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 MARCH 31, 1999
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
incorporation or organization) Identification Number)
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>
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
Condensed Balance Sheets
March 31, 1999 and December 31, 1998
(Unaudited)
March 31, December 31,
1999 1998
------------ ------------
Assets
Cash & cash equivalents $ 16,891,000 $ 41,811,000
Restricted cash 74,000 582,000
Receivables 121,000 132,000
Accrued interest receivable 719,000 1,315,000
Receivables from related parties 145,000 215,000
Loans held for sale 57,272,000 72,814,000
Loans receivable, net (Note 5) 25,949,000 9,444,000
Other real estate 201,000 219,000
Interest-only strips receivable 121,350,000 116,628,000
Property and equipment, net 4,098,000 4,421,000
Other assets 2,081,000 2,633,000
------------ ------------
$228,901,000 $250,214,000
============ ============
Liabilities and Stockholders' Equity
Thrift certificates payable
Full-paid certificates $109,302,000 $132,618,000
Installment certificates 31,438,000 29,692,000
------------ ------------
Total thrift certificates payable 140,740,000 162,310,000
Accounts payable and accrued expenses 3,852,000 5,003,000
Accrued interest payable 3,665,000 3,303,000
Note payable 54,196,000 52,958,000
Note payable - related party 475,000 174,000
Deferred income taxes 1,186,000 1,185,000
------------ ------------
204,114,000 224,933,000
------------ ------------
Stockholders' Equity 24,787,000 25,281,000
------------ ------------
$228,901,000 $250,214,000
============ ============
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
2
<PAGE>
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
Condensed Statements of Income
For Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 31, March 31,
1999 1998
--------------------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans receivable $ 1,755,000 $ 2,952,000
Interest on investments 169,000 270,000
--------------------------------
Total interest income 1,924,000 3,222,000
Interest Expense:
Interest on thrift certificates greater than $100,000 7,000 51,000
Interest on other thrift certificates 1,962,000 1,796,000
Interest on notes payable 79,000 269,000
--------------------------------
Total interest expense 2,048,000 2,116,000
Net interest income (expense) (124,000) 1,106,000
Provision for loan losses 654,000 1,413,000
--------------------------------
Net interest after provision for loan losses (778,000) (307,000)
--------------------------------
Noninterest income:
Other income 266,000 308,000
Gain on sale of loans 3,274,000 22,497,000
--------------------------------
Total noninterest income 3,540,000 22,805,000
--------------------------------
Noninterest expense:
General and administrative 4,208,000 8,063,000
Salaries, employee benefits and personnel services 3,664,000 8,817,000
Depreciation and amortization 355,000 200,000
Expenses on real estate acquired in settlement of loans 38,000 47,000
Net (gain) loss on sales of real estate acquired
in settlement of loans (29,000) 13,000
--------------------------------
Total noninterest expense 8,236,000 17,140,000
--------------------------------
Income (loss) before tax provision (5,474,000) 5,358,000
Tax provision (323,000) 2,250,000
--------------------------------
Net income (loss) $ (5,151,000) $ 3,108,000
================================
Basic earnings (loss) per share $ (1.00) $ 0.62
Diluted earnings (loss) per share $ (1.00) $ 0.58
Weighted average shares outstanding - basic 5,163,781 5,018,445
Weighted average shares outstanding - diluted 5,163,781 5,324,624
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
3
<PAGE>
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
Condensed Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 31, March 31,
(Increase) Decrease in Cash and Cash Equivalents 1999 1998
- ------------------------------------------------------- --------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,151,000) $ 3,108,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 355,000 200,000
Provision for loan losses 654,000 1,413,000
Provision for OREO losses (30,000) 14,000
Net (gain) loss on sales of real estate
acquired in settlement of loans 1,000 (1,000)
Proceeds from sale of loans held for sale 71,714,000 210,144,000
Origination of loans held for sale (71,064,000) (205,573,000)
Net change in assets and liabilities
Restricted cash 508,000 --
Accounts receivable 11,000 932,000
Receivable from related party 70,000 --
Interest receivable 596,000 (79,000)
Interest-only strips receivable -- (24,650,000)
Allowance on interest-only strips receivable (454,000) 1,204,000
Other assets 552,000 751,000
Accounts payable and accrued expenses
and interest payable (812,000) (144,000)
------------- -------------
Net cash used in operating activities (3,050,000) (12,681,000)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of loans receivable -- 11,523,000
Proceeds from sale of other real estate 145,000 406,000
Net change in loans receivable (2,365,000) (10,965,000)
Purchases of property and equipment (32,000) (836,000)
Net change in interest-only strips receivable 558,000 --
------------- -------------
Net cash (used in) provided by investing activities (1,694,000) 128,000
------------- -------------
Cash flow from financing activities:
Net decrease in thrift certificates (21,570,000) (8,240,000)
Proceeds from stock issuance 11,000 14,000
Proceeds from notes payable 1,383,000 9,696,000
------------- -------------
Net cash (used in) provided by financing activities (20,176,000) 1,470,000
------------- -------------
Net decrease in cash and cash equivalents (24,920,000) (11,083,000)
Cash and cash equivalents at beginning of period 41,811,000 66,090,000
------------- -------------
Cash and cash equivalents at end of period $ 16,891,000 $ 55,007,000
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
4
<PAGE>
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, 1999, the Company adopted Statement of Financial Accounting
Standard No. 134 accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
(SFAS 134) which is an amendment of FASB Statement No. 65.
