<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
THE SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ______
Commission file number _______
PACIFICAMERICA MONEY CENTER, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6162 95-3302338
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
21031 Ventura Boulevard
Woodland Hills, California 91364
(818) 992-8999
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
----------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
YES X NO .
--- ---
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 of the Registrant outstanding as
of March 25, 1997: 1,887,855 shares.
The aggregate market value of the outstanding common stock of the
Registrant held by non-affiliates of the Registrant, based on the market price
at March 25, 1997 was approximately $49,551,120.
Documents Incorporated by Reference
Certain portions of the following documents are incorporated by
reference into Part III of this Form 10-K: The Registrant's Proxy Statement for
the Annual Meeting of Shareholders to be held July 10, 1997.
<PAGE> 2
PACIFICAMERICA MONEY CENTER, INC.
PART I
ITEM 1. BUSINESS
BACKGROUND
PacificAmerica Money Center, Inc. (the "Company") is a Delaware
corporation formed in 1994 for the purpose of completing a restructuring of
Presidential Mortgage Company, a California limited partnership (the
"Partnership"). On June 27, 1996, the Company and the Partnership completed the
restructuring (the "Restructuring"), as a result of which all of the assets and
liabilities of the Partnership were transferred to the Company in exchange for
common stock of the Company (the "Common Stock"). Pursuant to the Restructuring,
603,234 shares of Common Stock were issued to partners of the Partnership (other
than partners accepting the "Cash Out Option") for their interests in the
Partnership , and $2,855,600.00 was paid by the Company to partners electing a
"Cash Out Option." As a part of the Restructuring, the Company also sold to the
general partner of the Partnership (the "General Partner") 563,333 warrants (the
"General Partner Warrants"), each exercisable until December 27, 1997 for one
share of Common Stock, at an exercise price of $15.00 per share. Concurrently
with the solicitation of consent of the partners of the Partnership for the
Restructuring pursuant to the Proxy Statement/Prospectus dated May 16, 1996, the
Company made a rights offering to the partners of the Partnership and certain
other related persons of the Partnership (the "Rights Offering"), pursuant to
which a total of 324,628 shares were subscribed for and issued at $10 per share
and 64,893 warrants ("Subscriber Warrants") were also issued to such
subscribers, each exercisable until June 27, 1998 for one share of Common Stock
at an exercise price of $12.50 per share. Pursuant to a Prospectus dated June
24, 1996, the Company also conducted a public offering of additional shares of
Common Stock at $10 per share (the "Public Offering"). A total of 878,210 shares
were issued in the Public Offering, including 114,549 shares in connection with
the exercise of an over-allotment option by the underwriter of the Public
Offering. The Company issued a total of 1,806,072 shares of Common Stock in
connection with the Restructuring, the Rights Offering and the Public Offering.
As of March 15, 1997, due to issuance of 53,120 shares of Common Stock
under the Company's Stock Purchase Plan, the issuance of 11,560 shares of Common
Stock upon exercise of incentive stock options, the exercise of 1,583 Subscriber
Warrants and the exercise of 14,270 General Partner Warrants, a total of
1,886,605 shares of Common Stock, 63,310 Subscriber Warrants and 549,063 General
Partner Warrants were outstanding. The shares of Common Stock are listed for
trading on the Nasdaq National Market under the symbol "PAMM."
From the date of its formation in 1981 until 1988, the Partnership's
sole business was the direct origination and servicing of real estate secured
loans under California consumer and commercial finance lender licenses. In 1988,
the Partnership formed Pacific Thrift and Loan Company, a California corporation
("Pacific Thrift"), as a wholly owned subsidiary, to engage
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in the business of origination, purchase and sale of real estate secured loans
under a California Thrift and Loan License. Pacific Thrift also accepts deposits
insured by the Federal Deposit Insurance Corporation ("FDIC"), and is therefore
subject to regulation by both the FDIC and the California Department of
Corporations ("DOC"). Since 1990, substantially all new lending activity has
been conducted by Pacific Thrift. The Company also owns another subsidiary,
PacificAmerica Money Centers, Inc., doing business in California as
PacificAmerica Money Center of California ("PacificAmerica Centers"), (formerly
known as PacificAmerica Lending, Inc.), formed for the purpose of engaging in
the lending business under a California finance lender's license and other state
licenses where management deems it appropriate. As of the date hereof,
PacificAmerica Centers has not engaged in significant loan production, but it
may become more active in the future, depending upon business requirements.
Pursuant to the Restructuring, the Company also acquired substantially
all of the Partnership's interests in three subsidiaries engaged in the trust
deed foreclosure services and posting and publishing businesses, Consolidated
Reconveyance Company ("CRC"), a California limited partnership, Lenders Posting
and Publishing Company ("LPPC"), a California limited partnership, and
Consolidated Reconveyance Corporation ("CRCWA"), a Washington corporation.
Effective December 31, 1996, substantially all of the assets of CRC and LPPC and
all of the stock of CRCWA were sold as part of the Company's strategy to
concentrate all of its financial and human resources on its primary business of
residential lending for securitization.
The Company's main offices are located at 21031 Ventura Boulevard,
Suite 102, Woodland Hills, California 91364. Its telephone number is (818)
992-8999.
ORGANIZATIONAL STRUCTURE
THE COMPANY. The Company now acts as a holding company for Pacific
Thrift and PacificAmerica Centers. All of the Company's business operations and
substantially all of its assets are held through these subsidiaries.
PACIFIC THRIFT. Pacific Thrift is a California licensed Thrift and Loan
Company that commenced business in 1988 and is supervised and regulated by the
DOC and the FDIC. The deposits of Pacific Thrift are insured by the FDIC up to
applicable limits. Pacific Thrift conducts its operations at its main office in
Woodland Hills and produces loans through five loan production offices in
California located in Irvine, San Diego, San Jose, Walnut Creek and West Covina,
as well as six loan production offices located in other states, including
Phoenix, Arizona, Golden, Colorado, Las Vegas, Nevada, Portland, Oregon, Salt
Lake City, Utah, and Bellevue, Washington. In addition, Pacific Thrift
originates loans through 117 commission-based loan representatives (as of
December 31, 1996) who currently operate in 32 states throughout the United
States.
Pacific Thrift focuses on the origination of "sub-prime" residential
loans to borrowers whose credit histories limit their ability to qualify for
lower rate financing at more credit sensitive financial institutions. Until
mid-1996, Pacific Thrift also originated loans for its own loan portfolio,
including loans secured by residential, multi-family and commercial property.
During
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1996, Management determined to discontinue originating portfolio loans as part
of its strategy to concentrate all of its financial and human resources on the
origination of loans for sale and securitization. The production of loans for
securitization has continued to increase over the past three years as Pacific
Thrift has steadily expanded its geographic lending areas. As of March 15, 1997,
Pacific Thrift, was authorized to originate loans in 47 states and the District
of Columbia.
Pacific Thrift does not offer lease financing or credit lines. Pacific
Thrift offers passbook accounts, term certificates and money market
certificates. Pacific Thrift does not offer other traditional banking services,
such as checking accounts, travelers' checks or safe deposit boxes.
During 1996, Pacific Thrift completed the sale of approximately $26.2
million of portfolio loans and loan participations to two third-party purchasers
as part of its strategy to concentrate its resources on loan origination for
sale and securitization. The largest sale occurred in the fourth quarter of
1996, when the Company completed the sale of approximately $18 million in
commercial loans. The Company reported a net gain (including release of reserve
for loan losses) of approximately $1.0 million in connection with the sale. As a
result of loan sales and the discontinuation of portfolio loan origination
programs, Pacific Thrift's loan portfolio had been reduced to an aggregate
principal balance of $31.8 million at December 31, 1996, from $40.6 million at
December 31, 1995. An additional $10.5 of portfolio loans were reclassified as
loans held for sale at December 31, 1996 and sold in the first two months of
1997.
CRC, CRCWA AND LPPC
Until the sale of substantially all its assets by the Company as of
December 31, 1996, CRC provided foreclosure related services on real estate
trust deeds, including foreclosure sales and trust deed reconveyances. Until the
sale of substantially all its assets by the Company as of December 31, 1996,
LPPC provided posting and publishing of notices of default and notices of sale
for CRC and other trust deed foreclosure companies. CRC provided services on
trust deeds to over 300 banks, thrifts, mortgage banks, life insurance companies
and federal regulatory agencies located across the country. Approximately
one-third of CRC's revenues were derived from lenders located outside of
California. All of the stock of CRCWA was also sold by the Company as of
December 31, 1996. CRCWA provided foreclosure related services on real estate
trust deeds secured by property located in the State of Washington. Less than 5%
of the revenues of CRC, CRCWA or LPPC were derived from services provided to the
Company and Pacific Thrift.
Total combined net income of CRC, CRCWA and LPPC was approximately $.4
million, $.9 million and $.9 million for each of the years ended December 31,
1996, 1995 and 1994, respectively. The total purchase price for the assets and
stock and goodwill of CRC, LPPC and CRCWA was $1.8 million, subject to increase
or decrease in an amount equal to the increase or decrease in the total combined
partners' and shareholders' equity of CRC, LPPC and CRCWA, as shown on the
audited consolidating balance sheets of the Company at December 31, 1996, from
November 30, 1996. The purchase price was reduced by $74,000 pursuant to the
foregoing adjustment provision. As a result of the transaction, the Company
wrote off approximately $.9
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million of goodwill, and recognized an additional loss of $.1 million on
operations for November and December of 1996.
PACIFICAMERICA CENTERS
PacificAmerica Centers was formed by the Partnership in 1994 for the
purposes of acquiring the Partnership's directly held loan portfolio and acting
as a licensed lender in California and various other states as management deemed
appropriate. Following the Restructuring in 1996, PacificAmerica Centers became
a licensed California Finance Lender, California Real Estate Broker, licensed
Vermont Lender and licensed New Jersey Mortgage Broker and Secondary Mortgage
Loan Lender. PacificAmerica Centers has also applied or intends to apply for
lending licenses in all of the 47 states in which it is not currently licensed
and the District of Columbia during 1997. PacificAmerica Centers does not
currently have its own staff or separate offices.
The loan portfolio acquired by PacificAmerica Centers from the
Partnership in the Restructuring consisted primarily of loans originated prior
to 1994 which were not suitable for securitization, and which had an aggregate
principal balance of approximately $7.0 million as of June 30, 1996. In January
1997, the Company sold, with recourse, approximately $2.3 million of this loan
portfolio, at a discount of approximately $44,000 from the net book value of the
loans, less reserves and participations previously sold to the purchaser. The
Company used a portion of the proceeds of this sale to make the final $745,000
payment on the Company's bank loan, and the balance of the proceeds to provide
additional funds for its residential mortgage lending and securitization
business. Pacific Thrift will continue to service the loans for the purchaser,
and the Company has guaranteed the purchaser of the loans against any loss due
to a deficiency in the value of the secured property acquired in foreclosure, a
loss caused by a senior lien holder taking title to the secured property or a
loss after the purchaser determines that legal title to the secured property
cannot be acquired, as well as for losses due to environmental claims,
litigation claims or a default by the Company with respect to certain other
customary representations and warranties.
As of February 28, 1997, the remaining loan portfolio acquired by
PacificAmerica Centers from the Partnership had an aggregate principal balance
of approximately $2.4 million (net of specific reserves of $.5 million). The
loan portfolio is serviced by Pacific Thrift for a servicing fee of 1.5% per
year of the principal balance of each loan serviced.
LENDING ACTIVITIES
GENERAL
The Company has, for the past three years, originated both
portfolio loans and loans for sale and securitization. In 1996, Management
determined to discontinue the origination of portfolio loans and concentrate all
of its resources on increasing the volume of loans originated for sale and
securitization. The following table sets forth the combined loan originations by
category and purchases, sales and repayments for 1996:
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<TABLE>
<CAPTION>
AT OR FOR THE YEAR AT OR FOR THE YEAR
ENDED DECEMBER 31, ENDED DECEMBER 31,
1996 1995
(Dollars in Thousands)
<S> <C> <C>
Beginning Balance(1) 56,485 $ 65,056
Loans Originated for Sale................. 335,471 151,538
Portfolio Loans originated:
One- to four-family.............. 14,280 3,067
Multi-family..................... 8,578 4,521
Commercial....................... 13,619 11,585
Construction and land............ 1,510 150
Home improvement................. -0- -0-
------- -------
Total loans originated........... 37,987 19,323
Loans purchased.................................... -0- -0-
------- -------
Total..................................... 429,943 235,917
Less:
Principal repayments............................. (12,388) (12,905)
Sales of loans originated for sale............... (337,563) (145,832)
Sales of portfolio loans......................... (26,176) (13,371)
Transfers of OREO net of reserves................ (3,945) (7,944)
Other net changes(2)............................. 1,791 620
------- -------
Total loans(1)............................ $51,662 $56,485
======= =======
</TABLE>
(1) Includes loans held for sale.
(2) Other net changes includes changes in allowance for loan losses,
deferred loan fees, loans in process and unamortized premiums and
discounts.
MORTGAGE BANKING
The Company is primarily engaged in the business of originating and
selling high-yielding, non-conforming mortgage loans secured by first or second
mortgages on owner-occupied (and, to a lesser extent, non-owner-occupied)
one-to-four family residences. The Company specializes in subprime residential
loans, which consist of A, B, C and D credit quality subprime loans made to
borrowers whose credit histories and/or other factors limit their ability to
qualify for lower financing. At December 31, 1996, loan-to-value ratios on loans
originated for sale range from 36% to 85%, depending upon the programs jointly
established by the Company and purchasers of the Company's loans. Borrowers
typically use loan proceeds to consolidate or refinance existing indebtedness
and other personal uses.
The Company, through Pacific Thrift and PacificAmerica Centers,
originates the majority of its loans through its Wholesale Division, which
employed 83 loan representatives as of February 28, 1997 throughout the United
States, primarily on a commission basis. The Company's Wholesale Division
operates primarily without offices in 32 states as of February 28, 1997, using
experienced personnel as regional managers to supervise up to 15 loan
representatives in each
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region. The Company seeks to expand its Wholesale Division to 120 loan
representatives during 1997, although there can be no assurance that it will be
successful in reaching this goal.
The Company and its loan representatives have developed relationships
with over 3,000 independent mortgage brokers throughout the country, who
currently provide a majority of the Company's loan volume. Mortgage loan brokers
act as intermediaries between property owners and the Company in arranging
mortgage loans, and provide a cost effective means of originating loans over a
large geographic area. Management has developed policies and procedures to
service these brokers which emphasize timely decision making and funding and a
competitive fee structure, which encourage brokers to continue bringing new
loans to the Company.
The Company also intends to expand its loan origination volume through
its Retail Division, which currently employs approximately 52 commission-based
loan representatives and operates 12 loan production offices as of February 28,
1997. The Retail Division seeks to originate loans directly with borrowers
through contacts developed from purchased mailing lists, using telemarketing and
direct mail. The Company seeks to expand its Retail Division to approximately
150 loan representatives during 1997, although there can be no assurance that
this goal will be achieved.
The following table sets forth selected information relating to loan
originations for sale and securitization (which does not include portfolio loans
or "piggyback loans," which are not originated for sale) during the three years
ended December 31, 1996:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
Principal balance of loans $335,471,000 $151,538,000
Average principal balance per loan $91,993 $102,681
Percent of first mortgage loans (based on 95.1% 91.5%
principal dollar amount of all loans
originated)
Weighted average interest rate 11.57% 11.02%
Weighted average initial loan-to value ratio 66.92% 64.23%
</TABLE>
The Company follows the underwriting guidelines provided by the
entities which purchase loans for securitization in determining whether to
accept or reject each loan application. The purchaser's underwriting guidelines
typically specify the credit quality, loan-to-value, and other requirements of
the purchaser. To assess the credit quality of each loan, the purchasers require
that various factors be considered, including the appraised value of the
collateral property, the applicant's payment history, credit profile, employment
status and the debt-to-income ratio. The Company's appraisal
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review staff reviews the value of the underlying collateral based on a full
appraisal completed by a licensed independent appraiser. Verification of
personal financial information and credit history may also be required by the
loan purchaser prior to closing the loan. Each purchaser has established its own
credit grading system based on certain borrower characteristics. Each loan
applicant is placed into one of four letter ratings ("A" through "D," with
subratings within some of these categories), depending upon a number of factors
including the applicant's credit history and employment. Interest rates, as well
as the maximum loan-to-value ratios, vary depending upon the classification of
the borrowers.
LOAN SALES AND SECURITIZATIONS
The Company sells substantially all of its loan origination volume
through negotiated agreements with larger mortgage lenders. A substantial
majority of the Company's loans originated for sale for the past three years
have been sold to Aames Capital Corporation ("Aames") under agreements providing
for the Company to receive premium payments in cash upon sale, with no
continuing interest in the loans after sale. In the fourth quarter of 1996, the
Company entered new agreements with Aames and with Advanta Mortgage Corporation
and Advanta Mortgage Conduit, Inc. ("Advanta"), pursuant to which the Company
retains the right to receive the excess interest payments ("excess spread") on
its loans above the specified rates paid to holders of certificates in each
securitization pool in which the Company's loans are included, less
securitization and credit enhancement fees expenses, and sponsor and servicing
fees, which excess spread is partially paid as an advance upon the closing of
each securitization and partially paid over the life of the loans. To the extent
that a loss is realized on loans sold by the Company in each pool, losses will
be paid first out of excess spread that would otherwise be paid to the Company
from its interest in the payments.
Loans sold by the Company for securitization are pooled by the
purchaser with loans originated by other lenders into REMIC trusts in which
various classes of pass-through interests are sold. Each pool is credit enhanced
either through an insurance policy issued by a monoline insurer or through over
collateralization. As a result, the senior interests in each REMIC trust receive
a rating of "AAA" from Standard & Poor's Ratings Group and "Aaa" from Moody's
Investor Service, Inc.
Pacific Thrift began selling residential loans for securitization to
Aames in 1993. For the years ended December 31, 1995 and 1996, the Company and
Pacific Thrift sold $132.5 million and $276.7 million, respectively, of loans to
Aames. Loans sold to Aames from December 1993 through September 1996 were
primarily sold for a cash premium received by Pacific Thrift on the date of sale
and securitization. For loans sold from September 1994 through December 1995, a
small servicing released fee payable over the life of the loans was also
retained by Pacific Thrift. Pacific Thrift had no other continuing interest in
payments made on the loans after the date of sale.
In October 1996, the Company entered a new agreement with Aames, under
which it agreed to deliver a minimum of $300 million of loans for purchase and
securitization by Aames. Under the 1996 agreement, the Company is entitled to
receive the following payments: (i) principal plus accrued interest for the
loans sold on the date of sale, (ii) interest payments actually
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received pending each quarterly securitization date, less a servicing fee and
warehousing fee; (iii) an amount equal to the discounted present value of any
interest-only strip sold by Aames representing the premium value of loans sold
by the Company, or its equivalent value as determined by the investment banks
managing the securitization if an interest-only strip is not sold; (iv) an
advance equal to 35% of the present value of the excess spread payments
anticipated to be received by the Company over the life of the loans in each
securitization; and (v) excess spread payments, representing that portion of
the payments received by Aames over the life of each securitization pool for its
residual interest in each securitization that are attributable to loans sold by
the Company, less monthly sponsor and servicing fees and the excess spread
advance plus interest thereon until the advance is repaid to Aames. Payment
obligations of Aames are secured by a guaranty of its parent, Aames Financial
Corporation. In lieu of an interest-only strip sale for the first sales of loans
made under the 1996 agreement with Aames in December 1996, Aames provided a
higher advance payment to the Company representing the present value of the
excess spread payments.
In March 1997, the loan sale agreement with Aames was amended to
provide that the Company would have no further obligation to deliver minimum
quantities of loans for purchase by Aames. At such time as Aames developed a
home equity line of credit program with slightly higher loan-to-value ratios
than the loan programs currently offered by Aames, the Company has agreed to
sell any loans originated by it under that program to Aames, and the Company may
also sell other loans to Aames in its discretion. In connection with this
amendment, the parties agreed that the purchase price for approximately $15
million of loans previously sold by the Company to Aames but not included in its
December quarter securitization would be adjusted to a cash premium paid in full
as of the date of the amendment in lieu of any rights to "excess spread" on such
loans. The amendment further provides that an additional premium payment for
this $15 million of loans will be paid at such time as the Company has delivered
at least $250 million of loans for purchase by Aames under the 1996 Agreement.
In 1995, Pacific Thrift began selling loans to Advanta. For the year
ended December 31, 1996, the Company sold $60.9 million of loans to Advanta. As
of December 16, 1996, the Company entered a new loan sale agreement with Advanta
pursuant to which the Company has committed to sell a minimum of $200 million of
residential loans to Advanta by December 31, 1999. The agreement provides for
the Company to receive the following payments: (i) principal plus accrued
interest for the loans sold on the date of sale, (ii) an initial premium payment
equal to a percentage of the principal balance of all loans sold, which is
treated as an advance against future excess spread payments and (iii) additional
payments over the life of the loans sold equal to the excess spread payments
made on such loans above the rates paid to investors in the securitization pools
in which the loans are placed, less the initial premium payment and certain
sponsor and servicer fees. Sales under the new agreement with Advanta are made
as often as twice each week, and the Company has sold $84.1 million of loans to
Advanta under the new agreement between January 1, 1997 and February 28, 1997.
All loans sold to Aames and Advanta by Pacific Thrift and the Company
for the past three years have been included in securitization pools formed and
serviced by Aames and Advanta, respectively. All loans have been sold on a
nonrecourse basis, except for the obligation to
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repurchase any loan which does not meet certain customary representations and
warranties, and the obligation to repurchase loans adversely affected by any
breach of general representations and warranties.
Management of the Company may enter into additional agreements with
other purchasers in the future to sell loans for securitization. In addition,
management may determine to begin sponsoring its own securitization program
after its loan pools have a developed a history of performance which can be used
for rating and credit enhancement purposes.
To the extent that the Company or one of its subsidiaries originates
loans for sale, it bears an interest rate risk between the loan approval date
and the date that each loan is securitized. However, loans are generally
securitized on a quarterly basis, which reduces the risk of interest rate
fluctuations. In addition, because subprime residential loans have a higher
interest rate spread than prime residential loans, fluctuations in rates which
may occur during the period prior to securitization could reduce the excess
spread anticipated to be retained by the Company upon securitization, but would
not generally be sufficiently large to eliminate the excess spread entirely.
Loans which are held for sale during the period prior to sale are accounted for
at the lower of cost or market value of such loans.
PORTFOLIO LENDING.
Until Pacific Thrift began originating loans for securitization in
1994, both the Partnership and Pacific Thrift originated loans for their own
loan portfolios, and generally held and serviced those loans until payoff or
refinancing. All portfolio loans were secured primarily by one-to-four family
residential, multi-family residential, commercial and, to a very minor extent,
undeveloped, real property. In 1996, as volume levels of loans originated for
sale and securitization increased, management determined to terminate portfolio
lending in order to concentrate its resources on loans originated for sale and
securitization. The Company also determined to sell portions of its loan
portfolio to provide additional resources for use in its mortgage banking
business, and completed sales of an aggregate of approximately $26.2 million of
portfolio loans in 1996. The characteristics of the Company's remaining loan
portfolio at December 31, 1996, are described below.
GEOGRAPHIC CONCENTRATION. At December 31, 1996, the Company's loan
portfolio included loans geographically distributed, based on principal loan
balances, approximately 65% in Southern California (south of San Luis Obispo)
and 21% in Northern California, The remaining 14% of all loans were secured by
real property located in other states, primarily New York, Washington, Oregon
and Florida. The Company's portfolio loan policy limits the total dollar amount
of loans and total number of loans made in each zip code area to no more than 5%
of its total outstanding loans.
COLLATERAL. At each of the dates set forth below the gross loan
portfolio of the Company (net of reserves for loan losses) was collateralized by
the following types of real property:
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<TABLE>
<CAPTION>
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1994
DEC. 31 1996 PERCENTAGE OF TOTAL DEC. 31, 1995 PERCENTAGE OF DEC. 31, 1994 PERCENTAGE OF
LOAN BALANCES PORTFOLIO LOAN BALANCES TOTAL PORTFOLIO LOAN BALANCES TOTAL PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
One-to-four family
residential property
1st TDs $ 2,629,371 7.19% $ 5,553,762 11.33% $ 6,271,007 10.66%
2nd TDs 11,148,015 30.48 8,149,818 16.62 11,983,931 20.39
3rd TDs 700,997 1.92 968,926 1.98 1,833,001 3.12
Home Imp. Loans 1,321,983 3.61 1,742,976 3.55 2,298,050 3.91
--------- ----- ----------- ---- ---------- -----
TOTAL 15,800,366 43,20 16,415,482 33.48 22,385,989 38.08
========== ===== =========== ===== ========== =====
Five and Over
Multi-Family
residential property
1st TDs 8,467,515 23.15 8,534,795 17.41 13,531,290 23.02
2nd TDs 840,081 2.30 1,811,741 3.70 3,154,197 5.37
3rd TDs -0- -0- -0- -0- 34,993 .06
--------- ----- ----------- ----- ---------- -----
TOTAL 9,307,596 25.45 10,346,536 21.11 16,720,480 28.45
========= ===== =========== ===== ========== =====
Commercial
Property
1st TDs 9,761,472 26.69 18,145,302 37.02 14,184,456 24.13
2nd TDs 869,128 2.38 2,172,655 4.43 3,579,936 6.09
3rd TDs 101,757 .28 68,766 .14 104,212 .18
---------- ----- ----------- ----- ---------- -----
TOTAL 10,732,357 29.35 20,386,723 41.59 17,868,604 30.40
========== ===== =========== ===== ========== =====
Undeveloped
Property
1st TDs 732,424 2.00 1,873,953 3.82 1,805,151 3.07
2nd TDs -0- -0- -0- -0- -0- -0-
3rd TDs -0- -0- -0- -0- -0- -0-
------- ---- ----------- ----- --------- -----
TOTAL 732,424 2.00 1,873,953 3.82 1,805,151 3.07
======= ==== =========== ===== ========= =====
TOTAL
PORTFOLIO
1st TDs 21,590,782 59.04 34,107,812 69.58 35,791,904 60.88
2nd TDs 12,857,224 35.16 12,134,214 24.75 18,718,064 31.85
3rd TDs 802,754 2.19 1,037,692 2.12 1,972,206 3.36
Home Imp. Loans 1,321,983 3.61 1,742,976 3.55 2,298,050 3.91
---------- ------ ----------- ----- ----------- ------
TOTAL $36,572,743 100.00% $49,022,694 100.00% $58,780,224 100.00%
=========== ======= =========== ======= =========== ======
</TABLE>
LOAN ORIGINATION AND UNDERWRITING. Each portfolio loan made by the
Company (other than "piggyback" loans as described below), was analyzed at
origination based on the loan applicant's credit history and repayment ability.
Portfolio loans generally required credit histories from independent credit
reporting companies and proof of income.
11
<PAGE> 12
Since 1995, Pacific Thrift has also made"piggyback loans," which are
residential loans made in tandem with loans originated for sale. Management uses
piggyback loans to enhance the loan products available from some of its loan
purchasers, and thereby increase production of loans originated for sale.
Piggyback loans meet the same credit and documentation requirements as the
companion senior loans originated for sale, except that loan-to-value ratios are
usually 5% higher than the loan-to-value ratios allowed by the purchaser of the
senior loans. To compensate for the higher loan-to-value ratios, Pacific Thrift
provides higher general reserves for piggyback loans. From time to time, Pacific
Thrift sells piggyback loans to third party purchasers. During 1996, Pacific
Thrift sold $5.5 million in piggyback loans, of which $3.8 million were sold for
a discount of approximately 1% of par value and the remaining $1.7 million were
sold at par value. As of December 31, 1996, Pacific Thrift held 1,229 piggyback
loans, with aggregate principal balances of $9,067,000.
MATURITIES AND RATE SENSITIVITIES OF LOAN PORTFOLIO. The following
table sets forth the contractual maturities of the loan portfolio at December
31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------------------------------------------------------------
MORE MORE
MORE THAN MORE THAN THAN 5 THAN 10 MORE
ONE YEAR 1 YEAR TO 3 YEARS YEARS TO YEARS TO THAN 20 TOTAL
OR LESS 3 YEARS TO 5 YEARS 10 YEARS 20 YEARS YEARS LOANS
-------- --------- ---------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
One- to four-family........... 1,106 1,040 925 59 9,648 1,700 14,478
Multi-family.................. 444 353 421 4,446 278 3,366 9,308
Commercial.................... 1,435 877 1,121 5,227 1,327 745 10,732
Construction and land......... 336 0 149 0 0 248 733
Home improvement.............. 0 0 0 1,322 0 0 1,322
Total amount due.............. 3,321 2,270 2,616 11,054 11,253 6,059 36,573
</TABLE>
The following table sets forth, as of December 31, 1996, the dollar
amounts of loans receivable (not including loans held for sale) that are
contractually due after December 31, 1997 and whether such loans have fixed or
adjustable interest rates:
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1997
-------------------------------------------
FIXED ADJUSTABLE(1) TOTAL
----- ------------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
One- to four-family............. 10,054 3,318 13,372
Multi-family.................... 657 8,207 8,864
Commercial...................... 1,248 8,049 9,297
Construction and land........... 0 397 397
Home improvement................ 1,322 -0- 1,322
------- ------- ------
Total loans receivable........ $13,281 $19,971 33,252
======= ======= ======
</TABLE>
(1) Includes approximately $2.3 million in loans to facilitate the sale of real
estate held in foreclosure.
12
<PAGE> 13
Pacific Thrift and PacificAmerica Centers generally rewrite a portfolio
loan at maturity if the borrower makes a new loan application. In cases where
the loan-to-value ratio has declined on an existing loan and no longer meets the
applicable loan-to-value guidelines, the policy is to make an exception and
rewrite the loan.
A substantial portion of the Company's loan portfolio is repriced, pays
off or matures approximately every year. Of the 41% of all loans bearing fixed
rates at December 31, 1996, 5% were due in one year or less. Based upon these
facts, over 63% of the loan portfolio at December 31, 1996, consisted of either
variable rate loans or fixed rate loans which mature within one year. Management
therefore expects that within one year, approximately 63% of the loan portfolio
will be paid off or reprice at the rate in effect on the existing loan at the
time the loan is repriced or the then applicable rate for new or refinanced
loans.
The initial interest rate on variable rate loans is set as of the date of
origination of each loan based upon the then prevailing reference rate
established by Bank of America. The rate may increase by not less than .125% in
any three-month period, but may not increase by more than five (10 in some
cases) percentage points in the aggregate. Such increases (or decreases, as the
case may be) occur at three-month intervals as the result of changes in the Bank
of America reference rate. Although the interest rate may decrease, it cannot
decrease below the original interest rate set for each loan.
CLASSIFIED ASSETS AND LOAN LOSSES. The general policy of Pacific Thrift
and PacificAmerica Centers is to discontinue accrual of interest and make a
provision for anticipated loss on a loan when: (i) it is more than two payments
contractually past due and the current estimated loan-to-value ratio is 90% or
more; or (ii) the loan exhibits the characteristics of an in-substance
foreclosure, generally including any loan as to which the borrower does not have
the ability, willingness or motivation to repay the loan. The current estimated
loan-to-value ratios of substantially all delinquent loans are determined by new
independent appraisal or broker price opinions, unless an independent appraisal
was obtained no more than twelve months prior to the monthly review of each
delinquent loan. When a loan is reclassified from accrual to nonaccrual status,
all previously accrued interest is reversed. Interest income on nonaccrual loans
is subsequently recognized when the loan resumes payment or becomes
contractually current as appropriate. Loans which are deemed fully or partially
uncollectible by management are generally fully reserved or charged off for the
amount that exceeds the estimated net realizable value (net of selling costs) of
the underlying real estate collateral. Gains on the sale of real estate acquired
in settlement of loans ("OREO") are not recognized until the close of escrow.
Unless an extension, modification or rewritten loan is obtained, or a
bankruptcy is filed, the policy of Pacific Thrift and PacificAmerica Centers is
to commence procedures for a non-judicial trustee's sale within 30 to 60 days of
a payment delinquency on a loan under the power of sale provisions of the trust
deed securing such loan, as regulated by applicable law. A delinquent loan will
only be rewritten or extended if it can be determined that the borrower has the
ability to repay the loan on the modified terms. The initiation of foreclosure
proceedings against a borrower does not suggest that the recovery of the loan is
dependent solely on the underlying collateral. In fact, many borrowers bring
payments current or undertake other remedies so that a foreclosure sale is not
required.
13
<PAGE> 14
The determination of the adequacy of the allowance for loan losses is
based on a variety of factors, including loan classifications and underlying
loan collateral values, and the level of nonaccrual loans. Therefore, changes in
the amount of nonaccrual loans will not necessarily result in increases in the
allowance for loan losses. The ratio of nonaccrual loans past due 90 days or
more to total loans was 3.81% at December 31, 1996, 1.62% at December 31, 1995
and 5.35% at December 31, 1994. The ratio of the allowance for loan losses to
nonaccrual loans past due 90 days or more was 176.76% at December 31, 1996,
533.29% at December 31, 1995 and 136.94% at December 31, 1994.
The following table sets forth the number and remaining balances of all
loans in the Company's loan portfolio (net of specific reserves for loan losses)
that were more than 30 days delinquent at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
-------------------- -----------------------------
Loan Loans Percent of Loans Percent of
Delinquencies Delinquent Total Loans Delinquent Total Loans
------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
30 to 59 days $1,428,487 3.91% $ 209,979 .43%
60 to 89 days 1,431,115 3.91% 527,260 1.08%
90 days or more 3,019,161 8.25% 2,110,500 4.30%
---------- ------ ---------- -----
TOTAL $5,878,763 16.07% $2,847,739 5.81%
========== ====== ========== =====
</TABLE>
NONACCRUAL AND RESTRUCTURED LOANS. The following table sets forth the
aggregate amount of loans at December 31, 1996, 1995 and 1994 which were (i)
accounted for on a nonaccrual basis; (ii) accruing loans which are contractually
past due 90 days or more as to principal and interest payments; and (iii)
troubled debt restructurings. Pacific Thrift and PacificAmerica Centers follow a
practice of extending or modifying loans in certain circumstances. Loans
modified to reduce interest rates below market rates, to reduce amounts due at
maturity to reduce accrued interest or to loan additional funds are considered
"troubled debt restructurings" as defined in SFAS 15.
<TABLE>
<CAPTION>
Accruing Loans Nonaccruing Loans
Past Due Past Due 90 Days Troubled Debt
90 Days or More or More Restructurings Total
--------------- ---------------- -------------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
At December 31, 1996 $1,625 $1,394 $357 $3,376
At December 31, 1995 $1,317 $ 793 $948 $3,058
At December 31, 1994 $2,603 $3,146 $ 0 $5,749
</TABLE>
The following table sets forth information concerning interest accruals
and interest on nonaccrual loans past due 90 days as of December 31, 1996, 1995
and 1994.
14
<PAGE> 15
<TABLE>
<CAPTION>
Interest Interest Not
Contractually Recognized on
Due on Loans Interest Accrued Nonaccrual
Past Due on Loans Past Due Loans Past Due
90 Days or More 90 Days or More 90 Days or More
--------------- ----------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C>
At December 31, 1996 $ 886 $133 $ 753
At December 31, 1995 $ 673 $125 $ 548
At December 31, 1994 $1,524 $262 $1,262
</TABLE>
Upon request of a borrower, Pacific Thrift and PacificAmerica Centers
have generally granted one to two month extensions of payments during the term
of a loan. In 1996, 10 loans with an aggregate principal balance of $1.15
million were extended. No loan was extended for a term of more than six months.
In 1996, 11 loans with an aggregate principal balance of $1.23 million were
modified and five delinquent loans with an aggregate principal balance of $.5
million were rewritten. Pacific Thrift and PacificAmerica Centers apply the same
documentation standards on a rewritten loan as on an original loan. Pacific
Thrift and PacificAmerica Centers make these accommodations only if it can be
determined that the borrower has the ability to repay the loan on the modified
terms. In general, this determination is made based upon a review of the
borrower's current income, current debt to income ratio, or anticipated sale of
the collateral.
At December 31, 1996, Pacific Thrift and PacificAmerica Centers held
OREO (net of specific reserves) of $4.3 million (inclusive of senior liens of
$1.6 million). In accordance with the policy for recognizing losses upon
acquisition of OREO, Pacific Thrift and PacificAmerica Centers charge off or
post specific reserves for those portions of the loans with respect to which
OREO has been acquired to the extent of the difference between the loan amount
and the estimated fair value of the OREO. Included in OREO at December 31, 1996
were 13 single-family residences with an aggregate net book value of $1.2
million (inclusive of $.7 million senior liens); five multi-family units with an
aggregate net book value of $1.1 million (inclusive of .6 million senior liens);
10 commercial properties with an aggregate net book value of $1.8 million
(inclusive of .3 million senior liens); and two undeveloped properties with an
aggregate net book value of $.2 million (with no senior liens). For the year
ended December 31, 1996, total expenses on operation, including valuation
allowances, and losses on sale of OREO were $1.0 million and gains on sale of
OREO and OREO income were $.3 million, for a total expense of $.7 million. There
can be no assurance that net losses on the sale of OREO will not be experienced
in the future.
ALLOWANCE FOR LOAN LOSSES. The following is a summary of the changes in
the consolidated allowance for loan losses of Pacific Thrift and PacificAmerica
Centers for each of the years ended December 31, 1996, 1995 and 1994:
15
<PAGE> 16
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
(IN THOUSANDS)
----------------------------------------
<S> <C> <C> <C>
Balance at beginning of period..................... $ 4,229 $ 4,307 $ 3,123
Provision for loan losses.......................... 1,151 3,289 6,096
Chargeoffs: (3,187) (3,369) (4,912)
Recoveries......................................... 271 2 --
------- -------- -------
Balance at end of period........................... $ 2,464 $ 4,229 $ 4,307
======= ======== =======
</TABLE>
Pacific Thrift uses an asset classification system pursuant to which
every delinquent loan and every performing loan which exhibits certain risk
characteristics is graded monthly, and a general reserve percentage is assigned
to each classification level. Management of Pacific Thrift and PacificAmerica
Centers also reviews every delinquent loan on a monthly basis and reviews the
current estimated fair market value of the property securing that loan. To the
extent that the amount of the delinquent loan exceeds the estimated fair market
value of the property, an additional reserve provision is made for that loan.
Pacific Thrift's current policy is to maintain an allowance for loan
losses equal to the amount determined necessary based upon Pacific Thrift's
asset classification policy, which is written to conform with generally accepted
accounting principles and FDIC requirements. PacificAmerica Center's current
policy is to maintain an allowance for loan losses determined in accordance with
generally accepted accounting principles.
Management utilizes its best judgment in providing for possible loan
losses and establishing the allowance for loan losses. However, the allowance is
an estimate which is inherently uncertain and depends on the outcome of future
events. In addition, regulatory agencies, as an integral part of their
examination process, periodically review Pacific Thrift's allowance for loan
losses. Such agencies could require Pacific Thrift, just as any other
FDIC-insured institution, to post additions to the allowance based upon their
judgment of the information available to them at the time of their examination.
Implicit in lending activities is the fact that losses will be
experienced and that the amount of such losses will vary from time to time,
depending upon the risk characteristics of the portfolio. The allowance for loan
losses is increased by the provision for loan losses charged to expense. The
conclusion that a loan may become uncollectible, in whole or in part, is a
matter of judgment.
INVESTMENT ACTIVITIES
Although the Company does not maintain a directly held investment
portfolio, Pacific Thrift does maintain an investment portfolio, which is used
primarily for liquidity purposes and secondarily for investment income. Pacific
Thrift's policy is to invest cash in short-term U.S. government securities or
federal funds sold due in less than 30 days.
16
<PAGE> 17
Overnight federal funds sold are limited to no more than 100% of total capital
at any single financial institution that is either adequately or well
capitalized. If the financial institution is neither adequately nor well
capitalized, the limit is $100,000. As of December 31, 1996 and 1995, Pacific
Thrift held investments in federal funds totaling $5.3 million and $7.7 million,
respectively.
SOURCES OF FUNDS
DEPOSITS. Pacific Thrift's major source of funds is FDIC-insured
deposits, including passbook savings accounts, money market accounts and
investment certificates (similar to certificates of deposit). Pacific Thrift
attracts customers for its deposits by offering rates that are slightly higher
than rates offered by large commercial banks and savings and loans. Pacific
Thrift has no brokered deposits as of the date hereof. Management believes its
deposits are a stable and reliable funding source. At December 31, 1996, Pacific
Thrift had outstanding 2,094 deposit accounts of approximately $81.0 million.
The following table sets forth the average balances and average rates
paid on each category of Pacific Thrift's deposits for the three years ended
December 31, 1996.
DEPOSIT ANALYSIS
<TABLE>
<CAPTION>
Averages for 1996 Averages for 1995 Averages for 1994
----------------- ----------------- -----------------
(Dollars in Thousands) (Dollars in Thousands) (Dollars in Thousands)
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Passbook/Money Market $31,300 5.20% $13,322 5.39% $23,868 3.79%
Investment Certificates $47,582 5.86% $49,931 6.20% $43,828 4.59%
under $100,000
Investment Certificates
over $100,000 -0- -0- 100 7.02% $ 415 6.68%
------- ---- ------- ---- ------- ----
Total 78,882 5.60% $63,353 6.03% $68,111 4.32%
======= ===== ======= ==== ======= ====
</TABLE>
The following schedule sets forth the time remaining until maturity for
all certificates at December 31, 1996, 1995 and 1994.
17
<PAGE> 18
DEPOSIT MATURITIES
<TABLE>
<CAPTION>
At At At
December 31, December 31, December 31,
1996 1995 1994
(Dollars in (Dollars in (Dollars in
Thousands) Thousands) Thousands)
<S> <C> <C> <C>
Passbook/Money Market $24,659 $24,275 $11,443
------- ------- -------
Accounts under $100,000
3 months or less 14,451 $12,723 $25,522
Over 3 months through 6 months 19,745 13,439 17,201
Over 6 months through 12 months 22,147 9,084 10,654
Over 12 months -0- 635 4,579
-------- -------- -------
Total $56,343 $35,881 $57,956
------- ------- -------
Accounts over $100,000
3 months or less -0- -0- $102
Over 3 months through 6 months -0- -0- -0-
Over 6 months through 12 months -0- -0- -0-
Over 12 months -0- -0- -0-
------- ------- -------
Total -0- -0- $102
------- ------- -------
TOTAL DEPOSITS $81,002 $60,156 $69,501
======= ======= =======
</TABLE>
OTHER BORROWINGS. The Partnership made use of substantial lines of
credit from major banks to fund its loan portfolio growth from 1984 through
1989. The original bank loan provided in 1990 was a revolving credit line of
$105 million, under which the Partnership borrowed a maximum of $82 million
during 1990. The credit line was reduced by mutual agreement in 1991 to $48
million with an $18 million interim loan. In March 1992, the Partnership was
informed that the lender had determined to reduce its exposure to California
real estate secured lending due to the general decline in California real estate
values and increasing delinquency rates. From 1992 through December 1996, the
loan agreement was amended annually to provide for a steady pay down of the
remaining loan balance. The Partnership and the Company continued making regular
paydowns of the balance owed until the Company made the last payment in January
1997.
COMPETITION
Pacific Thrift and PacificAmerica Centers have significant competition
for the origination of subprime mortgage loans from other mortgage companies and
other financial institutions. Some of the these companies are substantially
larger than the Company and have extensive branch systems and advertising
programs which the Company does not have. For the past two years, competition in
the subprime lending market has increased
18
<PAGE> 19
as larger, more traditional mortgage lenders have sought to expand their markets
to include B, C and D loans. Management believes that the over 20 years of
experience of each its senior executive officers in the sub-prime lending market
provide the Company with competitive advantages over new entrants to this
lending market, and that this experience has enabled the Company to
substantially increase new loan originations notwithstanding the increase in
competition.
Pacific Thrift faces competition for depositors' funds from other
thrift and loans, banks, savings and loans, credit unions, mutual funds and life
insurance annuity products. Pacific Thrift does not offer checking accounts,
travelers' checks or safe deposit boxes and thus has a competitive disadvantage
to commercial banks and savings associations in attracting depositors. Pacific
Thrift compensates for the lack of a full array of services by offering slightly
higher interest rates for deposits than most large banks and savings and loans,
while remaining interest rate competitive with smaller banks, savings and loan
associations and thrift and loans.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries had 351
full-time employees, including 117 commission-based loan representatives.
SUPERVISION AND REGULATION
Financial and lending institutions are extensively regulated under both
federal and state law. Set forth below is a summary description of the principal
laws which relate to the regulation of Pacific Thrift and PacificAmerica
Centers. The description does not purport to be complete and is qualified in its
entirety by reference to the applicable laws and regulations.
CONSUMER PROTECTION LAWS
Pacific Thrift and PacificAmerica Centers are subject to numerous
federal and state consumer protection laws, including the Federal
Truth-In-Lending Act, the Federal Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Federal Fair Debt Collection Practices Act and the Federal
Reserve Board's Regulations B and Z. These laws and regulations, among other
things, limit certain finance charges, fees and other charges on loans, require
certain disclosures be made to borrowers and loan applicants, regulate the
credit application and evaluation process and regulate certain servicing and
collection practices. These laws and regulations impose specific liability upon
lenders who fail to comply with their provisions, and may give rise to defense
to payment of a borrower's obligation in the event of a failure to comply with
certain applicable laws. Pacific Thrift and PacificAmerica Centers believe they
are currently in compliance in all material respects with all applicable laws,
but there can be no assurance that they will be able to maintain such
compliance. The failure to comply with such laws, or a determination by a court
that
19
<PAGE> 20
their interpretation of law was erroneous, could have a material adverse effect
on Pacific Thrift or PacificAmerica Centers.
STATE LAW
PACIFICAMERICA CENTERS
PacificAmerica Centers is subject to regulation, supervision and
examination by the DOC under its California Finance Lender Licenses. The
California Finance Lender Law and regulations of the DOC promulgated thereunder
provide maximum charges and fees (although most limitations apply only to loans
under $5,000 or $10,000), provide certain maximum repayment terms for loans
under $5,000, provide certain required disclosure documents to borrowers, limit
sales of loans to certain purchasers, and provide certain penalties for
violations of applicable laws and regulations.
PACIFIC THRIFT
Pacific Thrift is subject to regulation, supervision and examination by
the DOC under its California Thrift and Loan License. On July 1, 1997, state
regulatory jurisdiction of Pacific Thrift will be transferred to a new
Department of Financial Institutions ("DFI"), which will regulate all banks,
savings and loans, thrift and loans, and credit unions chartered by the State of
California. The thrift and loan business conducted by Pacific Thrift is governed
by the California Industrial Loan Law and the rules and regulations of the DOC
(DFI as of July 1, 1997) which, among other things, regulate collateral
requirements and maximum maturities of the various types of loans that are
permitted to be made by California-licensed thrift and loan companies.
Subject to restrictions imposed by applicable California law, Pacific
Thrift is permitted to make secured and unsecured consumer and non-consumer
loans. The maximum term of repayment of loans made by thrift and loan companies
ranges up to 40 years and 30 days depending upon collateral and priority of the
secured position, except that loans with repayment terms in excess of 30 years
and 30 days may not in the aggregate exceed 5% of the total outstanding loans
and obligations of the company. Although secured loans may generally be
repayable in unequal periodic payments during their respective terms, consumer
loans secured by real property with terms in excess of three years must be
repayable in substantially equal periodic payments unless such loans are covered
under the Garn-St. Germain Depository Institutions Act of 1982 (primarily
one-to-four family residential mortgage loans).
California law limits loans by thrift and loan companies to persons who
do not reside in California to no more than 20% of total assets, or up to 40% of
total assets with approval of the DOC. California law contains extensive
requirements for the diversification of the loan portfolio of thrift and loan
companies. A thrift and loan with outstanding investment certificates may not,
among other things, have more than 25% of its loans or other obligations in
loans or obligations which are secured only partially, but
20
<PAGE> 21
not primarily, by real property; may not make any one loan secured primarily by
improved property which exceeds 20% of its paid-up and unimpaired capital stock
and surplus not available for dividends; may not lend an amount in excess of 5%
of its paid-up and unimpaired capital stock and surplus not available for
dividends upon the security of the stock of any one corporation; may not make
loans to, or hold the obligations of, any one person or control group as primary
obligor in an aggregate principal amount exceeding 20% of its paid-up and
unimpaired capital stock and surplus not available for dividends; and may have
no more than 70% of its total assets in loans which have remaining terms to
maturity in excess of seven years and are secured solely or primarily by real
property.
A thrift and loan generally may not make any loan to, or hold an
obligation of, any of its directors, officers or any shareholder holding 10% or
more of its shares, or any director or officer or any shareholder holding 10% or
more of the shares of its holding company or affiliates, except in specified
cases and subject to regulation by the DOC. A thrift and loan may not make any
loan to, or hold an obligation of, any of its shareholders or any shareholder or
its holding company or affiliates. There are currently no outstanding loans made
by Pacific Thrift to any officers or directors of the Company or any of its
affiliates. Any person who wishes to acquire 10% or more of the capital stock of
a California thrift and loan company or 10% or more of the voting capital stock
or other securities giving control over management of its parent company must
obtain the prior written approval of the DOC.
A thrift and loan is subject to certain leverage limitations which are
not generally applicable to commercial banks or savings and loan associations.
In particular, thrift and loans may not have outstanding at any time investment
certificates that exceed 20 times paid-up and unimpaired capital and surplus.
Under California law, thrift and loans that desire to increase their leverage
must meet specified minimum standards for liquidity reserves in cash, loan loss
reserves, minimum capital stock levels and minimum unimpaired paid-in surplus
levels. As approved by the DOC, Pacific Thrift can currently operate with a
ratio of deposits to unimpaired capital and unimpaired surplus of up to 15:1.
At December 31, 1996, Pacific Thrift's deposit ratio was 9.1:1.
Thrift and loan companies are not permitted to borrow, except by the
sale of investment or thrift certificates, in an amount exceeding 300% of
tangible net worth, surplus and undivided profits, without the DOC's prior
consent. All sums borrowed in excess of 150% of tangible net worth, surplus and
undivided profits must be unsecured borrowings or, if secured, approved in
advance by the DOC, and be included as investment or thrift certificates for
purposes of computing the maximum amount of certificates a thrift and loan may
issue. However, collateralized Federal Home Loan Bank advances are excluded for
this test of secured borrowings and are not specifically limited by California
law. Pacific Thrift had no borrowed funds (other than deposits) at December 31,
1996.
Under California law, thrift and loan companies are generally limited
to investments, other than loans, that are legal investments for commercial
banks. A thrift and loan company may acquire real property only in satisfaction
of debts previously
21
<PAGE> 22
contracted, pursuant to certain foreclosure transactions or as may be necessary
for the transaction of its business, in which case such investment, combined
with all investments in personal property, is limited to one-third of a thrift
and loan's paid-in capital stock and surplus not available for dividends.
Management believes Pacific Thrift was in compliance with these provisions
throughout 1996 and at December 31, 1996.
Although investment authority and other activities that may be engaged
in by Pacific Thrift generally are prescribed under the California Industrial
Loan Law, certain provisions of FDIC Improvement Act may limit Pacific Thrift's
ability to engage in certain activities that otherwise are authorized under the
California Industrial Loan Law.
