FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] 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
[ ] 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: 1-11017
NORTH AMERICAN MORTGAGE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 68-0267088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3883 Airway Drive, Santa Rosa, California, 95403-1699
(Address of principal executive offices, zip code)
(707) 523-5000
(Registrant's telephone number, including area code)
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares of Common Stock, par value $.01 per share, (the
"Common Stock") outstanding as of May 14, 1996 was 14,088,535.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
North American Mortgage Company
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
March 31, December 31,
1996 1995
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents .................. $ 20,642 $ 12,273
Advances and other receivables ............. 98,187 76,628
Real estate loans held for sale to investors
--- net of unearned discounts ............ 522,251 526,913
Purchased loan servicing ................... 1,005 1,163
Originated loan servicing .................. 67,014 56,353
Excess servicing fees ...................... 19,381 20,559
Other intangible assets .................... 6,316 6,438
Property and equipment ..................... 36,187 36,339
Other assets ............................... 9,788 9,702
----- -----
$ 780,771 $ 746,368
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable to banks
Warehouse line of credit ................. $ 138,593 $ 146,833
Notes payable .............................. 74,819 74,801
Commercial paper and other borrowings ...... 322,046 279,221
Subordinated debt .......................... 10,070 10,070
Accounts payable and other liabilities ..... 42,172 42,299
------ ------
587,700 553,224
STOCKHOLDERS' EQUITY
Convertible preferred stock (1,000,000
shares authorized, 748,179 shares issued
and outstanding) .......................... -- --
Common stock (50,000,000 shares authorized,
16,270,117 and 16,257,614 shares issued at
March 31, 1996 and December 31, 1995,
respectively)............................. 163 163
Additional paid-in capital ................. 110,448 110,250
Retained earnings .......................... 108,462 101,909
Treasury stock, at cost - (1,470,416 and
1,140,516 shares at March 31, 1996
and December 31, 1995, respectively)...... (26,002) (19,178)
------- -------
193,071 193,144
------- -------
$ 780,771 $ 746,368
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
North American Mortgage Company
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 1996, and March 31, 1995
(Amounts in thousands, except per share data)
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
---- ----
Income:
<S> <C> <C>
Loan administration fees, net of excess
servicing fee amortization ..................... $ 10,875 $ 11,341
Loan origination fees ............................ 19,814 11,144
Gain (loss) from sales of loans .................. 21,843 10,845
Interest income, net of warehouse interest expense 6,494 6,007
Gain from sales of servicing ..................... 7,440 12,544
Other ............................................ 2,096 1,855
----- -----
68,562 53,736
Expenses:
Personnel ........................................ 35,543 25,932
Other operating expenses ......................... 16,326 14,262
Interest expense ................................. 2,344 2,295
Depreciation and amortization of property and
equipment ..................................... 1,895 1,878
Amortization of Purchased Loan Servicing ......... 158 194
Amortization of Originated Loan Servicing ........ 1,803 115
(Recovery)/Provision for Impairment
of Originated Loan Servicing .................. (2,052) 256
Amortization of other intangibles ................ 111 107
--- ---
56,128 45,039
Income before income taxes ....................... 12,434 8,697
Income tax expense ............................... 4,974 3,039
----- -----
NET INCOME ........................................ $ 7,460 $ 5,658
======== ========
NET INCOME PER SHARE .............................. $ 0.50 $ 0.38
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING ............... 15,059 14,989
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
North American Mortgage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1996 and 1995
(Dollars in thousands)
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ........................................ $ 7,460 $ 5,658
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................... 2,684 3,015
Excess servicing fee income...................... (11,527) (9,602)
Gain from sales of servicing rights ............. (7,440) (12,544)
Cash proceeds from sales of servicing rights .... 42,900 13,306
Net decrease in real estate loans held for sale,
net of unearned discounts ........................ 4,662 54,481
Increase in advances and other receivables ........ (21,559) (2,885)
Decrease in accounts payable and other liabilities. (127) (3,608)
Increase in other assets .......................... (86) (601)
--- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES ....... 16,967 47,220
INVESTING ACTIVITIES:
Acquisition of assets of branches including
