<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 1-12898
(Exact name of registrant as specified in its charter)
Delaware 38-2011419
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
27555 Farmington Road, Farmington Hills, Michigan 48334-3357
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (248) 488-7000
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 .
------- -------
As of May 15, 1997, the number of shares of the Registrant's Common Stock
outstanding was 2,561,054.
<PAGE> 2
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition
March 31, 1997 (Unaudited) and December 31, 1996 2
Consolidated Statements of Income (Unaudited),
Three Months Ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements (Unaudited) 5-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7-12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
1
<PAGE> 3
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
- --------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 3,635 $ 923
Investments 11,032 46,555
Investment in unconsolidated affiliate (net) 27,509 --
Mortgage loans receivable 249,666 314,937
Pool loan purchases 188,561 131,539
Loans held for investment 13,775 23,351
Capitalized servicing (net) 157,632 410,939
Receivable from sale of servicing 190,296 --
Common equity securities (net) -- 2,312
Mortgage claims receivable and real estate acquired
(net of allowance for loan losses of $15,400) 48,890 51,501
Premises and equipment 27,548 28,054
Other assets 84,684 120,943
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,003,228 $1,131,054
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Senior debt $ 493,941 $ 643,262
Subordinated debt 54,690 54,535
Accounts payable and other liabilities 103,050 118,500
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 651,681 816,297
- --------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, $.01 par value, 12,000,000 shares authorized,
1,760,939 shares of 8.42% cumulative, Series A (aggregate
liquidation preference of $25 per share) issued and
outstanding 18 18
Common stock, $.01 par value, 8,000,000 shares authorized,
2,561,054 and 2,247,000 shares issued and outstanding as of
March 31, 1997 and December 31, 1996, respectively 26 22
Paid-in capital 383,921 346,088
Unrealized investment loss in unconsolidated affiliate (net) (307) --
Retained deficit (32,111) (31,371)
- --------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 351,547 314,757
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,003,228 $1,131,054
==================================================================================================
</TABLE>
2
See accompanying notes to consolidated financial statements.
<PAGE> 4
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Mortgage servicing revenue $28,733 $ 34,605
Amortization of capitalized servicing (7,735) (162)
Net loss on financial instruments (6,096) (2,943)
- -------------------------------------------------------------------------------
Net servicing revenue 14,902 31,500
- -------------------------------------------------------------------------------
Interest income 9,252 10,537
Interest expense (8,059) (10,437)
- -------------------------------------------------------------------------------
Net interest revenue 1,193 100
- -------------------------------------------------------------------------------
Net realized investment gain (loss) on exchange
and sale of securities to affiliates 326 (855)
Net realized investment loss (106) --
Equity in earnings from unconsolidated affiliate 182 --
Net gain on sale of mortgages 7,919 13,142
Net loss on sale of servicing (3,195) --
Other 4,340 4,797
- -------------------------------------------------------------------------------
TOTAL REVENUE 25,561 48,684
- -------------------------------------------------------------------------------
EXPENSES
Salaries and employee benefits 13,768 15,701
Office occupancy and equipment 3,193 3,420
Provision for loan losses 1,705 1,958
Other operating expenses 6,383 6,846
- -------------------------------------------------------------------------------
TOTAL EXPENSES 25,049 27,925
- -------------------------------------------------------------------------------
Income before income taxes 512 20,759
Income tax expense 325 7,465
- -------------------------------------------------------------------------------
NET INCOME $ 187 $ 13,294
Less dividends on preferred stock 927 927
- -------------------------------------------------------------------------------
NET (LOSS) INCOME APPLICABLE TO COMMON STOCK $ (740) $ 12,367
===============================================================================
NET (LOSS) INCOME PER COMMON SHARE $ (.33) $ 5.50
===============================================================================
</TABLE>
3
See accompanying notes to consolidated financial statements.
<PAGE> 5
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 187 $ 13,294
Noncash items included in the determination of net income:
Amortization of capitalized servicing 7,735 162
Net unrealized loss on financial instruments 5,888 2,990
Provision for loan losses 1,705 1,958
Depreciation and amortization 2,159 1,809
Net realized (gain) loss on investments (220) 855
Amortization of goodwill -- 522
Loss on sale of servicing 3,195 --
Amortization of deferred gain on sale of servicing (645) (956)
Equity in earnings from unconsolidated affiliate (182) --
Net decrease (increase) in mortgage loans receivable 65,271 (156,070)
Net (decrease) increase in accounts payable and other liabilities (6,826) 6,741
Net decrease in other assets 37,778 9,027
Net change in current and deferred income taxes receivable and payable (3,766) 7,341
- ---------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 112,279 (112,327)
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Collections on and sales of pool loan purchases, mortgage
claims receivable and real estate acquired 130,602 43,674
Additions to pool loan purchases, mortgage claims
receivable and real estate acquired (186,718) (52,927)
Additions to capitalized mortgage servicing rights (35,570) (25,674)
Net proceeds from sale of servicing 81,197 --
Additions to long-term investments (1,776) (4,074)
Net decrease in short-term investments 30,927 8,770
Distributions received on long-term investments 378 --
Proceeds from sales of common equity securities -- 514
Net acquisition of premises and equipment (501) (237)
Net decrease in loans held for investment 9,576 1,769
- ---------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 28,115 (28,185)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of commercial paper 2,114,700 1,769,571
Repayments on commercial paper (2,249,130) (1,605,003)
Net decrease in credit agreement borrowings (15,000) (25,943)
Proceeds from issuance of common stock 12,675 --
Dividends paid (927) (927)
Other -- (865)
- ---------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (137,682) 136,833
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 2,712 (3,679)
Cash at beginning of period 923 4,146
- ---------------------------------------------------------------------------------------------------------------
Cash at end of period $ 3,635 $ 467
===============================================================================================================
</TABLE>
4
See accompanying notes to consolidated financial statements.
