<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
---------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________
Commission file number 0-20897
PACIFICAMERICA MONEY CENTER, INC.
(Exact name of Registrant as specified in its charter)
California 95-4465729
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
21031 Ventura Boulevard
Woodland Hills, California 91364
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (818) 992-8999
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 [ ].
1
<PAGE> 2
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash & cash equivalents $ 36,977,000 $ 8,640,000
Accounts receivable, net 1,954,000 2,349,000
Receivable for mortgage loans shipped 0 24,310,000
Interest receivable 1,328,000 1,144,000
Premium receivable for loans sold 0 1,195,000
Loans receivable, net (Note 5) 26,872,000 33,515,000
Loans held for sale (Note 6) 29,320,000 18,148,000
Interest-only strip receivable 68,427,000 11,698,000
Real estate acquired in settlement of loans 2,855,000 4,285,000
Property and equipment, net 3,103,000 2,360,000
Deferred income taxes 4,995,000 4,995,000
Refundable income taxes 730,000 730,000
Other assets 2,106,000 1,565,000
============ ============
$178,667,000 $114,934,000
============ ============
Liabilities and Stockholders' Equity
Thrift certificates payable
Full-paid certificates $ 80,519,000 $ 56,343,000
Installment certificates 20,086,000 24,659,000
------------ ------------
Total thrift certificates payable 100,605,000 81,002,000
Accounts payable and accrued expenses 13,659,000 2,235,000
Accrued interest payable 739,000 185,000
Mortgage notes payable 558,000 1,557,000
Note payable 19,960,000 3,290,000
Deferred income taxes 4,699,000 4,699,000
------------ ------------
140,220,000 92,968,000
------------ ------------
Stockholders' Equity 38,447,000 21,966,000
============ ============
$178,667,000 $114,934,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
2
<PAGE> 3
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans receivable $ 3,074,000 $ 2,682,000 $ 8,395,000 $ 7,406,000
Interest on investments 167,000 106,000 348,000 302,000
------------ ------------ ------------ ------------
Total interest income 3,241,000 2,788,000 8,743,000 7,708,000
Interest Expense:
Interest on thrift certificates greater than $100,000 13,000 -- 13,000 --
Interest on other thrift certificates 1,479,000 1,109,000 3,641,000 3,119,000
Interest on notes payable 508,000 80,000 519,000 487,000
------------ ------------ ------------ ------------
Total interest expense 2,000,000 1,189,000 4,173,000 3,606,000
Net interest income 1,241,000 1,599,000 4,570,000 4,102,000
Provision for loan losses 225,000 11,000 1,272,000 267,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 1,016,000 1,588,000 3,298,000 3,835,000
------------ ------------ ------------ ------------
Noninterest income:
Other income 20,000 132,000 85,000 327,000
Gain on sale of loans 22,585,000 6,936,000 54,254,000 17,732,000
------------ ------------ ------------ ------------
Total noninterest income 22,605,000 7,068,000 54,339,000 18,059,000
Noninterest expense:
General and administrative 5,599,000 2,782,000 15,117,000 7,612,000
Salaries, employee benefits and personnel services 8,180,000 4,310,000 20,022,000 9,792,000
Amortization of organization costs 17,000 (4,000) 108,000 234,000
Related party fees -- -- -- 1,136,000
Depreciation and amortization 151,000 89,000 386,000 280,000
Expenses on real estate acquired in settlement of loans 154,000 109,000 525,000 364,000
Net (gain) loss on sales of real estate acquired
in settlement of loans (8,000) 97,000 (175,000) 136,000
------------ ------------ ------------ ------------
Total noninterest expense 14,093,000 7,383,000 35,983,000 19,554,000
------------ ------------ ------------ ------------
Income before tax provision 9,528,000 1,273,000 21,654,000 2,340,000
Tax provision 4,002,000 578,000 9,096,000 1,653,000
------------ ------------ ------------ ------------
Income from continuing operations 5,526,000 695,000 12,558,000 687,000
Income from discontinued operations, net of tax -- 103,000 -- 401,000
------------ ------------ ------------ ------------