FASB Statement No. 65, Accounting for Certain Mortgage Banking Activities,
establishes accounting and reporting standards for cretain activities of
mortgage banking enterprises and other enterprises that conduct operations that
are substantially similar to the primary operations of a mortgage banking
enterprise.
Statement 65, as amended by FASB Statements No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, requires
that after the securitization of a mortgage loan held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
security as a trading security. This Statement further amends Statement 65 to
require that after the securitization of mortgage loans held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent to sell
or hold those investments. This Statement conforms the subsequent accounting for
securities retained after the securitization of mortgage loans by a mortgage
banking enterprise with the subsequent accounting for securities retained after
the securitization of other types of assets by a nonmortgage banking enterprise.
The Company has reclassified its interest-only strips receivable, which
arise as a result of the securitization of mortgage loans held for sale, from
the trading security category to the available for sale category.
Statement 134 permits a one-time opportunity to reclassify mortgage-backed
securities and other beneficial interests from the trading category, without
regard to the restriction in paragraph 15 of Statement 115. That opportunity is
available only on the date that this Statement is initially applied. Transfers
from the trading category that result from implementing this Statement should be
accounted for in accordance with paragraph 15(a) of Statement 115, that is, the
unrealized gain or loss at the date of transfer will have already been
recognized in earnings and should not be reversed. Accordingly from January 1,
1999, unrealized hedging gains and losses for the interest-only strips
receivable are excluded from earnings and reported as a net amount in a separate
component of stockholders' equity until realized.
3) Earnings Per Share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common stock outstanding during the year. Diluted
earnings per share is computed by dividing net earnings by the weighted average
number of common stock and potential common stock outstanding during the year.
The following table presents the earnings (loss) per share data.
Three Months Ended March 31,
1999 1998
-----------------------------------------------------------------------
Income (numerator):
Net income (loss) $(5,151,000) $ 3,108,000
-----------------------------------------------------------------------
Shares (denominator):
Weighted average common shares outstanding
for basic earnings (loss) per share 5,163,781 5,018,445
Effect of dilutive common shares
Subscriber warrants -- 33,852
Options -- 272,327
-----------------------------------------------------------------------
Weighted average common shares outstanding
for diluted earnings (loss) per share 5,163,781 5,324,624
-----------------------------------------------------------------------
Basic earnings (loss) per share $(1.00) $.62
-----------------------------------------------------------------------
Diluted earnings (loss) per share $(1.00) $.58
-----------------------------------------------------------------------
5
<PAGE>
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
4) 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 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
securitization.
In April 1999, the FDIC requested that the Company obtain an independent
analysis of its interest-only strips receivable net of the advanced intended to
be repaid from the cash flow derived from such receivables. In May 1999, the
Company obtained the new independent analysis requested by the FDIC, which
arrived at a value by present valuing the future cash flows after repayment of
any outstanding related residual financing. This approach differs from the
Company's previous practice which arrived at a value by present valuing all
future cash flows without regard to which portion would repay the residual
financing and which portion would then be available to a willing buyer of the
interest-only strips. Management believes the net of residual financing basis
more accurately matches the risks associated with the cash flow related to the
residual financing and its actual repayment. As as result of this change in
accounting practice the Company has increased its interest-only strips
receivable by $4,971,000 at March 31, 1999.
