UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 1-11278
THE DEWOLFE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2895334
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 Hayden Avenue
Lexington, MA 02421-7962
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(Address of principal executive offices) (Zip Code)
(781) 863-5858
--------------
(Registrant's telephone number, including area code)
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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of latest practicable date (October 30, 1998)
Common Stock, par value $.01 per share 3,254,060 shares
<PAGE>
THE DEWOLFE COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income for the Three
Months and Nine Months ended September 30, 1998 and
September 30, 1997 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 1998 and
September 30, 1997 5
Notes to Condensed Consolidated Financial Statements
September 30, 1998 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION 11
</TABLE>
2
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,941,000 $ 2,542,000
Commissions receivable, net of allowance of $1,079,000 at
September 30, 1998 and $611,000 at December 31, 1997 20,892,000 12,490,000
Mortgage loans held for sale 23,009,000 12,508,000
Notes and advance receivable from stockholders 336,000 91,000
Prepaid expenses and other current assets 527,000 522,000
------------- ------------
TOTAL CURRENT ASSETS 49,705,000 28,153,000
PROPERTY AND EQUIPMENT
Furniture and equipment 9,120,000 8,049,000
Land, building and improvements 4,722,000 4,565,000
------------- ------------
13,842,000 12,614,000
Accumulated depreciation (7,556,000) (6,374,000)
------------- ------------
NET PROPERTY AND EQUIPMENT 6,286,000 6,240,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of
accumulated amortization of $1,084,000 at September
30, 1998 and $807,000 at December 31, 1997 6,687,000 1,709,000
Deposit for acquisition -- 1,500,000
Other assets 2,218,000 2,015,000
------------- ------------
$64,896,000 $39,617,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $22,568,000 $12,194,000
Current portion of long term debt 1,707,000 1,408,000
Commissions payable 13,836,000 8,452,000
Accounts payable and accrued expenses 4,252,000 1,970,000
Deferred mortgage fee income 419,000 231,000
------------- ------------
TOTAL CURRENT LIABILITIES 42,782,000 24,255,000
LONG TERM DEBT, net of current portion 7,902,000 4,004,000
NON COMPETE AGREEMENTS AND CONSULTING
AGREEMENTS PAYABLE 303,000 560,000
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 3,000,000 shares authorized; none
outstanding
Common stock, $.01 par value; 10,000,000 shares authorized; 3,473,137 shares
issued at September 30, 1998 and
3,379,082 shares issued at December 31, 1997 35,000 34,000
Additional paid-in capital 6,838,000 6,488,000
Retained earnings 8,237,000 5,059,000
------------- ------------
TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK 15,110,000 11,581,000
Less: Treasury Stock (209,111 shares at September 30, 1998 and 143,211
shares at December 31, 1997), at cost (1,201,000) (783,000)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 13,909,000 10,798,000
------------- ------------
$64,896,000 $39,617,000
============= ============
See notes to condensed consolidated financial statements
</TABLE>
3
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
Revenues: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate brokerage, net $31,045,000 $26,431,000 $101,861,000 $77,187,000
Mortgage 2,271,000 1,476,000 5,528,000 3,665,000
Other 320,000 67,000 654,000 545,000
--------------- ------------ ---------------- ---------------
TOTAL REVENUES 33,636,000 27,974,000 108,043,000 81,397,000
Commission expense, net 19,690,000 16,914,000 65,305,000 49,642,000
--------------- ------------ ---------------- ---------------
NET REVENUES 13,946,000 11,060,000 42,738,000 31,755,000
Operating expenses:
Compensation and benefits 5,714,000 4,564,000 16,271,000 12,576,000
Facilities 1,570,000 1,324,000 4,728,000 3,950,000
General and administrative 3,015,000 2,579,000 8,875,000 6,814,000
Marketing and promotion 1,715,000 1,537,000 4,979,000 4,384,000
Communications 472,000 394,000 1,373,000 1,135,000
Acquisition related expenses 30,000 --- 390,000 ---
--------------- ------------ ---------------- ---------------
TOTAL OPERATING EXPENSES 12,516,000 10,398,000 36,616,000 28,859,000
--------------- ------------ ---------------- ---------------
OPERATING INCOME 1,430,000 662,000 6,122,000 2,896,000
Other income (expenses):
Interest expense (631,000) (333,000) (1,553,000) (849,000)