<PAGE> 6
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Source One
Mortgage Services Corporation (together with its subsidiaries, the "Company")
have been prepared in conformity with generally accepted accounting principles
for interim financial information and with the instructions for Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all necessary adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The operating results for the three month period ended March 31,
1997 are not necessarily indicative of the results to be expected for the year
ending December 31, 1997.
For further information, refer to the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 filed with the Securities and Exchange Commission
on March 28, 1997.
Certain reclassifications have been made to the financial statements to
achieve consistent presentation of the 1996 and 1997 results.
STOCKHOLDERS' EQUITY
In January 1997, the Company transferred its remaining common equity
securities with a market value of $2.6 million to Fund American Enterprises,
Inc. ("FAE"), the Company's direct parent, in exchange for 21,239 shares of the
Company's common stock held by FAE, which were retired by the Company. The
Company realized a pretax gain of $.3 million from the transfer in the first
quarter of 1997.
In March 1997, the Company issued 105,000 shares of its common stock to
Fund American Enterprises Holdings, Inc. ("Fund American"), the Company's
ultimate parent, for cash proceeds of $12.7 million. In addition, the Company
issued 230,293 shares of its common stock to FAE in exchange for 1 million
shares of the common stock of Financial Security Assurance Holdings, Ltd.
("FSA") valued at $27.8 million. FSA is a leading Aaa/AAA writer of financial
guaranty insurance whose common stock is publicly traded on the New York Stock
Exchange. The Company uses the equity method to account for its investment in
the FSA securities.
RECENTLY ADOPTED ACCOUNTING STANDARD
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
which supersedes SFAS No. 122, "Accounting for Mortgage Servicing Rights."
SFAS No. 125 eliminates the distinction between "normal" servicing rights and
excess servicing receivables and changes the Company's method of measuring the
value of its capitalized excess servicing asset. SFAS No. 125 is effective for
transfers and servicing of financial assets beginning in fiscal year 1997.
The effective date for certain provisions of SFAS No. 125 has been deferred to
1998.
The Company adopted the provisions of SFAS No. 125 as of January 1, 1997.
SFAS No. 125 prohibits retroactive application, therefore, the reported results
for the 1996 period are in accordance with prior accounting standards and are
not directly comparable to the 1997 results reported under SFAS No. 125. The
adoption of SFAS No. 125 as it relates to the valuation of capitalized
servicing did not have a material impact on the Company's financial results in
the first quarter of 1997.
NET INCOME PER SHARE
Net income per share amounts were computed based on 2,247,136 and
2,247,000 weighted average total number of common shares outstanding for the
quarters ended March 31, 1997 and 1996, respectively.
5
<PAGE> 7
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of reporting cash flows, cash includes cash on hand and
amounts on deposit at banks, excluding custodial bank accounts.
The following table provides additional cash and noncash information not
presented elsewhere in the consolidated financial statements:
<TABLE>
<CAPTION>
Three months ended March 31, (in thousands) 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Interest paid $ 5,101 $ 6,116
- --------------------------------------------------------------------
Income taxes paid $ 4,221 $ 124
- --------------------------------------------------------------------
Noncash investing and financing activities:
Exchange of common equity securities for
shares of common stock from parent $ 2,638 $ --
Sale of servicing rights 190,296 --
Capital contribution from parent in exchange for
investment in unconsolidated affiliate 27,800 --
====================================================================
</TABLE>
RECENT DEVELOPMENTS
In April 1997, the Company's management approved a restructuring plan
designed to reduce its operating costs in order to improve its financial
performance. As part of this plan, the Company reduced its work force,
primarily in overhead areas, by approximately 100 employees at the end of April
1997 to bring its overhead costs in line with its production and servicing
operations. The Company is currently estimating the resulting employee
separation costs, including severance payments, health care coverage and
postemployment education benefits, which will be recorded in the second quarter
of 1997.
In addition, the Company has developed a plan to restructure its long-term
debt in order to reduce interest costs and eliminate certain covenants which
restrict the Company's ability to borrow under its secured credit agreement.
Pursuant to this plan, in May 1997, the Company initiated a tender offer to
repurchase up to 100% of its outstanding 8.875% medium-term notes due October
15, 2001. The Company estimates the price will be approximately 107.5% of the
face amount of the notes redeemed. The Company initially plans to fund this
repurchase with proceeds from the February 1997 sale of servicing (refer to
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further discussion).
6
<PAGE> 8
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Source One Mortgage Services Corporation (together with its subsidiaries,
the "Company") reported net income for the first quarter of 1997 of $.2 million
compared to $13.3 million for the first quarter of 1996. The 1997 net income
includes a $3.2 million pretax loss on the sale of servicing to a third party,
a $6.5 million pretax recovery of valuation allowances related to the Company's
capitalized servicing asset offset by a $6.1 million pretax net loss on
financial instruments. The 1996 net income includes a $20.0 million pretax
recovery of valuation allowances relating to the Company's capitalized
servicing asset partially offset by a $2.9 million pretax net loss on financial
instruments.
As part of the Company's corporate strategy to minimize exposure to
interest rate risk inherent in its servicing asset, the Company took actions to
contract its owned servicing portfolio and expand its subservicing business in
the first quarter of 1997. In February 1997, the Company sold approximately
$17 billion of its nonrecourse mortgage servicing portfolio to a third party
for estimated proceeds of $271.5 million. The following table illustrates the
change in the Company's mortgage servicing portfolio mix as a result of the
sale:
<TABLE>
<CAPTION>
March 31, December 31,
(in millions) 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Mortgage servicing portfolio owned $ 9,266 $26,410
Mortgage servicing portfolio subserviced 19,585 2,791
- -----------------------------------------------------------------------------------
Total mortgage servicing portfolio $28,851 $29,201
===================================================================================
</TABLE>
The Company recorded a $3.2 million pretax loss on the sale in the first
quarter of 1997. The Company will continue to service these loans pursuant to
a subservicing agreement for a minimum of one year and a maximum of three
years, at the option of the purchaser.