Net income $ 5,526,000 $ 798,000 $ 12,558,000 $ 1,088,000
============ ============ ============ ============
Primary earnings per share
Continuing operations $ 1.11 $ 0.17 $ 2.57 $ 0.20
Discontinued operations $ -- $ 0.03 $ -- $ 0.11
------------ ------------ ------------ ------------
Net Income $ 1.11 $ 0.20 $ 2.57 $ 0.31
============ ============ ============ ============
Fully diluted earnings per share
Continuing operations $ 1.09 $ 0.17 $ 2.51 $ 0.19
Discontinued operations $ -- $ 0.03 $ -- $ 0.11
------------ ------------ ------------ ------------
Net Income $ 1.09 $ 0.20 $ 2.51 $ 0.30
============ ============ ============ ============
Weighted average shares outstanding - primary 4,988,074 4,598,356 4,883,016 4,598,356
Weighted average shares outstanding - fully diluted 5,083,082 4,598,356 5,011,967 4,598,356
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
3
<PAGE> 4
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
(Increase) Decrease in Cash and Cash Equivalents 1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Adjustments to reconcile net income to net
cash used in operating activities:
Net income $ 12,558,000 $ 1,088,000
Depreciation and amortization 494,000 518,000
Provision for loan losses 1,272,000 267,000
Net (gain) loss on sales of real estate
acquired in settlement of loans (175,000) 136,000
Changes in discontinued operations -- 253,000
Proceeds from loans originated for sale 512,720,000 230,737,000
Origination of loans held for sale (537,833,000) (237,667,000)
Net change in assets and liabilities
Accounts receivable 395,000 (13,031,000)
Receivable for mortgage loans shipped 24,310,000 --
Interest receivable (184,000) 1,000
Premium receivable for loans sold 1,195,000 --
Interest-only strips receivable (56,729,000) 775,000
Goodwill -- 90,000
Other assets (649,000) (904,000)
Accounts payable and accrued expenses
and interest payable 11,978,000 497,000
------------- -------------
Net cash used in operating activities (30,648,000) (17,240,000)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of loans receivable 17,063,000 --
Proceeds from sale of other real estate 903,000 57,000
Net change in loans receivable 1,952,000 (7,436,000)
Purchases of property and equipment (1,129,000) (1,086,000)
Decrease in other real estate -- (34,000)
------------- -------------
Net cash provided by (used in) investing activities 18,789,000 (8,499,000)
------------- -------------
Cash flow from financing activities:
Net increase from in thrift certificates issued 19,603,000 24,635,000
Proceeds from stock issuance 3,923,000 8,334,000
Paydown on line of credit -- (5,031,000)
Withdrawal of partnership capital -- (1,120,000)
Proceeds on Note Payable 17,415,000 3,000,000
Payments on Note Payable (745,000) --
------------- -------------
Net cash provided by financing activities 40,196,000 29,818,000
------------- -------------
Net increase in cash and cash equivalents 28,337,000 4,079,000
Cash and cash equivalents at beginning of period 8,640,000 10,489,000
============= =============
Cash and cash equivalents at September 30, $ 36,977,000 $ 14,568,000
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
4
<PAGE> 5
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) GENERAL
The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments (all of which are of a normal recurring
nature) which are necessary to fairly state the Company's financial position,
its cash flows and the results of its operations. The Company presumes that
users of the interim financial information herein have read or have access to
the audited financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the preceding fiscal year and
that the adequacy of additional disclosure needed for a fair presentation,
except in regard to material contingencies, may be determined in that context.
Accordingly, footnote and other disclosures which would substantially duplicate
the disclosure contained in the Company's most recent annual report have been
omitted. The interim financial information herein is not necessarily
representative of operations for a full year for various reasons including
changes in interest rates, volume of loans originated and loans paid off.