purchase accounting adjustments ................. 12 (16)
Purchase of servicing rights ...................... -- (18)
Acquisition of originated servicing rights ........ (33,936) (15,118)
Purchase of property and equipment ................ (1,744) (430)
Retirement of property and equipment .............. -- 718
--- ---
NET CASH USED IN INVESTING ACTIVITIES .......... (35,668) (14,864)
FINANCING ACTIVITIES:
Increases in (principal payments on) long-term debt 18 (10,553)
Increase (decrease) in warehouse lines of credit,
commercial paper, repurchase agreements,
and other borrowings ............................. 34,585 (116,448)
Purchases of Treasury Stock ....................... (6,824) --
Dividends ......................................... (907) (899)
Stock issuance under Incentive Stock Option Plan .. 198 55
--- --
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES .................................... 27,070 (127,845)
------ --------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS ................................... 8,369 (95,489)
Cash and cash equivalents at beginning of year .... 12,273 102,045
------ -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ................................ $ 20,642 $ 6,556
========= =========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ...................................... $ 7,017 $ 6,073
========= =========
Income Taxes .................................. $ 417 $ (912)
========= ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
North American Mortgage Company
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited financial statements of North American Mortgage
Company (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with
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 Company, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period 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 - Net Income Per Share Information
Net income per common share is computed based on the weighted average
number of shares outstanding during the period. The potential dilutive effect of
common stock equivalents has not been included because that amount is not
considered to be material. The weighted average number of shares outstanding for
net income per share was 15,059,000 and 14,989,000 for the three months ended
March 31, 1996 and 1995.
Note 3 - Capitalized Servicing Rights
Purchased loan servicing, excess servicing fees and originated loan
servicing, net of accumulated amortization and impairment were as follows:
<TABLE>
<CAPTION>
Purchased Excess Originated
Loan Servicing, Servicing Loan
Net Fees, Net Servicing, Net
--- --------- --------------
(in thousands)
<S> <C> <C> <C>
Balance at December 31, 1995 ...... $ 1,163 $ 20,559 $ 56,353
Additions ......................... -- 11,527 33,936
Scheduled Amortization ............ (158) (769) (1,803)
Impairment ........................ -- -- 2,052
Basis on Servicing Sales .......... -- (11,936) (23,524)
----- ------- -------
Balance at March 31, 1996 ......... $ 1,005 $ 19,381 $ 67,014(1)(2)
======== ======== ========
</TABLE>
(1) Includes $7,466 of originated loan servicing rights which are
related to loans held for sale to investors. No revenues have
been recognized on this $7,466 of servicing rights, as the
underlying loans have not yet been sold.
(2) At March 31, 1996, the originated loan servicing impairment
allowance was approximately $500,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Quarter Ended March 31, 1996, Compared to Quarter Ended March 31, 1995
RESULTS OF OPERATIONS
General Market Conditions - During the first quarter of 1996, U. S.
origination levels increased by 73% over the same period last year, largely due
to a higher level of refinancings (see table below). This significant increase
in refinance originations was spurred by the lower mortgage interest rate
environment that existed in late 1995 and early 1996. Despite the increase in
origination levels, however, price competition for mortgage loans remained
intense, particularly for loans sourced through wholesale brokers.
<TABLE>
<CAPTION>
1-4 Family U.S. Mortgage
Originations*
First Quarter
-------------
1996 1995
---- ----
(Dollars in billions)
<S> <C> <C>
New and existing home purchases .................... $ 116 $ 108
Refinancings ....................................... 97 15
-- --
Total ........................................... $ 213 $ 123
===== =====
</TABLE>
The Company's loan origination volume of $2.5 billion in the quarter ended
March 31, 1996 increased by 118% from $1.1 billion in the first quarter ended
March 31, 1995. Refinancings represented 51% of total originations in the first
quarter of 1996 compared to 20% in the first quarter of 1995. The Company's
increase of 118% compares favorably with the 73% increase for the mortgage
industry for two primary reasons. First, the Company had a higher market share
(1.29%*) in the refinance segment which showed the largest increase. Second, the
Company increased its market share in the purchase segment (1.04%* in the first
quarter 1996 vs. 0.84%* in the first quarter 1995) by expanding its loan
products and programs and utilizing its relationships with real estate agents,
builders, and brokers as conduits to home buyers.
