<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 JUNE 30, 1998
OR
--
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________
Commission file number 0-20897
PACIFICAMERICA MONEY CENTER, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
California 95-4465729
<S> <C>
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
</TABLE>
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 .
---- ----
<PAGE> 2
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash & cash equivalents $ 6,817,000 $ 66,090,000
Investments, at fair market value (Note 5) 52,268,000 --
Accounts receivable, net 358,000 1,532,000
Note receivable 0 1,015,000
Interest receivable 1,348,000 1,274,000
Loans receivable, net (Note 6) 11,901,000 20,629,000
Loans held for sale 34,708,000 35,280,000
Interest-only strips receivable 148,460,000 94,424,000
Real estate acquired in settlement of loans 977,000 2,028,000
Property and equipment, net 4,964,000 3,596,000
Refundable income taxes 222,000 222,000
Other assets 3,370,000 1,776,000
------------ ------------
$265,393,000 $227,866,000
============ ============
Liabilities and Stockholders' Equity
Thrift certificates payable
Full-paid certificates $115,772,000 $113,731,000
Installment certificates 20,206,000 18,793,000
------------ ------------
Total thrift certificates payable 135,978,000 132,524,000
Accounts payable and accrued expenses 3,755,000 6,121,000
Accrued interest payable 1,992,000 370,000
Notes payable 48,353,000 28,318,000
Deferred income taxes 17,962,000 12,147,000
------------ ------------
208,040,000 179,480,000
------------ ------------
Stockholders' Equity 57,353,000 48,386,000
------------ ------------
$265,393,000 $227,866,000
============ ============
</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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans receivable $ 3,429,000 $ 2,671,000 $ 6,382,000 $ 5,321,000
Interest on cash equivalents 133,000 90,000 403,000 181,000
------------ ------------ ------------ ------------
Total interest income 3,562,000 2,761,000 6,785,000 5,502,000
Interest Expense:
Interest on thrift certificates greater than $100,000 33,000 -- 84,000 --
Interest on other thrift certificates 1,797,000 1,100,000 3,593,000 2,162,000
Interest on notes payable 1,304,000 -- 1,573,000 11,000
------------ ------------ ------------ ------------
Total interest expense 3,134,000 1,100,000 5,250,000 2,173,000
Net interest income 428,000 1,661,000 1,535,000 3,329,000
Provision for loan losses 1,840,000 738,000 3,231,000 1,047,000
------------ ------------ ------------ ------------
Net interest after provision for loan losses (1,412,000) 923,000 (1,696,000) 2,282,000
------------ ------------ ------------ ------------
Noninterest income:
Other income 324,000 8,000 383,000 64,000
Gain on sale of loans 27,983,000 18,300,000 50,135,000 31,683,000
------------ ------------ ------------ ------------
Total noninterest income 28,307,000 18,308,000 50,518,000 31,747,000
Noninterest expense:
General and administrative 8,586,000 5,540,000 16,079,000 9,530,000
Salaries, employee benefits and personnel services 9,641,000 6,574,000 18,458,000 11,842,000
Depreciation and amortization 241,000 167,000 441,000 326,000
Expenses on real estate acquired in settlement of loans 35,000 170,000 82,000 371,000
Net (gain) loss on sales of real estate acquired
in settlement of loans 7,000 (120,000) 19,000 (166,000)
------------ ------------ ------------ ------------
Total noninterest expense 18,510,000 12,331,000 35,079,000 21,903,000
------------ ------------ ------------ ------------
Income before tax provision 8,385,000 6,900,000 13,743,000 12,126,000
Tax provision 3,563,000 2,897,000 5,814,000 5,094,000
------------ ------------ ------------ ------------
Net income $ 4,822,000 $ 4,003,000 $ 7,929,000 $ 7,032,000
============ ============ ============ ============
Basic earnings per share $ 0.95 $ 1.06 $ 1.57 $ 1.86
Diluted earnings per share $ 0.90 $ 0.86 $ 1.48 $ 1.50
</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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
(Increase) Decrease in Cash and Cash Equivalents 1998 1997
- -------------------------------------------------- -----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,929,000 $ 7,032,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 441,000 326,000
Provision for loan losses 3,231,000 1,047,000
Provision for OREO losses 95,000 --