FEDERAL LAW
Pacific Thrift's deposits are insured by the FDIC to the full extent
permissible by law. As an insurer of deposits, the FDIC issues regulations,
conducts examinations, requires the filing of reports and generally supervises
the operations of institutions for which it provides deposit insurance. Among
the numerous applicable regulations are those issued under the Community
Reinvestment Act of 1977 ("CRA") to encourage insured state nonmember banks,
such as Pacific Thrift, to meet the credit needs of local communities, including
low and moderate income neighborhoods, consistent with safety and soundness, and
a rating system to measure performance. Inadequacies of performance may result
in regulatory action by the FDIC. Pacific Thrift received a satisfactory rating
with respect to its CRA compliance in its most recent FDIC compliance
examination completed in November 1995.
Pacific Thrift is subject to the rules and regulations of the FDIC to
the same extent as all other state banks that are not members of the Federal
Reserve System. The approval of the FDIC is required prior to any merger,
consolidation or change in control, or the establishment or relocation of any
branch office of Pacific Thrift. This supervision and regulation is intended
primarily for the protection of the deposit insurance funds.
Under provisions of the FDIC Improvement Act and regulations issued by
the FDIC, additional limitations have been imposed with respect to depository
institutions' authority to accept, renew or rollover brokered deposits. Pacific
Thrift does not have any brokered deposits as of the date hereof.
Pacific Thrift is subject to certain capital adequacy guidelines issued
by the FDIC. See "Federal Law -- Capital Adequacy Guidelines" under this
heading.
REGULATORY ACTIONS
In December 1994, the FDIC notified Pacific Thrift that it was
classified as "critically undercapitalized" as of October 31, 1994. Pacific
Thrift had sufficiently restored its regulatory capital ratios from net
operating profits and capital contributions as
22
<PAGE> 23
of April 30, 1995 to be classified as "adequately capitalized" under FDIC
regulations. The FDIC confirmed Pacific Thrift's adequate capitalization by
letter dated May 8, 1995.
On May 18, 1995, Pacific Thrift entered a stipulated cease and desist
order with the FDIC and the DOC (the "1995 Order") replacing a 1993 Cease and
Desist Order. The terms of the 1995 Order require Pacific Thrift to: have and
retain qualified management; by December 31, 1995, increase and maintain Tier 1
capital (consisting of shareholders' equity) at 8% of its total assets;
eliminate assets classified "loss" as of September 26, 1994; reduce the level of
adversely classified assets; in certain instances, refrain from extending
additional credit to borrowers whose prior credits have been adversely
classified; maintain a fully funded allowance for loan losses; implement Pacific
Thrift's capital restoration and business/profitability plans; correct a past
violation of the thrift ratio requirement and comply with all applicable laws
and regulations; file reports of condition and income which accurately reflect
its financial condition; obtain FDIC approval prior to payment of any cash
dividends; continue to comply with its Policy for Transactions and Relationships
Between Affiliates; obtain FDIC approval before opening additional offices; and
furnish written quarterly progress reports to the FDIC detailing actions taken
to comply with the 1995 Order.
On April 1, 1996, as a result of its improved capital ratios and
operations, the 1995 Order was terminated and replaced with a Memorandum of
Understanding ("MOU") between Pacific Thrift, the FDIC and the DOC. This
informal agreement provides that Pacific Thrift shall: (i) maintain Tier I
capital of 8% or more of its total assets; (ii) maintain an adequate reserve for
loan losses, which shall be reviewed quarterly by its board of directors; (iii)
eliminate assets classified "loss" as of September 30, 1995, reduce assets
classified "substandard" as of September 30, 1995 to not more than $4,000,000
within 180 days, and reduce all assets classified substandard, doubtful and loss
to no more than 50% of capital and reserves by September 30, 1996; (iv) obtain
FDIC approval before opening additional offices; (v) develop strategies to
stabilize its net interest margin on portfolio loans and develop procedures to
implement these strategies; and (vi) furnish written quarterly progress reports
to the FDIC detailing actions taken to comply with the MOU.
Management of Pacific Thrift believes that it is in full compliance
with the terms of the 1996 MOU. As of December 31, 1996, Pacific Thrift has
increased its capital ratios to the levels which meet the regulatory definition
of "well capitalized," the highest regulatory capital level. However, since the
1996 MOU contains a provision requiring the maintenance of a certain capital
level (which it currently meets), Pacific Thrift is currently classified as
"adequately capitalized" under the regulations.
RESTRICTIONS ON TRANSFERS OF FUNDS TO AFFILIATES BY PACIFIC THRIFT
There are statutory and regulatory limitations on the amount of
dividends which may be paid to the Company by Pacific Thrift. Under California
law, a thrift and loan is not permitted to declare dividends on its capital
stock unless it has at least $750,000 of unimpaired capital plus additional
capital of $50,000 for each branch office maintained.
23
<PAGE> 24
In addition, no distribution of dividends is permitted unless: (i) such
distribution would not exceed a thrift's retained earnings; or, (ii) in the
alternative, after giving effect to the distribution, (a) the sum of a thrift's
assets (net of goodwill, capitalized research and development expenses and
deferred charges) would be not less than 125% of its liabilities (net of
deferred taxes, income and other credits), or (b) current assets would be not
less than current liabilities (except that if a thrift's average earnings before
taxes for the last two years had been less than average interest expenses,
current assets must not be less than 125% of current liabilities).
In addition, a thrift and loan is prohibited from paying dividends from
that portion of capital which its board of directors has declared restricted for
dividend payment purposes. The amount of restricted capital maintained by a
thrift and loan provides the basis of establishing the maximum amount that a
thrift may lend to a single borrower and determines the amount of capital that
may be counted by the thrift for purposes of calculating the thrift to capital
ratio. Pacific Thrift has, in the past, restricted as much capital as necessary
to support its level of assets. The board of directors of Pacific Thrift may
unrestrict all or any portion of its equity in the future for dividends to the
Company, provided that Pacific Thrift remains adequately capitalized.
The FDIC also has authority to prohibit Pacific Thrift, just as any
other FDIC- insured institution, from engaging in what, in the FDIC's opinion,
constitutes an unsafe or unsound practice in conducting its business. It is
possible, depending upon the financial condition of the bank in question and
other factors, that the FDIC could assert that the payment of dividends or other
payments might, under some circumstances, be such an unsafe or unsound practice.
Further, the FDIC has established guidelines with respect to the maintenance of
appropriate levels of capital by banks under their jurisdiction. Compliance with
the standards set forth in such guidelines and the restrictions that are or may
be imposed under the prompt corrective action provisions of the FDIC Improvement
Act could limit the amount of dividends which Pacific Thrift may pay to the
Company. See "Capital Standards" under this heading for a discussion of these
additional restrictions on capital distributions.
Pacific Thrift, just as any other FDIC-insured institution, is subject
to certain restrictions imposed by federal law on any extensions of credit to,
or the issuance of a guarantee or letter of credit on behalf of, the Company or
other affiliates, the purchase of or investments in stock or other securities
thereof, the taking of such securities as collateral for loans and the purchase
of assets of the Company or other affiliates. Such restrictions prevent the
Company and other affiliates from borrowing from Pacific Thrift unless the loans
are secured by marketable obligations of designated amounts. Further, such
secured loans and investments by Pacific Thrift to or in the Company or to or in
any other affiliate is limited to 10% of Pacific Thrift's capital and surplus
(as defined by federal regulations) and such secured loans and investments are
limited, in the aggregate, to 20% of Pacific Thrift's capital and surplus (as
defined by federal regulations). In addition, any transaction with an affiliate
of Pacific Thrift must be on terms and under circumstances that are
substantially the same as a comparable transaction with a non-affiliate.
Additional
24
<PAGE> 25
restrictions on transactions with affiliates may be imposed on Pacific Thrift,
just as any other FDIC-insured institution, under the prompt corrective action
provisions of the FDIC Improvement Act. Management believes that Pacific Thrift
is in compliance with all provisions regarding transactions with affiliates.
CAPITAL STANDARDS
The Federal Reserve Board and the FDIC have adopted risk-based minimum
capital guidelines intended to provide a measure of capital that reflects the
degree of risk associated with a depository institution's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans.
A depository institution's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets. The
regulators measure risk-adjusted assets, which includes off balance sheet items,
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists primarily
of common stock, retained earnings, noncumulative perpetual preferred stock
(cumulative perpetual preferred stock for bank holding companies) and minority
interests in certain subsidiaries, less most intangible assets. Tier 2 capital
may consist of a limited amount of the allowance for possible loan and lease
losses, cumulative preferred stock, long term preferred stock, eligible term
subordinated debt and certain other instruments with some characteristics of
equity. The inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies. The federal
banking agencies require a minimum ratio of qualifying total capital to risk-
adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted
assets of 4%. At December 31, 1996, Pacific Thrift's total risk-based capital
ratio was 11.87%
In addition to the risk-based guidelines, federal banking regulators
require depository institutions to maintain a minimum amount of Tier 1 capital
to total assets, referred to as the leverage ratio. For a depository institution
rated in the highest of the five categories used by regulators to rate
depository institutions, the minimum leverage ratio of Tier 1 capital to total
assets is 3%. For all depository institutions not rated in the highest category,
the minimum leverage ratio must be at least 100 to 200 basis points above the 3%
minimum, or 4% to 5%. In addition to these uniform risk-based capital guidelines
and leverage ratios that apply across the industry, the regulators have the
discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios. At
December 31, 1996, Pacific Thrift's leverage ratio was 8.67%.
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<PAGE> 26
In January 1995, the federal banking agencies issued a final rule
relating to capital standards and the risks arising from the concentration of
credit and nontraditional activities. Institutions which have significant
amounts of their assets concentrated in high risk loans or nontraditional
banking activities and who fail to adequately manage these risks, will be
required to set aside capital in excess of the regulatory minimums. The federal
banking agencies have not imposed any quantitative assessment for determining
when these risks are significant, but have identified these issues as important
factors they will review in assessing an individual bank's capital adequacy.
In December 1993, the federal banking agencies issued an interagency
policy statement on the allowance for loan and lease losses which, among other
things, establishes certain benchmark ratios of loan loss reserves to classified
assets. The benchmark set forth by such policy statement is the sum of (a)
assets classified loss; (b) 50 percent of assets classified doubtful; (c) 15
percent of assets classified substandard; and (d) estimated credit losses on
other assets over the upcoming 12 months. Management believes that Pacific
Thrift is in compliance with these requirements.
Federally supervised banks and savings associations are currently
required to report deferred tax assets in accordance with SFAS No. 109. The
federal banking agencies issued final rules, effective April 1, 1995, which
limit the amount of deferred tax assets that are allowable in computing an
institution's regulatory capital. The standard has been in effect on an interim
basis since March 1993. Deferred tax assets that can be realized for taxes paid
in prior carryback years and from future reversals of existing taxable temporary
differences are generally not limited. Deferred tax assets that can only be
realized through future taxable earnings are limited for regulatory capital
purposes to the lesser of (i) the amount that can be realized within one year of
the quarter-end report date, or (ii) 10% of Tier 1 Capital. The amount of any
deferred tax in excess of this limit would be excluded from Tier 1 Capital and
total assets and regulatory capital calculations. Management believes that
Pacific Thrift is in compliance with these requirements.
Future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect the ability of Pacific Thrift, just as any other FDIC-insured
institution, to grow and could restrict the amount of profits, if any, available
for the payment of dividends.
The following table presents the capital ratios for Pacific Thrift, as
of December 31, 1996, compared to the regulatory capital requirements for well
capitalized institutions.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Actual Well
------ Capitalized
Ratio Requirement
----- -----------
<S> <C> <C>
Leverage ratio............................ 8.67% 5.0%(1)
Tier 1 risk-based ratio................... 10.62% 6.0%
Total risk-based ratio.................... 11.87% 10.0%
</TABLE>
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<PAGE> 27
(1) Pursuant to the 1996 MOU, Pacific Thrift is required to maintain a minimum
8.0% leverage ratio.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
Federal law requires each federal banking agency to take prompt
corrective action to resolve the problems of insured depository institutions,
including but not limited to those that fall below one or more prescribed
minimum capital ratios. The law required each federal banking agency to
promulgate regulations defining the following five categories in which an
insured depository institution will be placed, based on the level of its capital
ratios: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of federal law.
An insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
<TABLE>
<S> <C>
"Well capitalized" "Adequately capitalized"
------------------ ------------------------
Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ratio of 5%. Leverage ratio of 4% (3% if the institution receives the
highest rating from its primary regulator)
"Undercapitalized" "Significantly undercapitalized"
------------------ --------------------------------
Total risk-based capital less than 8%; Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 4%; or Tier 1 risk-based capital less than 3%; or
Leverage ratio less than 4% (3% if the Leverage ratio less than 3%.
institution receives the highest rating
from its primary regulator)
"Critically undercapitalized"
-----------------------------
Tangible equity to total assets less
than 2%.
</TABLE>
An institution that, based upon its capital levels, is classified as
"well capitalized," "adequately capitalized" or "undercapitalized" may be
treated as though it were in the next lower capital category if the appropriate
federal banking agency, after notice and opportunity for hearing, determines
that an unsafe or unsound condition or an unsafe or unsound practice warrants
such treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited exceptions,
making capital distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory
27
<PAGE> 28
approval for acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.
An insured depository institution that is significantly
undercapitalized, or is undercapitalized and fails to submit, or in a material
respect to implement, an acceptable capital restoration plan, is subject to
additional restrictions and sanctions. These include, among other things: (i) a
forced sale of voting shares to raise capital or, if grounds exist for
appointment of a receiver or conservator, a forced merger; (ii) restrictions on
transactions with affiliates; (iii) further limitations on interest rates paid
on deposits; (iv) further restrictions on growth or required shrinkage; (v)
modification or termination of specified activities; (vi) replacement of
directors and/or senior executive officers; (vii) prohibitions on the receipt of
deposits from correspondent institutions; (viii) restrictions on capital
distributions by the holding companies of such institutions; (ix) required
divestiture of subsidiaries by the institution; or (x) other restrictions as
determined by the appropriate federal banking agency. Although the appropriate
federal banking agency has discretion to determine which of the foregoing
restrictions or sanctions it will seek to impose, it is required to force a sale
of voting shares or merger, impose restrictions on affiliate transactions and
impose restrictions on rates paid on deposits unless it determines that such
actions would not further the purpose of the prompt corrective action
provisions. In addition, without the prior written approval of the appropriate
federal banking agency, a significantly undercapitalized institution may not pay
any bonus to its senior executive officers or provide compensation to any of
them at a rate that exceeds such officer's average rate of base compensation
during the 12 calendar months preceding the month in which the institution
became undercapitalized.
Further restrictions and sanctions are required to be imposed on
insured depository institutions that are critically undercapitalized. For
example, a critically undercapitalized institution generally would be prohibited
from engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not,
28
<PAGE> 29
with certain exceptions, make any payment of principal or interest on its
subordinated debt beginning 60 days after becoming critically undercapitalized.
Most importantly, however, except under limited circumstances, the appropriate
federal banking agency, not later than 90 days after an insured depository
institution becomes critically undercapitalized, is required to appoint a
conservator or receiver for the institution. The board of directors of an
insured depository institution would not be liable to the institution's
shareholders or creditors for consenting in good faith to the appointment of a
receiver or conservator or to an acquisition or merger as required by the
regulator.
In addition to measures taken under the prompt corrective action
provisions, commercial depository institutions may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease and desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted.
SAFETY AND SOUNDNESS STANDARDS
In July 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The guidelines
set forth operational and managerial standards relating to internal controls,
information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and
benefits. Guidelines for asset quality and earnings standards will be adopted in
the future. The guidelines establish the safety and soundness standards that the
agencies will use to identify and address problems at insured depository
institutions before capital becomes impaired. If an institution fails to comply
with a safety and soundness standard, the appropriate federal banking agency may
require the institution to submit a compliance plan. Failure to submit a
compliance plan or to implement an accepted plan may result in enforcement
action.
In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies must address loan
portfolio management, underwriting standards and loan to value limits that do
not exceed the supervisory limits prescribed by the regulations.
29
<PAGE> 30
Appraisals for "real estate related financial transactions" must be
conducted by either state certified or state licensed appraisers for
transactions in excess of certain amounts. State certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A state
licensed appraiser is required for all other appraisals. However, appraisals
performed in connection with "federally related transactions" must now comply
with the agencies' appraisal standards. Federally related transactions include
the sale, lease, purchase, investment in, or exchange of, real property or
interests in real property, the financing or refinancing of real property, and
the use of real property or interests in real property as security for a loan or
investment, including mortgage-backed securities.
PREMIUMS FOR DEPOSIT INSURANCE
Pacific Thrift's deposit accounts are insured by the FDIC generally up
to a maximum of $100,000 per separately insured depositor, and Pacific Thrift,
like all FDIC- insured institutions, is subject to FDIC deposit insurance
assessments. Pursuant to FDICIA, the FDIC adopted a risk-based system for
determining deposit insurance assessments under which all insured institutions
were placed into one of nine categories and assessed annual insurance premiums,
ranging from $2,000 to 0.27% of insured deposits, based upon their level of
capital and supervisory evaluation. Because the FDIC sets the assessment rates
based upon the level of assets in the insurance fund, premium rates rise and
fall as the number and size of bank failures increases and decreases,
respectively. Under the system, institutions are assigned to one of three
capital groups which is based solely on the level of an institution's capital -
"well capitalized," "adequately capitalized" and "undercapitalized" - which are
defined in the same manner as the regulations establishing the prompt corrective
action system under Section 38 of FDIA, as discussed in "-- Capital Standards."
These three groups are then divided into three subgroups which reflect varying
levels of supervisory concern, from those which are considered to be of minimal
supervisory concern to those which are considered to be of substantial
supervisory concern.
INTERSTATE BANKING AND BRANCHING
In September 1994, the Riegel-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") became law. Under the Interstate
Act, beginning one year after the date of enactment, a bank holding company that
is adequately capitalized and managed may obtain approval under the BHCA to
acquire an existing bank located in another state without regard to state law. A
bank holding company would not be permitted to make such an acquisition if, upon
consummation, it would control (a) more than 10% of the total amount of deposits
of insured depository institutions in the United States or (b) 30% or more of
the deposits in the state in which the bank is located. A state may limit the
percentage of total deposits that may be held in that state by any one bank or
bank holding company if application of such limitation does not discriminate
against out-of-state banks. An out-of-state bank holding company may not acquire
a state bank in existence
30
<PAGE> 31
for less than a minimum length of time that may be prescribed by state law
except that a state may not impose more than a five year existence requirement.
The Interstate Act also permits, beginning June 1, 1997, mergers of
insured banks located in different states and conversion of the branches of the
acquired bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirements and conditions as for a merger
transaction.
In October 1995, California adopted "opt in" legislation under the
Interstate Act that permits out-of-state banks to acquire California banks that
satisfy a five-year minimum age requirement (subject to exceptions for
supervisory transactions) by means of merger or purchases of assets, although
entry through acquisition of individual branches of California institutions and
de novo branching into California are not permitted. The Interstate Act and the
California branching statute will likely increase competition from out-of-state
banks in the markets in which Pacific Thrift operates, although it is difficult
to assess the impact that such increased competition may have on Pacific
Thrift's operations.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
Pacific Thrift, just as all other mortgage lenders, is subject to
certain fair lending requirements and reporting obligations involving home
mortgage lending operations and Community Reinvestment Act ("CRA") activities.
The CRA generally requires the federal banking agencies to evaluate the record
of a financial institution in meeting the credit needs of their local
communities, including low and moderate income neighborhoods. In addition to
substantial penalties and corrective measures that may be required for a
violation of certain fair lending laws, the federal banking agencies may take
compliance with such laws and CRA into account when regulating and supervising
other activities. The FDIC has rated Pacific Thrift "satisfactory" in complying
with its CRA obligations.
In May 1995, the federal banking agencies issued final regulations
which change the manner in which they measure a depository institution's
compliance with its CRA obligations. The final regulations adopt a
performance-based evaluation system which bases CRA ratings on an institution's
actual lending service and investment performance rather than the extent to
which the institution conducts needs assessments, documents community outreach
or complies with other procedural requirements. In March 1994, the Federal
Interagency Task Force on Fair Lending issued a policy statement on
discrimination in lending. The policy statement describes the three methods that
federal agencies will use to prove discrimination: (i) overt evidence of
discrimination; (ii) evidence of disparate treatment and (iii) evidence of
disparate impact.
31
<PAGE> 32
POTENTIAL ENFORCEMENT ACTIONS.
Insured depository institutions, such as Pacific Thrift, and their
institution-affiliated parties, which include the Company, may be subject to
potential enforcement actions by the FDIC and the DOC for unsafe or unsound
practices in conducting their businesses or for violations of any law, rule,
regulation or any condition imposed in writing by the agency or any written
agreement with the agency. Enforcement actions may include the imposition of a
conservator or receiver, the issuance of a cease-and-desist order that can be
judicially enforced, the termination of insurance of deposits and with respect
to Pacific Thrift and the Company, could also include the imposition of civil
money penalties, the issuance of directives to increase capital, the issuance of
formal and informal agreements, the issuance of removal and prohibition orders
against institution-affiliated parties and the imposition of restrictions and
sanctions under the PCA provisions of the FDIC Improvement Act. Management knows
of no pending or threatened enforcement actions against Pacific Thrift.
ITEM 2. PROPERTIES
The Company, Pacific Thrift and PacificAmerica Centers do business at
their main offices in Woodland Hills, California. Pacific Thrift also does
business at five loan production offices in California located in Irvine, San
Diego, San Jose, Walnut Creek and West Covina, as well as six loan production
offices located in other states, including Phoenix, Arizona, Golden, Colorado,
Las Vegas, Nevada, Portland, Oregon, Salt Lake
City, Utah and Bellevue, Washington.
All of the offices at which the Company and its subsidiaries conduct
business are leased. With the exception of the Woodland Hills, Walnut Creek and
Irvine offices, all of the offices are on short-term leases of 18 months or
less. Information with respect to the Woodland Hills, Walnut Creek and Irvine
offices as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Floor Space Annual Expiration
Location in Square Ft. Rental(1) Date
- -------- ------------- ------ ----------
<S> <C> <C> <C>
Woodland Hills, CA(2) 19,600 $539,178 07/31/03
Walnut Creek, CA(3) 14,414 336,346 11/14/00
Irvine, CA(4) 11,108 173,280 12/31/01
</TABLE>
(1) Subject to annual adjustment in accordance with customary escalation
clauses, except as provided in footnote 2 below with respect to the
Woodland Hills lease, which only provides for escalation of expense
sharing obligations.
(2) Pursuant to a lease entered January 11, 1993, annual rental increases
by $11,760 from August 1, 1998 through January 31, 2001, and by another
$11,760 from February 1, 2001 through July 31, 2003. The lease is
accounted for on the straight
32
<PAGE> 33
line average method of accounting, in accordance with generally
accepted accounting principles.
(3) Pursuant to a lease agreement entered October 31, 1990 and last amended
May 8, 1996, annual rent increases by $2,809 from September 15, 1997
through November 14, 2000. This does not include two separate month to
month leases in the same building at an annualized rental rate of
$50,580.
(4) The annual rent increases by $10,668 from July 1, 1999 through December
31, 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to certain legal
proceedings incidental to its lending business and to its trust deed foreclosure
service businesses which were sold as of December 31, 1996. Some of these
actions seek unspecified damages or substantial monetary damages in the form of
punitive damages. The ultimate outcome of such litigation cannot presently be
determined. Management, after review and consultation with counsel, and based
upon historical experience with prior actions, has determined that the outcome
of such proceedings would not have a material adverse impact on the Company's
business, financial condition or results of operations.
In addition to actions incidental to its business, the Company and/or
its subsidiaries are parties to the following actions.
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<PAGE> 34
Foreclosure Services Actions. On June 6, 1995, CRC and LPPC were served
with a complaint by Consumer Action and two consumers suing both individually
and on behalf of the general public in an unfair business practices action filed
in the Superior Court of Contra Costa County, California. The complaint named
CRC and LPPC, along with thirteen other foreclosure service and foreclosure
publishing companies, and alleges that all named defendants charge fees in
excess of the statutorily permitted amount for publication of notices of trustee
sales. The complaint seeks restitution of all excess charges, an injunction
against the charging of excessive fees in the future and attorneys fees. In
January 1996, LPPC and two other posting and publishing companies were dismissed
from the action without prejudice. As of March 20, 1996, a tentative global
settlement of the action had been reached, pursuant to which CRC would pay
damages in an amount immaterial to the Company as a whole. There can be no
assurance that the settlement will be concluded, or that damages in any
litigation that might ensue would not be material to the Company.
In 1996, CRC was served with a complaint by seven individuals suing
both individually and on behalf of the general public in a purported class
action filed in the Superior Court of Los Angeles County, California. The
complaint names over 50 defendants, including numerous title insurance companies
and trust deed services companies, generally alleging that the title insurance
companies did not make certain refunds of certain trustee sale guarantee fees
("TSGs") which they were required to make under the terms of a settlement of a
previous case (in which CRC was not named), and that the trust deed services
companies failed to purchase less costly alternative products, to request and
remit refunds in the cost of TSGs or to advise the members of the class of their
right to a refund from the title insurance companies. As of March 20, 1996, the
court had sustained CRC's demurrer to the complaint, as well as other trustees'
demurrers and motions for judgment on the pleadings, and the plaintiffs had been
given 20 days to file an amended complaint. At this time, there is no way to
determine the exact nature and extent of damages, which will not be able to be
specified until the amended complaint has been filed. Management believes,
however, based upon consultation with its counsel in this action, that any
liability that may incurred by CRC in this action would be immaterial to the
Company as a whole.
As part of the agreement to sell the assets of CRC and LPPC, the
Company has retained substantially all of any liability that may result from
these two actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of stockholders during the fourth
quarter of 1996.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Company's executive officers.
34
<PAGE> 35
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE OCCUPATION FOR THE PAST FIVE YEARS
---- --- ---------------------------------------
Joel R. Schultz 60 Chairman of the Board, President, Chief
Executive Officer and Chief Operating
Officer of the Company; Chief Managing
Officer of the Partnership from 1981 to June
1996; Chairman of the Board and Chief
Executive Officer of Pacific Thrift since
1988; President of Pacific Thrift from 1988
to December 1993; Chairman of the Board,
President and Chief Executive Officer of
PacificAmerica Centers; California licensed
attorney-at-law; Certified Public
Accountant; California licensed real estate
broker.
Richard D. Young 57 Director and Senior Executive Vice President
of the Company; Senior Executive Vice
President and Chief Operating Officer and a
director of PacificAmerica Centers;
President and Chief Operating Officer of
Pacific Thrift from November 1993 to
present; director of Pacific Thrift from
November 1993 to present; Chief Operating
Officer of the Partnership from May 1994
until June 1996; President and Chief
Executive Officer of Topa Thrift and Loan
from 1983 to 1993; President of Thrift
Guaranty Corporation from 1984 to 1988;
director of Thrift Guaranty Corporation from
1983 to 1988 and from 1989 to 1995, when the
Thrift Guaranty Corporation was liquidated;
member, Mortgage Bankers Association
Secondary and Capital Markets Committee;
member, California Association of Thrift and
Loan Companies ("CATL") Regulatory
Committee; member and former chairman, CATL
Executive Committee; former chairman, CATL
Legislative Committee; Vice President of
CATL (1995-present).
Charles J. Siegel 47 Chief Financial Officer and Assistant
Secretary of the Company; Chief Financial
Officer of Pacific Thrift from December 1993
to present; Chief Financial Officer of
PacificAmerica Centers from June 1996 to
present; Chief Financial Officer of the
Partnership from May 1994 to June 1996;
Chief Financial Officer of Topa Thrift and
Loan from 1983 to 1993; Certified Public
Accountant.
Frank Landini 45 Executive Vice President in charge of the
Wholesale Division of Pacific Thrift since
December 1994; Senior Vice President of
Pacific Thrift from October 1993 to December
1994; Senior Vice President of Topa Thrift
and Loan from 1983 to 1993.
Norman A. Markiewicz 50 Executive Vice President of the Company;
Chief Operating Officer of the Partnership
from 1981 to May 1994; Chief Operating
Officer of Pacific Thrift from 1988 to
September 1993; Executive Vice President of
Pacific Thrift from 1993 to present;
director of Pacific Thrift from 1988 to
present; Executive Vice President of
PacificAmerica Centers.
Richard B. Fremed 54 Executive Vice President and Secretary of
the Company; Chief Financial Officer of the
Partnership from 1981 to April 1994; Chief
Financial Officer of Pacific Thrift from
1988 to December 1993; Secretary of Pacific
Thrift from December 1988 to present;
Treasurer of Pacific Thrift from December
1993 to present; director of Pacific Thrift
from 1988 to present; Certified Management
Accountant and California licensed real
estate sales person.
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<PAGE> 36
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since June 25, 1996, the Company's Common Stock has been traded on the
Nasdaq National Market. The high and low sales prices for the Common Stock
during the third and fourth quarters of 1996, as reported on the Nasdaq National
Market, were as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Third Quarter $22.25 $13.00
Fourth Quarter $32.00 $21.75
</TABLE>
On March 21, 1997, the closing sale price for the Common Stock reported
on the Nasdaq National Market was $30.00 per share.
As of March 15, 1997, there were approximately 1,500 shareholders of
the Common Stock, including the beneficial holders whose shares are held of
record by brokerage firms and clearing agencies.
DIVIDEND POLICY
The Company, which was recently organized, has never paid a cash
dividend on its Common Stock. The Company's ability to pay dividends is subject
to restrictions set forth in the Delaware General Corporation law. The Delaware
Corporation Law provides that a Delaware corporation may pay dividends either
(i) out of the corporation's surplus (as defined in Delaware law), or (ii) if
there is no surplus, out of the corporation's net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. However,
pursuant to Section 2115 of the California General Corporation Law, under
certain circumstances, certain provisions of the California General Corporation
Law may be applied to foreign corporations qualified to do business in
California, which may reduce the amount of dividends payable by the Company.
Since the Company derives a substantial amount of its revenues from
Pacific Thrift, a California corporation, California law and FDIC regulations
with respect to dividends will have a substantial effect on the Company's
ability to pay dividends. Under California law, a corporation is prohibited from
paying dividends unless (i) the retained earnings of the corporation immediately
prior to the distribution exceeds the amount of the distribution; (ii) the
assets of the corporation exceed 1-1/4 times its liabilities; or (iii) the
current assets of the corporation exceed its current liabilities, but if the
average pretax net earnings of the corporation before interest expense for the
two years preceding the distribution was less than the average interest expense
of the corporation for those years, the current assets of the corporation must
exceed 1-1/4 times its current liabilities.
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<PAGE> 37
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present selected consolidated financial and other
data of the Company (or the Partnership for periods prior to June 27, 1996) as
of and for each of the years in the five years ended December 31, 1996. The
information below should be read in conjunction with, and is qualified in its
entirety by, the more detailed information included elsewhere in this
Report, including the Consolidated Financial Statements of the Company and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
1996 1995 1994 1993 1992
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total interest income $ 11,502 $ 9,577 $ 11,404 $ 14,212 $ 16,827
Total interest expense 4,966 5,199 4,927 5,718 6,725
Net interest income 6,536 4,378 6,477 8,494 10,102
Total noninterest income 29,994 9,440 2,071 998 1,805
Provision for loan losses 1,151 3,289 6,096 4,655 3,888
Other real estate owned expense 681 1,212 732 3,307 1,014
General and administrative expense 28,227 13,099 12,140 8,794 8,292
Provision (benefit) for income taxes 1,658 (1,223) 1 1 1
--------- --------- --------- --------- ---------
Net income from continuing operations 4,813 (2,559) (10,421) (7,265) (1,288)
Income from discontinued operations 387 861 907 1,396 1,436
Loss on disposal of discontinued operations (1,038) -0- -0- -0- -0-
Income (loss) $ 4,162 $ (1,698) $ (9,514) $ (5,869) $ 148
========= ========= ========= ========= =========
Distributions paid -0- -0- -0- 1,943 4,610
Primary earnings per share
Continuing operations $ 2.27 n/a n/a n/a n/a
Discontinued operations (0.28) n/a n/a n/a n/a
Net income 1.99 n/a n/a n/a n/a
Fully diluted earnings per share
Continuing operations $ 2.12 n/a n/a n/a n/a
Discontinued operations (0.28) n/a n/a n/a n/a
Net income 1.84 n/a n/a n/a n/a
STATEMENT OF FINANCIAL CONDITION DATA:
Total assets $ 114,934 $ 82,994 $ 103,747 $ 114,324 $ 120,216
Net loans(1) 51,662 56,486 65,056 84,755 101,405
Total deposits 81,002 60,156 69,501 62,421 50,561
Equity 21,966 8,727 10,425 19,939 28,830
SELECTED RATIOS (%)
Return on average assets 4.21% (1.82)% (8.73)% (5.00)% .11%
Return on average equity 27.12% (17.73)% (62.67)% (24.07)% .45%
Net interest margin(2) 7.46% 5.79% 6.82% 8.65% 8.71%
Noninterest expense to average assets 29.21% 15.33% 11.81% 10.32% 7.20%
Efficiency ratio(3) 79.13% 103.57% 150.58% 127.49% 78.16%
Efficiency ratio excluding REO expense(3) 77.27% 94.80% 142.02% 92.65% 69.64%
General and administrative expense to average assets 28.52% 14.03% 11.13% 7.50% 6.41%
Average equity to average assets 15.51% 10.26% 13.92% 20.79% 25.34%
Loan originations $ 373,457 $ 170,961 $ 76,838 $ 48,612 $ 53,207
ASSET QUALITY DATA:
Nonaccrual loans $ 1,394 $ 793 $ 3,146 $ 5,316 $ 3,253
REO (net of senior liens) 2,728 2,545 5,308 4,225 6,973
Total nonperforming assets 4,122 3,338 8,454 9,541 10,226
Troubled debt restructurings 357 948 -0- -0- -0-
Allowance for credit losses 2,464 4,229 4,307 3,122 2,646
Net loan charge offs $ 2,916 3,367 4,912 4,178 3,063
ASSET QUALITY RATIOS:
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
1996 1995 1994 1993 1992
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming assets to total assets............... 3.59% 4.02% 8.15% 8.35% 8.51%
Allowance for credit losses to net loans........... 4.77% 7.49% 6.62% 3.68% 2.61%
Allowance for credit losses to nonaccrual loans.... 176.76% 533.29% 136.94% 58.74% 81.34%
Net loan charge offs to average loans.............. 3.58% 5.28% 5.79% 4.12% 2.67%
</TABLE>
(1) Net of allowances for loan loss and deferred loan fees and costs,
including loans held for sale.
(2) Net interest margin represents net interest income divided by total
average earning assets.
(3) Efficiency ratio represents noninterest expense divided by noninterest
income and net interest income.
38
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
preceding Selected Financial Data and the Company's Financial Statements and the
Notes thereto and the other financial data included elsewhere in this Report.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which always involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth below under the heading "Forward
Looking Statements."
On June 27, 1996, the Company completed the Restructuring with the
Partnership, which was accounted for as a change in legal organization but not
in the enterprise of the Partnership. Therefore, the financial statements of the
Company give effect to the Restructuring as a recapitalization of the
Partnership into the Corporation. References to the Company in this Report refer
to the financial condition and results of operations of the Partnership on a
consolidated basis for all periods prior to June 27, 1996.
FINANCIAL CONDITION
GENERAL
Overview. The Company, through its subsidiaries Pacific Thrift and
PacificAmerica Centers, is engaged in the business of originating, purchasing
and selling mortgage loans secured primarily by one-to-four family residences.
The Company's primary source of revenue is the recognition of gains upon sale of
loans. Most loans sold by the Company until the fourth quarter of 1996 were sold
for a cash premium received on the date of sale. Beginning in the fourth quarter
of 1996, the Company began selling loans under agreements providing that it
would retain an interest in the purchasers' residual interest in excess spread
in each securitization pool in which the Company's loans were placed. The
Company recognizes gain from the sale of these loans as the present value of the
interest-only strips, if any and/or excess spread in which it retains interests
under its agreements with the purchasers of the loans.
Loan Originations. The Company has increased its loan origination
volume from $171.0 million during 1994 to $373.5 million during 1996,
representing a growth rate of 118.4% over this two year period. This increase in
loan origination volume was primarily due to the expansion of the Company's
lending operations from one state (California) in 1994 to over 30 states by
December 31, 1996. As of February 28, 1997, the Company, through Pacific Thrift
and PacificAmerica Centers, was authorized to conduct its lending business in 49
states and the District of Columbia and had lending operations established in 32
states.
Until the sale of the assets of CRC and LPPC and the stock of CRCWA as
of December 31, 1996, the Company operated two business segments: the subprime
residential mortgage lending business and the trust deed foreclosure services
business. See Note 18 in the Notes to Consolidated Financial Statements. The
Company's primary business has always been subprime residential mortgage
lending, and in November 1996, the Company determined to sell CRC, LPPC, and
CRCWA in order to devote all of its financial and human resources to its
primary lending business.
AT DECEMBER 31, 1996 COMPARED WITH DECEMBER 31, 1995.
Total consolidated assets of the Company increased $32.0
million (38.6%) to $114.9 million at December 31, 1996 from $82.9 million at
December 31, 1995. The increase
39
<PAGE> 40
resulted primarily from increases in a receivable for mortgage loan sales,
excess yield receivable and deferred income taxes, partially offset by decreases
in loans receivable, cash and cash equivalents, and goodwill. A receivable for
mortgage loan sales of $24.3 million was held at December 31, 1996 for a pool of
loans sold to Advanta, which was paid in January 1997; no similar item was held
in 1995. Excess yield receivable increased $9.0 million, to $11.7 million from
$2.7 million, due to the Company's retention of an interest in excess spread on
loans sold for securitization under agreements with Aames and Advanta. See
"Business -- Lending Activities - Loan Sales and Securitizations." The deferred
income tax asset increased by $4.3 million to $5.0 million at December 31,
1996, due primarily to an income tax net operating loss carryforward and
reversal of a valuation reserve. Loans receivable decreased $10.4 million
(23.7%) to $33.5 million from $43.9 million, due to the Company's strategic
decision to cease portfolio lending in 1996 and sell portfolio loans to raise
additional funds for its mortgage banking business. Cash and cash equivalents
decreased by $1.9 million (18.1%) to $8.6 million from $10.5 million, due to
timing of payments for loan sales in December. Goodwill decreased $1.8 million
(100%) due to the sale of CRC, LPPC and CRCWA.
Total liabilities increased $18.8 million (25.3%) to $93.0 million at
December 31, 1996 from $74.2 million at December 31, 1995. The increase resulted
from an increase in total thrift certificates payable and deferred income tax
liability, partially offset by declines in note payable, accounts payable and
partnership withdrawals payable. Total thrift certificates payable increased
$20.8 million (34.5%), to $81.0 million from 60.2 million, reflecting increased
issuance of thrift certificates to fund Pacific Thrift's lending operations. The
deferred income tax liability increased by $4.3 million because of temporary
differences between when an income tax liability is accrued for financial
statement purposes and the date that income taxes are due and payable to the
income tax authorities. Note payable decreased $3.5 million (51.5%) to $3.3
million from $6.8 million, due to pay downs of the bank loan in 1996 offset by
an advance on excess yield of $2.6 million from Aames, which will be repaid from
excess spread payments on loans sold by the Company to Aames for securitization.
The remaining balance of $745,000 on the bank loan was completely paid off in
January 1997. Accounts payable and accrued expenses decreased $1.8 million
(45.0%), to $2.2 million from $4.0 million, due to the sale of CRC. Partnership
withdrawals payable of $1.1 million were paid off in 1996 immediately following
the Restructuring.
Total stockholders' equity increased $13.3 million, due to consolidated
net income of $4.2 million in 1996 and the net proceeds of the Company's Rights
Offering and Public Offering in 1996.
AT DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994.
Total consolidated assets of the Partnership decreased $20.8 million
(20.1%) to $82.9 million at December 31, 1995 from $103.7 million at December
31, 1994. The decrease resulted primarily from declines in cash and cash
equivalents, loans receivable, accounts receivable, OREO and interest
receivable, offset by increases in excess yield receivable. Loans receivable
decreased by $9.1 million (17.2%), to $43.9 million from $53.0 million, as a
result of loan pay offs and loan sales. Cash and cash equivalents decreased by
$9.1 million (46.4%), to $10.5 million from $19.6 million. Accounts receivable
declined by $1.8 million (35.3%) to $3.3 million at December 31, 1995 from $5.1
million at
40
<PAGE> 41
December 31, 1994. Excess yield receivable increased $1.8 million, (200.0%) to
$2.7 million from $.9 million due to sales of loans for which Pacific Thrift
receives a servicing release fee over the life of the loans sold. See "BUSINESS
- -- Lending Activities -- Loans Originated for Sale." OREO declined by $4.5
million (59.2%), to $3.1 million at December 31, 1995 from $7.6 million at
December 31, 1994, reflecting sales of OREO. Interest receivable declined by $.2
million (18.2%), to $.9 million from $1.1 million, primarily due to the
reduction of the loan portfolio.
Total liabilities decreased $19.1 million (20.5%) to $74.2 million at
December 31, 1995 from $93.3 million at December 31, 1994. The decrease resulted
from declines in notes payable, thrift certificates payable, accounts payable,
accrued expenses and interest payable and mortgages payable on OREO. Notes
payable decreased by $8 million (54.1%), to $6.8 million from $14.8 million, due
to pay down of the Bank Loan. Thrift certificates payable decreased by $9.3
million (13.4%) to $60.2 million from $69.5 million, reflecting the reduction in
total assets of Pacific Thrift. Accounts payable, accrued expenses and interest
payable decreased by $.4 million (7.1%), to $5.2 million from $5.6 million,
primarily due to a $.4 million reduction in accrued expenses for the
environmental remediation of OREO acquired by Pacific Thrift after receiving a
lower bid for completion of the work. Mortgages payable on OREO decreased by
$1.7 million (73.9%), to $.6 million from $2.3 million, due to sale of OREO.
Total Partnership capital decreased by $1.7 million (16.3%) to $8.7
million from $10.4 million, due to consolidated net losses of $1.7 million
incurred during the year ended December 31, 1995. The consolidated net loss was
comprised of a $5.8 million net loss of Presidential, partially offset by a $3.2
million net profit after tax provision of Pacific Thrift, a $.6 million net
profit of CRC and a $.3 million net profit of LPPC.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
GENERAL
The Company reported net income of $4.2 million for the year ended
December 31, 1996, compared with a net loss of $1.7 million for the year ended
December 31, 1995. The increase in net income is due primarily to a $20.3
million increase in gain on sale of loans in 1996, which has resulted from
steady increases in the Company's loans originations over the past year. Net
interest income also increased $2.1 million for the year ended December 31,
1996, primarily due to an increase in total interest income resulting from the
Company's retention of interest income on loans originated for sale prior to the
date of their securitization.
INTEREST INCOME AND EXPENSE
Net interest income before provision for loan losses increased $2.1
million (47.7%), to $6.5 million for the year ended December 31, 1996 from $4.4
million for the year ended December 31, 1995. Total interest income increased
$1.9 million (19.8%), to 11.5 million for the year ended December 31, 1996 from
$9.6 million for the year ended December 31, 1995 as
41
<PAGE> 42
a result of interest accrued on loans originated and sold. Interest expense
decreased $.2 million (3.8%), to $5.0 million for the year ended December 31,
1996 from $5.2 million for the year ended December 31, 1995, due to declines in
interest rates paid on thrift certificates, partially offset by an increase in
total outstanding thrift certificates.
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased $2.1 million (63.6%), to $1.2
million for the year ended December 31, 1996 from $3.3 million for the year
ended December 31, 1995, reflecting a $10.4 million decrease in the total amount
of portfolio loans held during 1996.
The calculation of the adequacy of the allowance for loan losses is
based on a variety of factors, including loan classifications and underlying
loan collateral values, and is not directly proportional to the level of
nonperforming loans. See "BUSINESS -- Classified Assets and Loan Losses."
NONINTEREST INCOME AND EXPENSE
Total noninterest income (not including income of CRC, LPPC and CRCWA,
which are reflected as discontinued operations due to their sale in 1996)
increased $20.6 million (219.1%), to $30.0 million for the year ended December
31, 1996 from $9.4 million for the year ended December 31, 1995. Income from
discontinued operations was $.4 million in 1996 compared to $.9 million in 1995.
In addition, the Company incurred a $1.0 million loss on the sale of CRC, LPPC
and CRCWA, primarily from a write-off of related goodwill. The primary source of
the increase was the $20.3 million increase in gain on sale of loans, to $29.2
from $8.9 million. Total noninterest expense (not including expenses of CRC,
LPPC and CRCWA, which are reflected as discontinued operations due to their sale
in 1996) increased $14.6 million (102.1%) to $28.9 million for the year ended
December 31, 1996 from $14.3 million for the year ended December 31, 1995, due
to expansion of the Company's mortgage banking business which required the
addition of more employees and office space. Salary and related benefits
increased $8.6 million (143.3%) to $14.6 million from $6.0 million, and general
and administrative expenses increased $6.8 million (130.8%), to $12.0 million
from $5.2 million, because of expanded mortgage banking activities. Expense on
operation of OREO decreased $.5 million (41.7%), to $.7 million from $1.2
million.
INCOME TAXES (BENEFIT)
Income tax expense from continuing operations was $1.7 million in
1996, compared to an income tax benefit of $1.2 million in 1995. During 1996,
the Company reversed valuation allowances for deferred tax assets totaling $1.7
million, based upon events and earnings in 1996 which management believes
indicate it is more likely than not that sufficient revenue will be generated
in the future to use these deferred tax assets. See Note 8 to the Consolidated
Financial Statements for additional information.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
GENERAL
The Company incurred a net loss of $1.7 million for the year ended
December 31, 1995, compared with a net loss of $9.5 million for the year ended
December 31, 1994. For 1995, the loss before income tax benefit and income from
discontinued operations was $3.8 million and the net loss was $1.7 million,
reflecting a tax benefit of $1.2 million due to Pacific Thrift's use of net
operating loss carryforwards. Pacific Thrift had remaining net operating loss
carryforwards of approximately $4.0 million at December 31, 1995. There was no
income tax benefit from loss carryforwards in 1994.
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<PAGE> 43
NET INTEREST INCOME AND EXPENSE
Net interest income before provision for loan losses decreased by $2.1
million (32.3%), to $4.4 million for the year ended December 31, 1995 compared
to $6.5 million for the year ended December 31, 1994, as a result of the
reduction in total interest income and increase in total interest expense. Total
interest income decreased by $1.8 million (15.8%), to $9.6 million for 1995
compared to $11.4 million for 1994, due to reductions in the loan portfolio as
assets were reduced to improve capital ratios in Pacific Thrift and pay down the
bank loan. Total interest expense increased by $.3 million (6.1%), to $5.2
million for 1995 compared to $4.9 million for 1994, due to higher market
interest rates paid on thrift certificates by Pacific Thrift, which offset lower
levels of deposits and a reduction in the bank loan.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $3.3 million for the year ended
December 31, 1995, compared to $6.1 million for the year ended December 31,
1994. The total allowance for loan losses was $4.2 million at December 31, 1995,
compared with $4.3 million at December 31, 1994, reflecting sales and payoffs of
loans on which reserves were previously taken and status improvements in some
portfolio loans.
The calculation of the adequacy of the allowance for loan losses is
based on a variety of factors, including loan classifications and underlying
loan collateral values, and is not directly proportional to the level of
nonperforming loans. See "BUSINESS -- Classified Assets and Nonperforming Loans
- -- Allowance for Loan Losses." The ratio of nonaccrual loans past due 90 days or
more to total loans was 1.62% at December 31, 1995, compared to 5.35% at
December 31, 1994. The ratio of the allowance for loan losses to nonaccrual
loans past due 90 days or more was 533.29% at December 31, 1995, compared to
136.94% at December 31, 1994.
NONINTEREST INCOME AND EXPENSE
Total noninterest income (not including income of CRC, LPPC and CRCWA,
which are reflected as discontinued operations due to their sale in 1996),
increased by $7.3 million (347.6%), to $9.4 million for the year ended December
31, 1995 compared to $2.1 million for the year ended December 31, 1994, due to
increases in gains on sale of loans by Pacific Thrift. Gains on sale of loans
increased by $8.0 million (888.9%), to $8.9 million for 1995 compared to $.9
million for 1994. Pacific Thrift sold a total of $155.4 million of loans during
1995, for a total gain on sale of $8.4 million. These sales included $145
million of securitizable loans, for a gain on sale of $8.6 million, $8.9 million
of portfolio loans, for a gain on sale of $.2 million and $2.0 million of home
improvement loans, sold at a gain of $.1 million. Other income decreased by $.6
million (54.5%), to $.5 million for 1995 compared to $1.1 million for 1994.
43
<PAGE> 44
Noninterest expense (not including expenses of CRC, LPPC and CRCWA,
which are reflected as discontinued operations due to their sale in 1996)
increased by $1.4 million (10.9%), to $14.3 million for 1995 compared to $12.9
million for 1994. Increases in noninterest expense were primarily due to
increases in salaries, employee benefits and personnel services and operations
of OREO, partially offset by declines in general and administrative expenses.
General and administrative expenses decreased by $.6 million (10.3%) to $5.2
million for 1995 compared to $5.8 million for 1994. Salaries, employee benefits
and personnel services increased by $1.2 million (25.0%) to $6.0 million for
1995 compared to $4.8 million for 1994. Expenses on OREO increased by $.5
million (71.4%) to $1.2 million for 1995 compared to $.7 million for 1994. The
Company recognized net losses on sales of OREO of $.7 million for 1995 and net
gains of $.4 million for 1994.
NET INTEREST INCOME ANALYSIS
The following table sets forth certain information concerning average
interest-earning assets and interest bearing liabilities and the yields and
rates thereon. Average balances are calculated on a quarterly basis and
nonaccrual loans have been included in interest earning assets for the
computations. Fee income on loans included in interest income and in the
calculation of average yields was $.3 million, $.7 million and $1.7 million for
the years ended December 31, 1996, 1995 and 1994, respectively.
