc.
Norwest Funding, Inc.
The Prudential Home Mortgage, Inc.
Residential Funding Corporation
EXHIBIT 10.4
SEVENTH AMENDMENT TO RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT is executed and -- unless otherwise specified below --
effective as of September 15, 1994, between LOMAS MORTGAGE USA, INC., a
Connecticut corporation (the "Company"), the banks listed on the signature
pages below ("Lenders"), BANK ONE, TEXAS, N.A., as Administrative Agent (in
that capacity "Administrative Agent"), and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Syndication Agent (together with Administrative Agent,
"Agents").
The Company, Lenders, and Agents have entered into the Restated Loan and
Security Agreement dated as of July 8, 1993 (as amended through the date of
this amendment and as further renewed, extended, amended, and restated, the
"Loan Agreement"), providing for loans to the Company on a revolving basis.
The Company has requested amendments to the Loan Agreement in order to amend
the Swing Commitment, to reduce the minimum Consolidated Net Worth covenant,
to reduce the total Commitments to $120,000,000, to fully terminate certain
Lenders' Commitments, and to reallocate the remaining Commitments.
Accordingly, for adequate and sufficient consideration, the parties agree as
follows:
1. Certain Definitions. Unless otherwise specified in this amendment
(a) all terms defined in the Loan Agreement have the same meanings when used
in this amendment and (b) all references to "Sections" and "Schedules" are
references to the Loan Agreement's sections and schedules.
2. Notice of Termination. In accordance with Section 2.4(b), the
Company hereby gives immediate and irrevocable notice of the full
termination, effective September 15, 1994, of the Commitments of those
Lenders not listed on the attached Second Amended Schedule 1.1(a). The
Company shall make the mandatory prepayment to those Lenders required by
Section 2.7(c) on September 15, 1994.
3. Amendments.
(a) Effective as of September 15, 1994, the following definition
in Section 1.1 is entirely amended as follows:
"Swing Commitment" means the $20,000,000 facility provided
solely by Administrative Agent.
(b) Effective as of June 30, 1994, Section 7.4 is entirely amended
as follows:
7.4 Consolidated Net Worth. Permit its Consolidated Net
Worth to be less than the greater of either (i) the amount required
by FHA, FHLMC, FNMA, VA, and GNMA at any and all times for
maintaining the Company's status as an approved mortgagee,
seller/servicer, or issuer, or (ii) $175,000,000.
(c) Effective September 15, 1994, Schedule 1.1(a) is amended in
its entirety -- and all references in the Loan Papers to it are changed
to -- the attached Second Amended Schedule 1.1(a). On September 15,
1994, the Company shall prepay to the Lenders named on the attached
Second Amended Schedule 1.1(a) the Borrowing Excess that exists on that
date.
4. Conditions Precedent. Paragraph 2 is effective when this amendment
is executed by the Company without requirement that it be executed by any
other party. Paragraph 3, however, is not effective unless (a) Agents
receive counterparts of this amendment executed by the Company, by Agents,
and all Lenders, (b) Agents receive an officer's certificate dated as of the
date of this amendment, executed by the Company's secretary or assistant
secretary, certifying resolutions adopted by its directors authorizing the
transactions contemplated in this amendment, incumbency of officers, and any
changes to its charter or bylaws, if any, (c) Administrative Agent receives
a Swing Note dated the date of this amendment, executed by the Company,
payable to Administrative Agent's order, and in the stated principal amount
of $20,000,000, (d) Administrative Agent receives Ratable Notes dated the
date of this amendment, executed by the Company, and payable to each Lender
named -- and in the stated principal amount of its Commitment stated -- on
the attached Second Amended Schedule 1.1(a), and (e) all of the
representations and warranties -- in this amendment and in all other Loan
Papers are true and correct as of -- as if made on -- the date of this
amendment. The foregoing notice of termination is immediately effective and
is not subject to these conditions precedent.
5. Ratifications. This amendment modifies and supersedes all
inconsistent terms and provisions of the other Loan Papers. Except as
expressly modified and superseded by this amendment, the terms and provisions
of the other Loan Papers are ratified and confirmed and continue in full
force and effect. The Company, Determining Lenders, and Agents agree that
the Loan Papers, as amended by this amendment, continue to be legal, valid,
binding, and enforceable in accordance with their respective terms. The
Company ratifies and confirms that all Liens granted to Agents, on behalf of
Lenders, were intended to, do, and continue to secure the full payment and
performance of the Obligations. The Company shall perform such acts and duly
authorize, execute, acknowledge, deliver, file, and record such additional
documents as either Agent or any Lender may reasonably request in order to
perfect and protect such Liens and preserve and protect the rights of Agents
and Lenders in respect of all present and future Collateral.
6. Representations and Warranties. The Company represents and
warrants to Lenders and Agents that this amendment and the other Loan
Papers to be delivered under this amendment have been duly authorized,
executed, and delivered by the Company, (b) no action of, or filing with, any
Tribunal is required to authorize, or is otherwise required in connection
with, the execution, delivery, and performance by the Company of this
amendment and those other Loan Papers (c) this amendment and those other Loan
Papers are valid and binding upon the Company and are enforceable against the
Company in accordance with their respective terms, except as limited by the
Bankruptcy Code of the United States of America and all other similar Laws
affecting the rights of creditors generally, (d) the execution, delivery, and
performance by the Company of this amendment and those other Loan Papers do
not require the consent of any other Person and do not and will not
constitute a violation of any Laws, agreement, or understanding to which the
Company is a party or by which the Company is bound, (e) the representations
and warranties in the Loan Agreement, as amended by this amendment, and each
other Loan Paper are true and correct in all material respects on and as of
the date of this amendment as though made as of the date of this amendment,
and (f) as of the date of this amendment, no Default or Potential Default
exists.