Net (gain) on sales of real estate
acquired in settlement of loans (76,000) (166,000)
Proceeds from sale of loans originated for sale 489,834,000 302,395,000
Origination of loans held for sale (492,163,000) (345,441,000)
Net change in assets and liabilities
Investments (52,268,000) --
Accounts receivable 2,189,000 (592,000)
Receivable for mortgage loans shipped -- 24,310,000
Interest receivable (74,000) (177,000)
Premium receivable for loans sold -- 1,195,000
Interest-only strips receivable (56,531,000) (20,436,000)
Amortization of interest-only strips receivable 2,214,000 --
Other assets (1,594,000) 166,000
Accounts payable and accrued expenses
and interest payable 5,071,000 9,226,000
------------- -------------
Net cash used in operating activities (91,702,000) (21,115,000)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of loans receivable 14,403,000 10,176,000
Proceeds from sale of other real estate 1,622,000 1,073,000
Net change in loans receivable (6,595,000) 1,884,000
Purchases of property and equipment (1,809,000) (686,000)
Decrease in other real estate -- 3,031,000
------------- -------------
Net cash provided by investing activities 7,621,000 15,478,000
------------- -------------
Cash flow from financing activities:
Net decrease from in thrift certificates 3,454,000 6,121,000
Proceeds from stock issuance 1,038,000 357,000
Paydown on line of credit -- (745,000)
Proceeds from notes payable 20,316,000 --
------------- -------------
Net cash provided by financing activities 24,808,000 5,733,000
------------- -------------
Net decrease/(increase) in cash and cash equivalents (59,273,000) 96,000
Cash and cash equivalents at beginning of period 66,090,000 8,640,000
------------- -------------
Cash and cash equivalents at end of period $ 6,817,000 $ 8,736,000
============= =============
</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) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the period.
Diluted earning per share is computed by dividing net earnings by the weighted
average number of shares of common stock and potential common stock outstanding
during the period. At June 30, 1998, 43,549 stock options were excluded from the
calculation of diluted earnings per share due to their anti-dilutive effect. The
following table presents the earnings per share data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (numerator):
Net income $4,822,000 $4,003,000 $7,929,000 $7,032,000
---------- ---------- ---------- ----------
Shares (denominator):
Weighted average common
Shares outstanding for
basic earnings per share 5,068,250 3,787,969 5,043,347 3,775,413
Effect of dilutive common shares
Subscriber warrants 23,283 67,035 28,568 68,710
General partner warrants -- 582,840 -- 597,232
Options 285,282 218,582 278,804 239,243
---------- ---------- ---------- ----------
Diluted common shares 5,376,815 4,656,426 5,350,719 4,680,598
---------- ---------- ---------- ----------
Basic earnings per common share $ .95 $ 1.06 $ 1.57 $ 1.86
---------- ---------- ---------- ----------
Diluted earnings per common share $ .90 $ .86 $ 1.48 $ 1.50
---------- ---------- ---------- ----------
</TABLE>
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 strips 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 includes the recognition of an unrealized gain
that represents the initial difference between the allocated carrying amount and
the fair market value of the interest-only strips receivable at the date of
sale.
In June 1998, the Company obtained an independent valuation and
report on the interest-only strips receivable as of May 31, 1998. The reported
value of the Company's interest-only strips receivable was consistent with the
independent valuation as of that date.
The following table compares the Company's current cash flow model
assumed constant prepayment rates ("CPR") on each of the following
securitization pools with life-to-date prepayment rates on each of those pools:
<TABLE>
<CAPTION>
CURRENT ANNUALIZED
POOL MODEL CPR (1) LIFE-TO-DATE CPR (2)
---- ------------- --------------------
<S> <C> <C>
Aames 1996-4 35% 21.52%
Advanta 1997-1 28% 21.56%
Advanta 1997-2 27% 19.34%
Advanta 1997-3 27% 16.67%
Advanta 1997-4 28% 13.81%
PacificAmerica 1997-1 (3) 27% 10.00%
PacificAmerica 1998-1 28% 8.67%
Advanta 1998-1 28% 11.62%
PacificAmerica 1998-2 28% (4)
Advanta 1998-2 27% (4)
</TABLE>
(1) Reflects the peak CPR rates after the Company's ramp up period
of 12 months.