44
<PAGE> 45
YIELDS AND RATES ON INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
-----------------
Average Yield/
Balance Interest Rate
------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C>
Assets
Interest-earning assets:
Loans $ 81,492 $11,174 13.71%
Interest-bearing deposits in
other financial institutions
and securities purchased under
agreements to sell 6,155 328 5.33%
-------- ------- -----
Total interest-earning assets 87,647 11,502 13.12%
======== ======= ======
Noninterest-earning assets:
Cash and due from banks 6,212
Premises & equipment, net 1,875
Real estate acquired in settlement
of loans 3,445
Other Assets 6,668
--------
Total noninterest-earning assets 18,200
--------
Less allowance for loan losses 3,712
--------
102,135 11,502
======== =======
Liabilities & Stockholders' Equity/Partners'
Capital
Interest-bearing liabilities:
Notes payable 3,831 553 14.43%
Savings deposits 31,299 1,627 5.20%
Time CDs 47,583 2,787 5.86%
-------- ------- -----
Total interest-bearing liabilities 82,713 4,967 6.01%
======== ======= ======
Noninterest-bearing liabilities:
Accounts payable & accrued
expenses 4,308
--------
Total liabilities 87,021
Stockholders' Equity/Partners' Capital 15,114
-------- -------
$102,135 4,967
======== =======
Net interest income/spread 6,535 7.12%
======= ======
Net interest margin 7.46%
Net Income (loss) 4,162
=======
Average interest earning assets to 1.060%
average interest bearing liabilities
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
-----------------
Average Yield/
Balance Interest Rate
------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C>
Assets
Interest-earning assets:
Loans $63,711 $8,885 13.95%
Interest-bearing deposits in
other financial institutions
and securities purchased under
agreements to sell 11,852 692 5.84%
------ --- -----
Total interest-earning assets 75,563 9,577 12.67%
====== ===== ======
Noninterest-earning assets:
Cash and due from banks 5,536
Premises & equipment, net 1,483
Real estate acquired in settlement 5,322
of loans
Other Assets 5,290
------
Total noninterest-earning assets 17,631
------
Less allowance for loan losses 3,911
------
89,283 9,577
====== =====
Liabilities & Partners' Capital
Interest-bearing liabilities:
Notes payable 12,601 1,379 10.94%
Savings deposits 13,322 718 5.39%
Time CDs 50,031 3,102 6.20%
------ ----- -----
Total interest-bearing liabilities 75,954 5,199 6.84%
====== ===== =====
Noninterest-bearing liabilities:
Accounts payable & accrued
expenses 3,123
------
Total liabilities 79,077
Partners' Capital 10,206
------
$89,283 5,199
====== =====
Net interest income/spread 4,378 5.83%
===== =====
Net interest margin 5.79%
Net Income (loss) (1,698)
=======
Average interest earning assets to 0.995%
average interest bearing liabilities
</TABLE>
45
<PAGE> 46
Interest income and interest expense can fluctuate widely based on
changes in the level of interest rates in the economy. Pacific Thrift attempts
to minimize the effect of interest rate fluctuations on net interest margins by
matching as nearly as possible interest sensitive assets and interest sensitive
liabilities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Asset/Liability Management."
Net interest income can also be affected by a change in the
composition of assets and liabilities, such as when higher yielding loans
replace lower yielding loans. Net interest income is affected by changes in
volume and changes in rates. Volume changes are caused by differences in the
level of earning assets and interest-bearing liabilities. Rate changes result
from differences in yields earned on assets and rates paid on liabilities.
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities due to changes in volume and interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume; (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e. changes
in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume which cannot be segregated, have been
allocated proportionately to changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
Rate Volume Analysis
--------------------
(Dollars in Thousands)
1996 compared to 1995
Increase (decrease)
due to change in
-------------------------------------------
Volume Yield/ Net
Rate Change
<S> <C> <C> <C>
Interest-earning assets:
Loans 2,439 (150) 2,289
Interest-bearing deposits in
other financial institutions and
securities purchased under
agreements to sell (308) (56) (364)
------ ---- -----
Total interest-earning assets 2,131 (206) 1,925
====== ==== =====
Interest-bearing liabilities:
Notes payable (1,164) 338 (826)
Savings deposits 936 (26) 909
Time CDs (148) (168) (315)
------ ---- -----
Total interest-bearing liabilities (376) 144 (232)
====== ==== =====
Change in net interest income 2,507 (350) 2,157
====== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Rate Volume Analysis
--------------------
(Dollars in Thousands)
1995 compared to 1994
Increase (decrease)
due to change in
---------------------------------------
Volume Yield/ Net
Rate Change
<S> <C> <C> <C>
Interest-earning assets:
Loans (2,891) 773 (2,118)
Interest-bearing deposits in
other financial institutions and
securities purchased under
agreements to sell 76 215 291
------ ----- ------
Total interest-earning assets (2,815) 988 (1,827)
====== ===== =======
Liabilities & Partners' Capital
Interest-bearing liabilities:
Notes payable (669) 66 (603)
Savings deposits (485) 299 (186)
Time CDs 293 768 1,061
------ ----- ------
Total interest-bearing liabilities (861) 1,133 272
====== ===== ======
Change in net interest income (1,954) (145) (2,099)
====== ===== ======
</TABLE>
46
<PAGE> 47
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, cash and cash equivalent assets totaled $8.6
million, compared with $10.5 million at December 31, 1995. The Company's primary
operating cash requirements include the funding or payment of: (i) loan
originations; (ii) fees and expenses incurred in connection with
securitizations; (iii) income taxes; (iv) capital expenditures; and (v) other
operating and administrative expenses. The Company generates cash flow from
loans sold for securitization, whole loan sales, principal payments and
interest income on portfolio loans, and sale of OREO. In addition, on June 27,
1996, the Company completed a Rights Offering and a Public Offering of Common
Stock as a part of the Restructuring, which raised net cash proceeds of $11.4
million.
The Company expects to continue to depend on advances on its interest
in excess spread in securitized loans to fund its cash operating requirements.
Several factors affect the Company's ability to complete sales of its loans for
securitization, including conditions in the securities markets generally,
conditions in the residential sub-prime securitization market specifically, the
credit quality of the Company's portfolio of loans and the Company's ability to
credit enhance its loans to a level sufficient to obtain investment grade
ratings for interests in securitization pools in which its loans are placed.
The Company believes that the net proceeds of the Rights Offering and
the Public Offering, together with the proceeds of loan sales, net interest
income and the issuance of deposits by Pacific Thrift, will be sufficient to
fund the Company's liquidity requirements for the foreseeable future.
Certificates of deposit which are scheduled to mature in one year or
less from December 31, 1996 totaled $56.3 million. Based upon historical
experience, management believes that a significant portion of such deposits may
be renewed to the extent deemed desirable by management. In general, depositors
have historically tended to renew deposits when the rates paid on such deposits
remain competitive with rates offered by comparable financial institutions. From
time to time during 1994 and 1995, management of Pacific Thrift intentionally
took steps to reduce deposit renewals in order to reduce the total amount of
deposits. These steps included reducing the interest rates offered on maturing
deposits and declining to renew certain large deposits.
Pacific Thrift maintains minimum levels of liquid assets as required
under the liquidity policy adopted by the board of directors of Pacific Thrift.
The relationship between short-term liquid assets and total deposits at December
31, 1996 was 49.0%, which exceeded the 10% minimum established by the Board. At
December 31, 1995 and 1994, the liquidity ratio was 31.7% and 26.9%,
respectively.
Pacific Thrift has a federal funds credit line with Wells Fargo Bank,
bearing interest at the federal funds rate as announced from time to time by the
Federal Reserve Board, in the amount of $5.0 million. The line is intended to
support short term liquidity, and is not expected to be used for more than ten
consecutive days or more than 12 times during any 30
47
<PAGE> 48
day period. At December 31, 1996, there were no outstanding borrowings under the
credit line.
Pacific Thrift is subject to certain leverage and risk-based capital
adequacy standards applicable to FDIC-insured institutions. At December 31,
1994, Pacific Thrift was classified by the FDIC as "undercapitalized." However,
by March 31, 1995, Pacific Thrift was reclassified by the FDIC as "adequately
capitalized." As of December 31, 1996, Pacific Thrift's regulatory capital
levels have increased to levels meeting the FDIC's definition of "well
capitalized;" however, due to the existence of the MOU requiring Pacific Thrift
to maintain certain capital levels, it is still classified as "adequately
capitalized." See "SUPERVISION AND REGULATION -- Federal Law -- Capital Adequacy
Guidelines."
ASSET/LIABILITY MANAGEMENT
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's "interest rate sensitivity gap". An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
anticipated, based upon certain assumptions, to mature or reprice within a
specific time period and the amount of interest-bearing liabilities anticipated,
based upon certain assumptions, to mature or reprice within that same time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. During a period of rising
interest rates, a negative gap would generally tend to adversely affect net
interest income while a positive gap would generally tend to result in an
increase in net interest income. During a period of declining interest rates, a
negative gap would generally tend to result in increased net interest income
while a positive gap would generally tend to adversely affect net interest
income. At December 31, 1996, total interest-earning assets maturing or
repricing during each period exceeded total interest-bearing liabilities
maturing or repricing in the same periods by $7.5 million, representing a
positive cumulative interest rate sensitivity gap ratio of 10%. However, because
interest rates for different asset and liability products offered by depository
institutions respond differently to changes in the interest rate environment,
the gap is only a general indicator of interest rate sensitivity.
Pacific Thrift actively monitors its interest rate risk. Pacific
Thrift has an asset/liability committee which includes its President, Chief
Financial Officer and Deposit Operations Manager. The Board or Directors of
Pacific Thrift reviews interest rate risk position on a monthly basis.
To the extent consistent with its interest rate spread objectives,
Pacific Thrift attempts to reduce its interest rate risk and has taken a number
of steps to match its interest sensitive assets and liabilities to minimize the
potential negative impact of changing interest rates. Pacific Thrift has focused
on making adjustable rate loans, virtually all of which adjust quarterly, and
focuses its investment activity on short-term obligations of banks and U.S.
government securities.
48
<PAGE> 49
The following table sets forth the interest rate sensitivity of
Pacific Thrift's assets and liabilities at December 31, 1996 on the basis of
certain assumptions. Except as stated below, the amounts of assets and
liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of the repricing timing or contractual
term of the asset or liability. Pacific Thrift has assumed that its savings
accounts (passbook accounts and money market accounts), which totaled $24.7
million at December 31, 1996 reprice immediately. Certificates of deposit are
included in the table below at their dates of maturity.
Certain shortcomings are inherent in the method of analysis presented
in the following table. For example, interest rate floors on some adjustable
rate loans can have the effect of increasing the net interest income as interest
rates decline or, conversely, limiting increases in net interest income as
interest rates rise. Also, loan prepayments and early withdrawal of certificates
of deposit could cause the interest sensitivities to vary from what appears in
the table. Finally, the ability of many borrowers to service their adjustable
rate debt may be adversely affected by an interest rate increase.
INTEREST RATE SENSITIVITY GAP AS OF DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
After
Assets or Liabilities Which 1 Day 3 Months Six Months 1-5 5
Mature or Reprice to 3 Months to 6 Months to 1 Year Years Years Total
--------------------------- ----------- ----------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cash and Investments................. 7,947 7,947
Variable Rate Loans Receivable....... 31,630 31,630
Fixed Rate Loans Receivable.......... 258 226 147 776 1,803 3,210
Loans Held for Sale (1).............. 30,727 30,727
------ ---------- --------- ------ ------ ------
Interest-earning assets............ 70,562 226 147 776 1,803 73,514
------ ---------- --------- ------ ------ ------
Certificates of deposit.............. 14,451 19,745 22,147 56,343
Savings accounts..................... 24,659 24,659
------ ---------- --------- ------ ------ ------
Interest-bearing liabilities....... 39,110 19,745 22,147 0 0 81,002
------ ---------- --------- ------ ------ ------
Interest rate sensitivity gap........ 31,452 (19,519) (22,000) 776 1,803 (7,488)
Cumulative interest rate sensitivity 31,452 (11,933) (10,067) (9,291) (7,488) (7,488)
gap
Interest rate sensitivity ratio (2).. 1.80 .01 .01 .00 .00 .91
Cumulative interest rate sensitivity
gap ratio (3)...................... .45 (.17) (.14) (.13) (.10) (.10)
</TABLE>
(1) Includes loans sold by each month end, for which cash has not yet been
received.
(2) The interest rate sensitivity gap ratio represents total
interest-earning assets divided by total interest-bearing liabilities.
(3) The cumulative interest rate sensitivity gap ratio represents the
cumulative interest rate sensitivity gap divided by total
interest-earning assets.
49
<PAGE> 50
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of operations of the Company and its subsidiaries. Like
most mortgage companies and industrial loan companies, nearly all the assets and
liabilities of the Company and Pacific Thrift are monetary. As a result,
interest rates have a greater impact on the Company's consolidated performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.
EFFECT OF NEW ACCOUNTING STANDARDS
In December 1991, the Financial Accounting Standards Board (FASB)
issued its Statement of Financial Accounting Standards No. 107 ("SFAS 107")
"Disclosures About Fair Value of Financial Instruments." SFAS 107 requires all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of financial
condition, for which it is practicable to estimate fair value. SFAS 107 is
effective for fiscal years ending after December 15, 1995, for entities with
less than $150 million in total assets, as of its December 1991 issuance date.
The adoption of SFAS 107 did not have a material impact on the Company's
financial statements.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." SFAS No. 114 applies to all loans except large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or a lower of cost or fair value,
leases, and debt securities as defined in SFAS No. 115. SFAS No. 114 requires
that impaired loans be valued at the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair market value of the collateral
if the loan is collateral dependent. SFAS No. 114 is effective for fiscal years
beginning after December 15, 1994, with earlier adoption encouraged. SFAS No.
114 applies primarily to the loan portfolio. The Company actively monitors this
portfolio and evaluates the net realizable value of any loan which is deemed to
be impaired. Net realizable value is assessed based upon current appraised value
of the underlying collateral. If carrying value exceeds this estimated
realizable value, carrying value is reduced to the estimated realizable value by
a charge to earnings. As such, SFAS No. 114 does not represent a material change
from the Company's prior accounting practices and did not have a material effect
on the reported financial results of the Company.
In October, 1994, the FASB issued SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS
No. 118 amends Statement No. 114 to allow a creditor to use existing methods for
recognizing interest income
50
<PAGE> 51
on impaired loans and also amends the disclosure requirements of Statement No.
114 to require information about the recorded investment in certain impaired
loans and about how a creditor recognizes interest income related to these
impaired loans. SFAS No. 118 is effective concurrent with the effective date of
Statement 114, that is, for financial statements for fiscal years beginning
after December 15, 1994. As with Statement No. 114, management believes it is
following the requirements of SFAS No. 118.
In March, 1995, the FASB used SFAS No. 121 "Accounting for the
impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of."
SFAS 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. This Statement is effective for financial
statements for fiscal years beginning after December 15, 1995. Earlier
application is encouraged. Restatement of previously issued financial statements
is not permitted. Impairment losses resulting from the application of this
Statement should be reported in the period in which the recognition criteria are
first applied and met. The initial application of this Statement to assets that
are being held for disposal at the date of adoption should be reported as the
cumulative effect of a change in accounting principle. The adoption of SFAS 121
did not have a material impact on the Company's financial statements.
In May, 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65." SFAS No. 122 requires
that a mortgage banking enterprise recognize as separate assets rights to
service mortgage loans for others, however those servicing rights are acquired.
A mortgage banking enterprise that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable to estimate
the fair values of the mortgage servicing rights and the mortgage loans (without
the mortgage servicing rights), the entire cost of purchasing or originating the
loans should be allocated to the mortgage loans (without the mortgage servicing
rights) and no cost should be allocated to the mortgage servicing rights. This
Statement requires that a mortgage banking enterprise assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. A mortgage banking enterprise should stratify its mortgage servicing
rights that are capitalized after the adoption of this Statement based on one or
more of the predominant risk characteristics of the
51
<PAGE> 52
underlying loans. Impairment should be recognized through a valuation allowance
for each impaired stratum.
This Statement applies prospectively in fiscal years beginning after
December 15, 1995, to transactions in which a mortgage banking enterprise sells
or securitizes mortgage loans with servicing rights retained and to impairment
evaluations of all amounts capitalized as mortgage servicing rights, including
those purchased before the adoption of this Statement. Earlier application is
encouraged. Retroactive capitalization of mortgage servicing rights retained in
transactions in which a mortgage banking enterprise originates mortgage loans
and sells or securitizes those loans before the adoption of this Statement is
prohibited. The effect of the adoption of SFAS No. 122 was not material to the
Company, primarily because the Company sells all of its loans on a servicing
released basis.
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a method of accounting for
stock compensation plans based on fair value of grants made under such plans on
the date of grant using certain option-pricing models. SFAS No. 123 allows
companies to continue to account for their stock option plans in accordance with
APB Opinion 25 "Accounting for Stock Issued to Employees," which provides for an
intrinsic valuation model that recognizes only the difference between the fair
market value of a company's stock and the price paid to acquire the stock under
the stock compensation plan. However, SFAS No. 123 encourages the adoption of
the fair value accounting method. Companies electing not to follow the new fair
value based method are required to provide expanded footnote disclosures,
including pro forma net income and earnings per share, determined as if the
company had applied the new method. SFAS No. 123 is required to be adopted
prospectively beginning January 1, 1996. Management has accounted for grants
under the Company's stock option plan under the intrinsic value method allowed
under APB Opinion 25 and has provided the footnote disclosure required by SFAS
No. 123 in its financial statements included elsewhere herein.
In 1966, the Financial Accounting Standards Board issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial components approach
that focuses on control. SFAS No. 125 applies to transactions occurring after
December 31, 1996. The adoptment of SFAS No. 125 is not expected to have a
material impact on the Company's financial condition or results of operations.
52
<PAGE> 53
SEASONALITY
The Company's results of operations have not been materially affected
by seasonality.
FORWARD LOOKING STATEMENTS
The discussion in this Report contains certain forward-looking
statements. Actual future results could differ materially from those described
in the forward-looking statements as a result of factors discussed below. The
Company cautions the reader, however, that these lists of risk factors may not
be exhaustive. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
RELIANCE ON PRIMARY LOAN PURCHASERS. The Company sells loans for
securitization primarily to Aames and Advanta. If sales to either or both of
these purchasers were discontinued, there can be no assurance that agreements
with new purchasers would be as favorable as current arrangements with Aames and
Advanta.
RELIANCE ON CONTINUING SECURITIZATIONS. The Company has been able to
substantially increase its lending volume as a direct result of its ability to
sell for securitization substantial amounts of its new loan production. Any
change in the market for securitized subprime residential loans could have an
adverse impact the Company's ability to continue to increase or maintain the
growth of its mortgage banking business.
COMPETITION IN THE LENDING INDUSTRY. The subprime residential
mortgage industry is undergoing consolidation and increased competition, which
may reduce profit margins on the Company's lending business and may also have an
adverse impact the Company's ability to continue to increase or maintain the
growth of its mortgage banking business.
EXPOSURE TO INTEREST RATE RISK. Significant reductions in interest
rates may change the prepayment rates, and accordingly impact the excess spread
received by the Company on loans sold by it to Aames and Advanta. In addition,
the Company's profitability on portfolio loans may be adversely affected by
rapid changes in interest rates.
RISKS OF REAL PROPERTY SECURED LENDING. In the subprime residential
mortgage business, lenders rely upon low loan-to-value ratios to provide
realizable value in collateral used to secure loans. However, the liquidation
value of real property collateral may be adversely affected by a number of
factors, including general economic conditions, regional economic conditions,
natural disasters, environmental contamination and governmental regulation.
GOVERNMENT REGULATION. Pacific Thrift is subject to extensive
governmental supervision, regulation and control. See "BUSINESS - Supervision
and Regulation."
53
<PAGE> 54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) 1-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 12, 1995, the Company dismissed Ernst & Young LLP
("E&Y") as independent certified public accountants of the Company and its
subsidiaries, and engaged BDO Seidman LLP ("BDO") as independent certified
public accountants of the Company and its subsidiaries. E&Y has not reported on
the Company's financial statements for the past two years.
In 1995, there was a disagreement between the Company and E&Y
concerning the scope of the work necessary to be performed by E&Y in connection
with a proposed restructuring of the Company, including procedures and issues
raised with respect to the allowance for loan losses, deferred tax asset and
other transactions recorded by the Company in its unaudited financial
information as of June 30, 1995. Prior to resolving the disagreement, the
client-auditor relationship was terminated by the Company.
The Company discussed the subject matter of the disagreement with
E&Y, and authorized E&Y to respond fully to all inquiries of BDO, the Company's
successor accountants, concerning the subject matter of the disagreement.
Prior to the engagement of BDO as the independent accountants for the
Company and its subsidiaries, the Company did not consult BDO concerning the
application of accounting principles to any specified transaction or any matter
that was the subject of a disagreement with E&Y or a reportable event.
54
<PAGE> 55
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to directors and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated herein by reference to the information contained in the Proxy
Statement relating to the Annual Meeting of Shareholders to be held on July 10,
1997, which will be filed with the Securities and Exchange Commission no later
than 120 days after the close of the year ended December 31 1996. Information
with respect to executive officers is included in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the information contained in the Proxy Statement relating to the
Annual Meeting of Shareholders to be held on July 10, 1997, which will be filed
with the Securities and Exchange Commission no later than 120 days after the
close of the year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the information contained in the Proxy Statement relating to the
Annual Meeting of Shareholders to be held on July 10, 1997, which will be filed
with the Securities and Exchange Commission no later than 120 days after the
close of the year ended December 31 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the information contained in the Proxy Statement relating to the
Annual Meeting of Shareholders to be held on July 10, 1997, which will be filed
with the Securities and Exchange Commission no later than 120 days after the
close of the year ended December 31 1996.
55
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements
Financial Statements required to be filed hereunder are
indexed on page 58 hereof.
(a)(2) List of Financial Statement Schedules
None.
(a)(3) List of Exhibits
The exhibits required to be filed hereunder are indexed on page S-1
hereof.
(b) The Company filed a Report on Form 8-K for December 31, 1996,
during the last quarter of 1996.
56
<PAGE> 57
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, in the City of Los Angeles, State of
California, on March 29, 1997.
PACIFICAMERICA MONEY CENTER, INC.
By: /s/ JOEL R. SCHULTZ
----------------------------------------
Joel R. Schultz, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Registration Statement has been signed below by the following persons on
behalf of the Company in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ JOEL R. SCHULTZ Director, Chief Executive March 29, 1997
- ------------------------------ Officer and Chairman of the
Joel R. Schultz Board
/s/ RICHARD D. YOUNG Director and Executive Vice March 29, 1997
- ------------------------------ President
Richard D. Young
/s/ CHARLES J. SIEGEL Chief Financial and March 29, 1997
- ------------------------------ Accounting Officer
Charles J. Siegel
/s/ RUSSELL G. ALLISON Director March 29, 1997
- ------------------------------
Russell G. Allison
/s/ JAMES C. NEUHAUSER Director March 29. 1997
- ------------------------------
James C. Neuhauser
/s/ PAUL D. WEISER Director March 29, 1997
- ------------------------------
Paul D. Weiser
</TABLE>
<PAGE> 58
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Independent Certified Public Accountant's Report F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets
as of December 31, 1996 and 1995 F-4
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Changes in Stockholders' Equity/Partners' Capital
for the years ended December 31, 1996, 1995 and 1994 F-9
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 F-10
Notes to Consolidated Financial Statements
for the years ended December 31, 1996, 1995 and 1994 F-13
Supplemental material
Schedule I - Consolidating Schedule - Financial Position -
December 31, 1996 F-65
Schedule II - Consolidating Schedule - Operations -
year ended December 31, 1996 F-67
Schedule III - Consolidating Schedule - Financial Position -
December 31, 1995 F-69
Schedule IV - Consolidating Schedule - Operations -
year ended December 31, 1995 F-71
Schedule V - Consolidating Schedule - Operations -
year ended December 31, 1994 F-73
</TABLE>
<PAGE> 59
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Stockholders
PacificAmerica Money Center, Inc.
(formerly Presidential Mortgage Company,
a California Limited Partnership)
We have audited the accompanying consolidated balance sheets of PacificAmerica
Money Center, Inc. and subsidiaries (collectively, the Company) (formerly
Presidential Mortgage Company, a California Limited Partnership) as of December
31, 1996 and 1995 and the related consolidated statements of operations, changes
in stockholders' equity/partners' capital, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PacificAmerica Money
Center, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the two years then ended, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information in
Schedules I, II, III and IV is presented for the purpose of additional analysis
of the consolidated financial statements rather than to present the financial
position and results of operations of the individual companies. The
consolidating information in Schedules I, II, III and IV has been subjected to
the auditing procedures applied to the audit of the consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the consolidated financial statements taken as a whole.
BDO SEIDMAN, LLP
Los Angeles, California
March 21, 1997
F-1
<PAGE> 60
INDEPENDENT AUDITOR'S REPORT
To the Partners
Presidential Mortgage Company
We have audited the consolidated statements of operations, changes in partner's
capital, and cash flows for the year ended December 31, 1994, of Presidential
Mortgage Company (the Partnership) and subsidiaries (collectively, the
Company). These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1994 consolidated financial statements referred to above
present fairly, in all material respects, the results of the Company operations
and its cash flows for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information in
Schedule V is presented for the purpose of additional analysis of the
consolidated financial statements rather than to present the results of
operations of the individual companies. The consolidating information in
Schedule V has been subjected to the auditing procedures applied to the audit
of the consolidated financial statements and, in our opinion, is fairly stated
in all material respects in relation to the consolidated financial statements
taken as a whole.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company has suffered losses from nonperforming loans that, combined with other
factors, resulted in significant recurring losses from operations. As discussed
in Note 7, the Partnership is subject to substantial debt service and other
requirements of the note payable to its lender.
F-2
<PAGE> 61
As discussed in Notes 19 and 20, at October 31, 1994, the Partnership's wholly
owned subsidiary, Pacific Thrift and Loan Company (Pacific Thrift), was
considered to be "critically undercapitalized" under the Prompt Corrective
Action provisions of the Federal Deposit Insurance Corporation Improvement Act
of 1991 because its tangible and leverage capital ratios fell below 2%. As a
result of such designation, Pacific Thrift was subject to severe restrictions on
its activities. At December 31, 1994, Pacific Thrift was no longer considered
to be "critically undercapitalized," but still did not meet the minimum
capital requirements to be considered "adequately capitalized" by the Federal
Deposit Insurance Corporation (FDIC). Also at December 31, 1994, Pacific Thrift
had a deficiency in its net worth, based on requirements of the California
Financial Code and the California Department of Corporations (DOC). As a result
of its capital designation, Pacific Thrift was required to submit a capital
restoration plan, including a guarantee by the Partnership, to the FDIC. In
addition, Pacific Thrift consented to a new comprehensive Order to Cease and
Desist (the new C&D) by the FDIC and DOC.
The new C&D requires that Pacific Thrift take various actions, including
significantly increasing its leverage capital ratio to 8% by September 30, 1995.
Failure to implement the capital restoration plan and meet the capital
requirements of the new C&D would expose Pacific Thrift to various regulatory
actions, including the risk of regulatory takeover. These matters raise
substantial doubt about the ability of the Company to continue as a going
concern. Management's plans regarding these matters are discussed in Notes 1 and
20.
Note 12 indicates management's description of certain litigation in which
allegations of securities fraud and aiding and abetting in the breach of
fiduciary duty have been made against the Partnership and its Chief Executive
Officer (CEO) by investors in companies affiliated with the Partnership until
1984. Management denies these allegations, states that they are without merit,
and represents that any claims are barred by applicable statutes of limitation.
Counsel for both the Partnership and CEO have stated that they are unable to
provide an opinion as to the outcome of the litigation.
The accompanying consolidated financial statements do not include any
provisions or adjustments which might result from the outcome of the
uncertainties discussed above.
Ernst & Young LLP
April 7, 1995
except as to Note 20 to the
consolidated financial statements
which is as of May 20, 1995
F-3
<PAGE> 62
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS (Note 2D) $ 8,640,000 $ 10,489,000
ACCOUNTS RECEIVABLE (Note 18) 2,349,000 3,337,000
RECEIVABLE FOR MORTGAGE LOANS SHIPPED (Notes 2F
and 10) 24,310,000 -
ACCRUED INTEREST RECEIVABLE 1,144,000 903,000
PREMIUM RECEIVABLE FOR LOANS SOLD (Note 10) 1,195,000 -
LOANS RECEIVABLE (Notes 2E, 2G, 3, and 7) 33,515,000 43,908,000
LOANS HELD FOR SALE, at cost which approximates
market (Notes 2H and 3) 18,148,000 12,577,000
RECEIVABLE FROM RELATED PARTY (Notes 9 and 10) - 347,000
EXCESS YIELD RECEIVABLE (Notes 2I, 2M and 3) 11,698,000 2,725,000
OTHER REAL ESTATE (Notes 2N and 4) 4,285,000 3,156,000
PROPERTY AND EQUIPMENT (Notes 2O and 5) 2,360,000 1,398,000
GOODWILL (Notes 2P and 11) - 1,808,000
DEFERRED INCOME TAXES, net of valuation allowance
(Notes 2Q and 8) 4,995,000 1,612,000
REFUNDABLE INCOME TAXES 730,000 -
OTHER ASSETS 1,565,000 684,000
- -------------------------------------------------------------------------------------------------------------------
$ 114,934,000 $ 82,944,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE> 63
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL
THRIFT CERTIFICATES PAYABLE (Note 6)
<S> <C> <C>
Full-paid certificates $ 56,343,000 $ 35,881,000
Installment certificates 24,659,000 24,275,000
- -------------------------------------------------------------------------------------------------------------------
Total thrift certificates payable 81,002,000 60,156,000
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2,235,000 4,018,000
ACCRUED INTEREST PAYABLE 185,000 273,000
PAYABLE TO RELATED PARTY (Note 10) - 281,000
MORTGAGE NOTES PAYABLE (Note 4) 1,557,000 611,000
NOTES PAYABLE (Note 7) 3,290,000 6,771,000
DEFERRED INCOME TAXES (Notes 2Q and 8) 4,699,000 387,000
NOTE PAYABLE TO RELATED PARTY (Note 7) - 600,000
PARTNERSHIP WITHDRAWALS PAYABLE (Note 15) - 1,120,000
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 92,968,000 74,217,000
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 12, 13, 14, and 19)
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS EQUITY (Note 16)
Preferred stock, $.01 par value, shares authorized
2,000,000; none issued and outstanding - -
Common stock, $.01 par value, shares authorized
8,000,000; issued and outstanding 1,870,150 19,000 -
Additional paid-in capital 17,400,000 -
General partner warrants 385,000 -
Retained earnings 4,162,000 -
PARTNERS' CAPITAL (Note 16)
General partner - (84,000)
Limited partners' capital - 8,811,000
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders equity/Partners' capital 21,966,000 8,727,000
- -------------------------------------------------------------------------------------------------------------------
$ 114,934,000 $ 82,944,000
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 64
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable (Notes 2E, 2G and 3) $ 11,174,000 $ 8,885,000 $ 11,003,000
Deposits with financial institutions 328,000 692,000 401,000
- -------------------------------------------------------------------------------------------------------------------
Total interest income 11,502,000 9,577,000 11,404,000
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Thrift certificates greater than $100,000 23,000 7,000 28,000
Other thrift certificates 4,391,000 3,813,000 2,917,000
Notes payable 552,000 1,379,000 1,982,000
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 4,966,000 5,199,000 4,927,000
- -------------------------------------------------------------------------------------------------------------------
Net interest income 6,536,000 4,378,000 6,477,000
PROVISION FOR LOAN LOSSES
(Notes 2E, 2G and 3) 1,151,000 3,289,000 6,096,000
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 5,385,000 1,089,000 381,000
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Other income 777,000 545,000 1,125,000
Gain on sales of loans (Note 2I):
Excess yield 9,617,000 2,437,000 301,000
Premium 19,600,000 6,458,000 645,000
- -------------------------------------------------------------------------------------------------------------------
Total noninterest income 29,994,000 9,440,000 2,071,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE> 65
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits
(Notes 10 and 14) 14,622,000 6,000,000 4,755,000
General and administrative (Note 10) 12,019,000 5,194,000 5,833,000
Related party fees (Notes 9 and 10) 872,000 1,012,000 805,000
Operations of other real estate (Note 4) 681,000 1,212,000 732,000
Depreciation and amortization 714,000 893,000 747,000
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense 28,908,000 14,311,000 12,872,000
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) 6,471,000 (3,782,000) (10,420,000)
INCOME TAXES (BENEFIT) (Notes 2Q and 8) 1,658,000 (1,223,000) 1,000
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 4,813,000 (2,559,000) (10,421,000)
INCOME FROM DISCONTINUED OPERATIONS 387,000 861,000 907,000
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS (Note 18) (1,038,000) - -
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 4,162,000 $ (1,698,000) $ (9,514,000)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE> 66
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1996
- -------------------------------------------------------------------------------
<S> <C>
EARNINGS PER SHARE - PRIMARY:
Continuing operations $ 2.27
Discontinued operations (.28)
- -------------------------------------------------------------------------------
Net income $ 1.99
- -------------------------------------------------------------------------------
EARNINGS PER SHARE - FULLY DILUTED:
Continuing operations $ 2.12
Discontinued operations (.28)
- -------------------------------------------------------------------------------
NET INCOME $ 1.84
- -------------------------------------------------------------------------------
PRO FORMA SUPPLEMENTAL EARNINGS AND PER SHARE -
INFORMATION FROM CONTINUING OPERATIONS
(NOTE 2(C)) (UNAUDITED):
Pro forma income taxes $ 2,718,000
Pro forma net income $ 3,753,000
Pro forma net income per share:
Primary $ 1.81
Fully diluted $ 1.67
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 67
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Years Ended December 31, 1995 and 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
PARTNERS' CAPITAL, December 31, 1993 $ 19,939,000
Net loss - 1994 (9,514,000)
- -------------------------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL, December 31, 1994 10,425,000
Net loss - 1995 (1,698,000)
- -------------------------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL, December 31, 1995 $ 8,727,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------------------------------------
Number Additional General
Partner of Common Paid-In Partner Retained
Interests Shares Stock Capital Warrants Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 $ 8,727,000 - $ - $ - $ - $ - $ 8,727,000
Partner interest converted to stock (8,727,000) 890,000 9,000 8,718,000 - - -
Rights offering - 324,628 3,000 3,243,000 - - 3,246,000
Partners cash out - (285,560) (3,000) (2,853,000) - - (2,856,000)
Fractional shares paid - (1,206) - (12,000) - - (12,000)
General partner warrants - - - 385,000 - 385,000
Public offering, net - 878,210 9,000 7,612,000 - - 7,621,000
Warrants exercised - 10,958 - 162,000 - - 162,000
Employee stock purchase plan - 53,120 1,000 530,000 - - 531,000
Net income - - - - - 4,162,000 4,162,000
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity,
December 31, 1996 $ - 1,870,150 $ 19,000 $17,400,000 $ 385,000 $4,162,000 $21,966,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 68
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,162,000 $ (1,698,000) $ (9,514,000)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Loss on disposal of discontinued
operations 1,038,000 - -
Provision for loan losses 1,151,000 3,289,000 6,096,000
Changes in discontinued operations 1,034,000 486,000 251,000
Provision for losses on other
real estate 337,000 1,188,000 202,000
Net gain on sale of other real estate (224,000) (469,000) (625,000)
Proceeds from sale of loans originated
for sale 337,563,000 145,266,000 29,315,000
Originations of loans held for sale (335,471,000) (151,538,000) (41,055,000)
Depreciation and amortization 834,000 919,000 776,000
Net change in assets and liabilities:
Accounts receivable (282,000) 1,548,000 (1,803,000)
Loan sale premium (1,195,000) - -
Accrued interest receivable (241,000) 222,000 966,000
Receivable for mortgage loans
shipped (24,310,000) - -
Receivable from related party 347,000 131,000 316,000
Excess yield receivable (8,973,000) (1,837,000) 7,000
Goodwill - (172,000) (127,000)
Other assets (1,611,000) (267,000) (383,000)
Deferred income taxes 929,000 (1,225,000) -
Payable to related party (881,000) 126,000 (528,000)
Accounts payable, accrued expenses,
and accrued interest payable 2,854,000 (864,000) 50,000
- -----------------------------------------------------------------------------------------------------------
Net cash used in operating activities (22,939,000) (4,895,000) (16,056,000)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE> 69
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of portfolio loans 26,176,000 13,371,000 28,402,000
Increase in loans receivable (29,697,000) (12,325,000) (10,249,000)
Proceeds from sale of other real estate 5,652,000 14,253,000 5,994,000
Proceeds from sale of discontinued
operations net assets (1,180,000) - -
Mortgage assumed (repaid) in connection
with other real estate (847,000) (1,702,000) 536,000
Purchase of property and equipment (1,791,000) (489,000) (877,000)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (1,687,000) 13,108,000 23,806,000
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in thrift
certificates 20,846,000 (9,345,000) 7,080,000
Borrowings under line of credit 3,000,000 - -
Repayment of line of credit (3,000,000) - -
Paydowns of note payable (6,026,000) (8,007,000) (8,422,000)
Decrease in participations payable (1,120,000) - -
Public offering, net 7,621,000 - -
Rights offering 3,246,000 - -
Partners cash out (2,856,000) - -
Fractional shares payout (12,000) - -
General partner warrants 385,000 - -
Exercise of warrants 162,000 - -
Stock purchase employee plans 531,000 - -
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 22,777,000 (17,352,000) (1,342,000)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE> 70
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,849,000) (9,139,000) 6,408,000
CASH AND CASH EQUIVALENTS,
at beginning 10,489,000 19,628,000 13,220,000
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, at end $ 8,640,000 $10,489,000 $19,628,000
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for
Interest $ 5,054,000 $ 5,331,000 $ 4,704,000
Income taxes 668,000 2,000 1,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Loans transferred to other real estate $ 6,894,000 $10,489,000 $ 7,542,000
Mortgage payable assumed in
connection with other real estate 1,793,000 1,545,000 2,499,000
Loans to facilitate sales of other
real estate 311,000 895,000 898,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 71
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
ORGANIZATION
On June 27, 1996, PacificAmerica Money Center, Inc., (the "Corporation" or
"Company") a Delaware Corporation, formed in 1994 as a wholly owned subsidiary
of Presidential Mortgage Company, and Presidential Mortgage Company, a
California limited partnership (the "Partnership") completed a Restructuring
Plan dated May 1, 1996 (the "Restructuring"), whereby all of the assets and
liabilities of the Partnership were transferred to the Corporation in exchange
for common stock of the Corporation (the "Common Stock"). The Common Stock was
distributed to the partners of the Partnership, pro rata in accordance with
their capital accounts in the Partnership. In accordance with the terms of the
Restructuring Plan, the consent of a majority of limited partners to the
Restructuring Plan was solicited pursuant to a Proxy Statement/Prospectus dated
May 14, 1996, and the consent of approximately 75% of all limited partners was
obtained by June 17, 1996, the expiration of the solicitation period. Every
limited partner was given the right to elect to receive cash in lieu of shares
of the Corporation (the "Cash Out Option"), in an amount equal to $10 per share
times the number of shares that would have been received by that partner based
on their capital account in the Partnership. Pursuant to the Restructuring Plan,
603,234 shares of Common Stock were issued to partners of the Partnership (other
than partners accepting the Cash Out Option) for their interests in the
Partnership and $2,855,600 was paid by the Corporation to partners electing the
Cash Out Option.
Also pursuant to the terms of the Restructuring Plan, Presidential Management
Company, the general partner of the Partnership (the "General Partner")
purchased 563,333 warrants ("General Partner Warrants") for a purchase price of
$385,000. The General Partner Warrants are each exercisable for one share of
Common Stock at a purchase price of $15.00 per share from June 27, 1996 until
December 27, 1997. The General Partner Warrants are nontransferable, except to
and between partners of the General Partner.
F-13
<PAGE> 72
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
(CONTINUED)
ORGANIZATION (Continued)
Concurrently with the solicitation of consent pursuant to the Proxy
Statement/Prospectus dated May 16, 1996, all partners of the Partnership,
together with all partners of the General Partner, and all officers, directors,
proposed directors and employees of the Partnership, all of its subsidiaries and
the Corporation, were given the right to purchase additional shares of Common
Stock (the "Rights Offering") at a purchase price of $10 per share. A total of
324,628 shares were subscribed for and issued in the Rights Offering. For every
five shares subscribed for in the Rights Offering, a subscriber also received
one warrant ("Subscriber Warrants"). A total of 64,925 Subscriber Warrants were
issued in connection with the Rights Offering, each exercisable from June 27,
1996 until June 27, 1998, for one share of Common Stock at a purchase price of
$12.50 per share.
Pursuant to a Prospectus dated June 24, 1996, the Corporation also conducted a
public offering of additional shares of Common Stock at $10 per share (the
"Public Offering"). A total of 878,210 shares were issued in the Public
Offering, including 114,549 shares in connection with the exercise of an
over-allotment option by the underwriter of the Public Offering.
The Corporation issued a total of 1,806,072 shares of Common Stock in connection
with the Restructuring Plan, the Rights Offering and the Public Offering. The
shares of Common Stock were listed for trading on the Nasdaq National Market
under the symbol "PAMM." Trading in the stock commenced on June 25, 1996.
Concurrently with the closing of the Restructuring, the Rights Offering and the
Public Offering on June 27, 1996, the Partnership filed certificates of
dissolution and liquidation with the California Secretary of State.
F-14
<PAGE> 73
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
(CONTINUED)
ORGANIZATION (Continued)
The Restructuring has been accounted for as a change in legal organization but
not in the enterprise of the Partnership. Therefore, the financial statements of
the Corporation give effect to the Restructuring as a recapitalization of the
Partnership into the Corporation. References to the Corporation in the financial
statements refer to the financial condition and results of operations of the
Partnership on a consolidated basis for all periods prior to June 27, 1996.
From the date of its formation in 1981 until 1988, the Partnership's sole
business was the direct origination and servicing of real estate secured loans
under California consumer and commercial finance lender licenses. In 1988, the
Partnership formed Pacific Thrift and Loan Company, a California corporation
("Pacific Thrift"), as a wholly owned subsidiary, to engage in the business of
origination, purchase and sale of real estate secured loans under a California
thrift and loan license. Pacific Thrift also issues deposits insured by the
Federal Deposit Insurance Corporation ("FDIC"), and is therefore subject to
regulation by both the FDIC and the California Department of Corporations. Since
1990, substantially all new lending activity has been conducted by Pacific
Thrift. In recent years, the Company has been primarily engaged in mortgage
banking activities and as such originates and sells mortgage loans to investors
in the secondary markets. The Company's ability to continue to originate loans
is dependent, in part, upon its ability to sell loans in the secondary market in
order to generate cash proceeds for new origination. The value of and market for
the Company's loans are dependent upon a number of factors, including general
economic conditions, interest rates and governmental regulations. Adverse
changes in such factors may affect the Company's ability to sell loans for
acceptable prices within reasonable periods of time. A prolonged, substantial
reduction in the size of the secondary market for loans of the types originated
by the Company may adversely affect the Company's ability to sell loans with a
consequent adverse impact on the Company's profitability and ability to fund
future originations which could have a material adverse effect on the Company's
financial position and results of operations.
F-15
<PAGE> 74
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
(CONTINUED)
ORGANIZATION (Continued)
The Company also owns another subsidiary, PacificAmerica Lending, Inc. ("PAL"),
formed for the purpose of engaging in the lending business under a California
finance lender's license and other state licenses where management deems it
appropriate. Immediately after the restructuring the Company contributed net
assets of $2,920,000 to PAL at book value. As of the date hereof, PAL has not
engaged in significant loan production, but it may become more active in the
future, depending upon business requirements.
Pacific Thrift focuses on the origination of residential real estate loans to
borrowers whose credit histories and/or other factors limit their ability to
qualify for lower-rate financing at more credit sensitive financial
institutions. Such loans are generally referred to in the lending industry as
"sub-prime" or "B"/"C" credit loans. In 1994, Pacific Thrift began to originate
loans for the purpose of sale and securitization. Loan production has continued
to increase as Pacific Thrift has steadily expanded its geographic lending
areas. As of January 31, 1997, Pacific Thrift is authorized to originate loans
in nearly every state of the United States. Pacific Thrift believes that it will
continue to expand its lending business in states in which it has only recently
commenced lending operations, or in those states in which it has not yet
commenced lending operations.
The Partnership also owned substantially all of the interests in three
subsidiaries engaged in the trust deed foreclosure services and posting and
publishing businesses, Consolidated Reconveyance Company ("CRC"), a California
limited partnership, Lenders Posting and Publishing Company ("LPPC"), a
California limited partnership, and Consolidated Reconveyance Corporation
("CRCWA"), a Washington corporation. The Corporation acquired all of the
Partnership's interests in these entities in connection with the Restructuring.
Effective December 31, 1996, all of the assets and liabilities of CRC and LPPC
and all of the stock of CRCWA were sold (Note 18). This is part of the Company's
strategy to concentrate all of its financial and human resources on its primary
business of residential lending for sale and securitization.
F-16
<PAGE> 75
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
(CONTINUED)
ORGANIZATION (Continued)
The Partnership's general partner, Presidential Management Company, was a
California limited partnership. Presidential Management Company's general
partner, Presidential Services Corporation, was a California corporation owned
by Joel R. Schultz, John A. DeRosa and Constance DeRosa.
The Partnership's limited partners consisted of approximately 2,500 individuals
and entities in classes A, B, C, D, and E. The differences between the various
classes primarily related to the different offering dates and unit prices as
well as profit priorities and percentages. In addition, certain partners elected
to reinvest their distributions in Distribution Reinvestment Plan (DRP) Units.
PARTNERSHIP AGREEMENT
The Partnership was governed by the Fifth Amended and Restated Certificate and
Agreement of Limited Partnership entered into as of September 1989, as amended
by the First Amendment, dated as of May 1993, and the Second Amendment, dated as
of January 1, 1994. The First Amendment provided for a special allocation of
loss to the general partner and income to the limited partners based on certain
capital contributions by the general partner from 1993 through 1996 (the
"Capital Plan"). The Second Amendment provided that Pacific Thrift would
directly hire its own employees and directly pay its own overhead and that the
Partnership would continue to pay the general partner for fees in connection
with loans of Pacific Thrift and the Partnership. The agreement and amendments
were collectively referred to as the "Partnership Agreement."
In accordance with the Partnership Agreement, the net profits of the Partnership
(after deduction of the management fee) were allocated to the partners, based on
specified annual percentage rates for each class of partners and the average
daily balance of each partner's capital contributions. Net losses were allocated
to all partners in proportion to their average daily capital contributions. In
addition, there was a special allocation based on the Capital Plan.
F-17
<PAGE> 76
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
(CONTINUED)
PARTNERSHIP AGREEMENT (Continued)
The Partnership Agreement provided certain rights to the partners to withdraw
the balance in their capital accounts. Such withdrawal rights were restricted by
certain percentage limitations and a determination by the general partner that
such withdrawal would not impair the capital or operations of the Partnership.
Since July 1993, no distributions were made and no withdrawals were permitted.
OPERATING RESULTS AND BUSINESS PLAN
In 1996 the Company had income from continuing operations of $4,813,000 and net
income of $4,162,000. In prior years the Company has suffered losses from
operations of the Partnership, from 1992 through 1995 and Pacific Thrift from
1992 through 1994. These losses resulted primarily from significant amounts of
nonperforming loans, large provisions for loan losses, and relatively high
levels of overhead and caused a substantial reduction in the capital of the
Company. While that portion of the losses attributable to Pacific Thrift had
caused it to become "undercapitalized" and subject to certain regulatory
mandates at the end of 1994, Pacific Thrift had net profits of $7,054,000 and
$3,155,000 for the years ended December 31, 1996 and 1995 and was classified as
"adequately capitalized" as of September 30, 1995.
Management expects that Pacific Thrift will continue to be profitable for 1997
and believes that Pacific Thrift is in total compliance with all regulatory
mandates. Management also expects that the Company will be profitable in 1997.
In prior years the Company was limited by conditions imposed by the lender under
a note payable (Note 7). The note payable to its lender was fully repaid in
January 1997.
F-18
<PAGE> 77
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF ACCOUNTING
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles.
B. CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation,
Pacific Thrift, PacificAmerica Lending, CRC, LPPC and CRC Washington. All
significant intercompany balances and transactions have been eliminated.
Consolidating information is presented in Schedules I, II, III, IV and V. On
December 31, 1996 CRC, LPPC and CRC Washington were sold (Note 18).
C. EARNINGS PER SHARE
Primary earnings per common share are net earnings divided by the weighted
average number of common shares outstanding, after giving effect to dilutive
stock options and warrants. The modified treasury method was used which limits
the number of shares of common stock obtainable upon exercise of outstanding
options and warrants to 20% of the number of common shares outstanding at the
end of the period for which the computation is being made. All options and
warrants are assumed to be exercised and proceeds in excess of the funds used to
repurchase the above-mentioned 20% of common shares outstanding are applied to
reduce debt and any remaining funds invested in U.S. government securities with
recognition of any income tax effect.
Fully diluted earnings per common share reflect the maximum dilution that would
have resulted from the exercise of stock options and warrants under the modified
treasury method.
F-19
<PAGE> 78
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
C. EARNINGS PER SHARE (Continued)
Pro forma earnings per common share assumes the Company is taxed for federal and
state income tax purposes as a taxable corporation at a 42% effective tax rate
and is computed on the basis of weighted average shares of common stock and
equivalents using the modified treasury stock method. This pro forma information
is provided to show the expected ongoing effect of the Company's change in tax
treatment as a result of the Restructuring (Note 1).
Weighted average common shares and equivalents used for the above 1996
computations was 2,293,850.
D. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.
E. LOANS RECEIVABLE
Loans receivable are stated at the principal amount outstanding, less
unamortized deferred fees and costs and the allowance for loan losses (ALLL).
Loans receivable are primarily secured by first and second trust deeds.
Interest income is accrued as earned and is based on the principal balance
outstanding. The Company's policy is to cease accruing interest on loans that
are more than two monthly payments past due and for which there appears to be
insufficient collateral to support collectibility. In many cases, interest, late
fees, and other charges continue to accrue until the time management deems that
such amounts are not collectible. When a loan is placed on a nonaccrual status,
the Company reverses all accrual income that is uncollected income.
F-20
<PAGE> 79
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. LOANS RECEIVABLE (Continued)
Nonrefundable loan fees and direct costs associated with the origination of
loans are deferred and netted against outstanding loan balances. The net
deferred fees and costs are recognized in interest income over the loan term as
an adjustment to the yield, using a method that approximates the effective
interest (level yield) method.
F. RECEIVABLE FOR MORTGAGE LOANS SHIPPED
Gain or loss on the sale of mortgage loans is recognized at the date the loans
are sold to investors and all title and rights to such loans are legally
conveyed to investors pursuant to existing sales agreements.
G. ALLOWANCE FOR LOAN LOSSES
Loan losses are charged to the ALLL; recoveries are credited to the ALLL. The
provision for loan losses charged to expense and added to the ALLL is based upon
management's judgment and evaluation of the known and inherent risks in the loan
portfolio. Management's judgment takes into consideration such factors as
changes in the nature and volume of the portfolio, continuing review of
delinquent loans, current economic conditions, risk characteristics of the
various categories of loans, and other pertinent factors that may affect the
borrower's ability to repay. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions.
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan (as
amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures). The effect of adopting this new accounting
standard was immaterial to the operating results of the Company for the year
ended December 31, 1995. Prior financial statements are prohibited from
restatement to apply the new accounting standard.
F-21
<PAGE> 80
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
G. ALLOWANCE FOR LOAN LOSSES (Continued)
Under the new accounting standard, a loan is considered to be impaired when it
is probable that the Company will be unable to collect all principal and
interest amounts according to the contractual terms of the loan agreement. The
ALLL related to loans identified as impaired is primarily based on the excess of
the loan's current outstanding principal balance over the estimated fair market
value of the related collateral. For a loan that is not collateral-dependent,
the allowance is recorded at the amount by which the outstanding principal
balance exceeds the current best estimate of the future cash flows on the loan
discounted at the loan's effective interest rate. Prior to 1995, the ALLL for
all loans which would have qualified as impaired under the new accounting
standard was primarily based upon the estimated fair market value of the related
collateral.
For impaired loans that are on non-accrual status, cash payments received are
generally applied to reduce the outstanding principal balance. However, all or a
portion of a cash payment received on a non-accrual loan may be recognized as
interest income to the extent allowed by the loan contract, assuming management
expects to fully collect the remaining principal balance of the loan.
A restructuring of a debt is considered a troubled debt restructuring when the
Company, for economic or legal reasons related to the borrower's financial
difficulties, grants a concession to the borrower that it would not otherwise
grant. Troubled debt restructuring may include changing repayment terms,
reducing the stated interest rate and reducing the amounts of principal and/or
interest due or significantly extending the maturity date. The restructuring of
a loan is intended to recover as much of the Company's investment as possible
and to achieve the highest yield possible.
