-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VhvHgKRNgKJ+a+762PjfhNMxv5pcRfVxEly43lFcnsz9zxQthMbjQEJciWntbWam GP6D1Mx4eIda89smUvKShg== 0000950130-97-005154.txt : 19971120 0000950130-97-005154.hdr.sgml : 19971120 ACCESSION NUMBER: 0000950130-97-005154 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971119 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILSHIRE FINANCIAL SERVICES GROUP INC CENTRAL INDEX KEY: 0001024321 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 931223879 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21845 FILM NUMBER: 97724608 BUSINESS ADDRESS: STREET 1: 1776 SW MADISON ST CITY: PORTLAND STATE: OR ZIP: 97205 BUSINESS PHONE: 5032235600 MAIL ADDRESS: STREET 1: 1776 SW MADISON ST CITY: PROTLAND STATE: OR ZIP: 97205 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [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 [_] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-17292 WILSHIRE FINANCIAL SERVICES GROUP INC. (Exact name of registrant as specified in its charter) DELAWARE 93-1223879 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1776 SW MADISON STREET, PORTLAND, OR 97205 (Address of principal executive offices) (Zip Code) (503) 223-5600 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant 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 ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT OCTOBER 31, 1997 Common Stock, par value $.01 per share 7,570,000 Shares WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements. Consolidated Statements of Financial Condition............. 3 Consolidated Statements of Operations...................... 4 Consolidated Statements of Cash Flows...................... 5 Consolidated Statements of Stockholders' Equity............ 8 Notes to Interim Financial Statements...................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 11 Item 3 Quantitative and Qualitative Disclosures About Market Risk. 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 19 Item 2. Changes in Securities....................................... 19 Item 3. Defaults Upon Senior Securities............................. 19 Item 4. Submission of Matters to a Vote of Security-Holders......... 19 Item 5. Other Information........................................... 19 Item 6. Exhibits and Reports on Form 8-K............................ 20 2 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31, 1997 1996 ASSETS (DOLLARS IN THOUSANDS) Cash and cash equivalents.......................................... $ 77,993 $152,298 Mortgage-backed securities available for sale, at fair value....... 201,325 31,270 Mortgage-backed securities held to maturity, at amortized cost..... 19,367 21,724 Securities held to maturity, at amortized cost..................... 7,442 7,429 Trading account securities......................................... 28,163 24,541 Loans, net......................................................... 173,524 176,026 Discounted loans, net.............................................. 350,460 206,740 Loans held for sale, net, at lower cost or market.................. 267,035 28,826 Stock in Federal Home Loan Bank of San Francisco, at cost......................................................... 4,952 2,958 Real estate owned, net............................................. 146,464 78,200 Leasehold improvements and equipment, net.......................... 1,702 317 Due from affiliate, net............................................ 47,359 5,051 Accrued interest receivable........................................ 6,382 3,517 Prepaid expenses and other assets.................................. 37,501 10,769 Deferred tax asset, net............................................ 92 4,183 TOTAL.............................................................. $1,369,761 $753,849 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits........................................................... $ 407,768 $501,614 Short-term borrowings.............................................. 658,042 97,624 Notes payable...................................................... 184,245 75,000 Accounts payable and other liabilities............................. 19,937 18,589 Total liabilities................................................. 1,269,992 692,827 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock.................................................... 27,500 -- Common stock....................................................... 55,897 55,897 Retained earnings.................................................. 16,812 5,222 Unrealized loss on available-for-sale securities, net.............. (440) (97) Total stockholders' equity........................................ 99,769 61,022 TOTAL.............................................................. $1,369,761 $753,849
See notes to interim financial statements. 3 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 INTEREST INCOME: (Dollars in thousands) Loans............................................. $ 23,659 $ 11,250 $ 59,950 $ 31,686 Mortgage-backed securities........................ 5,450 382 12,484 1,280 Securities and federal funds sold................. 838 554 3,022 1,171 Total interest income......................... 29,947 12,186 75,456 34,137 INTEREST EXPENSE: Deposits.......................................... 6,354 6,815 20,008 17,448 Borrowings........................................ 17,991 757 39,028 2,144 Total interest expense........................ 24,345 7,572 59,036 19,592 NET INTEREST INCOME................................ 5,602 4,614 16,420 14,545 PROVISION FOR ESTIMATED LOSSES ON LOANS............ 2,350 4,883 926 15,751 NET INTEREST INCOME (LOSS) AFTER PROVISION FOR ESTIMATED LOSSES ON LOANS....................... 3,252 (269) 15,494 (1,206) OTHER INCOME (LOSS): Bankcard income................................... 1,607 1,803 4,998 5,078 Bankcard processing expense....................... (1,089) (1,249) (3,419) (3,865) Gain on sale of loans............................. 20,036 -- 31,252 1,983 Loan fees and charges............................. 211 585 662 1,217 Trading account-unrealized gain................... 1,157 -- 1,171 1,601 Real estate owned, net............................ 1,835 (116) 4,574 (231) Servicing revenue................................. 1,395 -- 3,339 -- Gain on sale of securities........................ 3,053 -- 3,053 -- Other, net........................................ 426 117 1,087 363 Total other income............................ 28,631 1,140 46,717 6,146 OTHER EXPENSES: Compensation and employee benefits................ 4,623 1,417 11,274 2,955 FDIC insurance premiums........................... 268 1,679 791 2,066 Occupancy......................................... 312 76 727 218 Professional services............................. 1,142 275 2,104 572 Data processing and equipment rentals............. 97 65 250 189 Loan service fees and expenses paid to affiliate.. 9,711 1,400 19,423 3,522 Other general and administrative expenses......... 3,425 386 6,419 1,152 Total other expenses.......................... 19,578 5,298 40,988 10,674 INCOME (LOSS) BEFORE INCOME TAX PROVISION.......... 12,305 (4,427) 21,223 (5,734) INCOME TAX PROVISION (BENEFIT)..................... 5,237 (3,373) 8,981 (4,652) NET INCOME (LOSS) ................................. $ 7,068 $ (1,054) $ 12,242 $ (1,082) EARNINGS (LOSS) PER SHARE: Primary........................................... $0.80 $(0.19) $1.47 $ (0.22) Fully Diluted..................................... $0.78 $ -- $1.41 $ -- WEIGHTED AVERAGE SHARES OUTSTANDING: Primary........................................... 8,014,230 5,500,000 7,882,555 4,923,784 Fully Diluted..................................... 8,239,094 --- 8,232,281 ---