Although the Company has not completed its analysis, management believes
that a substantial portion, if not all, of the adjustment relates to 1998 and
the change in accounting practice should be accounted for as a restatement.
Accordingly, earnings in prior periods would be restated such that the ending
shareholder equity at March 31, 1999 would be the same as if the adjustment had
been incurred.
The following table compares the 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:
INDEPENDENT
REPORT ANNUALIZED
POOL MODEL CPR LIFE-TO-DATE CPR (1)
---- --------- --------------------
Aames 1996-D 32.3% 31.1%
Advanta 1997-1 29.2% 29.8%
Advanta 1997-2 29.3% 25.4%
Advanta 1997-3 29.5% 24.6%
Advanta 1997-4 29.1% 23.3%
PacificAmerica 1997-1 (2) 29.1% 19.6%
PacificAmerica 1998-1 28.9% 19.5%
Advanta 1998-1 29.7% 21.9%
Advanta 1998-2 28.8% (3) 13.6%
Advanta 1998-3 29.4% (3) 11.9%
Advanta 1998-4 28.0% (3) 6.6%
PacificAmerica 1998-2 28.5% (3) 13.1%
Advanta 1999-1 29.1% (3) (4)
(1) Annualized life-to-date data for all pools is as of March 31, 1999.
(2) 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.
(3) Fixed rate component ramps over 12 months, variable rate component is
static from month one.
(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 (after a 12 month ramp) on each of its Pools except for Advanta
1997-1 which assumes a 75 basis point annual rate and Aames 1996-4 which assumes
a 225 basis point annual loss rate. As of March 31, 1999 the actual annual loss
rates for the pools were as follows: Aames 1996-4 (133 basis points), Advanta
1997-1 (70 basis points), Advanta 1997-2 (31 basis points), Advanta 1997-3 (36
basis points), Advanta 1997-4 (23 basis points), Advanta 1998-1 (17 basis
points), PacificAmerica 1997-1 (7 basis points), PacificAmerica 1998-1 (5 basis
points), PacificAmerica 1998-2 (1 basis point). The other pools have not
experienced any loan losses to date. In addition, the Company's cash flow model
assumes a 15% discount rate on estimated cash flows after repayment of the
related residual financing on each of its pools.
6
<PAGE>
PACIFICAMERICA MONEY CENTER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
4) Revenue Recognition (continued)
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 exceeds the determined fair
value of the receivable.
5) Comprehensive Income (Loss)
The Company did not have other components of comprehensive income (loss)
other than net income (loss) during the three months ended March 31, 1999 and
1998. The adjustment of its interest-only strips receiveable at March 31, 1999
was not included in comprehensive loss since management believes that a
substantial portion of the adjustment relates to 1998 (Note 4). As a result,
comprehensive income (loss) is the same as net income (loss).
The Company intends to continue to obtain annual as well as quarterly
independent present value calculation of its interest-only strip receivable to
provide additional assurance regarding the recorded fair value of its
interest-only strips receivable.
6) Reclassifications
Certain reclassifications of balances from prior years have been made to
conform to the current year's reporting format.
7) Loans Receivable
The following is a summary of Loans Receivable as of the date indicated
below:
3-31-99
-------------------
Interest bearing loans $ 26,979,000
Deferred loan fees, net (186,000)
Allowance for loan losses (844,000)
-------------------
Total $ 25,949,000
===================
The following is a summary of Allowance for Loan Losses:
Balance at 12-31-98 $ (864,000)
Additions to reserve (654,000)
Transferred to held for sale 184,000
Charge offs 490,000
------------------
Balance at 3-31-99 $ (844,000)
===================
7
<PAGE>
8) Subsequent Events
On April 29, 1999, the Pacific Thrift entered into a mandatory forward
commitment agreement with a nationally known finance lender, pursuant to which
Pacific Thrift has agreed to sell to the purchaser an aggregate of not less than
$120 million of home equity loans by November 30, 1999. To the extent that the
total loans sold by the expiration date are less than $120 million, Pacific
Thrift has agreed to pay a fee of .125 on the undelivered balance. The purchase
price for loans will be paid in cash on the date of sale, in an amount based
upon specified loan characteristics, using a competitive purchase price matrix
that compares favorably to bulk loan sale prices generally available in the
secondary loan market and is expected to be greater than the purchase price of
individual loan pools sold by the Company in the first quarter of 1999. All
loans sold will meet the purchaser's underwriting guidelines.
