<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, 1999
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
SOURCE ONE MORTGAGE SERVICES CORPORATION
(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)
P.O. Box 2005, Farmington Hills, Michigan 48333-2005
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (248) 488-8639
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 14, 1999, the number of shares of the Registrant's Common Stock
outstanding was 3,211,881.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition
March 31, 1999 (Unaudited) and December 31, 1998...................................2
Consolidated Statements of Income (Unaudited),
Three Months Ended March 31, 1999 and 1998.........................................3
Consolidated Statements of Comprehensive Income (Unaudited),
Three Months Ended March 31, 1999 and 1998.........................................4
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1999 and 1998.........................................5
Notes to Consolidated Financial Statements (Unaudited)...........................6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................................10-18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................19
SIGNATURES........................................................................20
</TABLE>
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
1
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 7,963 $ 16,410
Investments 62,446 78,477
Investment in unconsolidated affiliate (net) 215,554 234,071
Mortgage loans receivable 573,223 676,317
Pool loan purchases 199,739 164,952
Loans held for investment 3,028 1,707
Capitalized servicing (net) 209,702 169,688
Mortgage claims receivable and real estate acquired
(net of allowance for loan losses of $6,400 in 1999 and $11,500 in 1998) 37,202 33,121
Premises and equipment 24,306 23,303
Other assets 116,956 119,931
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,450,119 $ 1,517,977
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Senior debt $ 787,428 $ 814,593
Subordinated debt 55,925 55,771
Accounts payable and other liabilities 214,054 235,100
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 1,057,407 $ 1,105,464
- --------------------------------------------------------------------------------------------------------------------
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 18 18
outstanding as of March 31, 1999 and December 31, 1998
Common stock, $.01 par value, 8,000,000 shares authorized,
3,211,881 shares issued and outstanding 32 32
Paid-in capital 346,542 358,447
Accumulated other comprehensive income 46,384 60,396
Retained deficit (264) (6,380)
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 392,712 $ 412,513
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,450,119 $ 1,517,977
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
2
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Mortgage servicing revenue $ 16,124 $ 22,511
Amortization of capitalized servicing 6,108 (14,685)
Net (loss) gain on financial instruments (13,988) 1,687
- ---------------------------------------------------------------------------------------------------
Net servicing revenue 8,244 9,513
- ---------------------------------------------------------------------------------------------------
Interest income 22,582 17,790
Interest expense 19,099 15,335
- ---------------------------------------------------------------------------------------------------
Net interest revenue 3,483 2,455
- ---------------------------------------------------------------------------------------------------
Net realized investment gain 57 2,016
Equity in earnings from unconsolidated affiliate 3,428 3,117
Net gain on sale of mortgages 20,352 16,695
Net (loss) gain on sale of servicing (140) 8,052
Other 8,960 6,149
- ---------------------------------------------------------------------------------------------------
TOTAL REVENUE 44,384 47,997
- ---------------------------------------------------------------------------------------------------
EXPENSES
Salaries and employee benefits 21,043 16,904
Office occupancy and equipment 3,639 2,822
Provision for loan losses (172) 844
Other operating expenses 9,214 7,370
- ---------------------------------------------------------------------------------------------------
TOTAL EXPENSES 33,724 27,940
- ---------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary loss 10,660 20,057
Income tax expense 3,414 6,937
- ---------------------------------------------------------------------------------------------------
Income before extraordinary loss 7,246 13,120
Extraordinary loss on early retirement of debt
(net of $109 income tax benefit) (203) --
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 7,043 $ 13,120
Less dividends on preferred stock 927 927
- ---------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 6,116 $ 12,193
- ---------------------------------------------------------------------------------------------------
BASIC NET INCOME PER COMMON SHARE:
Before extraordinary loss 1.97 3.80
Extraordinary loss (.07) --
- ---------------------------------------------------------------------------------------------------
Basic net income per common share $ 1.90 $ 3.80
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
3
<PAGE> 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 7,043 $ 13,120
Other comprehensive (loss) income, net of tax
Unrealized (losses) gains on investments:
Unrealized holding gain (loss) arising during period
(net of income tax expense (benefit) of ($7,544) and $9,706
for the three months ended March 31, 1999 and 1998,
respectively) (14,012) 18,026
- --------------------------------------------------------------------------------------------------
Other comprehensive (loss) income (14,012) 18,026
- --------------------------------------------------------------------------------------------------
Comprehensive (loss) income (6,969) 31,146
Less dividends on preferred stock 927 927
- --------------------------------------------------------------------------------------------------
Comprehensive (loss) income applicable to common stock $ (7,896) $ 30,219
- --------------------------------------------------------------------------------------------------