Net servicing revenue decreased to $14.9 million in the first quarter of
1997 from $31.5 million for the comparable 1996 period. Mortgage servicing
revenue was $28.7 million and $34.6 million for the three months ended March
31, 1997 and 1996, respectively. This decrease is primarily due to the
February 1997 servicing sale. Amortization of capitalized servicing increased
$7.6 million in the first quarter of 1997 from the first quarter of 1996.
However, excluding the effects of the recoveries of $6.5 million and $20.0
million of valuation allowances related to the capitalized servicing asset in
the first quarters of 1997 and 1996, respectively, amortization of capitalized
servicing decreased to $14.2 million in the first quarter of 1997 from $20.2
million in the first quarter of 1996. The decrease in amortization expense
reflects a smaller servicing asset due to the February 1997 servicing sale and
lower scheduled amortization expense due to a higher interest rate environment
in the first quarter of 1997 as compared to the first quarter of 1996. The
recoveries of valuation allowances on the servicing asset reflect increased
interest rates and a corresponding increase in the fair values of the Company's
mortgage servicing rights from year end 1996 and 1995 levels.
The $6.5 million recovery of valuation allowances in the first quarter of
1997 was offset by a $6.1 million net loss on financial instruments. The 1997
net loss includes $.2 million in realized losses from net cash flows paid and
$5.9 million in unrealized losses due to a decrease in the fair market value of
the financial instruments. The 1996 net loss of $2.9 million includes $.1
million in realized gains from net cash flows received offset by $3.0 million
in unrealized losses due to a decrease in the fair market value of the
financial instruments. The decrease in the value of the Company's financial
instruments resulted from an increase in interest rates during the first
quarters of 1997 and 1996 from year end levels. The additional loss in 1997 is
primarily the result of principal only ("P/O") swap agreements entered into by
the Company in the third quarter of 1996.
7
<PAGE> 9
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company invests in various financial instruments in order to offset
changes in the value of its capitalized servicing asset and to mitigate the
effect on earnings of higher amortization and impairment of the asset which
results from increased prepayment activity that can occur with decreases in
market interest rates. As interest rates decline, prepayment activity
increases, thereby reducing the value of the mortgage servicing rights, while
the value of the financial instrument increases. Conversely, as interest rates
increase, the value of the servicing rights increases, while the value of the
financial instrument decreases. The financial instruments utilized by the
Company include interest rate floor contracts and principal-only swap
transactions.
The interest rate floor contracts derive their value from differences
between the floor rate specified in the contract and market interest rates.
The floor yields range from 5.47% to 6.24%. To the extent that market interest
rates increase, the value of the floor declines. However, the Company is not
exposed to losses in excess of its initial investment in the floors. The
interest rate floor contracts are carried at fair value with related realized
and unrealized gains and losses included in net loss on financial instruments
in the consolidated income statements. As of March 31, 1997, the carrying
value of the Company's open interest rate floor contracts totaled $1.8 million
with a total notional principal amount of $1.0 billion. The floors have
remaining terms ranging from two to five years.
The value of the principal-only swaps is determined by changes in the
value of referenced principal-only strips. As of March 31, 1997, the carrying
value of the Company's principal-only swap transactions totaled $.3 million,
with a remaining original notional principal amount of $50.0 million. The
principal-only swap transactions are carried at fair value with related
realized and unrealized gains and losses included in net loss on financial
instruments in the consolidated income statements. The principal-only swaps
have a remaining term of approximately four years.
Net interest revenue increased to $1.2 million in the first quarter of
1997 from $.1 million in the first quarter of 1996. Interest income decreased
to $9.3 million from $10.5 million for the first three months of March 31, 1997
and 1996, respectively. This decrease is primarily the result of decreased
mortgage loan production and a corresponding decrease in average mortgage loans
receivable inventory balances. This decrease was partially offset by an
increase in interest income from pool loan purchases due to a repurchase of
loans totaling approximately $140 million in principal amount at the beginning
of March 1997. The decrease in interest income was more than offset by a
decrease in interest expense due primarily to the retirement of $104.4 million
of medium-term notes and debentures during the second half of 1996.
The Company recognized $.2 million of equity in earnings of an
unconsolidated affiliate in the first quarter of 1997. The Company acquired
its investment in this affiliate in March 1997 as a result of a plan developed
by Fund American Enterprises Holdings, Inc. ("Fund American"), the Company's
ultimate parent, involving several of its subsidiaries including the Company.
Among other things, the plan is intended to strengthen the Company by
increasing its stockholders' equity. As part of the plan, the Company received
a capital contribution of 1 million shares of the common stock of Financial
Security Assurance Holdings, Ltd., ("FSA") valued at $27.8 million in exchange
for 230,293 shares of the Company's common stock. The Company uses the equity
method to account for its investment in the FSA securities.
Net gain on mortgage sales decreased to $7.9 million for the quarter ended
March 31, 1997 from $13.1 million for the quarter ended March 31, 1996. This
decrease is primarily due to the decrease in mortgage loan production and the
corresponding decrease in mortgage loan sales volumes in the first quarter of
1997 as compared to the first quarter of 1996.
8
<PAGE> 10
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Salaries and employee benefits expense was $13.8 million and $15.7 million
for the three months ended March 31, 1997 and 1996, respectively. Generally
accepted accounting principles ("GAAP") require certain loan origination
revenues to be netted against direct loan origination costs. Since salaries
and employee benefits expense is the largest component of loan origination
costs, approximately 90% of loan origination fees are accounted for as a
reduction to salaries and benefits expense as indicated in the following table:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Unadjusted salaries and employee benefits
expense $17,173 $20,333
GAAP net origination revenues (3,405) (4,632)
- -------------------------------------------------------------------------------
GAAP salaries and employee benefits expense $13,768 $15,701
===============================================================================
</TABLE>
A decrease in loan origination revenues, reflecting lower retail mortgage
loan production in the first quarter of 1997 as compared to the first quarter
of 1996, partially offset the decrease in unadjusted salaries and benefits
expense. Excluding the effects of loan origination revenues, salaries and
employee benefits expense decreased 16% during the first quarter of 1997 as
compared to the first quarter of 1996. This decrease primarily reflects the
lower loan officer commissions associated with the significant decrease in
mortgage loan production for the three month period ended March 31, 1997 as
compared to the three month period ended March 31, 1996.