(2) Annualized life-to-date data for all pools is as of June 30,
1998 except for the Aames 1996-4 pool, which is as of May 31,
1998.
(3) This pool was formed in December 1997. All other pools were
formed in the quarter of the year in the order in which they
are numbered.
(4) Not available due to recent age of loans.
The Company's current cash flow model further assumes a 50 basis
point annual loss rate on each of its pools (after the first six months). As of
June 30, 1998 the Aames 1996-4 pool has experienced a 63 basis points loss
life-to-date, Advanta 97-1 has experienced a 5 basis points loss life-to-date,
Advanta 97-2 has experienced a 3 basis points loss life-to-date and no other
pool has experienced a loan loss. In addition, the Company's cash flow model
assumes an 11% discount rate on estimated cash flows on each of its pools.
6
<PAGE> 7
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3) REVENUE RECOGNITION (CONTINUED)
The Company records an amortization reserve at the end of each
quarter equal to a minimum of 1% but not more than 2% of the outstanding
interest-only strips receivable for each pool. To the extent that the
amortization reserve is not required to adjust the book balance of the
receivable to the current fair value of the receivable as of the end of each
quarter, the amortization reserve accumulates to a maximum of 5% of the balance
of the receivable.
On a quarterly basis, management determines if any adjustments are
necessary to the recorded fair market value of the interest-only strips
receivable based on current market conditions, including changes in interest
rates, real property values, market conditions and other factors. Increases or
decreases in the fair value of each interest-only strip receivable will be made
quarterly if the recorded value of this receivable, less any amortization
reserve, exceeds the determined fair value of the receivable.
For the quarter ended June 30, 1998, the performance of the
Company's securitization pools was consistent with the Company's internal
valuation of the interest-only strips receivable, net of an amortization reserve
of approximately $1.0 million. Based on the above described valuation
methodology, no adjustment was made in the recorded value of the Company's
aggregate interest-only strip receivable for the quarter ended June 30, 1998.
The Company intends to obtain an annual independent third party
valuation of its interest-only strips receivable to provide additional assurance
regarding the Company's recorded fair value of its interest-only strips
receivable.
4) RECLASSIFICATIONS
Certain reclassifications of balances from prior years have been
made to conform to the current year's reporting format.
5) INVESTMENTS
Investments comprise of loans committed to a securitization trust that
closed on June 25, 1998. These investments are characterized as trading
securities and were marked to market at June 30, 1998. The market value for
such loans was established when the securitization closed on June 25, 1998. The
loans were transferred to the trust on August 6, 1998. The market adjustment of
$5,915,000 was recorded during the quarter ended June 30, 1998 and is included
in gain on sale of loans on the consolidated statements of income.
6) LOANS RECEIVABLE
The following is a summary of Loans Receivable as of the date
indicated below:
<TABLE>
<CAPTION>
JUNE 30, 1998
------------
<S> <C>
Interest bearing loans $ 15,113,000
Deferred loan fees, net (421,000)
Allowance for loan losses (2,791,000)
------------
Total $ 11,901,000
============
</TABLE>
7
<PAGE> 8
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6) LOANS RECEIVABLE (CONTINUED)
The following is a summary of Allowance for Loan Losses:
<TABLE>
<S> <C>
Balance at December 31, 1997 $ 1,438,000
Additions to reserve 3,231,000
Charge off/recoveries (1,066,000)
Transferred to loans held for sale (812,000)
-----------
Balance at June 30, 1998 $ 2,791,000
===========
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, 1997.