F-22
<PAGE> 81
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
H. LOANS HELD FOR SALE
The Company has designated certain of its loans receivable as being held for
sale. In determining the level of loans held for sale, the Company considers the
extent to which loans will be required to be sold in response to liquidity
needs, asset/liability management requirements, and other factors.
Loans held for sale are recorded at the lower of cost or market value. Any
unrealized losses are recorded as a reduction in income. Realized gains and
losses from the sale of loans receivable are based on the specific
identification method.
I. LOAN SALES REVENUE RECOGNITION
The Company principally derives its revenue from sales premium and excess loan
yield gains. Loans originated through the Company's retail and wholesale network
are funded by the Company for sale in the secondary market. Gains on the sale of
mortgage loans are recognized at the date the loans are sold to investors and
all title and rights to such loans are legally conveyed to investors pursuant to
existing sales agreements. Loans are generally sold on a servicing-released
basis.
An excess loan yield gain is recorded to account for the yield retained by the
Company and is determined by the Company taking into account several factors
including industry practices. The net present value of the yield retained by the
Company (based on certain prepayment and other assumptions to determine an
expected life of the loan) is recorded as an excess yield gain when the loan is
sold. The excess yield gain included in the Statements of Operations includes
these amounts reduced by direct transaction costs. The excess yield receivable
included in the Balance Sheets results from the recording of such initial gains
on an aggregate basis adjusted for amortization.
F-23
<PAGE> 82
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
I. LOAN SALES REVENUE RECOGNITION (Continued)
As the Company receives cash in the form of the excess yield it retains, the
excess yield receivable will be reduced in proportion to and over the expected
lives of the related loans giving effect to the prepayment assumption utilized
in its determination. On a quarterly basis, the Company will review its
prepayment and other assumptions in relation to its actual experience and
current rates of prepayment prevalent in the industry. The excess yield
receivable will be written down if a short-fall in the net present value of the
estimated remaining future excess yield becomes apparent. The excess yield
receivable will not be increased as a result of slower than estimated prepayment
experience.
The premium earned from whole loans originated and subsequently sold at par plus
an upfront premium, with no further rights to any excess yield, are reported as
premium under gain on sale of loans in the Statements of Operations.
J. MORTGAGE SERVICING RIGHTS
In 1996, the Company adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65." SFAS No. 122 requires the
Corporation to capitalize mortgage servicing rights on originated mortgage loans
when the loans are originated to be sold or securitized and servicing is
retained. When a mortgage loan is originated to be sold with servicing retained,
the total cost of the loan is allocated to the mortgage servicing right and the
loan based on their relative fair values. Under SFAS No. 122, capitalized
servicing rights are assessed for impairment based on the fair value of those
rights. In addition, capitalized mortgage servicing rights must be stratified
based on one or more predominant risk characteristics of the underlying loans
and impairment is recognized through a valuation allowance for each impaired
stratum.
The effect of the adoption of SFAS No. 122 was not material to the Company,
primarily because the Company sells substantially all of its loans on a
servicing released basis.
F-24
<PAGE> 83
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
K. TRANSFERS AND SERVICING OF FINANCIAL ASSETS
In 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on consistent application of a financial-
components approach that focuses on control. SFAS No. 125 applies to
transactions occurring after December 31, 1996.
The adoption of SFAS No. 125 is not expected to have a material impact on the
Company's financial condition or results of operations.
L. IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, the Company adopted SFAS No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses
accounting for impairment of long-lived assets, including certain identifiable
intangibles, and goodwill related to those assets. SFAS No. 121 requires that
assets to be held and used be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
The adoption of SFAS No. 121 did not have a material impact on the
Company's financial condition or results of operations.
M. EXCESS YIELD RECEIVABLE
Excess yield receivable represents the excess of the estimated present value of
net amounts to be received over normal servicing fees for loan sales for which
the Company continues to service the loans. Excess yield receivable also
represents the estimated present value of the excess interest income to be
received over the yield acquired by the investor for loan sales for which the
Company does not continue to service the loans. The receivable is amortized to
operations based on a method which approximates the effective interest method.
F-25
<PAGE> 84
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
N. OTHER REAL ESTATE
Other real estate is comprised of formally foreclosed property to which the
Company does not have legal title. These assets are recorded at the lower of the
net investment in the loan or the fair value of the property less selling costs.
At the time of foreclosure, any excess of the net investment in the loan over
its fair value is charged to the allowance for loan losses. Any subsequent
declines in value are charged to operations. Prior to 1995, loans were
classified as in-substance foreclosures when they exhibited characteristics more
closely associated with the risk of real estate ownership than with loans.
Collateral that has been classified as an in-substance foreclosure was reported
in the same manner as collateral that has been formally foreclosed. Effective
January 1, 1995, with the adoption date of SFAS No. 114, the category of loan
classified as in-substance foreclosures was eliminated resulting in such loans
being reflected as loan receivable rather than as foreclosed real estate.
O. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation of property and equipment is based on the asset's estimated useful
life, ranging from two to eight years, and is computed using the straight-line
method. Expenditures that improve or extend the service lives of assets are
capitalized. Repairs and maintenance are charged to expense as incurred.
P. GOODWILL
Goodwill represented the excess of the total purchase price (consisting of the
initial consideration and subsequent consideration) of CRC and LPPC over the
fair value of purchased net assets. Goodwill was amortized using the
straight-line method over approximately 20 years. The Company sold CRC and LPPC
in 1996 and wrote off the remaining goodwill which is included in loss from
discontinued operations in the Consolidated Statement of Operations (Note 18).
F-26
<PAGE> 85
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Q. INCOME TAXES
The Company follows the "asset and liability" method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for tax consequences of "temporary differences" by applying enacted
statutory tax rates to differences between the financial statement carrying
amount and the tax basis of existing assets and liabilities. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. All tax benefits are recorded and then reduced
by a valuation allowance when it is more likely than not that the benefit is not
fully realizable.
Partnerships are generally not subject to income taxes, accordingly, the
Partnership income or loss was reported in the individual partners' tax returns.
However, Pacific Thrift, the Partnership's wholly owned corporate subsidiary,
has always been subject to federal income and state franchise taxes. Since
completion of the Restructuring (Note 1) the Company is also subject to federal
and state income taxes.
R. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (SFAS 107), requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Company's financial
instruments. The estimated fair values of financial instruments are disclosed as
of December 31, 1996. SFAS No. 107 defines fair value as the amount which the
instrument could be exchanged for in a current transaction between willing
parties, other than in a forced sale or liquidation. Where possible, the Company
has utilized quoted market prices to estimate fair value. Since quoted market
prices were not available for a significant portion of the financial
instruments, the fair values were approximated using discounted cash flow
techniques.
Fair value estimates are made at a specific point in time, based on judgments
regarding future expected loss experience, current economic conditions, risk
conditions, risk characteristics of various financial instruments and other
factors. These estimates do not reflect any premium
F-27
<PAGE> 86
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
R. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
or discount that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates were based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
The following presents the carrying value and estimated fair value of the
various classes of financial instruments held by the Company at December 31,
1996. This information is presented solely for compliance with SFAS No. 107 and
is subject to change over time based on a variety of factors. Because no market
exists for a significant portion of the financial instruments presented below
and the inherent imprecision involved in the estimation process, management does
not believe the information presented reflects the amounts that would be
received if the Company's assets and liabilities were sold.
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------
Carrying Estimated
Value Fair Value
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,640,000 $ 8,640,000
Loans receivable 35,979,000 35,859,000
Allowance for loan losses (2,464,000) (2,464,000)
- ---------------------------------------------------------------------------
Total loans 33,515,000 33,395,000
- ---------------------------------------------------------------------------
Loans held for sale 18,148,000 18,984,000
Excess yield receivable 11,698,000 11,698,000
</TABLE>
F-28
<PAGE> 87
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
R. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------
Carrying Estimated
Value Fair Value
- ---------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Installment certificates 24,659,000 24,659,000
Fully-paid certificates 56,343,000 56,215,000
Notes payable 3,290,000 3,290,000
Mortgage notes payable 1,557,000 1,557,000
</TABLE>
Cash, Short Term-Investments, Trade Receivables, and Trade Payables
The carrying amount approximates fair value because of the short maturity of
these instruments.
Loans
Fair values were estimated for portfolios of loans with similar financial
characteristics. Loans were segregated by type such as commercial real estate,
residential mortgage, and other consumer. Each loan category was further
segmented into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
The fair value for performing fixed rate commercial real estate loans was
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings. The fair
values for performing commercial real estate loans indexed to a market lending
rate with normal credit risk were assumed to approximate their carrying value.
For residential mortgage loans, fair value was estimated by using quoted market
prices for loans with similar credit and interest rate risk characteristics.
F-29
<PAGE> 88
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
R. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Loans (Continued)
Fair value for significant nonperforming loans was based on recent external
appraisals or broker price opinions adjusted for anticipated credit loss risk,
estimated time for resolution, and other related resolution costs. If appraisals
or recent broker price opinions are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash flows, and discount rates
are judgmentally determined using available market information and specific
borrower information.
Loans Held for Sale
The fair values were estimated by using current institutional purchaser yield
requirements.
Excess Yield Receivable
The fair value was determined by using estimated discounted future cash flows
taking into consideration current prepayment rates and default experience. The
carrying amount is considered to be a reasonable estimate of fair market value.
Thrift Certificates Payable
Under SFAS 107, the fair value of deposits with no stated maturity, such as
savings and money market accounts, is equal to the amount payable on demand as
of December 31, 1996. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities.
F-30
<PAGE> 89
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
R. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Thrift Certificates Payable (Continued)
<TABLE>
<CAPTION>
At December 31, 1996
--------------------
Carrying Estimated
Value Fair Value
=============================================================================
Installment certificates $24,659,000 $24,659,000
=============================================================================
<S> <C> <C>
Fully-paid certificates:
Maturing in six months or less 34,196,000 34,129,000
Maturing between six months
and one year 22,147,000 22,086,000
Maturing between one and
three years - -
- -----------------------------------------------------------------------------
Total fully-paid certificates $56,343,000 $56,215,000
=============================================================================
</TABLE>
Notes Payable and Mortgage Notes Payable
The fair values for long-term debt are based on quoted market prices where
available. If quoted market prices are not available, fair values are estimated
using discounted cash flow analyses based on the Company's borrowing rates at
December 31, 1996 for comparable types of borrowing arrangements.
F-31
<PAGE> 90
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
R. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The remaining assets and liabilities of the Company are not considered financial
instruments and have not been valued differently than is customary under
historical cost accounting. Since assets and liabilities that are not financial
instruments are excluded, the difference between total financial assets and
financial liabilities does not, nor is it intended to, represent the market
value of the Company. Furthermore, the estimated fair value information may not
be comparable between financial institutions due to the wide range of valuation
techniques permitted, and assumptions necessitated, in the absence of an
available trading market.
S. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
T. STOCK-BASED COMPENSATION
In 1996, the Company adopted for footnote disclosure purposes only, SFAS No.
123, "Accounting for Stock-Based Compensation," which requires that companies
measure the cost of stock-based employee compensation at the grant date based on
the value of the award and recognize this cost over the service period. The
value of the stock-based award is determined using the intrinsic value method
whereby compensation cost is the excess of the quoted market prices of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock.
F-32
<PAGE> 91
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
U. RECLASSIFICATIONS
Certain reclassifications of balances from prior years have been made to conform
to the current year's reporting format.
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
LOANS RECEIVABLE
Loans receivable at December 31, 1996 and December 31, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
===============================================================================
<S> <C> <C>
Real estate loans $ 61,487,000 $ 82,815,000
Participations sold (24,914,000) (33,792,000)
- -------------------------------------------------------------------------------
Total real estate loans - net $ 36,573,000 $ 49,023,000
===============================================================================
Loans receivable held for
investment $ 36,573,000 $ 49,023,000
Net deferred loan fees and costs (594,000) (886,000)
Allowance for loan losses (2,464,000) (4,229,000)
- -------------------------------------------------------------------------------
$ 33,515,000 $ 43,908,000
===============================================================================
</TABLE>
F-33
<PAGE> 92
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The components of the loan portfolio at December 31, 1996 and December 31, 1995
were as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
================================================================================
<S> <C> <C>
One-to-four family residential $14,479,000 $14,672,000
Five-or-more family residential 9,308,000 10,347,000
Home improvement 1,322,000 1,743,000
Commercial 10,732,000 20,387,000
Land and other 732,000 1,874,000
- --------------------------------------------------------------------------------
$36,573,000 $49,023,000
================================================================================
</TABLE>
During 1996 and 1995, the Company sold, without recourse to the Company,
approximately $26,176,000 and $13,371,000 of portfolio mortgage loans.
SIGNIFICANT CONCENTRATIONS OF RISK
The Company made portfolio mortgage loans primarily secured by first or second
trust deeds on Southern California real estate. The loans are secured by
single-family residential and other types of real estate and collateralized by
the equity in the borrowers' real estate. Prior to the fourth quarter of 1993,
these borrowers generally had a credit standing such that the Company relied
heavily on the value of the underlying collateral in its lending practices. In
the fourth quarter of 1993, however, the Company began implementing a revised
policy to place more emphasis on the creditworthiness of the borrower. Loans are
expected to be repaid either by cash from the borrower at maturity or by
borrower refinancing. In the fourth quarter of 1996 the Company stopped
portfolio lending in order to concentrate its financial and human resources on
its primary business of residential lending for sale and securitization.
F-34
<PAGE> 93
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1996,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1996 1995 1994
===============================================================================
<S> <C> <C> <C>
Balances at beginning $ 4,229,000 $ 4,307,000 $ 3,123,000
Provision charged
to expense 1,151,000 3,289,000 6,096,000
Loan charge-offs (2,916,000) (3,367,000) (4,912,000)
- -------------------------------------------------------------------------------
Balance at end $ 2,464,000 $ 4,229,000 $ 4,307,000
===============================================================================
</TABLE>
At December 31, 1996 and 1995, loans with more than two monthly payments past
due and on nonaccrual status totaled $2,649,000 and $1,128,000. If interest on
these loans had been accrued, interest income would have increased by
approximately $235,000 and $151,000 in 1996 and 1995. At December 31, 1996 and
1995, loans with more than two monthly payments past due and on accrual status
totaled $1,722,000 and $1,508,000. Interest income recognized on these loans
totaled approximately $95,000 and $130,000 in 1996 and 1995.
The following information relates to the Company's impaired loans which includes
troubled debt restructuring that meet the definition of impaired loans as of and
for the year ended December 31, 1996:
<TABLE>
<CAPTION>
December 31, 1996
================================================================================
<S> <C>
Impaired loans with a specific allowance $1,648,000
Impaired loans with no specific allowance 617,000
- --------------------------------------------------------------------------------
Total impaired loans $2,265,000
Total allowance related to impaired loans $ 229,000
Average balance of impaired loans for the period $2,951,000
Interest income on impaired loans for the period
recorded on a cash basis $ 307,000
</TABLE>
F-35
<PAGE> 94
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
PLEDGING OF COMPANY LOANS RECEIVABLE
In connection with a bank loan, the Partnership had pledged all of its loans
receivable as security to its lender. The lender was fully repaid in January
1997 (Note 7).
LOANS HELD FOR SALE
Loans held for sale at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
================================================================================
<S> <C> <C>
Real estate loans $ 18,148,000 $ 12,577,000
================================================================================
</TABLE>
In December 1993, management developed a loan securitization program under which
the Corporation or Pacific Thrift could sell certain loans receivable to a
primary buyer (the Purchaser). The securitization agreements provided that the
Corporation or Pacific Thrift would offer to sell all newly originated
qualifying loans, up to $75,000,000, to the Purchaser through June 1995.
Pacific Thrift had sold $75 million of loans under that agreement as of May 26,
1995. All loans sold by Pacific Thrift were included in pools of loans
securitized by the Purchaser, who also acts as loan servicer for each of the
pools. All loans were sold nonrecourse except for the obligation to repurchase
any loan which did not meet certain customary representations and warranties or
to repurchase loans adversely affected by any breach of general representations
and warranties. Except for an initial sale of approximately $3.9 million in
loans, all loans sold by Pacific Thrift to the Purchaser were sold for a premium
above face value. Pacific Thrift received a servicing released fee payable
quarterly on the principal amount
F-36
<PAGE> 95
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
LOANS HELD FOR SALE (Continued)
of each loan sold from September 19, 1994 to January 1995. Effective February 1,
1995, the servicing released fee was increased on the principal amount of each
loan sold, including the loans sold from September 1994 to May 26, 1995, until
each loan is paid off. Pacific Thrift retains an interest in the net spread
(i.e. all interest and fees paid on the loans less servicing and other costs) in
the $3.9 million of loans sold to Purchaser in December 1993, which management
estimates will represent an additional return of approximately 3.3% on the
principal amount of the $3.9 million of loans sold.
Pacific Thrift entered into a new agreement with the Purchaser effective June
21, 1995, pursuant to which it agreed to continue selling pre-approved
residential loans to the Purchaser. The new agreement provided for Pacific
Thrift to receive a higher premium on the face amount of each loan sold which
met preset interest rate requirements upon date of sale. An additional premium
was paid for all loans sold during any quarter if at least $22.5 million of
loans were sold during that quarter. The premium for all loans sold in excess of
$25 million per calendar quarter was further increased. In addition, Pacific
Thrift received a servicing released fee on the principal amount of each loan
sold, payable on a quarterly basis, until the loan is paid off. At January 1,
1996, the Agreement was revised to eliminate, for all new loans sold, the
servicing released fee and replace it with a higher premium on sale.
F-37
<PAGE> 96
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
LOANS HELD FOR SALE (Continued)
On October 31, 1996, the Company entered into a new agreement with the
Purchaser. For all loans sold after September 30, 1996, the Company sells these
loans to the Purchaser and receives par value; interest payments less a
servicing fee and warehousing fee from the date of sale until the loans are
securitized; certain premium and/or advance payments upon securitization; and
further future payments based on the excess yield on the loans sold. On December
16, 1996, the Company entered into a similar agreement with a Second Purchaser
of loans effective for all loans sold after November 30, 1996.
To the extent that the Company or one of its subsidiaries originates loans for
sale, it bears an interest rate risk between the loan approval date and the date
that each loan is securitized. In addition, because subprime residential loans
have a higher interest rate spread than prime residential loans, fluctuations in
rates which may occur during the period prior to securitization could reduce the
excess spread anticipated to be retained by the Company upon securitization, but
would not generally be sufficiently large to eliminate the excess spread
entirely. Loans which are held for sale during the period prior to sale are
accounted for at the lower of cost or market value of such loans.
During 1996, the Company sold an aggregate of $277 million of pre-approved
securitizable loans to the Purchaser, and $61 million of pre-approved
securitizable loans to the Second Purchaser.
F-38
<PAGE> 97
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
LOANS HELD FOR SALE (Continued)
Prior to March 31, 1993, Pacific Thrift originated Title I home improvement
loans that were 90% insured by the Federal Housing Administration, provided that
the total amount of claims did not exceed 10% of the amount of all Title I
loans. During 1995, Pacific Thrift sold $1,126,000 of these loans and recorded
no losses. As of March 31, 1993, Pacific Thrift discontinued the origination and
sale of Title I and other similar loans.
In August 1995 Pacific Thrift resumed a Title I Loan origination program, in
which Pacific Thrift acts exclusively as a correspondent lender for one or more
larger mortgage lenders who securitize Title I Loans. These loans were then sold
without recourse.
During 1995, Pacific Thrift sold $1,126,000 of seasoned home improvement loans
originated prior to March 1993 at par value and $850,000 in new Title I loans at
a premium.
4. OTHER REAL ESTATE
Other real estate consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, 1996 1995
===============================================================================
<S> <C> <C>
Foreclosed real estate $ 6,570,000 $ 5,590,000
Allowance for losses on
other real estate (2,285,000) (2,434,000)
- -------------------------------------------------------------------------------
$ 4,285,000 $ 3,156,000
===============================================================================
</TABLE>
F-39
<PAGE> 98
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. OTHER REAL ESTATE (CONTINUED)
Changes in the allowance for losses on other real estate for the years ended
December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1996 1995 1994
================================================================================
<S> <C> <C> <C>
Balance at beginning $2,434,000 $ 402,000 $ 783,000
Provisions for losses 337,000 1,188,000 202,000
Net (charge-offs) recoveries (486,000) 844,000 (583,000)
- --------------------------------------------------------------------------------
Balance at end $2,285,000 $2,434,000 $ 402,000
================================================================================
</TABLE>
Operations of other real estate for the years ended December 31, 1996, 1995 and
1994 consisted of the following:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------
1996 1995 1994
================================================================================
<S> <C> <C> <C>
Provision for losses $ 337,000 $1,188,000 $ 202,000
Net (gain) on sales (224,000) (469,000) (625,000)
Other expenses 568,000 493,000 1,155,000
- -------------------------------------------------------------------------------
$ 681,000 $1,212,000 $ 732,000
================================================================================
</TABLE>
Upon foreclosure of a junior lien, the Company takes title to the real estate,
subject to existing senior liens. These mortgage notes payable totaled
$1,557,000 and $611,000 at December 31, 1996 and 1995.
F-40
<PAGE> 99
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, 1996 1995
===============================================================================
<S> <C> <C>
Computer and office equipment $ 2,157,000 $ 1,211,000
Furniture and fixtures 897,000 745,000
Leasehold improvements 621,000 519,000
- -------------------------------------------------------------------------------
3,675,000 2,475,000
Accumulated depreciation and
amortization (1,315,000) (1,077,000)
- -------------------------------------------------------------------------------
$ 2,360,000 $ 1,398,000
===============================================================================
</TABLE>
6. THRIFT CERTIFICATES PAYABLE
Thrift certificates are comprised of full-paid certificates and installment
certificates. The approximate weighted average interest rate of full-paid and
installment certificate accounts at December 31, 1996 was 5.89% and 5.06%,
respectively. The interest payable on the thrift certificates totaled $185,000
and $103,000 at December 31, 1996 and 1995.
At December 31, 1996 and 1995, full-paid thrift certificates consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1996 1995
============================================================================
<S> <C> <C>
Certificates greater than
$100,000 $ -- $ --
Certificates less than
$100,000 56,343,000 35,881,000
- ----------------------------------------------------------------------------
$56,343,000 $35,881,000
============================================================================
</TABLE>
F-41
<PAGE> 100
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. THRIFT CERTIFICATES PAYABLE (CONTINUED)
At December 31, 1996, scheduled maturities of full-paid thrift certificates were
as follows:
<TABLE>
<CAPTION>
Amount
================================================================================
<S> <C>
Less than 3 months $14,451,000
3 to 6 months 19,745,000
6 to 12 months 22,147,000
1 to 5 years --
- --------------------------------------------------------------------------------
$56,343,000
================================================================================
</TABLE>
7. NOTES PAYABLE
Notes payable consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
================================================================================
<S> <C> <C>
Bank loan, repaid January 1997 (a) $ 745,000 $6,771,000
Excess yield advance (b) 2,545,000 --
- --------------------------------------------------------------------------------
$3,290,000 $6,771,000
================================================================================
</TABLE>
(a) As of December 31, 1995, the Partnership was in compliance with all paydown
requirements under a September 1994 amended and restated loan agreement with its
bank lender, but certain technical conditions relating to expenses had not been
met. The Bank agreed to waive this technical violation of the loan agreement in
February, 1996. The loan interest rate was prime plus 1.5%, which was 9.75% at
December 31, 1996.
(b) The excess yield advance of $2,545,000 was received in December 1996 from
the Purchaser (Note 4) of loans sold under which an excess yield is retained by
the Company. As part of the agreement an advance of 4.75% of the par value of
loans sold was made by the Purchaser when the loans were securitized. The
advance is reduced by any monthly payments to be made against the excess yield
receivable until the advance is fully repaid. The advance bears an annual
interest rate of LIBOR plus 2.5%.
F-42
<PAGE> 101
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
The Partnership was not subject to income taxes. However, the Partnership was
still required to file partnership returns in order to report its income or loss
in total as well as the distributable share of income or loss of each of the
partners. These partnership returns, as all tax returns, are potentially subject
to examination by the taxing authorities.
The cumulative differences between the total capital of the Partnership for
financial reporting purposes and the total capital reported for federal income
tax purposes at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995
================================================================================
<S> <C>
Total partners' capital for financial
reporting purposes $ 8,780,000
Investment in Pacific Thrift, syndication costs,
bad debt and real estate reserves, and various
other differences 14,030,000
- --------------------------------------------------------------------------------
Total partners' capital for federal income
tax purposes $22,810,000
================================================================================
</TABLE>
Subsequent to the restructuring (Note 1) the Corporation became subject to
federal income and California franchise taxes. Pacific Thrift, the major
operating subsidiary, was always subject to income taxes because it has been a
taxable corporation from its inception. Significant components of the provision
for income taxes (benefits) from continuing operations included in the
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
================================================================================
<S> <C> <C> <C>
Current $ 727,000 $ -- $1,000
Deferred 931,000 (1,223,000) --
- --------------------------------------------------------------------------------
$ 1,658,000 $(1,223,000) $1,000
================================================================================
</TABLE>
F-43
<PAGE> 102
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
==================================================================================
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $2,547,000 $1,361,000
Loan loss reserves 488,000 179,000
State tax deduction 435,000 --
Capital loss carryforward 402,000 --
Reserve for other real estate owned 370,000 365,000
Reserve for delinquent interest 334,000 233,000
Loans held for sale 253,000 220,000
Alternate minimum tax credit
carryforward 214,000 --
Organization costs 159,000 --
Deferred rent 137,000 106,000
Depreciation 40,000 --
Other 18,000 5,000
- ----------------------------------------------------------------------------------
Total gross deferred tax assets 5,397,000 2,469,000
Less valuation allowance 402,000 857,000
- ----------------------------------------------------------------------------------
Total net deferred tax assets $4,995,000 $1,612,000
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 1995
================================================================================
<S> <C> <C>
Deferred tax liabilities
Excess yield on loan sales $4,157,000 $128,000
Deferred loan costs 415,000 225,000
Depreciation 127,000 34,000
- --------------------------------------------------------------------------------
Total deferred tax liabilities $4,699,000 $387,000
================================================================================
</TABLE>
F-44
<PAGE> 103
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
Included in the deferred tax asset at December 31, 1996 is a capital loss
carryforward of $402,000 which is fully reserved for (Note 18). During 1996 the
beginning of year valuation allowance of $857,000 was reversed. On June 27, 1996
when the Company went from a non-taxable entity to a taxable entity a valuation
allowance of $1,207,000 was recorded against the resulting deferred tax asset of
$1,207,000 as management felt it was more likely than not the asset was not
realizable at that time. In the fourth quarter of 1996, this valuation allowance
of $1,207,000 was reversed because of new contracts entered into with the
Purchaser in October 1996 and the Second Purchaser in December 1996 (Note 4). As
a result of these contracts management expects sufficient revenue will be
generated in the future to use these future temporary deductible differences.
At December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $6,298,000 that are available to
offset future federal taxable income. These federal net operating losses expire
in the years 2009 through 2010. Pacific Thrift has net operating loss
carryforwards for California franchise tax purposes of approximately $3,144,000.
These California carryforwards expire in the year 2001. Should there occur a 50%
ownership change of the Company as defined under Section 382 of the Internal
Revenue Code of 1986, the Company's ability to use the net operating losses
would be restricted to a prescribed annual amount.
The following summarizes the difference between the 1996, 1995 and 1994
provision for income taxes (benefit) from continuing operations and the federal
statutory tax rate:
<TABLE>
<CAPTION>
1996 1995 1994
================================================================================
<S> <C> <C> <C>
Federal statutory tax rate 34% 34% (34)%
Nonrecognition of net operating
loss carryforward -- -- 34
Utilization of net operating loss -- 34 --
Reversal of valuation allowance 19 (32) --
Loss of benefit of former partnership
losses 11 -- --
- --------------------------------------------------------------------------------
Effective tax rate (benefit) 26% (32)% 0%
================================================================================
</TABLE>
F-45
<PAGE> 104
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ANNUAL MANAGEMENT FEE
The general partner received an annual management fee based on the proportion
that net profits, before the effects of the management fee, bear to the total
capital contributions as defined in the Partnership Agreement.
The Partnership Agreement permitted the general partner to calculate the
management fee based on annual net income that included loan origination fees
generated. During 1995 and 1994, there was no management fee because the
Partnership incurred net losses in excess of loan origination fees generated. In
1996 a management fee of $174,000 was paid.
During 1993, the general partner received payments of $441,000 on the
anticipated annual management fees. Since the general partner ultimately did not
earn such fees, the general partner agreed to repay these amounts to the
Partnership under a promissory note. No interest was paid or accrued for 1993.
However, quarterly principal payments of approximately $110,000 commenced in
December 1994 and interest at prime plus 1% was accrued from January 1994
through June 27, 1996 (Note 10). This note was fully repaid in June 1996 in
connection with the Restructuring.
10. RELATED PARTIES AND AFFILIATES
Accounts receivable from the general partner consisted of the following at
December 31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
================================================================================
<S> <C>
Unearned annual management fees $220,000
Amounts due for salaries, rent and overhead 127,000
- --------------------------------------------------------------------------------
$347,000
================================================================================
</TABLE>
Accounts payable to the general partner consisted of the following at December
31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
================================================================================
<S> <C>
Base fee and loan servicing fees $203,000
Contingent consideration in connection with the
purchase of CRC and LPPC 78,000
- --------------------------------------------------------------------------------
$281,000
================================================================================
</TABLE>
All amounts owed to the general partner by the Partnership and all amounts
owed by the general partner to the Partnership were paid in 1996.
F-46
<PAGE> 105
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RELATED PARTIES AND AFFILIATES (CONTINUED)
The Partnership had various related party transactions with the following
entities:
- - PRESIDENTIAL MANAGEMENT COMPANY - Prior to the Restructuring (Note 1) the
former general partner of the Partnership received specified fees for
serviced performed and reimbursements of certain expenses. Under the
Partnership Agreement, the general partner received a base fee of up to
35% of the loan origination fees paid by borrowers to the Partnership or
Pacific Thrift. The base fee was 35% of loan origination fees for the
Company in 1995 and 35% in 1994. The general partner also received a loan
servicing fee of 3/8 of 1% per annum on loans with terms over three years.
Amounts charged by the former general partner for services performed and
overhead-related expenses for the years ended December 31, 1996, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Base fee $834,000 $ 767,000 $589,000
Loan servicing fee 125,000 245,000 216,000
- --------------------------------------------------------------------------------
Total fees $959,000 $1,012,000 $805,000
- --------------------------------------------------------------------------------
Salaries and overhead
reimbursements $100,000 $ 82,000 $ 90,000
- --------------------------------------------------------------------------------
</TABLE>
Under a capital plan adopted by the general partner in 1993, the general
partner agreed to contribute, over a three-year period, additional capital
up to $1,730,000 if the Company generated certain levels of loan
origination fees. Pursuant to the agreement, the general partner
contributed $266,000 of the $1,730,000 in late 1993 and early 1994, but
did not contribute any additional amounts based on continued operating
losses and the level of loan origination fees. The capital plan was
dissolved as a result of the restructuring (Note 1).
F-47
<PAGE> 106
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RELATED PARTIES AND AFFILIATES (CONTINUED)
In connection with an amendment to the loan agreement with the
Partnership's bank lender (Note 7), in 1992 the general partner loaned the
Partnership $600,000 in subordinated debt, with interest at the prime rate
and only repayable upon consent by the lender or at such time as the
Partnership repaid all of its outstanding indebtedness to the lender. The
general partner was repaid in 1996.
Effective January 1, 1994, in order for Pacific Thrift to comply with a
section of a regulatory agreement covering payments to affiliates, Pacific
Thrift commenced directly employing personnel for loan origination,
processing, and servicing. In addition, Pacific Thrift revised its
policies for payment of rent and other overhead expenses. As a result,
Pacific Thrift terminated reimbursements to the Partnership and general
partner for such services and expenses. However, the Partnership continued
to pay the general partner for base fees and loan servicing fees of
Pacific Thrift in accordance with the Partnership Agreement.
During 1994, Pacific Thrift paid and allocated certain salaries and
overhead for the Partnership, CRC, and general partner totaling $495,000,
$220,000 and $356,000, and was reimbursed on a monthly basis.
During 1995, Pacific Thrift paid and allocated certain salaries and
overhead for the Partnership, CRC, LPPC and the general partner totaling
$386,000, $251,000, $8,000 and $597,000, and was reimbursed on a monthly
basis.
During 1996, Pacific Thrift paid and allocated certain salaries and
overhead for the Partnership, Corporation, PAL, CRC, LPPC and the general
partner totaling $159,000, $753,000, $212,000, $6,000 and $174,000 and was
reimbursed on a monthly basis.
The Partnership incurred salary and employee-related expenses for
individuals who perform services for the Partnership and Pacific Thrift
and did not own more than a 1% interest in the general partner. The
Partnership also incurred these expenses for all individuals who perform
F-48
<PAGE> 107
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RELATED PARTIES AND AFFILIATES (CONTINUED)
services for CRC and LPPC, regardless of their ownership interest in the
general partner. The general partner, however, incurred salary and
employee-related expenses for three managing officers who performed
services for the Partnership and Pacific Thrift and owned more than a 1%
interest in the general partner.
- - CONSOLIDATED RECONVEYANCE COMPANY - (CRC) served as a trustee on all trust
deeds obtained by the Partnership or Pacific Thrift as security for
portfolio loans. Fees paid to CRC were paid by the borrowers. On December
31, 1996 CRC was sold (Note 18).
- - OTHER - Prior to the Restructuring a managing officer of the Partnership
and stockholder provided legal services in connection with the loan
accounts of the Partnership and Pacific Thrift, for which he received $100
from the fees paid by each borrower for legal services related to each
loan origination. Total fees of $212,000, $175,000 and $62,000 were paid
by the Partnership to the managing officer for the years ended December
31, 1996, 1995 and 1994.
A partner with a law firm that provides legal services to the Company is a
stockholder of the Company and formerly a partner of the Partnership.
Total fees for the services provided to the Company by the law firm were
approximately $424,000, $689,000 and $716,000 for the years ended December
31, 1996, 1995 and 1994.
A former member of the Board of Directors of Pacific Thrift was paid
hourly and contingent fees for services related to the sale of loans under
the loan securitization agreement entered into in December 1993. Total
fees for the services provided by the board member were $165,000 and
$111,000 for the years ended December 31, 1995 and 1994.
Former officers of the Company have loans payable to the Company, secured
by real estate, totaling approximately $74,000 and $269,000 as of December
31, 1996 and 1995. These loans are included in loans receivable.
F-49
<PAGE> 108
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RELATED PARTIES AND AFFILIATES (CONTINUED)
Thrift certificates purchased by members of management totaled
approximately $174,000 and $63,000 at December 31, 1996 and 1995, on terms
slightly more favorable than the terms for unrelated parties. Interest
expense on these certificates totaled approximately $8,000 and $2,000 for
the years ended December 31, 1996 and 1995.
F-50
<PAGE> 109
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RELATED PARTIES AND AFFILIATES (CONTINUED)
During 1996 and 1995, the Company paid to Pacific Thrift a loan servicing
fee at the rate of 1.5% of the outstanding balances of its loans and other
real estate. Such fees totaled $199,000 and $351,000 in 1996 and 1995 and
were eliminated in the consolidation.
F-51
<PAGE> 110
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. PURCHASE OF CRC AND LPPC
Effective, July 1, 1990, the Partnership purchased 100% of the limited
partnership interests in CRC and LPPC from the general partner for their
combined estimated fair market value of $908,000 as determined by an independent
appraiser. CRC served as trustee on all trust deeds obtained as security for
portfolio loans originated or purchased by the Partnership or Pacific Thrift, as
well as trust deeds for many unaffiliated lenders. LPPC published information
regarding sales of foreclosed properties. The transaction was treated as a
purchase and resulted in goodwill of approximately $651,000.
The Partnership also agreed to pay the general partner an additional amount
(contingent consideration) annually for five years beginning January 1, 1991.
The contingent consideration, based on an amended agreement, was calculated as
50% of the total annual net profits earned by CRC and LPPC in excess of a base
profit amount of $465,000. The contingent consideration totaled $172,000 and
$224,000 for the years ended December 31, 1995 and 1994, and was treated as an
addition to goodwill. Accumulated amortization relating to the goodwill totaled
$400,000 and $253,000 at December 31, 1995 and 1994. On December 31, 1996 the
Company sold its interests in CRC and LPPC (Note 18).
12. LITIGATION AND UNASSERTED CLAIMS
Although they were never been served, the Partnership and its Chief Executive
Officer (CEO) received a complaint in October 1993 that named them as
defendants, along with four other unaffiliated defendants. The complaint
contained allegations of securities fraud and breach of fiduciary duty in
connection with companies affiliated with Alexander Spitzer (who, until
approximately twelve years ago but not thereafter, was an affiliate of the
Partnership and CEO). The complaint was filed by two long-time business
associates of Spitzer, including one individual who was a general partner of a
Spitzer-affiliated entity and one individual who owned another Spitzer-
affiliated entity.
The complaint charges all defendants with participation in securities fraud in
connection with the sale of securities of the Spitzer entities (although there
are no allegations that either the Partnership or CEO participated in the sale
of such securities) and charges the Partnership and CEO with aiding and abetting
other defendants in a violation of their fiduciary duties to the
Spitzer-affiliated entities. The primary facts alleged against the Partnership
and CEO are alleged to have occurred in 1984. The Partnership and CEO denied
the merits of all allegations stated against them in the complaint.
Counsel for both the Partnership and CEO, in a letter dated October 20, 1993,
advised counsel for the plaintiffs that the complaint appeared to state no
claim on the merits against the Partnership or CEO and that no claims could be
stated because of statute of limitations problems. The only response of
plaintiffs' counsel, by letter dated November 16, 1993, was to notify all
defendants that they had an open extension of time to answer.
An earlier class action involving Spitzer-affiliated entities was filed in March
1990 by investors and certain lenders in the bankrupt Spitzer-affiliated
entities. Although the Partnership and CEO are discussed in the complaint,
neither the Partnership nor CEO has ever been named as a defendant in that class
action.
The allegations involving the Partnership and CEO in both complaints concern the
May 1984 sales of the general partnership interests in the Partnership (which
were owned at that time by entities owned by the CEO and a relative of Spitzer)
and of the stock of a former affiliated thrift and loan company to a large,
unaffiliated mortgage banking group headquartered in the state of New York (the
Buyer). The complaints allege that, in connection with the sales to the Buyer,
the CEO and Spitzer agreed for the former affiliated thrift and loan company to
sell certain allegedly poor-quality loans to other Spitzer-affiliated entities.
The complaints further allege that Spitzer and his affiliates engaged in a
continuing scheme, both before and after the sales to the Buyer, to lend money
and sell real estate to nominees (which did not include the Partnership or
CEO), who assertedly purchased the real estate at inflated prices and were
guaranteed against loss.
F-52
<PAGE> 111
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. LITIGATION AND UNASSERTED CLAIMS (CONTINUED)
Although not mentioned in either of the two complaints, but based on hearsay
contained in a document prepared in 1985, Spitzer allegedly stated that in 1984
the CEO reimbursed Spitzer for the CEO's share of funding such guarantees
involving one Spitzer-affiliated entity in 1982 through 1984. The CEO
acknowledges that he made payments to Spitzer but has stated that they were for
proper purposes.
Neither the Partnership nor CEO had any ownership interest in any
Spitzer-affiliated entity after the sales to the Buyer in May 1984. However, as
a result of loans made to Spitzer-affiliated entities prior to the sales to the
Buyer, the Partnership continued to be a creditor to these entities. These
loans were substantially performing in accordance with their terms and were
considered by management to be well secured until 1989, shortly before certain
Spitzer-affiliated entities declared bankruptcy in November 1989. Ultimately,
as previously reported, the Partnership wrote off the loans not secured by real
estate, disposed of real estate collateral securing one of the loans to the
Spitzer-affiliated entities, and recorded losses on these loans in 1990 and
1991 in excess of $3.7 million.
The Partnership and CEO denied the merits of the allegations stated against
them in the complaints. Management does not believe that any of these matters
will result in any material additional losses to the Partnership or any
material adjustments to these financial statements.
On October 31, 1995 plaintiff's counsel, in the October 1993 complaint which had
named the Partnership and its CEO alleging securities fraud and breach of
fiduciary duty, as discussed above, filed a request for dismissal without
prejudice. The clerk of the Court entered the dismissal as requested on November
2, 1995.
13. COMMITMENTS AND CONTINGENCIES
In January and February 1993, the Partnership and Pacific Thrift foreclosed on
two loans secured by real estate that contained toxic substances. The real
estate was used by the former owners for metal-plating purposes. Remediation was
completed on one property in 1995 and on the second property in 1996. Both
properties were sold in 1996 for cash and without recourse.
The Company conducts its operations from leased facilities. Rental expenses of
approximately $1,129,000, $905,000 and $926,000 have been charged to general and
administrative expenses in the consolidated statements of operations for the
years ended December 31, 1996, 1995 and 1994. At December 31, 1996, the
approximate minimum rental commitments under all noncancelable operating leases
(which are subject to annual escalations based on the consumer price index) are
as follows:
<TABLE>
<CAPTION>
Year Amount
================================================================================
<S> <C>
1997 $1,245,000
1998 1,116,000
1999 1,069,000
2000 1,032,000
Thereafter 1,636,000
- --------------------------------------------------------------------------------
$6,098,000
================================================================================
</TABLE>
At December 31, 1996 and 1995, the Company was servicing Title I loans for
others totaling approximately $8,743,000 and $10,744,000. In addition, the
Company had filed claims with the Federal Housing Administration that depleted
the insurance on these loans during 1994.
F-53
<PAGE> 112
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In 1995, in order to facilitate certain real estate loan sales by Pacific
Thrift, the Partnership guaranteed one buyer against losses up to $1,800,000. As
security for the guarantee, in 1995 the Partnership deposited $237,000 with the
buyer.
The Corporation entered into employment agreements with five of its officers
effective as of the closing date of the Restructuring on June 27, 1996 (Note 1).
One employment agreement with the President of CRC, LPPC and CRCWA was
terminated effective December 31, 1996 upon the sale of those subsidiaries (Note
18). On January 1, 1997, the Corporation entered into an employment agreement
with its Chief Financial Officer.
The agreements provide for initial terms ranging from one to three years and all
extend automatically for additional one year terms thereafter unless either
party gives at least six months written notice of their intentions not to renew.
The agreements provide for annual salaries adjusted annually to the cost of
living index. The agreements also provide for two of the officers to receive
annual bonuses based on a calculation of net pre-tax profits subject to a
minimum return on equity.
Effective January 1, 1996 Pacific Thrift entered into an employment agreement
with an executive vice president for a term of two years and automatically
renewing for additional one year terms thereafter unless either party gives at
least six months written notice of his intention not to renew. The agreement
provides for an annual salary adjusted annually to the cost of living index and
an annual bonus based upon net profits earned from wholesale loans originated
for sale.
FORECLOSURE SERVICES ACTIONS
On June 6, 1995, CRC and LPPC were served with a complaint by Consumer Action
and two consumers suing both individually and on behalf of the general public in
an unfair business practices action filed in the Superior Court of Contra Costa
County, California. The complaint named CRC and LPPC, along with thirteen other
foreclosure service and foreclosure publishing companies, and alleges that all
named defendants charge fees in excess of the statutorily permitted amount for
publication of
F-54
<PAGE> 113
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
FORECLOSURE SERVICES ACTIONS (Continued)
notices of trustee sales. The complaint seeks restitution of all excess charges,
an injunction against the charging of excessive fees in the future and attorneys
fees. In January 1996, LPPC and two other posting and publishing companies were
dismissed from the action without prejudice. As of March 20, 1996, a tentative
global settlement of the action had been reached, pursuant to which CRC would
pay damages in an amount immaterial to the Company as a whole. There can be no
assurance that the settlement will be concluded, or that damages in any
litigation that might ensue would not be material to the Company.
In 1996, CRC was served with a complaint by seven individuals suing both
individually and on behalf of the general public in a purported class action
filed in the Superior Court of Los Angeles County, California. The Complain
names over 50 defendants, including numerous title insurance companies and trust
deed services companies, generally alleging that the title insurance companies
did not make certain refunds of certain trustee sale guarantee fees ("TSGs")
which they were required to make under the terms of a settlement of a previous
case (in which CRC was not named), and that the trust deed services companies
failed to purchase less costly alternative products, to request and remit
refunds in the cost of TSGs or to advise the members of the class of their right
to a refund from the title insurance companies. As of March 20, 1996, the court
had sustained CRC's demurrer to the complaint, as well as other trustees'
demurrers and motions for judgment on the pleadings, and the plaintiffs had been
given 20 days to file an amended complaint. At this time, there is no way of
determining the exact nature and extent of damages, which will not be able to be
specified until the amended complaint has been filed. Management believes,
however, based upon consultation with its counsel in this action, that any
liability that may be incurred by CRC in this action would be immaterial to the
Company as a whole.
The Company, Pacific Thrift and PacificAmerica Lending are involved in certain
lawsuits and there are claims pending against these entities which management
considers incidental to normal operations. The legal responsibility and
financial impact with respect to such litigation and claims
F-55
<PAGE> 114
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
cannot presently be determined. However, management considers that any ultimate
liability which would likely arise from these lawsuits and claims would not
materially affect the financial position, results of operations or cash flows of
the Company.
14. RETIREMENT PLANS
The Company implemented a retirement savings plan (defined contribution plan) in
1994. All full-time employees who have completed six months of service and
reached age 21 are eligible to participate in the plan. Contributions are made
from employee-elected salary deferrals. The Company matches the first 6% of
employee contributions to the plan at the rate of $.50 on the dollar. During the
years ended December 31, 1996 and December 31, 1995, the Company's contributions
to the plan totaled $266,00 and $118,000.
The PacificAmerica Money Center, Inc. Supplemental Executive Retirement Plan,
effective from June 27, 1996 forward, is an unfunded plan to provide benefits to
certain long-term executives officers of the Company. The yearly benefit that a
participant will receive at normal retirement (as defined) is based on a formula
which takes into account his highest average annual compensation for three
consecutive years multiplied by the actual number of years of service (as
defined), not to exceed 30. Benefits are reduced by participants' estimated
social security and 401(k) benefits.
Net period pension cost for 1996 includes the following components:
1996
================================================================================
Service cost $ 26,000
Interest cost 42,000
Prior service cost 32,000
- --------------------------------------------------------------------------------
$100,000
================================================================================
Actuarial assumptions are a weighted average discount rate of 7% and a salary
progression rate of 5%.
F-56
<PAGE> 115
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. WITHDRAWALS
Partnership withdrawals payable of $1,120,000 at December 31, 1995 represented
the capital withdrawals by limited partners that were approved by the general
partner but not paid by the Partnership. At December 31, 1995 other limited
partners with original capital contributions totaling $9,400,000 had requested
withdrawals; however, these requests were not approved. Withdrawals were not
paid or approved after July 1993 due to limitations on withdrawals in the
Partnership Agreement and the restriction on such withdrawals in the amendments
to the Partnership's bank loan. In June 1996 all partnership withdrawals payable
were paid.
16. STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL, STOCK OPTIONS AND WARRANTS
The changes in general and limited partnership interests for 1994 are as
follows:
<TABLE>
<CAPTION>
General Limited
Partnership Partnership
Interest Interests Total
===============================================================================
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Capital (deficit) -
December 31, 1993 $ (4,000) $ 19,943,000 $ 19,939,000
Net loss - 1994 (68,000) (9,446,000) (9,514,000)
- -------------------------------------------------------------------------------
Capital (deficit) -
December 31, 1994 $(72,000) $ 10,497,000 $ 10,425,000
===============================================================================
</TABLE>
The changes in general and limited partnership interests for 1995 are as
follows:
<TABLE>
<CAPTION>
General Limited
Partnership Partnership
Interest Interests Total
===============================================================================
<S> <C> <C> <C>
Capital (deficit) -
January 1, 1995 $(72,000) $ 10,497,000 $ 10,425,000
Net loss - 1995 (12,000) (1,686,000) (1,698,000)
- -------------------------------------------------------------------------------
Capital (deficit) -
December 31, 1995 $(84,000) $ 8,811,000 $ 8,727,000
===============================================================================
</TABLE>
F-57
<PAGE> 116
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL, STOCK OPTIONS AND WARRANTS
(CONTINUED)
The Company has a 1995 Stock Option Plan and a 1995 Stock Purchase Plan pursuant
to which options to purchase shares of the Company's common stock may be granted
to employees. The plans provide that the option price shall not be less than the
fair market value of the shares on the date of grant. Under the 1995 Stock
Option Plan, the maximum number of shares of Common Stock in respect of which
Options may be granted under the Plan (the "Plan Maximum") is 250,000 with an
increase of two percent (2%) of the total issued and outstanding shares of the
Common Stock on the first day of each subsequent calendar year, up to a maximum
330,000 shares, commencing January 1, 1997. Under the 1995 Stock Purchase Plan a
total of 50,000 options may be issued. Options vest ratably over four or five
year periods as provided for in each employee's option agreement. At December
31, 1996, there were 233,400 shares reserved for options to be granted under the
plans. The following summarizes stock option transactions:
<TABLE>
<CAPTION>
Weighted Average
Shares Price Per Share
=========================================================================
<S> <C> <C>
Outstanding at June 27, 1996 -- --
Granted 240,000 $11.02
Exercised -- --
Cancelled (6,600) $10.83
- -------------------------------------------------------------------------
Outstanding at December 31, 1996 233,400 $11.03
- -------------------------------------------------------------------------
</TABLE>
At December 31, 1996 the Corporation had 553,377 general partner warrants
outstanding each exercisable for one share of common stock at any time until
December 27, 1997 at an exercise price of $15 per share. During the year ended
December 31, 1996, 9,956 general partner warrants were exercised.
At December 31, 1996 the Corporation had 63,894 subscriber warrants outstanding
each exercisable for one share of common stock at any time until June 27, 1998
at an exercise price of $12.50 per share. During the year ended December 31,
1996, 1,002 subscriber warrants were exercised.
F-58
<PAGE> 117
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL, STOCK OPTIONS AND WARRANTS
(CONTINUED)
Information relating to stock options at December 31, 1996 summarized by
exercise price are as follows (thousands of shares):
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------- -------------------------
Weighted Average
Exercise Price ------------------------------ Weighted Average
Per Share Shares Life (Year) Exercise Price Shares Exercise Price
============================================================================================
<S> <C> <C> <C> <C> <C>
$10.00 to $10.00 205,200 8.88 $ 10.00 27,930 $ 10.00
$12.50 to $22.00 18,900 9.08 13.18 -- --
$22.25 to $22.25 100 9.74 22.25 -- --
$23.50 to $23.50 100 9.78 23.50 -- --
$25.50 to $25.50 100 9.79 25.50 -- --
$26.00 to $26.00 100 9.85 26.00 -- --
$28.00 to $28.00 1,900 9.91 28.00 -- --
$29.00 to $29.00 200 9.91 29.00 -- --
$29.50 to $29.50 100 9.92 29.50 -- --
$30.00 to $30.00 6,700 9.90 30.00 -- --
- --------------------------------------------------------------------------------------------
233,400 8.94 $ 11.03 27,930 $ 10.00
============================================================================================
</TABLE>
All stock options issued to employees have an exercise price not less than the
fair market value of the Company's common stock on the date of grant, and in
accordance with accounting for such options utilizing the intrinsic value method
there is no related compensation expense recorded in the Company's financial
statements. Had compensation cost for stock-based compensation been determined
based on the fair value at the grant dates consistent with the method of SFAS
123, the Company's net income from continuing operations and earnings per share
from continuing operations for the year ended December 31, 1996 would have been
reduced to the pro forma amounts presented below:
<TABLE>
<CAPTION>
1996
- --------------------------------------------------------------------------------
<S> <C>
Income from continuing operations
As reported $4,813,000
Pro forma $4,713,000
</TABLE>
F-59
<PAGE> 118
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL, STOCK OPTIONS AND WARRANTS
(CONTINUED)
<TABLE>
<CAPTION>
1996
- --------------------------------------------------------------------------------
<S> <C>
Earnings per share from continuing operations
As reported
Primary $ 2.27
Fully diluted 2.12
Pro forma
Primary $ 2.23
Fully diluted $ 2.09
</TABLE>
The fair value of option grants is estimated on the date of grants utilizing the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996: expected life of options of 5 years, expected
volatility of 25%, risk-free interest rates of 6.2%, and a 0% dividend yield.