The Company's income tax provision for the first quarter of 1997 includes
an additional provision for state income taxes due to several pending state tax
audits and the effect of the February 1997 servicing sale.
9
<PAGE> 11
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
A summary of the Company's mortgage loan production and mortgage servicing
portfolio follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE LOAN PRODUCTION BY TYPE:
FHA/VA Insured $ 370 $ 612
Conventional 271 593
- -------------------------------------------------------------------------------
Total $ 641 $ 1,205
===============================================================================
MORTGAGE LOAN PRODUCTION BY SOURCE:
Retail $ 268 $ 595
Wholesale 373 610
- -------------------------------------------------------------------------------
Total $ 641 $ 1,205
===============================================================================
MORTGAGE SERVICING PORTFOLIO (a):
Beginning balance $29,201 $31,831
Mortgage loan production 641 1,205
Regular payoffs (591) (919)
Principal amortization, servicing
released, foreclosures and other (400) (512)
- -------------------------------------------------------------------------------
Ending balance $28,851 $31,605
===============================================================================
</TABLE>
(a) Includes loans subserviced for others having a principal balance of $19,585
million and $3,968 million as of March 31, 1997 and March 31, 1996,
respectively.
The decrease in mortgage loan production and payoffs in the first quarter
of 1997 from the comparable 1996 period reflects the higher interest rate
environment and the resulting decrease in refinance activity during the first
quarter of 1997 from that of the first quarter of 1996. Additional information
regarding the Company's mortgage loan servicing portfolio is shown below:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
- ---------------------------------------------------------------------------
MORTGAGE SERVICING PORTFOLIO: Owned Total Owned Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of loans serviced (a) 164,060 471,764 451,802 478,779
Weighted average net servicing fee
(at end of period) .433% n/a .422% n/a
Weighted average interest rate 8.89% 8.46% 8.59% 8.48%
Percent delinquent (b) 8.85% 6.15% 7.44% 7.17%
============================================================================
</TABLE>
(a) Includes loans subserviced for others having a principal balance of $19,585
million and $2,791 million as of March 31, 1997 and December 31, 1996,
respectively.
(b) Includes loans in process of foreclosure.
The increase in the delinquency rate of the Company's owned servicing
portfolio at March 31, 1997 is primarily the result of the February 1997
servicing sale, after which, the Company retained a majority of its delinquent
loans.
10
<PAGE> 12
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash flow requirements relate to funding mortgage
loan production and investments in mortgage servicing rights. To meet these
funding needs, the Company relies on commercial paper borrowings, short-term
credit facilities, medium and long-term debt, early funding programs and cash
flow from operations. The Company also generates cash from sales of
servicing. Management believes capital resources will be sufficient to meet
the Company's operating needs as well as to fund maturing medium and long-term
debt.
Senior and subordinated debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper, weighted average interest rates
of 6.44% and 5.69% as of March 31, 1997 and
December 31, 1996, respectively $227,750 $362,180
Credit agreements, weighted average interest rates
of 6.51% and 6.19% as of March 31, 1997 and
December 31, 1996, respectively 30,000 45,000
8.875% medium-term notes due October 15, 2001 138,355 138,355
9.0% debentures due June 1, 2012 100,000 100,000
9.375% subordinated debentures due December 31, 2025 55,976 55,976
Less unamortized discount,
premium and issuance costs (net) (3,450) (3,714)
- -------------------------------------------------------------------------------------
Total senior and subordinated debt $548,631 $697,797
=====================================================================================
</TABLE>
The Company must comply with certain financial covenants provided in its
secured and unsecured revolving credit facilities, including restrictions
relating to tangible net worth and leverage. In addition, the Company's
secured facility contains certain covenants which limit its ability to pay
dividends or make distributions of its capital in excess of preferred stock
dividend and subordinated debt interest requirements each year. The Company is
currently in compliance with all such covenants. As of March 31, 1997 and
December 31, 1996, the Company had no outstanding borrowings under its secured
credit facility. As of March 31, 1997 and December 31, 1996, there was $30.0
million and $45.0 million outstanding under the Company's unsecured credit
facility, respectively.
The Company has a dividend policy which may result in the payment of
dividends on the Company's common stock, dependent upon the earnings, cash
position and capital needs of the Company, limitations in credit agreements,
general business conditions and other factors deemed relevant by the Company's
Board of Directors. The Company did not declare any dividends on its common
stock for the three months ended March 31, 1997.
In January 1997, the Company transferred its remaining common equity
securities with a market value of $2.6 million to Fund American Enterprises,
Inc. ("FAE"), the Company's direct parent, in exchange for 21,239 shares of the
Company's common stock held by FAE, which were retired by the Company.
11
<PAGE> 13
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
In February 1997, the Company sold approximately $17 billion of its
nonrecourse mortgage servicing portfolio to a third party for estimated proceeds
of $271.5 million. The Company used the initial proceeds of $81.2 million
received from the sale to reduce outstanding short-term debt. The remaining
balance of $190.3 million is reflected as a receivable in the consolidated
statements of condition as of March 31, 1997. Approximately $150.0 million of
the receivable balance is expected to be received in the second quarter of
1997. The Company is currently evaluating its options as to how it will
utilize the remaining proceeds from the sale . These options include: (i)
purchasing additional mortgage servicing rights from third parties; (ii)
reducing its outstanding indebtedness; (iii) reducing its outstanding preferred
or common shareholders' equity or (iv) any combination of the foregoing.