Since February 1996, long-term rates have steadily increased, and at April
30, 1996, the 30-year fixed mortgage rate was approximately 8%. By comparison,
this same rate was approximately 7.25% in late 1995. This rate increase has
recently slowed refinancings which are particularly sensitive to interest rate
levels. Partially offsetting the decline in refinance activity has been an
increase in the level of originations for new and existing home purchases,
particularly in California. The following table shows the impact these changes
in market conditions have had on the Company's monthly loan applications by
comparing January 1996 to April 1996.
- - --------------
* Sources: HUD, MBA, FNMA and FHLMC (1996 market data based on current
estimates).
<TABLE>
<CAPTION>
Company's Monthly Loan Applications
-----------------------------------
Apr. 1996 Jan. 1996
--------- ---------
(Dollars in millions)
<S> <C> <C>
New and existing home purchases ............ $ 949 $ 631
Refinancings ............................... 516 861
--- ---
Total ................................. $ 1,465 $ 1,492
======= =======
</TABLE>
Summary of Results - Net income for the first quarter of 1996 was $7.5
million or $0.50 per share, a $1.8 million increase from the $5.7 million, or
$0.38 per share, earned during the first quarter of 1995. The increase in net
income for the first quarter of 1996 reflects the significant improvement in the
Company's loan origination business. Loan originations increased to $2.5 billion
in the first quarter of 1996 from $1.1 billion in the first quarter of 1995.
(See "General Market Conditions" above.) The higher origination level enabled
the Company to improve its operating efficiency by better absorption of its
production overhead. Origination revenues increased by 78% while direct
origination costs increased by 34%. The benefit from the improvement in
origination business was partially offset by a reduction in the gain from sales
of servicing and a loss from the Company's pipeline hedging activity.
Revenues - Revenues for the first quarter of 1996 were $68.6 million, a
$14.8 million, or 28% increase, as compared with $53.8 million in the first
quarter of 1995.
Loan administration fees were $10.9 million in the first quarter of 1996, a
4% decrease, as compared to $11.3 million in the first quarter of 1995. This
decrease resulted from the 2% decrease in the average size of the Company-owned
loan servicing portfolio.
Loan origination fees were $19.8 million in the first quarter of 1996, a
78% increase, as compared with $11.1 million for the first quarter of 1995. This
increase resulted primarily from a 118% increase in loan originations, partially
offset by a decrease in average origination fees collected on each loan. The
decrease in the average origination fees collected resulted from a higher
percentage of wholesale and telemarketing production in the first quarter of
1996 (67% as compared to 58%), on which the Company receives lower average
origination fees than it receives on retail loans.
The gain from sales of loans was $21.8 million during the first quarter of
1996, as compared with $10.8 million during the first quarter of 1995. Gain on
sales of loans is impacted by three factors: hedging activity, price subsidies
and the recognition of gains related to Originated Mortgage Servicing Rights
(OMSR) under FAS 122.
<PAGE>
A summary of the marketing results for the first quarter of 1996 and 1995
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C>
Hedging Gains (Losses) .................... $ (2,423) $ 4,775
Pricing Subsidies .......................... (8,894) (3,241)
FAS No. 122 Impact ......................... 33,160 9,311
------ -----
$ 21,843 $ 10,845
======== ========
</TABLE>
During the first quarter of 1996, hedging results were negatively impacted
by the upward turn in interest rates and increased bond market volatility. In
addition, there was a timing difference between losses taken on certain loan
sales in March and the related gains taken on a series of coverage pair-offs,
which settled in April. Net pair-off gains recorded in April which related to
March 31, 1996 coverage were approximately $2 million. To the extent that
interest rates continue to increase or the bond market remains volatile, the
Company's future marketing results may be negatively affected.
