UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
IXI QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
I I 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 1-9742
HARBOURTON FINANCIAL SERVICES L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1573349
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2530 S. Parker Road,Suite 500, Aurora, CO 80014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 745-3661
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Preferred Units New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At May 10, 1996, registrant had 41,169,558 Preferred Units
outstanding.
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Operations (unaudited) for
the three months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited) for
the three months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II
SIGNATURES 18
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
(Unaudited)
March 31, December 31,
1996 1995
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 585 $ 2,273
Mortgage loans held for sale, net 256,612 232,073
Mortgage loans held for investment, net 1,866 1,507
Short-term investments 5,300 -
CMO bonds, residual interests, investment securities and
SMATs, net of accumulated amortization of $473 and
and $439, respectively 3,144 6,306
Notes receivable - affiliates 587 587
Advances receivable, net 34,780 21,016
Mortgage servicing rights, net of accumulated amortization
of $25,268 and $21,979, respectively and valuation
allowances of $186 and $1,132, respectively
80,340 75,846
Deferred acquistion, transaction and loan costs, net of
accumulated amortization of $1,315 and $1,271,
respectively 2,799 2,676
Property, equipment and leasehold improvements, net of
accumulated amortization of $3,554 and $3,283,
respectively 4,911 4,176
Due from affiliates - 3,632
Excess cost over identifiable tangible and intangible
assets acquired, net of accumulated amortization o
of $562 and $464, respectively 2,628 2,726
Other Assets 9,880 3,277
Total Assets 403,432 356,095
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Installment purchase obligations
- servicing $ 9,664 $ 9,740
Foreclosure reserves 8,098 8,142
Lines of credit 247,713 232,144
Term loans 38,592 37,215
Notes payable - affiliates 28,063 581
Due to affiliates 2,055 -
Accounts payable and other liabilities 13,412 13,766
Total Liabilities 347,597 301,588
Partners' Capital 55,835 54,507
Total Liabilities and Partners' Capital 403,432 356,095
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
<TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in thousands)
Three Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
REVENUES
Loan servicing fees $ 6,288 $ 4,388
Ancillary income 1,948 1,369
Gain on sale of defaulted loans to affiiates 664 107
Investment income net of interest expense
on escrows 1,385 1,000
Total servicing revenue 10,285 6,864
Gain on sale of mortgage loans and related
mortgage servicing rights 4,929 1,867
Interest income, net of related warehouse
interest expense 927 149
Other production income 3,429 456
Total production income - gross 9,285 2,472
Other investment and interest income 530 44
Total Revenue 20,100 9,380
EXPENSES
Servicing costs 2,255 1,644
Prepayment costs and interest curtailments 569 441
Provision for foreclosure losses 2,093 684
Amortization of mortgage servicing rights less
net impairment recovery 2,344 1,297
Total servicing expenses 7,261 4,066
Loan production and secondary marketing costs 7,950 2,822
General and administrative costs, including
management fees 1,488 1,431
Interest expense - term loans 775 487
Other interest expense 475 108
Other interest expense-affiliates, net of
interest income-affiliates 345 44
Other amortization and depreciation 478 298
Total Expenses 18,772 9,256
Net Income Before Equity in Earnings of Affiliates
and Gain on Bulk Sale of Originated Servicing 1,328 124
Equity in earnings of affiliates - (254)
Gain on bulk sale of originated servicing - 9,148
Net Income $ 1,328 $ 9,018
Net Income per Preferred Unit, based on
41,902,891 and 30,087,826 weighted average