See notes to interim financial statements. 4 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ 7,068 $(1,054) $ 12,242 $(1,082) Reconciliation of net income to net cash (used in) provided by operating activities: Provision for estimated loan losses...................... 2,350 4,883 926 15,751 Depreciation and amortization............................ 99 38 302 116 Gain on sale of real estate owned........................ (1,164) 207 (4,275) 164 Purchase of loans held for sale.......................... (182,835) --- (556,231) --- Proceeds from loans held for sale........................ 184,214 --- 375,565 --- Gain on sale of loans.................................... (19,639) --- (30,855) (1,983) Gain on sale of securities............................... (3,053) --- (3,053) --- Amortization of discounts and deferred fees.............. (16,092) 118 (26,795) (2,126) Amortization of deferred credits......................... (116) (116) (328) (346) FHLB stock dividend...................................... (70) (20) (161) (64) Change in: Trading account securities................................. (10,385) 566 (3,622) (6,526) Accrued interest receivable.............................. 865 278 (2,865) (1,226) Prepaid expenses and other assets........................ (18,940) (2,638) (26,732) (2,163) Due from affiliate, net.................................. (13,009) (1,027) (15,460) (3,843) Due to affiliate, net.................................... --- 1,527 --- 1,527 Deferred tax asset, net.................................. 5,245 (3,050) 4,091 (3,833) Accounts payable and other liabilities................... 6,098 4,165 1,348 3,227 Minority interest........................................ 277 (323) Other.................................................... --- 43 --- 43 Net cash used in operating activities.................. (59,364) 4,197 (275,903) (2,687)
See notes to interim financial statements. (Continued) 5 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 (Dollars in thousands) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of loans.......................................... (26,903) (5,295) (316,931) (227,632) Loan repayments, net of originations....................... 29,386 14,678 66,007 35,521 Proceeds from sale of loans................................ --- 2,767 --- 26,335 Proceeds from sale of mortgage-backed securities available for sale.................................................. 12,148 --- 12,148 --- Purchase of mortgage-backed securities available for sale.. (76,739) --- (184,393) --- Repayments of mortgage-backed securities available for..... 3,733 157 4,163 1,871 sale Proceeds from maturity of investment securities held to.... --- 5,000 maturity Purchase of mortgage-backed securities held to maturity.... --- (11,182) Repayments of mortgage-backed securities held to maturity.. 1,552 987 3,036 1,820 Change in unrealized (gain) loss on mortgage-backed securities available for sale Purchase of securities and FHLB stock...................... --- (23) (1,833) (7,344) Proceeds from sale of real estate owned.................... 18,271 479 44,841 5,763 Purchases of leasehold improvements and equipment.......... (749) (60) (1,194) (177) Net cash used in investing activities.................... (39,301) 13,690 (374,156) (170,025)
See notes to interim financial statements. (Continued) 6 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 (Dollars in thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits............................ (37,565) 54,473 (93,845) 184,011 Issuance of common stock......................................... --- --- --- 17,750 Proceeds from short-term borrowings.............................. 373,961 112,964 1,073,009 308,109 Repayments of short-term borrowings.............................. (299,382) (179,254) (512,587) (321,109) Repayments of capital lease obligations.......................... (68) (68) Proceeds from notes payable...................................... 100,000 --- 109,245 --- Net cash provided by financing activities...................... 136,946 (11,817) 575,754 188,761 NET INCREASE (DECREASE) IN CASH AND CASH......................... 38,281 6,070 (74,305) 16,049 EQUIVALENTS CASH AND CASH EQUIVALENTS: Beginning of period............................................ 39,712 14,461 152,298 4,482 End of period.................................................... $ 77,993 $ 20,531 $ 77,993 $ 20,531 ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-Cash paid during the quarter for: Interest....................................................... $ 24,026 $ 8,156 $ 51,577 $ 18,772 Income taxes................................................... 600 --- 6,350 216 NONCASH INVESTING ACTIVITIES: Additions to real estate owned acquired in settlement of loans... 27,588 573 108,831 4,377 Equipment acquired through capital lease......................... --- --- 493 --- Transfer of securities from available for sale to trading NONCASH FINANCING ACTIVITIES: Exchange of subordinated debt for common stock................... --- --- --- 11,000 Paid in kind preferred stock dividend............................ 652 --- 652 --- Preferred stock issued in exchange for cancellation of accounts.. 27,500 27,500 payable
See notes to interim financial statements. (Concluded) 7 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized Gain (Loss) on Retained Available- PREFERRED STOCK COMMON STOCK Earnings for-Sale (Accumulated Securities SHARES AMOUNT SHARES AMOUNT Deficit) Net of Tax Total (DOLLARS IN THOUSANDS) BALANCE, January 1, 1994.............. -- $ -- 366,288 $ 3,050 $ 915 $ (159) $ 3,806 Net loss............................. (1,252) (1,252) Unrealized loss on available-for-..... (511) (511) sale securities-net of tax Issuance of stock.................... 1,000,000 1,000 934,575 3,750 4,750 BALANCE, December 31, 1994............ 1,000,000 1,000 1,300,863 6,800 (337) (670) 6,793 Net income............................ 592 592 Unrealized gain on available-for-..... 654 654 sale securities-net of tax Exchange of preferred stock for...... (1,000,000) (1,000) (1,000) subordinated debt BALANCE, December 31, 1995............ -- -- 1,300,863 6,800 255 (16) 7,039 Net income........................... 4,967 4,967 Unrealized loss on available-for-..... (81) (81) sale securities-net of tax Exchange of subordinated debt for.... 1,606,618 11,000 11,000 common stock Issuance of common stock............. 4,662,519 38,097 38,097 BALANCE, December 31, 1996............ -- -- 7,570,000 55,897 5,222 (97) 61,022 Net income............................ 12,242 12,242 Issuance of Preferred Stock........... 27,500 27,500 27,500 Preferred Stock dividend.............. (652) (652) Unrealized loss on available-for-..... (343) (343) sale securities-net of tax BALANCE, September 30, 1997........... 27,500 $27,500 7,570,000 $55,897 $16,812 $ (440) $99,769