Basic comprehensive (loss) income per common share $ (2.46) $ 9.41
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
4
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,043 $ 13,120
Noncash items included in the determination of net income:
Amortization of capitalized servicing (6,108) 14,685
Net unrealized loss on financial instruments 1,914 113
Provision for loan losses (172) 844
Depreciation and amortization 1,097 807
Loss on sale of financial instruments 12,159 --
Write-down of loans held for investment 532 --
Net realized gain on investments -- (2,016)
Loss (gain) on sale of servicing 140 (8,052)
Undistributed earnings from unconsolidated affiliate (3,039) (2,745)
Extraordinary loss on repurchase of debt 203 --
Mortgage loan production (2,878,997) (2,374,745)
Mortgage loan sales and amortization 2,982,091 2,310,692
Net proceeds from sale of financial instruments 2,341 --
Net decrease in accounts payable and other liabilities (10,956) (37,403)
Net (increase) decrease in other assets (10,655) 12,086
Net change in current and deferred income taxes receivable and payable (4,799) 6,667
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 92,794 (65,947)
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Collections on and sales of pool loan purchases, mortgage claims receivable
and real estate acquired 7,985 40,149
Additions to pool loan purchases, mortgage claims receivable and real estate (46,681) (19,623)
acquired
Additions to capitalized mortgage servicing rights (73,226) (53,781)
Net proceeds from sale of servicing 55,241 43,750
Additions to long-term investments (296) (1,437)
Collections on notes receivable -- 7,000
Principal payments received on long-term investments -- 3,785
Net increase in short-term investments -- (26,005)
Net acquisition of premises and equipment (1,880) (561)
Net increase in loans held for investment (1,853) (590)
- --------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (60,710) (7,313)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) increase in credit agreement borrowings (19,392) 98,037
Retirement of debt (8,307) --
Dividends paid (12,832) (25,927)
Other -- (130)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (40,531) 71,980
- --------------------------------------------------------------------------------------------------------------------
Net decrease in cash (8,447) (1,280)
Cash at beginning of period 16,410 3,134
- --------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 7,963 $ 1,854
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
5
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Source One
Mortgage Services Corporation ("SOMSC") (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 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, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
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, 1998 as filed with the Securities and Exchange Commission.
Certain reclassifications have been made to the financial statements to achieve
consistent presentation of the 1999 and 1998 results.
NOTE 2. RECENT DEVELOPMENTS
On March 17, 1999, the Boards of Directors of White Mountains Holdings, Inc. and
Fund American Enterprises Holdings, Inc. unanimously approved the sale of the
majority of the Company's assets to Citicorp Mortgage, Inc. ("Citicorp")
pursuant to the asset purchase agreement dated March 23, 1999.
As of May 1, 1999, the Company and Citicorp closed the previously announced
transaction under which Citicorp acquired substantially all of the principal
mortgage assets of the Company and assumed certain liabilities, including all
public debt of the Company effective May 1, 1999 (the "Citicorp Transaction").
The Company retained its investments in its unconsolidated affiliate, Financial
Security Assurance Holdings Ltd, ("FSA") and certain other mortgage-related
assets and liabilities.
In connection with the Citicorp Transaction, the Company will redeem all of its
outstanding preferred stock on June 3, 1999. The redemption price is $25 per
share, plus dividends accrued and unpaid to the redemption date. From May 1,
1999 to the redemption date, the accrued dividend will be $0.187 per share,
bringing the total per share redemption price to $25.187. In addition, on May 3,
1999, all amounts outstanding under SOMSC's credit agreements were repaid and
the agreements were dissolved.
NOTE 3. ACCOUNTING STANDARDS RECENTLY ADOPTED AND ISSUED
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in the annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. SFAS
No. 131 also establishes standards for related disclosure about products and
services, geographic areas and major customers. The Company adopted SFAS No. 131
as of December 31, 1998. The adoption of SFAS No. 131 resulted in a change to
financial statement disclosure only and had no effect on the Company's financial
position or results of operations.
In March 1998, the American Institute of Certified Public Accountants ("the
AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use". The SOP requires the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use. The Company adopted SOP 98-1 effective
January 1, 1999. The adoption of SOP 98-1 did not have a material effect on the
Company's current financial position or results of operations.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
6
<PAGE> 8
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise". SFAS No. 134 requires that after the
securitization of a mortgage loan held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interest based on its ability and intent to sell or hold those
investments. The Company adopted SFAS No. 134 effective January 1, 1999. The
adoption of SFAS No. 134 did not have a material effect on the Company's current
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133
requires companies to record all derivatives on the balance sheet as either
assets or liabilities and measure those instruments at fair value. The manner in
which companies are to record gains and losses resulting from changes in the
values of those derivatives depends on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 is effective beginning in 2000 with
earlier adoption permitted. The Company expects to adopt SFAS No. 133 in 2000.