Interest income 547,000 324,000 1,164,000 678,000
--------------- ------------ ---------------- ---------------
INCOME BEFORE INCOME TAXES 1,346,000 653,000 5,733,000 2,725,000
Income Tax Expense 581,000 294,000 2,555,000 1,226,000
--------------- ------------ ---------------- ---------------
NET INCOME $ 765,000 $ 359,000 $ 3,178,000 $ 1,499,000
=============== ============ ================ ===============
Earnings Per Share $ 0.23 $ 0.11 $ 0.98 $ 0.46
Earnings Per Share- assuming dilution $ 0.22 $ 0.11 $ 0.92 $ 0.45
Weighted average shares outstanding 3,272,000 3,257,000 3,253,000 3,279,000
Weighted average shares outstanding-
assuming dilution 3,466,000 3,316,000 3,438,000 3,347,000
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Increase (Decrease) in Cash
OPERATING ACTIVITIES
Cash received from customers $ 103,743,000 $ 78,307,000
Commissions and compensation paid to co-brokers,
sales associates and mortgage consultants (62,123,000) (48,449,000)
Operating expenses paid (32,938,000) (25,741,000)
Provision for doubtful accounts (887,000) (668,000)
Mortgage loans originated for sale (256,253,000) (144,661,000)
Proceeds from mortgage loan sales 245,752,000 140,435,000
Interest received 1,164,000 678,000
Interest paid (1,496,000) (834,000)
Income taxes paid (1,629,000) (693,000)
------------- -------------
Cash used for operating activities (4,667,000) (1,626,000)
INVESTING ACTIVITIES
Expenditures for business combinations (4,452,000) (100,000)
Expenditures for property and equipment (1,330,000) (1,139,000)
Additions to mortgage servicing rights (380,000) (167,000)
-------------- -------------
Cash used for investing activities (6,162,000) (1,406,000)
FINANCING ACTIVITIES
Net borrowings under revolving line of credit (1,500,000) --
Borrowing on acquisition line of credit 5,025,000 --
Principal payments on long term debt (919,000) (781,000)
Net other borrowings 561,000 (372,000)
Net borrowings on note payable, bank 10,374,000 4,075,000
Notes receivable from stockholders (245,000) --
Purchase of treasury stock (418,000) (421,000)
Issuance of common stock 350,000 82,000
------------- -------------
Cash provided by financing activities 13,228,000 2,583,000
------------- -------------
NET INCREASE (DECREASE) IN CASH 2,399,000 (449,000)
Cash at beginning of period 2,542,000 2,586,000
------------- -------------
CASH AT END OF PERIOD $ 4,941,000 $ 2,137,000
============= =============
Supplemental Information:
Noncash investing and financing activities
Leases capitalized $ 852,00 $ 735,000
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
THE DEWOLFE COMPANIES, INC.
SEPTEMBER 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and 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, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month period ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
Certain prior year balances have been reclassified to conform with current year
presentation.
NOTE 2 - NEW ACCOUNTING STANDARDS
- ---------------------------------
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income (FAS 130) and Statement No. 131, Disclosures
about Segments of an Enterprise and Related Information (FAS 131). FAS 130 was
adopted in the first quarter of 1998 and had no impact on the Company's
financial condition or results of operations as the Company has no items of
other comprehensive income in any period presented. FAS 131 is effective for the
Company's December 31, 1998 financial statements to be included in the Company's
annual report on Form 10-K. The Company anticipates that FAS 131 will have no
impact on the Company's financial condition or results of operations.
NOTE 3 - PURCHASE OF DOLLAR DRY DOCK REAL ESTATE, INC. ("DDD")
- --------------------------------------------------------------
On January 16, 1998, the Company acquired 100% of the outstanding stock of DDD
and its wholly owned subsidiary, The Heritage Group, Inc., for $4,000,000, which
was funded through a credit facility provided by BankBoston, N.A. The
acquisition has been accounted for by the purchase method and the Company
recorded cost in excess of net assets acquired of $3.5 million which is being
amortized over fifteen years. The Company's consolidated results of operations
for the nine months ended September 30, 1998 on an unaudited pro forma basis
assuming the DDD acquisition had occurred as of January 1, 1997 are not
materially different from the Company's consolidated results of operations for
such period, as reported, due to the date of the acquisition and, as such, are
not presented.