See notes to interim financial statements. 8 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO INTERIM FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements of Wilshire Financial Services Group Inc. and Subsidiaries (the "Company") should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. A summary of the Company's significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. In the opinion of management, all adjustments generally comprised of normal recurring accruals necessary for fair presentations of the interim financial statements have been included and all intercompany accounts and transactions have been eliminated in consolidation. Operating results for the quarter and nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. Certain reclassifications of 1996 amounts were made in order to conform to the 1997 presentation, none of which affect previously reported net income. 2. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK Financial Instruments Involving Off-Balance Sheet Risk-In hedging the interest rate exposure of a fixed-rate or lagging-index asset, the Company may create a hedge which matches the principal amortization of such an asset against the maturity of the Company's liabilities generally by entering into short sales or forward sales of U.S. Treasury securities, Government Securities, interest rate futures contracts or interest rate swap agreements. This results in market gains or losses on hedging instruments, in response to interest rate increases or decreases, respectively, which approximate the amount of the corresponding market losses or gains, respectively, on loans being hedged. At September 30, 1997, the notional amounts of interest rate swaps related to deposits were $214.4 million. The weighted average fixed payments and floating-rate receipts of interest were 6.06% and .29% over USD LIBOR, respectively.The notional amounts of interest rate swaps related to the 13% Series A Notes were $20.0 million. The weighted average fixed receipts and floating rate payments of interest were 13% and 1.25% over USD Libor, respectively. At September 30, 1997, the Company also had open short positions on 40 U.S. Treasury Bond, 500 10-year U.S. Treasury Note, 260 5-year U.S. Treasury Note, and 450 French Franc futures contracts. In October 1997, the Company established Wilshire Real Estate Investment Trust Inc. ("WREIT"), which intends to qualify and will elect to be taxed as a Real Estate Investment Trust. WREIT has filed a registration statement with the Securities and Exchange Commission in connection with a proposed underwritten offering of its common stock. In September 1997, the Company entered into an agreement to acquire a portfolio of loans from a European insurance company for a purchase price of approximately $150 million. In August 1997, the Company purchased a portfolio of loans through the acquisition of the stock of a French bank for a purchase price of approximately $45 million. The Company has granted WREIT an option to purchase all or a portion of the Company's 50% interest in such assets. The Company entered into an agreement to purchase certain assets of an unaffiliated mortgage originator for a purchase price of approximately $2.7 million. The Company also entered into an agreement to purchase an unaffiliated manufactured housing loan originator for a purchase price of approximately $3.0 million. There can be no assurance as to when or if such transactions will be consummated. 3. EARNINGS PER SHARE The Company will adopt SFAS No. 128, "Earnings per Share," effective December 15, 1997. Management believes that implementation of this statement will not materially effect presentation of Earnings Per Share. 9 4. SIGNIFICANT TRANSACTIONS During the quarter ended September 30, 1997, the Company completed a securitization of approximately $146 million of loans resulting in a gain of approximately $11.9 million. At the sale date, the Company allocated approximately $1.7 million of original cost basis to retained servicing rights. The Company also sold approximately $26.8 million of loans which resulted in a gain of approximately $8.1 million, including approximately $0.5 million of retained servicing rights. On July 31, 1997, the Company issued to an affiliate shares of 14% cumulative, pay in kind preferred stock with an aggregate liquidation value of $27.5 million in exchange for the cancellation of certain payables to that affiliate aggregating approximately $27.1 million and $0.4 million in cash. On August 15, 1997, the Company issued $100.0 million of its 13% Series A Notes due 2004. 10 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and notes thereto. Wilshire Financial Services Group Inc. is a diversified financial services company. The Company conducts business in the U.S., U.S. Territories and Europe, specializing in loan portfolio acquisition and securitization, correspondent lending and servicing. It offers wholesale banking through two subsidiaries, First Bank of Beverly Hills, F.S.B. and Girard Savings Bank, F.S.B. (the "Savings Banks"). RESULTS OF OPERATIONS -- QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996. NET INCOME The Company's net income was approximately $7.1 million for the quarter ended September 30, 1997 compared with a net loss of approximately $1.1 million for the quarter ended September 30, 1996. The Company's asset base was significantly larger in the 1997 period as a result of the Company going public in December 1996 and significantly higher levels of borrowing and investment opportunities. NET INTEREST INCOME The Company's net interest income was approximately $5.6 million for the quarter ended September 30, 1997 compared to approximately $4.6 million for the quarter ended September 30, 1996, an increase of 21.4%. Interest Income. The Company's interest income was approximately $29.9 million for the quarter ended September 30, 1997 compared with approximately $12.2 million for the quarter ended September 30, 1996, an increase of 145.7%. The increase in the Company's interest income was due primarily to an increase in the Company's interest earning assets from approximately $508.3 million at September 30, 1996 to approximately $1.1 billion at September 30, 1997. Interest Expense. The Company's interest expense was approximately $24.3 million for the quarter ended September 30, 1997 compared with approximately $7.6 million for the quarter ended September 30, 1996, an increase of 221.5%. The increase in interest expense resulted from an increase in interest-bearing liabilities to $1.3 billion at September 30, 1997 from $487.5 million at September 30, 1996 and includes the issuance in the fourth quarter of 1996 and early 1997 of $84.2 million of the Company's 13% Notes due 2004 and the issuance in the third