The Company has not yet evaluated the impact of adopting SFAS No. 133.
NOTE 4. FINANCIAL INSTRUMENTS
In conjunction with the sale of the Company's capitalized servicing asset as
part of the Citicorp Transaction discussed in Note 2 to the consolidated
financial statements, the Company liquidated the majority of its investments in
financial instruments. In March 1999, the Company sold interest rate floor
contracts ("floors") with a carrying value of $7.1 million and a notional value
of $900.0 million for proceeds of $4.3 million and realized a net loss of $2.8
million. As of March 31, 1999, the Company's open floor with a total notional
principal amount of $200.0 million had a carrying value of $1.0 million and an
original cost of $0.9 million. The Company sold its investment in the floor in
April 1999 and realized a net gain of $.04 million.
During March 1999, the Company also paid $3.1 million to terminate all of its
outstanding interest rate ("I/R") swap agreements with a carrying value of $4.7
million and a notional value of $290.0 million and realized a net loss of $7.8
million on the transaction. In addition, the Company sold all of its outstanding
principal-only ("P/O") swaps with a carrying value of $2.7 million and an
original notional value of $50.0 million for proceeds of $1.2 million and
realized a net loss of $1.5 million.
NOTE 5. BASIC NET INCOME AND COMPREHENSIVE INCOME PER SHARE
Basic net income and comprehensive income per share amounts were computed based
on 3,211,881 weighted average total number of common shares outstanding for the
three month periods ended March 31, 1999 and 1998.
NOTE 6. REPORTABLE SEGMENTS
The Company's reportable segments include Production and Servicing. The
Production segment originates and sells into the secondary market a variety of
residential loan products, including conventional, government, subprime,
manufactured housing, 203 (k) and high LTV loans. The Servicing segment services
conforming residential mortgage loans and subservices residential mortgage loans
for third parties.
There were no changes in the accounting policies of the segments during the 1999
first quarter. The Company accounts for any intersegment activity as if it were
with third parties, that is at estimated market prices.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
7
<PAGE> 9
The Company determined its reportable segments based upon the organization of
information provided to its board of directors. Each segment is a strategic
business unit that offers either a product or a service. The segments are
managed separately because each requires different technology and strategies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999 (in thousands)
- --------------------------------------------------------------------------------------------------------------------
Production Servicing Other (a) Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 28,581 $ 16,491 $ 281(b) $ 45,353
Intersegment revenues (821) 821 -- --
Segment profit 8,288 2,223 (4,300) 6,211
Segment Assets (c) 573,223 409,441 190,160 1,172,824
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1998 (in thousands)
- --------------------------------------------------------------------------------------------------------------------
Production Servicing Other(a) Total
-----------------------------------------------------------------
Revenues from external customers $ 27,737 $ 22,311 $ 4,297(b) $ 54,345
Intersegment revenues (527) 527 -- --
Segment profit 11,572 2,055 (494) 13,133
Segment Assets (c) 583,300 355,434 234,980 1,173,714
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Primarily represents unallocated overhead.
(b) Primarily represents unallocated net gain on sale of pool loan purchases
and loans held for investment and gain on sale of servicing.
(c) Management does not typically review segment assets information. The only
segment assets reviewed or monitored by management are mortgage loans
receivable, pool loan purchases and capitalized servicing. `Other' segment
assets include all other mortgage-banking related assets.
The following reconciles the above table to the amounts shown on the
consolidated financial statements as of and for the three months ended March 31,
1998 and 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999 (in thousands)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Income before income taxes and extraordinary loss:
Income before income taxes and extraordinary loss for reportable segments $ 6,211
Non mortgage-banking-related income before income taxes and extraordinary loss 4,449(a)
- --------------------------------------------------------------------------------------------------------------------
Total income before income taxes and extraordinary loss $ 10,660
- --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1998 (in thousands)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes:
Income before income taxes for reportable segments $ 13,133
Non mortgage-banking-related income before income taxes 6,924(a)
- -------------------------------------------------------------------------------------------------------------------
Total income before income taxes $ 20,057
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Relates to the Company's investment in unconsolidated affiliate and other
investments.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
8
<PAGE> 10
NOTE 7. 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) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest paid $ 19,527 $ 13,496
- --------------------------------------------------------------------------------
Income taxes paid $ 8,740 $ 125
- --------------------------------------------------------------------------------
Noncash investing and financing activities:
Sales of servicing rights $ 69,933 $ 60,234
- --------------------------------------------------------------------------------
</TABLE>
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with (i) the condensed
consolidated financial statements and the notes thereto included elsewhere in
this report and (ii) the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (including the financial statements included therein). The
following discussion and analysis contains certain forward-looking statements
relating to anticipated future financial conditions and operating results of the
Company and its current business plans. In the future, the financial condition
and operating results of the Company could differ materially from those
discussed herein and its current business plans could be altered in response to
market conditions and other factors beyond the Company's control. Important
factors that could cause or contribute to such difference or changes include
those discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. (See the disclosures under "Item 1. Business - Certain
Business Conditions", "Item 1. Business - Forward Looking Statements" and under
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.")