number of Preferred Units outstanding,
respectively $ 0.03 $ 0.31
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
<TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
Three Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,328 $ 9,018
Adjustments to reconcile net income to net cash from
operating activities:
Gain on bulk sale of originated servicing - (9,148)
Gain on sale of defaulted loans (664) (107)
Gain on sale associated with retained
servicing (6,357) (366)
Mortgage servicing rights valuation recovery (946) -
Amortization and depreciation 3,767 1,595
Equity in earnings of affiliates - 254
Provision for foreclosure losses 2,093 684
Changes in operating assets and liabilities:
Mortgage loans held for sale and
investment, net (24,898) 1,523
Advances receivable (13,471) (5,513)
Other assets (7,150) 7,830
Due to/from affiliates 5,687 255
Accounts payable and other liabilities (2,196) 593
Net Cash Flows From Operating Activities (42,807) 6,618
Net Cash Flows From Investing Activities:
Proceeds from bulk sale of originated servicing - 1,628
Settlement of installment purchase obligation - 228
Purchase of short-term investments (5,300) (9,924)
Increase in restricted cash - (228)
Increase in notes receivable - affiliates - 447
Funding of deferred acquisition and
transaction costs (147) (399)
Amortization of CMO bonds, residual
interests, and investment securities 98 -
Proceeds from sale of SMAT 3,064 -
Purchases of property and equipment (1,004) (281)
Cash acquired in purchase transaction - 2,715
Net Cash Flows From Investing Activities (3,289) (5,814)
Cash Flows From Financing Activities:
Principal payments on term loans (2,067) (3,062)
Funding of deferred loan costs (20) -
Term debt advances 3,444 -
Net (repayment) borrowings on lines of credit
and short term borrowings 15,569 4,736
Net (repayments) borrowings from notes payable
affiliates 27,482 423
Net Cash Flows From Financing Activities 44,408 2,097
Increase (decrease) in cash and cash equivalents (1,688) 2,901
Cash and cash equivalents at beginning of period 2,273 1,670
Cash and cash equivalents at end of period $ 585 $ 4,571
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
<TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(unaudited) (in thousands)
Three Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
Non-cash Investing and Financing Activities:
Acquisition and consolidation of HBT, TMC, HFC, and TMC Mortgage
Corp., net of cash acquired
Mortgage loans held for sale, net $ - $ 12,922
Mortgage loans held for investment - 222
CMO bonds and residual interests - 3,864
Notes receivable - affiliates - 314
Advances receivable - 5,875
Mortgage servicing rights, net - 18,631
Deferred acquisition and loan costs, net - 86
Property and equipment, net - 468
Investment in affiliates - (1,652)
Excess cost over identifiable tangible and
intangible assets acquired - 2,236
Other assets - 7,212
Total Assets - 50,178
Foreclosure reserves - 3,334
Lines of credit - 11,890
Term loans - 7,202
Short-term borrowings - 9,582
Notes payable - affiliates - 5,588
Due to affiliates - (44)
Accounts payable and other liabilities - 1,724
Total Liabilities - 39,276
Distribution to affiliates prior to the
purchase transaction - (6,284)
Unrealized gain (loss) on available for sale
securities - (67)
Push down of purchase price in connection with Harbourton's
acquisition of management interest in Western:
Purchased servicing rights - 389
Excess cost over identifiable tangible and
intangible assets acquired - 238
Total Push down - 627
Cash paid for interest 1,591 1,207
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996 (Unaudited) and December 31, 1995
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of
Harbourton Financial Services L.P. ("HBT"), Harbourton Mortgage
Co., L.P. ("HMCLP") and Harbourton Funding Corporation ("HFC")
(collectively, the "Partnership"). All intercompany accounts and
transactions have been eliminated in consolidation. HBT, through
its subsidiary HMCLP, is a full-service mortgage banking
operation that originates and services mortgage loans.