quarter of 1997 of $100.0 million of the Company's 13% Series A Notes due 2004. In addition, the Company's weighted average cost of funds increased from 5.81% at September 30, 1996 to 7.68% at September 30, 1997 principally reflecting the issuance of the 13% Notes due 2004 and the 13% Series A Notes due 2004. PROVISION FOR ESTIMATED LOSSES ON LOANS Provision for estimated losses on loans for the quarter ended September 30, 1997 was approximately $2.4 million compared with a provision for estimated losses on loans of $4.9 million for the quarter ended September 30, 1996. The additional provision for losses in the third quarter of 1997 was primarily due to the establishment of reserves for certain consumer loans as a result of lower than previously anticipated yields. OTHER INCOME The Company's other income was approximately $28.6 million for the quarter ended September 30, 1997 compared with approximately $1.1 million for the quarter ended September 30, 1996. The components of the Company's non-interest income are reflected in the following table: For the Quarter ended September 30, ----------------------- 1997 1996 ---- ---- (Dollars in thousands) Other income: Bankcard income ...................... $ 1,607 $ 1,803 Bankcard processing expense .......... (1,089) (1,249) Gain on sale of loans ................ 20,036 -- Loan fees and charges ................ 211 585 Trading account-unrealized gain ...... 1,157 -- Real estate owned, net ............... 1,835 (116) Servicing revenue .................... 1,395 -- Gain on sale of securities ........... 3,053 -- Other, net ........................... 426 117 --------- -------- Total other income ....................$ 28,631 $ 1,140 ========= ======== The increase in other income for the quarter ended September 30, 1997 is primarily attributable to (i) the sale of loans, which resulted in a gain of approximately $20.0 million, (ii) the sale of securities, wich resulted in a gain of approximately $3.1 million, (iii) income from real estate owned, net, resulting from the ongoing disposition of assets from a $72.3 million pool of properties acquired in the fourth quarter of 1996 and other real estate owned, and (iv) an increase in servicing fees collected from others. Gain on Sale of Loans. The gain on sale of loans for the quarter ended September 30, 1997 is the result of the sale of loans with a book value of approximately $173 million, of which approximately $26.8 million were sold through whole loan trades and approximately $146 million were sold through securitizations. For the quarter ended September 30, 1997, gain on the sale of whole loans totaled approximately $8.1 million and gains from securitizations totaled approximately $11.9 million. Gains or losses on loan portfolios sold as whole loans or through securitization transactions are based on the difference between the cash proceeds and market value of securities received on the loans sold to outside investors and the Company's cost basis allocated to the loans. Gain on the Sale of Securities. The gain on the sale of securities is a result of the sale of approximately $9.1 million of mortgage-backed securities which resulted in a gain of approximately $3.1 million. This gain reflects the Company's strategy of investing in subordinate classes of mortgage-backed securities which the Company believes are likely to experience a ratings upgrade as a result of payment history, prepayment or default experience or otherwise. The Company believes that its experience in acquiring pools of loans allows it to more effectively evaluate the risks associated with a pool of loans that supports an issue of mortgage-backed securities being considered for purchase and price those securities. As part of this strategy, the Company may also seek to acquire mortgage-backed securities which management believes are likely to experience a ratings upgrade as a result of payment history, prepayment or default experience of the underlying loans or otherwise. The Company intends to sell a portion of its portfolio of mortgage-backed securities and grant a right of first refusal on future acquisitions of mortgage-backed securities to WREIT, a company established by the Company to invest in U.S. commercial real estate assets (other than U.S. commercial performing loans), international real estate assets, mortgage-backed securities and other real estate assets. WREIT has filed a registration statement with the Securities and Exchange Commission in connection with a proposed underwritten public offering of its common stock. The sale of the mortgage-backed securities and the grant of a right of first refusal are expected to occur simultaneously with the consummation of the WREIT's proposed public offering. There can be no assurance, however, as to when or if any such public offering, sale of mortgage-backed securities and grant of a right of first refusal will occur. Real Estate Owned, net. The increase in income from real estate owned, net is primarily due to gains on the disposition of real estate acquired through foreclosure (or deed in lieu thereof) from the Company's portfolio of non-performing loans ("Discounted Loans") or from the properties acquired in the fourth quarter of 1996. Servicing Revenue. The increase in servicing revenue of approximately $1.4 million in the quarter ended September 30, 1997 was primarily the result of contracting for servicing rights on loan portfolios owned by unaffiliated third parties and arranging such loan portfolios to be serviced by Wilshire Credit Corporation ("WCC"), an affiliate of the Company, at a rate which is lower than the rate received by the Company. OTHER EXPENSE The Company's other expenses totaled approximately $19.6 million for the quarter ended September 30, 1997 compared with approximately $5.3 million for the quarter ended September 30, 1996, an increase of 269.5%, which reflects the significant growth of the Company's asset base and operations. Loan Service Fees and Expenses Paid to Affiliate. The largest component of other expenses for the quarter ended September 30, 1997 was loan service fees and expenses, which includes servicing fees paid to WCC and collection-related expenses incurred directly by the Company. Loan service fees and expenses paid to affiliate were approximately $9.7 million for the quarter ended September 30, 1997 compared to approximately $1.4 million for the quarter ended September 30, 1996, an increase of approximately 593.6%. The increase in loan servicing fees and expenses paid to affiliate was primarily the result of the increase in the unpaid principal balance of loans being serviced by WCC on behalf of the Company to approximately $1.2 billion at September 30, 1997 from approximately $502.0 million at September 30, 1996 and an increase in sub- servicing fees of approximately $1.1 million. Also, collection-related expenses increased from the quarter ended September 30, 1996 to the comparable period in 1997 due to the substantial increase in Discounted Loans, most of which were acquired at the end of 1996 and the first quarter of 1997. Discounted Loan portfolios generally