The weighted average fair value at date of grant for options granted during 1996
approximated $3.70 per option.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for 1996 and 1995 are as follows
(in $000's):
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
Mar 31, Jun 30, Sept 30, Dec 31,
1996 1996 1996 1996
=======================================================================================================
<S> <C> <C> <C> <C>
Interest income $ 2,408 $ 2,512 $ 2,788 $ 3,794
Interest expense 1,227 1,190 1,189 1,360
- -------------------------------------------------------------------------------------------------------
Net interest income 1,181 1,322 1,599 2,434
Provision for loan losses 725 (469) 11 884
Other income 4,813 6,177 7,068 11,936
Other expense 4,879 7,292 7,383 9,354
Income tax benefit (expense) (348) (727) (578) (5)*
- -------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 42 (51) 695 4,127
Income (loss) from discontinued operations 237 62 103 (15)
Loss on disposal of discontinued operations -- -- -- (1,038)
- -------------------------------------------------------------------------------------------------------
Net income $ 279 $ 11 $ 798 $ 3,074
=======================================================================================================
Net income per share
Primary N/A $ 0.01 $ 0.39 $ 1.36
Fully diluted N/A N/A $ 0.39 $ 1.34
</TABLE>
F-60
<PAGE> 119
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------
Mar 31, Jun 30, Sept 30, Dec 31,
1995 1995 1995 1995
==========================================================================================
<S> <C> <C> <C> <C>
Interest income $ 2,612 $ 2,424 $ 2,368 $ 2,173
Interest expense 1,405 1,426 1,248 1,120
- ------------------------------------------------------------------------------------------
Net interest income 1,207 998 1,120 1,053
Provision for loan losses 446 554 861 1,428**
Other income 1,643 1,932 2,432 3,433
Other expense 2,853 3,199 3,784 4,474
Income tax benefit 430 84 664 44
- ------------------------------------------------------------------------------------------
Loss from continuing operations (19) (739) (429) (1,372)
Income (loss) from discontinued
operations 226 203 224 208
- ------------------------------------------------------------------------------------------
Net income (loss) $ 207 $ (536) $ (205) $(1,164)
==========================================================================================
</TABLE>
* In the quarter ended December 31, 1996 as a result of continued improved
earnings, especially in this quarter, a valuation allowance was reversed
as management believes it is more likely than not that the related
deferred tax asset will be realized in the near future.
** The increase in the provision for loan losses is primarily a result of an
increased general reserve. Management represents that it was not practical
to determine whether or not a portion of these additional provisions
should have been recorded in earlier quarters.
18. DISCONTINUED OPERATIONS
Effective December 31, 1996 the Company's trustee and foreclosure services were
discontinued when the assets and liabilities of CRC and LPPC and all of the
stock of CRCWA were sold. Accordingly, the operations have been reclassified to
present the trustee and foreclosure services as discontinued operations in the
Statement of Operations. The Company recorded a fourth quarter 1996 pre-tax and
after-tax charge of $1,038,000 for disposition of this segment which comprises a
$926,000 loss on the measurement date plus a loss from discontinued operations
from the measurement date until the disposal date. The tax benefit of
approximately $402,000 from the loss on disposition was fully reserved for as
such loss is capital in nature and the Company is unable to quantify the portion
of such capital loss benefit which may be ultimately realizable.
F-61
<PAGE> 120
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. DISCONTINUED OPERATIONS (CONTINUED)
Net assets disposed of were $2,674,000 against proceeds of $1,748,000 resulting
in a loss of approximately $926,000. The $1,748,000 is included in accounts
receivable at December 31, 1996 and $450,000 was received by early February
1997. The remaining $1,298,000 represents a secured promissory note which bears
interest at 7% per annum, payable $25,000 per month from April 1, 1997 through
March 31, 1999 and thereafter at $9,328.93 per month (includes principal and
interest) from April 1, 1999 through March 1, 2012.
The Company operated principally in two industries, real estate secured lending
(including the origination and sale of loans) and trustee and foreclosure
services. A summary of selected financial information by industry segment for
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994
=======================================================================================
<S> <C> <C>
Revenues
Interest and other income from real
estate secured lending $ 19,016,000 $ 13,475,000
Fees from trustee 3,826,000 3,931,000
- ---------------------------------------------------------------------------------------
Total revenues $ 22,842,000 $ 17,406,000
=======================================================================================
Operating profit (loss)
Real estate secured lending $ (3,148,000) $ (9,741,000)
Trustee and foreclosure services 747,000 811,000
General expenses (519,000) (583,000)
- ---------------------------------------------------------------------------------------
Loss before income taxes $ (2,920,000) $ (9,513,000)
=======================================================================================
December 31, 1995 1994
=======================================================================================
Identifiable assets
Real estate secured lending $ 76,896,000 $ 97,930,000
Trustee and foreclosure services 5,532,000 5,564,000
General assets 129,000 253,000
- ---------------------------------------------------------------------------------------
Total assets $ 82,557,000 $ 103,747,000
=======================================================================================
</TABLE>
F-62
<PAGE> 121
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. REGULATORY MATTERS AND CAPITAL ADEQUACY
MEMORANDUM OF UNDERSTANDING AND INITIAL ORDERS TO CEASE AND DESIST WITH THE
FEDERAL DEPOSIT INSURANCE CORPORATION AND CALIFORNIA DEPARTMENT OF CORPORATIONS
In February 1993, Pacific Thrift, the FDIC, and the California Department of
Corporations (DOC) entered into a Memorandum of Understanding (MOU). In
connection with the MOU, Pacific Thrift was required to maintain primary
capital in an amount that equals or exceeds 7.5% of its total assets; obtain
and retain qualified management; notify and obtain approval from the FDIC and
the DOC prior to adding any individual to the Board of Director or
employing any individual as a senior executive office or Pacific Thrift;
eliminate loans classified loss and reduce loans classified substandard to
specified levels within a specified period of time; revise, adopt, and
implement policies to provide effective guidance and control over Pacific
Thrift's lending function; develop, adopt, and implement written policies
governing relationships between Pacific Thrift, the Partnership, and other
affiliated companies; establish and maintain an adequate reserve for loan
losses and develop, adopt, and implement a policy and methodology for
determining the adequacy of the reserve for loan losses; formulate and
implement a budget for all categories of income and expense; revise, adopt, and
implement a written liquidity and funds management policy; maintain assets
within certain limits; obtain written consent from the FDIC and DOC prior to
paying any cash dividends; refrain from extending additional credit to any
borrower who has as loan from Pacific Thrift that has been adversely
classified, unless the loan is classified as substandard or doubtful and the
proper approval has been obtained; and take certain other actions.
As of March 31, 1993, Pacific Thrift's total assets had moderately exceeded the
limitation provided in the MOU. In addition Pacific Thrift made certain
payments in 1993 to the Partnership in excess of the amounts authorized under
the Personnel Services Agreement between Pacific Thrift and the Partnership. The
overpayment amount was repaid by the Partnership in April 1993. The Audit
Committee of the Board of Directors of Pacific Thrift performed an investigation
of the circumstances that allowed the overpayments to occur and determined that
such overpayments reflected a weakness in the internal control procedures of
Pacific Thrift with respect to intercompany payments. Accordingly, new control
procedures were adopted by the Board of Directors of Pacific Thrift to prevent
overpayment of any kind by Pacific Thrift to the partnership in the future.
In November 1993, the FDIC and DOC terminated the MOU and issued an Order to
Cease and Desist (C&D) with the consent of Pacific Thrift. The C&D prohibits
Pacific Thrift from paying excessive fees to affiliates in such a manner as to
produce operating losses; prohibits Pacific Thrift from including accrued
interest in the carrying amount of a property acquired by foreclosure on a
loan; prohibits Pacific Thrift from accepting or renewing brokered deposits
unless it as adequately capitalized and a waiver is obtained; requires Pacific
Thrift to disclose any extensions of credit to executive officers or principal
shareholders from a correspondent bank; requires pacific Thrift to prepare and
display minimum information in its disclosure statement; requires Pacific
Thrift to comply with the limits specified in the California Industrial Loan
Company regulations on the amount of outstanding thrift certificates, based on
its unimpaired capital and surplus; requires Pacific Thrift to develop a
comprehensive asset/liability dependency policy, including establishing a range
for, and reducing, the volatile liability dependency ratio; requires Pacific
Thrift to adopt and implement a written policy to increase its liquidity; and
requires Pacific Thrift to adopt and implement a satisfactory policy governing
the relationship between Pacific Thrift and its affiliates and to reduce the
payment of management, consulting, and other fees to the affiliates to amounts
that are reasonable and necessary for the services. See Note 20
In September 1994, the FDIC issued a second C&D with the consent of Pacific
Thrift. The second C&D prohibits Pacific Thrift from operating in such a
manner as to produce low earnings; requires Pacific Thrift to refrain from
opening any additional offices without the prior written approval of the FDIC;
requires Pacific Thrift to formulate and implement a written profit plan; and
requires Pacific Thrift to provide the FDIC with a study of the operations and
profitability of its loan production office opened in June 1994. See Note 20.
CAPITAL ADEQUACY
Pacific Thrift is subject to various regulatory capital requirements
administered by the FDIC. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly discretionary - actions by the FDIC
that, if undertaken, could have a direct material effect on Pacific Thrift's
financial statements. The regulations require Pacific Thrift to meet specific
capital adequacy guidelines that involve quantitative measures under of Pacific
Thrift's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. Pacific Thrift's capital classification
is also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
F-63
<PAGE> 122
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. REGULATORY MATTERS AND CAPITAL ADEQUACY (CONTINUED)
CAPITAL ADEQUACY (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require Pacific Thrift to maintain minimum amounts and ratios of Tier 1 capital
(as defined in the regulations) to total average assets (as defined), and
minimum ratios of Tier 1 and total capital (as defined) to risk-weighted assets
(as defined). To be considered adequately capitalized as defined under the
Prompt Corrective Action (PCA) provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991, Pacific Thrift must maintain the minimum
Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios presented in
the table. Pacific Thrift's actual unaudited capital amounts and ratios
presented in the table. Pacific Thrift's actual unaudited capital amounts and
ratios as of December 31, 1993 were as follows:
<TABLE>
<CAPTION>
Capital Adequacy
as of December 31, 1993
(Unaudited)
---------------------------------------
Required Actual
Amount(Ratio) Amount(Ratio)
---------------- ---------------
<S> <C> <C>
Tier 1 capital
(to average assets) $2,646,000(4.0%) $4,654,000(7.0%)
Tier 1 capital
(to risk-weighted assets) 2,161,000(4.0%) 4,654,000(8.6%)
Total capital
(to risk-weighted assets) 4,322,000(8.0%) 5,330,000(9.9%)
</TABLE>
Pacific Thrift incurred losses in 1994 and, in December 1994, Pacific Thrift
was notified by the FDIC that its tangible capital ratio (tangible capital
compared to average total assets) as of October 31, 1994 was less than 2%.
Based on the tangible and other capital ratios, Pacific Thrift was considered
to be "critically undercapitalized" as defined under the PCA provisions. The
PCA notice also stated that the FDIC may be required to place Pacific Thrift in
receivership in March 1995. See Subsequent Events, Note 20.
As a result of such PCA designation, Pacific Thrift became subject to mandatory
requirements as of October 31, 1994, including, but not limited to, a
requirement to submit a capital restoration plan to the FDIC and various
restrictions on asset growth, acquisitions, new activities and branches,
dividend payments, management fees, and executive compensation.
Subsequent to October 31, 1994, Pacific Thrift improved its capital position
from "critically undercapitalized" to "undercapitalized" as a result of certain
capital contributions and loan sales prior to December 31, 1994. Pacific
Thrift's actual unaudited capital amounts and ratios as of December 31, 1994
were as follows:
<TABLE>
<CAPTION>
Capital Adequacy
as of December 31, 1994
(Unaudited)
---------------------------------------
Required Actual
Amount(Ratio) Amount(Ratio)
---------------- ---------------
<S> <C> <C>
Tier 1 capital
(to average assets) $3,216,000(4.0%) $3,112,000(3.9%)
Tier 1 capital
(to risk-weighted assets) 2,301,000(4.0%) 3,112,000(5.4%)
Total capital
(to risk-weighted assets) 4,602,000(8.0%) 3,831,000(6.7%)
</TABLE>
In addition, Pacific Thrift received an Order to Cure Deficiency of Net Worth
(Order) from the DOC in connection with a $1,414,000 deficiency in its capital
as of December 31, 1994. The Order requires that Pacific Thrift increase its
capital to a level where the ratio of its outstanding thrift certificates
compared to capital does not exceed the permitted ratio of 15 to 1. Based on
the applicable section of the California Financial Code, failure to increase
its capital within 120 days would require the DOC to take possession of the
property and business of Pacific Thrift. See Subsequent Events, Note 20.
SETTLEMENT WITH DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
In April 1993, Pacific Thrift was notified by the Mortgagee Review Board of the
Department of Housing and Urban Development (HUD) of certain alleged violations
of certain requirements in the origination of 59 loans selected during its
examination of Title I loan origination activities. Pacific Thrift was advised
that HUD intended to seek civil money penalties and was considering an
administrative action. Pacific Thrift filed a response to the allegations
affirming its compliance with HUD requirements. On September 15, 1993, HUD and
Pacific Thrift entered into a settlement agreement in which Pacific Thrift
agreed not to seek claims for insurance on 24 loans that violated the
prohibition against subordinating Title I loans to non-Title I loans, as well
as on three loans in which the proceeds were used for ineligible purposes. HUD
did not impose any penalties or take any other action.
20. EVENTS SUBSEQUENT TO DECEMBER 31, 1994
During February 1995, Pacific Thrift submitted its original capital restoration
plan to the FDIC, but the FDIC denied approval of the plan and required certain
modifications. During March 1995, Pacific Thrift submitted a revised capital
restoration plan, including a guarantee by the Partnership and, in May 1995, the
revised capital restoration plan was incorporated by reference in a new C&D (see
below)
In May 1995, Pacific Thrift was informed by the FDIC that, based on unaudited
financial information in the Consolidated Report of Condition and Income (Call
Report) filed for the first quarter of 1995, Pacific Thrift was "adequately
capitalized" as of March 31, 1995. Based on such Call Report, Pacific Thrift's
unaudited capital ratios as of March 31, 1995 were as follows:
<TABLE>
Capital Ratio as of March 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
Required Actual
-------- ------
<S> <C> <C>
Tier 1 capital (to average assets) 4.0% 5.5%
Tier 1 capital (to risk-weighted assets) 4.0 7.2
Total capital (to risk-weighted assets) 8.0 8.5
</TABLE>
In addition, Pacific Thrift was informed by the DOC that Pacific Thrift had
cured the deficiency in its net worth as of April 30, 1995 and has complied
with the Order.
Also in May 1995, the FDIC terminated the prior C&Ds, and the FDIC and DOC
issued a new comprehensive Order to Cease and Desist (the new C&D) with the
consent of Pacific Thrift. The new C&D: requires that Pacific Thrift have and
retain qualified management; requires that Pacific Thrift have Tier 1 capital
which equals or exceeds 8% of total assets on or before September 30, 1995;
requires that Pacific Thrift maintain at least the minimum risk-based capital
levels throughout the life of the new C&D; requires Pacific Thrift to eliminate
from its books, through charge-off or collection, all assets classified "loss"
as of September 1994 within 10 days from the effective date of the new C&D;
requires Pacific Thrift to reduce assets classified "substandard" as of
September 1994 to $6.5 million within 180 days and to $5 million within 365
days; prohibits Pacific Thrift from extending any additional credit to any
borrower who has a loan with Pacific Thrift which has been charged off or
classified "loss"; requires Board of Directors or loan committee approval prior
to the extension of additional credit to a borrower who has a loan classified
"substandard"; requires Pacific Thrift to establish within 10 days, and then to
maintain on a quarterly basis, an adequate allowance for loan losses; requires
that Pacific Thrift implement within 60 days the provisions of the capital
restoration and business/profitability plans submitted to the FDIC in order to
control overhead and other expenses and restore profitability; requires that
Pacific Thrift correct the violation of the thrift-to-capital ratio required
under California law within 60 days; requires that Pacific Thrift file with the
FDIC amended Call Reports as of December 31, 1993 and as of the end of the first
three quarters of 1994 which accurately reflect Pacific Thrift's financial
condition as of those dates; requires that throughout the life of the new C&D,
Pacific Thrift shall file Call Reports which accurately reflect Pacific Thrift's
financial condition as of the end of each period; prohibits Pacific Thrift from
paying cash dividends in any amount without the prior written approval of the
FDIC; prohibits Pacific Thrift from opening any additional offices without the
prior written approval of the FDIC; and requires the Company to submit written
progress reports on a quarterly basis until the Company accomplishes the
corrections and is released by the Regional Director of FDIC and the
Commissioner of the DOC.
Noncompliance with the terms of the new C&D could result in various regulatory
actions, including the assessment of civil money penalties, termination of
deposit insurance, and placing Pacific Thrift in conservatorship of
receivership. Although there is no assurance as to the ultimate outcome, these
consolidated financial statements do not include any provisions or adjustments
that might result from the outcome of these uncertainties.
As of December 31, 1995, Pacific Thrift had increased its total risk-based
capital ratio to 12.4%, its Tier 1 risk-based capital ratio to 11.2% and its
leverage capital ratio to 9.1%, which meet the FDIC definition of "well
capitalized." However, due to the requirement of maintaining a specific
capital level, the Company would be classified as ""adequately capitalized''
under the regulation.
On March 27, 1996, Pacific Thrift was notified by the FDIC that, based on the
FDIC examination of the September 30, 1995 financial information, full
compliance with the new C&D is reported. On April 1, 1996, Pacific Thrift
entered into a Memorandum of Understanding (MOU) with the FDIC and DOC. The
MOU provides a framework for Pacific Thrift's recovery and its provisions are
similar to crucial sections of the existing C&D. However, since the MOU
contain provisions requiring the maintenance of a specified capital level,
Pacific Thrift would be classified as "adequately capitalized" under the
regulations, and continue to be considered a troubled institution for all
regulatory purposes.
Quantitative measures established by regulation to ensure capital adequacy
require Pacific Thrift to maintain minimum amounts and ratios of Tier 1 capital
(as defined) to average assets (as defined) of 4%, and Tier 1 capital (as
defined) to risk-weighted assets (as defined) of 4% and total capital (as
defined) to risk weighted assets (as defined) of 8%. To be considered well
capitalized as defined under the Prompt Corrective Action (PCA) provisions of
the Federal Deposit Insurance Corporation Improvement Act of 1991, Pacific
Thrift must maintain minimum ratios for Tier 1 leverage of 5%, Tier 1
risk-based of 6%, and total risk-based of 10%.
At December 31, 1996, Pacific Thrift had unaudited Tier 1 capital to average
assets of 8.7%, Tier 1 capital to risk-weighted assets of 10.6% and total
capital to risk-weighted assets of 11.9%, which meet the FDIC definition of
"well capitalized." However, due to the requirement of maintaining a specific
capital level in the March 1996 MOU, Pacific Thrift would be classified as
"adequately capitalized" under the regulation.
21. SUBSEQUENT NAME CHANGE
In February 1997 PacificAmerica Lending, Inc. changed its name to
PacificAmerica Money Centers, Inc., doing business in California as
PacificAmerica Money Center, of California.
F-64
<PAGE> 123
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE I
CONSOLIDATING SCHEDULE - FINANCIAL POSITION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pacific- Pacific Lenders Consolidated
America Thrift Consolidated Posting and Reconveyance
Money and Loan Reconveyance Publishing Corporation,
Center, Inc. Company Company Company WA
===========================================================================================================
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 650,000 $ 7,947,000 $ $ $
Accounts receivable 1,786,000 482,000
Receivable for mortgage loan shipped 24,310,000 -
Accrued interest receivable - 933,000
Loans receivable 555,000 31,750,000
Loans held for sale - 15,687,000
Receivable from related party 1,296,000 25,008,000
Premium receivable for loan sales - 1,195,000
Excess yield receivable 3,982,000 7,716,000
Other real estate - 1,839,000
Property and equipment 39,000 2,321,000
Deferred income taxes 1,616,000 2,493,000
Other assets 581,000 922,000
Refundable income tax - 730,000
Investment in subsidiaries 16,564,000 -
- -----------------------------------------------------------------------------------------------------------
$51,379,000 $99,023,000 $ $ $
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Pacific-
America Eliminating Entries
Lending Dr Cr Consolidated
============================================================================================
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 43,000 $ $ $ 8,640,000
Accounts receivable 81,000 2,349,000
Receivable for mortgage loan shipped - 24,310,000
Accrued interest receivable 211,000 1,144,000
Loans receivable 1,210,000 33,515,000
Loans held for sale 2,461,000 18,148,000
Receivable from related party - 26,304,000 -
Premium receivable for loan sales - 1,195,000
Excess yield receivable - 11,698,000
Other real estate 2,446,000 4,285,000
Property and equipment - 2,360,000
Deferred income taxes 886,000 4,995,000
Other assets 62,000 1,565,000
Refundable income tax - 730,000
Investment in subsidiaries - 16,564,000 -
- ---------------------------------------------------------------------------------------------
$7,400,000 $ - $42,868,000 $114,934,000
==============================================================================================
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-65
<PAGE> 124
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE I
CONSOLIDATING SCHEDULE - FINANCIAL POSITION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pacific- Lenders Consolidated
America Pacific Thrift Consolidated Posting and Reconveyance
Money and Loan Reconveyance Publishing Corporation,
Center, Inc. Company Company Company WA
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
Thrift certificates payable
Full-paid certificates $ -- $56,343,000 $ $ $
Installment certificates 24,659,000
- --------------------------------------------------------------------------------------------------------------------------
81,002,000
Accounts payable and accrued expenses 1,276,000 934,000
Accrued interest payable -- 185,000
Payable to related party 24,990,000 121,000
Mortgage notes payable -- 189,000
Notes payable 2,545,000 --
Deferred income taxes 602,000 3,844,000
- --------------------------------------------------------------------------------------------------------------------------
29,413,000 86,275,000
- --------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- --------------------------------------------------------------------------------------------------------------------------
Stockholder's capital
Common stock 17,804,000 3,000,000
Additional paid-in capital -- 8,304,000
Accumulated earnings (deficit) 4,162,000 1,444,000
- --------------------------------------------------------------------------------------------------------------------------
21,966,000 12,748,000
- --------------------------------------------------------------------------------------------------------------------------
$51,379,000 $99,023,000 $ $ $
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Pacific-
America Eliminating Entries
Lending Dr Cr Consolidated
=================================================================================================
<S> <C> <C> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
Thrift certificates payable
Full-paid certificates $ - $ $ $ 56,343,000
Installment certificates - 24,659,000
- -------------------------------------------------------------------------------------------------
- 81,002,000
Accounts payable and accrued expenses 31,000 6,000 2,235,000
Accrued interest payable - 185,000
Payable to related party 1,187,000 26,298,000 -
Mortgage notes payable 1,368,000 1,557,000
Notes payable 745,000 3,290,000
Deferred income taxes 253,000 4,699,000
- -------------------------------------------------------------------------------------------------
3,584,000 26,304,000 92,968,000
- -------------------------------------------------------------------------------------------------
Commitments and contingencies
- -------------------------------------------------------------------------------------------------
Stockholder's capital
Common stock 2,920,000 5,920,000 17,804,000
Additional paid-in capital - 8,304,000 -
Accumulated earnings (deficit) 896,000 2,340,000 4,162,000
- -------------------------------------------------------------------------------------------------
3,816,000 16,564,000 21,966,000
- -------------------------------------------------------------------------------------------------
$ 7,400,000 $42,868,000 $ $114,934,000
=================================================================================================
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-66
<PAGE> 125
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE II
CONSOLIDATING SCHEDULE - OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pacific- Pacific Lenders
America Thrift Consolidated Posting and
Money and Loan Reconveyance Publishing
Center, Inc. Company Company Company
============================================================================================================
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 614,000 $10,256,000 $ -- $ --
Deposits with financial institutions 4,000 324,000 -- --
- ------------------------------------------------------------------------------------------------------------
Total interest income 618,000 10,580,000 -- --
- ------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Thrift certificates greater than $100,000 -- 23,000 -- --
Other thrift certificates -- 4,391,000 -- --
Notes payable 418,000 -- -- --
- ------------------------------------------------------------------------------------------------------------
Total interest expense 418,000 4,414,000 -- --
- ------------------------------------------------------------------------------------------------------------
Net interest income 200,000 6,166,000 -- --
PROVISION FOR LOAN LOSSES 150,000 1,277,000 -- --
- ------------------------------------------------------------------------------------------------------------
Net interest income (loss) after provision
for loan losses 50,000 4,889,000 -- --
- ------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and reconveyance fees -- -- 2,844,000 --
Other income 63,000 614,000 -- 410,000
Gain on sale of loans:
Excess yield 925,000 8,692,000 -- --
Premiums -- 19,600,000 -- --
Loan servicing fees -- 199,000 -- --
Equity in income of subsidiaries 8,226,000 -- -- --
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 9,214,000 29,105,000 2,844,000 410,000
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated
Reconveyance Pacific-
Corporation, America Eliminating Entries
WA Lending Dr Cr Consolidated
============================================================================================================================
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ -- $ 304,000 $ -- $ -- $11,174,000
Deposits with financial institutions -- -- -- -- 328,000
- --------------------------------------------------------------------------------------------------------------------------
Total interest income -- 304,000 -- -- 11,502,000
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Thrift certificates greater than $100,000 -- -- -- -- 23,000
Other thrift certificates -- -- -- -- 4,391,000
Notes payable -- 134,433 -- -- 552,000
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense -- 134,000 -- -- 4,966,000
- --------------------------------------------------------------------------------------------------------------------------
Net interest income -- 170,000 -- -- 6,536,000
PROVISION FOR LOAN LOSSES -- (276,000) -- -- 1,151,000
- --------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) after provision
for loan losses -- 446,000 -- -- 5,385,000
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and reconveyance fees 11,000 -- 2,855,000 -- --
Other income -- 100,000 410,000 -- 777,000
Gain on sale of loans:
Excess yield -- -- -- -- 9,617,000
Premiums -- -- -- -- 19,600,000
Loan servicing fees -- -- 199,000 -- --
Equity in income of subsidiaries -- -- 8,226,000 -- --
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest income 11,000 100,000 11,690,000 -- 29,994,000
==========================================================================================================================
</TABLE>
F-67
<PAGE> 126
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE II
CONSOLIDATING SCHEDULE - OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(CONTINUED)
<TABLE>
<CAPTION>
Pacific- Pacific Lenders
America Thrift Consolidated Posting and
Money and Loan Reconveyance Publishing
Center, Inc. Company Company Company
============================================================================================================
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits 672,000 13,929,000 1,715,000 151,000
General and administrative 3,004,000 8,867,000 947,000 142,000
Related party fees 1,071,000 -- -- --
Operations of other real estate 102,000 465,000 -- --
Depreciation and amortization 339,000 375,000 29,000 --
Loss on disposal of business segment 928,000 -- -- --
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense 6,116,000 23,636,000 2,691,000 293,000
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 3,148,000 10,358,000 153,000 117,000
INCOME TAX EXPENSE (BENEFIT) (1,014,000) 3,304,000 2,000 2,000
- -----------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 4,162,000 7,054,000 151,000 115,000
LOSS FROM DISCONTINUED OPERATIONS -- -- -- --
- -----------------------------------------------------------------------------------------------------------
NET INCOME $4,162,000 $ 7,054,000 $ 151,000 $ 115,000
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated
Reconveyance Pacific-
Corporation, America Eliminating Entries
WA Lending Dr Cr Consolidated
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits -- 21,000 -- 1,866,000 14,622,000
General and administrative 1,000 148,000 -- 1,090,000 12,019,000
Related party fees -- -- -- 199,000 872,000
Operations of other real estate -- 114,000 -- -- 681,000
Depreciation and amortization -- -- -- 29,000 714,000
Loss on disposal of business segment -- -- -- 928,000 --
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense 1,000 283,000 -- 4,112,000 28,908,000
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 10,000 263,000 11,690,000 4,112,000 6,471,000
INCOME TAX EXPENSE (BENEFIT) -- (633,000) -- 3,000 1,658,000
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 10,000 896,000 11,690,000 4,115,000 4,813,000
LOSS FROM DISCONTINUED OPERATIONS -- -- 3,917,000 3,266,000 (651,000)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $10,000 $896,000 $15,607,000 $7,381,000 $ 4,162,000
=====================================================================================================================
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-68
<PAGE> 127
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE III
CONSOLIDATING SCHEDULE - FINANCIAL POSITION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Lenders Pacific-
Pacific Posting America
Presidential Thrift Consolidated and Money
Mortgage and Loan Reconveyance Publishing Center, Eliminating Entries
Company Company Company Company Inc. Dr Cr Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents $ 609,000 $ 9,550,000 $ 283,000 $ 47,000 $ -- $ -- $ -- $10,489,000
Accounts receivable 1,000 126,000 2,925,000 285,000 -- -- -- 3,337,000
Accrued interest
receivable 357,000 546,000 -- -- -- -- -- 903,000
Loans receivable 3,332,000 40,576,000 -- -- -- -- -- 43,908,000
Loans held for sale 3,000,000 9,577,000 -- -- -- -- -- 12,577,000
Receivable from
related party 417,000 116,000 -- -- -- -- 186,000 347,000
Excess yield
receivable -- 2,725,000 -- -- -- -- -- 2,725,000
Other real estate 1,408,000 1,748,000 -- -- -- -- -- 3,156,000
Property and equipment 48,000 1,269,000 115,000 20,000 -- -- 54,000 1,398,000
Goodwill 1,808,000 -- -- -- -- -- -- 1,808,000
Deferred income taxes -- 1,612,000 -- -- -- -- -- 1,612,000
Other assets 90,000 440,000 44,000 6,000 104,000 -- -- 684,000
Investment in
subsidiaries 7,970,000 -- -- -- -- 4,485,000 12,455,000 --
- ---------------------------------------------------------------------------------------------------------------------------------
$19,040,000 $68,285,000 $3,367,000 $358,000 $ 104,000 $ 4,485,000 $12,695,000 $82,944,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-69
<PAGE> 128
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE III
CONSOLIDATING SCHEDULE - FINANCIAL POSITION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Pacific Lenders Pacific-
Presidential Thrift Consolidated Posting and America
Mortgage and Loan Reconveyance Publishing Money Eliminating Entries
Company Company Company Company Center, Inc. Dr Cr Consolidated
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
PARTNERS' CAPITAL
Thrift certificates
payable
Full-paid
certificates $ -- $35,881,000 $ -- $ -- $ -- $ -- $ -- $35,881,000
Installment
certificates -- 24,275,000 -- -- -- -- -- 24,275,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 60,156,000 -- -- -- -- -- 60,156,000
Accounts payable and
accrued expenses 694,000 769,000 2,444,000 132,000 -- 21,000 -- 4,018,000
Accrued interest
payable 170,000 103,000 -- -- -- -- -- 273,000
Payable to related
party 345,000 -- -- -- 101,000 165,000 -- 281,000
Mortgage notes payable 560,000 51,000 -- -- -- -- -- 611,000
Notes payable 6,771,000 -- -- -- -- -- -- 6,771,000
Note payable to
related party 600,000 -- -- -- -- -- -- 600,000
Deferred income taxes -- 387,000 -- -- -- -- -- 387,000
Partnership withdrawals
payable 1,120,000 -- -- -- -- -- -- 1,120,000
- ------------------------------------------------------------------------------------------------------------------------------------
10,260,000 61,466,000 2,444,000 132,000 101,000 186,000 -- 74,217,000
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and
contingencies
- ------------------------------------------------------------------------------------------------------------------------------------
Partners' capital
Common stock -- 3,000,000 -- -- -- 3,000,000 -- --
Additional paid-in
capital -- 8,304,000 -- -- 3,000 8,307,000 -- --
Accumulated deficit -- (4,485,000) -- -- -- -- 4,485,000 --
Partners' capital 8,780,000 -- 923,000 226,000 -- 1,202,000 -- 8,727,000
- ------------------------------------------------------------------------------------------------------------------------------------
8,780,000 6,819,000 923,000 226,000 3,000 12,509,000 4,485,000 8,727,000
- ------------------------------------------------------------------------------------------------------------------------------------
$19,040,000 $68,285,000 $3,367,000 $358,000 $ 104,000 $12,695,000 $4,485,000 $82,944,000
====================================================================================================================================
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-70
<PAGE> 129
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE IV
CONSOLIDATING SCHEDULE - OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Pacific Lenders
Presidential Thrift Consolidated Posting and
Mortgage and Loan Reconveyance Publishing
Company Company Company Company
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 1,872,000 $7,013,000 $ -- $ --
Deposits with financial institutions 10,000 682,000 -- --
- ---------------------------------------------------------------------------------------------------------
Total interest income 1,882,000 7,695,000 -- --
- ---------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Thrift certificates greater than $100,000 -- 7,000 -- --
Other thrift certificates -- 3,813,000 -- --
Notes payable 1,379,000 -- -- --
- ---------------------------------------------------------------------------------------------------------
Total interest expense 1,379,000 3,820,000 -- --
- ---------------------------------------------------------------------------------------------------------
Net interest income 503,000 3,875,000 -- --
PROVISION FOR LOAN LOSSES 1,894,000 1,395,000 -- --
- ---------------------------------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses (1,391,000) 2,480,000 -- --
- ---------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and reconveyance fees -- -- 3,248,000 --
Other income 139,000 353,000 -- 577,000
Gain on sale of loans -- 8,895,000 -- --
Loan servicing fees -- 351,000 -- --
Equity in income of subsidiaries 4,016,000 -- -- --
- ---------------------------------------------------------------------------------------------------------
4,155,000 9,599,000 3,248,000 577,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pacific-
America
Money Eliminating Entries
Center, Inc. Dr Cr Consolidated
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ -- $ -- $ -- $8,885,000
Deposits with financial institutions -- -- -- 692,000
- ------------------------------------------------------------------------------------------------------
Total interest income -- -- -- 9,577,000
- -------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Thrift certificates greater than $100,000 -- -- -- 7,000
Other thrift certificates -- -- -- 3,813,000
Notes payable -- -- -- 1,379,000
- -------------------------------------------------------------------------------------------------------
Total interest expense -- -- -- 5,199,000
- -------------------------------------------------------------------------------------------------------
Net interest income -- -- -- 4,378,000
PROVISION FOR LOAN LOSSES -- -- -- 3,289,000
- -------------------------------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses -- -- -- 1,089,000
- -------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and reconveyance fees -- 3,248,000 -- --
Other income -- 577,000 53,000 545,000
Gain on sale of loans -- -- -- 8,895,000
Loan servicing fees -- 351,000 -- --
Equity in income of subsidiaries -- 4,016,000 -- --
- -------------------------------------------------------------------------------------------------------
-- 8,192,000 53,000 9,440,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
F-71
<PAGE> 130
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE IV
CONSOLIDATING SCHEDULE - OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(CONTINUED)
<TABLE>
<CAPTION>
Pacific Lenders Pacific-
Presidential Thrift Consolidated Posting and America
Mortgage and Loan Reconveyance Publishing Money
Company Company Company Company Center, Inc.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits 392,000 5,608,000 1,712,000 146,000 -
General and administrative 1,192,000 4,002,000 927,000 152,000 -
Related party fees 1,363,000 - - - -
Operations of other real estate 1,120,000 92,000 - - -
Depreciation and amortization 529,000 446,000 26,000 - -
- --------------------------------------------------------------------------------------------------------------------
4,596,000 10,148,000 2,665,000 298,000 -
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (1,832,000) 1,931,000 583,000 279,000 -
INCOME TAXES (BENEFIT) 1,000 (1,224,000) 1,000 1,000 -
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (1,833,000) 3,155,000 582,000 278,000 -
INCOME FROM DISCONTINUED OPERATIONS - - - - -
- --------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(1,833,000) $3,155,000 $ 582,000 $ 278,000 $ -
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Eliminating Entries
Dr Cr Consolidated
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits - 1,858,000 6,000,000
General and administrative - 1,079,000 5,194,000
Related party fees - 351,000 1,012,000
Operations of other real estate - - 1,212,000
Depreciation and amortization - 108,000 893,000
- --------------------------------------------------------------------------------------------
- 3,396,000 14,311,000
- --------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 8,192,000 3,449,000 (3,782,000)
INCOME TAXES (BENEFIT) - 2,000 (1,223,000)
- --------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 8,192,000 3,451,000 (2,559,000)
INCOME FROM DISCONTINUED OPERATIONS 2,965,000 3,826,000 861,000
- --------------------------------------------------------------------------------------------
NET INCOME (LOSS) $11,157,000 $7,277,000 $(1,698,000)
- --------------------------------------------------------------------------------------------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-72
<PAGE> 131
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE V
CONSOLIDATING SCHEDULE - OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
=============================================================================================================
Pacific Lenders
Presidential Thrift Consolidated Posting and
Mortgage and Loan Reconveyance Publishing
Company Company Company Company
=============================================================================================================
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $2,969,000 $8,034,000 $ -- $ --
Deposits with financial institutions 1,000 400,000 -- --
- -------------------------------------------------------------------------------------------------------------
Total interest income 2,970,000 8,434,000 -- --
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Thrift certificates greater than $100,000 -- 28,000 -- --
Other thrift certificates -- 2,917,000 -- --
Notes payable 1,974,000 8,000 -- --
- -------------------------------------------------------------------------------------------------------------
Total interest expense 1,974,000 2,953,000 -- --
- -------------------------------------------------------------------------------------------------------------
Net interest income 996,000 5,481,000 -- --
PROVISION FOR LOAN LOSSES 4,682,000 1,414,000 -- --
- -------------------------------------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses (3,686,000) 4,067,000 -- --
- -------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and reconveyance fees -- -- 3,344,000 --
Other income 319,000 806,000 -- 587,000
Gain on sale of loans -- 946,000 -- --
Loan servicing fees -- 545,000 -- --
Equity in income of subsidiaries (2,001,000) -- -- --
- -------------------------------------------------------------------------------------------------------------
(1,682,000) 2,297,000 3,344,000 587,000
- -------------------------------------------------------------------------------------------------------------
===================================================================================================================================
Eliminating Entries
----------------------
Dr Cr Consolidated
===================================================================================================================================
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable $ -- $ -- $11,003,000
Deposits with financial institutions -- -- 401,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income -- -- 11,404,000
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Thrift certificates greater than $100,000 -- -- 28,000
Other thrift certificates -- -- 2,917,000
Notes payable -- -- 1,982,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense -- -- 4,927,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income -- -- 6,477,000
PROVISION FOR LOAN LOSSES -- -- 6,096,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses -- -- 381,000
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and reconveyance fees 3,344,000 -- --
Other income 587,000 -- 1,125,000
Gain on sale of loans -- -- 946,000
Loan servicing fees 545,000 -- --
Equity in income of subsidiaries 907,000 2,908,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
5,383,000 2,908,000 2,071,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-73
<PAGE> 132
PACIFICAMERICA MONEY CENTER, INC.
AND SUBSIDIARIES
SCHEDULE V
CONSOLIDATING SCHEDULE - OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Pacific Lenders
Presidential Thrift Consolidated Passing and
Mortgage and Loan Reconveyance Publishing
Company Company Company Company
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest expense
Salaries and employee benefits $ 295,000 $ 4,460,000 $1,569,000 $169,000
General and administrative 1,752,000 4,081,000 1,168,000 89,000
Related party fees 1,350,000 -- -- --
Operations of other real estate 439,000 293,000 -- --
Depreciation amortization 310,000 437,000 29,000 --
- ------------------------------------------------------------------------------------------------------------
4,146,000 9,271,000 2,766,000 258,000
- ------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit) (9,514,000) (2,907,000) 578,000 329,000
Income taxes (benefit) -- 1,000 -- --
- ------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (9,514,000) (2,908,000) 578,000 329,000
Income from discontinued operations -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Net income (loss) $(9,514,000) $(2,908,000) $ 578,000 $329,000
============================================================================================================
<CAPTION>
Eliminating Entries
---------------------------
Dr Cr Consolidated
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest expense
Salaries and employee benefits $ -- $ 1,738,000 $ 4,755,000
General and administrative -- 1,257,000 5,833,000
Related party fees -- 545,000 805,000
Operations of other real estate -- -- 732,000
Depreciation amortization -- 29,000 747,000
- --------------------------------------------------------------------------------------------
-- 3,569,000 12,872,000
- --------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit) 5,383,000 6,477,000 (10,420,000)
Income taxes (benefit) -- -- 1,000
- --------------------------------------------------------------------------------------------
Income (loss) from continuing operations 5,383,000 6,477,000 (10,421,000)
Income from discontinued operations 3,024,000 3,931,000 907,000
- --------------------------------------------------------------------------------------------
Net income (loss) $8,407,000 $10,408,000 $ (9,514,000)
============================================================================================
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-74
<PAGE> 133
INDEX OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of the Registrant, incorporated
by reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form S-4, as filed with the Securities and
Exchange Commission on December 22, 1995, as amended and
declared effective on May 14, 1996 (the "Registration
Statement").
3.2 Bylaws of the Registrant, incorporated by reference to the
Exhibit 3.2 of the Registration Statement.
4.1 Specimen Common Stock Certificate, incorporated by reference
to Exhibit 4.1 of the Registration Statement.
4.2 General Partner Warrant Agreement and Warrant, incorporated by
reference to Exhibit 4.2 of the Registration Statement.
4.3 Subscriber Warrant and Warrant Agreement, incorporated by
reference to Exhibit 4.3 of the Registration Statement.
10.1 Employment Agreement by and between the Registrant and Joel R.
Schultz, incorporated by reference to Exhibit 10.1 of the
Registration Statement.
10.2 Employment Agreement by and between the Registrant and Richard
D. Young, incorporated by reference to Exhibit 10.2 of the
Registration Statement.
10.3 Employment Agreement by and between the Registrant and Kenneth
A. Carmona, incorporated by reference to Exhibit 10.3 of the
Registration Statement.
10.4 Employment Agreement by and between the Registrant and Norman
A. Markiewicz, incorporated by reference to Exhibit 10.4 of
the Registration Statement.
10.5 Employment Agreement by and between the Registrant and Richard
B. Fremed, incorporated by reference to Exhibit 10.5 of the
Registration Statement.
10.6 Employment Agreement by and between Pacific Thrift and Loan
Company, Inc. and Frank Landini, incorporated by reference to
Exhibit 10.6 of the Registration Statement.
10.7 Employment Agreement by and between the Registrant and Charles
J. Siegel.
S-1
<PAGE> 134
10.8 Form of Indemnification Agreement by and between the
Registrant and each of its directors and executive officers,
incorporated by reference to Exhibit 10.7 of the Registration
Statement.
10.9 Stock Option Plan of the Registrant, dated January 1, 1996,
incorporated by reference to Exhibit 10.8 of the Registration
Statement.
10.10 Stock Purchase Plan of the Registrant, dated January 1, 1996,
incorporated by reference to Exhibit 10.9 of the Registration
Statement.
10.11 Supplemental Executive Retirement Plan of the Registrant,
dated January 1, 1996, incorporated by reference to Exhibit
10.10 of the Registration Statement.
10.12 Master Loan Purchase Agreement dated as of October 31, 1996,
by and between the Registrant and Aames Capital Corporation,
incorporated by reference to Exhibit 10.1 of the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1996.
10.13 First and Second Amendments to Master Loan Purchase Agreement
by and between the Registrant and Aames Capital Corporation.
10.14 Amended and Restated Corporate Finance Agreement, dated as of
January 27, 1997, by and among the Registrant, Advanta
Mortgage Conduit Services, Inc. and Advanta Mortgage Corp.
USA.
10.15 Asset and Stock Purchase and Sale and Assumption of
Liabilities Agreement, Secured Promissory Note and Security
Agreement, all dated as of December 15, 1996, among the
Registrant, Consolidated Reconveyance Company, Lenders Posting
and Publishing Company, Consolidated Reconveyance Corporation,
Consolidated Reconveyance Company, LLC and Lenders Posting and
Publishing Company, LLC, incorporated by reference to Exhibit
10.1 of the Registrant's Report on Form 8-K for December 31,
1996.
11.1 Calculation of Earnings Per Share
10.16 Mortgage Loan Purchase and Sale Agreement dated as of December
27, 1996, by and between the Company and Pacific Crest
Investment and Loan, incorporated by reference to Exhibit 10.2
of the Registrant's Report on Form 8-K for December 31, 1996.
16.1 Letter of Ernst & Young regarding termination dated September
27, 1995, incorporated by reference to the Registrant's Report
on Form 8-K for September 12, 1995.
21.1 Subsidiaries of the Registrant
27. Financial Data Schedule
S-2
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
June 27, 1996, by and between PACIFICAMERICA MONEY CENTER, INC., a Delaware
corporation (hereinafter referred to as "EMPLOYER") and CHARLES J. SIEGEL
(hereinafter referred to as "SIEGEL") on the following terms and conditions:
1. TERM OF AGREEMENT; DUTIES.
1. Term. EMPLOYER hereby agrees to employ SIEGEL as Chief
Financial Officer of EMPLOYER, Pacific Thrift and Loan Company, Inc., a
California corporation ("Pacific Thrift") and PacificAmerica Lending,
Inc.("PAL"), a Delaware corporation, both of which are operating subsidiaries of
the EMPLOYER, for a two-year term, commencing on the date hereof, and SIEGEL
hereby agrees to accept such employment for such term, subject to earlier
termination under the circumstances provided herein. The term of this Agreement
shall be extended automatically to cover successive terms of one year commencing
on each anniversary date of the date hereof after the initial two-year term,
unless, at least six months prior to the end of the initial term or any renewal
term hereof, SIEGEL gives written notice to the Board of Directors of EMPLOYER
(the "Board"), or EMPLOYER gives written notice to SIEGEL, of an intent to
terminate this Agreement at the end of such term.
2. Duties. SIEGEL, subject to the direction and control of the
Board, shall devote all of SIEGEL'S productive time, attention and energies to
discharging, and shall perform, such executive duties and managerial
responsibilities as Chief Financial Officer of EMPLOYER, Pacific Thrift and PAL
as may from time to time be specified by EMPLOYER, and will use SIEGEL'S best
efforts to promote the interests of EMPLOYER and its subsidiaries and
affiliates. The performance of such duties and responsibilities shall be
performed primarily in Los Angeles County and shall be SIEGEL'S exclusive
employment for compensation; provided, however, that nothing herein contained
shall be deemed to limit SIEGEL'S right to engage in other activities that do
not interfere with SIEGEL'S duties hereunder, with the consent of the Board.
2. COMPENSATION.
(a) In consideration for the services to be rendered by SIEGEL
hereunder during the term of SIEGEL'S employment, including all services to be
rendered as an officer and executive of EMPLOYER, its subsidiaries and
affiliates, EMPLOYER agrees to compensate SIEGEL as follows:
(i) During the term of this Agreement, EMPLOYER shall
pay SIEGEL a salary at an annual base rate of one hundred sixty thousand dollars
($160,000) per year, which shall
<PAGE> 2
be adjusted annually on December 31 of each year, to reflect, at a minimum, any
increase from the previous year in the Consumer Price Index for the Los Angeles,
California area (the "Base Salary"), in addition to such merit salary increase
as shall be determined by the Board of Directors or the Employee Compensation
Committee of the Board of Directors. The applicable Base Salary shall be payable
not less frequently than monthly in accordance with the regular salary procedure
from time to time adopted by EMPLOYER. There shall be deducted from all
compensation paid to SIEGEL such sums, including but not limited to Social
Security, income tax withholding, employment insurance, and any and all other
such deductions, as EMPLOYER is by law obligated to withhold.
(ii) SIEGEL shall be reimbursed for SIEGEL'S reasonable
and actual out-of-pocket expenses incurred by SIEGEL in performance of SIEGEL'S
duties and responsibilities hereunder, provided that SIEGEL shall first furnish
to EMPLOYER proper vouchers and/or receipts.
(iii) SIEGEL shall be entitled to participate in, and
shall be included in, such insurance, pension, profit sharing, stock option,
stock purchase, employee cash bonus pools, and other employee benefit plans of
EMPLOYER as are in effect from time to time during the term of this Agreement
and provided to other senior executive employees of EMPLOYER, including, but not
limited to, EMPLOYER'S Supplemental Executive Retirement Plan (all of which are
collectively referred to herein as the "Benefit Plans").
(iv) SIEGEL shall also be entitled to all perquisites
provided in accordance with EMPLOYER'S policy for senior management executives
from time to time in effect (all of which are collectively referred to herein as
the "Perquisites"). Notwithstanding the foregoing, in no event shall each or any
of the Perquisites provided pursuant to the terms of this Section 2 (a) (iv) be
lesser in value than such perquisites as were provided to SIEGEL by Pacific
Thrift, Presidential Mortgage Company, a California limited partnership
("Presidential") and/or Presidential Management Company, a California limited
partnership, and in effect immediately prior to the transfer of assets by
Presidential to EMPLOYER. Perquisites provided pursuant to this Section 2(a)
(iv) shall include, without limitation, use of an automobile or automobile
allowance, expense allowances, vacation days, sick days and holidays, and
medical, dental and life insurance benefits.
3. DISABILITY. If, on account of any physical or mental disability,
SIEGEL shall fail or be unable to perform under this Agreement for any period of
one hundred twenty (120) consecutive days or for an aggregate period of one
hundred twenty (120) or more days during any consecutive twelve-month period,
EMPLOYER may, at its option, at any time thereafter, upon written notice to
SIEGEL, terminate the employment relationship provided for in this Agreement. In
such event, SIEGEL'S requirement to
2
<PAGE> 3
render services hereunder and EMPLOYER'S requirement to compensate SIEGEL
hereunder shall terminate and come to an end upon the date provided in such
notice. In that event, SIEGEL shall be entitled to receive, as disability
compensation: (i) SIEGEL'S Base Salary for one year following termination of
this Agreement payable not less frequently than monthly,(ii) the cash value of
all vacation, holiday and sick days which have accrued up to the date of
disability, and (iii) use of an automobile or automobile allowance, full
automobile insurance coverage, and health insurance coverage under any health
insurance policies maintained by EMPLOYER for its other senior executives, all
of which shall be provided pursuant to the terms of Section 2 (a) (iv) herein
and shall continue to be provided without interruption for the greater of one
year following the effective date of termination pursuant to this Section 3 or
the remainder of the term of this Agreement. EMPLOYER may, at its option, apply
for disability income insurance and, if so, any obligation on the part of
EMPLOYER to pay SIEGEL any monthly payments on account of any physical or mental
disability of SIEGEL as specified above, shall be reduced by the amount of any
monthly payments to SIEGEL under any such disability income policy. Any payments
to SIEGEL under any state disability insurance shall not reduce the amount
payable to SIEGEL under this Agreement.