8
<PAGE>
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, 1998.
Except for historical information contained herein, statements in this
report are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks include, among others: the report of
the Company's independent accountants for the year ended December 31, 1998
includes an explanatory paragraph indicating that certain matters raise
substantial doubt about the ability of the Company to continue as a going
concern; the Company's principal operating subsidiary is currently operating
under regulatory orders issued by the Federal Deposit Insurance Corporation
which require it to raise additional capital (among other things) and comply
with a specified plan to achieve Year 2000 readiness by June 30, 1999; the
Company currently is unable to repay certain existing indebtedness owed to
Merrill Lynch in accordance with its terms and may be unable to repay certain
additional existing indebtedness which matures in January 2000; the Company has
a high concentration of interest-only strips receivable; the Company has a risk
of loss on the interest-only strips receivable resulting from differences
between actual and assumed prepayments or loss experience; risk of further
changes in accounting methods for gains on sale of loans for securitization;
loan delinquencies and defaults; possible decline of collateral values for
loans; fluctuation in interest rates; increased competition in the lending
industry resulting in lower lending rates and/or reduced loan originations; and
possible regulatory enforcement actions and legislative action. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, for a more complete description of these factors.
Financial Condition
Total consolidated assets of the Company decreased $21.3 million, or 8.5%
to $228.9 million at March 31, 1999 from $250.2 million at December 31, 1998.
The decrease resulted primarily from a decrease in cash and cash equivalents and
loans held for sale, partially offset by an increase in loans receivable and
interest-only strips receivable. Cash and cash equivalents decreased $24.9
million, or 59.6%, to $16.9 million at March 31, 1999 from $41.8 million at
December 31, 1998. Loans receivable increased $16.5 million, or 175.5% to $25.9
million at March 31, 1999 from $9.4 million at December 31, 1998 due primarily
from a transfer of loans held for sale to loans receivable. Loans held for sale
decreased $15.5 million, or 21.3%, to $57.3 million at March 31, 1999 from $72.8
million at December 31, 1998 due primarily from a transfer to loans receivable
from loans held for sale. Total interest-only strips receivable increased $4.8
million, or 4.1% to $121.4 million at March 31, 1999, from $116.6 million at
December 31, 1998, primarily due to a change in the accounting practice used to
value that portion of the estimated future cash flows from the receivable which
is anticipated to be used to pay down advances received by the Company related
to these receivables, until such time as the advances are repaid. Consistent
with an independent report obtained by the Company in May 1999 concerning the
present value calculation of the estimated future cash flows from the
interest-only strips receivable net of repayment of advances, the Company has
taken a discount rate on that portion of the anticipated cash flows which will
be used to repay advances equal to the interest rate accrued on advances which
the Company expects to repay with cash flow from the receivables. This has
resulted in a reduction of the discount rate applied to that portion of the
receivables from 15% (as used to determine the value of the gross interest-only
strips receivable at December 31, 1998) to a discount rate on that portion of
the cash flows to be used to repay advances equal to the actual interest rates
charged on those advances (ranging from LIBOR plus 1% to LIBOR plus 2.5%, and a
small portion which bears interest at 12.5% per annum) and a discount rate of
15% on that portion of the cash flow which the Company expects to receive after
advances have been repaid (as used to determine the value of the interest-only
strips receivable at March 31, 1999).
Total liabilities decreased $20.8 million, or 9.2%, to $204.1 million at
March 31, 1999 from $224.9 million at December 31, 1998, due to decreases in
thrift certificates outstanding offset by an increase in notes payable. Thrift
certificates decreased $21.6million, or 13.3% to $140.7 million at March 31,
1999 from $162.3 million at December 31, 1998. Management of Pacific Thrift and
Loan Company ("Pacific Thrift"), the Company's primary operating subsidiary, has
sought to reduce outstanding thrift certificates to improve Pacific Thrift's
capital ratios in accordance with certain regulatory orders. See the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, Item 1.
"Business - Supervision and Regulation - Regulatory Actions". Notes payable
increased $1.2 million, or 2.3%, to $54.2million at March 31,1999 from $53
million at December 31, 1998.