require higher expenditures than performing and sub-performing loans. Compensation and Employee Benefits. Compensation and employee benefits was approximately $4.6 million for the quarter ended September 30, 1997 compared to approximately $1.4 million for the quarter ended September 30, 1996, an increase of 226.3%. The increase was primarily due to an increase in the number of full-time equivalent employees from 46 at September 30, 1996 to 205 at September 30, 1997, reflecting the expansion of business activities, particularly loan acquisition activities and the growth of activities at the non-bank subsidiaries. Other general and administrative expenses increased from approximately $0.4 million for the quarter ended September 30, 1996 to approximately $3.4 million for the quarter ended September 30, 1997 due primarily to the expansion of business activities, particularly loan acquisition activities such as due diligence costs. INCOME TAX PROVISION (BENEFIT) Income tax provision amounted to an expense of approximately $5.2 million during the quarter ended September 30, 1997 compared with a benefit of approximately $3.4 million during the quarter ended September 30, 1996. The change was primarily due to the utilization of net operating loss deductions in 1996 and a normalized tax provision in 1997. RESULTS OF OPERATIONS --- NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 NET INCOME The Company's net income was approximately $12.2 million for the nine months ended September 30, 1997 compared to a net loss of approximately $1.1 million for the nine months ended September 30, 1996. NET INTEREST INCOME The Company's net interest income was approximately $16.4 million for the nine months ended September 30, 1997 compared to approximately $14.5 million for the nine months ended September 30, 1996, an increase of 12.9%. The Company's asset base was significantly larger in the 1997 period as a result of the Company's going public in December 1996 and significantly higher levels of borrowing and investment opportunities. Interest Income. The Company's interest income was approximately $75.5 million for the nine months ended September 30, 1997, compared to approximately $34.1 million for the nine months ended September 30, 1996, an increase of 121.0%. The increase in the Company's interest income was due primarily to an increase in the Company's interest earning assets from approximately $508.3 million at September 30, 1996 to approximately $1.1 billion at September 30, 1997. Interest Expense. The Company's interest expense was approximately $59.0 million for the nine months ended September 30, 1997, compared with approximately $19.6 million for the nine months ended September 30, 1996, an increase of 201.3%. The increase in interest expense resulted from an increase in interest-bearing liabilities to approximately $1.3 billion at September 30, 1997 from approximately $487.5 million at September 30, 1996 and includes the issuance in the fourth quarter of 1996 and early 1997 of $84.2 million of the Company's 13% Notes due 2004 and the issuance in the third quarter of 1997 of $100 million of the Company's 13% Series A Notes due 2004. 11 In addition, the Company's weighted average cost of funds increased from 5.81% at September 30, 1996 to 7.68% at September 30, 1997 principally reflecting the issuance of the 13% notes due 2004 and the 13% series A notes due 2004. PROVISION FOR ESTIMATED LOSSES ON LOANS Provision for estimated losses on loans for the first nine months of 1997 was a net provision of approximately $0.9 million resulting from additional provision of approximately $3.4 million, which was partially offset by the reversal of approximately $2.5 million of excess reserves on loans previously sold. This compares with a provision for estimated losses on loans of approximately $15.8 million for the first nine months of 1996 from reserves established primarily for certain sub-prime auto loans and loans held by the Savings Banks at the time they were acquired. OTHER INCOME The Company's other income was approximately $46.7 million for the nine months ended September 30, 1997 compared with approximately $6.1 million for the nine months ended September 30, 1996, an increase of 660.1%. The components of the Company's non-interest income are reflected in the following table:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 (DOLLARS IN THOUSANDS) Other income: Bankcard income....................... $ 4,998 $ 5,078 Bankcard processing expense........... (3,419) (3,865) Gain on sale of loans................. 31,252 1,983 Loan fees and charges................. 662 1,217 Trading account-unrealized gain....... 1,171 1,601 Real estate owned, net................ 4,574 (231) Servicing revenue..................... 3,339 -- Gain on sale of securities............ 3,053 -- Other, net............................ 1,087 363 Total other income.................... $46,717 $ 6,146
The increase in other income for the nine months ended September 30, 1997 is primarily attributable to (i) sales of loans, which resulted in gains of approximately $31.3 million, (ii) the sale of securities, which resulted in a gain of approximately $3.1 million, (iii) income from real estate owned, net, resulting from the ongoing disposition of assets from a $72.3 million pool of properties acquired in the fourth quarter of 1996 and from disposition of real estate relating to discounted loans, and (iv) an increase in servicing fees paid by unaffiliated third parties. 12 Gain on Sale of Loans. The gain on sale of loans for the nine months ended September 30, 1997 is the result of the sale of loans with a book value of approximately $350 million, of which approximately $204 million were sold through whole loan trades and approximately $146 million were sold through securitizations. For the nine months ended September 30, 1997, gain on the sale of whole loans totaled approximately $19.4 million and gains from securitizations totaled approximately $11.9 million. Gains or losses on loan portfolios sold as whole loans or through securitization transactions are based on the difference between the cash proceeds received on the loans sold to outside investors and the Company's cost basis allocated to the loans. Gain on the Sale of Securities. The gain on the sale of securities for the nine months ended September 30, 1997 is a result of the sale of approximately $9.1 million of mortgage-backed securities which resulted in a gain of approximately $3.1 million. This gain reflects the Company's strategy of investing in subordinate classes of mortgage-backed securities. Real Estate Owned, net. The increase in income from real estate owned, net is primarily due to gains on the disposition of real estate acquired through foreclosure (or deed in lieu thereof) from the Company's discounted loan portfolio or from the properties acquired in the fourth quarter of 1996. Servicing Revenue. The increase in servicing revenue of approximately $3.3 million in the nine months ended September 30, 1997 was primarily the result of contracting for servicing rights on loan portfolios owned by unaffiliated third parties and arranging such loan portfolios to be serviced by WCC at a rate which is lower than the rate received by the Company. 