2) ADOPTION OF NEW ACCOUNTING POLICIES
On January 1, 1997, the Company adopted Statement of Financial
Accounting Standard No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" (SFAS 125). This statement provides
guidance for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS 125 supersedes SFAS 76, 77 and 122,
while amending both SFAS 65 and 115. The statement is to be applied
prospectively and earlier implementation was not permitted. The adoption of SFAS
125 did not have a material effect on the Company's results of operations.
A transfer of financial assets in which control is surrendered is
accounted for as a sale to the extent that consideration other than beneficial
interests in the transferred assets is received in the exchange. Liabilities and
derivatives incurred or obtained by the transfer of financial assets are
required to be measured at fair value, if practicable. Also, servicing assets
and other retained interests in the transferred assets must be measured by
allocating the previous carrying value between the asset sold and the interest
retained, if any, based on their relative fair values at the date of transfer.
For each servicing contract in existence before January 1, 1997, previously
recognized servicing rights and excess servicing receivables that do not exceed
contractually specified servicing fees are required to be combined, net of any
previously recognized servings obligations under that contract, as a servicing
asset or liability. Previously recognized servicing receivables that exceed
contractually specified servicing fees are required to be reclassified as
interest-only strip receivables and the allowance for credit losses on loans
sold will be reclassified as a reduction of these receivables.
SFAS 125 also requires an assessment of interest-only strips, loans,
other receivables and retained interests in securitizations. If these assets can
be contractually prepaid or otherwise settled such that the holder would not
recover substantially all of its recorded investment, the assets will be
measured like available-for-sale securities or trading securities under SFAS
115. This assessment is required for financial assets held on or acquired after
January 1, 1997.
5
<PAGE> 6
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3) REVENUE RECOGNITION
Gain on sale of loans represents the difference between the proceeds
(including premiums) from the sale, net of related transaction costs, and the
allocated carrying amount of the loans sold. The allocated carrying amount is
determined by allocating the original amount of loan between the portion sold
and any retained interests (interest-only strip receivable), based on their
relative fair values at the date of transfer. In addition, gain on sale includes
non-refundable fees on loans sold and gains or losses on certain transactions
structured as an economic hedge.
Gain on sale of loans include the recognition of an unrealized gain
which represents the initial difference between the allocated carrying amount
and the fair market value of the interest-only strip at the date of sale.
The fair value of the interest-only strip receivable is determined by
computing the present value of the difference between the interest income to be
received by the Company over the interest to be received by the investor after
giving effect to prepayment assumptions, allowance for potential credit losses
and other transaction costs on loans sold. The interest-only strip receivable,
which is classified as a trading security, is carried at fair market value and
is analyzed quarterly by the Company. Adjustments to the fair market value will
be recognized as unrealized gains or losses and included as part of gain on sale
of loans. Prepayment rates for newer pools of loans sold are not yet sufficient
to provide meaningful data regarding future loan performance. No market
valuation adjustment has been made for the periods ended December 31, 1996,
March 31, 1997, June 30, 1997 or September 30, 1997.
4) RECLASSIFICATIONS
Certain reclassification of balances from prior years have been made to
conform to the current year's reporting format.
5) LOANS RECEIVABLE
The following is a summary of Loans Receivable:
<TABLE>
<CAPTION>
9-30-97
------------
<S> <C>
Interest bearing loans $ 28,981,000
Deferred loan fees, net (235,000)
Allowance for loan losses (1,874,000)
------------
Total $ 26,872,000
============
</TABLE>
6
<PAGE> 7
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following is a summary of Allowance for Loan Losses:
<TABLE>
<S> <C>
Balance at 12-31-96 $ 2,464,000
Additions to reserve 1,272,000
Charge off/recoveries (1,862,000)
-----------
Balance at 9-30-97 $ 1,874,000
===========
</TABLE>
6) MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are stated at the lower of aggregated cost
or market with market being equal to the committed loan sales price. Unrealized
gains and losses on forward contracts are deferred to the extent they act as a
hedge used to control interest rate exposure. Such gains and losses are
recognized upon delivery of the underlying mortgage loan and are included in
gains and losses from the sale of the loans.