Total stockholders' equity decreased $.5 million, or 2.0%, to $24.8 million
at March 31, 1999 from $25.3 million at December 31, 1998, reflecting primarily
the net loss from operations of $5.2 million in the first quarter of 1999,
primarily offset by a change in accumulated comprehensive income of
approximately $4.7 million due to the change in the value of the interest-only
strips receiveable or described above.
9
<PAGE>
Results of Operations
General
The Company reported a net loss of $5.2 million, $(1.00) basic and diluted
loss per share for the quarter ended March 31, 1999. For the comparable period
of 1998, the Company reported net income of $3.1 million, $0.62 basic earnings
per share and $0.58 diluted earnings per share. The decrease in net income was
primarily due to the decrease in gain on sale of loans in the quarter ended
March 31, 1999, partially offset by a decrease in noninterest expense. Loans
originated for sale decreased $133.7 million, or 65.1%, to $71.8 million for the
quarter ended March 31, 1999 from $205.5 million for the quarter ended March 31,
1998. The decrease was primarily due to the closure of the Company's wholesale
operation in October 1998. Gain on sale of loans decreased $19.2 million, or
85.3% to $3.3 million for the quarter ended March 31, 1999, from $22.5 million
for the quarter ended March 31,1998 due primarily to the reduction in loan
origination and the change in the Company's secondary marketing of loans from
securitization in the first quarter of 1998 to whole loan sales in the first
quarter of 1999 and a general decline in whole loan sale prices which began in
the third quarter of 1998. Noninterest expense decreased $8.9 million, or 52%,
to $8.2 million for the quarter ended March 31, 1999 from $17.1 million for the
quarter ended March 31, 1998. This decrease was also due to the closure of the
Company's wholesale operation in October 1998.
As stated in the Company's Annual Report on Form 10-K, management believes
that the Company may return to profitable operations (excluding any positive or
negative adjustments in the valuation of the interest-only strips receivable) at
current loan sale price levels, provided that it increases the average volume of
loans originated and sold to approximately $31 million per month for the
remainder of the year. The Company has not yet reached this level of monthly
loan origination or sales as of the date of this Report, and there can be no
assurance that the Company will achieve these levels of operations. In addition,
as a result of the net loss from operations incurred by the Company through the
first quarter of 1999, management currently anticipates that the Company will
report a net loss from operations for the year ending December 31, 1999, even if
the Company is able to operate profitably for the remainder of the year.
Interest Income
Total interest income decreased $1.3million, or 40.6%, to $1.9 million for
the quarter ended March 31, 1999 from $3.2 million for the quarter ended March
31, 1998 due to the decrease in loan originations. Total interest expense
decreased $.1 million, or 4.8%, to $2.0 million for the quarter ended March 31,
1999 from $2.1 million for the quarter ended March 31, 1998 due the payoff in
the warehouse line of credit and thrift deposits. Net interest income before
provision for loan losses decreased $1.2million, or 109.1%, to ($.1) million for
the quarter ended March 31, 1999 from $1.1 million for the quarter ended March
31, 1998.
Provision for Loan Losses
The provision for loan losses decreased $.7 million, or 50%, to $.7 million
for the quarter ended March 31, 1999, from $1.4million for the quarter ended
March 31, 1998. The total allowance for loan losses was $.8 million at March 31,
1999, compared to $.9 million at December 31, 1998. 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 ($4.6 million) to total
portfolio loans ($27 million) was 17% at March 31, 1999, compared to a ratio of
21.9%of nonaccrual loans past due 90 days or more ($2.3 million) to total
portfolio loans ($10.5million) at December 31, 1998. The decrease in the ratio
was caused by an increase in loan portfolio that is partially offset by an
increase in the amount of loans on nonaccrual. The increase in loans portfolio
was primarily due to the transfer of loans held for sale into loans receivable.
Noninterest Income
Total noninterest income decreased $19.3 million, or 84.6%, to $3.5 million
for the quarter ended March 31, 1999 from $22.8 million for the quarter ended
March 31, 1998. The primary source of noninterest income is gain on sale of
loans originated for sale, which decreased $19.2 million, or 85.3%, to $3.3
million for the quarter ended March 31, 1999 from $22.5 million for the quarter
ended March 31, 1998, due to the decrease in volume of loans sold in 1999 which
was primarily due to the closure of the Company's wholesale operation in October
1998.
