-----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, MXSSZ/+9sN1+2a0ikBilFCMKLhJ/SuilQE8Hyk1CtIzV8aHV2VY26SyODRFPnMR0 u1qhVu/SnDJG80hY9uKrig== 0000929624-99-001952.txt : 19991117 0000929624-99-001952.hdr.sgml : 19991117 ACCESSION NUMBER: 0000929624-99-001952 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED PANAM FINANCIAL CORP CENTRAL INDEX KEY: 0001049231 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 953211687 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24051 FILM NUMBER: 99751697 BUSINESS ADDRESS: STREET 1: 1300 SOUTH EL CAMINO REAL CITY: SAN MATEO STATE: CA ZIP: 94402 BUSINESS PHONE: 6503451800 MAIL ADDRESS: STREET 1: 1300 SOUTH EL CAMINO REAL CITY: SAN MATEO STATE: CA ZIP: 94402 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, 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 000-24051 UNITED PANAM FINANCIAL CORP. (Exact name of Registrant as specified in its charter) California 95-3211687 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1300 South El Camino Real San Mateo, California 94402 (Address of principal executive offices) (Zip Code) (650) 345-1800 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ ------ The number of shares outstanding of the Registrant's Common Stock as of November 8, 1999 was 16,594,250 shares. UNITED PANAM FINANCIAL CORP. FORM 10-Q SEPTEMBER 30, 1999 INDEX PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements (unaudited) Consolidated Statements of Financial Condition as of September 30, 1999 and December 31, 1998 1 Consolidated Statements of Operations for the three and nine months ended September 30, 1999 and September 30, 1998 2 Consolidated Statements of Cash Flows for the three and nine months ended September 30, 1999 and September 30, 1998 3 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 33 PART II. OTHER INFORMATION Item 1. Legal Proceedings 34 Item 2. Changes in Securities and Use of Proceeds 34 Item 3. Defaults Upon Senior Securities 34 Item 4. Submission of Matters to a Vote of Security Holders 34 Item 5. Other Information 34 Item 6. Exhibits and Reports on Form 8-K 34 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. -------------------- United PanAm Financial Corp. and Subsidiaries Consolidated Statements of Financial Condition (Unaudited)
September 30, December 31, (Dollars in thousands, except per share data) 1999 1998 ---------------- ---------------- Assets Cash and due from banks $ 6,667 $ 5,211 Short term investments 30,500 47,000 ---------------- ---------------- Cash and cash equivalents 37,167 52,211 Residual interests in securitizations, at fair value 11,968 -- Loans, net 159,207 133,718 Loans held for sale 314,184 214,406 Premises and equipment, net 4,060 4,803 Federal Home Loan Bank stock, at cost 2,471 2,120 Accrued interest receivable 3,371 2,034 Real estate owned, net 3,254 1,877 Goodwill and other intangible assets 1,886 2,349 Other assets 12,417 12,041 ---------------- ---------------- Total assets $ 549,985 $ 425,559 ================ ================ Liabilities and Shareholders' Equity Deposits $ 297,888 $ 321,668 Notes payable -- 10,930 Warehouse lines of credit 159,342 -- Accrued expenses and other liabilities 13,265 10,048 ---------------- ---------------- Total liabilities 470,495 342,646 ---------------- ---------------- Common stock (no par value): Authorized, 30,000,000 shares Issued and outstanding, 16,594,250 and 17,375,000 shares at September 30, 1999 and December 31, 1998, respectively 65,483 68,378 Retained earnings 14,007 14,535 ---------------- ---------------- Total shareholders' equity 79,490 82,913 ---------------- ---------------- Total liabilities and shareholders' equity $ 549,985 $ 425,559 ================ ================
See notes to consolidated financial statements 1 United PanAm Financial Corp. and Subsidiaries Consolidated Statements of Operations (Unaudited)
Three Months Nine Months (Dollars in thousands, except per share data) Ended September 30, Ended September 30, ----------------------- ---------------------- 1999 1998 1999 1998 ---------- --------- --------- --------- Interest Income Loans $ 13,112 $ 11,617 $ 36,305 $ 32,786 Short term investments 269 353 1,224 819 ---------- --------- -------- --------- Total interest income 13,381 11,970 37,529 33,605 ---------- --------- -------- --------- Interest Expense Deposits 3,642 4,063 11,423 11,186 Warehouse lines of credit 1,108 652 1,889 2,118 Federal Home Loan Bank advances 1 114 1 659 Notes payable 36 145 247 485 ---------- --------- -------- --------- Total interest expense 4,787 4,974 13,560 14,448 ---------- --------- -------- --------- Net interest income 8,594 6,996 23,969 19,157 Provision for loan losses 1,826 661 5,897 1,784 ---------- --------- -------- --------- Net interest income after provision for loan losses 6,768 6,335 18,072 17,373 ---------- --------- -------- --------- Non-interest Income Gain on sale of loans, net 3,469 17,071 21,175 44,262 Loan related charges and fees 49 33 130 105 Service charges and fees 173 173 551 478 Other income 30 33 103 96 ---------- --------- -------- --------- Total non-interest income 3,721 17,310 21,959 44,941 ---------- --------- -------- --------- Non-interest Expense Compensation and benefits 7,777 9,961 24,157 28,733 Occupancy 1,517 1,458 4,483 3,936 Other 4,322 4,223 12,315 11,737 ---------- --------- -------- --------- Total non-interest expense 13,616 15,642 40,955 44,406 ---------- --------- -------- --------- Income (loss) before income taxes (3,127) 8,003 (924) 17,908 Income taxes (benefit) (1,303) 3,333 (396) 7,572 ---------- --------- -------- --------- Net income (loss) $ (1,824) $ 4,670 $ (528) $ 10,336 ========== ========= ======== ========= Earnings (loss) per share-basic $ (0.11) $ 0.27 $ (0.03) $ 0.71 ========== ========= ======== ========= Earnings (loss) per share-diluted $ (0.11) $ 0.26 $ (0.03) $ 0.67 ========== ========= ======== ========= Weighted average shares outstanding-basic 16,706 17,275 16,965 14,565 ========== ========= ======== ========= Weighted average shares outstanding-diluted 17,080 18,021 17,356 15,359 ========== ========= ======== =========