In March 1997, the Board of Directors of Fund American Enterprises
Holdings, Inc. ("Fund American"), the Company's ultimate parent, approved a
corporate restructuring plan involving several of its subsidiaries including
the Company. Among other things, the plan is intended to strengthen the
Company by increasing its stockholders' equity. In accordance with this plan,
the Company issued 230,293 shares of its common stock to FAE in exchange for 1
million shares of the common stock of Financial Security Assurance Holdings,
Ltd. ("FSA") valued at $27.8 million. In addition, the Company issued 105,000
shares of its common stock to Fund American for cash proceeds of $12.7 million.
An additional $98.1 million contribution of FSA common stock and options to
purchase FSA common stock is expected to occur in the second quarter of 1997,
subject to insurance regulatory and lender approvals.
In April 1997, the Company amended a short-term borrowing agreement
entered into August 1996. The provisions of the amended agreement increased
the Company's facility from $25.0 million to $50.0 million. As of March 31,
1997 and December 31, 1996 there was $15.0 million and $25.0 million
outstanding under the original agreement, respectively.
In May 1997, the Company initiated a tender offer to repurchase up to 100%
of its 8.875% medium-term notes due October 15, 2001. As of March 31, 1997,
the Company had $138.4 million of such medium-term notes outstanding. The
Company initially plans to fund this repurchase with proceeds from the February
1997 servicing sale.
The Company is currently considering further steps to restructure its debt
including (i) the issuance of approximately $100 million of additional
medium-term notes pursuant to an existing shelf registration and (ii) entering
into interest rate swaps whereby the Company's obligation to pay a fixed rate
of interest on a portion of its outstanding medium-term notes and debentures
will be swapped for an obligation to pay a floating rate of interest. The
Company believes that using floating rate debt to finance a larger portion of
its mortgage servicing assets is prudent, since the value of such assets
generally increases as interest rates increase, and declines as interest rates
decrease.
12
<PAGE> 14
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit
No. Description
- ------- --------------------
10 (a) Uncommitted Credit Facility for Short-Term Loans Letter Agreement
dated as of August 16, 1996, as amended, between Source One Mortgage
Services Corporation and Wood Street Funding Corporation.
27 Financial Data Schedule.
b. Form 8-K: The Company filed seven current Reports on Form 8-K with the
Securities and Exchange Commission during the quarter ended March 31, 1997.
(i) January 24, 1997: Reported Distribution Date Statements for January 25,
February 1, February 1, and January 20, 1997 relating to the Source One
Mortgage Services Corporation Agency MBS Multi-Class Pass-Through
Certificates Series 1987-2, 1988-1, 1988-2 and 1990-1, respectively.
(ii) January 24, 1997: Reported Source One Mortgage Services Corporation
change in Company's Certifying Accountants.
(iii) January 27, 1997: Reported Report to the Trustee and Report to the
Certificate Holders for the month of January 1997 relating to the Source
One Mortgage Services Corporation 11-1/2% Mortgage Pass-Through
Certificates, Series A.
(iv) February 25, 1997: Reported Distribution Date Statements for February
25, March 1, March 1 , and February 20, 1997 relating to the Source One
Mortgage Services Corporation Agency MBS Multi-Class Pass-Through
Certificates Series 1987-2, 1988-1, 1988-2 and 1990-1, respectively.
(v) February 26, 1997: Reported Report to the Trustee and Report to the
Certificate Holders for the month of February 1997 relating to the Source
One Mortgage Services Corporation 11-1/2% Mortgage Pass-Through
Certificates, Series A.
(vi) March 25, 1997: Reported Report to the Trustee and Report to the
Certificate Holders for the month of March 1997 relating to the Source
One Mortgage Services Corporation 11-1/2% Mortgage Pass Through
Certificates, Series A.
(vii) March 26, 1997: Reported Distribution Date Statements for March 25,
March 25, April 1, April 1, and March 20, 1997 relating to the Source One
Mortgage Services Corporation Agency MBS Multi-Class Pass-Through
Certificates Series 1987-1, 1987-2, 1988-1, 1988-2 and 1990-1,
respectively.
13
<PAGE> 15
FORM 10-Q
- --------------------------------------------------------------------------------
Source One Mortgage Services Corporation and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOURCE ONE MORTGAGE SERVICES CORPORATION
----------------------------------------
(Registrant)
DATE: MAY 15, 1997 /S/ MICHAEL C. ALLEMANG
- -------------------- ------------------------------------------
Michael C. Allemang
Executive Vice President
(Chief Financial Officer)
14
<PAGE> 16
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------- ------------
10(a) Uncommitted credit facility for short-term
loans letter agreement
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10(a)
WOOD STREET FUNDING CORPORATION
c/o PNC Bank, National Association,
Administrative Agent
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
August 16, 1996
Source One Mortgage Services Corporation
27555 Farmington Road
Farmington Hills, MI 48834
Attention: Larry N. Ciofu, Treasurer
Re: Uncommitted Credit Facility for Short-Term Loans
Ladies/Gentlemen:
We are pleased to make available to you an uncommitted credit facility for
general corporate purposes on the terms set forth in this letter (the "Letter
Agreement").
1. We agree to consider from time to time your requests that we make advances
to you, on either an interest bearing or a discount basis ("Advances"), in an
aggregate amount not to exceed at any one time outstanding the amount set forth
on Schedule I hereto as the "Facility Amount", on the terms and conditions set
forth below. This is not a committed line of credit and Advances hereunder, if
any, shall be made by us in our sole discretion. Nothing contained herein or
any other documents executed or delivered herewith shall be construed to
obligate us to make any Advances. We shall have the right to refuse to make
any Advances or terminate the credit facility at any time without prior notice
to you. This Letter Agreement sets forth the procedures to be used in
connection with your requests for our making of Advances to you from time to
time on or prior to the termination hereof pursuant to paragraph 10 and, in the
event that we make Advances to you hereunder, your obligations to us with
respect thereto.