7. References. All references in the Loan Papers to the "Loan
Agreement" refer to the Loan Agreement as amended by this amendment. Because
this amendment is a "Loan Paper" referred to in the Loan Agreement, then the
provisions relating to Loan Papers in Section 10 are incorporated in this
amendment by reference, the same as if included in this amendment verbatim.
8. Counterparts. This amendment may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document, and all of those counterparts must be construed together to
constitute one and the same document.
9. Parties Bound. This amendment binds and inures to the Company,
Agents, each Lender, and (subject to Section 10.10) their respective
successors and assigns.
10. ENTIRETY. THIS AMENDMENT, THE LOAN AGREEMENT AS AMENDED BY IT, AND
THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES FOR
THE TRANSACTIONS THEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE(S) FOLLOW.
<PAGE>
EXECUTED as of the date first stated -- but effective as provided -- in this
amendment.
Lomas Mortgage USA, Inc. LOMAS MORTGAGE USA, INC., as the Company
1600 Viceroy Drive
Dallas, Texas 75235
Attn: Paul D. Fletcher
Senior Vice President
and Treasurer By /s/PAUL D. FLETCHER
-------------------------------------
Telecopy: 214/879-7018 Paul D. Fletcher
Senior Vice President and Treasurer
Fourth Floor, 1717 Main Street BANK ONE, TEXAS, N.A.,
Mortgage Finance Group as Administrative Agent and a Lender
Dallas, Texas 75201
Attn: Kathleen C. Stewart,
Vice President
Telecopy: 214/290-2275 By /s/KATHLEEN C. STEWART
-------------------------------------
Kathleen C. Stewart, Vice President
Texas Commerce Bank National TEXAS COMMERCE BANK NATIONAL
Association ASSOCIATION, as Syndication Agent and a
717 Travis Street Lender
Houston, Texas 77002
Attn: Carlotta M. Hudler,
Vice President
Telecopy: 713/216-2082 By /s/CARLOTTA M. HUDLER
-------------------------------------
Carlotta M. Hudler, Vice President
First Bank Place, FIRST BANK NATIONAL ASSOCIATION,
2nd Floor MPFP0801 as a Lender
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attn: Kathlyn K. Slater,
Vice President
Telecopy: 612/973-0826 By /s/KATHLYN K. SLATER
-------------------------------------
Kathlyn K. Slater, Vice President
8333 Douglas Avenue GUARANTY FEDERAL BANK, F.S.B.,
Dallas, Texas 75255 as a Lender
Attn: Abbie Y. Tidmore,
Vice President
Telecopy: 214/360-1660 By /s/ABBIE Y. TIDMORE
-------------------------------------
Abbie Y. Tidmore, Vice President
280 Park Avenue, 23 West BANKERS TRUST COMPANY, as a Lender
New York, New York 10017
Attn: Glenn Minkoff
Vice President
Telecopy: 212/454-3821 By /s/GLENN MINKOFF
-------------------------------------
Glenn Minkoff, Vice President
313 Carondelet HIBERNIA NATIONAL BANK, as a Lender
Suite 1400
New Orleans, Louisiana 70130
Attn: Mark L. Freeman,
Assistant Vice President
Telecopy: 504/584-2042 By /s/MARK L. FREEMAN
-------------------------------------
Mark L. Freeman, Assistant Vice
President
6222 Wilshire Blvd. BANK HAPOALIM, B.M.,
Los Angeles, California 90048 LOS ANGELES BRANCH, as a Lender
Attn: Robert Pollak,
Vice President
Telecopy: 213/937-1439 By /s/ROBERT POLLAK
-------------------------------------
Robert Pollak, Vice President
By /s/SHUMEL SHAKBED
-------------------------------------
Name Shumel Shakbed
----------------------------------
Title Senior Vice President and
Manager
---------------------------------
75 Wall Street DRESDNER BANK, AG, NEW YORK BRANCH,
New York, New York 10005-2889 as a Lender
Attn: Charles H. Hill,
Vice President
Telecopy: 212/574-0129 By /s/CHARLES H. HILL
-------------------------------------
Name Charles H. Hill
----------------------------------
Title Vice President
---------------------------------
By /s/PETER BECKER
-------------------------------------
Name Peter Becker
----------------------------------
Title Vice President
---------------------------------
100 Federal Street 01-32-041 THE FIRST NATIONAL BANK OF BOSTON,
Boston, MA 02110 as a Lender
Attn: Corinne M. Barrett,
Vice President
Telecopy: 617/434-7108 By /s/CORINNE M. BARRETT
-------------------------------------
Corinne M. Barrett, Vice President
One Marine Midland Center, MARINE MIDLAND BANK, as a Lender
15th Floor
Buffalo, New York 14203
Attn: Jamie M. Eberhardt
Assistant Vice President
Telecopy: 716/841-2707 By /s/JAMIE M. EBERHARDT
-------------------------------------
Jamie M. Eberhardt,
Assistant Vice President
565 Fifth Avenue, Fifth Floor BANK OF SCOTLAND, as a Lender
New York, New York 10017
Attn: Catherine M. Oniffrey,
Vice President
Telecopy: 212/557-9460 By /s/CATHERINE M. ONIFFREY
-------------------------------------
Catherine M. Oniffrey, Vice President
1601 Elm Street, 2nd Floor COMERICA BANK - TEXAS, as a Lender