13 OTHER EXPENSE The Company's other expenses totaled approximately $41.0 million for the nine months ended September 30, 1997 compared with approximately $10.7 million for the nine months ended September 30, 1996, an increase of 284.0% which reflects the significant growth of the Company's asset base and operations. Loan Service Fees and Expenses Paid to Affiliate. The largest component of other expenses was loan service fees and expenses, which includes servicing fees paid to WCC and collection-related expenses incurred directly by WCC and reimbursed by the Company. Loan service fees and expenses paid to affiliate were approximately $19.4 million for the nine months ended September 30, 1997 compared to approximately $3.5 million for the nine months ended September 30, 1996, an increase of approximately 451.5%. The increase in loan servicing fees and expenses paid to affiliate was primarily the result of the increase in the unpaid principal balance of loans being serviced by WCC on behalf of the Company to approximately $1.2 billion at September 30, 1997 from approximately $502.0 million at September 30, 1996 and an increase in sub-servicing fees of approximately $2.7 million. Also, collection-related expenses increased from the nine months ended September 30, 1996 to the comparable period in 1997 due to the substantial increase in Discounted Loans, most of which were acquired at the end of 1996 and the first nine months of 1997. Discounted Loan portfolios generally require more significant expenditures than performing and sub- performing loans. Compensation and Employee Benefits. Compensation and employee benefits was approximately $11.3 million for the nine months ended September 30, 1997, compared to approximately $3.0 million for the nine months ended September 30, 1996, an increase of 281.5%. The increase was primarily due to an increase in the number of full-time equivalent employees from 46 at September 30, 1996 to 205 at September 30, 1997, reflecting the expansion of business activities, particularly loan acquisition activities and the growth of activities at the non-bank subsidiaries. Other general and administrative expenses increased from approximately $1.2 million for the nine months ended September 30, 1996 to approximately $6.4 million for the nine months ended September 30, 1997 due primarily to the expansion of business activities at the non-bank subsidiaries, particularly loan acquisition activities such as due diligence costs. INCOME TAX PROVISION (BENEFIT) Income tax provision amounted to an expense of approximately $9.0 million during the nine months ended September 30, 1997 compared with a benefit of approximately $4.7 million during the nine months ended September 30, 1996. The change was primarily due to the utilization of net operating loss deductions in 1996 and a normalized tax provision in 1997. CHANGES IN FINANCIAL CONDITION Mortgage-Backed and Other Securities. The Company's mortgage-backed and other securities increased approximately $171.3 million during the nine months ended September 30, 1997, primarily as a result of purchasing subordinated classes of mortgage-backed securities in connection with the Company's strategy of purchasing mortgage-backed securities which (i) management believes are likely to experience a ratings upgrade as a result of payment history, prepayment or default experience or otherwise, or (ii) are secured by pools of mortgage loans originated under guidelines with which management is familiar due to previous acquisitions of pools of loans originated thereunder. The increase in mortgage-backed and other securities was partially offset by the sale of approximately $9.1 million of mortgage-backed securities. 14 See "Other Income-Gain on the Sale of Securities." Loans net. The Company's total loan portfolio, net of discounts and allowances, increased by approximately $379.4 million during the nine months ended September 30, 1997, primarily as a result of the Company's business strategy of aggressively acquiring Discounted Loans and other mortgage loans. Real Estate Owned, net. Real estate owned, net consists of properties acquired by foreclosure or deed-in-lieu thereof on loans in the Company's total loan portfolio or purchased directly. Real estate owned increased by approximately $68.3 million during the nine months ended September 30, 1997 primarily as a result of the foreclosure of certain Discounted Loans acquired in the fourth quarter of 1996 and the first nine months of 1997. The Company actively manages its real estate owned. Due from Affiliate, net. Due from affiliate, net of approximately $47.4 million at September 30, 1997 was primarily attributable to payments received in the normal course of servicing operations by WCC, which had not been remitted to the Company. Deposits. Deposits decreased by approximately $93.8 million or 18.7% during the nine months ended September 30, 1997. Pursuant to the Cease and Desist Orders, as amended (the "Orders"), imposed upon First Bank and Girard, by the Office of Thrift Supervision (the "OTS"), First Bank and Girard are prohibited from increasing their total assets, as measured at the end of each calendar quarter above $145 million and $408 million, respectively, unless such increase is an amount that represents the total net interest credited on deposit liabilities earned during that quarter plus any increase permitted by the Orders in prior quarters. The Savings Banks have complied with these requirements. Accordingly, the Company has determined to let deposits decline to the extent not necessary to fund asset growth. Notes Payable. In the fourth quarter of 1996 and early 1997, the Company issued $84.2 million of 13% Notes due 2004. In the third quarter of 1997, the Company issued $100.0 million of 13% Series A Notes due 2004. Short-Term Borrowings. Short-term borrowings increased by approximately $560.4 million during the nine months ended September 30, 1997, resulting from increased use of repurchase agreements and warehouse financing instead of deposits to fund the purchases of loans and securities. 