Pricing subsidies increased to $8.9 million in the first quarter of 1996,
or an average subsidy of 36 basis points on loans produced, compared to $3.2
million in the first quarter of 1995, or 29 basis points. This reflects the
continued intense price competition within the industry.
OMSR gains increased to $33.1 million during the first quarter of 1996, an
increase of $23.8 million, or 256%, compared with the first quarter of 1995.
This increase was due to a 108% increase in loans sold during the first quarter
of 1996 and the fact that over 40% of loans sold during the first quarter of
1995 were originated in 1994, prior to the implementation of FAS No. 122.
Interest income, net of warehouse interest expense, increased to $6.5
million during the first quarter of 1996, as compared with $6.0 million during
the first quarter of 1995, an 8% increase. This increase resulted from a 37%
increase in the average balance of loans held for sale, partially offset by a
decrease in working capital used by the Company to reduce its warehouse
borrowing costs. This reduction in working capital available to finance loans
held for sale relates primarily to the repayment of $35.3 million in debt since
late March, 1995 and $6.8 million used to repurchase Company common stock during
the first quarter of 1996.
Gain from sales of servicing was $7.4 million during the first quarter of
1996, as compared to $12.5 million during the first quarter of 1995, a 41%
decrease. In the first quarter of 1996, the Company sold $2.4 billion of
servicing rights at an average price of 180 basis points for total proceeds of
$42.9 million. This compares with $1.2 billion sold in the first quarter of 1995
at an average price of 108 basis points for total proceeds of $13.3 million. The
reduced gains in the first quarter of 1996 were due to a higher level of OMSR
and excess servicing basis associated with those sales ($35.5 million, as
compared to $761,000).
Expenses - Expenses for the first quarter of 1996 were $56.1 million, a 25%
increase, as compared to $45.0 million during the first quarter of 1995.
Personnel costs were $35.5 million for the first quarter of 1996, a 37%
increase, as compared to $25.9 million for the first quarter of 1995. This
increase in personnel expenses from 1995 principally occurred in the residential
loan production area. The increase reflects the additional personnel expenses
that were required to originate a 118% higher loan origination volume. The
percentage increase in personnel expenses was less than the percentage increase
in origination volume in the first quarter of 1996 due to a more efficient use
of production personnel.
Other operating costs increased 14% to $16.3 million for the first quarter
of 1996 from $14.3 million for the first quarter of 1995. This increase reflects
additional operating expenses that were required to originate 118% higher
origination volume. The percentage increase in other operating expenses during
the first quarter of 1996 was less than the percentage increase in loan
origination volume due to a better absorption of fixed overhead.
Amortization of originated loan servicing increased to $1.8 million in the
first quarter of 1996, as compared to $115,000 during the first quarter of 1995.
This increase related to the implementation of FAS No. 122 and the increase in
the Originated Loan Servicing asset, which was $56.4 million at December 31,
1995, but which had no book value prior to 1995.
Provision for (Recovery of) impairment of originated loan servicing was a
$2.1 million recovery in the first quarter of 1996, as compared to a $256,000
impairment provision during the first quarter of 1995. This recovery was caused
by increasing interest rates during the first quarter of 1996, which slows
prepayment rates and reduces projected future prepayment rates on loans the
Company services and, as a result, increases the expected life and value of the
servicing asset.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financing requirements are the financing of its
warehouse loan fundings and the ongoing net cost of the Company's loan
originations. The Company's future cash flow requirements will depend primarily
on the level of its loan originations and the cash flow generated by, or
required by, its operations. The Company expects that loan origination volume
will be financed through warehouse borrowings, borrowings under a commercial
paper program, through the use of "gestation" facilities and with corporate
funds.