Dallas, Texas 75201
Attn: Timothy Hopkins
Vice President
Telecopy: 214/979-8344 By /s/TIMOTHY HOPKINS
-------------------------------------
Timothy Hopkins, Vice President
1230 Peachtree Street, NE, COMMERZBANK AKTIENGESELLSCHAFT,
Suite 3500 ATLANTA AGENCY, as a Lender
Atlanta, Georgia 30309
Attn: Harry P. Yergey,
Vice President
Telecopy: 404/888-6539 By /s/ANDREAS BREMER
-------------------------------------
Andreas Bremer, Senior Vice President
By /s/HARRY P. YERGEY
-------------------------------------
Harry P. Yergey, Vice President
499 Thornall Street MIDLANTIC NATIONAL BANK, as a Lender
Edison, New Jersey 08837
Attn: Glenn A. Hedde,
Vice President
Telecopy: 908/321-2094 By /s/GLENN A. HEDDE
-------------------------------------
Glenn A. Hedde, Vice President
7485 New Horizon Way THE PRUDENTIAL HOME MORTGAGE
Frederick, Maryland 21701 COMPANY, INC., as a Lender
Attn: Russell R. Anderson,
Vice President
Telecopy: 301/696-7405 By /s/RUSSELL R. ANDERSON
-------------------------------------
Russell R. Anderson, Vice President
640 Fifth Avenue, 15th Floor BANK OF IRELAND GRAND CAYMAN BRANCH,
New York, New York 10019 as a Lender
Attn: Roger M. Burns,
Vice President
Telecopy: 212/586-7752 By /s/ROGER M. BURNS
-------------------------------------
Roger M. Burns, Vice President
15 South 20th Street, 15th Floor COMPASS BANK, as a Lender
Birmingham, Alabama 35233
Attn: John D. West,
Mortgage Banking Officer
Telecopy: 205/715-7994 By /s/JOHN D. WEST
-------------------------------------
John D. West, Mortgage Banking Officer
333 Clay Street BANK OF AMERICA, N.T. & S.A., as a Lender
Houston, TX 77002
Attn: Claire Liu,
Vice President
Telecopy: 713/651-4841 By /s/CLAIRE LIU
-------------------------------------
Claire Liu, Vice President
1 Mercantile Center MERCANTILE BANK OF ST. LOUIS NATIONAL
7th & Washington ASSOCIATION, as a Lender
St. Louis, Missouri 63101
Attn: Michael P. Lane,
Assistant Vice President
Telecopy: 314/425-2162 By /s/MICHAEL P. LANE
-------------------------------------
Michael P. Lane, Assistant Vice
President
66th Floor, NationsBank Plaza NATIONSBANK OF TEXAS, N.A., as a Lender
901 Main Street
Dallas, Texas 75202
Attn: Maureen Macan,
Senior Vice President
Telecopy: 214/508-0604 By /s/MAUREEN MACAN
-------------------------------------
Maureen Macan, Senior Vice President
800 East Main Street SIGNET BANK/MARYLAND, as a Lender
Richmond, Virginia 26260
Attn: Susan Raher,
Vice President
Telecopy: 804/771-7151 By /s/SUSAN RAHER
-------------------------------------
Susan Raher, Vice President
<PAGE>
SECOND AMENDED SCHEDULE 1.1(a)
Payee Principal
Bank One, Texas, N.A. $40,000,000
Texas Commerce Bank National Association $40,000,000
First Bank National Association $20,000,000
Guaranty Federal Bank, F.S.B. $20,000,000
Total Commitment $120,000,000
EXHIBIT 10.5
ELEVENTH AMENDMENT TO SERVICING PAYMENTS
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT is executed and -- unless otherwise specified below --
effective as of September 15, 1994, between LOMAS MORTGAGE USA, INC., a
Connecticut corporation (the "Company"), the banks listed on the signature
pages of this amendment ("Banks"), and BANK ONE, TEXAS, N.A., as agent for
Banks (in that capacity "Agent").
The Company, Banks, and Agent have entered into the Servicing Payments
Loan and Security Agreement dated as of February 11, 1992 (as amended through
the date of this amendment and as further renewed, extended, amended, and
restated, the "Loan Agreement"), providing for loans to the Company on a
revolving basis up to $25,000,000 outstanding at any time. The Company has
requested amendments to the Loan Agreement in order to amend certain
recitals, to reduce the minimum Consolidated Net Worth covenant under the
Loan Agreement, to increase the total Committed Sums to $30,000,000, and to
add First Bank National Association as a Bank with a Committed Sum of
$5,000,000. Accordingly, for adequate and sufficient consideration, the
Company, Banks, and Agent agree as follows:
1. Certain Definitions. Unless otherwise stated in this amendment (a)
terms defined in the Loan Agreement have the same meanings when used in this
amendment and (b) references to "Sections" and "Schedules" are to sections
and schedules of or to the Loan Agreement.
2. Amendments.
(a) Effective as of September 15, 1994, Recitals B(1) through (3)
are amended in their entirety as follows:
(1) under this agreement never exceeds $30,000,000, (2) the
portions thereof (or GNMA Advances) made for Servicing Payments for
GNMA I Pools or GNMA II Pools and Loan Packages never exceeds
$15,000,000, and (3) the portion thereof made for Other Advances
(as defined in this agreement) never exceeds $15,000,000.