7) STOCK DIVIDEND
On July 10, 1997, the Board of Directors of the Company declared a
stock split-up in the form of a one-for-one stock dividend to all stock holders
of record as of July 31, 1997. The stock dividend was paid on August 13, 1997.
These financial statements reflect the effect of the stock dividend on current
and prior periods earnings per share and shares outstanding.
8) COMMITMENTS AND CONTINGENCIES AND CONCENTRATION OF CREDIT RISK
The Company from time to time purchases and sells government securities
at agreed upon prices as an economic hedge. These transactions reported net of
gain on sale of loans amounted to a loss of $.5 million for the nine months
ended September 30, 1997.
9) ACCOUNTING DEVELOPMENTS
In March 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS 128). This pronouncement provides
a different method of calculating earnings per share than is currently used in
accordance with APB 15, "Earnings per Share". SFAS 128 provides for the
calculation of Basic and Diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted earnings
per share. This pronouncement is effective for fiscal years and interim periods
ending after December 15, 1997; early adoption is not permitted. At September
30, 1997, the Company had common stock equivalents which can be converted into
1,199,472 shares of common stock which will not be included in the computation
of basic earnings per share under SFAS 128. Primary earning per share included
1,419,941 weighted average shares of common stock equivalents using the treasury
stock method for the three months ended September 30, 1997. Primary earning per
share included 1,604,546 weighted average shares of common stock equivalents
using the treasury stock method for the nine months ended September 30, 1997.
The Company does not expect that the adoption will have a material effect on its
fully diluted earning per share calculation.
In March 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" (SFAS
129). SFAS 129 lists required disclosures about capital structures that had been
included in a number of previously existing separate statements and opinions.
This statement is effective for financial statements issued for periods ending
after December 15, 1997. The adoption of this statement is not expected to have
a material effect on the Company's financial statements.
7
<PAGE> 8
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In June 1997, the FASB issued Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" (SFAS 130). This statement
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
SFAS 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company has not determined the effect, if
any, of adoption on the reporting and display of comprehensive income and its
components.
In June 1997, the FASB issued Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). This statement establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement supersedes FASB
Statement No. 14 "Financial Reporting for a Business Enterprise", but retains
the requirement to report information about major customers. It amends FASB
Statement No, 94 "Consolidation of All Majority-Owned Subsidiaries" to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. This statement need not be
applied to interim financial statements in the initial year of application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. The adoption of this statement is not expected to have a
material effect on the Company's financial statements.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
On June 27, 1996, PacificAmerica Money Center, Inc. (the "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 Company in exchange for common stock of the Company (the
"Common Stock").
The Restructuring has been accounted for as a change in legal
organization but not in the enterprise formerly engaged in by the Partnership.
Therefore, the financial statements of the Company give effect to the
Restructuring as a recapitalization of the Partnership into the Company.
References to the Company in this Management's Discussion and Analysis of
Financial Condition and Results of Operations refer to the financial condition
and results of operations of the Partnership on a consolidated basis for all
periods prior to June 27, 1996.
The unaudited interim consolidated financial statements should be read
in conjunction with the historical consolidated financial statements and the
related notes thereto of the Company filed with its Annual Report on Form 10-K
for the year ended December 31, 1996.
On July 10, 1997, the Board of Directors of the Company declared a
stock split-up in the form of a one-for-one stock dividend to all stockholders
of record as of July 31, 1997. The stock dividend was paid on August 13, 1997.
These financial statements reflect the effect of the stock dividend on current
and prior periods earnings per share and shares outstanding.