The Company's consolidated results of operations for the nine months ended
September 30, 1997 on an unaudited pro forma basis, assuming the DDD acquisition
had occurred as of January 1, 1997, are as follows:
<TABLE>
<CAPTION>
Nine Months ended
September 30, 1997
------------------
(In thousands except per share
amounts)
<S> <C>
Revenues $92,184
Net Income $ 1,906
Earnings Per Share $ 0.58
Earnings Per Share assuming dilution $ 0.57
</TABLE>
6
<PAGE>
SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
The net income in the third quarter of 1998 was $765 thousand as compared to a
net income of $359 thousand in the third quarter of 1997. Net income for the
first nine months of 1998 was $3.2 million compared to a net income of $1.5
million for the first nine months of 1997. The increase in the 1998 earnings
were primarily attributed to continued growth in the Company's existing real
estate and mortgage banking markets and increased revenues from the acquisition
of Dollar Dry Dock Real Estate, Inc. ("DDD") and its wholly owned subsidiary,
The Heritage Group, Inc.
Results of Operations
- ---------------------
Real Estate Brokerage Revenues:
Real estate brokerage revenues increased 17% in the third quarter of 1998 to
$31.0 million, an increase of $4.6 million over the third quarter of 1997. For
the first nine months of 1998 real estate brokerage revenues were $101.9
million, an increase of 32% as compared to the first nine months of 1997. The
increase in real estate brokerage revenues is primarily attributed to the
continued increase in business in the Company's existing markets caused by the
continued low interest rate market and strong consumer confidence that had a
generally positive effect on residential real estate brokerage in 1998 and 1997
and revenues from DDD, which the Company acquired in January, 1998.
Real estate brokerage revenue includes $1.8 million from relocation services in
the third quarter of 1998 as compared to $1.6 million in the third quarter of
1997, an increase of 13%. Real estate brokerage revenues from relocation
services were $5.4 million the first nine months of 1998, as compared to $4.5
million for the first nine months of 1997, an increase of 20%. The increase was
due to an increase in the number of corporate services provided which is
primarily attributed to the increase in business in the Company's existing
markets.
Net revenues from real estate brokerage increased 19% or $1.8 million in the
third quarter of 1998 to $11.4 million, and increased 33% or $9.0 million for
the first nine months of 1998 to $36.6 million. Net real estate brokerage
revenues as a percentage of real estate brokerage revenues were 37% for the
third quarter of 1998 as compared to 36% in the third quarter of 1997 and were
36% for the first nine months of 1998 and 1997.
Net revenues from real estate brokerage are impacted by many factors, including
those beyond the Company's control, such as the number of co-brokered home sales
and pressure on the Company to change commission structures necessary to attract
and retain qualified sales associates.
7
<PAGE>
THE DEWOLFE COMPANIES, INC.
SEPTEMBER 30, 1998
Mortgage Revenues:
Mortgage revenues increased 54% in the third quarter of 1998 to $2.3 million, an
increase of $795 thousand compared to the third quarter of 1997. For the first
nine months of 1998 mortgage revenues were $5.5 million, an increase of 51% or
$1.9 million as compared to the same period in 1997. The increases in the third
quarter and first nine months of 1998 are primarily due to an increase in closed
loan volume, which the Company believes was caused by the continued low interest
rate market and continued strong consumer confidence.
Closed loan volume in the third quarter of 1998 and 1997 was $120.8 million and
$84.2 million, respectively. For the first nine months of 1998 and 1997 closed
loan volume was $312.5 million and $215.6 million, respectively.
Net revenues from mortgage income (mortgage revenues less expenses associated
with commissions payable to the Company's mortgage consultants) as a percentage
of total mortgage revenues were 73% in the third quarter of 1998 compared to 72%
in the third quarter of 1997 and 73% for the first nine months of 1998 as
compared to 72% for the first nine months of 1997.
Operating Expenses:
Operating expenses for the third quarter of 1998 increased $2.1 million or 20%
from the third quarter of 1997. Operating expenses increased 27% or $7.8 million
for the first nine months of 1998 compared to the first nine months of 1997. The
increase in the third quarter and first nine months of 1998 are primarily due to
costs associated with the increase in the Company's overall business (including
the acquisition of DDD). Operating expenses as a percentage of net revenues were
90% in the third quarter of 1998 compared to 94% in the third quarter of 1997.
Operating expenses as a percentage of net revenues were 86% and 91% for the nine
months ending September 30, 1998 and 1997, respectively.