(b) Effective as of September 15, 1994, Section 2.1(b) is entirely
amended as follows:
(b) Upon the Company's Advance Request therefor, provided
that (i) the Aggregate Advances may never exceed the lesser of the
Aggregate Committed Sum and the Servicing Portfolio Value, (ii) the
aggregate unpaid balance of GNMA Advances may never exceed
$15,000,000, (iii) the aggregate unpaid balance of all Other
Advances may never exceed $15,000,000, (iv) no Advance may exceed
95% of the aggregate Servicing Payments to be paid by or for the
account of the Company with such Advance, (v) no Advance may be
made to reimburse the Company for any Servicing Payments it has
already made from its own funds, previous Advances, or otherwise,
(vi) no Advance may be made during the five-day period under
Section 2.7(d)(iii), and (vii) no Advance may be made on a day that
is not a Business Day or on or after the Termination Date; and
(c) Effective as of September 15, 1994, Section 2.11(a) is
entirely amended as follows:
(a) On September 15, 1994, the Company shall pay to Agent for
First Bank National Association a facility fee of $2,604.17.
(d) Effective as of June 30, 1994, Section 7.4 is entirely amended
as follows:
7.4 Consolidated Net Worth. Permit its Consolidated Net Worth to
be less than the greater of either (i) the amount required by FHA,
FHLMC, FNMA, VA, and GNMA at any and all times for maintaining the
Company's status as an approved mortgagee, seller/servicer, or issuer,
or (ii) $175,000,000.
(e) Effective as of September 15, 1994, Schedule 1.1 is amended in
its entirety -- and all references in the Loan Papers to it are changed
to -- the attached Third Amended Schedule 1.1.
(f) Effective as of September 15, 1994, Exhibit C is amended in
its entirety -- and all references in the Loan Papers to it are changed
to -- the attached Third Amended Exhibit C.
3. Conditions Precedent. The foregoing is not effective unless (a)
Agent receives counterparts of this amendment executed by the Company, Agent,
and all Banks, (b) Agent receives an officer's certificate dated the
effective date of this amendment, executed by the Company's Secretary or
Assistant Secretary, certifying resolutions adopted by directors authorizing
the transactions contemplated in this amendment, incumbency of officers, and
changes to its charter or bylaws, if any, (c) First Bank National Association
receives a Note dated the date of this amendment, executed by Borrower,
payable to the order of First Bank National Association, and in the stated
principal amount of $5,000,000, and (d) all of the representations and
warranties -- in this amendment and in all other Loan Papers are true and
correct as of -- as if made on -- the date of this amendment.
4. Ratifications. This amendment modifies and supersedes all
inconsistent terms and provisions of the Loan Papers, and, except as
expressly modified and superseded by this amendment, the Loan Papers are
ratified and confirmed and continue in full force and effect. The Company,
Banks, and Agent agree that the Loan Papers as amended by this amendment
continue to be legal, valid, binding, and enforceable in accordance with
their respective terms. Without limiting the generality of the foregoing,
the Company ratifies and confirms that all Liens (except as amended by this
amendment) heretofore granted to Agent, on behalf of Banks, were intended to,
do, and continue to secure the full payment and performance of the
Obligations, and the Company agrees to perform such acts and duly authorize,
execute, acknowledge, deliver, file, and record such additional assignments,
security agreements, modifications or amendments to any of the foregoing, and
such other agreements, documents, and instruments as Agent or any Bank may
reasonably request in order to perfect and protect those Liens and preserve
and protect the rights of Agent and Banks in respect of all present and
future Collateral.
5. Representations and Warranties. The Company represents and
warrants to Banks and Agent that (a) this amendment and the Loan Papers to be
delivered under this amendment have been duly executed and delivered by the
Company, (b) no action of, or filing with, any Tribunal is required to
authorize, or is otherwise required in connection with, the execution,
delivery, and performance by the Company of this amendment and the Loan
Papers to be delivered under this amendment, (c) this amendment and the Loan
Papers to be delivered under this amendment are valid and binding upon the
Company and are enforceable against the Company in accordance with their
respective terms, except as limited by the Bankruptcy Code of the United
States of America and all other similar Laws affecting the rights of
creditors generally, (d) the execution, delivery and performance by the
Company of this amendment and the Loan Papers to be delivered under this
amendment do not require the consent of any other Person and do not and will
not constitute a violation of any laws, agreement, or understanding to which
the Company is a party or by which the Company is bound, (e) the
representations and warranties contained in the Loan Agreement, as amended by
this amendment, are true and correct in all material respects except to the
extent that (i) the representations and warranties speak to a specific date
or (ii) the facts on which the representations and warranties were based have
been changed by transactions contemplated or permitted by the Loan Agreement
as of the date of this amendment, (f) as of the date of this amendment, no
Event of Default or Potential Default has occurred and is continuing, and (g)
no change in the financial condition or prospect of the Company which could
reasonably be expected to be a Material Adverse Event has or will have
occurred.
6. References. All references in the Loan Papers to the "Loan
Agreement" refer to the Loan Agreement as amended by this amendment, and,
because this amendment is a "Loan Paper" referred to in the Loan Agreement,
then the provisions relating to Loan Papers in Section 10 are incorporated in
this amendment by reference, the same as if set forth verbatim in this
amendment.
7. Counterparts. This amendment may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document. All counterparts must be construed together to constitute one and
the same instrument.
8. Parties Bound. This amendment binds and inures to the Company,
Agent, each Bank, and, subject to Section 10.10, their respective successors
and assigns.
9. ENTIRETY. THIS AMENDMENT, THE LOAN AGREEMENT AS AMENDED BY THIS
AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES FOR THE TRANSACTIONS THEREIN, AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE(S) FOLLOW.