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 AND 1998
SUMMARY- Source One Mortgage Services Corporation (together with its
subsidiaries, the "Company") reported net income of $7.0 million for the three
months ended March 31, 1999 compared to $13.1 million for 1998. The Company's
1999 results include a $.1 million loss on the sales of servicing to third
parties and adjustments to previous sales, $3.4 million pretax equity in
earnings of an unconsolidated affiliate and a $13.6 million pretax recovery of
valuation allowances on the Company's capitalized servicing asset, which was
offset by a $14.0 million net loss on financial instruments. The Company's 1998
results include an $8.1 million pretax gain on sales of servicing to third
parties and adjustments to previous sales, $3.1 million pretax equity in
earnings of an unconsolidated affiliate and a $1.5 million pretax charge for
impairment of the Company's capitalized servicing asset, which was partially
offset by a $1.7 million pretax net gain on financial instruments.
The Company reported a comprehensive loss (which includes the net change in
after tax unrealized gains and losses) of $7.0 million for the three months
ended March 31, 1999 compared to comprehensive income of $31.1 million for 1998.
The unrealized gains and losses are associated with the Company's investment in
FSA, which it acquired in the first half of 1997.
During the three months ended March 31, 1999 and 1998, the Company sold the
rights to service approximately $1.7 and $3.5 billion, respectively of its
nonrecourse mortgage servicing portfolio to third parties. During the 1999 first
quarter, the Company acquired the rights to subservice approximately $.9 billion
of mortgage loans. The Company did not acquire any subservicing rights during
the first quarter of 1998.
During 1998 and 1997, the Company sold the rights to service $4.1 billion and
$17.0 billion, respectively, of its nonrecourse mortgage servicing portfolio to
a third party and continues to service these loans pursuant to a subservicing
agreement ("the 1997 Subservicing Agreement"). In December 1997, the 1997
Subservicing Agreement was amended to extend the Company's subservicing
responsibilities for one additional year at less favorable terms that the
original agreement provided. The amended terms became effective in March 1998,
June 1998 and August 1998 for Federal Home Loan Mortgage Corporation ("FHLMC" or
"Freddie Mac"), Government National Mortgage Association ("GNMA" or "Ginnie
Mae"), and Federal National Mortgage Association ("FNMA" or "Fannie Mae") loans,
respectively. In early November 1998, the Company amended the 1997 Subservicing
Agreement again to extend its subservicing responsibilities for two additional
years at slightly more favorable terms than the first amendment provided. As a
result, the Company will continue to service these loans at least until March
2001, June 2001 and August 2001 for FHLMC, GNMA and FNMA loans, respectively.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company's mortgage loan production and mortgage servicing portfolio activity
for the first three months of 1999 and 1998 are summarized in the following
tables:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Three Months Ended
March 31,
- -----------------------------------------------------------------------------------------
MORTGAGE LOAN PRODUCTION: (in millions) 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
BY TYPE:
FHA/VA Insured $ 2,196 $ 1,568
Conventional 680 807
- -----------------------------------------------------------------------------------------
Total $ 2,876 $ 2,375
- -----------------------------------------------------------------------------------------
BY SOURCE:
Retail $ 639 $ 687
Wholesale 2,237 1,688
- -----------------------------------------------------------------------------------------
Total $ 2,876 $ 2,375
- -----------------------------------------------------------------------------------------
</TABLE>
In response to increased industry competition for producing and servicing
conforming mortgage loans, the Company decided to broaden its product line by
offering higher margin products. The Company began producing 203(k) (FHA home
improvement) loans, manufactured housing loans, subprime loans and high
loan-to-value ("high LTV") second mortgage loans in late 1997. The 203(k) loans
and the manufactured housing loans are being sold into agency pools with
servicing retained. The subprime and high LTV loans are being originated for a
fee and sold to third parties on a servicing released basis. The Company is
currently subservicing subprime loans and has the capability to service and
subservice high LTV loans. Although these higher margin products are a new focus
for the Company, they accounted for less than 4% of total production in each of
the three month periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Three Months Ended
March 31,
- --------------------------------------------------------------------------------------------
MORTGAGE SERVICING PORTFOLIO: (in millions) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Servicing portfolio owned at beginning of period $ 9,197 $ 11,627
Mortgage loan production 2,876 2,375
- --------------------------------------------------------------------------------------------
Total servicing in 2,876 2,375
- --------------------------------------------------------------------------------------------
Regular payoffs 320 489
Sale of servicing 1,747 3,534
Principal amortization, foreclosures and other 212 209
- --------------------------------------------------------------------------------------------
Total servicing out 2,279 4,232
- --------------------------------------------------------------------------------------------
Servicing portfolio owned at end of period 9,794 9,770
- --------------------------------------------------------------------------------------------
Subservicing portfolio 15,853 14,032
- --------------------------------------------------------------------------------------------
Total servicing portfolio at end of period $ 25,647 $ 23,802
- --------------------------------------------------------------------------------------------
</TABLE>
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The increase in 1999 mortgage loan production reflects slightly lower market
interest rates and a corresponding increase in refinance activity throughout the
first three months of 1999 compared to 1998. Production related to refinancing
activity totaled $1.9 billion and $1.7 billion for the three months ended March
31, 1999 and 1998, respectively. The decrease in payoffs primarily reflects a
smaller average owned servicing portfolio during the first quarter of 1999 as
compared to 1998.