Interest Expense and Interest Income:
Interest expense increased by $298 thousand in the third quarter of 1998 as
compared to 1997 and increased by $704 thousand for the first nine months of
1998 as compared to 1997. The increase is primarily due to additional interest
of $219 thousand in the third quarter of 1998 and $446 thousand for the first
nine months of 1998 related to the mortgage warehouse line of credit due to
increased loan closings. The remaining interest increase of $79 thousand for the
three months and $258 thousand for the nine months ending September 30, 1998 is
primarily due to increased interest expense from borrowings related to the
financing of acquisitions, primarily DDD, offset by reduced interest expense due
to amortization of the Company's debt.
Interest income increased by $223 thousand in the third quarter of 1998 as
compared to 1997 and $486 thousand for the first nine months of 1998 as compared
to 1997. The increase in the third quarter was primarily due to additional
interest earned on mortgage loans of $194 thousand and $29 thousand in net
interest on bank accounts. The increase for the first nine months of 1998 was
primarily due to additional interest earned on mortgage loans of $405 thousand
and $81 thousand in net interest on bank accounts. The increase in mortgage loan
interest was due to the increased loan closings for the three months and nine
months ending September 30, 1998. The change in net interest earned on bank
accounts was primarily due to balances kept in escrow and operating bank
accounts and interest rates earned on these accounts.
8
<PAGE>
THE DEWOLFE COMPANIES, INC.
SEPTEMBER 30, 1998
Liquidity and Sources of Capital
Cash balances at September 30, 1998 and September 30, 1997 were $4.9 million and
$2.1 million, respectively. Cash used by operations for the first nine months of
1998 was $4.7 million as compared to $1.6 million for the first nine months of
1997. The changes in cash used for operations in the first nine months of 1998
and 1997 were primarily due to the increases and decreases in the Company's
mortgage loans held for sale which are funded by the Company's credit line with
First Union National Bank, (formerly CoreStates Bank, N.A.) offset by cash
generated by net income. Net cash used relating to increases in mortgage loans
held for sale was $10.5 million and $4.2 million in the first nine months of
1998 and 1997, respectively.
Expenditures for property and equipment totaled $1.3 million in the first nine
months of 1998 and $1.1 million in 1997. Capital spending during this period was
primarily attributed to the Company's investment in improvements to existing and
acquired sales offices and upgrades to systems and technology.
The Company intends to continue to make expenditures for property and equipment
in order to maintain the standards for a quality appearance and processing
systems in all of the Company's locations.
The Company has various credit arrangements with BankBoston, N.A., which were
amended in May 1998 to include a $20.0 million acquisition line of credit and an
increase in the Company's revolving line of credit from $3.0 million to $5.0
million. Additionally, the arrangements provide for a term note of $725
thousand, which requires $25,000 monthly principal payments and an equipment
lease line of credit of $4.0 million.
At September 30, 1998 the balance outstanding under the $20.0 million
acquisition line of credit was $5.0 million, $4.0 million of which pertained to
the DDD acquisition. The Company had no borrowings outstanding under the
revolving line of credit at September 30, 1998 and at September 30, 1997. The
outstanding balance of the term note was $600 thousand at September 30, 1998. At
September 30, 1998 and 1997, the Company`s obligations outstanding under lease
lines of credit were $2.3 million.
During the third quarter of 1998 the Company increased the credit line that is
used to finance mortgage loans that it originates to $40.0 million. This credit
line had an outstanding balance of $22.6 million and $10.6 million at September
30, 1998 and 1997, respectively.
In May 1998, the Company authorized an increase in the amount of the Company's
outstanding common stock that may be repurchased under its stock repurchase plan
to a total of $1.9 million. As of September 30, 1998, the Company had acquired a
total of $1.1 million of stock under the plan, $418 thousand of which was
acquired during the first nine months of 1998.
The Company considers its future cash flow from operations combined with its
credit arrangements with BankBoston, N.A. and First Union National Bank to be
adequate to fund continuing operations. However, the Company expects to continue
to expand its existing businesses that may include opening new real estate sales
offices as well as acquiring or investing in other real estate and or insurance
businesses. As a result, the Company from time-to-time may seek additional or
alternate sources of debt or equity financing which may include the issuance of
shares of the Company's capital stock.
9
<PAGE>
THE DEWOLFE COMPANIES, INC.