FINANCIAL CONDITION
Total consolidated assets of the Company increased $63.8 million
(55.5%) to $178.7 million at September 30, 1997 from $114.9 million at December
31, 1996. The increase resulted primarily from increases in cash and cash
equivalents, loans held for sale and interest-only strip receivable, partially
offset by decreases in receivable for mortgage loans shipped, loans receivable
and real estate acquired in settlement of loans. Cash and cash equivalents
increased $28.4 million (330.2%) to $37.0 million from $8.6 million.
Interest-only strip receivable increased $56.7 million, or 484.6%, to $68.4
million at September 30, 1997 from $11.7 million at December 31, 1996,
reflecting the Company's retained interest in excess spread on loans sold for
securitization under the current terms of its loan sales agreements with Aames
Capital Corporation ("Aames") and Advanta Mortgage Corp. USA ("Advanta"). The
Company did not begin retaining an interest in excess spread on loans sold until
the fourth quarter of 1996, and the increase in interest-strip receivable
represents the buildup of this asset from all loans sold to Aames and Advanta
since the respective dates of the current agreements entered with these
purchasers. Loans held for sale increased $11.2 million, or 61.9%, to $29.3
million at September 30, 1997 from $18.1 million at December 31, 1996,
representing the buildup of the Company's inventory of loans held for sale. The
only loans included in the inventory of loans held for sale are loans
anticipated to be sold in subsequent securitizations. The Company plans to
increase the inventory of loans held for sale at the end of each quarter as part
of its business strategy for sustained earnings growth. The receivable for
mortgage loans sold decreased $24.3 million , or 100%, to $0 at September 30,
1997 from $24.3 million at December 31, 1996, reflecting that all amounts
payable for loans sold as of September 30, 1997 had been paid. Real estate
acquired in settlement of loans decreased $1.4 million, or 32.6% to $2.9 million
at September 30, 1997 from $4.3 million at December 31, 1996.
Total liabilities increased $47.2 million, or 50.8%, to $140.2 million
at September 30, 1997 from $93.0 million at December 31, 1996, due to increases
in thrift certificates outstanding, accounts payable and accrued expenses,
partially offset by a decrease in notes payable. Thrift certificates increased
$19.6 million, or 24.2%, to $100.6 million at September 30, 1997 from $81.0
million at December 31, 1996. Management of Pacific Thrift and Loan Company
("Pacific Thrift"), the Company's primary operating subsidiary, adjusts rates on
thrift certificates on a regular basis in order to control the increase or
decrease in the total outstanding certificates, as management deems necessary to
support Pacific Thrift's cash flow requirements. Accounts payable and accrued
expenses increased $11.5 million, or 522.7%, to $13.7 million at September 30,
1997 from $2.2 million at December 31, 1996, reflecting an increase of $9.1
million in income taxes payable based on the first nine months pre-tax income,
$2.2 million in bonuses and the balance of $.2 million from other general
accruals. Notes payable increased $16.7 million, or 506.1%, to $20.0 million at
September 30, 1997 from $3.3 million at December 31, 1996, reflecting the
residual financing received from the interest-only strip receivable.
9
<PAGE> 10
Total stockholders' equity increased by $16.4 million, or 74.5%, to
$38.4 million at September 30, 1997 from $22.0 million at December 31, 1996,
reflecting primarily the net income from operations of $12.6 million in the
first nine months of 1997 and the issuance of common stock of $3.8 million
primarily from the exercise of warrants.
RESULTS OF OPERATIONS
GENERAL
The Company reported net income of $5.5 million, or $1.11 for primary
and $1.09 for fully diluted earnings per share, for the quarter ended September
30, 1997 and $12.6 million or $2.57 for primary and $2.51 for fully diluted
earnings per share for the nine months ended September 30, 1997. These results
are not necessarily indicative of results for any other interim period or for
the full year.