Additional information regarding the Company's mortgage loan servicing portfolio
is shown below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------
MORTGAGE SERVICING PORTFOLIO: Owned Total(a) Owned Total(a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of loans serviced 134,809 387,949 128,330 384,466
Weighted average net servicing fee
(at end of period)(d) .407% (c) .397% (c)
Weighted average interest rate 7.64% 7.91% 7.76% 7.99%
Percent delinquent (b) 7.65% 7.50% 9.06% 8.57%
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Includes loans subserviced for others having a principal balance of 15,853
million and $15,915 million as of March 31, 1999 and December 31, 1998,
respectively.
(b) Includes loans in process of foreclosure.
(c) This amount is not meaningful, as it would be calculated as a combination of
two different measurements: the net servicing fee earned on the Company's
owned servicing portfolio, which is calculated as a percentage of the
outstanding principal balance serviced; and the subservicing fee earned on
the Company's subservicing portfolio, which is calculated based upon the
terms of the various subservicing agreements.
(d) Excludes servicing fees assigned to mortgage loans receivable.
REVENUE- Mortgage servicing revenue decreased to $16.1 million in the first
three months of 1999 from $22.5 million in 1998. The decrease in mortgage
servicing revenue is primarily a result of the 1999 and 1998 servicing sales and
lower subservicing revenue generated as a result of the first amendment to the
1997 Subservicing Agreement. Amortization of capitalized servicing decreased to
a $6.1 million recovery for the first quarter of 1999 from $14.7 million of
expense for the first quarter of 1998. Amortization includes the change in the
valuation allowances for impairment of the Company's capitalized servicing asset
as indicated in the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Three months ended, (in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Scheduled amortization of capitalized servicing $ (7,447) $ (13,226)
Decrease (increase) in valuation allowances for impairment 13,555 (1,459)
- ------------------------------------------------------------------------------------------------------
Total amortization of capitalized servicing $ 6,108 $ (14,685)
- ------------------------------------------------------------------------------------------------------
</TABLE>
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The 1999 recovery of the previously established valuation allowances is
primarily the result of decreased market consensus prepayment rates and a
corresponding increase in the fair value of the Company's capitalized servicing
asset during the first quarter 1999. The impairment charge in 1998 is primarily
the result of increased market consensus prepayment rates and a corresponding
decrease in the fair value of the Company's capitalized servicing asset during
the first quarter 1998. Excluding the effects of impairment, amortization
expense decreased to $7.4 million in the first three months of 1999 from $13.2
million in 1998. This decrease is primarily the result of a smaller average
servicing asset in the first quarter 1999 as compared to 1998 and the reduction
in amortization of the Company's subservicing asset.
The Company recorded a net loss on its financial instruments of $14.0 million
for the first three months of 1999. The net loss includes a net realized loss of
$12.2 million on the sales of financial instruments during 1999, unrealized
losses of $1.9 million due to a net decrease in the fair market value of the
remaining financial instruments, slightly offset by realized gains of $.1
million from net cash flows received. The Company recorded a net gain on its
financial instruments of $1.7 million for the first three months of 1998. The
1998 net gain includes realized gains of $1.8 million from net cash flows
received, slightly offset by $.1 million of unrealized losses due to a net
decrease in the fair market value of the various financial instruments
outstanding.
Interest income increased to $22.6 million in the first three months of 1999
from $17.8 million in 1998. The increase in interest income is primarily the
result of the increase in mortgage loan production and the corresponding
increase in average mortgage loans receivable inventory. Interest expense was
$19.1 million and $15.3 million for the three months ended March 31, 1999 and
1998, respectively. This increase is primarily the result of increased
short-term borrowings necessary to fund the increase in 1999 production.