SEPTEMBER 30, 1998
Year 2000 Disclosure
The Year 2000 issue ("Y2000") results from computer programs written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of the Company's operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities. The Company has
completed its assessment of Y2000 risks and a summary of this assessment
follows. This assessment should be deemed as a forward looking statement and as
such the company can not assure that the actual impact of Y2000 on the Company's
operating results and the costs to minimize such impact will not be more or less
than these identified in the assessment.
State of readiness and cost: The Company believes that approximately $400
thousand will be required to update various hardware systems to prepare for
Y2000. The majority of these systems were scheduled for replacement as part of
the Company's ongoing technology upgrade. The completion of the hardware upgrade
is scheduled to be fully completed by June of 1999 with the most critical
elements being completed during the first quarter of 1999. As such, the Company
does not feel that these upgrades will materially affect the Company's business
or capital requirements.
The Company does not believe the cost to update its information software systems
related to the Y2000 issue to be material. Several of the Company's systems,
which are not Y2000 compliant, were currently in process of being replaced as
part of the Company's ongoing technology upgrade. The Company expects to replace
these systems prior to June 30, 1999.
The Company has reviewed the state of readiness of third party vendors and
believes that these systems either are compliant or the vendor has plans to make
the system Y2000 compliant.
Risks: If due to a hardware or software problem the Company's systems were not
able to operate due to a Y2000 problem the Company believes it would face the
following risks: additional costs to correct the problem and loss of revenue due
to an inability to deliver customer services. The Company believes it is taking
the necessary steps to eliminate or reduce these risks where possible.
Contingency Plan: The Company has not developed a contingency plan for the Y2000
issue and anticipates evaluating the need for and extent of such a plan during
the first quarter of 1999.
Cautionary Statement for purposes of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
Certain statements made by the Company, which are not historical fact, may be
deemed to be forward looking statements. There are many important factors that
would cause the Company's actual results to differ materially from those
indicated in the forward-looking statements. Such factors include, but are not
limited to, interest rates and economic conditions generally, regulatory changes
(legislative or otherwise) affecting the residential real estate and mortgage
lending industries, competition and prevailing rates for sales associate
commission structures.
10
<PAGE>
THE DEWOLFE COMPANIES, INC.
SEPTEMBER 30, 1998
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) The following Exhibits are included herein:
See Exhibit Index on page 13 of this report
(b) Reports on Form 8-K
None
11
<PAGE>
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.
Date: November 4, 1998 THE DEWOLFE COMPANIES, INC.
By: /s/James A. Marcotte
---------------------------
James A. Marcotte
Senior Vice President
and Chief Financial Officer
12
<PAGE>
THE DEWOLFE COMPANIES, INC.
SEPTEMBER 30, 1998
EXHIBIT INDEX
10-Q
<TABLE>
<CAPTION>
ITEM DESCRIPTION
- ---- -----------
<S> <C>
10.1 Amendment dated August 27, 1998 to Mortgage
Warehousing Loan and Security Agreement between
DeWolfe Mortgage Services, Inc. and First Union
National Bank
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule
</TABLE>
13
Amendment to Mortgage Warehousing Loan and Security Agreement
-------------------------------------------------------------
This Amendment dates as of August 27, 1998 shall serve to further amend the
Mortgage Warehousing Loan and security Agreement ("Agreement") between First
Union National Bank (successor by merger to CoreStates Bank, N.A., hereinafter
referred to as "Bank") and DeWolfe Mortgage Services, Inc., (hereinafter
referred to as "Borrower") dated June 15, 1993 as amended from time to time.
Section 1.02 Definitions
The definition of Maximum Loan Amount is deleted in its entirety and the
following is substituted:
Maximum Loan Amount means the maximum dollar amount of the Bank mortgage
warehouse line, i.e. $40,000,000.
Section 6.16 Financial Covenants
Section 6.16 Financial Covenants, is deleted in its entirety and the following
is substituted:
6.16 Financial Covenants: To maintain at all times
(i) Adjusted Tangible Stockholder's Equity in the minimum amount of
$2,000,000; and
(ii) A Leverage Ratio not exceeding 16:1, and
(iii) Advances to parent, affiliates or any other entity or person may not
exceed $500,000
Except as expressly modified or amended herein, all other terms and
provisions of the Agreement shall remain in full force and effect. This
amendment will become effective upon our receipt of your executed copy of this
amended letter and Note for the amended Maximum Loan Amount in Philadelphia,
Pennsylvania.
Agreed & Accepted
DeWolfe Mortgage Services, Inc.