On March 14, 1995, the existing Unitholders of HBT approved the
issuance of approximately 21.5 million Preferred Units of HBT in
exchange for 100% ownership interest in HMCLP and HFC. Because
of the change in control of HBT, this transaction was accounted
for as a reverse acquisition of HBT by HMCLP. Accounting for a
reverse acquisition requires that the historical results of
operations reflect the operations of HMCLP as the continuing
accounting entity, thus, HBT is reported as if it were purchased
as of the date of the transaction. Concurrent with the
transaction, HBT acquired a 50% interest in TMC Mortgage Co.,
L.P. ("TMC") in exchange for approximately .8 million Preferred
Units of HBT. This interest, combined with the 50% interest
previously owned by HMCLP resulted in HBT's direct and indirect
100% ownership of TMC. Thereafter, the results of operations of
TMC are reflected as a 100% owned subsidiary of the Partnership
and reported in the consolidated statements of operations.
On July 31, 1995, HBT acquired Western Sunrise Holdings, L.P. and
subsidiaries ("Western") in exchange for approximately 8.6
million Preferred Units. This was a transaction between entities
under common control, therefore, the transaction was accounted
for using the pooling-of-interests method of accounting. Under
the pooling method of accounting, the results of operations of
Western are presented as if the transaction occurred at the
inception date of HMCLP and Western.
In summary, the historical consolidated results of operations
presented herein primarily represent the following: a) HMCLP and
Western consolidated plus a 50% equity interest in TMC for the
three months ended March 31, 1995, and b) HMCLP, Western, HBT and
TMC consolidated for the three months ended March 31, 1996.
The accompanying unaudited financial statements the Partnership
have been prepared in accordance with generally accepted
accounting principles for interim financial information and in
accordance with the instructions to Form 10-Q and Article 10 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 of the Partnership, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included
on Form 10-K for the year ended December 31, 1995.
Note 2. Mortgage Servicing Rights
The Partnership adopted SFAS No. 122 in the quarter ended
September 30, 1995 retroactive to January 1, 1995 and its
consolidated financial statements for the first quarter of 1995
were restated to reflect the impact of adopting SFAS No. 122.
The overall impact on the Partnership's consolidated financial
statements of adopting SFAS No. 122 was an increase in net
earnings for the three months ended March 31, 1995 of
approximately $334 thousand.
Note 3. Lines of Credit
<TABLE>
At March 31, 1996, the Partnership lines of credit consisted of
the following:
<S> <C>
Warehouse lines of credit and short-term funding $ 199,127
obligations
Short-term funding obligations 36,602
T&I revolving lines of credit 5,000
Arbitrage Loan 5,300
Repurchase agreements (CMO bonds and residual
interests) 1,684
Total $ 247,713
</TABLE>
During the three months ended March 31, 1996, the Partnership
increased its warehouse facility to a maximum availability of
$300 million.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results
of Operations
The following is management's discussion and analysis of the
financial condition and results of operations of the Partnership.
The discussion and analysis should be read in conjunction with
the financial statements included herein.
Business Strategy
The Partnership's primary business currently is focused on
mortgage banking which consists of (i) mortgage loan servicing
activities, including the acquisition and sale of mortgage
servicing rights, (ii) the origination and purchase of mortgage
loans, including the securitization and sale of the mortgage
loans with the related servicing rights retained or released, and
(iii) investments in other mortgage-related securities.
Mortgage Servicing Portfolio
The Partnership's servicing and subservicing portfolio was
comprised of the following (in thousands except number of loans):
<TABLE>
March 31, 1996 December 31, 1995
Principal Number of Principal Number of
Balance Loans Balance Loans
<S> <C> <C> <C> <C>
GNMA Loans 4,104,212 76,247 4,104,212 79,994
Other(primarily 1,985,565 22,396 1,985,565 20,218
Agency loans)
Subserviced for 179,067 2,987 179,067 2,663
affiliates
Subservicing 167,642 1,700 167,642 1,542
Total Portfolio 6,436,486 103,330 6,436,486 104,417
</TABLE>
The Partnership's mortgage servicing and subservicing portfolio
included loans in all 50 states and the District of Columbia.