Net realized investment gain decreased to $.1 million in the three months ended
March 31, 1999 from $2.0 million in 1998. The 1999 net gain is the result of
cash flows received on certain investments previously written off. The 1998 gain
is primarily the result of a realized gain from a distribution received on a
partnership investment. There were no partnership distributions in 1999.
Net gain on sale of mortgages increased to $20.4 million in the first three
months of 1999 from $16.7 million in the comparable 1998 period. This increase
is primarily the result of increased mortgage loan sales volumes and the
corresponding increase in capitalized originated mortgage servicing rights
("OMSR") income. The 1999 net gain on sale of mortgages also reflects a $.5
million pretax charge relating to approximately $1.9 million of the Company's
mortgage loans receivable which were reclassified as held for investment and
were marked down from amortized cost to current market value.
The Company recorded a $.1 million pretax loss on sales of servicing during the
first quarter of 1999, which reflects the sales of the rights to service
approximately $1.7 billion of the Company's nonrecourse mortgage servicing
portfolio to third parties and adjustments to previous servicing sales. The
Company recorded an $8.1 million pretax gain on sales of servicing during the
first quarter of 1998, which reflects the sales of the rights to service
approximately $3.5 billion of the Company's nonrecourse mortgage servicing
portfolio to third parties and adjustments to previous servicing sales.
Other revenue was $9.0 million and $6.1 million for the three months ended March
31, 1999 and 1998, respectively. The increase in other revenue primarily
reflects an increase in ancillary production income associated with the increase
in overall 1999 production volumes.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
EXPENSES - Salaries and employee benefits expense was $21.0 million and $16.9
million for the three months ended March 31, 1999 and 1998, 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 revenues 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) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Unadjusted salaries and employee benefits expense $ 28,257 $ 24,992
GAAP net origination revenues (7,214) (8,088)
- ------------------------------------------------------------------------------------------------
GAAP salaries and employee benefits expense $ 21,043 $ 16,904
- ------------------------------------------------------------------------------------------------
</TABLE>
The decrease in loan origination revenues reflects the decrease in retail
mortgage loan production during the first quarter of 1999 as compared to the
first quarter of 1998. Excluding the effects of loan origination revenue,
salaries and employee benefits expense increased 13%. This increase is primarily
due to increased headcount resulting from expansion of the production network
and an increase in loan officer commissions associated with the increase in 1999
wholesale mortgage loan production.
The provision for loan losses was $.2 million of recovery for the first quarter
of 1999 as compared to $.8 million of expense for 1998. The 1999 provision
includes a $1.3 million recovery of previously established valuation allowances,
resulting primarily from the expiration of a certain indemnity obligation of the
Company during the first quarter of 1999. The 1998 provision includes a $.5
million charge to the valuation allowance for loan losses, primarily related to
certain litigation, which was settled during the first quarter 1998.
During the first quarter of 1999, the Company recognized an extraordinary loss
of $.2 million, net of income tax benefit, on the early retirement of $8.0
million of its outstanding 9% debentures due 2012.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
14
<PAGE> 16
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 financing
needs, the Company relies on 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 mortgage servicing rights. 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) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit agreements, weighted average interest rates
of 5.77% as of March 31, 1999 and
December 31, 1998 $ 677,836 $ 697,229
8.875% medium-term notes due October 15, 2001 18,723 18,723
9.0% debentures due June 1, 2012 92,000 100,000
9.375% subordinated debentures due December 31, 2025 55,976 55,976
Less unamortized discount, premium and issuance costs (net) (1,182) (1,564)
- -----------------------------------------------------------------------------------------------------------
Total senior and subordinated debt $ 843,353 $ 870,364
- -----------------------------------------------------------------------------------------------------------
</TABLE>
In July 1998, the Company amended and restated its $701.0 million secured
revolving credit agreement to increase its borrowing capacity and flexibility.
The provisions of the amended agreement increased its borrowing capacity from
$701.0 million to $800.0 million, which allows the Company to meet higher
borrowing requirements resulting from increased production volumes. The
provisions also allow the Company to more fully utilize the facility by easing
its restrictions with respect to the Company's use of its high LTV mortgage
loans and non-conforming second mortgage loans as collateral and increasing the
collateral value of the Company's mortgage-backed-security ("MBS") pools.
Borrowings under the facility are secured primarily by the Company's mortgage
loans receivable and pool loan purchases. As of March 31, 1999 the Company had
$631.1 million outstanding under this facility. As of December 31, 1998 the
Company had $650.5 million outstanding under the previous facility.
In July 1998, the Company entered into an additional secured credit agreement to
be used for working capital and general corporate purposes, including the
funding of mortgage loans. Under this agreement, the Company may borrow up to
$35.0 million through July 9, 1999. Borrowings under this facility are secured
by the Company's investment in FSA common stock. As of March 31, 1999, the
Company had $35.0 million outstanding under this facility. As of December 31,
1998, there were no outstanding borrowings under this facility.