15 LIQUIDITY AND CAPITAL RESOURCES The Company's sources of cash flow include certificates of deposit, securitizations, net interest income, borrowings under its warehouse and repurchase financing facilities from institutional investors and other lenders and public and private debt offerings, including the 13% Notes due 2004 and 13% Series A Notes due 2004. In certain limited circumstances, the Company also has borrowed money from WCC in order to fund the acquisition of loans. The Company repaid such borrowings with the issuance of $27.5 million of its Cumulative Redeemable PIK Preferred Stock ("Preferred Stock") on July 31, 1997. In addition, the Savings Banks obtain funding through FHLB advances. The Company's liquidity is managed on a daily basis and reviewed periodically by the Company's Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the needs of the Company, including adequate cash flows for off-balance sheet instruments. At the Savings Banks, sources of liquidity include wholesale and brokered certificates of deposit and certain credit facilities. As of September 30, 1997, the Savings Banks had approximately $400.4 million of certificates of deposit. As of September 30, 1997, scheduled maturities of certificates of deposit during the twelve months ending September 30, 1998 and thereafter amounted to approximately $370.4 million and approximately $30.0 million, respectively. Brokered and other wholesale deposits generally are more responsive to changes in interest rates than core deposits and, thus, are more likely to be withdrawn by the investor upon maturity as changes in interest rates and other factors are perceived by investors to make other investments more attractive. However, management of the Savings Banks believes that it can adjust the rates paid on certificates of deposit to retain deposits in changing interest rate environments and that brokered and other wholesale deposits can be both a relatively cost-effective and stable source of funds. At September 30, 1997, the Company's sources of borrowings included (i) uncommitted master repurchase agreements between each of the Savings Banks and Bear Stearns Mortgage Capital Corporation as to which the parties have orally agreed that approximately $210 million in aggregate would be available for the purchase of loans, (ii) a committed $150 million warehouse lending agreement with Prudential Securities Credit Corporation, and (iii) certain repurchase arrangements including $350 million (committed) under a repurchase agreement with Credit Suisse First Boston Mortgage Capital LLC, $60.9 million (committed) under a repurchase agreement with Salomon Brothers Realty Corp. and $102.4 million (committed) under a repurchase agreement with Salomon Brothers Realty Corp. Sources of borrowings also include FHLB advances, which are required to be secured by eligible securities collateral, and reverse repurchase agreements. As of September 30, 1997, the Savings Banks had no FHLB advances outstanding, and were eligible to borrow up to an aggregate of $5.4 million from the FHLB of San Francisco and had approximately $5.4 million of unencumbered mortgage-backed and related securities which could be used to secure such borrowings. The Company's uses of cash include the funding of loan purchases and origination, acquisitions of mortgage-backed securities, payment of interest expenses, repayment of loans, funding of initial over-collateralization requirements for securitizations, operating and administrative expenses, income taxes and capital expenditures. The Company's purchases of loans are expected to utilize secured borrowings and be highly leveraged. The actual dollar amount of secured borrowings incurred by the Company will vary depending on a number of factors, including the amount of leverage lenders are willing to make available (which will be effected by market conditions), and management's determination as to the appropriate amount of leverage. With respect to pools of Discounted Loans and Non-Discounted Loans, the Company generally seeks to fund 90% and 95%, respectively, of the market value of such loan portfolios with borrowed money. The Company draws on a number of sources to obtain such funds, including certificates of deposit and 16 repurchase agreements with major investment banks. Capital expenditures by the Company have been immaterial. The Company is party to various off-balance sheet financial instruments in the normal course of business to manage its interest rate risk. The Company conducts business with a variety of financial institutions and other companies in the normal course of business, including counterparties to its off-balance sheet financial instruments. The Company is subject to potential financial loss if the counterparty is unable to complete an agreed upon transaction. The Company seeks to limit counterparty risk through financial analysis and monitoring procedures. Adequate credit facilities and other sources of funding, including the ability of the Company to securitize loans, are essential to the continuation of the Company's ability to purchase pools of loans, mortgage-backed securities and newly originated mortgage and manufactured housing loans. The Company believes that cash flows from operations, the proceeds of certificates of deposit, the availability under the warehouse financing facility, repurchase facilities and other borrowings, and the net proceeds from securitizations will be sufficient to fund current operating needs, commitments and capital expenditures in the near term. Given the Company's rapid growth and assuming that the Company continues to experience such growth, management believes that additional debt/or equity financing may be required in the medium term to sustain this level of growth. The 13% Notes due 2004 and the 13% Series A Notes due 2004 contain certain limitations on indebtedness which may restrict the ability of the Company to issue additional indebtedness in the future and the Company may be obligated to seek equity financing. There can be no assurance that any such debt or equity financing will be available to the Company on financially attractive terms in the future. The Company is required to maintain one year of interest on its 13% Notes due 2004 and its 13% Series A Notes due 2004 in liquid assets. In addition, the Savings Banks are required under applicable federal regulations to maintain specified levels of "liquid" investments in qualifying types of U.S. Government, federal agency and other investments having maturities of five years or less. Current OTS regulations require that a savings association maintain liquid assets of not less than 5% of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less, of which short-term liquid assets must consist of not less than 1%. Monetary penalties may be imposed for failure to meet applicable liquidity requirements. The Company and the Savings Banks have complied with these requirements. IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. All of the statements contained in this Quarterly Report on Form 10-Q which are not identified as historical should be considered forward-looking. In connection with certain forward-looking statements contained in this Quarterly Report on Form 10-Q and those that may be made in the future by or on behalf of the Company which are identified as forward-looking, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. Such factors include but are not limited to, the real estate market, the cease and desist orders, the availability of loan portfolios at acceptable prices, the availability of financing for loan portfolio acquisitions, interest rates and expansion outside the U.S. Accordingly, there can be no assurance 17 that the forward-looking statements contained in this Quarterly Report on Form 10-Q will be realized or that actual results will not be significantly higher or lower. The forward-looking statements have not been audited by, examined by or subjected to agreed-upon procedures by