The Company finances its warehouse loan funding requirements primarily
through a bank warehouse line of credit and through its commercial paper
program. This financing requirement begins at the time of loan closing and
extends for an average of approximately 30 days until the loan is sold into the
secondary market. On January 23, 1996, the Company entered into a new warehouse
line of credit facility totaling $1.21 billion. This line of credit expires on
January 23, 1999.
The Company also has a commercial paper borrowing program. Borrowings under
this $500 million program replace, at a reduced interest rate, borrowings under
the Company's warehouse line of credit. The warehouse line of credit acts as the
liquidity backup facility for the commercial paper borrowings.
In addition to the warehouse line of credit and commercial paper
borrowings, the Company makes use of gestation facilities provided by an
investment bank, FNMA and Freddie Mac. These facilities permit the Company to
better utilize its warehouse credit facility by accelerating the turnover of
loans in inventory, thereby permitting greater origination volumes. This
acceleration is accomplished through the financing with or sale of loans to the
providers of these gestation facilities, which allows the Company to pay down
its warehouse credit facility, which in turn increases the unused warehouse
credit facility available for funding additional loan originations.
During the fourth quarter of 1993, the Company sold a combined $100 million
of two, three, five, and seven year medium term notes. The proceeds from the
sale of these notes are being used for general corporate purposes, which include
the replacement of indebtedness, financing loan origination volume and the
expansion of loan origination capacity. During the first quarter of 1996, $75
million of medium term notes were outstanding. During the fourth quarter of
1996, $25 million of three year medium term notes will mature.
The Company has paid quarterly common stock dividends since the initial
public offering on July 15, 1992. During the first quarter of 1996, the Company
paid dividends totaling $907,466 for 15,124,434 shares outstanding on February
20, 1996. This compares with dividends paid in the first quarter of 1995
totaling $899,368 for 14,989,472 shares outstanding on February 24, 1995.
On February 7, 1996, the Company authorized the repurchase of up to 1.5
million shares of common stock. During the first quarter of 1996, 329,900 of the
1.5 million shares authorized were acquired at an aggregate cost of $6.8
million. As of March 31, 1996, the Company held 1,470,416 shares in treasury
stock which were acquired at an aggregate cost of $26.0 million, of which
1,140,516 shares were acquired under a prior Board authorization.
The Company's net cost of its owned servicing rights is financed through
cash flow from its operations, including the sale of servicing rights. As the
Company's loan servicing portfolio increases through additions from the
Company's loan origination process, the cash flow available to fund net
origination costs also increases.
During the first quarter of 1996 and 1995, the Company created $11.5
million and $9.6 million, respectively, of excess servicing fees during loan
sale transactions. In general, the Company creates excess servicing because the
secondary market price offered for that servicing asset was lower than the
economic value or the amount the Company could receive by accumulating the asset
and selling it as part of a bulk sale at a later date. During the Company's
holding period of the Excess Servicing Fee asset, the Company is at risk that
the asset will decline in value and a write down will be required, primarily due
to faster prepayment speeds or such expectations resulting from lower interest
rates, which would encourage borrowers to refinance the mortgage loans being
serviced. The carrying amount of excess servicing rights was $19.4 million and
$20.6 million at March 31, 1996 and December 31, 1995, respectively.
During the first quarter of 1996 and 1995, the Company purchased property
and equipment totaling $1.7 million and $430 thousand, respectively.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a defendant in certain litigation arising in the
normal course of its business. Although the ultimate outcome of all
pending litigation cannot be precisely determined at this time, the
Company believes that any liability resulting from the aggregate
amount of damages for outstanding lawsuits and claims will not have
a material adverse effect on its financial position.
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.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
10.43 Master Agreement dated as of April 4, 1996, between Federal
National Mortgage Association and the Company
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
b. Reports on Form 8-K
None.
<PAGE>
SIGNATURE
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.