FINANCIAL CONDITION
Total consolidated assets of the Company increased $37.5 million, or
16.5%, to $265.4 million at June 30, 1998 from $227.9 million at December 31,
1997. The increase resulted primarily from an increase in interest-only strips
receivable and investments, partially offset by decreases in cash and cash
equivalents and loans receivable. Interest-only strips receivable increased
$54.1 million, or 57.3%, to $148.5 million at June 30, 1998 from $94.4 million
at December 31, 1997, reflecting the Company's retained interest in excess
spread on loans sold for securitization. Investments increased $52.3 million, to
$52.3 million at June 30, 1998 from $0 million at December 31, 1997. The
investments held by the Company are comprised of loans originated by the Company
at or prior to June 30, 1998, which the Company was committed to sell to the
PacificAmerica Home Equity Loan Trusts Series 1998-2F and 1998-2V as of June 30,
1998. The market value for the loans was established upon the securitization
closing date of June 25, 1998, at which date the Trusts prefunded the purchase
price for the loans, and the loans were delivered to the Trusts on August 6,
1998. Cash and cash equivalents decreased $59.3 million, or 89.7%, to $6.8
million at June 30, 1998 from $66.1 million at December 31, 1997. Loans
receivable decreased $8.7 million, or 42.2%, to $11.9 million at June 30, 1998
from $20.6 million at December 31, 1997, reflecting the sale of $5.6 million of
"piggyback" loans.
Total liabilities increased $28.5 million, or 15.9%, to $208.0
million at June 30, 1998 from $179.5 million at December 31, 1997, due to
increases in notes payable, accrued interest payable, thrift certificates and
deferred income taxes partially offset by decreases in accounts payable and
accrued expenses. Notes payable increased $20.1 million, or 71.0%, to $48.4
million at June 30, 1998 from $28.3 million at December 31, 1997, reflecting the
increase in residual financing received upon completion of the first and second
quarter 1998 securitizations. Accrued interest payable increased $1.6 million,
or 400.0%, to $2.0 million at June 30, 1998 from $0.4 million at December 31,
1997 reflecting the increased balance on the residual financing. Thrift
certificates increased $3.5 million, or 2.6%, to $136.0 million at June 30, 1998
from $132.5 million at December 31, 1997. 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. Deferred income taxes
increased $5.9 million, or 48.8%, to $18.0 million at June 30, 1998 from $12.1
million at December 31, 1997 due to an increase in pretax income. Accounts
payable and accrued expenses decreased $2.3 million, or 37.7%, to $3.8 million
at June 30, 1998 from $6.1 million at December 31, 1997.
Total stockholders' equity increased by $9.0 million, or 18.6%, to
$57.4 million at June 30, 1998 from $48.4 million at December 31, 1997,
reflecting primarily the net income from operations of $7.9 million in the first
six months of 1998 and approximately $1.0 million in proceeds from the issuance
of stock.
RESULTS OF OPERATIONS
GENERAL
The Company reported net income of $4.8 million, $0.95 basic
earnings per share and $0.90 diluted earnings per share, for the quarter ended
June 30, 1998. For the comparable period of 1997, the Company reported net
income of $4.0 million, $1.06 basic earnings per share and $0.86 diluted
earnings per share. For the six months ended June 30, 1998, the Company reported
net income of $7.9 million, $1.57 basic earnings per share and $1.48 diluted
earnings per share. For the comparable six months of 1997, the Company reported
net income of $7.0 million, $1.86 basic earnings per share and $1.50 diluted
earnings per share. These results are not necessarily indicative of results for
any other interim period or for the full year. The increase in net income was
primarily due to the increase in gain on sale of loans in the quarter and six
months ended June 30, 1998. Loans originated for sale increased $84.3 million,
or 41.7%, to $286.6 million for the quarter ended June 30, 1998, from $202.3
million for the quarter ended June 30, 1997 and increased $146.8 million, or
42.5%, to $492.2 million for the six months ended June 30, 1998, from $345.4
million for the six months ended June 30, 1997. Gain on sale of loans increased
by $9.7 million, or 53.0%, to $28.0 million for the quarter ended June 30, 1998,
from $18.3 million for the quarter ended June 30, 1997 and increased by $18.4
million, or 58.0%, to $50.1 million for the six months ended June 30, 1998, from
$31.7 million for the six months ended June 30, 1997. The decrease in earnings
per share reflects the issuance of additional shares, primarily from the
exercise of general partner warrants and subscriber warrants.