For the comparable period of 1996, the Company reported net income of
$.8 million or $.20 primary and fully diluted earnings per share for the quarter
ended September 30, 1996 and $1.1 million or $.31 primary and $.30 for fully
diluted earnings per share for the nine months ended September 30, 1996. The
increase in net income was primarily due to the $15.7 million increase in gain
on sale of loans in the quarter ended September 30, 1997 and $36.6 million
increase in the nine months ended September 30, 1997 compared to the September
30, 1996 periods, reflecting a substantial increase in the Company's loan
production over the past twelve months, as well as the improved margins on sale
of loans under the Company's current agreements with Aames and Advanta, which
has applied to all loan sales by the Company since the fourth quarter of 1996.
Loans originated for sale increased $96.7 million, or 101.0%, to $192.4 million
for the quarter ended September 30, 1997, from $95.7 million for the quarter
ended September 30, 1996, and increased $299.7 million, or 125.9%, to $537.8
million for the nine months ended September 30, 1997, from $238.1 million for
the nine months ended September 30, 1996. Gain on sale of loans increased by
$15.7 million, or 227.5%, to $22.6 million for the quarter ended September 30,
1997, from $6.9 million for the quarter ended September 30, 1996 and increased
$36.6 million or 206.8% to $54.3 million for the nine months ended September 30,
1997 from $17.7 million for the nine months ended September 30, 1996.
INTEREST INCOME
Total interest income increased $.4 million, or 14.3%, to $3.2 million
for the third quarter of 1997 from $2.8 million for the third quarter of 1996
and increased $1.0 million, or 13.0%, to $8.7 million for the nine months ended
September 30, 1997 from $7.7 million for the nine months ended September 30,
1996, due to the increase in loans originated for sale. Total interest expense
increased $.8 million, or 66.7%, to $2.0 million for the third quarter of 1997
from $1.2 million for the third quarter of 1996 and increased $.6 million, or
16.7%, to $4.2 million for the nine months ended September 30, 1997 from $3.6
million for the nine months ended September 30, 1996, due to the increase in
thrift certificates outstanding. Net interest income before provision for loan
losses decreased $.4 million, or (25.0%), to $1.2 million for the third quarter
of 1997 from $1.6 million for the third quarter of 1996 and increased $.5
million or 12.2% to $4.6 million for the nine months ended September 30, 1997,
from $4.1 million for the nine months ended September 30, 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $214 thousand for the quarter
ended September 30, 1997 to $225 thousand for the third quarter of 1997, from
$11 thousand for the third quarter of 1996 and increased $1.0 million or 333.3%
to $1.3 million for the nine months ended September 30, 1997 from $.3 million
for the nine months ended September 30, 1996, due primarily to an increase in
specific reserves in 1997 combined with a decrease in the general reserve which
occurred in the third quarter of 1996, after the Restructuring.
The total allowance for loan losses was $1.9 million at September 30,
1997, compared to $2.5 million at December 31, 1996. The adequacy of the
allowance for loan losses is based on a variety of factors, including the size
of the Company's loan portfolio, which does not include loans held for sale,
loan classifications and underlying loan collateral values, and is not directly
proportional to the level of nonperforming portfolio loans. The ratio of
nonaccrual portfolio loans past due 90 days or more ($1.2 million) to total
portfolio loans ($29.0 million) was 4.1% at September 30, 1997, compared to a
ratio of 3.8% of nonaccrual loans past due 90 days or more ($ 1.4 million) to
total portfolio loans ($36.6 million) at December 31, 1996. The increase in the
ratio was caused by a decreasing loan portfolio due to the Company's focus on
originating loans for sale, not for portfolio.
10
<PAGE> 11
NONINTEREST INCOME
Total noninterest income increased $15.5 million, or 218.3%, to $22.6
million for the third quarter 1997 from $7.1 million for the third quarter 1996
and increased $36.2 million, or 200.0%, to $54.3 for the nine months ended
September 30, 1997 from $18.1 million for the nine months ended September 30,
1996. The primary source of noninterest income is gain on sale of loans
originated for sale, which increased $15.7 million, or 227.5%, to $22.6 million
for the third quarter 1997 from $6.9 million for the third quarter 1996 and
increased $36.6 million, or 206.8%, to $54.3 million for the nine months ended
September 30, 1997 from $17.7 million for the nine months ended September 30,
1996.