NORTH AMERICAN MORTGAGE COMPANY
Date: May 14, 1996 By: /s/ MARTIN S. HUGHES
(Martin S. Hughes)
Executive Vice President,
Chief Financial Officer and
Principal Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page Number
10.43 Master Agreement dated as of April 4, 1996, between
Federal National Mortgage Association and the Company
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
Exhibit 10.43
MASTER AGREEMENT
April 4, 1996
Mr. Michael Conway
Executive Vice President
North American Mortgage Company
3883 Airway Drive
Santa Rosa, CA 95403
Reference: Master Agreement No. MLO1754
Dear Mr. Conway:
This letter shall constitute the master agreement ("Master Agreement")
between the Federal National Mortgage Association ("Fannie Mae") and North
American Mortgage Company ( the "Lender") to enter into one or more transactions
for the sale by the Lender and purchase by Fannie Mae of residential mortgage
loans ("Mortgages") The obligations of the Lender and Fannie Mae regarding each
such transaction shall be governed by the terms and conditions contained herein
(including Exhibit A and each of the Attachments attached hereto and
incorporated herein by reference) and by the terms and conditions of the
applicable Fannie Mae purchase program ("Program").
The Lender shall sell to Fannie Mae during the Master Agreement Term (which
begins on the Effective Date and ends on the Expiration Date, as those terms are
defined in Exhibit A), Mortgages with an aggregate outstanding principal balance
equal to the Agreed Amount (as defined in Exhibit A) under one or more of the
following Programs: (a) Fannie Mae's Mortgage-Backed Securities Program, under
terms mutually acceptable to the Lender and Fannie Mae and which will be set
forth herein and under the applicable MBS Pool Purchase Contract obtained
through the Lender's Fannie Mae lead regional office, or (b) Fannie Mae's
Negotiated Transaction Program for cash purchase under terms mutually acceptable
to Lender and Fannie Mae and which will be set forth herein and when applicable,
under a special commitment obtained through the Lender's Fannie Mae lead
regional office, or (c) Fannie Mae's Standard Portfolio (cash) purchase
commitment Program, under the then-current terms and conditions applying
thereto.
<PAGE>
If the Agreed Amount is not sold to Fannie Mae prior to the Expiration
Date, the Lender shall pay Fannie Mae the Back-end Buyout Fee, as indicated in
Exhibit A. All Mortgages shall conform to the requirements of the Mortgage
Selling and Servicing Contract between Fannie Mae and the Lender, the Fannie Mae
Selling Guide ("Selling Guide"), and the Fannie Mae Servicing Guide ("Servicing
Guide"), as applicable, as they may be amended from time to time, except as
modified by the variances contained in this Master Agreement and in the
applicable Contracts (defined below) entered into pursuant to this Master
Agreement. (Any pool purchase contract in the case of MBS transactions, and cash
commitment contracts or voice recordings, in the case of cash transactions, are
referred to herein as a ("Contract." ) Each Contract entered into under this
Master Agreement constitutes: (i) an agreement by the Lender to sell the
Mortgages to, and service such Mortgages for, Fannie Mae and (ii) an agreement
by Fannie Mae to purchase the Mortgages and in the case of MBS transactions, to
issue its Guaranteed Mortgage Pass-Through Securities backed by such Mortgages
to the Lender or its designee(s). By execution of this Master Agreement, the
Lender and Fannie Mae agree to the terms and conditions set forth herein and in
any Contract entered into simultaneously with this Master Agreement. The Lender
shall not disseminate or disclose in any manner any of the terms or conditions
of, or the form of, this Master Agreement to any person or entity other than
Lender's employees and agents who need to know the same in order to perform
their duties for the Lender, and who are legally obligated not to further
disseminate or disclose the same, unless the Lender is required by law to do so
and has given Fannie Mae prior written notice of such requirement and of the
information required to be disseminated or disclosed. This Master Agreement may
be terminated by Fannie Mae prior to the Expiration Date of the Master Agreement
if the Lender has breached the Mortgage Selling and Servicing Contract it has
entered into with Fannie Mae, or any of the provisions of this Master Agreement,
or any Contract entered into pursuant to this Master Agreement. This Master
Agreement and any Contract entered into pursuant to this Master Agreement may
only be amended by the mutual agreement of Fannie Mae and the Lender. Each
amendment shall be in writing and shall consist of a transmittal letter from
Fannie Mae to the Lender generally describing the amended provisions of the
Master Agreement or the Contract, together with the newly revised pages of the
Master Agreement or the Contract. The revised pages of the Master Agreement or
the Contract should be added to the Master Agreement as described in the
transmittal letter. The Lender shall acknowledge its acceptance of the amended
terms and conditions by returning to Fannie Mae a duly executed copy of the
transmittal letter. The Lender may not assign this Master Agreement or any
rights or obligations hereunder. The Lender may not assign any Contract entered
into pursuant to this Master Agreement or any rights or obligations thereunder.