By: /s/ Gail Hayes
-----------------------------
Gail Hayes, President
Attest: /s/ Paul Harrington
-------------------------
First Union National Bank
By: /s/ John P. White
------------------------------
John P. White, VP
<PAGE>
NOTE
$40,000,000.00 Philadelphia, PA
August 27, 1998
FOR VALUE RECEIVED, and intending to be legally bound, DeWolfe Mortgage
Services, Inc., (hereinafter referred to as "Borrower") promises to pay to the
order of FIRST UNION NATIONAL BANK (successor by merger to CoreStates Bank,
N.A., hereinafter referred to as "Bank") at Bank's office, on demand, the lesser
of FORTY MILLION DOLLARS ($40,000,000.00) or the principal balance outstanding
hereunder pursuant to the provisions of the Mortgage Warehousing Loan and
Security Agreement referred to below. The actual amount due and owing from time
to time hereunder shall be evidenced by the Bank's records of receipts and
disbursements hereunder which shall be presumed accurate but subject to
verification and correction within 30 days of Borrower's receipt of a statement.
Borrower further agrees to pay interest on the unpaid principal amount
outstanding hereunder in accordance with the terms and conditions of the
Mortgage Warehousing Loan and Security Agreement.
This is the Note referred to in that certain Amendment to Mortgage Warehousing
Loan and Security Agreement of even date between Borrower and Bank, to which
reference is hereby made for the terms and provisions thereof, and for
additional rights and limitations of such rights of Borrower and Bank
thereunder, including, but not limited to, provisions for Borrower's right to
borrow, prepay and reborrow part or all of the principal hereof under certain
conditions and for the acceleration of Borrower's liabilities to Bank upon the
occurrence of certain events as therein specified.
In the event counsel is employed to collect this obligation or to protect the
security hereof, Borrower agrees to pay, upon demand, the reasonable attorneys'
fees of Bank, whether suit be brought or not, and all other costs and expenses
reasonable connected with collection. Attorney's fees of Bank shall include, in
the case of a salaried attorney employed by Bank, the hourly cost of bank of the
services of such attorney, as determined by Bank.
Borrower and any endorser, jointly and severally, waive presentment, protest and
demand, notice of protest, demand and dishonor and nonpayment of this Note, and
expressly agree that this Note, or any payment hereunder, may be executed from
time to time without in any way affecting the liability of the Borrower or any
endorser hereof.
The validity and construction and enforceability of, and the rights and
obligations of Borrower and Bank under this Note and Mortgage Warehousing Loan
and Security Agreement executed in connection herewith shall be governed by,
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
DeWolfe Mortgage Services, Inc.
ATTEST: /s/ Paul Harrington /s/ Gail Hayes
------------------------------ -------------------------------
(CORPORATE SEAL) Gail Hayes, President
THE DEWOLFE COMPANIES, INC
Statement Re: Computation of Earnings per share and earnings
per share--assuming dilution
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 765,000 $ 359,000 $3,178,000 $1,499,000
Denominator:
Weighted--average shares 3,272,000 3,257,000 3,253,000 3,279,000
Effect of Stock Options 194,000 59,000 185,000 68,000
----------- ----------- -------------- -----------
Total 3,466,000 3,316,000 3,438,000 3,347,000
=========== =========== ============== ===========
Earnings per share $ 0.23 $ 0.11 $ 0.98 $ 0.46
=========== =========== ============== ===========
Earnings per share--assuming dilution $ 0.22 $ 0.11 $ 0.92 $ 0.45
=========== =========== ============== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET (UNAUDITED) AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED) AS REFLECTED ON THE COMPANY'S FORM 10Q FOR THE QUARTER
ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,491
<SECURITIES> 0
<RECEIVABLES> 21,971
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,705
<PP&E> 13,842
<DEPRECIATION> 7,556
<TOTAL-ASSETS> 64,896
<CURRENT-LIABILITIES> 42,782
<BONDS> 9,912
0
0
<COMMON> 35
<OTHER-SE> 15,075
<TOTAL-LIABILITY-AND-EQUITY> 64,896
<SALES> 0
<TOTAL-REVENUES> 108,043
<CGS> 0
<TOTAL-COSTS> 65,305
<OTHER-EXPENSES> 36,616
<LOSS-PROVISION> 445
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 5,733
<INCOME-TAX> 2,555
<INCOME-CONTINUING> 3,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,178
<EPS-PRIMARY> .98
<EPS-DILUTED> .92
</TABLE>