4. DEATH. In the event of SIEGEL'S death during the term hereof,
this Agreement shall terminate immediately. In such event, SIEGEL's personal
representative shall be entitled to receive, as a death benefit, in addition to
any other payments which SIEGEL's personal representative may be entitled to
receive under any Benefit Plans, SIEGEL'S Base Salary for one year following
SIEGEL'S death, payable not less frequently than monthly, together with the cash
value of all vacation, holiday and sick days which have accrued up to the date
of death.
EMPLOYER may maintain life insurance on the life of SIEGEL in favor
of the EMPLOYER. SIEGEL shall have no interest whatsoever in any such policy or
policies, except as otherwise provided in any split dollar life insurance
agreements, but SIEGEL shall, at the request of EMPLOYER, submit to such medical
examinations, supply such information, consent to such blood tests and execute
such documents as may be required by the insurance company or companies to whom
EMPLOYER has applied for such insurance.
5. TERMINATION FOR CAUSE. EMPLOYER may discharge SIEGEL at any time
for cause. "Cause" for discharge shall mean (i) theft or embezzlement by SIEGEL
from EMPLOYER or its affiliates, (ii) fraud or other acts of dishonesty by
SIEGEL in the conduct of EMPLOYER'S business or the fulfillment of SIEGEL'S
assigned responsibilities hereunder, (iii) SIEGEL'S conviction of, or plea of
nolo contendere to, any felony or any crime involving moral turpitude, (iv)
SIEGEL'S willfully and knowingly taking any action which is materially injurious
to EMPLOYER'S business or reputation. Within 10 business days following
3
<PAGE> 4
receipt of written notice of termination for Cause, SIEGEL shall have the right
to demand and, if demanded, to receive within 30 days, an opportunity to respond
and defend himself before the Board and to have the Board by resolution confirm
by a three-fourths affirmative vote that EMPLOYER has grounds to terminate
SIEGEL for Cause. If the Board does not determine that Cause exists, SIEGEL
shall have the option to treat his employment as not having terminated or as
having been terminated by EMPLOYER without cause as defined in Section 6 herein.
Without limiting the foregoing, nothing in this Section 5 shall be construed to
require that SIEGEL demand a hearing before the Board as a condition to pursuing
any claim or action with respect to the matters contained in this Agreement, and
nothing in this Section 5 shall limit SIEGEL'S rights under applicable law. The
occurrence of any event constituting cause for discharge shall permit, but not
require, EMPLOYER to terminate SIEGEL for Cause; provided, however, that
EMPLOYER'S decision not to terminate the SIEGEL upon the occurrence of an event
constituting cause for discharge shall not operate as a waiver of its rights
provided in this Section 5 or otherwise.
If EMPLOYER terminates SIEGEL for Cause, EMPLOYER shall be obligated
to provide to SIEGEL only the Base Salary provided for in Section 2 (a) (i)
herein through the date of termination of SIEGEL at the rate in effect on the
date of such termination, together with the cash value of all vacation, holiday
and sick days which have accrued up to the date of termination. The decision to
terminate SIEGEL shall be confidential, except to the extent disclosure is
required by law.
6. TERMINATION WITHOUT CAUSE. Should EMPLOYER terminate this
Agreement for reasons other than those specified in Sections 3, 4, 5, or 7
herein, SIEGEL shall be entitled to use of an automobile or automobile
allowance, full automobile insurance coverage, and health insurance coverage
under any health insurance policies maintained by EMPLOYER for its other senior
executives, all of which shall be provided pursuant to the terms of Section 2
(a) (iv) herein and shall continue to be provided without interruption for six
months following the effective date of termination pursuant to this Section 6.
Upon termination pursuant to this Section 6, EMPLOYER shall additionally pay to
SIEGEL a lump sum payment, to be paid on the effective date of termination
pursuant to this Section 6, which shall consist of: (i) one-half of the full
annual Base Salary, and (ii) the cash value of all vacation, holiday and sick
days which have accrued up to the date of termination and which would have
accrued for six months following termination pursuant to this Section 6. (The
sum of all amounts and benefits to be provided by EMPLOYER to SIEGEL pursuant to
this Section 6 is collectively referred to herein as the "Termination Payment".)
7. CORPORATE CHANGES.
4
<PAGE> 5
(a) Definition. SIEGEL may terminate his employment hereunder
upon thirty (30) days written notice at any time within one year following the
occurrence of a Corporate Change. For purposes of this Section 7, a "Corporate
Change" shall be deemed to have occurred upon the occurrence of any one (or
more) of the following events: (i) a transaction in which EMPLOYER ceases to be
an independent publicly owned corporation that is required to file quarterly and
annual reports under the Securities Exchange Act of 1934, (ii) a sale or other
disposition of all or substantially all of the assets, or a majority of the
outstanding capital stock, of EMPLOYER (including but not limited to the assets
or stock of EMPLOYER'S subsidiaries that results in all or substantially all of
the assets or stock of EMPLOYER on a consolidated basis being sold), (iii) as a
result of, or in connection with, any cash tender offer, exchange offer, merger
or other business combination, sale of assets, or contested election for the
Board, or combination of the foregoing, persons who were directors of EMPLOYER
just prior to such event(s) shall cease to constitute a majority of the Board,
(iv) any person, including a group as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, becomes the beneficial owner of
shares of EMPLOYER with respect to which twenty percent (20%) or more of the
total number of votes for the election of the Board may be cast, (v) EMPLOYER'S
stockholders cause a change in the majority of the members of the Board within a
twelve (12) month period; provided, however, that the election of one or more
new directors shall not be deemed to be a change in the membership of the Board
if the nomination of the newly elected directors was approved by the vote of
three-fourths of the directors then still in office who were directors at the
beginning of such twelve (12) month period, or (vi) a tender offer or exchange
offer is made for shares of the EMPLOYER'S common stock (other than one made by
the EMPLOYER) and shares of common stock are acquired thereunder.
(b) Payments. Upon termination of employment pursuant to
Section 7(a) hereof, SIEGEL shall be entitled to use of an automobile or
automobile allowance, full automobile insurance coverage, and health insurance
coverage under any health insurance policies maintained by EMPLOYER for its
other senior executive officers, all of which shall be provided pursuant to the
terms of Section 2 (a) (iv) herein and shall continue to be provided without
interruption for six months following the effective date of termination pursuant
to this Section 7. EMPLOYER shall additionally pay to SIEGEL a lump sum payment,
to be paid within five (5) days after the date of SIEGEL'S notice pursuant to
Section 7 (a) herein, which shall consist of: (i) two times the full annual Base
Salary plus three times the amount of the last annual bonus paid to SIEGEL for
the most recent fiscal year, and (ii) the cash value of all vacation, holiday
and sick days which have accrued up to the date of termination and which would
have accrued for six months following termination pursuant to this Section 7.
(The sum of all amounts and benefits to be provided by EMPLOYER to SIEGEL
pursuant to this Section 7 (b) is collectively referred to herein as the
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<PAGE> 6
"Corporate Changes Termination Payment"). Notwithstanding the foregoing, if
SIEGEL gives notice of termination pursuant to this Section 7 prior to the
closing of a transaction referred to in Section 7(a)(i) or (ii) hereof, the
Corporate Changes Termination Payment must be made a condition to and must be
paid on the date of the closing of such a transaction.
(c) Tax Limitations on Corporate Changes Payments. If the
aggregate of all payments, including but not limited to, the Corporate Changes
Termination Payment that is to be paid to SIEGEL contingent on those Corporate
Changes specified in Section 7 (a) herein (the "Aggregate Amount"), would
constitute a "parachute payment" (as defined in Section 280 G of the Internal
Revenue Code of 1986, as amended or supplemented (the "Code"), the Corporate
Changes Termination Payment otherwise payable to the SIEGEL pursuant to Section
7 (b) herein shall be equal to the higher of: (i) the amount (referred to herein
as the "Reduced Amount") that would result in no portion of the Aggregate Amount
being subject to the excise tax imposed by Section 4999 of the Code, or (ii) the
full Aggregate Amount if the net after tax payments to SIEGEL would exceed the
Reduced Amount. The determination of the Corporate Changes Termination Payment,
the Reduced Amount and the net after tax amount payable to SIEGEL on the full
Aggregate Amount shall be made by the SIEGEL and the EMPLOYER in good faith, and
in the event they disagree, such determination shall be made by means of
arbitration to be conducted at the EMPLOYER'S expense. Any such arbitration
shall be conducted in Los Angeles, California, by one arbitrator, who shall be a
member of a nationally recognized accounting firm that is not then engaged by
the EMPLOYER or any of its major stockholders, and who shall be jointly
designated by the parties. If the parties cannot agree on the selection of an
arbitrator, EMPLOYER'S then current independent auditors shall select such
arbitrator. The findings of the arbitrator shall be conclusive and binding on
the parties. For purposes of this Section 7(c), the net after tax amount payable
to SIEGEL shall mean the present value, as determined in accordance with Section
280G(d)(4) of the Code, of any payment or distribution in the nature of
compensation to or for SIEGEL'S benefit, whether paid or payable pursuant to
this Agreement or otherwise, net of all taxes imposed on the SIEGEL with respect
thereto under Sections 1 and 4999 of the Code, determined by applying the
highest marginal rate under Section 1 of the Code.
(d) Management Changes. SIEGEL may terminate his employment
hereunder upon thirty (30) days written notice at any time within one year
following the occurrence of a Management Change, which shall be deemed to have
occurred upon the termination of both of Joel R. Schultz and Richard D. Young as
President and Senior Executive vice President, respectively of EMPLOYER. Upon
termination of employment pursuant to this Section 7(d), SIEGEL shall be
entitled to a lump sum payment, to be paid within five (5) days after the date
of SIEGEL'S notice pursuant to this Section 7(d), which shall consist of: (i)
two
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<PAGE> 7
times the full annual Base Salary plus an amount equal to the last annual
bonus paid to SIEGEL for the most recent fiscal year, and (ii) the cash value of
all vacation, holiday and sick days which have accrued up to the date of
termination.
8. RIGHTS TO PROPRIETARY INFORMATION.
(a) For purposes of this Agreement, the term "Proprietary
Information" means and includes: 2. all written, oral and visual information
about EMPLOYER's customers, clients, employees, consultants and brokers that is
not readily known or available to the public, or that SIEGEL learns of or
acquires through his employment by EMPLOYER; and 3. financial information,
marketing techniques and materials, marketing and development plans, broker
lists, customer lists, other information concerning brokers and customers,
pricing information and policies, price lists, employee files, corporate and
business contacts and relationships, corporate and business opportunities,
telephone logs and messages, video or audio tapes and/or disks, photographs,
film and slides, including all negatives and positive and prints, computer disks
and files, rolodex cards, addresses and telephone numbers, contracts, releases,
other writings of any kind, and any and all other materials of a proprietary
nature to which SIEGEL is exposed or has access as a consequence of his
employment by EMPLOYER. All of the Proprietary Information is, and at all times
shall be and remain, private and confidential and is the sole and exclusive
property of, and owned and controlled by EMPLOYER, regardless of whether such
Proprietary Information is in tangible or intangible form. The parties
understand that information that is generally known to the public, or which
SIEGEL acquired other than as a consequence of his employment by EMPLOYER, such
as in the course of similar employment or work elsewhere shall not be deemed
part of the Proprietary Information.
(b) All Proprietary Information shall be the sole property of
EMPLOYER, its successors and assigns, and EMPLOYER, its successors and assigns
shall be the sole owner of all patents, trademarks, service marks and
copyrights, and other rights (collectively referred to herein as "Rights")
pertaining to Proprietary Information. SIEGEL hereby assigns to EMPLOYER any
rights SIEGEL may have or acquire in Proprietary Information or Rights
pertaining to the Proprietary Information. SIEGEL further agrees as to all
Proprietary Information to assist EMPLOYER or any person designated by it in
every necessary or appropriate manner (but at EMPLOYER's expense) to obtain and
from time to time enforce Rights relating to said Proprietary Information
throughout the universe. SIEGEL will execute all documents for use in applying
for, obtaining and enforcing such Rights on such Proprietary Information as
EMPLOYER may desire, together with any assumptions thereof to EMPLOYER or
persons designated by it. SIEGEL's obligation to assist EMPLOYER or any person
designated by it in obtaining and enforcing Rights relating to Proprietary
Information shall continue beyond the
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<PAGE> 8
cessation of his employment. It is provided, however, that EMPLOYER shall
compensate SIEGEL at a reasonable rate after the cessation of employment for
time actually spent by SIEGEL upon EMPLOYER's request for such assistance, at a
rate not less than SIEGEL'S last salary rate, on a pro rated per hour basis, in
effect on the date of his termination. In the event that EMPLOYER is unable,
after reasonable effort, to secure SIEGEL's signature on any document or
documents needed to apply for or enforce any Right relating to Proprietary
Information, whether because of his physical or mental incapacity or for any
other reason whatsoever, SIEGEL hereby irrevocably designates and appoints
EMPLOYER and its duly authorized officers and agents as his agents and
attorneys-in-fact to act for and in his behalf and stead in the execution and
filing of any such application and in furthering the application for an
enforcement of Rights with the same legal force and effect as if such acts were
performed by SIEGEL.
(c) At all times, both during his employment and after the
cessation of employment, whether the cessation is voluntary or involuntary, for
any reason or no reason, or by disability, SIEGEL will keep in strictest
confidence and trust all Proprietary Information, and SIEGEL will not disclose,
use, or induce or assist in the use or disclosure of any Proprietary Information
or Rights pertaining to Proprietary Information, or anything related thereto,
without the prior, express written consent of EMPLOYER, except as may be
necessary in the ordinary course of performing his duties as an employee of
EMPLOYER. SIEGEL recognizes that EMPLOYER has received and in the future will
receive from third parties their confidential, trade secret, or Proprietary
Information subject to a duty on EMPLOYER's part to maintain the confidentiality
of such information and to use it only in connection with the performance of his
duties as an employee of EMPLOYER. SIEGEL agrees that SIEGEL owes EMPLOYER and
such third parties, during his employment and thereafter, a duty to hold all
such confidential, trade secret, or Proprietary Information in the strictest
confidence, and SIEGEL will not disclose, use, or induce or assist in the use or
disclosure of any such confidential, trade secret, or Proprietary Information
without the prior, express written consent of EMPLOYER, except as may be
necessary in the ordinary course of performing his duties as an employee of
EMPLOYER consistent with EMPLOYER's agreement with such third party.
(d) SIEGEL agrees that all material or other original works of
authorship written, created, or developed by SIEGEL in connection with his
employment hereunder (whether alone or in conjunction with any other person),
and all rights of any and every kind whatsoever in and to the results and
proceeds of SIEGEL's services rendered hereunder, whether or not such rights are
now known, recognized or contemplated, and the complete, unconditional and
unencumbered ownership in and to such materials, results and proceeds for all
purposes whatsoever shall be "works for hire," as that term is defined in the
United States
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<PAGE> 9
Copyright Act (17 U.S.C. Section 101), and shall be the sole and absolute
property of EMPLOYER, its successors and assigns, and SIEGEL agrees that he/she
does not have and will not claim to have, either under this Agreement or
otherwise, any right, title or interest of any kind or nature whatsoever in or
to said property.
(e) SIEGEL will promptly disclose to EMPLOYER, and EMPLOYER
hereby agrees to receive such disclosures in confidence, all discoveries,
developments, designs, improvements, inventions, software programs, processes,
techniques, know-how, negative know-how and data, whether or not patentable or
registrable under patent, copyright or similar statutes or reduced to practice,
made or conceived or reduced to practice or learned by SIEGEL, either alone or
jointly with others during the period of his employment, for the purpose of
permitting EMPLOYER to determine whether they constitute Proprietary
Information, or copyrightable or patentable material.
9. NON-COMPETITION/NON-SOLICITATION.
(a) During the period of his employment, SIEGEL will not
directly or indirectly engage in any activity which competes with EMPLOYER, or
which EMPLOYER shall determine in good faith to be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER. In addition, during his employment
and after the cessation of employment, SIEGEL will not, alone or in concert with
others, or on his own behalf, or on behalf of any other person, in any way use
or disclose Proprietary Information in order to solicit, entice, or in any way
divert any broker to do business with any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER. During his employment, SIEGEL agrees not to
plan or otherwise take any preliminary steps, either alone or in concert with
others, or on his own behalf, or on behalf of any other person, to set up or
engage in any business enterprise that would be in competition with EMPLOYER or
any subsidiary or affiliate of EMPLOYER.
(b) During his employment and for a period of two (2) years
after the cessation of employment, SIEGEL will not, either directly or
indirectly, either alone or in concert with others or on his own behalf or on
behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to EMPLOYER, or any subsidiary or affiliate of
EMPLOYER, to leave employment with or otherwise terminate employment with
EMPLOYER or any subsidiary or affiliate of EMPLOYER or work for any competitor
of EMPLOYER or any subsidiary or affiliate of EMPLOYER.
(c) SIEGEL recognizes that the immediate and continuous
performance of his obligations in this paragraph 9 is extremely important and
valuable to EMPLOYER because of the extensive and costly training given to its
employees and the knowledge gained by such employees of the Proprietary
Information
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<PAGE> 10
used by EMPLOYER in its operations. In the event of his breach of those
obligations, SIEGEL therefore agrees that EMPLOYER shall be entitled to
estimated or liquidated damages, as defined herein. For each employee of
EMPLOYER whom SIEGEL solicits, diverts, recruits, or employs in violation of
this paragraph 9, and for each broker or mortgage loan customer of EMPLOYER whom
such employee handled for EMPLOYER and whom the employee contacts or otherwise
services or works with for his benefit or for the benefit of anyone in privity
with SIEGEL, including any competitor of EMPLOYER or any subsidiary or affiliate
of EMPLOYER with whom SIEGEL accepts employment in breach of this paragraph 9,
SIEGEL shall pay EMPLOYER liquidated damages. The liquidated damages for each
such broker or customer shall be (i) the amount of profit earned by EMPLOYER
from mortgage loan referrals from each broker, or the amount of profit earned on
loans to each mortgage loan customer, during the twelve (12) months immediately
preceding termination of such employer with EMPLOYER, and (ii) the amount of
cost to EMPLOYER to recruit and train a replacement for each such employee plus
the first six (6) month's salary paid to the replacement(s) for such employee.
If the employee was not in a position of have contacts with brokers or to
otherwise generate business from mortgage loan customers, the liquidated damages
shall be the amount of the cost to EMPLOYER to recruit and train a
replacement(s) for the employee. SIEGEL further agrees that the cost to recruit
and train replacement(s) for each employee as described in this paragraph 9 will
be part of EMPLOYER's damages and that the profit formula for employees who had
broker or mortgage loan business contact, and the first six (6) months salary
paid to the replacement(s) for employees, are conservative estimates of the
value, or a portion of the value, of the employee to EMPLOYER.
10. SUCCESSORS; BINDING AGREEMENT.
(a) EMPLOYER will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of EMPLOYER to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that EMPLOYER would be required to perform it if no such succession had taken
place. Any failure of EMPLOYER to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle SIEGEL to compensation from EMPLOYER in the same
amount and on the same terms as he would be entitled to hereunder if EMPLOYER
were to terminate employment pursuant to Section 7 hereof, except that for
purposes of implementing the foregoing, the day before any such succession
becomes effective shall be deemed the date that payment is due. As used in this
Agreement, "EMPLOYER" shall mean EMPLOYER as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
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<PAGE> 11
(b) This Agreement shall inure to the benefit of, and be
enforceable by, SIEGEL'S personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
SIEGEL should die while any amount would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to his devisees, legatee
or other designees, or if there is no such designee, to his estate.
11. NOTICES. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given at the time delivered, if personally delivered, or twenty-four hours
after deposit thereof for mailing at any general or branch United States Post
Office enclosed in a registered or certified postpaid envelope and addressed as
follows:
If to EMPLOYER:
PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Joel R. Schultz, President and Chief
Executive Officer
with copies to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars
Los Angeles, CA 90067
Attention: Catherine De Bono Holmes, Esq.
and
PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Board of Directors
If to SIEGEL:
CHARLES J. SIEGEL
_______________________
_______________________
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
12. ENTIRE UNDERSTANDING. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior written or
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oral agreements. This Agreement may not be modified, amended, or terminated
except by another instrument in writing executed by the parties hereto.
13. GOVERNING LAW. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance with
the laws of the State of California.
14. ATTORNEY'S FEES.
(a) In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. SIEGEL shall be deemed to be the prevailing
party if he is awarded any amounts in any such proceeding or action.
(b) EMPLOYER shall also pay and be responsible for all
attorneys and related fees, expenses or costs incurred by SIEGEL, if EMPLOYER,
or any stockholder of EMPLOYER contests the validity or enforceability of this
Agreement or any part hereof.
The parties hereto have executed this Agreement on the day and year
first above written.
"SIEGEL"
________________________________
CHARLES J. SIEGEL
"EMPLOYER"
PACIFICAMERICA MONEY CENTER, INC.
By: _____________________________
Joel R. Schultz
President
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<PAGE> 1
EXHIBIT 10.13
FIRST AMENDMENT TO
MASTER LOAN PURCHASE AGREEMENT
This First Amendment to Master Loan Purchase Agreement (the
"Amendment"), dated as of December __, 1996, between PacificAmerica Money
Center, Inc., a Delaware corporation, as seller ("Seller"), and Aames Capital
Corporation, a California corporation, as purchaser ("Purchaser"), with
reference to the following facts:
A. Seller and Purchaser are parties to a Master Loan Purchase
Agreement (the "Agreement") dated as of October 31, 1996.
B. Seller and Purchaser desire to amend the provisions of
Section 2.01(a) of the Agreement in the manner set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. The last sentence of Section 2.01(a) of the Agreement is
hereby deleted in its entirety and replaced with the following:
"In the event that any Mortgage Loans are not included in
an Aames Mortgage Trust within 120 days after the date that
such Mortgage Loans were sold to Purchaser hereunder,
Purchaser shall be obligated to consider any offers to
purchase the Mortgage Loans presented to it by any
unrelated third party. Purchaser shall be required to
provide written notice to Seller within one Business Day
after the receipt of any offer to purchase the Mortgage
Loans, and Seller shall have a right of first refusal,
exercisable for a period of thirty days from the date of
Seller's receipt of Purchaser's written notice of a third
party offer, to repurchase the Mortgage Loans so offered,
at a price equal to the applicable Repurchase Price, less
any amounts owed by Purchaser to Seller for Interim Net
Spread."
2. Except as modified herein, all terms and conditions of the
Agreement shall remain in full force and effect without modification, and all of
the general terms and conditions of the Agreement, including without limitation
the provisions of Article Nine of the Agreement, shall apply to this Amendment.
In witness whereof, Seller and Purchaser have each caused this
Amendment to be executed on its behalf by its duly authorized officer.
PACIFICAMERICA MONEY CENTER, INC.
By:_________________________
Charles J. Siegel
Chief Financial Officer
AAMES CAPITAL CORPORATION
By:____________________________
____________________________
____________________________
<PAGE> 2
SECOND AMENDMENT TO
MASTER LOAN PURCHASE AGREEMENT
This Second Amendment to Master Loan Purchase Agreement (the
"Amendment"), is made as of January 1, 1997, between PacificAmerica Money
Center, Inc., a Delaware corporation, as seller ("Seller"), and Aames Capital
Corporation, a California corporation, as purchaser ("Purchaser"), with
reference to the following facts:
A. Seller and Purchaser are parties to a Master Loan Purchase
Agreement (the "Agreement") dated as of October 31, 1996. All capitalized terms
referred to in this Amendment and not defined herein have the meanings ascribed
to them in the Agreement.
B. Seller and Purchaser have agreed that Seller shall have no
obligation to deliver the Quarterly Commitment Amount of Mortgage Loans for
purchase by Purchaser, as currently provided for in the Agreement, until the
date (the "Recommencement Date") which is 30 days after the date that Purchaser
notifies Seller that it has implemented a Home Equity Line of Credit ("HELOC")
Program in which Seller can originate and sell loans to Purchaser (pre-approved
by Purchaser for purchase if required by Seller) with loan-to-value ratios at
least five percentage points higher than the loan-to-value ratios currently
required under Purchaser's lending Guidelines. Seller and Purchaser therefore
desire to amend the Agreement as provided for herein.
C. Seller and Purchaser have further agreed that, because only
$14,936,821.84 principal amount of loans which have previously been sold to
Purchaser are available for securitization in the next Aames Mortgage Trust, the
purchase price for such loans will be modified to an amount which is 108% of the
total principal balance of such loans on the date of sale thereof (of which 100%
of the principal balance of such loans has previously been paid) plus accrued
interest and interest payments actually received on such loans from the date of
sale until the date of payment of the premium provided for herein, less the
Servicing Fee payable to Purchaser and a monthly financing fee determined in
accordance with the formula provided in the definition of Interim Net Spread in
the Agreement, with no continuing interest of Seller in the Excess Spread or
otherwise with respect to such loans.
NOW, THEREFORE, the parties hereby agree as follows:
1. The definition of "Quarterly Commitment Amount" contained
in Section 1.01 of the Agreement is hereby deleted in its entirety and replaced
with the following:
"The lesser of (i) the total aggregate principal balance of
all HELOC loans made by Seller which are Qualified Mortgage
Loans, plus any other Qualified Mortgage Loans which
Seller, in its sole discretion, determines to offer to
Purchaser, during such Quarterly Commitment Period and (ii)
$50 million plus the Aggregate Quarterly Commitment
Deficiency."
2. The definition of "Quarterly Commitment Deficiency"
contained in Section 1.01 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"With respect to any Quarterly Commitment Period beginning
with the first full quarter which begins after the
Recommencement Date, for any Quarterly Commitment Period in
which Seller offers for sale to Purchaser pursuant to
Section 2.01 Qualified Mortgage Loans with an aggregate
Principal Balance less than $50 million, the difference
between $50 million and the aggregate Principal Balance of
Qualified Mortgage Loans so offered."
3. The first sentence of Section 2.01(a) of the Agreement is
hereby deleted in its entirety and replaced with the following:
"During the Term of the Agreement, Seller shall offer for
sale to Purchaser during each Quarterly Commitment Period,
Qualified Mortgage Loans in such
<PAGE> 3
amount as Seller shall determine; provided that, after the
Recommencement Date, Seller shall offer for sale to
Purchaser during each Quarterly Commitment Period all HELOC
loans made by Seller which are Qualified Mortgage Loans
(pre-approved for purchase by Purchaser if required by
Seller), plus any other Qualified Mortgage Loans which
Seller, in its sole discretion, determines to offer to
Purchaser, during such Quarterly Commitment Period, in an
aggregate principal amount of not less than the quarterly
Commitment Amount." Seller shall have the right to require
that Purchaser pre-approve for purchase by Purchaser all
HELOC and companion loans secured by the same property as
any HELOC originated by Seller, in which case Purchaser
hereby unconditionally agrees to purchase all such loans
which are so pre-approved, provided that such loans are
Qualified Mortgage Loans.
4. The last sentence of Section 2.01(c) of the Agreement is
hereby deleted in its entirety and replaced with the following:
"Seller shall have the right to offer and sell any Mortgage
Loans offered to Purchaser and not accepted for purchase by
Purchaser to other Persons for purchase, securitization or
other disposition."
5. Section 2.01(e) is hereby deleted in its entirety and shall
hereafter be referred to as [intentionally omitted].
6. With respect to the $14,936,821.84 principal amount (as
determined on the date of sale of such loans, referred to herein as the "Sale
Date Principal Balance") of loans previously sold by Seller to Purchaser which
have not been included in an Aames Mortgage Trust as of the date hereof (the
"1996 Fourth Quarter Loans") Seller and Purchaser agree that the purchase price
for such loans shall be modified to equal 108% of the total principal balance of
such loans on the date of sale thereof (of which 100% of the principal balance
of such loans has previously been paid) plus accrued interest and interest
payments actually received on such loans from the date of sale until the date of
payment of the premium provided for herein, less the Servicing Fee payable to
Purchaser and a monthly financing fee determined in accordance with the formula
provided in the definition of Interim Net Spread in the Agreement. Seller and
Purchaser further agree that Seller shall have no further interest in the 1996
Fourth Quarter Loans or in the Aames Mortgage Trust in which such loans may be
included at any time in the future. However, within 10 days after the date, if
any, on which total Loans sold by Seller to Purchaser under the Agreement equal
an aggregate Principal Balance of at least $250 million, Purchaser will pay to
Seller an additional 3% of the Sale Date Principal Balance of the 1996 Fourth
Quarter Loans. All other provisions of the Agreement with respect to the 1996
Fourth Quarter Loans, and the terms of sale of such loans by Seller to
Purchaser, shall continue to apply with respect to such loans.
7. Except as modified herein and as necessary to carry out the
intentions of the parties as reflected in this Amendment, all terms and
conditions of the Agreement shall remain in full force and effect without
modification, and all of the general terms and conditions of the Agreement,
including without limitation the provisions of Article Nine of the Agreement,
shall apply to this Amendment.
IN WITNESS WHEREOF, Seller and Purchaser have each caused this
Amendment to be executed on its behalf by its duly authorized officer.
AAMES CAPITAL CORPORATION PACIFICAMERICA MONEY CENTER, INC.
By:___________________________ By:_________________________
Mark Elbaum Charles J. Siegel
Senior Vice President - Finance Chief Financial Officer
<PAGE> 4
PACIFICAMERICA MONEY CENTER, INC.
21031 Ventura Boulevard, Suite 102
Woodland Hills, California 91364
January 1, 1997
Aames Capital Corporation
3731 Wilshire Boulevard, 10th Floor
Los Angeles, California 90010
Attention: Cary Thompson
Aames Financial Corporation
3731 Wilshire Boulevard, 10th Floor
Los Angeles, California 90010
Attention: Cary Thompson
Dear Cary:
You are hereby notified that PacificAmerica Money Center, Inc.
("PAMM"), a Delaware corporation, has assigned to Pacific Thrift and Loan
Company ("Pacific Thrift"), a California corporation, all of its right, title
and interest in and to all of the following payment obligations of Aames Capital
Corporation ("Aames") under that certain First Amendment (the "Amendment") dated
as of January 1, 1997, to Master Loan Purchase Agreement (the "Aames
Agreement"), dated as of October 31, 1996, by and between PAMM and Aames: all
obligations of Aames for payment of the adjusted purchase price with respect to
the $14,936,821.84 principal amount (as determined on the date of sale of such
loans, referred to herein as the "Sale Date Principal Balance") of loans
previously sold by PAMM to Aames which have not been included in an Aames
Mortgage Trust as of the date hereof (the "1996 Fourth Quarter Loans"). Pursuant
to the Amendment, PAMM and Aames have agreed that the purchase price for such
loans shall be modified to equal 108% of the total principal balance of such
loans on the date of sale thereof (of which 100% of the principal balance of
such loans has previously been paid) plus accrued interest and interest payments
actually received on such loans from the date of sale until the date of payment
of the premium provided for herein, less the Servicing Fee payable to Aames and
a monthly financing fee determined in accordance with the formula provided in
the definition of Interim Net Spread in the Agreement. PAMM and Aames have
further agreed that PAMM shall have no further interest in the 1996 Fourth
Quarter Loans or in the Aames Mortgage Trust in which such loans may be included
at any time in the future.
PAMM has further assigned to Pacific Thrift all of PAMM's
right to receive an additional 3% of the Sale Date Principal Balance of the 1996
Fourth Quarter Loans, payable by Aames within 10 days after the date, if any, on
which total Loans sold by PAMM to Aames under the Agreement equal an aggregate
Principal Balance of at least $250 million. You are hereby instructed to make
all such payments, as they become due and payable, to Pacific Thrift. PAMM
hereby releases and discharges Aames and AFC from any claim to any payment made
by Aames or AFC to Pacific Thrift pursuant to the terms of this letter of
instruction.
<PAGE> 5
Aames Capital Corporation
Aames Financial Corporation
January 1, 1997
Page 2
You are further notified that PAMM has assigned to Pacific
Thrift all of its rights against AFC pursuant to the Guaranty of AFC dated as of
October 31, 1996 with respect to all payments assigned to Pacific Thrift which
may become due and payable by AFC for the adjusted purchase price of the 1996
Fourth Quarter Loans pursuant to the Guaranty. You are hereby instructed to make
all such payments, as they become due and payable, to Pacific Thrift. PAMM
hereby releases and discharges AFC from any claim to any payment made by AFC to
Pacific Thrift under the Guaranty pursuant to the terms of this letter of
instruction.
Very truly yours,
JOEL R. SCHULTZ, President
<PAGE> 1
THIS AMENDED AND RESTATED CORPORATE FINANCE AGREEMENT, amended as
of January 27, 1997, among PacificAmerica Money Center, Inc., as seller ("PAM"
or the "Seller"), Advanta Mortgage Conduit Services, Inc., ("Buyer") and
Advanta Mortgage Corp.USA, as master servicer (the "Master Servicer"),
W I T N E S S E T H T H A T :
WHEREAS, PAM, through its subsidiaries, is an originator of
mortgage loans which PAM desires to include in securitization transactions
sponsored by the Buyer;
WHEREAS, Buyer desires to include such mortgage loans in its
securitization transactions; and
WHEREAS, PAM and Buyer desire that the Master Servicer service
such mortgage loans.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, the parties hereto hereby agree as follows:
Section 1. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Section.
Accumulation Pool: As of any date, all Mortgage Loans
previously sold by the Seller hereunder and which are held by the Conduit
Acquisition Trust on such date. The Accumulation Pool may represent any number
of Pools.
Additional Initial Reserve Amount: With respect to any
Securitized Loan Pool, any additional amount required to be added to the
Reserve Amount in connection with the conveyance of such Securitized Loan Pool
to the related Advanta Trust (including conveyances of any "pre-funded"
Mortgage Loans). The parties acknowledge that their expectation is that the
Additional Initial Reserve Amount will be ________.
Additional Representations and Warranties: With respect to
any Pool, the additional representations and warranties made by the Seller with
respect thereto, as set forth in the related Conveyance Agreement and agreed to
by the Buyer and the Seller.
Advances: Any "Delinquency Advances" as may be required in
connection with a Securitized Loan Pool, as defined in the "Pooling and
Servicing" or similar agreement relating to the applicable Advanta Trust, and
any Servicing Advances.
Advanta Pooling Agreement: Any pooling and servicing or other
trust agreement pursuant to which an Advanta Trust is established.
Advanta Trust: Any trust which the Buyer may from time to
time sponsor for the purpose of securitizing, among other things, all or a
portion of the Mortgage Loans and selling the interests therein to investors.
Agreement: This Amended and Restated Corporate Finance
Agreement and all amendments hereof and supplements hereto.
<PAGE> 2
Applicable Pool Parameters: For purposes of this Agreement
only (i.e., not necessarily for purposes of the Whole Loan Agreement) those
pool parameters set forth on Exhibit D hereto, as such Exhibit D may be revised
from time to time by the Buyer.
Applicable Pool Balance: With respect to any Pool as of any
Distribution Date, the aggregate Principal Balances of the Mortgage Loans in
such Pool as of the opening of business on the first day of the prior calendar
month.
Applicable Rate: With respect to any Mortgage Loan included
in the Accumulation Pool, LIBOR plus ______. With respect to any Mortgage Loan
included in a Securitized Loan Pool, the "Pass-Through Rate(s)" for the related
classes of securities for the related period; such "Pass-Through Rate(s)" may
be either the actual rates or, in the case of a derivative, such derivative
hedged rate(s).
Appraised Value: The appraised value of any Mortgaged
Property based upon the appraisal or other valuation made at the time of the
origination of the related Mortgage Loan; or, in the case of a Mortgage Loan
which is a purchase money mortgage; or in the case of a home which is purchased
within the last twelve (12) months, the sale price of the Mortgaged Property at
such time of origination, if such sale price is less than such appraised value.
ARM Loan: A Mortgage Loan which bears an adjustable rate of
interest.
Authorized Representatives: As defined in Section 16 hereof.
Bond Pricing Discount: An estimated percentage of pricing
discount on the publicly-offered securities to be issued by an Advanta Trust,
as determined by the Underwriter(s) selected by the Buyer. The parties
acknowledge that their expectation is that the Bond Pricing Discount will be
_____, or as close to zero as reasonably practicable. If the Bond Pricing
Discount is more than _____, the Seller may terminate this Agreement upon 30
days' notice to the Buyer.
Business Day: Any day other than (a) a Saturday or a Sunday,
or (b) a day on which national banks in the states of California, New York or
Delaware are required or authorized by law, executive order or governmental
decree to be closed.
Buyer Information: As defined in Section 5(d).
Carry-Forward Amount: With respect to any Securitized Loan
Pool and any Distribution Date, the sum of the excess, if any, of (x) the
amount described in clause (y) of the definition of "Deferred Premium Payment"
for the immediately preceding Distribution Date over (y) the Residual Cashflow
for such Securitized Loan Pool for such immediately preceding Distribution
Date.
Closing Date: With respect to any Pool, the date established
as the "Closing Date" in the related Conveyance Agreement.
Combined Loan-to-Value Ratio: With respect to any First
Mortgage Loan, the percentage equal to the Original Principal Amount of the
related Note divided by the Appraised Value of the related Mortgaged Property
and with respect to any Second Mortgage Loan, the percentage equal to (a) the
sum (i) the remaining principal balance, as of origination of the Second
Mortgage Loan, of the Senior Lien note(s) relating to such
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<PAGE> 3
Second Mortgage Loan, and (ii) the Original Principal Amount of the Note
relating to such Second Mortgage Loan, divided by (b) the Appraised Value.
Compensating Interest: Amounts advanced by the Master
Servicer for the benefit of the Advanta Trust as a result of a prepayment in
full by a Mortgagor on a date other than the scheduled Due Date, and equal to
the excess of (x) a full month's interest on the related Mortgage Loan
calculated at the related Coupon Rate less the Servicing Fee Rate over (y) the
interest actually paid by the related Mortgagor for the related monthly period.
All amounts advanced for Compensating Interest will be reimbursed to the Master
Servicer out of the Residual Cashflows due to the Seller.
Conduit Acquisition Trust: The Conduit Acquisition Trust
created pursuant to that certain Pooling and Servicing Agreement dated as of
February 15, 1995 among the Buyer, the Master Servicer and the Trustee.
Conveyance Agreement: With respect to the purchase of a Pool,
the Conveyance Agreement in substantially the form of Exhibit A hereto executed
with respect thereto.
Credit Enhancer: Any financial guarantor or other financial
institution which provides third-party credit enhancement with respect to an
Advanta Trust.
Cut-Off Date: With respect to any Pool, the date established
as the "Cut-Off Date" in the related Conveyance Agreement.
Cut-Off Date Principal Balance: As to any Mortgage Loan, its
Principal Balance as of the opening of business on the related Cut-Off Date.
Defect: As to any Mortgage Loan, (a) a failure of any
document in the Mortgage File to correspond substantively to the information
set forth on the Mortgage Loan Schedule or (b) the absence of a required
document or required information from a Mortgage File if such failure or
absence in the reasonable opinion of the Buyer materially and adversely affects
the collectibility or value of the Mortgage Loan.
Defective Mortgage Loan: Any Mortgage Loan which is required
to be repurchased by the Seller pursuant to Section 5(b), 5(c), 6(b) or 8(c)
hereof.
Deferred Premium Payment: With respect to any Securitized
Loan Pool and any Distribution Date, the excess, if any, of (x) the Residual
Cashflow for such Distribution Date over (y) the sum of (i) the Initial Premium
Amortization Current Amount plus (ii) the related Initial Premium Fee plus
(iii) the Carry-Forward Amount, if any, for such Distribution Date.
Delinquency Advances: For each remittance period for the
related Securitization, an amount equal to the sum of the interest portions
(net of the Servicing Fees) due, but not collected, with respect to delinquent
Mortgage Loans, which the Master Servicer advances to the Trust. The Master
Servicer is only required to make Delinquency Advances if the Master Servicer
believes, in its good faith business judgment, that such amount will ultimately
be recovered from the related Mortgage Loan.
Distribution Date: With respect to the Accumulation Pool or
any Securitized Loan Pool, the 25th day of each month or, if such day is not a
Business Day, the Business
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<PAGE> 4
Day immediately following such 25th day, beginning in the month specified in
the related Conveyance Agreement.
Due Date: With respect to any Mortgage Loan the fixed date in
each month on which the Mortgagor's Monthly Mortgage Payment is due.
Excess Interest means:
(x) with respect to the Accumulation Pool, as of
any Distribution Date, the sum of all interest due (minus the amount
of any interest not required to be advanced by the Master Servicer as
a non-recoverable "Delinquency Advance") with respect to the Mortgage
Loans in the Accumulation Pool during the prior calendar month (minus
any portion of such interest previously received by the Seller as part
of the related Pool Purchase Price), less the sum of the following
amounts, to be deducted in the following order of priority:
(i) the Monthly Fee with respect to the
Accumulation Pool;
(ii) one-twelfth of the Servicing Fee Rate times
the related Applicable Pool Balance;
(iii) the interest, calculated at the Applicable
Rate, which accrued on the Applicable Pool
Balance which relates for the applicable
preceding interest accrual period; and
(iv) the amount of any Advances, including, but
not limited to, Nonrecoverable Advances, made
or paid by the Master Servicer with respect
to any Mortgage Loans included in the
Accumulation Pool during the prior calendar
month less the amount of any Delinquency
Advances made or paid by the Master Servicer
on prior monthly periods and recovered during
the current monthly period; and
(y) with respect to any Securitized Loan Pool, as
of any Distribution Date, the sum of all interest due with respect to
the Mortgage Loans in such Securitized Loan Pool (minus the amount of
any interest not required to be advanced by the Master Servicer as a
non-recoverable "Delinquency Advance"), during the prior calendar
month (minus any portion of such interest previously received by the
Seller as part of the related Pool Purchase Price), less the sum of
the following amounts, to be deducted in the following order of
priority:
(i) the Monthly Fee with respect to the
Securitized Loan Pool;
(ii) one-twelfth of the Servicing Fee Rate times
the related Applicable Pool Balance;
(iii) the sum of (x) the interest, calculated at
the Applicable Rate for the related ARMs,
which accrued on that portion of the
Applicable Pool Balance which relates to
ARMs, plus (y) the interest, calculated at
the Applicable Rate for the related Fixed
Rate Loans, which accrued on that portion of
the Applicable Pool Balance which relates to
Fixed Rate Loans,
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<PAGE> 5
in each case for the applicable preceding
interest accrual period; and
(iv) the amount of any Advances (including, but
not limited to, Nonrecoverable Advances) and
Compensating Interest made or paid by the
Master Servicer with respect to any Mortgage
Loans included in the Securitized Loan Pool
during the prior calendar month less the
amount of any Delinquency Advances and
Compensating Interest made or paid by the
Master Servicer on prior monthly periods and
recovered during the current monthly period.
FDIC: The Federal Deposit Insurance Corporation and its
successors in interest.
FEMA: The Federal Emergency Management Agency and its
successors in interest.
FHLMC: The Federal Home Loan Mortgage Corporation and its
successors in interest.
First Mortgage Loan: A Mortgage Loan which constitutes a
first priority mortgage lien with respect to any Mortgaged Property.
Fixed Rate Loan: A Mortgage Loan which bears interest at a
fixed rate.
FNMA: The Federal National Mortgage Association and its
successors in interest.
Initial Premium Amortization Amount Schedule: With respect to
any Securitized Loan Pool, a schedule setting forth all Initial Premium
Amortization Current Amounts for each Distribution Date.
Initial Premium Amortization Current Amount: With respect to
any Securitized Loan Pool (i) for each Distribution Date occurring during the
amortization period (which shall in no event be less than 36 months or greater
than 48 months) set forth in the related Securitization Statement, the amount
set forth with respect to such Distribution Date in the Initial Premium
Amortization Amount Schedule attached to the related Securitization Statement
and (ii) with respect to each Distribution Date thereafter, the related
Unamortized Initial Premium Amount immediately prior to such Distribution Date.
Initial Premium Fee: With respect to any Distribution Date,
the product of (i) ______ of the sum of (a) ______ (b) ______ and (ii) the
related Unamortized Initial Premium Amount immediately prior to such
Distribution Date.
Initial Premium Payment: An amount paid to the Seller on the
closing date of the related Advanta Securitization equal to the product of (i)
the related Initial Premium Percentage and (ii) the aggregate Principal Balance
of all Qualifying Loans purchased by the Buyer as of the closing date of a
Securitization.
Initial Premium Percentage: With respect to each Securitized
Loan Pool, the percentage indicated as the Initial Premium Percentage in the
related Securitized Statement, which percentage shall not be less than ______.
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<PAGE> 6
Initial Reserve Amount: With respect to any Securitized Loan
Pool, the initial amount of Reserves relating thereto, as set forth in the
related Conveyance Agreement and based upon an initial review by the Credit
Enhancer. The parties acknowledge that their expectation is that the Initial
Reserve Amount will be ______.
Insurance Policy: Any hazard, flood, title or primary
mortgage insurance policy relating to a Mortgage Loan.
Insurance Proceeds: Proceeds paid by any insurer and received
by the Master Servicer during the prior calendar month pursuant to any
insurance policy covering a Mortgage Loan or the related Mortgaged Property,
and the proceeds from any fidelity bond or errors and omission policy, net of
any component thereof covering any expenses incurred by or on behalf of the
Master Servicer.
Issuance Costs: With respect to any Securitized Loan Pool,
all costs incurred by the Seller and by the Buyer in connection with the
purchase and sale of a Pool, the establishment of the related Advanta Trust and
the sale of mortgage-backed securities by such Advanta Trust, including,
without limitation, legal, accounting, printing, initial Trustee's fee, the
Underwriter's discount, initial Credit Enhancer's fee, Rating Agency's fees and
other customary costs of issuance.
LIBOR: With respect to each Distribution Date, one-month
London Interbank Offered Rate as set forth in the Wall Street Journal as of the
prior Business Day.
Liquidated Mortgage Loan: As to any Distribution Date, any
Mortgage Loan as to which the Master Servicer has determined, in accordance
with its regular servicing practices during the prior calendar month, that all
Liquidation Proceeds which it expects to recover from or on account of such
Mortgage Loan have been recovered, which determination may include "charging
off" such Mortgage Loan.
Liquidation Expenses: Expenses which are incurred by the
Master Servicer in connection with the liquidation or foreclosure of any
Mortgage Loan and not recovered under any insurance policy or from any
Mortgagor. Such expenses shall include, without limitation, legal fees and
expenses, real estate brokerage commissions, any unreimbursed amount expended
by the Master Servicer respecting the related Mortgage Loan (including,
without limitation, amounts voluntarily advanced to correct defaults on each
related Senior Lien) and any related and previously unreimbursed Advances.
Liquidation Proceeds: Cash (other than Insurance Proceeds)
received in connection with the liquidation of any Mortgaged Property, whether
through trustee's sale, foreclosure sale or otherwise received in respect of
any Mortgage Loan foreclosed upon (including, without limitation, proceeds from
the rental of the related Mortgaged Property).
Master Commitment: The Master Commitment for Corporate
Finance Relationships dated as of December 16, 1996 among the Buyer and the
Seller hereto.
Master Servicer: Advanta Mortgage Corp. USA, a Delaware
corporation.
Monthly Fee: As defined in Section 4(a) hereof.
Monthly Mortgage Payment: With respect to any Mortgage Note,
the amount of each fixed monthly payment (other than final balloon payments)
payable under such Mortgage Note in accordance with its terms, net of any
portion of such monthly payment
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<PAGE> 7
that represents late payment charges, prepayment or extension fees or
collections allocable to payments to be made by Mortgagors for payment of
insurance premiums, real estate taxes or similar items.
Mortgage: The mortgage, deed of trust or other instrument
creating a first, second or third lien on an estate in fee simple interest in
real property securing a Mortgage Loan.
Mortgage File: With respect to any Mortgage Loan, the items
set forth on Exhibit B hereto.
Mortgage Loan: Each of the Mortgage Loans sold by the Seller
hereunder.
Mortgage Loan Rate: As to any Mortgage Loan, the per annum
rate of interest applicable to the calculation of interest thereon.
Mortgage Loan Schedule: With respect to any Pool, the
schedule of Mortgage Loans delivered by the Seller with respect thereto on the
related Closing Date. Each such schedule shall be delivered in
computer-readable form on diskette or magnetic tape and in physical form, as
amended from time to time.
Mortgage Note: The note or other instrument of indebtedness
evidencing the indebtedness of a Mortgagor under the related Mortgage Loan.
Mortgaged Property: The underlying property securing a
Mortgage Loan.
Mortgagor: The obligor under a Mortgage Note.
Net Insurance Proceeds: Insurance Proceeds from any policy of
insurance covering a Mortgage Loan which (a) are applied by the Master Servicer
to reduce the Principal Balance of the related Mortgage Loan and (b) not
applied to the restoration or repair of the related Mortgaged Property or
released to the related Mortgagor in accordance with the Master Servicer's
regular servicing procedures or the terms of the related Mortgage Loan.
Net Liquidation Proceeds: As to any Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses. For all purposes of this
Agreement, Net Liquidation Proceeds shall be allocated first to accrued and
unpaid interest on the related Mortgage Loan and then to the Principal Balance
thereof.
Nonrecoverable Advances: With respect to any Mortgage Loan,
any Delinquency Advance and any Servicing Advance previously made and not
reimbursed which, in the good faith business judgment of the Master Servicer,
would not be ultimately recoverable.
Offering Document: A prospectus, placement memorandum or
other document pursuant to which an Underwriter offers mortgage- backed
securities issued by an Advanta Trust.
Original Principal Amount: With respect to any Mortgage Note,
the original principal amount due under such Mortgage Note as of its date of
origination.
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<PAGE> 8
Other Expenses: Any additional expenses incurred by the Buyer
in connection with the inclusion of the Seller's Mortgage Loans sold by the
Seller in an Advanta Trust, including, but not limited to the costs of (i) data
integrity review of loan files versus the servicing system, (ii) accountant's
"comfort letter" with respect to any of the Seller Information and (iii)
third-party due diligence expenses relating to on-site review of the Seller or
the Mortgage Loans, to the extent over and above the Buyer's normal expenses
for items (i), (ii) and (iii).
Pair-Off Fee: As defined in the Master Commitment for
Corporate Finance Relationships, dated as of December 16, 1996 between the
Seller and the Buyer.
Person: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
Pool: Any group of Mortgage Loans sold by the Seller
hereunder and designated as a "pool" for purposes of this Agreement. For
convenience, each Pool shall be designated by the year of its sale and lettered
sequentially, e.g., 1996-A, 1996-B, etc.
Pool Principal Balance: As of any date, the aggregate
Principal Balances of all Mortgage Loans in the related Pool as of such date.
Pool Purchase Price: With respect to any Pool, the sum of (x)
the aggregate Principal Balance of each Mortgage Loan in such Pool as of the
opening of business on the related Cut-Off Date and (y) for each Mortgage Loan,
interest accrued on the amount described in clause (x) from and including the
date to which interest was last paid by the Mortgagor (including any prepaid
interest) to but excluding the Closing Date, calculated at the related Mortgage
Loan Rate and minus the Initial Servicing Expenses set forth on Exhibit L
attached hereto.