NONINTEREST EXPENSE
Noninterest expense increased by $6.7 million, or 90.5%, to $14.1
million for the third quarter 1997 from $7.4 million for the third quarter 1996,
and increased $16.4 million, or 83.7%, to $36.0 million for the nine months
ended September 30, 1997 from $19.6 million for the nine months ended September
30, 1996, due primarily to increases in salaries, employee benefits and
personnel services and general and administrative expenses. Salaries, employee
benefits and personnel services increased $3.9 million, or 90.7%, to $8.2
million for the third quarter 1997 from $4.3 million for the third quarter 1996
and increased $10.2 million, or 104.1%, to $20.0 million for the nine months
ended September 30, 1997 from $9.8 million for the nine months ended September
30, 1996, representing increases in loan representative commissions and the
hiring of additional support personnel related to increased loan volume. General
and administrative expenses increased $2.8 million, or 100%, to $5.6 million for
the third quarter 1997 from $2.8 million for the third quarter 1996, and
increased $7.5 million, or 98.7%, to $15.1 million for the nine months ended
September 30, 1997 from $7.6 million for the nine months ended September 30,
1996, also related to increased loan volume.
PROVISION FOR INCOME TAXES
Income tax provision increased $3.4 million, or 566.7%, to $4.0 million
for the third quarter of 1997 from $.6 million for the third quarter of 1996 and
increased $7.4 million, or 435.3%, to $9.1 million for the nine months ended
September 30, 1997 from $1.7 million for the nine months ended September 30,
1996.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Company's liquidity are cash and cash
equivalents maintained by Pacific Thrift in connection with its deposit-taking
and lending activities and proceeds from sale of loans. At September 30 , 1997,
cash and cash equivalent assets totaled $37.0 million compared to $8.6 million
at December 31, 1996. Under the terms of the Company's agreement with Advanta,
the Company also receives an advance on its excess spread interest in each
securitization pool. The Company received advances of $17.4 million from Advanta
for the nine months ended September 30, 1997. These advances are repaid from all
future payments of excess spread due from Advanta to the Company, and bear
interest at rates between LIBOR plus 1% and LIBOR plus 2% (resulting in an
effective rate of 6.97% at September 30, 1997).
Management of Pacific Thrift is able to regulate the inflow of funds
from thrift certificates by adjusting interest rates to amounts slightly above
or below prevailing rates. In the third quarter of 1997, Pacific Thrift adjusted
its rates slightly upward to increase the inflow of funds from thrift
certificates, thereby resulting in a $19.6 million increase in outstanding
thrift certificates to $100.6 million at September 30, 1997 from $81.0 million
at December 31, 1996.
Pacific Thrift is subject to certain leverage and risk-based capital
adequacy standards applicable to FDIC-insured institutions. At September 30,
1997, Pacific Thrift met the FDIC regulatory definition of "adequately
capitalized." See the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, Item 1. "Business - Supervision and Regulation -- Regulatory
Actions."
As indicated in the Statements of Cash Flows, the Company used $30.6
million in cash from operating activities, primarily for the origination of
loans held for sale, from January 1, 1997 through September 30, 1997. The
Company realized $18.8 million from investing activities, primarily from the
proceeds of sale of loans receivable, and realized $40.2 million from financing
activities, primarily from the increase in thrift certificates, from January 1,
1997 through September 30, 1997.
11
<PAGE> 12
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the Reform
Act). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements, expressed or implied by such
forward-looking statements.