<PAGE>
EXECUTED as of the date first stated -- but effective as provided -- in
this amendment.
Lomas Mortgage USA, Inc. LOMAS MORTGAGE USA, INC., as the Company
1600 Viceroy Drive
Dallas, Texas 75235
Attn: Paul D. Fletcher
Senior Vice President
and Assistant Treasurer By /s/PAUL D. FLETCHER
-------------------------------------
Telecopy: 214/879-7018 Paul D. Fletcher
Senior Vice President and Treasurer
Fourth Floor, 1717 Main Street BANK ONE, TEXAS, N.A.,
Mortgage Finance Group as Agent and a Bank
Dallas, Texas 75201
Attn: Kathleen C. Stewart,
Vice President
Telecopy: 214/290-2275 By /s/KATHLEEN C. STEWART
-------------------------------------
Kathleen C. Stewart, Vice President
8333 Douglas Avenue GUARANTY FEDERAL BANK, F.S.B.,
Dallas, Texas 75255 as a Bank
Attn: Abbie Y. Tidmore,
Vice President
Telecopy: 214/360-1660 By /s/ABBIE Y. TIDMORE
-------------------------------------
Abbie Y. Tidmore, Vice President
Texas Commerce Bank National TEXAS COMMERCE BANK NATIONAL
Association ASSOCIATION, as a Bank
717 Travis Street
Houston, Texas 77002
Attn: Carlotta M. Hudler,
Vice President
Telecopy: 713/216-2082 By /s/CARLOTTA M. HUDLER
-------------------------------------
Carlotta M. Hudler, Vice President
First Bank Place, FIRST BANK NATIONAL ASSOCIATION,
2nd Floor MPFP0801 as a Bank
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attn: Kathlyn K. Slater,
Vice President
Telecopy: 612/973-0826 By /s/KATHLYN K. SLATER
-------------------------------------
Kathlyn K. Slater, Vice President
<PAGE>
THIRD AMENDED SCHEDULE 1.1
Payee Principal
Bank One, Texas, N.A. $10,000,000
Guaranty Federal Bank, F.S.B. $7,500,000
Texas Commerce Bank National Association $7,500,000
First Bank National Association $5,000,000
Total Commitment $30,000,000
<PAGE>
THIRD AMENDED EXHIBIT C
ADVANCE REQUEST
AGENT: Bank One, Texas, N.A. DATE: , 1994
------------------
THE COMPANY: Lomas Mortgage USA, Inc.
BANKS: Bank One, Texas, N.A., Guaranty Federal Bank, F.S.B. Texas
Commerce Bank National Association, and First Bank National
Association
- ---------------------------------------------------------------------------
This request is delivered to Agent and each Bank under the Servicing
Payments Loan and Security Agreement (as renewed, extended, and amended, the
"Loan Agreement") dated as of February 11, 1992, among the Company, Banks,
and Agent, all the defined terms of which have the same meanings when used
herein.
This request is an Advance Request for the one or more following Type or
Types of Advances (collectively, the "Requested Advance"), in the aggregate
amount of $________________, to be made on _______________________, 199__:
[check appropriate box(es)]
- ----- A GNMA I Advance to be disbursed $_______________ to Custodial
Account No. _____________________ at Agent and
$_____________________ by wire transfer to CPTA as set forth below,
if applicable, in which event (i) the sum of the aggregate
outstanding GNMA Advances, such portion of the Requested Advance,
plus any other requested but unfunded GNMA Advances does not exceed
$15,000,000 and (ii) such portion of the Requested Advance will be
used solely to pay servicing payments for GNMA I Pools.
Bank: ________________________
Fed Routing No: ________________________
Account Name: ________________________
Account No: ________________________
Contact: ________________________
- ----- A GNMA II Advance to be disbursed $________________ to Custodial
Account No. ________________ at Agent and $________________ by wire
transfer to CPTA as set forth below, if applicable, in which event
(i) the sum of the aggregate outstanding GNMA Advances, such
portion of the Requested Advance, plus any other requested but
unfunded GNMA Advances does not exceed $15,000,000 and (ii) such
portion of the Requested Advance will be used solely to pay
Servicing Payments for GNMA II Pools.
Bank: ________________________
Fed Routing No: ________________________
Account Name: ________________________
Account No: ________________________
Contact: ________________________
- ----- An Other Advance to be used to pay Servicing Payments in respect of
FNMA Pools or FHLMC Pools, to be disbursed $_______________ to
Custodial Account No. _____________________ at Agent and
$________________ by wire transfer as set forth below, if
applicable, in which event the sum of the aggregate outstanding
Other Advances, such portion of the Requested Advance, plus any
other requested but unfunded Other Advance does not exceed
$15,000,000.
Bank: ________________________
Fed Routing No: ________________________
Account Name: ________________________
Account No: ________________________
Contact: ________________________
- ----- An Other Advance to be used to pay Servicing Payments in respect of
securities backed by pools of mortgage loans serviced by the
Company under Private Servicing Agreements to be disbursed
$_____________ to Private Custodial Account No. ____________ at
Agent and $______________ by wire transfer as set forth below, if
applicable, in which event the sum of the aggregate outstanding
Other Advances, such portion of the Requested Advance, plus any
other requested but unfunded Other Advance does not exceed
$15,000,000.
Bank: ________________________
Fed Routing No: ________________________
Account Name: ________________________
Account No: ________________________
Contact: ________________________
Each Bank's Pro Rata part of the Requested Advance (stated both as a
percentage of the Requested Advance and as a dollar amount) is as follows:
Bank Pro Rata Part
% $
% $
% $
% $
% $
Each Bank's Pro Rata Part of each Advance is to be directed, by no later
than 2:00 p.m. Dallas time on the date the requested Advance is to be made,
by wire transfer to Agent, for deposit into the Advance Account. Wiring
instructions are as follows:
Bank: Bank One, Texas, N.A.