Principal Balance: As to any Mortgage Loan and any date of
determination, the Principal Balance thereof as of the related Cut-Off Date,
less all amounts theretofore applied in reduction of such Principal Balance
after the related Cut-Off Date; provided, however, that a Mortgage Loan that
has become liquidated will be deemed to have a Principal Balance of _______.
Principal Payment: As to any Mortgage Loan and calendar
month, all amounts received or, deemed to have been received by the Master
Servicer from or on behalf of the related Mortgagor during such calendar month
(including Principal Prepayments) which, at the time of receipt or at the time
deemed to have been received, were applied or were required to be applied by
the Master Servicer in reduction of the Principal Balance of such Mortgage
Loan.
Principal Prepayment: As to any Mortgage Loan and calendar
period, any Mortgagor payment or other recovery in respect of principal on a
Mortgage Loan (including Net Liquidation Proceeds) which, in the case of a
Mortgagor payment, is received in advance of its Due Date and is not
accompanied by an amount as to interest representing scheduled interest for any
month subsequent to the month of such payment or was accompanied by
instructions from the related Mortgagor directing the Master Servicer to apply
such payments to the Principal Balance of such Mortgage Loan.
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Qualified Mortgage: "Qualified Mortgage" shall have the
meaning set forth from time to time in the definition thereof at Section
860G(a)(3) of the Internal Revenue Code of 1986, as amended (or any successor
statute thereto).
Qualifying Loan: Mortgage Loans which (i) conform to the
Applicable Guidelines, and (ii) which conform to all Representations and
Warranties, as defined in this Agreement and applicable to the related Mortgage
Loans.
Rating Agencies: Collectively, all nationally recognized
statistical credit rating agencies providing a rating on any class of
mortgage-backed securities issued by an Advanta Trust.
Realized Loss: As to any Liquidated Mortgage Loan, the
excess, if any, of (x) the Principal Balance thereof as of the date of
liquidation, together with all unreimbursed Advances over (y) the related Net
Liquidation Proceeds, if any.
Related Conduit Agreements: As defined in the Master
Commitment.
Remaining Excess Interest: With respect to any Securitized
Loan Pool as of any Distribution Date, the excess, if any, of (x) the Excess
Interest for such Securitized Loan Pool over (y) the Reserve Deposit for such
Securitized Loan Pool.
REO Property: Any Mortgaged Property as to which title has
become vested in the Trustee, the Conduit Acquisition Trust or an Advanta Trust
as a result of foreclosure, deed in lieu of foreclosure, etc.
Representations and Warranties: As defined in Section 8(a)
hereof.
Repurchase Price: With respect to any Mortgage Loan
repurchased by the Seller pursuant to the provisions hereof, an amount equal to
(i) the sum of (A) the Principal Balance of such Mortgage Loan as of the
beginning of the calendar month next preceding the Distribution Date on which
the proceeds of such repurchase or purchase are required to be distributed, (B)
interest computed at the applicable Mortgage Loan Rate on such Principal
Balance from the date to which interest was last paid by the Mortgagor to the
end of the calendar month immediately preceding such Distribution Date on which
such repurchase or purchase occurs and (C) any previously unreimbursed Advances
made on or in respect of such Mortgage Loan less (ii) any payments of principal
and interest in respect of such Mortgage Loan, made by or on behalf of the
related Mortgagor during such calendar month.
Reserve Amount: With respect to the Accumulation Pool or any
Securitized Loan Pool, as of any Distribution Date the excess of (x) the sum of
(i) the Initial Reserve Amount(s) for the related Pool(s), (ii) any Additional
Initial Reserve Amount and (iii) the aggregate, cumulative amount of Reserve
Deposits applicable to the Accumulation Pool or such Securitized Loan Pool, as
the case may be and (iv) investment earnings at Advanta Corp.'s then-standard
reinvestment rate over (y) the sum of (i) the aggregate, cumulative amount of
Realized Losses experienced with respect to the related Pool(s) since their
sale by the Seller reduced by any amounts described in clause (y) of Section
9(d) hereof which have previously been applied in respect of such Realized
Losses, (ii) the aggregate, cumulative amount of Reserve Release Amounts
distributed to the Seller on all prior Distribution Dates and (iii) any amount
described in the second sentence of Section 9(b) hereof which are paid to the
Seller.
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Reserve Deposit: With respect to the Accumulation Pool or any
Securitized Loan Pool, on any Distribution Date, the lesser of (x) the related
Excess Interest for such Distribution Date or (y) any related Reserve Shortfall
for such Distribution Date.
Reserve Release Amount: As of any Distribution Date and with
respect to any Securitized Loan Pool, the excess of (x) the related Reserve
Amount on such Distribution Date, after taking into account all credits to, and
deductions therefrom on such Distribution Date over (y) the related Reserve
Requirement for such Distribution Date.
Reserve Requirement: With respect to any Securitized Loan
Pool and Distribution Date, the required amount of Reserves for such
Distribution Date. In no event shall the level of the Reserve Requirement
exceed the level that would be required by the related Credit Enhancer, if the
Seller were to do a stand-alone transaction.
Reserve Shortfall: With respect to any Securitized Loan Pool,
on any Distribution Date, any excess of (x) the related Reserve Requirement for
such Distribution Date over (y) the related Reserve Amount immediately prior to
such Distribution Date.
Reserves: The amount of any first-loss protection maintained
with respect to any Pool or group of Pools.
Residual Cashflow: With respect to any Securitized Loan Pool
as of any Distribution Date, the Residual Cashflow for any Distribution Date
shall equal the Remaining Excess Interest, if any, for such Securitized Loan
Pool and such Distribution Date plus the aggregate Reserve Release Amount, if
any, for such Distribution Date plus any prepayment fees collected for such
Distribution Date.
Second Mortgage Loan: A Mortgage Loan which constitutes a
second priority mortgage lien with respect to the related Mortgaged Property.
Securitization: A periodic securitization of mortgage loans
by the Buyer.
Securitization Statement: Each statement delivered to the
Seller by the Buyer at the time of establishment of an Advanta Trust containing
Mortgage Loans sold by the Seller hereunder, which statement shall set forth
the final Reserve Requirement for the related Securitized Loan Pool, the
Pass-Through Rate(s) applicable to such Securitized Loan Pool and related
information.
Securitized Loan Pool: Any group of Mortgage Loans sold by
the Seller hereunder and held by a particular Advanta Trust, whether acquired
initially by such Advanta Trust or subsequently acquired through "pre-funded"
purchases. A Securitized Loan Pool may represent any number of Pools.
Seller: PacificAmerica Money Center, Inc., a Delaware
corporation.
Seller Information: As defined in Section 5(d) hereof.
Seller's Applicable Guidelines: The loan policies and
guidelines adopted by the Seller in its discretion for its loan origination
activities.
Seller's Transaction Expenses: With respect to any
Securitized Loan Pool, the Seller's pro rata share (based upon the relative
aggregate principal balances of the Mortgage Loans sold by the Seller to the
total aggregate principal balance for all mortgage
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loans in such Securitized Loan Pool) of the Issuance Costs, which shall be a
maximum of _____ times the aggregate Principal Balance of the related Mortgage
Loans.
Senior Lien: With respect to any Second Mortgage Loan, the
mortgage loan relating to the corresponding Mortgaged Property having a first
priority lien.
Servicing Advance: Any out-of-pocket costs or expenses
incurred by the Master Servicer in connection with the performance of its
servicing obligations, including, but not limited to, preservation expenses,
payments for taxes and insurance, and payments made to Senior Lien holders,
enforcement and judicial proceedings, including foreclosures, the management
and liquidation of "REO" Properties, etc.
Servicing Fees: As of any Distribution Date, ______ basis
points times the Applicable Pool Balance of the Accumulation Pool or the
Securitized Loan Pool. Servicer will be entitled to retain additional
servicing compensation for incidental fees or charges provided for in the
applicable Note and/or Mortgage that are customarily collected from the
Mortgagor or charged by the Servicer in the ordinary course of performing its
obligations herein, including, but not limited to, late payment charges,
assumption processing charges and assumption fees, modification charges or
fees, demand fees, insufficient funds fees, reconveyance charges, tax service
fees, fees for statement of account or payoff of Mortgage Loans.
Total Loan-to-Value Ratio: With respect to any Mortgage Loan,
the percentage equal to the sum of (i) the Original Principal Amount of the
related Note and (ii) the remaining principal balance(s), as of origination of
such Mortgage Loan, of all other note(s) secured by liens, whether senior or
subordinate, on the related Mortgaged Property, divided by the Appraised Value
of the related Mortgaged Property.
Trustee: The trustee designated by the Buyer.
Unamortized Initial Premium Amount: With respect to any
Securitized Loan Pool and any Distribution Date, the original related Initial
Premium Payment minus (i) the aggregate, cumulative amount of the related
Residual Cashflow applied in respect of the amortization thereof on previous
Distribution Dates pursuant to Section 9(d) hereof and minus (ii) the
aggregate, cumulative amounts applied in respect of the amounts described in
clause (z) of Section 9(d) hereof on previous Distribution Dates.
Underwriter: Collectively, any underwriters or placement
agents engaged or consulted by the Buyer in connection with the sale of
mortgage-backed securities by an Advanta Trust.
Whole Loan Agreement: The Master Loan Purchase Agreement
dated as of July 31, 1995 among the parties hereto.
Whole Loan Purchases: A pool of Mortgage Loans purchased
pursuant to the Whole Loan Agreement.
Section 2. Interest Calculations. All calculations of
interest hereunder, including, without limitation, calculations of interest at
the Mortgage Loan Rate, which are made in respect of the Principal Balance of a
Mortgage Loan shall be made on a daily basis using a 360-day year, except to
the extent that any different convention (e.g., "actual/360", "actual/365") is
used with respect to any securities issued by an Advanta Trust.
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Section 3. Purchases and Sales. (a) Purchases and Sales
hereunder shall generally be governed by the terms of the Master Commitment.
(b) Purchases of Qualifying Loans under this Agreement
shall occur in minimal Pool sizes of $________ aggregate Principal Balance.
Offers of Pools, document review, servicing transfer and settlement shall
initially be performed by following the same procedures set forth in the Whole
Loan Agreement, as such procedures may be revised from time to time upon mutual
agreement of the Buyer and the Seller.
(c) To consummate a proposed purchase the Seller and the
Buyer on behalf of the Conduit Acquisition Trust shall, on or prior to the
related Closing Date, execute and deliver a Conveyance Agreement with respect
to the related Pool in substantially the form of Exhibit A hereto. On the
related Closing Date the Buyer shall cause the Pool Purchase Price for the
related Pool to be wired to the Seller in immediately available funds.
(d) In connection with each purchase of a Pool the
Conduit Acquisition Trust shall, pursuant to the related Conveyance Agreement,
purchase all of the Seller's right, title and interest to each Mortgage Loan,
including all interest accruing thereon and principal received on or with
respect to such Mortgage Loan on or after the related Cut-Off Date.
(e) The Seller agrees to cause its records relating to
the Mortgage Loans to indicate that the Mortgage Loans have been sold to the
Conduit Acquisition Trust. The Seller will treat each sale of a Pool as a sale
for generally accepted accounting purposes, will reflect such sale on its
accounting records, and shall furnish to the Buyer, in connection with the
execution of each Conveyance Agreement an officer's certificate certifying to
the Seller's treatment of the transactions contemplated hereby as sales, and
such other matters as the Buyer may reasonably request. The Seller may, at its
option, elect an appropriate treatment of the transactions contemplated hereby
for tax purposes.
(f) Prior to the purchase of the first Pool purchased
hereunder the Seller shall cause to be provided to the Buyer and the Trustee an
opinion of counsel in a form approved by the Buyer relating to the execution
and delivery of this Agreement by the Seller and attached hereto as Exhibit G.
In connection with each subsequent execution of a Conveyance Agreement, the
Seller shall provide to the Buyer and the Trustee an officer's certificate in a
form approved by the Buyer as to certain legal and factual matters with respect
to such sale.
(g) The Seller shall cause at least ____ (by number of
loans) of each Pool to be reviewed in accordance with quality control
procedures which are standard in the residential mortgage loan industry. Such
review may be undertaken by employees of the Seller or of the Buyer or its
affiliates, as determined by the Seller. Copies of all quality control review
reports shall be furnished to the Buyer on request.
Section 4. Fees and Expenses.
(a) On each Distribution Date the Buyer shall receive a
monthly fee ("Monthly Fee"), with respect to each Accumulation Pool and each
Securitized Loan Pool, from cashflows on the related Pool, equal to ______
basis points times the Applicable Pool Principal Balance as of the first day of
the prior calendar month.
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Any amounts due to the Buyer or to the Master Servicer
hereunder or under the Whole Loan Agreement, including, but not limited, to the
fees described above, and the Pair-Off Fee, and any hedging costs, and not paid
when due, shall remain payable by the Seller. Such amounts may be funded from
any Residual Cashflow otherwise due to the Seller, or offset against any
amounts otherwise payable to the Seller by the Buyer or the Master Servicer.
(b) The Seller shall pay all the fees and expenses of
Dewey Ballantine up to a maximum of $______ incurred in connection with the
preparation of this Agreement, at the time of execution and delivery of this
Agreement.
(c) All expenses of recording assignments of mortgage
shall be paid by the Seller.
Section 5. Establishment of Advanta Trusts.
(a) Except as provided below in this Section 5(a), in
connection with the creation of an Advanta Trust the Buyer shall cause the
Conduit Acquisition Trust to convey to such Advanta Trust at least ____ of all
Qualifying Loans then held in the Accumulation Pool as of the cut-off date for
such Advanta Trust. It is the Buyer's current intention to sponsor Advanta
Trusts on a quarterly basis. In the event that any Qualifying Loans are not
conveyed to an Advanta Trust within ____ days of the date they are purchased by
the Buyer hereunder, Buyer shall consider any offers to purchase such
Qualifying Loans presented to it by any unrelated third party; provided, that
nothing in this Section 5(a) shall be construed to require the Buyer to solicit
offers to purchase such loans. Buyer shall be required to provide written
notice within ____ Business Days after the receipt of any offer to purchase the
Qualifying Loans, and Seller shall have a right of first refusal, exercisable
for a period of ____ Business Days from the date of Seller's receipt of
Purchaser's written notice of a third party offer, to repurchase the Qualifying
Loans so offered, at a price equal to the Repurchase Price. In connection with
any conveyance of loans to an Advanta Trust, the Buyer, the related
Underwriter(s) and the related Credit Enhancer, shall establish the related
Pass-Through Rate(s) and Reserve Requirement applicable to such Mortgage Loans.
The Seller shall pay the applicable Bond Pricing Discount and
the applicable Other Expenses at the time of the establishment of the related
Advanta Trust (which amounts may be offset against any amounts due to the
Seller).
In connection with the conveyance of any Mortgage Loans to an
Advanta Trust the Buyer shall furnish the Seller with the related
Securitization Statement.
If the inclusion in an Advanta Trust of Mortgage Loans sold
hereby would adversely impact the overall Reserve Requirements or pricing
relating to such Advanta Trust, the Buyer, after consulting with the Seller,
may segregate such Mortgage Loans as a separate pool and/or "REMIC" in such
Advanta Trust, and (but shall not be required to) issue specified classes of
securities with respect to such Mortgage Loans. The parties acknowledge their
expectation that no such separate treatment should be necessary with respect to
Mortgage Loans which are Qualifying Loans. In case such separate treatment is
required, the Seller shall have the right to repurchase such loans, sell such
loans pursuant to the Whole Loan Agreement or leave the loans in the Advanta
Trust. Each such separate pool and/or "REMIC" will have its own Pass-Through
Rate and its own Reserve
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Requirement. Any additional costs relating to such a structure shall
constitute "Seller's Transaction Expenses" payable by the Seller.
The Seller shall have the right, prior to the "cut-off-date"
for the related Advanta Trust, to substitute for any Mortgage Loan described in
the preceding paragraph a replacement Mortgage Loan of similar or better
characteristics and unpaid Principal Balance of equal or lesser amount
acceptable to the Buyer and which is eligible for inclusion in such Advanta
Trust.
If for any reason, any Qualifying Loans offered for purchase
under the Agreement cannot be included in an Advanta Trust, in addition to
Seller's other rights set forth herein, Seller shall have the right to sell
such Qualifying Loans to Buyer pursuant to the Whole Loan Agreement.
(b) If, in connection with the establishment of an
Advanta Trust, any Mortgage Loan in a Securitized Loan Pool is ____ or more
days contractually delinquent and such Mortgage Loan is determined by the Buyer
to be ineligible for inclusion in such Advanta Trust, the Buyer shall promptly
inform the Seller, and the Seller shall have the option to repurchase such
Mortgage Loan in accordance with the provisions of this Section 5 prior to the
closing date of such Advanta Trust, to substitute for such Mortgage Loan a
replacement Mortgage Loan of similar or better characteristics and with an
unpaid Principal Balance of equal or lesser amount reasonably acceptable to the
Buyer and which is eligible for inclusion in such Advanta Trust, or to have
such ineligible Mortgage Loan remain in the Accumulation Pool. The Seller
shall have the further right, but not the obligation to repurchase any Mortgage
Loan in an Accumulation Pool which is ____ or more days contractually
delinquent.
In connection with any such repurchase the Seller shall
deliver the Repurchase Price to the Buyer. In connection with any such
substitution the Seller shall deliver the substitute Mortgage Loan and the
items which constitute the related Mortgage File to the Trustee, and shall
deliver to the Buyer the excess of (x) the outstanding Principal Balance of the
replaced Mortgage Loan over (y) the outstanding Principal Balance of the
substitute Mortgage. In connection with any such repurchase or substitution
the Buyer shall cause the Conduit Acquisition Trust to reconvey the repurchased
or replaced Mortgage Loan to the Seller in the manner described in Section 6(b)
hereof.
(c) Upon the reasonable request of the Buyer, the Seller
shall supply to the Buyer access to, and information regarding, the Seller, the
Mortgage Loans, the Seller's underwriting practices, financial condition and
related matters. The Seller hereby represents and warrants to the Buyer that
any such information so furnished by the Seller ("Seller Information") shall be
true, correct and complete in all material respects. If requested by the Buyer
or Underwriter's counsel, the Seller shall cause a nationally recognized
accounting firm to provide the Buyer with a letter in a form acceptable to
Buyer with respect to any Seller Information. The Seller agrees to comply with
any reasonable regulatory and quality control requirements requested by the
Buyer based upon the Buyer's review of Seller Information and other review of
the Seller's origination activities.
The Seller shall indemnify and hold the Buyer harmless from
any losses suffered by the Seller and its affiliates as a result of (i) any
misstatement in, or omission from, any Seller Information or (ii) any breach by
Seller of any representation or warranty set forth in Section 7(a) hereof but
only as it relates to Seller's performance and obligations under this
Agreement.
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The Buyer shall indemnify and hold Seller and its affiliates
harmless from any losses suffered by the Seller as a result of (i) any
misstatement in, or omission from any Buyer Information or (ii) any breach by
the Buyer of any representation or warranty set forth in Section 7(b) hereof
but only as it relates to the Buyer's performance and obligations under this
Agreement. "Buyer Information" means any information in any Offering Document
other than Seller Information.
(d) The Seller agrees to cooperate reasonably and in good
faith with the Buyer, its attorneys and accountants, Credit Enhancers,
Underwriters and Rating Agencies in connection with the establishment of each
Advanta Trust. The Buyer agrees to cooperate reasonably with the Seller, its
attorneys and accountants in connection with the transfer of Qualifying Loans
to an Advanta Trust.
(e) The Buyer acknowledges to the Seller that it is the
Buyer's present intent to sponsor Advanta Trusts quarterly; the Buyer shall
advise the Seller of any change in such intent as soon as possible. If the
Buyer fails to sponsor quarterly securitizations, the Seller may terminate this
Agreement upon ____ days' written notice to the Buyer.
(f) The Seller acknowledges that, to the extent it, at or
prior to the time of the formation of a Securitized Loan Pool, elects not to
repurchase any Mortgage Loan pursuant to its repurchase options set forth in
this Section 5, the Reserve requirements and/or the Initial Reserve Amount
applicable to the related Securitized Loan Pool is likely to increase
substantially.
Section 6. Defective Mortgage Files; Repurchase of Mortgage
Loans. (a) If the Seller is informed by the Trustee, the Master Servicer or
the Buyer that any material document constituting a part of a Mortgage File has
not been executed or received or is unrelated to the Mortgage Loans identified
in the related Mortgage Loan Schedule, the Seller shall have a period of ____
days after such notice within which to correct or cure any such Defect.
(b) If the Trustee, Credit Enhancer, the Master Servicer
or the Buyer has notified the Seller of a Defect in a Mortgage File and the
Defect remains uncured to the satisfaction of the Buyer, the Seller shall, not
later than ____ days after receipt of notice of such Defect, and provided that
such Defect has not been cured to the Buyer's reasonable satisfaction,
repurchase the related Mortgage Loan (including any property acquired in
respect thereof and any insurance policy or insurance proceeds with respect
thereto) at a price equal to the Repurchase Price, which shall be accomplished
by delivery of such amount by the Seller to the Buyer.
Upon receipt by the Buyer of the Repurchase Price for a
Defective Mortgage Loan, the Buyer shall cause the Conduit Acquisition Trust to
execute and deliver such instrument of transfer or assignment presented to it
by the Seller, in each case without recourse, as shall be necessary to vest in
the Seller legal and beneficial ownership of such repurchased Defective
Mortgage Loan (including any property acquired in respect thereof or insurance
policy or insurance proceeds with respect thereto).
(c) In the event that the Seller fails, within the time
periods specified in this Agreement, to cure any material Defect in a Mortgage
File, the Buyer, in addition to any rights it may have under paragraph (b)
above, shall have the right thereafter to receive any Residual Cashflow
otherwise payable to the Seller, but not more than the actual loss suffered by
the Buyer. The Buyer shall make a good faith effort to collect any amounts due
by the Obligor in order to mitigate any actual loss that may be suffered by the
Buyer;
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provided, that if the Buyer adheres to its servicing guidelines, this shall be
considered conclusive evidence of good faith.
(d) The remedies described in paragraphs (b) and (c) above,
together with all other remedies the Buyer may have at law or in equity, shall
survive any resignation or termination of Advanta Mortgage Corp. USA as Master
Servicer.
Section 7. Representations and Warranties Regarding the
Seller, the Buyer and the Master Servicer. (a) The Seller hereby represents
and warrants to the Buyer, the Master Servicer and their respective successors
and assigns that, as of the date hereof:
(i) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has all licenses and qualifications necessary to carry on its
business as now being conducted and to perform its obligations
hereunder; the Seller has the power and authority to execute and
deliver this Agreement and to perform its obligations in accordance
herewith; the execution, delivery and performance of this Agreement
(including any Conveyance Agreement and any other instruments of
transfer to be delivered pursuant to this Agreement) by the Seller and
the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and do
not violate the organization documents of the Seller, contravene or
violate any law or regulation applicable to the Seller or contravene,
violate or result in any breach of any provision of, or constitute a
default under, or result in the imposition of any lien on any assets
of the Seller pursuant to the provisions of, any mortgage, indenture,
contract, agreement or other undertaking to which the Seller is a
party or which purports to be binding upon the Seller or any of the
Seller's assets; this Agreement and the Related Conduit Agreements
evidence the valid and binding obligation of the Seller enforceable
against the Seller in accordance with their terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditor's rights generally or
the application of equitable principles in any proceeding, whether at
law or in equity; the Seller is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business,
or the properties owned or leased by it make such qualification
necessary;
(ii) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as the
case may be, by or from any federal, state or other governmental
authority or agency, that are necessary in connection with the
execution and delivery by the Seller of this Agreement or the Related
Conduit Agreements, have been duly taken, given or obtained, as the
case may be, are in full force and effect, are not subject to any
pending proceedings or appeals (administrative, judicial or otherwise)
and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement on the
part of the Seller and the performance by the Seller of its obligations
under this Agreement or the Related Conduit Agreements;
(iii) There is no action, suit, proceeding or investigation
pending or, to the best of the Seller's knowledge, threatened against
the Seller which, either in any one instance or in the aggregate, may
result in any material adverse change in the business, operations,
financial condition of the Seller or in any material
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impairment of the right or ability of the Seller to carry on its
business substantially as now conducted, or in any material liability
on the part of the Seller or which would draw into question the
validity of this Agreement or the Related Conduit Agreements or the
Mortgage Loans or of any action taken or to be taken in connection
with the obligations of the Seller contemplated herein, or which would
be likely to impair the ability of the Seller to perform under the
terms of this Agreement or the Related Conduit Agreements;
(iv) The Seller is not in default with respect to any
mortgage, indenture, contract, agreement or other undertaking to which
the Seller is a party or which purports to be binding upon the Seller
or any of the Seller's assets, or with respect to any order or decree
of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default would be likely to
impair the ability of the Seller to perform under the terms of this
Agreement or the Related Conduit Agreements;
(v) The transfer, assignment and conveyance of the
Mortgage Loans by the Seller pursuant to this Agreement are not
subject to the bulk transfer laws or any similar statutory provisions
in effect in any applicable jurisdiction;
(vi) All information supplied by the Seller to the Buyer,
the Master Servicer or the Trustee is true and correct in all material
respects, and does not omit to state a material fact necessary to make
the statements set forth in such information not misleading;
(vii) The Seller has tangible net worth (defined as total
shareholders equity less goodwill) as determined in accordance with
generally accepted accounting principles of at least $____ million;
(viii) The Seller will receive fair consideration and
reasonably equivalent value in exchange for the sale of the related
Mortgage Loans;
(ix) The Seller is solvent, and the Seller will not be
rendered insolvent as a result of the sale of any Pool of Mortgage
Loans to the Buyer; the Seller will not sell any interest in any
Mortgage Loan with any intent to hinder, delay or defraud any of its
respective creditors; and
(x) The origination practices used and to be used by the
Seller with respect to the Mortgage Loans have been, and will be, in
all material respects, legal, proper and customary in the mortgage
loan lending and servicing business and consistent with the Related
Conduit Agreements and the Seller's Applicable Guidelines as amended
by the Pool Parameters attached hereto as Exhibit D.
The representations and warranties set forth in this paragraph (a) shall
survive the sale and assignment of the Mortgage Loans by the Seller hereunder.
Upon discovery of a material breach of any of the foregoing representations and
warranties, the Buyer or the Master Servicer shall give prompt written notice
to the Seller. Within ____ days of the earlier of its discovery or its receipt
of notice of breach, the Seller shall cure such breach to the satisfaction of
the Buyer.
(b) The Buyer hereby represents and warrants to the
Seller and the Master Servicer that, as of the date hereof:
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(i) The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
the Buyer has the power and authority to execute and deliver this
Agreement and to perform its obligations in accordance herewith; the
execution, delivery and performance of this Agreement (including any
Conveyance Agreement executed by the Buyer on behalf of the Conduit
Acquisition Trust and any other instruments of transfer to be
delivered pursuant to this Agreement) by the Buyer and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action and do not
violate the organization documents of the Buyer, contravene or violate
any law or regulation applicable to the Buyer or contravene, violate
or result in any breach of any provision of, or constitute a default
under, or result in the imposition of any lien on any assets of the
Buyer pursuant to the provisions of, any mortgage, indenture,
contract, agreement or other undertaking to which the Buyer is a party
or which purports to be binding upon Buyer or any of Buyer's assets;
this Agreement evidences the valid and binding obligation of the Buyer
enforceable against the Buyer in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditor's rights
generally or the application of equitable principles in any
proceeding, whether at law or in equity;
(ii) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as the
case may be, by or from any federal, state or other governmental
authority or agency, that are necessary in connection with the
execution and delivery by the Buyer of this Agreement or the Related
Conduit Agreement, have been duly taken, given or obtained, as the
case may be, are in full force and effect, are not subject to any
pending proceedings or appeals (administrative, judicial or otherwise)
and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement on the
part of the Buyer and the performance by the Buyer of its obligations
under this Agreement;
(iii) There is no action, suit, proceeding or investigation
pending or, to the best of the Buyer's knowledge, threatened against
the Buyer which, either in any one instance or in the aggregate, may
result in any material adverse change in the business, operations,
financial condition, properties or assets of the Buyer or in any
material impairment of the right or ability of the Buyer to carry on
its business substantially as now conducted, or in any material
liability on the part of the Buyer or which would draw into question
the validity of this Agreement or of any action taken or to be taken
in connection with the obligations of the Buyer contemplated herein,
or which would be likely to impair the ability of the Buyer to perform
under the terms of this Agreement; and
(iv) The Buyer is not in default with respect to any
mortgage, indenture, contract, agreement or other undertaking to which
the Buyer is a party or which purports to be binding upon Buyer or
any of Buyer's assets, or with respect to any order or decree of any
court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Buyer or its properties or
might have consequences that would adversely affect its performance
hereunder.
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The representations and warranties set forth in this paragraph (b) shall
survive the sale and assignment of the Mortgage Loans by the Seller hereunder.
Upon discovery of a breach of any of the foregoing representations and
warranties which materially and adversely affects the interests of the Seller,
the Seller shall give prompt written notice to the Buyer. Within ____ days of
its discovery or its receipt of notice of breach, the Buyer shall cure such
breach in all material respects.
(c) The Master Servicer hereby represents and warrants to
the Buyer and the Seller that, as of the date hereof:
(i) The Master Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has all licenses and qualifications necessary to carry on
its business as now being conducted and to perform its obligations
hereunder; the Master Servicer has the power and authority to execute
and deliver this Agreement and to perform its obligations in
accordance herewith; the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action and do not violate the organization documents of the Master
Servicer, contravene or violate any law or regulation applicable to
the Master Servicer or contravene, violate or result in any breach of
any provision of, or constitute a default under, or result in the
imposition of any lien on any assets of the Master Servicer pursuant
to the provisions of, any mortgage, indenture, contract, agreement or
other undertaking to which the Master Servicer is a party or which
purports to be binding upon Master Servicer or any of Master
Servicer's assets; this Agreement evidences the valid and binding
obligation of the Master Servicer enforceable against the Master
Servicer in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditor's rights generally or the
application of equitable principles in any proceeding, whether at law
or in equity;
(ii) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as the
case may be, by or from any federal, state or other governmental
authority or agency, that are necessary in connection with the
execution and delivery by the Master Servicer of this Agreement, have
been duly taken, given or obtained, as the case may be, are in full
force and effect, are not subject to any pending proceedings or
appeals (administrative, judicial or otherwise) and either the time
within which any appeal therefrom may be taken or review thereof may
be obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement on the part of the Master
Servicer and the performance by the Master Servicer of its obligations
under this Agreement;
(iii) There is no action, suit, proceeding or investigation
pending or, to the best of the Master Servicer's knowledge, threatened
against the Master Servicer which, either in any one instance or in
the aggregate, may result in any material adverse change in the
business, operations, financial condition, properties or assets of the
Master Servicer or in any material impairment of the right or ability
of the Master Servicer to carry on its business substantially as now
conducted, or in any material liability on the part of the Master
Servicer or which would draw into question the validity of this
Agreement or of any action taken or to be taken in connection with the
obligations of the Master Servicer contemplated herein, or which would
be likely to
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impair the ability of the Master Servicer to perform under the terms
of this Agreement; and
(iv) The Master Servicer is not in default with respect to
any mortgage, indenture, contract, agreement or other undertaking to
which the Master Servicer is a party or which purports to be binding
upon Master Servicer or any of Master Servicer's assets, or with
respect to any order or decree of any court or any order, regulation
or demand of any federal, state, municipal or governmental agency,
which default might have consequences that would materially and
adversely affect the condition (financial or other) or operations of
the Master Servicer or its properties or might have consequences that
would adversely affect its performance hereunder.
The representations and warranties set forth in this paragraph (c) shall
survive the sale and assignment of the Mortgage Loans by the Seller hereunder.
Upon discovery of a breach of any of the foregoing representations and
warranties which materially and adversely affects the interests of the Seller,
the Seller shall give prompt written notice to the Master Servicer. Within
____ days of its discovery or its receipt of notice of breach, the Master
Servicer shall cure such breach in all material respects.
Section 8. Representations and Warranties of the Seller
Regarding the Mortgage Loans. (a) Set forth in Exhibit E hereto is a listing
of representations and warranties which will be deemed to have been made by the
Seller to the Buyer, the Master Servicer and the Trustee in connection with
each purchase of a Pool with respect to the Mortgage Loans in such Pool. In
addition, the Buyer may, pursuant to a Conveyance Agreement with respect to the
Mortgage Loans in the related Pool, delete or modify any of such
representations and warranties, or may add additional representations and
warranties ("Additional Representations and Warranties") if (i) Seller's
Applicable Guidelines were to materially change or (ii) if any other party to
an Advanta securitization were to require the addition or deletion of
Additional Representations and Warranties; provided, that if the Seller
determines that a significant number of its mortgage loans would not satisfy
such Additional Representations and Warranties, the Seller shall have the
right, but not the obligation, to terminate its obligation to offer any
additional loans hereunder without further obligation to the Buyer except that
all of the Seller's duties and obligations hereunder with respect to Mortgage
Loans that were previously sold hereunder shall remain in full force and
nothing in this provision shall be construed as terminating any of the Buyer's
rights with respect to all previously sold Mortgage Loans. The representations
and warranties listed in Exhibit E hereto, together with any Additional
Representations and Warranties, are the "Representations and Warranties".
It is understood and agreed that the Representations and Warranties shall
survive the sale and assignment of the Mortgage Loans to the Conduit
Acquisition Trust and by the Conduit Acquisition Trust to an Advanta Trust.
Upon discovery by the Seller, the Master Servicer or the Buyer of a breach of
any of the Representations and Warranties (without regard to any limitation set
forth in such Representation or Warranty concerning the knowledge of the Seller
as to the facts stated therein so long as the Seller is required to repurchase
the related Mortgage Loan or Mortgage Loans pursuant to the related Advanta
Pooling Agreement without regard to any similar limitation), which breach, in
the reasonable opinion of the Buyer, materially and adversely affects the
value, collectibility or marketability of the related Mortgage Loan or Mortgage
Loans, the party discovering such breach shall give prompt written notice to
the other party and the Seller shall be required to take the remedial actions
required by Section 8(b) hereof within the time periods required pursuant
thereto.
(b) Within ____ days of the earlier of its discovery or
its receipt of notice of breach, the Seller shall use all reasonable efforts to
cure such breach to the reasonable
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satisfaction of the Buyer. Unless, prior to the expiration of such ____ day
period, such breach has been cured or otherwise does not exist or continue to
exist, the Seller shall repurchase such Mortgage Loan (including any property
acquired in respect thereof and any insurance policy or insurance proceeds with
respect thereto) in the same manner and subject to the same conditions as set
forth in Section 6 hereof. Upon making any such repurchase, the Seller shall
be entitled to receive an instrument of assignment or transfer from the
Trustee, without recourse to the Buyer or the Trustee, to the same extent as
set forth in Section 6 hereof with respect to the repurchase of Defective
Mortgage Loans under that Section.
(c) In the event that the Seller fails, within the time
periods specified in this Agreement, to cure any material breach of a
Representation and Warranty, the Buyer shall have the right thereafter to
receive any Residual Cashflow otherwise payable to the Seller, but not in
excess of any actual loss suffered by the Buyer. The Buyer shall make a good
faith effort to collect any amounts due by the Obligor in order to mitigate any
actual loss that may be suffered by the Buyer; provided, that, if the Buyer
adheres to its servicing guidelines, this shall be considered conclusive
evidence of good faith.
(d) The remedies described in paragraphs (c) and (d)
above, together with all other remedies the Buyer may have at law or in equity,
shall survive any resignation or termination of Advanta Mortgage Corp. USA as
Master Servicer.
(e) Additional Representatives and Warranties to be added
to this Agreement shall only be added upon the mutual agreement of the Buyer
and the Seller or if required by a credit enhancer, any rating agencies, or any
underwriter.
Section 9. Application of Residual Cashflow. (a) On each
Distribution Date, all available Excess Interest with respect to the
Accumulation Pool shall be applied as a Reserve Deposit or to the amount
payable by the Seller described in the last paragraph in Section 4(a) hereof.
(b) At the time any Pools are transferred from the
Accumulation Pool to an Advanta Trust (thereby becoming all or part of a
Securitized Loan Pool) the Reserve Amount then relating to such Pool shall be
credited against the initial Reserve Amount for the related Securitized Loan
Pool. If the initial Reserve Amount exceeds the initial Reserve Requirement
applicable to such Securitized Loan Pool (i.e., the amount of any "initial
deposit" at securitization) the amount of such excess shall be paid by the
Buyer to the Seller. Conversely, if the initial Reserve Requirement for such
Securitized Loan Pool exceeds the actual Reserve Amount for the related Pools
the amount of such shortfall shall be paid by the Seller to the Buyer as an
Additional Initial Reserve Amount for such Securitized Loan Pool.
(c) On the closing date of the related Advanta
Securitization, the Buyer shall pay to the Seller the Initial Premium Payment.
(d) On each Distribution Date the Residual Cashflow with
respect to any individual Securitized Loan Pool shall first be applied, to the
extent of the related Initial Premium Amortization Current Amount, as a
reduction in the related Unamortized Initial Premium Amount. On each
Distribution Date, the Master Servicer will, on behalf of the Buyer, distribute
to the Seller the Deferred Premium Payment if any, then due.
Notwithstanding the foregoing, the Master Servicer
shall be entitled to withhold from any distribution of a Deferred Premium
Payment with respect to any individual Securitized Loan Pool, and pay over to
the Buyer, the following amounts:
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(x) any amounts described in the second paragraph
of Section 4(a) hereof, together with any
Compensating Interest paid out by the
Servicer;
(y) the amount, if any, by which (i) the
aggregate cumulative amount of Realized
Losses with respect to any other Securitized
Loan Pool exceeds (ii) the aggregate,
cumulative amount of Reserve Deposits with
respect to such other Securitized Loan Pool;
and
(z) the amount of any Unamortized Initial Premium
Amount with respect to any other Securitized
Loan Pool which remains outstanding after
____ months.
(e) The Buyer's obligation to pay the Deferred Premium
Payments to the Seller will be a secured corporate obligation of the Buyer, as
set forth in the Tri-Party Security Agreement, and will not represent any
direct ownership interest in any Mortgage Loans.
(f) The Master Servicer shall furnish the statements
described in Section 10 hereto to the Seller, by facsimile on each Distribution
Date; such statements shall, inter alia, contain information relating to the
Residual Cashflow for such Distribution Date.
The Buyer and the Master Servicer shall permit the inspection,
on reasonable notice, by the Seller or the Seller's designees of all of the
Buyer's and the Master Servicer's books and records relating to the Mortgage
Loans and the Residual Cashflows. All calculations made by the Buyer or the
Master Servicer shall be conclusive in the absence of manifest error.
Section 10. Distribution Date Statement. (a) The Master
Servicer shall, not later than each Distribution Date, furnish in writing to
the Seller and the Buyer a statement setting forth the following information
with respect to the Accumulation Pool and each Securitized Loan Pool:
(i) the total amount of payments in respect of or
allocable to interest on the Mortgage Loans received or deemed to have
been received from the related Mortgagors by the Master Servicer
during the prior calendar month (including any net income from REO
Properties received during the prior calendar month);
(ii) the aggregate of all Principal Payments and Principal
Prepayments received or deemed to have been received from the related
Mortgagors by the Master Servicer during the prior calendar month;
(iii) the total amount of recoveries of delinquent
principal and interest payments received during the prior calendar
month;
(iv) the total amount of prepayment penalties received
during the prior calendar month;
(v) the aggregate of any Net Insurance Proceeds received
by the Master Servicer during the prior calendar month;
(vi) the aggregate of any Net Liquidation Proceeds
received by the Master Servicer during the prior calendar month;
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(vii) the total amount of Compensating Interest payments to
be paid by the Master Servicer for such Distribution Date;
(viii) the aggregate Repurchase Prices for any Mortgage
Loans which the Seller is required to repurchase on or prior to such
Distribution Date pursuant to Sections 5(b), 5(c), 6(b) or 8(c)
hereof;
(ix) the aggregate amount of Advances made by the Master
Servicer during or with respect to the prior calendar month;
(x) the related monthly Servicing Fee;
(xi) the aggregate amount of Advances reimbursable to the
Master Servicer for such Distribution Date and not previously
reimbursed;
(xii) the weighted average Mortgage Loan Rate as of the
last day of the prior calendar month (separately for ARMs and Fixed
Rate Loans);
(xiii) the related Reserve Amount and Reserve Requirement
and Residual Cashflow as of such Distribution Date;
(xiv) the book value of any REO Properties as of the last
day of the prior calendar month; and
(xv) the Residual Cashflow, the Deferred Premium Payment,
the Initial Premium Fee, the Initial Premium Amortization Current
Amount, the Carry-Forward Amount, the Initial Premium Amortization
Current Amounts and the Unamortized Initial Premium Amounts.
(b) In addition, on each Payment Date the Master Servicer
will furnish by telecopy to the Buyer and the Seller, the following information
with respect to the Mortgage Loans in the Accumulation Pool and each
Securitized Loan Pool as of the last day of the related prior calendar month:
(i) the total number of Mortgage Loans and the aggregate
Principal Balances thereof, together with the number, aggregate
principal balances of such Mortgage Loans and the percentage of the
aggregate Principal Balances of such Mortgage Loans to the aggregate
Principal Balance of all Mortgage Loans (a) 30-59 delinquent, (b)
60-89 days delinquent and (c) 90 or more days delinquent;
(ii) the number, aggregate Principal Balances of all
Mortgage Loans and percentage of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans in foreclosure proceedings (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing
clause (i));
(iii) the number, aggregate Principal Balances of all
Mortgage Loans and percentage of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans relating to Mortgagors in bankruptcy proceedings (and whether
any such Mortgage Loans are also included in any of the statistics
described in the foregoing clause (i)); and
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(iv) the number, aggregate Principal Balances of all
Mortgage Loans and percentage of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans relating to REO Properties (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing
clause (i)).
(v) any other information with respect to the Mortgage
Loans in each Accumulation Pool and each Securitized Loan Pool as
reasonably requested by the Seller.
Section 11. Merger or Consolidation of the Seller. Any
corporation or other entity (i) into which the Seller may be merged or
consolidated, (ii) which may result from any merger, conversion or
consolidation to which the Seller shall be a party, or (iii) which may succeed
to all or substantially all of the business of the Seller, which corporation or
other entity shall, in any case where an assumption shall not be effected by
operation of law, execute an agreement of assumption to perform every
obligation of the Seller under this Agreement, shall be the successor to the
Seller hereunder without the execution or filing of any document or any further
act by any of the parties to this Agreement, except that if the Seller in any
of the foregoing cases is not the surviving entity, then the surviving entity
shall execute and deliver to the Buyer, the Master Servicer and to the Trustee
an agreement of assumption to perform every obligation of the Seller hereunder.
Section 12. Servicing.
(a) The Master Servicer agrees to service, all Mortgage
Loans sold by the Seller to the Buyer and all Mortgage Loans entered into the
Master Servicer's servicing system, by the Master Servicer but not yet
purchased by the Buyer, in each case in accordance with all applicable laws and
customary and usual standards of practice of prudent institutional residential
mortgage loan servicers of comparable Mortgage Loans, and with a view to the
maximization of timely recovery of principal and interest on the Mortgage
Loans, but without regard to: (i) any relationship that Master Servicer or any
of its affiliates may have with any Borrower or affiliates or manager thereof,
(ii) the Master Servicer's obligations to make advances or to incur servicing
expenses with respect to the Mortgage Loans, or (iii) the Master Servicer's
right to receive compensation for its services hereunder. Such servicing
standards and requirements shall, subject to the requirements of paragraph (d)
below, include (i) the making of Advances, (ii) the advancing of Compensating
Interest to be reimbursed by the Residual Cashflows due to the Seller and (iii)
the disposition of REO Properties within ____ months of the taking of title.
(b) Subject to the provisions of this Section 12, Master
Servicer shall have full power and authority to do and cause to be done any and
all things in connection with the servicing and administration of the Mortgage
Loans which the Master Servicer may deem necessary or desirable. The Seller
will provide the Master Servicer, upon request, with any powers of attorney
necessary or appropriate to enable the Master Servicer to carry out its
servicing and administrative duties under this Agreement.
(c) The Master Servicer shall and is hereby authorized
and empowered by the Seller to (i) execute and deliver, on behalf of the
Seller, any and all instruments of satisfaction or cancellation, or of partial
or full release or discharge and all other comparable instruments, with respect
to the mortgage Loans and with respect to the Mortgaged Properties, (ii)
consent to any modification of the terms of the Note if the effect of any such
modification will not materially or adversely affect the security afforded by
the related Mortgaged Property and such modification does not reduce the
accrued interest or the interest rate payable by a
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Borrower without Seller's prior written consent, (iii) institute foreclosure
proceedings or obtain a deed-in-lieu of foreclosure on behalf of the Seller,
and (iv) take title in the name of the Seller to any Mortgaged Property upon
such foreclosure or delivery of deed in lieu of foreclosure.
(d) Notwithstanding the other provisions hereof, if a
Mortgage Loan has been entered into the Master Servicer's servicing system by
the Master Servicer but not yet purchased by the Buyer:
(i) the servicing of the Mortgage Loans shall be on an
"actual/actual" basis, with monthly interest calculations for periods
of a full month based on a 30-day month and a 360 day year, unless a
different method is required by the terms of the related Mortgage Loan
or by the requirements of applicable law; interest calculations for
periods of less than a full month will be calculated on the basis of
the actual number of days elapsed and a 365 day year, unless a
different method is required by the terms of the related Mortgage Loan
or by the requirements of applicable law.
(ii) From time to time as appropriate in the servicing of
any Mortgage Loan, including without limitation, the payment in full
of any Mortgage Loan, notification that payment in full will be
escrowed, foreclosures or other comparable conversion of a mortgage or
collection under any applicable insurance policy, the Seller, upon
request of the Master Servicer, shall release or cause the release and
delivery of the related Mortgage Loan Documents to the Master
Servicer, if the Mortgage Loan Documents have not previously been
delivered by the Seller to the Buyer.
(iii) The Master Servicer shall promptly notify the Seller
if a claim is made by a third party with respect to any Mortgage Loans
which have been entered into the Master Servicer's servicing system
but not previously purchased by the Buyer, and the Master Servicer at
its option may assume the defense of any such claim. The Seller
shall, within ten (10) business days of receiving a statement of
amounts advanced by the Master Servicer in connection with the defense
of any such claim, reimburse the Master Servicer for all amounts
advanced by it pursuant to this Section 12, except to the extent that
such claim is the result of the Master Servicer's failure to service
the Mortgage Loans in compliance with the terms of this Agreement.
Seller shall have no obligation to reimburse the Master Servicer for
claims made with respect to any Mortgage Loans previously purchased by
Buyer.
(e) With respect to all Mortgage Loans sold by the Seller
to the Buyer and all Mortgage Loans entered into the Master Servicer's
servicing system by the Master Servicer but not yet purchased by the Buyer, not
later than the twenty-fifth (25th) day of each calendar month, or the
succeeding business day if the twenty-fifth (25th) is not a business day, the
Master Servicer shall prepare and deliver the following reports with respect to
activity for the most recently ended prior calendar month:
(a) a trial balance report including all Mortgage Loans;
(b) a monthly remittance report;
(c) a report setting forth any Mortgage Loans added or
deleted;
(d) a report setting forth curtailment or prepayments;
and
(e) reports setting forth delinquency detail (including
bankruptcy, foreclosure, and REO status.
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The Master Servicer shall also deliver, from time to time,
such other information as the Seller shall reasonably request.
(f) Master Servicer, shall, at its own expense, maintain
at all times, policies of fidelity, theft, forgery and errors and omissions
insurance. Such policies shall be responsible amounts with acceptable standard
coverages in accordance with prudent mortgage industry standards.
(g) The Servicing Expenses shall be as follows:
(i) in the event no "lifetime" tax contracts are
presently in force which are assignable to Master Servicer, Seller agrees to
reimburse the Master Servicer for the cost of purchasing a tax contract for
each Mortgage Loan in this category.
(ii) Seller agrees to reimburse the Master Servicer
and/or the Buyer for any recordation fees the Master Servicer and/or the Buyer
incurs pursuant to this Agreement and the Related Conduit Agreements upon
purchase of the Mortgage Loans from the Seller.
(h) The Master Servicer hereby represents and warrants
to, and covenants with the Seller that the Master Servicer will service the
Mortgage Loans without distinction as to the identity of the Seller as the
residual, first-loss holder of the Mortgage Loans, and on the same terms by
which the Master Servicer services mortgage loans for which it or its
affiliates are the residual, first-loss holder.
(i) The Master Servicer may retain sub-servicers to
perform all or a part of its servicing duties hereunder, with the prior written
consent of the Seller (which consent shall not be unreasonably withheld),
except that no retention of any sub-servicer shall release the Master Servicer
from any liability to the Seller.
(j) The Seller shall indemnify and hold the Master
Servicer and each of their officers, directors, employees and agents, harmless
from and shall reimburse the Master Servicer for any losses, damages,
deficiencies, claims, penalties, forfeitures, causes of action or expenses of
any nature (including reasonable attorneys' fees) incurred by Master Servicer
which arise out of or result from:
(i) the inaccuracy of any representation of the Seller
contained in this Agreement or material breach of any
warranty, covenant or agreement made or to be
performed by the Seller pursuant to this Agreement;
(ii) the failure of the originator of any Mortgage Loan to
originate such Mortgage Loan in accordance with
applicable law;
(iii) the failure of any prior servicer to service the
Mortgage Loan in accordance with applicable law and
any agreement under which it may have serviced such
Mortgage Loan;
(iv) any matters that occurred prior to the transfer date
for the servicing of the Mortgage Loan involved or
any incomplete or incorrect Mortgage Loan data,
records, or information provided in connection with
the origination or prior servicing of any Mortgage
Loans;
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(v) the Seller's failure to fulfill any servicing
responsibilities not assumed by Master Servicer or
otherwise resulting from the Seller's preventing,
hampering or impeding Master Servicer's performance
of its duties and responsibilities under this
Agreement; or
(vi) any litigation or claim with respect to the Mortgage
Loans arising out of, or resulting from, the Seller's
failure to observe the terms and covenants of the
Mortgage Loans or this Agreement, including
specifically any litigation relating to adjustable
rate mortgage loans.
(k) The Master Servicer shall indemnify, hold the Seller
harmless from, and shall reimburse the Seller for any losses, damages,
deficiencies, claims, penalties, forfeitures, causes of actions or expenses of
any nature (including reasonable attorneys' fees) incurred by the Seller which
arise out of or result from
(i) the inaccuracy of any material representation
of the Master Servicer contained in this Agreement or material breach of any
warranty, covenant or agreement made or to be performed by the Master
Servicer's pursuant to this Agreement; and
(ii) the failure of the Master Servicer to service
any Mortgage Loan in accordance with the applicable law or applicable agency
guidelines, if any, or in compliance with the terms and provisions of such
Mortgage Loans or of this Agreement.
(l) At any reasonable time, and from time to time upon
reasonable notice, the Seller, or any agents or representatives thereof may
inspect the Master Servicer's operations and discuss the servicing operations
of the Master Servicer with any of its officers or directors. The costs and
expenses incurred by the Master Servicer or its agents or representatives in
connection with any such examinations or discussions shall be paid by the
Seller.
Section 13. Authorized Representatives. The names of the
officers of the Seller, the Master Servicer and of the Buyer who are authorized
to give and receive notices, requests and instructions and to deliver
certificates and documents in connection with this Agreement on behalf of the
Seller, the Master Servicer and of the Buyer ("Authorized Representatives") are
set forth on Exhibit C, along with the specimen signature of each such officer.