9
<PAGE> 10
INTEREST INCOME
Total interest income increased $0.8 million, or 28.6%, to $3.6
million for the quarter ended June 30, 1998 from $2.8 million for the quarter
ended June 30, 1997 and increased $1.3 million, or 23.6%, to $6.8 million for
the six months ended June 30, 1998 from $5.5 million for the six months ended
June 30, 1997. Total interest expense increased $2.0 million, or 181.8%, to $3.1
million for the quarter ended of June 30, 1998 from $1.1 million for the quarter
ended June 30, 1997 and increased $3.1 million, or 140.9%, to $5.3 million for
the six months ended of June 30, 1998 from $2.2 million for the six months ended
June 30, 1997, reflecting an increase in financing on the Company's
interest-only strips receivable. Net interest income before provision for loan
losses decreased $1.3 million, or (76.5%), to $0.4 million for the quarter ended
June 30, 1998 from $1.7 million for the quarter ended June 30, 1997 and
decreased $1.8 million, or (54.5%), to $1.5 million for the six months ended
June 30, 1998 from $3.3 million for the six months ended June 30, 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $1.1 million, or 157.1%, to
$1.8 million for the quarter ended June 30, 1998, from $0.7 million for the
quarter ended June 30, 1997 and increased $2.2 million, or 220.0%, to $3.2
million for the six months ended June 30, 1998, from $1.0 million for the six
months ended June 30, 1997 The total allowance for loan losses was $2.8 million
at June 30, 1998, compared to $1.4 million at December 31, 1997. The increase in
the provision for loan losses reflects the higher reserve levels maintained by
the Company on "piggyback" loans, which are small second mortgage loans made
concurrently with the first mortgage loans to the same borrower. Historically
these loans are sold at book value, net of reserves, within 60 to 90 days after
they are originated. 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 ($1.3 million) to total portfolio loans ($15.1 million) was 8.6%
at June 30, 1998, compared to a ratio of 8.5% of nonaccrual loans past due 90
days or more ($1.9 million) to total portfolio loans ($22.3 million) at December
31, 1997. Total portfolio loans decreased due to the Company's focus on
originating loans for sale.
NONINTEREST INCOME
Total noninterest income increased $10.0 million, or 54.6%, to $28.3
million for the quarter ended June 30, 1998 from $18.3 million for the quarter
ended June 30, 1997 and increased $18.8 million, or 59.3%, to $50.5 million for
the six months ended June 30, 1998 from $31.7 million for the six months ended
June 30, 1997. The primary source of noninterest income is gain on sale of loans
originated for sale, which increased $9.7 million, or 53.0%, to $28.0 million
for the quarter ended June 30, 1998 from $18.3 million for the quarter ended
June 30, 1997 and increased $18.4 million, or 58.0%, to $50.1 million for the
six months ended June 30, 1998 from $31.7 million for the six months ended June
30, 1997, due to the increase in volume of loans sold.
NONINTEREST EXPENSE
Noninterest expense increased by $6.2 million, or 50.4%, to $18.5
million for the quarter ended June 30, 1998 from $12.3 million for the quarter
ended June 30, 1997 and increased by $13.2 million, or 60.3%, to $35.1 million
for the six months ended June 30, 1998 from $21.9 million for the six months
ended June 30, 1997 due primarily to increases in salaries, employee benefits
and personnel services and general and administrative expenses. Salaries,
employee benefits and personnel services increased $3.0 million, or 45.5%, to
$9.6 million for the quarter ended June 30, 1998 from $6.6 million for the
quarter ended June 30, 1997 and increased $6.7 million, or 56.8%, to $18.5
million for the six months ended June 30, 1998 from $11.8 million for the six
months ended June 30, 1997, representing increases in loan representative
commissions and the hiring of additional support personnel related to increased
loan volume. General and administrative expenses, which includes rent, appraisal
fees, and telemarketing and other solicitation costs, increased $3.1 million, or
56.4%, to $8.6 million for the quarter ended June 30, 1998, from $5.5 million
for the quarter ended June 30, 1997 and increased $6.6 million, or 69.5%, to
$16.1 million for the six months ended June 30, 1998, from $9.5 million for the
six months ended June 30, 1997. The increase is primarily from the increase in
telemarketing and other solicitation costs which increased $1.5 million, or
187.5%, to $2.3 million for the quarter ended June 30, 1998 from $0.8 million
for the quarter ended June 30, 1997 and increased $2.2 million, or 157.1%, to
$3.6 million for the six months ended June 30, 1998 from $1.4 million for the
six months ended June 30, 1997 due to the Company's focus on increasing retail
loan volume.