The following table shows the geographic concentration of the
mortgage servicing portfolio:
<TABLE>
March 31, December 31,
1996 1995
<S> <C> <C>
California 27.9% 26.6%
Florida 8.2 8.0
Texas 7.5 7.8
Virginia 4.7 4.4
Colorado 4.6 4.7
Other* 47.1 48.5
100.0% 100.0%
* Loans from no other state exceed 4% of the principal balance
of loans in the portfolio in either year.
</TABLE>
Mortgage Loan Production
The Partnership originates and purchases mortgage loans insured
by FHA, mortgage loans partially guaranteed by the VA,
conventional mortgage loans, nonconforming jumbo loans, and home
equity loans. The Partnership originates loans through three
principal geographic regions (Eastern United States, Western
United States and Central United States), which consist of
approximately 30 branch offices, on both a wholesale and retail
basis. Mortgage loan production for the three months ended March
31, 1996 and March 31, 1995 was as follows (principal balance in
thousands):
<TABLE>
1996 1995
Principal Number of Principal Number of
Balance Loans Balance Loans
<S> <C> <C> <C> <C>
Conventional - fixed 375,614 3,547 28,412 295
Conventional - ARM 7,608 159 21,718 164
Conventional - other 41,271 323 1,568 11
Total Conventional 424,493 4,029 51,698 470
Government - fixed 247,180 2,346 28,028 221
Government - ARM 64,797 590 28,948 248
Total Government 311,977 2,936 56,976 469
Nonconforming- fixed 68,471 387 12,907 85
Nonconforming - ARM 19,745 81 7,029 70
Nonconforming - other 308 1 4,128 31
Total Nonconforming 88,524 469 24,064 186
Total Production 824,994 7,434 132,738 1,125
* Excludes originations for TMC for the period since TMC was
accounted for using the equity method.
</TABLE>
Mortgage loan production increased significantly during the three
months ended March 31, 1996 as compared to the three months ended
March 31, 1995 primarily due to a decline in the average interest
rates of 7.42 % in 1996 compared to 1995 of 8.52%, the growth in
the production operations of the Partnership and the exclusion of
TMC's production volume in the quarter ended March 31, 1995 since
TMC was accounted for using the equity method during the three
months ended March 31, 1996.
The geographic concentration of mortgage loans originated for the
three months ended March 31, 1996 and March 31, 1995 was as
follows:
<TABLE>
March 31, March 31,
1996 1995
<S> <C> <C>
California 42.0% 36.5%
Florida 9.8 12.2
Maryland 7.2 6.3
Virginia 7.1 6.3
Arizona 6.1 7.2
Other* 27.8 31.5
100.0% 100.0%
* Loans from no other state exceed 4% of the principal balance
of loans originated in either period.
</TABLE>
Results of Operations
As noted previously, the historical consolidated results of
operations presented herein primarily represent the following:
a) HMCLP and Western consolidated plus a 50% equity interest in
TMC for the three months ended March 31, 1995, and b) HMCLP,
Western, HBT and TMC consolidated for the three months ended
March 31, 1996.
Revenues and Expenses for the three months ended March 31, 1996
compared to the three months ended March 31, 1995
Net income (before equity in earnings of affiliates and gain on
bulk sale of originated servicing) for the three months ended
March 31, 1996 totaled approximately $1.3 million or $.03 per
unit compared to, approximately $.1 million or $.00 per unit
earned during the three months ended March 31, 1995, an increase
of approximately $1.2 million or $.03 per unit. The following
table summarizes the Partnership's operating results for the
three months ended March 31 (in thousands):
<TABLE>
1996 1995
<S> <C> <C>
Net income from servicing 3,024 2,798
operations
Net income (loss) from production 1,335 (350)
operations
Other investment and interest 530 44
income
General and administrative (1,488) (1,431)
expenses
Other expense (2,073) (937)
Net income before equity in
earnings ofaffiliates and gain on
sale of bulk servicing 1,328 124
Gain on bulk sale of servicing - 9,148
Equity in earnings of affiliates - (254)
Net income 1,328 9,018
</TABLE>
The increase in results of operations (before equity in earnings
of affiliates and gain on bulk sale of originated servicing) of
approximately $1.2 million for the three months ended March 31,
1996 as compared to the three months ended March 31, 1995 is
primarily attributable to (i) a increase in net income from
servicing operations of approximately $.2 million (ii) an
increase in net income from production operations of
approximately $1.7 million and (iii) an increase in other
investment and interest income of approximately $.5 million,
offset by an increase in other expenses of approximately $1.1
million.