Fed Routing No: ABA 111 000 614
Account Name: Bank One P&I Account
Account No: 0100104157
Attention: __________________
The Company represents, warrants, and certifies to Agent and Banks that
(a) the foregoing statements are true and correct, (b) the sum of the
Aggregate Advances, the Requested Advances, plus any other requested but
unfunded Advance exceeds neither (i) the lesser of $30,000,000 and the
Servicing Portfolio Value, nor (ii) 95% of the unreimbursed Servicing
Payments (as of two days prior to the date hereof) paid or to be paid by or
for the account of the Company therewith, all of which were or will be used
solely for such purposes, (c) the Requested Advance (i) does not exceed 95%
of the aggregate Servicing Payments to be paid by or for the account of the
Company therewith and (ii) will be used solely for such purpose and not to
reimburse the Company for any Servicing Payments it has already made from its
own funds, previous Advances, or otherwise, (d) the Company has complied with
all conditions under the Loan Papers for the Requested Advance, and (e) on
and as of the date of this request and the date the Advance is requested to
be made (i) the representations and warranties made in all of the Loan Papers
are and will be true and correct in all material respects, (ii) no change in
the financial condition or prospects of Company which could reasonably be
expected to be a Material Adverse Event has or will have occurred, (iii) no
Potential Default or Event of Default has or will have occurred and is or
will be continuing, and (iv) all fees due and owing to Agent or any Bank
under any Loan Paper have been paid.
LOMAS MORTGAGE USA, INC.
By
----------------------------------------
(Name)
-----------------------------------
(Title)
-----------------------------------
EXHIBIT 10.6
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
P. O. BOX 2558
HOUSTON, TEXAS 77252-8056
June 30, 1994
Lomas Mortgage USA, Inc.
1600 Viceroy Drive
Dallas, Texas 75235
Re: 6/94 (third) Amendment to 6/93 Servicing Purchase Loan Agreement
(the "6/94 Amendment to 6/93 Servicing Purchase Loan Agreement")
Ladies and Gentlemen:
The June 28, 1993 letter loan agreement (the "6/93 Servicing Purchase
Loan Agreement") between your Company and this Bank (all terms that are
defined in which and that are used herein without definition having the
same meanings here as there) that has been amended twice previously by the
letter agreement (the "8/93 Amendment to 6/93 Servicing Purchase Loan
Agreement") between us dated August __, 1993 and by the letter agreement
(the "3/94 Amendment to 6/93 Servicing Purchase Loan Agreement") between us
dated March 31, 1994 is hereby further amended by mutual agreement as
follows:
Subsection (k) (titled "Maintain $215 Million Net Worth; No Business
Changes") of Section 3.1 (titled "Affirmative Covenants") of the 6/93
Servicing Purchase Agreement is amended in its entirety so that, from and
after the effective date of this 6/94 Amendment to 6/93 Servicing Purchase
Loan Agreement, it will read as follows:
(k) Maintain $175 Million Net Worth; No Business Changes.
Your Company will maintain a net worth, determined in accordance
with GAAP, of not less than One Hundred Seventy-Five Million
Dollars ($175,000,000) and will make no material change in the
nature or character of its business.
Each of your Company and this Bank hereby acknowledges receipt of $10
and other good and valuable consideration for this amendment, and ratifies
and confirms (a) the 6/93 Servicing Purchase Loan Agreement, as amended by
the 8/93 Amendment to 6/93 Servicing Purchase Loan Agreement and the 3/94
Amendment to 6/93 Servicing Purchase Loan Agreement and as further amended
by this 6/94 Amendment to 6/93 Servicing Purchase Loan Agreement (the
"Amended 6/93 Servicing Purchase Loan Agreement"), and (b) the other Loan
Papers, remain in full force and effect. Your Company hereby republishes
all of its warranties and representations made in them, declares that they
are true on the date of this letter and reconfirms the debt to your Bank
that is presently evidenced by the 6/93 Servicing Purchase Note.
<PAGE>
Lomas Mortgage USA, Inc.
June 30, 1994
Page 2
Notice Pursuant to Tex. Bus. & Comm. Code Section 26.02. THE AMENDED
6/93 SERVICING PURCHASE LOAN AGREEMENT AND THE OTHER LOAN PAPERS TOGETHER
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Very truly yours,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By:
-----------------------------------
Carlotta M. Hudler
Vice President
Accepted and agreed to:
LOMAS MORTGAGE USA, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
---------------------------------
Date:
---------------------------------
EXHIBIT 10.7
- ---------------------------------------------------------------------------
LOMAS MORTGAGE USA, INC.,
the Company
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
the Lender
6/94 AMENDMENT TO
3/94 SENIOR SECURED WORKING CAPITAL
CREDIT AGREEMENT
June 30, 1994
- ---------------------------------------------------------------------------
<PAGE>
DEFINED TERMS
"3/94 Credit Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Credit Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Lender" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
<PAGE>
TABLE OF CONTENTS
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 2
11.13 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . 2
<PAGE>
6/94 AMENDMENT TO
3/94 SENIOR SECURED WORKING CAPITAL
CREDIT AGREEMENT
PREAMBLE
THIS 6/94 [second] AMENDMENT TO 3/94 SENIOR SECURED WORKING CAPITAL
CREDIT AGREEMENT (the "6/94 Amendment to WCC Agreement") dated as of June
30, 1994 amending the 3/94 Senior Secured Working Capital Credit Agreement
dated as of March 21, 1994 (the "3/94 Credit Agreement" and as it is hereby
and may from time to time hereafter be supplemented, amended or restated
the "Credit Agreement") between LOMAS MORTGAGE USA, INC. (the "Company"), a
Connecticut corporation and TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the
"Lender"), a national banking association,
WITNESSETH:
RECITALS:
The Company has requested that the minimum Consolidated Net Worth
negative covenant of the 3/94 Credit Agreement be amended to reduce the
second element of the test for compliance specified in that covenant from
$200,000,000 to $175,000,000, and the Lender has agreed to do so.