In May 1998, the Company entered into a new secured credit agreement for
purposes of financing the origination or acquisition of subprime and high LTV
loans. Under this agreement, the Company may borrow up to $175.0 million through
April 29, 1999. Borrowings under this facility are secured by the underlying
loans. As of March 31, 1999 and December 31, 1998, the Company had $3.9 million
and $21.6 million outstanding under this facility, respectively.
On May 3, 1999, in conjunction with the Citicorp Transaction, the Company repaid
all amounts outstanding under the above agreements. As a result, the agreements
were dissolved and the Company recognized approximately $.1 million of deferred
issuance costs related to these agreements.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Central Pacific replaced its existing $15.0 million unsecured revolving credit
agreement with a new mortgage warehousing agreement in April 1998, to fund the
origination or acquisition of mortgage loans. Under this agreement, Central
Pacific could borrow up to $25.0 million through April 15, 1999. Borrowings
under this new facility are secured by the underlying loans. In July 1998,
Central Pacific amended this new agreement to increase its borrowing capacity to
$40.0 million. In February 1999, the agreement was extended through June 1,
1999. As of March 31, 1999 and December 31, 1998, there was $7.8 million and
$25.1 million outstanding under this agreement, respectively. In conjunction
with the Citicorp Transaction, Citicorp assumed all amounts outstanding under
this agreement.
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 paid cash dividends on its common stock totaling $11.9
million for the three months ended March 31, 1999. The Company paid cash
dividends totaling $104.0 million for the year ended December 31, 1998. These
dividend payments have been reflected as reductions in paid-in capital.
During the first three months of 1999, the Company sold the rights to service
approximately $1.7 billion of its nonrecourse mortgage servicing portfolio to
third parties for net proceeds of $28.0 million. The Company used the initial
proceeds received from the sales totaling $21 million for general corporate
purposes. The remaining balance of $7 million is included in other assets in the
consolidated statement of condition as of March 31, 1999. During 1998, the
company sold the rights to service approximately $10.6 billion of its
nonrecourse mortgage servicing portfolio for net proceeds of $227.9 million.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
YEAR 2000 COMPLIANCE
During the fourth quarter of 1996, the Company established a team to coordinate
the identification, evaluation and implementation of changes to computer systems
and applications that the Company currently believes are necessary to achieve a
year 2000 date conversion with no material adverse effects to its customers or
disruption to business operations. These actions are necessary to ensure that
the systems and applications will recognize and process the year 2000 and
beyond. The Company has substantially completed the testing phase for all
information technology ("IT") systems and is currently concentrating efforts on
testing outside constituents. Additionally, non-IT systems have also been
reviewed for affects of the Year 2000 dilemma. Non-IT systems influenced by Year
2000 date conversion will be upgraded or replaced by the third quarter of 1999.
During 1998, the Company engaged an independent consultant to perform an
assessment of the Company's Year 2000 readiness. The assessment confirmed that
the Company was in the final stages of completion and that the Company was a low
risk entity for adverse Year 2000 incidents.
The total pretax cost of achieving Year 2000 compliance, including $1.0 million
for hardware and software upgrades, is approximately $2.6 million. To date, the
Company has incurred approximately $2.5 million in costs. These costs have been
expensed as incurred, with the exception of hardware costs, which were
capitalized in accordance with GAAP. The Year 2000 project has accounted for
less than 15% of the total IT budget since the project's inception in 1996.
The Company has been closely monitoring the Year 2000 issues of its third party
constituents with whom it voluntarily interacts (e.g. customers, suppliers,
reinsurers, creditors, borrowers). These third party constituents were requested
to demonstrate their ability to become Year 2000 compliant by year-end 1998. For
those constituents who either failed to respond to this inquiry or were deemed
to be unlikely to remedy their own Year 2000 issues in a timely manner, the
Company is in the process of establishing similar relationships with new parties
that expect to be Year 2000 compliant.