10
<PAGE> 11
PROVISION FOR INCOME TAXES
Income tax provision increased $0.7 million, or 24.1%, to $3.6
million for the quarter ended June 30, 1998 from $2.9 million for the quarter
ended June 30, 1997 and increased $0.7 million, or 13.7%, to $5.8 million for
the six months ended June 30, 1998 from $5.1 million for the six months ended
June 30, 1997 and is directly related to the increase in net income.
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
activities and proceeds from sale of loans. At June 30, 1998, cash and cash
equivalents totaled $6.8 million compared to $66.1 million at December 31, 1997.
Under the terms of the Company's agreements with Advanta and Merrill Lynch, the
Company receives an advance on its interest-only strips receivable for each
securitization pool. Advances received from Advanta totaled $26.5 million at
June 30, 1998, bear interest at rates between LIBOR plus 1% and LIBOR plus 2.0%
(for an effective rate of 7.3% at June 30, 1998) and are repaid from all future
payments on the interest-only strips due from Advanta to the Company. Advances
received from Merrill Lynch totaled $20.4 million at June 30, 1998, bear
interest at LIBOR plus 2.5% (for an effective rate of 8.2% and a combined
effective rate of 7.6% at June 30, 1998) and are due one year from the date of
each advance, or may be extended at the option of Merrill Lynch.
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. At June 30, 1998, Pacific Thrift increased the inflow
of funds to thrift certificates, thereby resulting in a $3.5 million increase,
or 2.6%, in outstanding thrift certificates to $136.0 million at June 30, 1998
from $132.5 million at December 31, 1997.
Pacific Thrift is subject to certain leverage and risk-based capital
adequacy standards applicable to FDIC-insured institutions. At June 30, 1998,
Pacific Thrift was considered "under capitalized" due to its inability to meet
one of the three applicable regulatory capital ratios, primarily because of the
risk based capital rules applicable to interest-only strips receivable. Pacific
Thrift is now required to submit a capital plan for approval by the FDIC under
which it will become adequately capitalized within an acceptable time period.
Pacific Thrift intends to submit a capital plan by the end of August under which
it would become adequately capitalized by September 30, 1998. There can be no
assurance that the FDIC will approve the capital plan or that additional
conditions will not be imposed as a condition of approval. See the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, Item 1.
"Business - Supervision and Regulation -- Regulatory Actions."
As indicated in the Statements of Cash Flows, the Company used $91.7
million in cash from operating activities, primarily for the origination of
loans held for sale and accounts receivable, from January 1, 1998 through June
30, 1998. The Company realized $7.6 million from investing activities, primarily
from the proceeds of sale of loans receivable, and realized $24.8 million from
financing activities, primarily from residual financing, from January 1, 1998
through June 30, 1998.
YEAR 2000 COMPLIANCE INFORMATION
The Company has undertaken a full assessment of its operations to
determine all functions that will be impacted by the limitations on existing
computer programs that use only two digits to identify the year in the date
field. Substantially all of the Company's operating software systems, including
loan origination, loan servicing, financial, human resources and payroll systems
are outsourced to a third party provider. The Company distributed a written
request for year 2000 compliance to all systems providers in the fourth quarter
of 1997 and the first quarter of 1998 and has received responses from most
providers. The loan origination, financial, human resources and payroll systems
providers have represented that they will implement upgrades that make their
systems year 2000 compliant. The loan servicing and thrift deposit system
provider has indicated that it is currently undergoing restructuring and testing
needed to become compliant before the end of 1998. The Company's PC and computer
network operating system providers have posted representations on their internet
web sites that they are each compliant. The Company has also contacted the
servicers of the loan pools in which the Company holds interest-only strips
receivable to determine their year 2000 compliance, and expects that they will
become compliant before the year 2000. The Company is similarly awaiting
responses from its bank, investment bank and appraisal service providers. The
Company does not expect to incur any material costs in connection with the
upgrades necessary to bring its systems or the servicer providers systems into
year 2000 compliance.
11
<PAGE> 12
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For the quarter ended June 30, 1998, there were no material
developments in litigation.