12
<PAGE> 13
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company sold substantially all of the assets, but retained
liability for certain litigation against two of the Company's subsidiaries
formerly engaged in the trust deed foreclosure services business, Consolidated
Reconveyance Company ("CRC") and Lenders Posting and Publishing Company
("LPPC"). CRC and LPPC, along with all other defendants in the action brought by
Consumer Action and two consumers alleging excessive trustee publication fees,
have entered into a global settlement with the plaintiffs in this action, and
the action was dismissed on July 28, 1997. The settlement amount paid by the
Company on behalf of CRC under the terms of the settlement agreement was
immaterial to the Company as a whole.
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 on the Superior Court of Los Angeles, California. The complaint
names over 50 defendants, including numerous title insurance companies and trust
deed 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
form the title insurance companies. As of September 29, 1997, a tentative global
settlement of the action had been reached, pursuant to which CRC would pay a
nominal amount to the plaintiffs. As part of the agreement to sell the assets of
CRC and LPPC, the Company has agreed to pay this amount.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 10, 1997, the Company held its Annual Meeting of
Stockholders. Stockholders voted upon the election of two directors and upon the
approval of an amended employment agreement of Joel R. Schultz, the approval of
an amendment to the Company's 1995 Stock Option Plan to provide for an increase
in the number of options granted annually to non-employee directors of the
Company and its subsidiaries, and the ratification of BDO Seidman, LLP, as the
Company's independent public accountants for the fiscal year ending December 31,
1997. Richard D. Young and Alan J. Siebler, each of whom was a director prior to
the Annual Meeting and was nominated by management for re-election, were
re-elected at the meeting. The following votes were cast for each nominee:
<TABLE>
<CAPTION>
Name For Authority Withheld
--------- ------
<S> <C> <C>
Richard D. Young 1,602,827 11,728
Alan J. Siebler 1,606,481 8,074
</TABLE>
13
<PAGE> 14
The following votes were cast for each of the other proposals voted
upon by the stockholders at the Annual Meeting:
<TABLE>
<CAPTION>
Broker
Proposal For Against Abstain Non-Vote
--------- ------- ------ -----
<S> <C> <C> <C> <C>
Approval of Amended
Employment Agreement
of Joel R. Schultz 1,474,852 112,458 17,671 9,574
Approval of Amendment
to 1995 Stock Option
Plan 1,471,606 124,821 18,128 --
Ratification of
Appointment of
BDO Seidman, LLP 1,596,296 6,908 11,351 --
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 13, 1997.
PACIFICAMERICA MONEY CENTER, INC.
(Registrant)
November 13, 1997 /s/ Joel R. Schultz
-------------------------------
Joel R. Schultz,
President
November 13, 1997 /s/ Charles J. Siegel
-------------------------------
Charles J. Siegel,
Chief Financial and Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 36,739
<INT-BEARING-DEPOSITS> 238
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 58,066
<ALLOWANCE> 1,874
<TOTAL-ASSETS> 178,667
<DEPOSITS> 100,605
<SHORT-TERM> 0
<LIABILITIES-OTHER> 19,097
<LONG-TERM> 20,518
0
0
<COMMON> 43
<OTHER-SE> 38,404
<TOTAL-LIABILITIES-AND-EQUITY> 178,667
<INTEREST-LOAN> 8,395
<INTEREST-INVEST> 348
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,743
<INTEREST-DEPOSIT> 3,654
<INTEREST-EXPENSE> 4,173
<INTEREST-INCOME-NET> 4,570
<LOAN-LOSSES> 1,272
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 35,983
<INCOME-PRETAX> 21,654
<INCOME-PRE-EXTRAORDINARY> 21,654
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,558
<EPS-PRIMARY> 2.57
<EPS-DILUTED> 2.51
<YIELD-ACTUAL> 6.53
<LOANS-NON> 1,162
<LOANS-PAST> 603
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,464
<CHARGE-OFFS> 1,862
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,874
<ALLOWANCE-DOMESTIC> 1,874
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