2. The net amount of each Advance shall be in an amount at least equal to the
amount set forth on Schedule I hereto as the "Minimum Advance Amount" and shall
be made upon (i) your request to us by telephone, facsimile or letter, given by
any of the persons listed on Exhibit A hereto or otherwise designed by you in
writing ("Designated Persons"), that you wish to borrow money on a specified
date, in a specified amount and for a specified term (which shall, in no event,
be longer than the number of days set forth on Schedule I hereto as the
"Maximum Term"); and (ii) our mutual agreement as to such date, amount and term
and as to the interest rate per annum or, in the case of an Advance made on a
discount basis, discount applicable to any such Advance. We shall
<PAGE> 2
be entitled to rely upon any instructions which we believe to have been given
by a Designated Person. You hereby agree to indemnify and hold us harmless
from and against any and all damages, losses, liabilities, costs and expenses
(including fees and expenses of counsel) which may arise or be created by the
acceptance of such requests or the making of such Advances. On the date of any
such Advance, we will make such Advance available to you in same day funds by
directing our managing agent to transfer or wire the net proceeds of such
Advance to an account designated in writing by a Designated Person. Promptly
after the date of each Advance, our managing agent will send you a written
confirmation of such Advance and the amount and term thereof and the interest
rate per annum or, in the case of an Advance made on a discount basis, discount
applicable thereto. We will enter on our books and records, which entry when
made will be presumed correct, the date and amount of each Advance, the
interest rate (or as the case may be, the discount basis) and the term
applicable thereto, as well as the date and amount of each payment made by you.
3. Prior to the making of any Advance hereunder, you shall provide us with
an executed copy of this Letter Agreement; evidence of the due authorization by
you of the execution, delivery and performance by you of this Letter Agreement;
and such other instruments as we shall reasonably require in form and substance
satisfactory to us. Your agreement and acceptance of this Letter Agreement
shall constitute a representation and warranty by you that (a) the execution,
delivery and performance by you of this Letter Agreement has been duly
authorized by all necessary corporate action and does not contravene any law,
or any contractual or legal restrictions, applicable to you and (b) no
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for such execution,
delivery and performance or for the making of any Advance.
4. Each request by you for an Advance shall constitute a representation and
warranty by you, as of the making of such Advance and giving effect to the
application of the proceeds therefrom, that (i) you shall have performed and
complied with all agreements and conditions required hereunder, (ii) no
condition or event shall exist which constitutes an Event of Default (as herein
defined) or which, with the passage of time or the giving of notice or both,
would constitute an Event of Default, (iii) such Advance when made will
constitute your legal, valid and binding obligation, (iv) such Advance is being
incurred, and will be repaid at maturity, in the ordinary course of your
business out of the cash flow generated in the normal day-to-day conduct and
operations of your business, and (v) no event has occurred and no circumstance
exists as a result of which the information which you have provided to us in
connection herewith would include an untrue statement of a material fact or
omit to state any material fact or any fact necessary to make the statements
contained herein, in the light of the circumstances under which they were made,
not misleading.
-2-
<PAGE> 3
5. You hereby promise to pay to us or our order with respect to each Advance:
(a) in the case of an Advance made on an interest bearing
basis, the principal amount of such Advance made to you, on the date
mutually agreed to by both parties at the time of such Advance as the
maturity date thereto, together with interest on the principal amount
of each Advance outstanding from time to time from and including the
date on which such Advance is made until the maturity date of such
Advance, at an interest rate per annum mutually agreed to by both
parties at the time of such Advance, payable on the maturity date of
such Advance; and
(b) in the case of each Advance made on a discount basis to
you, the stated or face amount of such Advance, on the date mutually
agreed to by both parties at the time of such Advance as the maturity
date thereof.
You shall have no right to prepay any unpaid principal amount of any Advance.
6. If any Advance or other amount is not paid when due, you shall pay
interest on such amount until it is paid in full at a rate per annum (the
"Default Rate") equal to two percent (2%) above the PNC Bank Prime Rate but not
more than the maximum rate allowed by law. As used herein, "PNC Bank Prime
Rate" shall mean the rate publicly announced by PNC Bank, National Association
("PNC Bank") from time to time as its prime rate. The Prime Rate is determined
from time to time by PNC Bank as a means of pricing some loans to its
borrowers. The PNC Bank Prime Rate is not tied to any external rate of
interest or index, and does not necessarily reflect the lowest rate of interest
actually charged by PNC Bank to any particular class or category of customers.
If and when the PNC Bank Prime Rate changes, the Default Rate will change
automatically without notice to you, effective on the date of any such change.
The Default Rate shall continue to apply whether or not judgment shall be
entered herein.
7. You shall make each payment hereunder in same day funds on or before 12:00
noon (eastern time) on the day when due in lawful money of the United States of
America to Account No. 1001746466 maintained at PNC Bank, National Association,
ABA # 043000096, Pittsburgh, Pennsylvania, Reference: Wood Street Funding
Corporation, For further credit to Source One Mortgage Services Corporation.
All computations of interest shall be made by us on the basis of a year of 360
days, for the actual number of days (including the first day but excluding the
last day) elapsed.
8. Whenever any payment to be made hereunder shall be otherwise due on a
Saturday, a Sunday or other day of the year on which commercial banks are
required or authorized to close in Pittsburgh, Pennsylvania (any other day
being a "Business Day"), such payment shall be made on the next succeeding
Business Day.
-3-
<PAGE> 4
9. You agree that you will not apply the proceeds of any Advance to purchase
or carry margin stock within the meaning of Regulation G or U issued by the
Board of Governors of the Federal Reserve System.
10. This Letter Agreement may be terminated at any time by either you or us
by notice of such termination to the other party hereto, but no such
termination shall affect your obligations with respect to the Advances
hereunder outstanding at the time of such termination.
11. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be
effective upon receipt if delivered personally to such party, or if sent by
facsimile transmission with confirmation of delivery, or by nationally
recognized overnight courier service, to the address specified on Schedule I
hereto or to such other address as any party may give to the other in writing
for such purpose.
12. You may not assign your rights or obligations hereunder or any interest
herein to any person. We may assign to one or more financial institutions or
other entities all or any part of, or may grant participation to one or more
financial institutions or other entities in or to all or any part of, any
Advance or Advances hereunder without your consent and without notice to you.
You hereby acknowledge that any public and non-public information provided by
you to us or to PNC Bank may, without your consent, be provided to us, PNC
Bank, any affiliate of PNC Bank, any prospective participant or assignee, any
attorney, accountant, or other advisor advising us or PNC Bank; provided that,
with respect to non-public information provided by you to any prospective
participant or assignee, any such prospective participant or assignee shall be
subject to a confidentiality agreement in form and substance acceptable to you.
In addition, you acknowledge that we may, without your consent, disclose public
and non-public information to any bank regulatory authority and any other
person as required by law or order. We agree not to disclose any non-public
information provided by you to any person except as provided herein.
13. You agree to pay on demand all costs, expenses (including fees and
expenses of counsel) and losses, if any, incurred by us in connection with the
enforcement of this Letter Agreement.
14. You agree to furnish us promptly with such financial statements or other
information as we may reasonably request.
15. If any of the following events (each, an "Event of Default") shall occur
and be continuing: (a) you shall fail to pay any amount due hereunder when the
same becomes due and payable; or (b) any material representation or warranty
made by you (or any of your officers) in connection with any Advance or
otherwise in connection herewith shall prove to have been false, erroneous or
-4-
<PAGE> 5
misleading in any material respect when made; or (c) you shall, without our
prior written consent, merge or consolidate with or into, or convey, transfer,
lease or dispose of (whether in one transaction or in a series of transactions)
all or substantially all of your assets to, any person or entity; or (d) you
shall fail to perform or observe any other material term, covenant or agreement
in connection with any Advance or otherwise in connection herewith on your part
to be performed or observed; (e) you shall fail to pay any principal of or
premium or interest on any Material Debt (as that term is defined on Schedule I
attached hereto), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Material Debt; or any other event
shall occur or condition shall exist under any agreement or instrument relating
to such Material Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Material Debt or any such Material Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof; or (f) any material
adverse change in your business, assets, operations, financial condition or
results of operations; (g) the entry of a Material Final Judgment against you
and your failure to discharge such Material Final Judgment within thirty days
of the entry thereof; or (h) you shall generally not pay your debts as such
debts become due, or shall admit in writing your inability to pay your debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against you seeking to adjudicate you
as bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of you or your
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for you
or any substantial part of your property; or you shall take any corporate
action to authorize any of the actions set forth above in this subsection (h);
then, upon the occurrence of any such Event of Default, we may declare all
amounts payable hereunder to be forthwith due and payable, whereupon all such
amounts shall become and be forthwith due and payable; without presentment,
demand, protest or further notice of any kind all of which you hereby expressly
waive; provided, however, that in the event of an actual or deemed entry of an
order for relief with respect to you under the Federal Bankruptcy Code, all
such other amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by you.
16. You agree that you will not institute against us or join any other
person in instituting against us any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding,
-5-
<PAGE> 6
or other proceeding under any federal or state bankruptcy or similar law, for
one year and a day after the latest maturing Commercial Paper issued by us is
paid in full.
17. At our option, we shall, upon notice that either Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. or Moody's
Investor Service, Inc. has (i) lowered or downgraded your short term commercial
paper or corporate bond or other short term rating of you, (ii) placed your
securities on a watch list of securities singled out for surveillance, with
either negative or developing implications or (iii) withdrawn its approval of
you for inclusion in a Ratings Category, amend Schedule I hereof to provide for
an amended "Facility Amount" and amended "Maximum Term".
18. As long as you shall have any Advances outstanding, you agree that you
will maintain a separate line of credit with a commercial bank, or several
commercial banks in an unutilized aggregate amount equal to the amount of all
outstanding Advances.
19. Our obligations under this Letter Agreement are solely the corporate
obligations of Wood Street Funding Corporation (the "Lender"). No recourse
shall be had for the payment of any amount owing by the Lender hereunder or any
other obligation or claim of or against the Lender arising out of or based upon
this Letter Agreement against any stockholder, employee, officer, director or
incorporator of the Lender or JH Management Corporation.
20. You hereby forever waive presentment, protest, notice of dishonor and
notice of nonpayment. In addition, no delay or omission by us in exercising
any right or power arising hereunder shall impair any such right or power or be
considered to be a waiver of any such right or power or any acquiescence
therein nor shall our action or inaction impair any right or power hereunder.
21. THIS LETTER AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES
OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA, EXCLUDING ITS CONFLICT OF LAWS RULES. You hereby
irrevocably consent to the exclusive jurisdiction of any state or federal court
located in Pittsburgh, Pennsylvania, and consent that all service of process be
sent by nationally recognized overnight courier service directed to you at your
address set forth herein and service so made will be deemed to be completed on
the business day after deposit with such courier; provided that nothing
contained herein will prevent us from bringing any action, enforcing any award
or judgment or exercising any rights against you individually, against any
security or against any of your property within any other county, state or
other foreign or domestic jurisdiction. You acknowledge and agree that the
venue provided above is the most convenient forum for both parties. You waive
any objection to venue and any objection based on a more convenient forum in
any action instituted hereunder.
-6-
<PAGE> 7
22. No modification, amendment or waiver of any provision of this Letter
Agreement nor consent to any departure by you from the terms thereof, will in
any event be effective unless the same is in writing and signed by us, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which it was given. No notice to or demand made on you in any
case will entitle you to any other or further notice or demand in the same,
similar or other circumstance.