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 June 12, 1998, the Company held its annual meeting of
stockholders. The stockholders voted upon (1) the election of one director; (2)
the approval of a new employment agreement between the Company and Joel R.
Schultz; (3) the approval of a new employment agreement between the Company and
Richard D. Young; (4) the approval of an amendment to the Company's 1995 Stock
Option Plan increasing the maximum number of shares covered by the plan from
660,000 to 800,000 shares, with an increase of 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 of 1,000,000 shares; (5) the approval of an
amendment of the Company's Employee Stock Purchase Plan which increases the
maximum number of shares covered by such plan from 130,000 to 260,000; (6) the
ratification of the appointment of BDO Seidman, LLP as independent accountants
for the fiscal year ending December 31, 1998. James C. Neuhauser, a director
prior to the annual meeting, was nominated by management for re-election, and
was re-elected at the meeting. The other members of the board of directors whose
terms continue after the annual meeting were Joel R. Schultz, Paul D. Weiser,
Richard D. Young, and Alan Siebler.
The following votes were cast for Mr. Neuhauser:
<TABLE>
<CAPTION>
Authority
Name For Withheld
---- --- --------
<S> <C> <C>
James C. Neuhauser 4,379,454 19,032
</TABLE>
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 2,652,738 266,306 19,000 1,460,442
Approval of Amended
Employment Agreement
of Richard D. Young 2,629,612 285,482 22,950 1,460,442
Approval of Amendment
to 1995 Stock Options Plan 2,623,955 254,546 21,126 1,489,859
Approval of Amendment
To Employee Stock
Purchase Plan 2,664,307 223,496 20,824 1,489,859
Ratification of Appointment
of BDO Seidman, LLP 4,352,162 20,298 26,026 --
</TABLE>
Shareholders who wish to submit proposals to be included in the
Company's proxy materials for the 1999 annual meeting may do so in accordance
with Securities and Exchange Commission Rule 14a-8. For those shareholder
proposals which are not submitted in accordance with Rule 14a-8, the Company's
management proxies may exercise their discretionary voting authority, without
any discussion of the proposal in the Company's proxy materials, for any
proposal which is received by the Company after January 31, 1999.
12
<PAGE> 13
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) On July 2, 1998 the Company filed a Report on Form 8-K
with respect to the PacificAmerica Home Equity Loan Trusts Series 2F and 2V
securitization transactions that closed on June 25, 1998.
13
<PAGE> 14
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 August 14, 1998.
PACIFICAMERICA MONEY CENTER, INC.
(Registrant)
August 14, 1998 JOEL R. SCHULTZ
------------------------------------------
Joel R. Schultz,
President
August 14, 1998 CHARLES J. SIEGEL
------------------------------------------
Charles J. Siegel,
Chief Financial and Administrative Officer
14
<PAGE> 15
BANK HOLDING COMPANIES AND SAVINGS AND LOAN HOLDING COMPANIES
ARTICLE 9 OF REGULATION S-X
FINANCIAL DATA SCHEDULE - EXHIBIT-27
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,561
<INT-BEARING-DEPOSITS> 256
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 49,400
<ALLOWANCE> 2,791
<TOTAL-ASSETS> 265,393
<DEPOSITS> 135,978
<SHORT-TERM> 0
<LIABILITIES-OTHER> 23,709
<LONG-TERM> 48,353
0
0
<COMMON> 51
<OTHER-SE> 57,302
<TOTAL-LIABILITIES-AND-EQUITY> 265,393
<INTEREST-LOAN> 6,382
<INTEREST-INVEST> 403
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,785
<INTEREST-DEPOSIT> 3,677
<INTEREST-EXPENSE> 5,250
<INTEREST-INCOME-NET> 1,535
<LOAN-LOSSES> 3,231
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 35,079
<INCOME-PRETAX> 13,743
<INCOME-PRE-EXTRAORDINARY> 13,743
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,929
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.48
<YIELD-ACTUAL> 6.06
<LOANS-NON> 1,248
<LOANS-PAST> 1,939
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,438
<CHARGE-OFFS> 1,878
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,791
<ALLOWANCE-DOMESTIC> 2,791
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