From time to time, the Seller, the Master Servicer or the Buyer may, by
delivering to the others a revised exhibit, change the information previously
given.
Section 14. Notices. All demands, notices and communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given when received by the other party or parties at the address shown
below, or such other address as may hereafter be furnished to the other party
or parties by like notice. Any such demand, notice or communication hereunder
shall be deemed to have been received on the date delivered to or received at
the premises of the addressee.
If to the Seller:
PacificAmerica Money Center, Inc.
21031 Ventura Blvd.
Woodland Hills, CA 91364-2210
Attention: Charles J. Siegel
Telecopy: 818-340-6303
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with a copy to:
Catherine DeBono Holmes, Esq.
Jeffer, Mangles, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, CA 90067
Telecopy: 310-203-0567
If to the Buyer:
Advanta Mortgage Conduit Services, Inc.
500 Office Center Drive, Suite 400
Fort Washington, Pennsylvania 19034
Attention: Mark Casale
Telecopy: 215-444-4743
If to the Master Servicer:
Advanta Mortgage Corp. USA
16875 West Bernardo Drive
San Diego, California 92127
Attention: Loan Servicing
Telecopy: (619) 674-3880
Section 15. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of California,
without regard to conflict of laws rules applied in the State of California.
Section 16. Assignment. No party to this Agreement may
assign its rights or delegate its obligations under this Agreement without the
express written consent of the other parties, except as otherwise set forth in
this Agreement.
Section 17. Counterparts. For the purpose of facilitating
the execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall be
deemed to be an original, and together shall constitute and be one and the same
instrument.
Section 18. Amendment. This Agreement may be amended from
time to time by the Seller, the Buyer and the Master Servicer only by a written
instrument executed by such parties.
Section 19. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement.
Section 20. No Agency; No Partnership or Joint Venture. None
of the Seller, the Master Servicer nor the Buyer is the agent or representative
of one or both of the others, and nothing in this Agreement shall be construed
to make any of the Seller, the Master Servicer or the Buyer liable to any third
party for services performed by it or for debts or claims accruing to it
against the other party. Nothing contained herein nor the acts of the
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parties hereto shall be construed to create a partnership or joint venture
between the Buyer, the Master Servicer and the Seller.
Section 21. Arbitration. Any dispute or disagreement under
this Agreement shall be rendered by submitting such dispute or disagreement to
an independent, mutually agreed upon arbitrator. The arbitrator shall conduct
the arbitration in accordance with the Rules of the American Arbitration
Association. If the parties are unable to select an arbitrator, the arbitrator
shall be selected in accordance with the procedures of the American Arbitration
Association. The decision of the arbitrator shall be final and binding upon
the parties and non-appealable. Any decision and award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Any
arbitration pursuant to this Agreement shall be conducted in California.
Section 22. Confidentiality. No party hereto shall disclose
to third parties, without the prior consent (which shall not be unreasonably
withheld) of the other parties, in writing, the existence of or the terms of
this Agreement, except to its accountants and attorneys or as required by law.
Section 23. Further Assurances. The parties hereto agree to
cooperate reasonably and in good faith with one another in the performance of
this Agreement.
Section 24. Legal Costs. The parties hereto agree that in
the event of arbitration or litigation between them, the non- prevailing party
shall reimburse the prevailing party for all legal fees and expenses of counsel
incurred by the prevailing party. The prevailing party shall be the party in
whose favor a final decision or judgment is entered, after the conclusion of
any appeals or after the time during which an appeal may be taken shall have
run. Payment of sums owning under this Section 24 shall be made within ten
(10) days following the date that the right to receive payment shall be final.
Section 25. Term. The buy-sell provisions of this Agreement
shall terminate on the Commitment Termination Date, as defined in the Master
Commitment; the other obligations of the parties set forth herein shall
continue in full force and effect until the payment in full (or other
liquidation) of the last Mortgage Loan.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers, all as of the day
and year first above written.
PACIFICAMERICA MONEY CENTER, INC.
as Seller
By:_______________________________
Name:
Title:
ADVANTA MORTGAGE CONDUIT SERVICES, INC.,
as Buyer
By:_______________________________
Name:
Title:
ADVANTA MORTGAGE CORP. USA,
as Master Servicer
By:_______________________________
Name:
Title:
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FORM OF CONVEYANCE AGREEMENT
PacificAmerica Money Center, Inc., as seller (the "Seller")
and Advanta Mortgage Conduit Services, Inc. (the "Buyer") on behalf of Conduit
Acquisition Trust, (the "Purchaser"), pursuant to the Amended and Restated
Corporate Finance Agreement amended as of January 27, 1997 among the Seller,
the Buyer and Advanta Mortgage Corp. USA (the "Corporate Finance Agreement"),
hereby confirm their understanding with respect to the sale by the Seller and
the purchase by the Buyer on behalf of the Conduit Acquisition Trust of those
Mortgage Loans listed on the attached Mortgage Loan Schedule (the "Purchased
Mortgage Loans").
Conveyance of Purchased Mortgage Loans. The Seller,
concurrently with the execution and delivery of this Conveyance Agreement, does
hereby irrevocably transfer, assign, set over and otherwise convey to the
Buyer, without recourse (except as otherwise explicitly provided for herein)
all of its right, title and interest in and to the Purchased Mortgage Loans,
including specifically, without limitation, the Mortgages, the Mortgage Files
and all other documents, materials and properties appurtenant thereto and the
Mortgage Notes, including all interest accruing thereon and principal received
on or with respect to such Purchased Mortgage Loans on or after the related
Mortgagor's Cut-Off Date and all interest accruing thereon since the related
Mortgagor's most recent paid-to date (or date of origination if no payment is
yet due), together with all of its right title and interest in and to the
proceeds received on or after the related Cut-Off Date of any related insurance
policies on behalf of the Buyer. If the Seller cannot deliver the original
Mortgage or mortgage assignment with evidence of recording thereon concurrently
with the execution and delivery of this Conveyance Agreement solely because of
a delay caused by the public recording office where such original Mortgage or
mortgage assignment has been delivered for recordation, the Seller shall
promptly deliver to the Buyer's designee on behalf of the Buyer such original
Mortgage or mortgage assignment with evidence of recording indicated thereon
upon receipt thereof from the public recording official, with a copy thereof
delivered to the Master Servicer.
The costs relating to the delivery of the documents specified
in this Conveyance Agreement shall be borne by the Seller.
The Seller hereby additionally certifies to the Buyer and the
Master Servicer:
(i) The representations and warranties of the Seller contained in
the Corporate Finance Agreement and all related agreements, as
of the date hereof, are true and correct, and the Seller has
complied in all material respects with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to the date hereof in connection with
the sale of the Purchased Mortgage Loans.
(ii) There are no actions, suits or proceedings pending or
threatened against or affecting the Seller which if adversely
determined, individually or in the aggregate, would be
reasonably likely to adversely affect in any material way the
Seller's obligations under any agreement to which the Seller
is a party. No merger, liquidation, dissolution or bankruptcy
of the Seller is pending or contemplated.
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(iii) No material adverse change in the condition, financial or
otherwise, or properties of the Seller has occurred since the
date of the Corporate Finance Agreement.
All terms and conditions of the Corporate Finance Agreement
are hereby incorporated herein; provided, that in the event of any conflict the
provisions of this Conveyance Agreement shall control over the conflicting
provisions of the Corporate Finance Agreement.
Terms capitalized herein and not defined herein shall have
their respective meanings as set forth in the Corporate Finance Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers, all as of the _____ day
of _______________.
PACIFICAMERICA MONEY CENTER, INC.
as Seller
By:____________________________
Title:_________________________
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
as sponsor on behalf of
CONDUIT ACQUISITION TRUST,
as Buyer
By:_____________________________
Title:__________________________
Attachments
A. Schedule of Purchased Mortgage Loans.
B. Trustee's initial exception report.
C. Seller's officer's certificate.
D. Closing Statement and Recap Summary.
A-3
<PAGE> 34
Closing Statement and Funding Recap Summary
PacificAmerica Money Center, Inc.
Pool: ____
Date Prepared:
Sale Cut-Off Date: (Close of Business)
Sale Funding Date:
Pricing Date:
Buyer: Advanta Mortgage Conduit
Services, Inc. on behalf of Conduit
Acquisition Trust
Seller: PacificAmerica
Money Center, Inc.
Originator: _________________
Servicer: Advanta Mortgage Corp. USA
Scheduled Servicing Transfer Date:
Broker Number:
Fixed Pool Identification Number:
ARM Pool Identification Number:
Investor Number:
Number of Loans:
Fixed Pool Balance:
ARM Pool Balance:
Total Pool Balance:
Total Pool Balance
Accrued interest from Cut-Off Date to Closing
Initial Applicable Rate ___%
Recordation Fees:
Net Due Seller/Funding Transfer Amt.
A-4
<PAGE> 35
EXHIBIT B
CONTENTS OF MORTGAGE FILE
1. Collateral File
(a) the original Note endorsed by PacificAmerica Money Center, Inc.
("PAM") as follows: For value received, pay to the order of "Bankers
Trust Company of California, N.A. as Custodian or Trustee", without
recourse with all intervening endorsements showing a complete chain of
title from the original lender to PAM;
(b) the original Mortgage or Deed of Trust, with evidence of recording
thereon, or, until the original Mortgage or Deed of Trust has been
received from the applicable public recording office, a copy of the
Mortgage or Deed of Trust certified by PAM to be a true and complete
copy of the original Mortgage or Deed of Trust submitted for
recording;
(c) the Note riders signed as required;
(d) a copy of the original unrecorded assignment of the Mortgage or Deed
of Trust from PAM to "Bankers Trust Company of California, N.A. as
Custodian or Trustee";
(e) documentation of all intervening mortgage assignments with evidence of
recording thereon, sufficient to show a complete chain of assignment
from the originator of the Mortgage Loan to PAM;
(f) any and all assumption, modification, written assurance or
substitution agreements, where the terms or provisions of a Mortgage
or Note have been modified or such Mortgage or Note have been assumed;
(g) the title insurance policy and preliminary policy, including all
endorsements and/or riders, or until an original policy is received, a
binding commitment to issue such a policy, which contains a legal
description of the Mortgaged Property and which has been signed on the
origination date by an authorized agent of the title insurer;
2. Servicing File (using the Advanta Stacking Order as of July 1, 1995)
(a) any primary credit insurance policy or certificate of insurance;
(b) all required hazard and flood insurance policies with respect to the
Mortgage Property;
(c) the tax service contract, where applicable;
(d) any Private Mortgage Insurance Certificate;
(e) any guaranty(s), surety agreement(s), and/or survey(s);
(f) any appraisals on the Mortgaged Property;
(g) the completed loan application signed by the Mortgagor;
(h) the signed mortgage loan settlement sheet;
B-1
<PAGE> 36
(i) all employment, deposit and mortgage verifications, credit reports and
reports and any other document relied upon in making the Mortgage
Loan;
(j) any Truth-In-Lending RESPA and ECOA related documents required by law;
(k) all records, ledger cards and other documents relating to the Mortgage
Loan;
(l) LIW Loan information worksheet;
(m) Copies of all applicable transfer notifications i.e. borrower
insurance, flood, hazard, PMI
(n) the original unrecorded assignment of the Mortgage or Deed of Trust
from the Buyer to Bankers Trust Company of California, N.A, as
Custodian or Trustee.
B-2
<PAGE> 37
EXHIBIT C
AUTHORIZED REPRESENTATIVES
Reference is hereby made to the Amended and Restated Corporate Finance
Agreement, amended as of January 27, 1997 (the "Agreement"), among
PacificAmerica Money Center, Inc. as seller ("PAM"), Advanta Mortgage Conduit
Services, Inc. as Buyer (the "Buyer"), and Advanta Mortgage Corp. USA, as
master servicer (the "Master Servicer"):
The following are PAM's Authorized Representatives for purposes of the
Agreement:
Name Title Specimen Signature
- ---- ----- ------------------
The following are the Buyer's Authorized Representatives for purposes
of the Agreement:
Name Title Specimen Signature
- ---- ----- ------------------
The following are the Master Servicer's Authorized Representatives for
purposes of the Agreement:
Name Title Specimen Signature
- ---- ----- ------------------
William P. Garland
C-1
<PAGE> 38
EXHIBIT D
Applicable Pool Parameters
(a) Each Mortgage Loan is secured by a closed-end
mortgage, in first or second lien position, to A to D credit borrowers
(as defined by Advanta Mortgage Conduit Services, Inc. in a manner no
less favorable than the grading criteria used by the Buyer for its own
loan originations), on single family 1-4 unit properties;
(b) No less than ____ of any Pool will have been
originated with A and B credit grades;
(c) No ARM Pool will be more than ____ under the fully
indexed rate teased at origination calculated on a weighted average
basis;
(d) Each ARM is in a first lien position;
(e) Each ARM's interest rate will be tied to either
_________________;
(f) Each ARM will have a ____ or ____ periodic (every six
months) and ____ or ____ lifetime cap;
(g) No more than ____ of any Pool will consist of ____
year fixed/____ year adjustable ____, ____ or ____ intermediate
mortgages (Treasury based index); and
(h) No Mortgage Loan is a simple interest loan.
(i) No more than ____ of any Pool will consist of loans
with CLTVs in excess of ____ (without mortgage insurance from a
carrier acceptable to the Master Servicer).
(j) No less than ____ of each Pool will have been
originated under a full documentation program.
(k) No loan is more than ____ days contractually
delinquent as of the securitization cut-off date.
(l) No more than ____ of any ____ Loans will have CLTVs
in excess of ____.
D-1
<PAGE> 39
EXHIBIT E
REPRESENTATION AND WARRANTIES
(i) The information with respect to each Mortgage Loan set forth
in the related Mortgage Loan Schedule is true and correct as of the Cut-Off
Date.
(ii) All of the original or certified documentation required to be
delivered to the Buyer, the Master Servicer or the Buyer's designee pursuant to
the documentation requirements, as set forth on the attached Exhibit B, with
respect to each Mortgage Loan has been or will be delivered to the Buyer, the
Master Servicer or the Buyer's designee, as required thereby. Each Mortgage
Loan is documented on a note and mortgage form, with appropriate riders
approved by the Buyer.
(iii) Each Mortgage is a valid and existing first or second lien of
record on the Mortgaged Property, (subject in the case of any Second Mortgage
Loan only to a Senior Lien on such Mortgaged Property) and subject in all cases
to the exceptions to title set forth in the title insurance policy, if any,
with respect to the related Mortgage Loan, which exceptions are generally
acceptable to banking institutions in connection with their regular mortgage
lending activities, and such other exceptions to which similar properties are
commonly subject and which do not materially and adversely affect the benefits
of the security intended to be provided by such Mortgage.
(iv) Immediately prior to the transfer and assignment herein
contemplated, PAM held good, marketable, and indefeasible title to, and was the
sole owner of, each Mortgage Loan conveyed by PAM subject to no liens, charges,
mortgages, encumbrances or rights of others except as set forth in clause (iii)
or other liens which will be released simultaneously with such transfer and
assignment and upon receipt of each Mortgage Loan, the Buyer will hold good,
marketable, and indefeasible title to, and will be the sole owner of each
Mortgage Loan, free and clear of any liens, charges, mortgages, encumbrances,
or rights of others except as set forth in paragraph (iii) or any liens created
by the Buyer.
(v) As of the related Cut-Off Date, no Mortgage Loan is thirty
(30) or more days contractually delinquent, and no Mortgage Loan has been
thirty (30) or more days contractually delinquent more than once during the
twelve (12) months preceding the related Cut-Off Date, except for those loans
the Buyer reviews during due diligence and agrees to purchase with knowledge of
delinquency; there is no valid and enforceable offset, defense or counterclaim
to any Note or Mortgage, including the obligation of the related Mortgagor to
pay the unpaid principal of or interest on such Note. Except for any such
delinquencies, there is no material default, breach, violation or event of
acceleration existing under any Mortgage or the related Note and no event
which, with the passage of time or with notice and the expiration of any cure
period, would constitute a material default, breach, violation or event of
acceleration; PAM has not waived any default, breach, violation or event of
acceleration.
(vi) There is no delinquent tax or assessment lien or mechanic's
lien, or claim for work, labor, or material on any Mortgaged Property; there is
no proceeding pending or threatened or currently occurring for the total or
partial condemnation of any Mortgaged Property to the best of PAM's knowledge;
each Mortgaged Property is free of substantial damage and is in good repair,
except for those items specifically mentioned in the appraisal, or any
applicable appraisal review of any mortgaged property.
E-1
<PAGE> 40
(vii) Each Mortgage Loan at the time it was made, and the
origination of such Mortgage Loan, complied in all material respects with all
applicable local, state and federal laws and regulations, including, without
limitation, the federal Truth-in-Lending Act, the Real Estate Settlement
Procedures Act, and other consumer protection laws, usury, equal credit
opportunity, disclosure and recording laws. Any Mortgage Loan, and the
origination thereof, which is subject to the "high cost or high fee mortgage"
provisions of the Home Ownership and Equity Protection Act of 1994, complies
with the requirements of such Act. No fraud was committed, nor was any
material misrepresentation made, by any Person, including without limitation
the related Mortgagor, in connection with the origination of such Mortgage
Loan; each Mortgage Loan is a Qualified Mortgage and is a Qualifying Loan.
(viii) With respect to each Mortgage Loan, a lender's title insurance
policy, issued in standard American Land Title Association or California Land
Title Association form by a title insurance company authorized to transact
business in the state in which the related Mortgaged Property is situated in an
amount at least equal to the Original Principal Amount of such Mortgage Loan
insuring the mortgagee's interest under the related Mortgage Loan as the holder
of a valid first or second mortgage lien of record on the real property
described in the related Mortgage, as the case may be, subject only to
exceptions of the character referred to in paragraph (iii) above, was effective
on the date of the origination of such Mortgage Loan, and, as of the Cut-Off
Date such policy will be valid and thereafter such policy shall continue in
full force and effect for the benefit of the Buyer and its assignees, in care
of the Master Servicer.
(ix) Each Mortgaged Property is improved by a single (one- to
four-) family residential dwelling, which may include condominiums and
townhouses but shall not include cooperatives; the improvements upon each
Mortgaged Property are covered by a valid and existing hazard insurance policy
with a generally acceptable carrier that provides for fire and extended
coverage representing coverage not less than the least of (A) the outstanding
principal balance of the related Mortgage Loan (together, in the case of a
Second Mortgage Loan, with the outstanding principal balance of any Senior
Liens), (B) the minimum amount required to compensate for damage or loss on a
replacement cost basis or (C) the full insurable value of the Mortgaged
Property.
(x) For all Mortgage Loans, there is in place a fully-paid life of
loan flood certification from Pinnacle Data Corporation or another vendor
approved by the Buyer, assignable to the Master Servicer, which provides for
notification to the Master Servicer of changes in designated flood areas which
would affect such Mortgage Loan; in addition, if any Mortgaged Property, as of
the Cut-Off Date of the related Mortgage Loan, is in an area identified in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards, a flood insurance policy in a form meeting the requirements of
the current guidelines of the Federal Insurance Administration is in effect for
the benefit of the Buyer and its assignees, in care of the Master Servicer,
with respect to such Mortgaged Property with a generally acceptable carrier in
an amount representing coverage not less than the least of (A) the outstanding
principal balance of the related Mortgage Loan (together, in the case of a
Second Mortgage Loan, with the outstanding principal balance of any Senior
Liens), (B) the minimum amount required to compensate for damage or loss on a
replacement cost basis or (C) the maximum amount of insurance that is available
under the Flood Disaster Protection Act of 1973.
(xi) Each Mortgage and Note is the legal, valid and binding
obligation of the maker thereof and is enforceable in accordance with its
terms, except only as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles
E-2
<PAGE> 41
of equity (whether considered in a proceeding or action in equity or at law).
The maker of such Mortgage and Note had the legal capacity to execute such
Mortgage and Note at the time such Mortgage and Note were executed.
(xii) PAM has caused and will cause to be performed any and all acts
required to be performed to preserve the rights and remedies of the Master
Servicer in any Insurance Policies applicable to any Mortgage Loans delivered
by PAM, including any necessary notifications of insurers, assignments of
policies or interests therein, and establishments of co-insured, joint loss
payee and mortgagee rights in favor of the Buyer and its assignees in care of
the Master Servicer.
(xiii) Interest on each Note is calculated in accordance with the
actuarial method; the terms of each Note and each Mortgage have not been
impaired, altered or modified in any respect, except by a written instrument
which has been recorded, if necessary, to protect the interest of the Buyer and
which has been included in the related Mortgage File to be delivered to the
Buyer. The substance of any such alteration or modification is reflected on
the related Mortgage Loan Schedule and has been approved by the primary
mortgage guaranty insurer, if any.
(xiv) Except as otherwise required by law or pursuant to the statute
under which the related Mortgage Loan was made, the related Note will not be
secured by any collateral, pledged account or other security except the lien of
the corresponding Mortgage.
(xv) No Mortgage Loan will be originated under a buydown plan; no
Mortgage Loan provides for negative amortization, has a shared appreciation
feature, or other contingent interest feature; and as of the related Cut-Off
Date, no Mortgage Loan had a Combined Loan-to-Value- Ratio or a Total
Loan-to-Value Ratio in excess of the maximum for the related product type as
set forth in Seller's Applicable Guidelines, as amended by the Pool Parameters
attached hereto as Exhibit D, unless Buyer acknowledges any such exception(s)
through its due diligence, and agrees to purchase the Mortgage Loan based on
the exception(s).
(xvi) Any advances made after the date of origination of a Mortgage
Loan but prior to the Cut-Off Date, have been consolidated with the outstanding
principal amount secured by the related Mortgage, and the secured principal
amount, as consolidated, bears a single interest rate and single repayment term
reflected on the related Mortgage Loan Schedule. No Note has been modified,
except as reflected on the related Mortgage Loan Schedule, and evidence of any
modification is in the related Mortgage File and has been supplied to the
Buyer. The consolidated principal amount does not exceed the original
principal amount of the related Mortgage Loan. No Note permits or obligates
the Master Servicer, any sub-servicer or the Buyer or its assignees to make
future advances to the related Mortgagor at the option of the Mortgagor.
(xvii) Any and all requirements as to completion of any on-site or
off-site improvements and as to disbursements of any escrow funds therefor have
been complied with, subject to any escrow hold-back for improvements pending
completion. All costs, fees and expenses incurred in making, closing or
recording the Mortgage Loans were paid.
(xviii) To the best of PAM's knowledge, all of the improvements which
were included for the purposes of determining the Appraised Value of any
Mortgaged Property lie wholly within the boundaries and building restriction
lines of such Mortgaged Property, and are stated in the title insurance policy
and affirmatively insured; no improvement located on or being part of any
Mortgaged Property is in violation of any applicable zoning law or
E-3
<PAGE> 42
regulation. To the best of PAM's knowledge, all inspections, licenses and
certificates required to be made or issued with respect to all occupied
portions of each Mortgaged Property and, with respect to the use and occupancy
of the same, including, but not limited to, certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities.
(xix) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage, and
no fees or expenses are or will become payable by the Buyer or its assignees
under the deed of trust, except in connection with a trustee's sale after
default by the related Mortgagor.
(xx) With respect to each Second Mortgage Loan, either (A) no
consent for such Mortgage Loan was required by the holder of the related Senior
Lien prior to the making of such Mortgage Loan or (B) such consent has been
obtained and is contained in the related Loan Servicing File.
(xxi) Each Mortgage contains a provision for the acceleration of the
payment of the unpaid principal balance of the related Mortgage Loan in the
event the related Mortgaged Property is sold without the prior consent of the
Mortgagee thereunder; each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof adequate
for the realization against the related Mortgaged Property of the benefits of
the security, including (A) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (B) otherwise by judicial foreclosure. Subject to
any statutory redemption rights of the Mortgagor, upon default by a Mortgagor
on a Mortgage Loan and foreclosure on, or trustee's sale of, the Mortgaged
Property, the holder of the Mortgage Loan will be able to deliver good and
marketable title to the Mortgaged Property. To the best of PAM's knowledge,
there is no homestead or other exemption available to a Mortgagor which would
interfere with the right to sell the Mortgaged Property at a trustee's sale or
the right to foreclose on the Mortgaged Property.
(xxii) No instrument of release or waiver has been executed in
connection with any Mortgage Loan, and no Mortgagor has been released, in whole
or in part, except in connection with an assumption agreement which has been
approved by the primary mortgage guaranty insurer, if any, and which has been
included in the related Funding Package delivered to the Buyer.
(xxiii) The maturity date of each Mortgage Loan which is a Second
Mortgage Loan is at least twelve (12) months prior to the maturity date of the
related first mortgage loan if such first mortgage loan provides for a balloon
payment.
(xxiv) Each Mortgage Loan has been originated in accordance with all
required provisions of Seller's Applicable Guidelines as amended by the Pool
Parameters attached hereto as Exhibit D; a full appraisal was performed with
respect to each Mortgage Loan in compliance with the applicable requirements
set forth in the Applicable Guidelines.
(xxv) As of the related Closing Date, to the best knowledge of PAM,
there does not exist on any Mortgaged Property any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act of 1976, or other federal, state or
local environmental legislation.
E-4
<PAGE> 43
(xxvi) Each Mortgage Loan which is a First Mortgage Loan shall be
covered by a valid and transferable tax service contract with Transamerica, or
other vendors as approved by the Buyer.
(xxvii) No mortgage reconveyance, release, satisfaction or trustee
fees have been collected by PAM or paid by any Mortgagor. In addition, if
there is, in Buyer's reasonable judgment, a documentation problem that would
make reconveyance of satisfaction difficult, cumbersome or expensive to the
Buyer, then PAM shall at the Buyer's request complete the reconveyance of
satisfaction of the Mortgage, including the recordation of the necessary
documentation, at PAM's sole cost and expense.
(xxviii) The Mortgage Loan is not in default, and all Monthly
Payments due prior to the related Cut-Off Date and all taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges, leasehold
payments or ground rents have been paid, to the best knowledge of PAM. PAM has
not advanced funds, or induced or solicited any advance of funds by a party
other than the Mortgagor directly or indirectly, for the payment of any amount
required by the Mortgage Loan. The collection practices used by each entity
which has serviced the Mortgage Loan have been in all respects legal, proper,
prudent and customary in the mortgage servicing business. With respect to
escrow deposits and payments in those instances where such were required, there
exist no deficiencies in connection therewith for which customary arrangements
for repayment thereof have not been made and no escrow deposits or payments or
other charges or payments have been capitalized under any Mortgage or the
related Mortgage Note.
E-5
<PAGE> 44
EXHIBIT F
FORM OF OPINION
__________, 1996
To: The Addresses identified on "Schedule I" attached hereto
Ladies and Gentlemen:
I am general counsel to PacificAmerica Money Center, Inc., a Delaware
corporation ("PAM"), and have acted as such in connection with the execution
and delivery of the following agreements:
1. The Amended and Restated Corporate Finance Agreement among
PAM, Advanta Mortgage Conduit Services, Inc. ("Advanta Conduit") and Advanta
Mortgage Corp. USA ("Advanta Mortgage"), amended as of January 27, 1997 (the
"Agreement");
2. The Master Commitment for Corporate Finance Relationships by
and among PAM, Advanta Conduit and Advanta Mortgage dated as of December 16,
1996.
3. The Tri-Party Security Agreement by and among PAM, Advanta
Conduit, Advanta Mortgage and Bankers Trust Company of California, N.A., dated
as of December 16, 1996.
4. The Mutual Confidentiality Agreement by and among PAM, Advanta
Conduit, Advanta Mortgage, dated as of December 16, 1996.
The foregoing documents are sometimes collectively referred to below
as the "Documents", and any one of them is sometimes referred to below as a
"Document".
All capitalized terms herein not otherwise defined herein shall have
the respective meanings set forth in the Corporate Finance Agreement.
In rendering the opinions set forth herein, I have (i) examined
executed copies of the Documents; (ii) examined originals or photostatic or
certified copies of all such corporate records of PAM and such certificates of
public officials, certificates of corporate officers, and other documents,
records financial statements and papers and have made such inquiries of
officers, employees and representatives of PAM as I have deemed appropriate and
necessary as a basis for the opinions hereinafter expressed, and I have further
assumed the truth, accuracy and completeness of all information provided to me
by such persons; (iii) assumed the genuineness of all signatures (other than
those of the officers of PAM affixed to the Documents) and the authenticity of
all documents submitted to me as originals and the conformity to original
documents of all documents submitted to me as certified or photostatic copies;
and (iv) assumed the due execution and delivery, pursuant to the due
authorization, of each of the Documents by each of the respective parties
(other than PAM) to each such Document.
I am qualified to practice law in the State(s) of __________, and I am
not expert in and express no opinion as to the laws of other jurisdictions
other than the federal law of the United States. In rendering the above
opinions, I have assumed that the state law(s) applicable to the
<PAGE> 45
Persons on Attached Schedule 1
December __, 1996
Page 2
Documents and under which the same are to be construed is identical in all
material respects to the law of the State(s) of __________. Furthermore, the
opinions expressed herein do not purport to opine as to applicable state "Blue
Sky" laws, legal investment laws, or other state or federal laws pertaining to
any securities law issues and securities matters relating to the transactions
described in the Documents.
Based upon the foregoing, and subject to the other qualifications
stated herein, I am of the opinion that:
1. PAM is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
2. PAM has all licenses and qualifications necessary to carry on
its lending business as now being conducted and to perform its obligations
hereunder; PAM has the power and authority to execute and deliver the Agreement
and to perform its obligations in accordance therewith; the execution, delivery
and performance of the Agreement (including any Conveyance Agreement and any
other instruments of transfer to be delivered pursuant to the Agreement) by PAM
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action and do not violate the
organization documents of PAM, contravene or violate any law, regulation,
injunction, order, decree or other instrument applicable to PAM or to our
knowledge, contravene, violate or result in any breach of any provision of, or
constitute a default under, or result in the imposition of any lien on any
assets of PAM pursuant to the provisions of, any mortgage, indenture, contract,
agreement or other undertaking to which PAM is a party or which purports to be
binding upon PAM or any of PAM's assets and which have been identified to us by
PAM as "Material Contracts"; this Agreement evidences the valid and binding
obligation of PAM enforceable against PAM in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditor's rights generally or the
application of equitable principles in any proceeding, whether at law or in
equity;
3. To our knowledge, there are no actions, approvals, consents,
waivers, exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as the case may
be, by or from any federal, state or other governmental authority or agency,
that are necessary in connection with the execution, delivery or performance by
PAM of the Agreement;
4. To our knowledge, there is no action, suit, proceeding or
investigation pending or, to the best of PAM's knowledge, threatened against
PAM which alleges a widespread practice of violation of any applicable law or
regulation with respect to loan origination activities of PAM or any of its
subsidiaries, or which would draw into question the validity of the Agreement
or the Mortgage Loans or of any action taken or to be taken in connection with
the obligations of PAM contemplated herein, or which would be likely to impair
the ability of PAM to perform under the terms of the Agreement;
5. To our knowledge, PAM is not in default with respect to any
Material Contract or with respect to any order or decree of any court or any
order, regulation or demand of any federal, state, municipal or governmental
agency, which default might have consequences that would adversely affect its
performance hereunder;
<PAGE> 46
Persons on Attached Schedule 1
December __, 1996
Page 3
The foregoing opinions are being rendered for the benefit only of the
Addressees listed on the attachment and may not be disclosed to, quoted to or
relied upon by any other person or entity without the prior written consent of
the undersigned.
Very truly yours,
_________________________________
Title: General Counsel
<PAGE> 47
Persons on Attached Schedule 1
December __, 1996
Page 4
SCHEDULE 1
Advanta Mortgage Corp. USA
500 Office Center Drive
Suite 400
Fort Washington, PA 19034
Advanta Mortgage Conduit Services, Inc.
16875 West Bernardo Drive
San Diego, CA 92127
<PAGE> 48
EXHIBIT G
FORM OF SYNTHETIC RESIDUAL CERTIFICATE
This Synthetic Residual Certificate (this "Certificate") has
been issued in accordance with Section 9(d) of the Amended and Restated
Corporate Finance Agreement amended as of January 27, 1997 (the "Corporate
Finance Agreement") by and among PacificAmerica Money Center, Inc. (the
"Seller"), Advanta Mortgage Conduit Services, Inc. (the "Buyer") and Advanta
Mortgage Corp. USA (the "Master Servicer"). This Certificate is the Synthetic
Residual Certificate referenced in Section 2 of the Tri-Party Security
Agreement dated as of ________, 1996 (the "Security Agreement") by and among
the Buyer, the Master Servicer (the Buyer and the Master Servicer together are
referred to herein as the "Pledgors"), _____________ and Bankers Trust Company
of California, N.A., as trustee. Unless otherwise indicated, terms used herein
but not defined shall have the respective meanings given to such terms in the
Corporate Finance Agreement.
This Certificate evidences the secured corporate obligation of
the Pledgors to pay the Residual Cashflow amounts to the Seller as required by
Section 9(c) of the Corporate Finance Agreement. To secure such obligation,
the Pledgors have granted a security interest in the Collateral (as such term
is defined in the Security Agreement) to the Seller pursuant to the Security
Agreement. This Certificate does not represent any direct ownership interest
in any Mortgage Loans.
THIS CERTIFIES THAT PacificAmerica Money Center, Inc. is the
owner of this Certificate. This Certificate is not transferrable, except to a
wholly-owned subsidiary of the Seller. Upon such transfer, the Seller will
promptly give notice to the Buyer.
IN WITNESS WHEREOF, the Pledgors have caused this Certificate
to be signed, manually or in facsimile by it authorized officer.
Dated: _______________, 1996
ADVANTA MORTGAGE CONDUIT
SERVICES, INC.
By:_____________________________
Name:
Title:
ADVANTA MORTGAGE CORP. USA
By:______________________________
Name:
Title:
G-1
<PAGE> 49
EXHIBIT H
________________________________________________________________________________
TRI-PARTY SECURITY AGREEMENT
By and Among
ADVANTA MORTGAGE CONDUIT SERVICES, INC.,
ADVANTA MORTGAGE CORP. USA,
PACIFICAMERICA MONEY CENTER, INC.
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
Dated as of December 16, 1996
H-1
<PAGE> 50
TRI-PARTY SECURITY AGREEMENT
This TRI-PARTY SECURITY AGREEMENT (this "Agreement"), dated as
of December 16, 1996 by and among ADVANTA MORTGAGE CONDUIT SERVICES, INC.
("Advanta Mortgage Conduit"), ADVANTA MORTGAGE CORP. USA ("Advanta Mortgage
Corp.", together with Advanta Mortgage Conduit, the "Pledgors"), PACIFICAMERICA
MONEY CENTER, INC. (the "Secured Party") and BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., as trustee (the "Trustee").
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein, the parties hereto agree as follows:
Section 1. Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the following
meanings when used in this Agreement:
"Certificate Account" means the related Certificate Account created
under the related Advanta Pooling Agreement. Each Securitization Statement
shall more particularly identify the related Certificate Account.
"Collateral" means the Pledgors' rights to receive payments of
Residual Cashflow in connection with each and every Securitized Loan Pool.
"Corporate Finance Agreement" means the Amended and Restated Corporate
Finance Agreement amended as of January 27, 1997 by and among the Secured
Party, PacificAmerica Money Center, Inc., and the Pledgors, as amended from
time to time.
"Securitized Loan Pools" means any group of Mortgage Loans sold by the
Secured Party pursuant to the Master Commitment and the Corporate Finance
Agreement and held by a particular Advanta Trust, whether acquired initially by
such Advanta Trust or subsequently acquired through "pre-funded" purchases. A
Securitized Loan Pool may represent any number of pools.
Capitalized terms used and not otherwise defined herein shall for all purposes
of this Agreement have the respective meanings specified therefor in the
Corporate Finance Agreement.
Section 2. Pledge and Security.
Each Pledgor hereby pledges all of its respective right,
title, and interest in and to, and grants a first lien on, and security
interest in, the Collateral to the Secured Party to secure the obligation of
the Pledgors to make payments of Residual Cashflow to the Secured Party in
accordance with Section 9(d) of the Corporate Finance Agreement, which
obligation is evidenced by the Synthetic Residual Certificate in the form of
Exhibit I to the Corporate Finance Agreement. Such financing statement shall
be amended in connection with each Securitization transaction to reflect the
increase in Collateral.
The Seller acknowledges that the Synthetic Residual
Certificate is not transferrable except to a wholly owned subsidiary of the
Seller. Upon such transfer, the Seller will promptly give written notice to
the Buyer.
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<PAGE> 51
Section 3. Financing Statement.
The Pledgors covenant that, on the date of execution of this
Agreement, the Pledgors shall cause to be filed a financing statement (Form
UCC-1) with the Secretary of State of California to perfect by filing thereof
the security interest in the Collateral granted by the Pledgors herein. The
Pledgors covenant to file one or more additional financing statements in such
other jurisdictions as PacificAmerica Money Center, Inc shall reasonably
request.
Section 4. Events of Default. Each of the following shall
constitute an "Event of Default" hereunder:
(a) Failure of the Pledgors to make any payment of
Residual Cashflow, owing to the Secured Party under Section 9(d) of the
Corporate Finance Agreement, to the Secured Party which failure is not remedied
within five Business Days after the due date thereof. Payments of Residual
Cash Flow which are not paid on the related Distribution Date shall bear
interest at ____ per annum until paid in full.
(b) The filing against either Pledgor of a petition for
liquidation, reorganization, arrangement or adjudication as a bankrupt or
similar relief under the bankruptcy, insolvency or similar laws of the United
States or any state or territory thereof or of any foreign jurisdiction as to
which such Pledgor fails to secure dismissal within 60 days after such filing.
Appointment of a receiver, conservator, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of either Pledgor or of any
substantial part of its property, the ordering of the winding-up or liquidation
of its affairs, or the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of either Pledgor in any involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect.
(c) Commencement by either Pledgor of a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by either Pledgor to the entry of an order
for relief in an involuntary case under any such law or to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of either Pledgor or of any
substantial part of its property, or the making by either Pledgor of any
general assignment for the benefit of creditors, or the failure of either
Pledgor generally to pay its debts as such debts become due, or the taking of
corporate action by either Pledgor in furtherance of any of the foregoing.
Section 5. Remedy Upon Default. Upon the happening of one or
more Events of Default, the Secured Party shall give at least 5 Business Days
written notice to the Trustee, stating the date and the nature of the Event of
Default, and identifying the appropriate Advanta Trust relating to the
Securitized Loan Pools. The Secured Party shall have the right to direct the
Trustee to make all future monthly payments of Residual Cashflow due to it
under Section 9(d) of the Corporate Finance Agreement, including amounts owed
as of the date of notice, directly from the Certificate Account (or any similar
account maintained for the related Securitized Loan Pool), into an account
designated by the Secured Party in such notice, before payments may be made to
the Pledgors under the terms of the Corporate Finance Agreement. The Trustee
shall calculate all amounts owed to the Secured Party to be paid pursuant to
this Section 5. The parties acknowledge that the Secured Party shall have no
rights against the Collateral, other than the rights of the Secured Party to
receive payments as provided for herein and in the Agreement. Notwithstanding
the security interest granted hereby, the Synthetic Residual Certificate
represents a general corporate liability of the Pledgors.
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<PAGE> 52
Section 6. Trustee's Duties. (a) The Trustee (i) undertakes
to perform such duties and only such duties as are specifically set forth in
this Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Trustee and (ii) in the absence of bad faith on its part,
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions finished pursuant
to and conforming to the requirements of this Agreement.
Additionally, the Trustee is permitted to rely and
shall be protected in acting or refraining from acting upon any certificates,
statement, instrument, opinion, report, request, direction, consent, order,
bond, note, notices or other paper or document delivered hereunder believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
(b) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to
limit the effect of subsection (a) of this
Section;
(ii) the Trustee shall not be liable for any error
of judgment made in good faith by an
authorized officer of the Trustee, unless it
shall be proved that the Trustee was
negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect
to any action taken or omitted to be taken by
it in good faith in accordance with the
direction of the Secured Party or the
Pledgors or relating to the time, method and
place of conducting any proceeding for any
remedy available to the Trustee, or
exercising any trust or power conferred upon
the Trustee, under this Agreement.
(c) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
(d) No provision of this Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(e) The Trustee shall be under no obligation to institute
any suit, or to take any remedial proceeding under this Agreement, or to take
any steps in the execution of the trusts hereby created or in the enforcement
of any rights and powers hereunder until it shall be indemnified to its
satisfaction against any and all costs and expenses, outlays and counsel fees
and other reasonable disbursements and against all liability, except liability
which is adjudicated to have resulted from its negligence or willful
misconduct, in connection with any action so taken.
(f) The Pledgors agree to indemnify the Trustee, and its
officers, directors, employees and agents and hold it harmless against, any and
all losses, liabilities, damages, claims or expenses (including reasonable
legal fees and expenses), that may be imposed on,
H-3
<PAGE> 53
incurred by or asserted against the Trustee in any way relating to or arising
out of this Agreement or any action taken by the Trustee pursuant to this
Agreement, unless such liabilities, obligations, losses, expenses, legal fees
or disbursements were imposed on, incurred by, or asserted against the Trustee
as a result of the Trustee's own negligence or bad faith or willful misconduct.
The foregoing indemnification shall survive any termination of this Agreement
or the resignation of or removal of the Trustee.
Section 7. Notices. All demands, notices and communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given when received by the other party or parties at the address shown
below, or such other address as may hereafter be furnished to the other party
or parties by like notice. Any such demand, notice or communication hereunder
shall be deemed to have been received on the date delivered to or received at
the premises of the addressee.
If to the Pledgors:
Mark A. Casale
Advanta Mortgage Corp. USA
500 Office Center Drive
Suite 400
Fort Washington, PA 19034
Telecopy: (215) 444-4743
If to the Secured Party:
PacificAmerica Money
Center, Inc.
21031 Ventura Blvd.
Woodland Hills, CA 91364-2210
Telecopy: 810-358-4639
If to the Trustee:
Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, CA 92714
Telecopy: (714) 253-8289
Section 8. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement.
Section 9. Assignment; Successors and Assigns. No party to
this Agreement may assign its rights or delegate its obligations under this
Agreement without the express written consent of the other parties, except as
otherwise set forth in this Agreement. This Agreement shall be binding upon
the successors and assigns of the parties hereto.
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<PAGE> 54
Section 10. Counterparts. For the purpose of facilitating
the execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall be
deemed to be an original, and together shall constitute and be one and the same
instrument.
Section 11. Amendment. This Agreement may be amended from
time to time by the parties hereto only by a written instrument executed by
such parties.
Section 12. Governing Law; Agreement Constitutes Security
Agreement. This Agreement is intended by the parties hereto to be governed by,
and construed in accordance with, California law, without regard to conflict of
laws rules applied in California, and to constitute a security agreement within
the meaning of the California Uniform Commercial Code.
H-5
<PAGE> 55
IN WITNESS WHEREOF, the parties have executed this TRI-PARTY
SECURITY AGREEMENT as of the day and year first above written.
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
By:___________________________________________
Name:
Title:
ADVANTA MORTGAGE CORP. USA
By:___________________________________________
Name:
Title:
PACIFICAMERICA MONEY CENTER, INC.
By:___________________________________________
Name:
Title:
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as
Trustee
By:___________________________________________
Name:
Title:
H-6
<PAGE> 56
EXHIBIT I
MUTUAL CONFIDENTIALITY AGREEMENT
THIS CONFIDENTIALITY AGREEMENT ("Agreement") is entered into
this 15th day of December, 1996, by and between Advanta Mortgage Corp. USA, 500
Office Center Drive, Suite 400, Fort Washington, PA 19034 ("AMCUSA") and
PacificAmerica Money Center, Inc. ("PAM") 21031 Ventura Boulevard, Woodland
Hills, CA 91364.
WHEREAS, PAM and AMCUSA are contemplating entering into a
Master Commitment for Corporate Finance Relationship.
WHEREAS, during the course of this arrangement, AMCUSA may
give PAM access to, or PAM may learn about various information and material
relating to the financial status, marketing strategies, business practices,
products, customers, potential customers, procedures, methods, models,
materials, technical knowledge and the like of AMCUSA, its affiliates and
subsidiaries (the "Confidential Data") all of which AMCUSA considers to be of a
proprietary nature and PAM may give AMCUSA access to, or AMCUSA may learn about
various information and material relating to the financial status, marketing
strategies, business practices, products, customers, potential customers,
procedures, methods, models, materials, technical knowledge and the like, which
PAM considers to be of a proprietary nature and all of which are referred to
herein as "Confidential Data."
NOW, THEREFORE, intending to be legally bound hereby, PAM and
AMCUSA agree as follows:
(1) Each party acknowledges that Confidential Data is
considered proprietary and acknowledges that the unauthorized use or disclosure
of any Confidential Data could be detrimental to the other party.
(2) No party shall distribute, disclose or convey to
third parties any Confidential Data without prior written approval of the other
Party.
(3) Each party agrees that:
a. Only employees, with a defined "need to know"
basis shall be granted access to any Confidential Data;
b. No party shall distribute, disclose or convey
Confidential Data to any consultant or subcontractor, except
upon prior written approval of the other party;
c. Each party shall protect the confidentiality
of the Confidential Data of the other party in the same manner
in which it protects the confidentiality of its own
proprietary and confidential data of like kind. Access to the
Confidential Data shall be restricted to those engaged in a
use permitted hereby;
d. No party shall copy or reproduce any
Confidential Data, except as necessary to complete the scope
of its work in providing services to the other;
I-1
<PAGE> 57
e. All Confidential Data made available to each
party, including copies thereof, shall be returned upon the
earlier of the completion of the scope of work identified
above or a request of the other party;
f. Nothing is this Agreement shall prohibit or
limit the parties use of information (including, but not
limited to, financial data and financial strategies and
methodologies), (i) previously known to it, (ii) acquired by
it from a third party which is not under an obligation not to
disclose such information, or (iii) which is or becomes
publicly available through no breach of this Agreement; and
g. No party shall make use of any of the
Confidential Data for its own independent benefit.
(4) Each party agrees that, should a third party request
it to submit Confidential Data pursuant to a subpoena, summons, search warrant,
court or governmental order, the party receiving the subpoena (the "Subpoenaed
Party") will notify the other Party promptly upon receipt of such request. If
the other party objects to the release of the Confidential Data, the Subpoenaed
Party will permit counsel chosen by the other party to represent the Subpoenaed
Party in order to resist release of the Confidential Data. The other party
will pay the Subpoenaed Party for any reasonable expenses incurred by the
Subpoenaed Party in connection with resisting the release of the Confidential
Data.
(5) PAM shall indemnify AMCUSA with respect to any losses
suffered by AMCUSA as a result of a breach of any covenants, promises or
representations in this Agreement. The Buyer shall indemnify PAM with respect
to any losses suffered by PAM as a result of a breach of any covenants,
promises or representations in this Agreement.
(6) All the terms, rights, duties and conditions
contained in this Agreement shall merge into any future agreement between the
parties.
(7) This Agreement is binding on the parties and their
successors and assigns, and is provisions may be waived or modified by written
agreement of the parties.
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<PAGE> 58
(8) This Agreement is executed and delivered in
California, and shall be governed by the laws of the Commonwealth of
California.
PACIFICAMERICA MONEY CENTER, INC. ADVANTA MORTGAGE CORP. USA
By: _______________________________ By: ______________________________
Name: Mark Casale, Vice President of
Title: Corporate Finance
I-3
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
Dec. 31, 1996 Dec. 31, 1996
------------- -------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Income from continuing operations 3,725,000 4,813,000
Interest adjustments (net of tax effect) 55,787 401,887
-------------------------------------------------------------------------------------------------------
Adjusted income from continuing operations 3,780,787 5,214,887
Income from discontinued operations (651,158) (651,158)
-------------------------------------------------------------------------------------------------------
Adjusted net income for primary earnings 3,129,629 4,563,729
=======================================================================================================
Weighted average common stock outstanding 1,832,908 1,819,490
Weighted average subscriber warrants 64,210 64,158
Weighted average general partner warrants 554,890 557,599
Weighted average stock options 227,083 226,633
-------------------------------------------------------------------------------------------------------
Weighted average common stock and common stock 2,679,091 2,667,880
equivalents outstanding
Adjustment for stock acquired with proceeds (374,030) (374,030)
-------------------------------------------------------------------------------------------------------
Adjusted common stock and common
stock equivalents outstanding 2,305,061 2,293,850
=======================================================================================================
CONTINUING OPERATIONS $ 1.64 $ 2.27
DISCONTINUED OPERATIONS $ (0.28) $ (0.28)
PRIMARY EARNINGS PER SHARE $ 1.36 $ 1.99
FULLY DILUTED EARNINGS PER SHARE
Income from continuing operations 3,725,000 4,813,000
Interest adjustments (net of tax effect) 16,503 70,271
-------------------------------------------------------------------------------------------------------
Adjusted income from continuing operations 3,741,503 4,883,271
Income from discontinued operations (651,158) (651,158)
-------------------------------------------------------------------------------------------------------
Adjusted net income for fully diluted earnings 3,090,345 4,232,113
=======================================================================================================
Common stock outstanding 1,832,908 1,819,490
Subscriber warrants 64,210 64,158
General partner warrants 554,890 557,599
Stock options 227,083 226,633
-------------------------------------------------------------------------------------------------------
Common stock and common stock equivalents outstanding 2,679,091 2,667,880
Adjustment for stock acquired with proceeds (374,030) (374,030)
-------------------------------------------------------------------------------------------------------
Adjusted common stock and common
stock equivalents outstanding 2,305,061 2,293,850
=======================================================================================================
CONTINUING OPERATIONS $ 1.62 $ 2.12
DISCONTINUED OPERATIONS $ (0.28) $ (0.28)
FULLY DILUTED EARNINGS PER SHARE $ 1.34 $ 1.84
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
Pacific Thrift and Loan Company, a California corporation,
100% owned by the Registrant
PacificAmerica Money Centers, Inc., a Delaware corporation,
100% owned by the Registrant
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,153
<INT-BEARING-DEPOSITS> 237
<FED-FUNDS-SOLD> 5,250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 54,127
<ALLOWANCE> 2,464
<TOTAL-ASSETS> 114,934
<DEPOSITS> 81,002
<SHORT-TERM> 745
<LIABILITIES-OTHER> 8,676
<LONG-TERM> 2,545
0
0
<COMMON> 19
<OTHER-SE> 21,947
<TOTAL-LIABILITIES-AND-EQUITY> 114,934
<INTEREST-LOAN> 11,174
<INTEREST-INVEST> 328
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,502
<INTEREST-DEPOSIT> 4,414
<INTEREST-EXPENSE> 4,966
<INTEREST-INCOME-NET> 6,536
<LOAN-LOSSES> 1,151
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 28,908
<INCOME-PRETAX> 6,471
<INCOME-PRE-EXTRAORDINARY> 6,471
<EXTRAORDINARY> (651)
<CHANGES> 0
<NET-INCOME> 4,162
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 7.46
<LOANS-NON> 1,394
<LOANS-PAST> 1,625
<LOANS-TROUBLED> 357
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,229
<CHARGE-OFFS> 3,187
<RECOVERIES> 271
<ALLOWANCE-CLOSE> 2,464
<ALLOWANCE-DOMESTIC> 2,464
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>INCOME ON DISCONTINUED OPERATIONS OF 387 AND LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS OF 1038 ARE SHOWN UNDER EXTRAORDINARY ITEM.
</FN>
</TABLE>