10
<PAGE>
Noninterest Expense
Noninterest expense decreased by $8.9 million, or 52.0%, to $8.2 million
for the quarter ended March 31, 1999 from $17.1million for the quarter ended
March 31, 1998, due primarily to decreases in salaries, employee benefits and
personnel services and general and administrative expenses related to the
closure of the Company's wholesale operation in October 1998. Salaries, employee
benefits and personnel services decreased $5.1 million, or 58.0%, to $3.7million
for the quarter ended March 31,1999 from $8.8million for the quarter ended March
31, 1998. General and administrative expenses, which includes rent, appraisal
fees, and telemarketing costs, decreased $3.9 million, or 48.1%, to $4.2 million
for the quarter ended March 31, 1999, from $8.1 million for the quarter ended
March 31, 1998.
Provision for Income Taxes
For the quarter ended March 31, 1999 there was an income tax benefit of $.3
million versus an income tax provision of $2.3 million for the quarter ended
March 31, 1998.
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 March 31, 1999, cash and cash
equivalents totaled $16.9 million compared to $41.8 million at December 31,
1998.
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 first quarter of 1999, Pacific Thrift increased
the outflow of funds from thrift certificates, thereby resulting in a
$21.6million decrease in outstanding thrift certificates to $140.7 million at
March 31, 1999 from $162.3 million at December 31, 1998.
Pacific Thrift is subject to certain leverage and risk-based capital
adequacy standards applicable to FDIC-insured institutions. At March 31, 1999,
Pacific Thrift was classified as significantly undercapitalized under FDIC
regulations. In addition, Pacific Thrift is subject to certain outstanding
regulatory orders which require Pacific Thrift to raise additional capital,
limit lending activities, restrict asset growth and reduce the concentration of
interest-only strips receivable, among other things. See the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, Item 1. "Business -
Supervision and Regulation -- Regulatory Actions."
As indicated in the Statements of Cash Flows, the Company used $3.1 million
in cash from operating activities, primarily for the origination of loans held
for sale, from January 1, 1999 through March 31, 1999. The Company used $1.7
million from investing activities, primarily from the increase of loans
receivable, and used $20.1 million from financing activities, primarily from the
decrease in thrift certificates, from January 1, 1999 through March 31, 1999.
Year 2000 Compliance Information
Pacific Thrift has prepared a Year 2000 Project Plan which will be used for
all computer-related systems of the Company as a whole. The plan provides for
four phases of implementation: assessment, renovation, testing and contingency
planning. The Company has completed the assessment phases of the plan, including
an analysis of mission critical and non-mission critical systems. The renovation
phase of the Company's software systems has also been substantially completed.
The Company's core operating systems have been upgraded to vendor provided Year
2000 compliant versions and are running on Year 2000 compliant hardware. The
testing phase of the Year 2000 Project Plan has been 90% completed. The
remaining mission critical systems should be tested and validated by May 31,
1999. The contingency planning phase will consist of the creation and validation
of the business resumption contingency plan to address all actions to be taken
in the event that any aspect of the Company's mission critical systems fails to
operate properly on or after January 1, 2000. The contingency planning phase
should be completed by June 30, 1999.
An independent audit report of the Year 2000 project is expected to be
completed by June 10, 1999 and the Company expects to be Year 2000 compliant by
June 30, 1999.
The Company has budgeted a total of $50,000 to complete its Year 2000
Project Plan, and does not anticipate that total expenses necessary to become
Year 2000 compliant will be material.
On March 1, 1999, Pacific Thrift entered into a stipulation and consent to
an order issued by the FDIC related to Year 2000 readiness (the "Year 2000
Order"), the terms of which are described under the heading Item 1. Business --
Supervision and Regulation - Regulatory Actions. The Company believes that
Pacific Thrift has taken actions required to be in compliance with the Year 2000
Order as of this date, but the FDIC has not verified such compliance as of this
date.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in the Company's disclosure about market risk.
See the Company's Annual Report on Form 10-K for the year ended December 31,
1998, Item 7A - "Quantitative and Qualitative Disclosures about Market Risk."
11
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
For the quarter ended March 31, 1999, 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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K. None.
12
<PAGE>
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 May 24, 1999.
PACIFICAMERICA MONEY CENTER, INC.
(Registrant)
May 24, 1999 JOEL R. SCHULTZ
-----------------------------------
Joel R. Schultz,
President
May 24, 1999 CHARLES J. SIEGEL
-----------------------------------
Charles J. Siegel,
Chief Financial and Administrative Officer
13
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