The Sections of this 6/94 Amendment to WCC Agreement are numbered to
correspond to those in the 3/94 Credit Agreement and are therefore not in
sequential order. All capitalized terms used without definition in this
Agreement that are defined in the 3/94 Credit Agreement have the same
meanings here as there. All italicized capitalized terms used in the Credit
Agreement, including this amendment of it, are defined in the 7/93 RL&S
Agreement, and it is to be referred to for definitions of those terms.
AGREEMENTS:
For good and valuable consideration, the receipt and sufficiency of
which the Company and the Lender each acknowledge, they hereby agree as
follows:
The first sentence of Section 7 (titled "Negative Covenants") of the
3/94 Credit Agreement is amended in its entirety to henceforth read as
follows:
The Company hereby agrees with the Lender to keep, observe and
perform the Company's negative covenants stated in the 7/93 RL&S
Agreement to the same effect as if they were repeated herein
verbatim and regardless of whether or not the 7/93 RL&S Agreement
expires or is terminated before this Agreement, and to
concurrently provide copies of all written materials required to
be provided to the agent or the lenders thereunder to the Lender
herein; provided that Section 7.4 of the 7/93 RL&S Agreement
shall be deemed for purposes of this Agreement to read as follows
from and after June 30, 1994:
7.4 Consolidated Net Worth. Permit its
Consolidated Net Worth to be less than the greater of
(i) the amount required by FHA, FHLMC, FNMA, VA and
GNMA at any and all times for maintaining the Company's
status as an approved mortgagee, seller/ servicer, or
issuer, or (ii) $175,000,000.
SECTION 11. MISCELLANEOUS.
11.13 ENTIRE AGREEMENT. THE 3/94 CREDIT AGREEMENT, AS AMENDED BY THE
3/31/94 AMENDMENT TO 3/94 SENIOR SECURED WORKING CAPITAL CREDIT AGREEMENT
BETWEEN THE COMPANY AND THE LENDER DATED AS OF MARCH 31, 1994 AND AS
FURTHER AMENDED BY THIS 6/94 AMENDMENT TO WCC AGREEMENT, THE WORKING
CAPITAL NOTE AND THE OTHER CREDIT PAPERS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED effective as of the date first above written,
1600 Viceroy LOMAS MORTGAGE USA, INC.
Dallas, Texas 75235
Attention: Mr. Paul Fletcher
Senior Vice President and
Assistant Treasurer
Telecopy No. (214) 879-7018 By: /s/PAUL D. FLETCHER
-----------------------------------
Telephone No. (214) 879-7010 Name:Paul D. Fletcher
-----------------------------------
Title:Senior Vice President and
Assistant Treasurer
----------------------------------
(the "Company")
712 Main Street TEXAS COMMERCE BANK
Houston, Texas 77002 NATIONAL ASSOCIATION
Attention: Carlotta M. Hudler
Vice President
Telecopy No. (713) 216-2182 By: /s/CARLOTTA M. HUDLER
-----------------------------------
Telephone No. (713) 216-5298 Name:Carlotta M. Hudler
-----------------------------------
Title:Vice President
-----------------------------------
(the "Lender")
EXHIBIT 11
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
Six Months
Year Ended June 30 Ended
--------------------------
1994 1993 June 30, 1992
------------- ----------- -------------
PRIMARY EARNINGS (LOSS) PER SHARE:
Average common shares
outstanding 20,099,000 20,087,000 20,076,000
Common stock equivalents under
Nonemployee Directors Long
Term Incentive Plan 33,000 30,000 32,000
------------- ----------- -------------
TOTAL SHARES 20,132,000 20,117,000 20,108,000
============= =========== =============
Income (loss) from continuing
operations $(108,502,000) $29,557,000 $ 11,558,000
Loss from discontinued
operations (74,164,000) (17,263,000) (29,280,000)
------------- ----------- -------------
Net income (loss) $(182,666,000) $12,294,000 $ (17,722,000)
============= =========== =============
Primary earnings (loss)
per share:
Income (loss) from
continuing operations $(5.39) $1.47 $ .57
Loss from discontinued
operations (3.68) (.86) (1.45)
------ ----- ------
Net earnings (loss) $(9.07) $ .61 $ (.88)
====== ===== ======
ADDITIONAL COMPUTATION OF EARNINGS (LOSS) PER SHARE:
FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Average common shares
outstanding 20,099,000 20,087,000 20,076,000
Common stock equivalents under
Nonemployee Directors Long
Term Incentive Plan 33,000 30,000 32,000
------------- ----------- -------------
TOTAL SHARES 20,132,000 20,117,000 20,108,000
============= =========== =============
Income (loss) from continuing
operations $(108,502,000) $29,557,000 $ 11,558,000
Loss from discontinued
operations (74,164,000) (17,263,000) (29,280,000)
------------- ----------- -------------
Net income (loss) $(182,666,000) $12,294,000 $ (17,722,000)
============= =========== =============
Fully diluted earnings (loss) per share:
Income (loss) from
continuing operations $(5.39) $1.47 $ .57
Loss from discontinued
operations (3.68) (.86) (1.45)
------ ----- ------
Net earnings (loss) $(9.07) $ .61 $ (.88)
====== ===== ======
Information for the periods through December 31, 1991 related to pre-
reorganization periods when the Company had a different capital structure
than that of the reorganized Company. Per share data pertaining to the
Company's pre-reorganization period is, therefore, not meaningful and is
not presented.