Servicing
Net income from servicing increased approximately $.2 million or
8.1% for the three months ended March 31, 1996 compared to the
three months ended March 31, 1995. The increases in gross
servicing revenues and gross servicing expenses for the three
months ended March 31, 1996 compared to the three months ended
March 31, 1995 were principally due to the growth in the
servicing portfolio (as further discussed below). The average
principal balance of loans serviced for the three months ended
March 31, 1996 compared to the three months ended March 31, 1995
(based on beginning of the month totals) increased to
approximately $6.4 billion from approximately $3.7 billion,
respectively.
The growth in net servicing income (due to the acquisitions) was
primarily offset by an increase in the provision for foreclosure
losses in the quarter ended March 31, 1996 compared to 1995.
This increase was due to certain one-time adjustments in 1995
that reduced the Partnership's foreclosure provision for that
period.
The growth in the servicing portfolio is principally due to the
acquisition of a $1.5 billion bulk servicing portfolio with an
effective acquisition date of August 31, 1995, the acquisition of
the HBT portfolio of approximately $1.1 billion effective April
1, 1995 resulting from purchase transaction described earlier,
the retention of approximately $976 million in originated loans
sold on a servicing retained basis, net of the sale of an
approximate $493 million bulk servicing portfolio effective
January 31, 1995.
Amortization of mortgage servicing rights increased approximately
$2.0 million for the three months ended March 31, 1996 compared
to the three months ended March 31, 1995. The increase primarily
relates to additional amortization associated with the
acquisitions discussed above, and the increased amortization
associated with the implementation of SFAS No. 122. In addition,
in 1995 the Partnership recorded a valuation allowance of
approximately $1.1 million against certain servicing assets as a
result of a decrease in interest rates during the fourth quarter
causing a decrease in value of those servicing rights below
carrying value. In accordance with SFAS No. 122, the Partnership
recovered approximately $.9 million of this valuation reserve in
the three months ended March 31, 1996.
The following table presents a summary rollforward of the
Partnership's mortgage servicing rights, net of accumulated
amortization at March 31 (in thousands):
<TABLE>
1996 1995
<S> <C> <C> <C> <C>
Balance at January 1, 75,846 33,899
Capitalized OMSR's 6,838 366
Acquisitions -- 18,631
Scheduled Amortization* (3,290) (1,297)
Impairment Recovery 946 --
Balance at March 31, 80,340 51,599
* Scheduled amortization is based on estimates made at the
beginning of each fiscal year.
</TABLE>
As noted previously, the Partnership adopted SFAS No. 122 during
1995. SFAS No. 122 prohibits retroactive application for
Originated Mortgage Servicing Rights ("OMSRs") created prior to
the fiscal year in which the Partnership adopted the new
accounting pronouncement. As a result the Partnership, at March
31, 1996, owns servicing rights related to approximately $650
million in mortgage loans that are not capitalized in its
consolidated financial statements. Further, SFAS No. 122
prohibits the recognition of fair value in excess of the book
basis of the MSRs. As a result, the Partnership has off-balance
sheet value associated with its noncapitalized MSRs, as well as
the excess in fair value of the MSRs capitalized in the
consolidated financial statements. At March 31, 1996, the
carrying value of the MSRs capitalized in the consolidated
financial statements, approximated $75.7 million (net of
applicable foreclosure reserves of approximately $4.6 million),
with an estimated fair value of approximately $81.1 million.