The failure to identify or correct significant Year 2000 issues could result in
an interruption in, or a failure of, certain normal business activities or
operations concerning the Company. Such failure could adversely affect the
Company's results of operations, liquidity and financial condition. Due to
general uncertainties inherent in the Year 2000 problem, resulting in part from
uncertainty of potential business interruptions caused by third party
constituents in which the Company must interact (including but not limited to
the suppliers of electric power, various private and public markets for equity
and debt securities, certain agencies of the Federal government and states in
which the Company conducts business), the Company is unable to determine at this
time whether the consequences of any Year 2000 failures will have a material
impact on its results of operations, liquidity or financial condition. However,
the Company currently believes that, with the implementation of its Year 2000
plan (which is in the final stages of completion), the possibility of
significant interruptions of normal business activities due to Year 2000 issues
should be reduced. In addition, the Company is currently in the process of
developing and updating Business Continuance Plans, to facilitate continued
operations in the event of adverse Year 2000 incidents.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
OTHER MATTERS
ACCOUNTING FOR FSA OPTIONS AND CONVERTIBLE PREFERRED STOCK. The Company
currently owns 3,460,200 shares of the common stock of FSA ("FSA Shares") and
various fixed price options and shares of convertible preferred stock of FSA
(the "FSA Options and FSA Preferred Stock") which, in total, gives the Company
the right to acquire up to 4,560,607 additional FSA Shares. The Company's
investment in FSA Shares is accounted for using the equity method of accounting
pursuant to which the investment is reported at FSA's equity value ($36.25 per
FSA Share at March 31, 1999). The Company's investments in FSA Options and FSA
Preferred Stock are currently accounted for under the provisions of SFAS No. 115
pursuant to which the investments are reported at fair value ($46.14 per FSA
Share at March 31, 1999).
The Company currently expects to exercise the FSA Options during 1999 and
convert the FSA Preferred Stock during 2004. Assuming that equity accounting
continues to be the proper accounting method for valuing the Company's
investment in FSA Shares, upon exercise of the FSA Options and conversion of the
FSA Preferred Stock, the Company expects that it would be required to restate
its historic balance sheets to account for its investments in FSA Options and
FSA Preferred Stock from fair value to their original cost. Upon exercise, the
Company's original cost basis in the FSA Shares acquired will be increased by
the exercise price paid. Because the new cost basis of the Company's investment
in FSA Shares is expected to be considerably less than its portion of the fair
value of FSA's net identifiable assets at the date of exercise, the Company
would be required to record a deferred credit that would be amortized to income
over an anticipated five year period. Assuming the FSA Options were exercised
and the FSA Preferred Stock converted as of March 31, 1999, the Company would be
required to reduce its stockholders' equity by $49.3 million and would record a
deferred credit of $21.6 million. This net difference in carrying value of $27.7
million (which represents the effective write-down of the FSA Options and FSA
Preferred Stock from fair value to FSA's equity value) would continue to exist
until such time as equity accounting is no longer appropriate for the Company's
investment in FSA Shares.
This analysis is based solely on the Company's current circumstances concerning
its investments in FSA Options and FSA Preferred Stock. The Company's actual
accounting valuation will be determined at the point of exercise for the FSA
Options and upon the conversion of the FSA Preferred Stock and will be based on
the circumstances concerning such investments existing at that time.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
18
<PAGE> 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit
No. Description
--- -----------------------
27 Financial Data Schedule
b. Form 8-K: The Company filed six current Reports on Form 8-K with the
Securities and Exchange Commission during the quarter ended March 31,
1999.
(i) January 25, 1999: Reported Distribution Date Statements for
January 25, February 1, February 1, and January 20, 1999 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 25, 1999: Reported Report to the Trustee and Report
to the Certificate Holders for the month of January 1999 relating
to the Source One Mortgage Services Corporation 11-1/2% Mortgage
Pass-Through Certificates, Series A.
(iii) February 24, 1999: Reported Distribution Date Statements for
February 25, March 1, March 1, and February 1999 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.
(iv) February 25, 1999: Reported Report to the Trustee and Report
to the Certificate Holders for the month of February 1999 relating
to the Source One Mortgage Services Corporation 11-1/2% Mortgage
Pass-Through Certificates, Series A.
(v) March 22, 1999: Reported Distribution Date Statements for
March 25, March 25, April 1, April 1, and March 20, 1999 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.
(vi) March 25, 1999: Reported Report to the Trustee and Report to
the Certificate Holders for the month of March 1999 relating to the
Source One Mortgage Services Corporation 11-1/2% Mortgage
Pass-Through Certificates, Series A.
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
19
<PAGE> 21
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 14, 1999 /S/ MICHAEL C. ALLEMANG
- ------------------ -----------------------
Michael C. Allemang
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Source One Mortgage Services Corporation and Subsidiaries Form 10-Q
20
<PAGE> 22
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7963
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 24306
<DEPRECIATION> 0
<TOTAL-ASSETS> 1450119
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
18
<COMMON> 32
<OTHER-SE> 392662
<TOTAL-LIABILITY-AND-EQUITY> 1450119
<SALES> 0
<TOTAL-REVENUES> 44384
<CGS> 0
<TOTAL-COSTS> 33724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (172)
<INTEREST-EXPENSE> 19099
<INCOME-PRETAX> 10660
<INCOME-TAX> 3414
<INCOME-CONTINUING> 7246
<DISCONTINUED> 0
<EXTRAORDINARY> (203)
<CHANGES> 0
<NET-INCOME> 7043
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 0
</TABLE>