23. This Letter Agreement (including the documents and instruments referred
to herein) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
24. This Letter Agreement may be signed in any number of counterpart copies
and by the parties hereto on separate counterparts, but all such copies shall
constitute one and the same instrument.
If the terms of this Letter Agreement are satisfactory to you, please
indicate your agreement and acceptance thereof by signing a counterpart of this
Letter Agreement and returning it to us.
Agreed and Accepted: Very truly yours,
SOURCE ONE MORTGAGE SERVICES WOOD STREET FUNDING CORPORATION
CORPORATION
By: /s/ Larry N. Ciofu By:
------------------- ----------------------------
Name: Larry N. Ciofu Name:
Title: Vice President Title:
-7-
<PAGE> 8
SCHEDULE I
to
Letter Agreement
dated as of August 16, 1996
between Wood Street Funding Corporation and
Source One Mortgage Services Corporation
(i) For the purpose of Sections 1 and 2 of the Letter Agreement:
The "Facility Amount" is $25,000,000.
The "Minimum Advance Amount" is $1,000,000.
The "Maximum Term" is 100 days.
(ii) For the purpose of Section 12 of this Letter Agreement:
The address for written communication to you is:
Source One Mortgage Services Corporation
27555 Farmington Road
Farmington Hills, MI 48834
Attention: Larry N. Ciofu, Treasurer
Telephone: (810) 488-7338
Fax: (810) 488-7812
The address for written communication to us is:
Wood Street Funding Corporation
c/o PNC Bank, National Association,
Administrative Agent
One PNC Plaza - Third Floor
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Linda Kann
Telephone: (412) 762-7586
Fax: (412) 762-9184
(iii) For the purpose of Section 15 of this Letter Agreement, the term
"Material Debt" means indebtedness (other than indebtedness incurred under this
Letter Agreement) in an amount in excess of $25,000,000.
(iv) For the purpose of Section 15 of this Letter Agreement, the term
"Material Final Judgment" means a judgment for damages in excess of $5,000,000
for which all relief and all appeals have been exhausted and the time for
seeking such relief and taking such appeals has expired.
(v) For purposes of the Letter Agreement, instructions for wire transfer
of funds to you are:
<PAGE> 9
Name of Bank: ______________________________
Bank ABA Number: ___________________________
Customer Number: ___________________________
Reference: _________________________________
(See Exhibit A)
<PAGE> 10
EXHIBIT A
to
the Letter Agreement
dated as of August 16, 1996
between Wood Street Funding Corporation and
Source One Mortgage Services Corporation
For the purpose of Section 2 of the Letter Agreement, the "Designated
Persons" are:
Name Title
- ---- -----
Michael C. Allemang Executive Vice President/CFO/Secretary
Larry N. Ciofu Vice President
Sheila A. Joki Assistant Vice President
James J. Hill Department Manager
<PAGE> 11
EXHIBIT A
SOURCE ONE MORTGAGE SERVICES CORPORATION
Wire Transfer Instructions:
Send Funds To: Comerica Bank
Detroit, MI
Account Number: 1038017727
Account Name: SOMSC
ABA Number: 072 000 096
Reference: Wood Street
<PAGE> 12
AMENDED AND RESTATED SCHEDULE I
TO LETTER AGREEMENT
DATED AS OF AUGUST 16, 1996
BETWEEN WOOD STREET FUNDING CORPORATION
AND SOURCE ONE MORTGAGE SERVICES CORPORATION
Effective Date of Schedule: April 21, 1997
(i) For the purpose of Sections 1 and 2 of the Letter Agreement:
The "Facility Amount" is $50,000,000.
The "Minimum Advance Amount" is $1,000,000.
The "Maximum Term" is 100 days.
(ii) For the purpose of Section 12 of this Letter Agreement:
The address for written communication to you is:
Source One Mortgage Services Corporation
27555 Farmington Road
Farmington Hills, MI 48834
Attention: Larry N. Ciofu, Treasurer
Telephone: (810) 488-7338
Fax: (810) 488-7812
The address for written communication to us is:
Wood Street Funding Corporation
c/o PNC Bank, National Association,
Administrative Agent
One PNC Plaza - Third Floor
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Linda Kann/Kelly Birch
Telephone: (412) 762-7586/(412) 762-7184
Fax: (412) 762-9184
(iii) For the purpose of Section 15 of this Letter Agreement, the term
"Material Debt" means indebtedness (other than indebtedness incurred under this
Letter Agreement) in an amount in excess of $25,000,000.
(iv) For the purpose of Section 15 of this Letter Agreement, the term
"Material Final Judgment" means a judgment for damages in excess of $5,000,000
for which all relief and all appeals have been exhausted and the time for
seeking such relief and taking such appeals has expired.
<PAGE> 13
(v) For purposes of the Letter Agreement, instructions for wire transfer of
funds to you are:
Name of Bank: Comerica Bank - Detroit Michigan
Bank ABA Number: 072-000-096
Customer Number: 1038017727
Reference: Wood Street
Agreed to and Accepted:
SOURCE ONE MORTGAGE SERVICES WOOD STREET FUNDING CORPORATION
CORPORATION
By: /s/ Larry N. Ciofu By:
------------------ ----------------------------
Name: Larry N. Ciofu Name:
--------------------------
Title: Vice President Title:
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,635
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 27,548
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,003,228
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
18
<COMMON> 26
<OTHER-SE> 351,503
<TOTAL-LIABILITY-AND-EQUITY> 1,003,228
<SALES> 0
<TOTAL-REVENUES> 25,561
<CGS> 0
<TOTAL-COSTS> 25,049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,705
<INTEREST-EXPENSE> 8,059
<INCOME-PRETAX> 512
<INCOME-TAX> 325
<INCOME-CONTINUING> 187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187
<EPS-PRIMARY> (.33)
<EPS-DILUTED> 0
</TABLE>