Production
Net income from production operations for the three months ended
March 31, 1996 was approximately $1.4 million compared to a net
loss of approximately $0.4 million for the three months ended
March 31, 1995. Net income from production operations increased
primarily as a result of increased production volume which was
sufficient to cover fixed operating costs.
The principal balance of loans produced for the three months
ended March 31, 1996 increased to approximately $825 million from
approximately $133 million for the same period of 1995, an
increase of approximately $692 million or 520%. As noted
previously, mortgage loan production increased significantly
during the three months ended March 31, 1996 compared to the
three months ended March 31, 1995 primarily due to a decline in
the average interest rates from 8.52% in 1995 to 7.42% in 1996,
growth in the production operations of the Partnership and
exclusion of TMC's production volume in the quarter ended March
31, 1995.
Other Investment and Interest Income
In conjunction with the purchase transaction the Partnership
acquired other mortgage related securities (CMO bonds and
residual interests). During the three months ended March 31,
1996, the Partnership recognized unrealized gains in its CMO bond
and residual interest portfolio of approximately $.3 million and
income of approximately $.2 million.
Other Expense Items
The increase in net other expense items is attributed to an
increase in term interest and other interest expense associated
with the completion of the Partnership's term facility in August
1995 and the acquisition of the $1.5 billion bulk servicing
portfolio. The remaining net increase in other items is primarily
attributable to the increase in depreciation and amortization of
excess cost over identifiable tangible and intangible assets
acquired, as well as other interest expense for interest on
borrowings during the year to Harbourton.
Equity in Earnings of Affiliates
Equity in earnings of affiliates for the period from January 1,
1995 to March 31, 1995, represents the Partnership's 50% interest
in TMC. Prior to March 31, 1995, the Partnership reported its
interest in TMC on the equity method of accounting. Subsequent
to March 31, 1995 TMC's operations are consolidated and included
in the consolidated operating results of the Partnership.
Gain on Bulk Sale of Servicing
During the three months ended March 31, 1995, the Partnership
entered into a Purchase and Sale Agreement with an unrelated
third-party to sell OMSRs related to GNMA loans with unpaid
principal balances totaling approximately $493 million. The
Purchase and Sale Agreement was dated January 31, 1995 with a May
2, 1995 servicing transfer date. In conjunction with the
Purchase and Sale Agreement, the Partnership entered into an
Interim Servicing Agreement with the Purchaser to perform the
servicing functions until the May 2, 1995 servicing transfer
date. The Partnership realized a gain on sale of approximately
$9.1 million, net of related transaction fees.
Liquidity and Capital Resources
The Partnership's available liquidity and uses can generally be
categorized into Mortgage Servicing and Mortgage Loan Production.
Servicing
A source of liquidity and cash flow available to the Partnership
is its owned portfolio of servicing rights on mortgage loans, net
of its servicing term loan, with underlying principal balances
aggregating approximately $6.2 billion at March 31, 1996.
Currently, there is a liquid and active market for the sale and
acquisition of servicing rights. The Partnership has term loans
secured by its mortgage servicing portfolio. Principal and
interest on the term loans is paid monthly. The Partnership's
liquidity is affected by the level of loan delinquencies and
prepayments due to the servicer's advance requirements on the
loans it services. The Partnership is also required as a servicer
to fund advances for mortgage and hazard insurance and tax
payments on the scheduled due date even though sufficient escrow
funds may not be available. The Partnership's sources of
liquidity to meet these advance requirements are internally
generated operating cash flow, its existing lines of credit, and
defaulted loan repurchase and sale transactions with affiliated
parties.