independent accountants, and no third- party has independently verified or reviewed such statements. Readers of this Quarterly Report on Form 10-Q should consider these facts in evaluating the information contained herein. The inclusion of the forward-looking statements contained in this Quarterly Report on Form 10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Quarterly Report on Form 10-Q will be achieved. In light of the foregoing, readers of this Quarterly Report on Form 10-Q are cautioned not to place undue reliance on the forward-looking statements contained herein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 18 WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is not a party to any material legal proceedings. ITEM 2. CHANGES IN SECURITIES. Effective July 31, 1997, the Company issued 27,500 shares of its Cumulative Redeemable Senior PIK Preferred Stock, par value $.01 per share (the "Preferred Stock"), to WCC in exchange for certain accounts payable of approximately $27.1 million and a cash payment of approximately $400,000. Dividends on the Preferred Stock are cumulative from the date of original issuance and are payable semiannually in arrears. Any dividend accruing in respect of the Preferred Stock shall be paid by issuing additional shares of Preferred Stock, and the issuance of such additional shares of Preferred Stock shall constitute full payment of the dividend. The Company may redeem the Preferred Stock, in whole or in part, at any time, at a redemption price per share equal to liquidation value of the Preferred Stock, plus all dividends accrued and unpaid on the Preferred Stock so redeemed up to the date fixed for redemption. In connection with the issuance and sale of Preferred Stock, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designations of Cumulative Redeemable Senior PIK Preferred Stock (the "Certificate of Designations") which established the designations, powers, preferences and rights of the shares of such preferred stock, and the qualifications, limitations or restrictions thereof (in addition to the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, set forth in the Certificate of Incorporation which may be applicable to the Company's preferred stock). The Certificate of Designation provides that, with respect to dividend rights and rights upon liquidation, winding up and dissolution, the Preferred Stock shall rank senior to: (a) any other series of preferred stock, unless the holders of the Preferred Stock agree that such shares shall rank pari passu with or senior to the shares of Preferred Stock and (b) all other equity securities of the Company, including the Common Stock, par value $.01 per share. The liquidation value of shares of the Preferred Stock, in case of the voluntary or involuntary liquidation, dissolution or winding up of the Company, shall be $1,000 per share, plus an amount equal to the dividends accrued and unpaid thereon, whether or not declared, to the payment date. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders during the period covered by this report. ITEM 5. OTHER INFORMATION. 19 In October 1997, the Company established WREIT, which intends to qualify and will elect to be taxed as a Real Estate Investment Trust. WREIT has filed a registration statement with the Securities and Exchange Commission in connection with a proposed underwritten public offering of 20 million shares of its common stock at a proposed offering range of $14 to $16 per share. Upon the consummation of the proposed public offering, the Company or its affiliates intend to sell to WREIT (i) certain of its U.S. commercial real estate assets for approximately $52.8 million, (ii) certain of its mortgage-backed securities for approximately $98.4 million, and (iii) certain of its international Discounted and Non-Discounted Loans in the United Kingdom for approximately $5.4 million. The Company intends to grant WREIT an option to purchase all or a portion of the Company's interest in two portfolios of loans in France for a purchase price of up to $110.0 million. In addition, the Company intends to grant WREIT a right of first refusal on future acquisitions of U.S. commercial real estate assets (other than U.S. commercial performing loans), certain mortgage-backed securities and international real estate assets. There can be no assurance, however, as to when or if any such public offering, sale of securities and grant of a right of first refusal will occur. In October 1997, the Savings Banks entered into amended Cease and Desist Orders with the Office of Thrift Supervision which modified certain restrictive provisions of the original Cease and Desist Orders. The Savings Banks continue to remain subject to growth restrictions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit 11 Statement re Computation of Per Share Earnings Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K. A report on Form 8-K was filed on August 14, 1997, with respect to the Company's issuance of (i) 27,500 shares of Cumulative Redeemable PIK Preferred Stock, par value $.01 per share of the Company and (ii) $100.0 million of its 13% Series A Notes due 2004. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WILSHIRE FINANCIAL SERVICES GROUP INC. Date: November 19, 1997 By: /s/ Lawrence A. Mendelsohn -------------------------- Lawrence A. Mendelsohn President By: /s/ Chris Tassos ---------------- Chris Tassos Chief Financial Officer 21 EX-11 2 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS Exhibit 11
Nine Months Ended September 30, 1997 1996 (DOLLARS IN THOUSANDS) Primary net income per share: Net income............................................. $ 12,242 $ (1,082) Preferred stock dividend............................... 652 - Net income available to common shareholders............ 11,590 (1,082) Average number of shares outstanding................... 7,570,000 4,923,784 Net effect of dilutive stock options-based on treasury stock method using average market price...... 312,555 - Total average shares................................... 7,882,555 4,923,784 Primary net income per share........................... $ 1.47 $ (0.22) Fully diluted net income per share: Net income............................................. $ 12,242 $ (1,082) Preferred Stock dividend............................... 652 --- Net income available to common shareholders............ 11,590 (1,082) Average number of shares outstanding................... 7,570,000 4,923,784 Net effect of dilutive stock options-based on.......... 662,281 --- treasury stock method using ending share price Total average shares................................... 8,232,281 4,923,784 Fully diluted net income per share..................... $1.41 $(0.22)
22 EX-27 3 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 77,993 0 0 28,163 201,325 26,809 0 791,019 89,371 1,369,761 407,768 658,042 19,937 184,245 0 27,500 55,897 16,372 1,369,761 59,950 15,506 0 75,456 20,008 59,036 16,420 926 3,053 40,988 21,223 21,223 0 0 12,242 1.47 1.41 0 77,836 0 27,997 10,637 37,555 19,419 982 89,371 89,371 0 0
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