EXHIBIT 21
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
CORPORATE STRUCTURE
June 30, 1994
The consolidated structure of the Company is set forth in the
following table which identifies each corporate entity's subsidiaries and
shows the state of incorporation in which each of LFC and its subsidiaries
are incorporated. Except as otherwise specified, each entity is
headquartered at 1600 Viceroy Drive in Dallas.
State of
Corporation Incorporation
- ----------- -------------
Lomas Financial Corporation(1). . . . . . . . . . . . . . . . Delaware
Lomas Mortgage USA, Inc.. . . . . . . . . . . . . . . . . . Connecticut
Lomas Mortgage Services, Inc. . . . . . . . . . . . . . . Delaware
Property Exchange USA, Inc. . . . . . . . . . . . . . . . Texas
Lomas Field Services, Inc.. . . . . . . . . . . . . . . . Nevada
Gibraltar Deed Company. . . . . . . . . . . . . . . . . . California
Lomas Insurance Services, Inc.. . . . . . . . . . . . . . Connecticut
Lomas Insurance Services of Arizona, Inc.(2). . . . . . Arizona
Lomas Insurance Services of Florida, Inc.(2). . . . . Florida
Lomas Insurance Services of Louisiana, Inc.(2). . . . Louisiana
Lomas General Insurance Services, Inc.(2) . . . . . . Texas
Lomas Insurance Services of Virginia, Inc.(2) . . . . Virginia
L&N Funding Corporation . . . . . . . . . . . . . . . . . Delaware
INTELLIFILE, INC.(3). . . . . . . . . . . . . . . . . . . . Nevada
Lomas New York, Inc.. . . . . . . . . . . . . . . . . . . . New York
Lomas Information Systems, Inc. . . . . . . . . . . . . . . Nevada
Lomas Administrative Services . . . . . . . . . . . . . . . Nevada
Lomas Marketing Services, Inc.. . . . . . . . . . . . . . Nevada
Lomas Management, Inc.(2) . . . . . . . . . . . . . . . . . Nevada
Custodial Funding Corporation(2). . . . . . . . . . . . . Nevada
ST Lending, Inc.(2)(7). . . . . . . . . . . . . . . . . . . Delaware
Meaderose, Inc.(2). . . . . . . . . . . . . . . . . . . . Nevada
L&N Consultants, Inc.(2)(4) . . . . . . . . . . . . . . . . Nevada
Crown Cabot, Inc.(2). . . . . . . . . . . . . . . . . . . Nevada
LNC Holdings, Inc.(2) . . . . . . . . . . . . . . . . . . Nevada
Northern Lights Inn(2). . . . . . . . . . . . . . . . . . Alaska
Lomas Properties, Inc.(2) . . . . . . . . . . . . . . . . . Texas
Louisiana National Land Corporation(2). . . . . . . . . . Louisiana
Lomas Investment Properties, Inc.(2). . . . . . . . . . . Nevada
Bay South, Inc.(2). . . . . . . . . . . . . . . . . . . . Nevada
Naples Bay View, Inc.(2). . . . . . . . . . . . . . . . . Florida
Financial Insurance Ltd.(5) . . . . . . . . . . . . . . . . Bermuda
Lomas Housing Management Corp.. . . . . . . . . . . . . . . Texas
Roosevelt Office Center, Inc.(6). . . . . . . . . . . . . . New York
Vistamar, Inc.(2) . . . . . . . . . . . . . . . . . . . . . Puerto Rico
LLG Lands, Inc.(2). . . . . . . . . . . . . . . . . . . . . Arkansas
Notes to Table of Corporate Structure:
(1) Unless otherwise stated, each affiliated entity is a corporation and
is 100 percent owned by the indicated parent company.
(2) Located at 1420 Viceroy Drive, Dallas, Texas 75235.
(3) Located at 8600 Harry Hines, Dallas, Texas 75235
(4) 100 percent of common stock owned by LFC but only 50 percent of the
voting stock. Preferred stock owned by third parties including 50
percent of the voting stock.
(5) Located at Dorchester House, P. O. Box HM2020, Church Street, Hamilton
5, Bermuda.
(6) Located at 67 Wall Street, Suite 2411, New York, New York 10005.
(7) 51 percent of voting stock owned by Lomas Financial Corporation and 49
percent of voting stock owned by Lomas Mortgage USA, Inc.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-52764, Form S-8 No. 33-52393 and Form S-8 No.
33-52391) pertaining to the Lomas Financial Corporation 1991 Stock
Incentive Program, the Lomas Financial Corporation 1993 Intermediate and
Long Term Incentive Plan, and the Lomas Financial Corporation 1991 Long
Term Incentive Plan for Non-Employee Directors, respectively of our report
dated September 22, 1994, with respect to the consolidated financial
statements and schedules of Lomas Financial Corporation included in the
Form 10-K for the year ended June 30, 1994.
ERNST & YOUNG LLP
Dallas, Texas
September 23, 1994