The Partnership has repurchased defaulted loans and resold them
to affiliated parties, under a repurchase/buyout and sale program
with such affiliates, and repurchased additional defaulted loans
prior to foreclosure sale and sold the loans on a servicing
retained basis to such affiliated parties. The servicing
contract does not require the Partnership to advance payments to
the investor (the security holder) if the payments are not
received from the mortgagor or from the guarantor or insurer,
therefore, significantly reducing remittance day advance
requirement. During the three months ended March 31, 1996, the
Partnership repurchased approximately $20 million of defaulted
mortgage loans (with average interest rates in excess of 9.5%)
which it financed through an affiliated party. This purchase is
reflected in advances receivable in the accompanying consolidated
financial statements.
Production
One of the Partnership's other primary liquidity requirements is
the financing of its mortgage loan originations and purchases
until funded by secondary market investors and the cost of its
loan originations. The Partnership finances its short-term loan
funding requirements principally through warehouse lines of
credit. At December 31, 1995, the maximum amount of borrowing
available under the existing warehouse facility was $200 million.
During the three months ended March 31, 1996, the Partnership
increased this facility to a maximum availability of
$300 million.
In addition, the decision to sell mortgage loans servicing
retained versus servicing released influences the Partnership's
liquidity. When mortgage loans are sold on a servicing-released
basis, the investor pays the Partnership for the value of the
servicing related to the mortgage loan, thereby increasing the
Partnership's cash flow. Alternatively, when mortgage loans are
sold on a servicing-retained basis, the investor does not pay the
Partnership for the value of the servicing related to the
mortgage loan, thereby decreasing the Partnership's initial cash
flow. The following table summarizes the amount of loans
retained and released during the three months ended March 31,
1996 and 1995 (in thousands):
<TABLE>
1996 1995
<S> <C> <C>
Released 493,386 85,364
Retained 309,290 36,114
Total 802,676 121,478
</TABLE>
Partners' Capital
Subsequent to March 31, 1996, the Partnership purchased from an
unaffiliated party approximately .7 million publicly traded
Preferred Units for approximately $1.1 million. This reduced the
publicly traded units and total outstanding units to
approximately 5.3 million units and 41.2 million units,
respectively. Accordingly, partners' capital will decrease by
approximately $1.1 million during the three months ended June 30,
1996.
Other
The Partnership has investments in SMATs which are investments
that indirectly entitle the Partnership to the residual cash
flows generated by mortgage-related assets underlying an issuance
of a mortgage-related security transaction. During the first
quarter of 1996, the Partnership realized the $2.4 million gain
through the sale of a portion of its SMATs portfolio. The unsold
SMATs have a fair value of $0 at March 31, 1996.
Further, the Partnership has a subordinated line of credit
available from Harbourton which usually bears interest at rates
ranging from prime to prime plus 2%. Borrowings at March 31,
1996 totaled approximately $7.7 million.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HARBOURTON MORTGAGE CO., L.P.
By: Harbourton Mortgage Corporation, its
General Partner
Date: May 14, 1996 By: s/Jack W. Schakett
Jack W. Schakett
Chief Executive Officer
Date: May 14, 1996 By: s/Paul Szymanski
Paul Szymanski
Chief Financial Officer
Date: May 14, 1996 By: s/Brent F. Dupes
Brent F. Dupes
Executive Vice President
Date: May 14, 1996 By: s/Bill Reid
Bill Reid
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 585
<SECURITIES> 3,144
<RECEIVABLES> 37,336
<ALLOWANCES> 1,969
<INVENTORY> 0
<CURRENT-ASSETS> 264,363
<PP&E> 8,465
<DEPRECIATION> 3,554
<TOTAL-ASSETS> 403,432
<CURRENT-LIABILITIES> 347,597
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 55,835
<TOTAL-LIABILITY-AND-EQUITY> 403,432
<SALES> 0
<TOTAL-REVENUES> 20,100
<CGS> 0
<TOTAL-COSTS> 15,211
<OTHER-EXPENSES> 1,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,595
<INCOME-PRETAX> 1,328
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,328
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