<PAGE>
The Lender hereby confirms that it is not a federally-insured institution
or an affiliate or subsidiary of a federally-insured institution, and (a) the
sale to, and (if applicable) servicing for, Fannie Mae of the Mortgages
delivered to Fannie Mae pursuant to this Master Agreement has either been (i)
specifically approved by the board of directors of the Lender and such approval
is reflected in the minutes of the meetings of such board of directors, or (ii)
approved by an officer of the Lender who was duly authorized by the board of
directors to enter into such types of transactions and such authorization is
reflected in the minutes of the board of directors' meetings; and (b) this
Master Agreement and any Contracts or amendments pursuant hereto, together with
the applicable Fannie Mae Guides and the Mortgage Selling and Servicing Contract
between the Lender and Fannie Mae, constitute the "written agreement" governing
the Lender's sale to, and servicing for, Fannie Mae of the Mortgages delivered
pursuant to this Master Agreement, and the Lender (or any successor thereto)
shall continuously maintain all components of such "written agreement" as an
official record.
(Signature page follows)
<PAGE>
The Lender must accept this Master Agreement by returning a duly-executed
duplicate original to Fannie Mae on or before April 20, 1996. If the executed
Master Agreement is not received by Fannie Mae on or before the above date,
Fannie Mae may at its option declare this Master Agreement null and void.
Sincerely,
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By: /s/Elizabeth A. Snyder
----------------------
Elizabeth A. Snyder
Senior Vice President
Date: April 5, 1996
Agreed, acknowledged, and accepted this 23rd day of April 1996.
NORTH AMERICAN MORTGAGE COMPANY
By: /s/Marilyn Hardin
-----------------
Name: Marilyn Hardin
Title: Senior Vice President
Exhibit 11
<TABLE>
Computation of Earnings Per Share
Quarter Ended March 31, 1996
<CAPTION>
Quarterly
Shares EPS
------ ---
First Quarter
<S> <C> <C>
Average Shares Outstanding ............... 15,058,865 $ 0.50
CSE Incremental Shares ................... 305,319
Total Average Shares Outstanding ...... 15,364,184 $ 0.49
---------- ----
Dilution ................................. 1.99%
Net Income ............................... $ 7,460,000
===========
Fully Diluted Earnings Per Share Calculations 1996
Quarterly
Shares EPS
------ ---
First Quarter
<S> <C> <C>
Average Shares Outstanding .............. 15,058,865 $ 0.50
CSE Incremental Shares .................. 305,249
Total Average Shares Outstanding ..... 15,364,114 $ 0.49
---------- --------
Dilution ................................ 1.99%
Net Income .............................. $ 7,460,000
</TABLE>
===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Operations found on
pages 2 and 3 of the Company's Form 10-Q for the year-to-date, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000882261
<NAME> Financial Data Schedule
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 20,642
<SECURITIES> 0
<RECEIVABLES> 98,187
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 36,187
<DEPRECIATION> 1,895
<TOTAL-ASSETS> 780,771
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 780,771
<SALES> 0
<TOTAL-REVENUES> 68,562
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,344
<INCOME-PRETAX> 12,434
<INCOME-TAX> 4,974
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,460
<EPS-PRIMARY> .50
<EPS-DILUTED> 0
</TABLE>