See notes to consolidated financial statements. 2 United PanAm Financial Corp. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands) Three Months Nine Months Ended September 30, Ended September 30, --------------------------------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Cash Flows from Operating Activities Net income (loss) $ (1,824) $ 4,670 $ (528) $ 10,336 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Gain on sale of loans (3,469) (17,071) (8,984) (44,262) Origination of mortgage loans held for sale (251,884) (359,090) (724,692) (957,247) Sales of mortgage loans held for sale 133,212 356,443 585,311 919,009 Non cash gain on securitization of mortgage loans -- -- (12,191) -- Net proceeds from sale of residual interests in securitizations -- -- -- 8,302 Provision for loan losses 1,826 661 5,897 1,784 Accretion of discount on loans (76) (24) (162) (566) Depreciation and amortization 680 485 2,056 1,241 FHLB stock dividend (31) (30) (87) (86) Decrease in residual interests in securitizations 225 -- 225 -- Increase in accrued interest receivable (1,654) (534) (1,337) (552) Decrease (increase) in other assets 405 (512) (376) (5,124) (Decrease) increase in accrued expenses and other liabilities (2,238) 3,842 3,217 5,010 Other, net 54 -- 319 -- --------- --------- --------- --------- Net cash used in operating activities (124,774) (11,160) (151,332) (62,155) --------- --------- --------- --------- Cash Flows from Investing Activities Proceeds from maturities of investment securities -- -- -- 1,002 Repayments of mortgage loans 8,632 11,055 29,479 30,196 Originations, net of repayments, of non-mortgage loans (4,721) (4,336) (17,956) (36,357) Purchase of premises and equipment (186) (581) (862) (2,684) Purchase of treasury stock (1,033) -- (3,395) -- Purchase of FHLB stock, net -- -- (264) (58) Proceeds from sale of real estate owned 1,871 545 4,462 995 Other, net 52 -- 192 (330) --------- --------- --------- --------- Net cash provided by (used in) investing activities 4,615 6,683 11,656 (7,236) --------- --------- --------- --------- Cash Flows from Financing Activities Repayment of notes payable (4,000) -- (10,930) (2,000) Net (decrease) increase in deposits (6,404) 17,008 (23,780) 84,148 Proceeds from initial public offering of common stock, net -- -- -- 63,390 Proceeds, net of repayments, from warehouse lines of credit 148,745 -- 159,342 (6,237) Proceeds, net of repayments, from FHLB advances -- -- -- (28,000) --------- --------- --------- --------- Net cash provided by financing activities 138,341 17,008 124,632 111,301 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 18,182 12,531 (15,044) 41,910 Cash and cash equivalents at beginning of period 18,985 48,405 52,211 19,026 --------- --------- --------- --------- Cash and cash equivalents at end of period $ 37,167 $ 60,936 $ 37,167 $ 60,936 ========= ========= ========= =========
See notes to consolidated financial statements. 3 United PanAm Financial Corp. and Subsidiaries Consolidated Statements of Cash Flows, Continued (Unaudited)
(Dollars in thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------ 1999 1998 1999 1998 ------- ------- -------- -------- Supplemental Disclosures of Cash Flow Information Cash paid for: Interest $ 4,267 $ 5,047 $ 13,116 $ 14,625 ------- ------- -------- -------- Taxes $ -- $ 5,775 $ -- $ 8,285 ------- ------- -------- -------- Supplemental Schedule of Non-cash Investing and Financing Activities Acquisition of real estate owned through Foreclosure of related mortgage loans $ 3,001 $ 797 $ 5,839 $ 2,105 ------- ------- -------- --------
See notes to consolidated financial statements. 4 United PanAm Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Three and Nine Months Ended September 30, 1999 and 1998 (Unaudited) 1. Organization United PanAm Financial Corp. (the "Company") was incorporated in California on April 9, 1998 for the purpose of reincorporating its business in California, through the merger of United PanAm Financial Corp., a Delaware corporation (the "Predecessor"), into the Company. Unless the context indicates otherwise, all references herein to the "Company" include the Predecessor. The Company was originally organized as a holding company for Pan American Financial, Inc. ("PAFI") and Pan American Bank, FSB (the "Bank") to purchase certain assets and assume certain liabilities of Pan American Federal Savings Bank from the Resolution Trust Corporation (the "RTC") on April 29, 1994 pursuant to a whole purchase and assumption agreement. The Company, PAFI and the Bank are considered to be hispanic owned. PAFI is a wholly-owned subsidiary of the Company, and the Bank is a wholly-owned subsidiary of PAFI. United PanAm Mortgage Corporation ("UPAM"), a California corporation, was organized in 1997 as a wholly-owned subsidiary of the Company. Effective September 30, 1999, all of the outstanding common stock of UPAM was contributed by UPFC to the Bank, and accordingly, UPAM is now operating as a wholly-owned subsidiary of the Bank. 2. Basis of Presentation Certain statements in this Quarterly Report on Form 10-Q, including statements regarding the Company's strategies, plans, objectives, expectations and intentions, may include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: limited operating history; loans made to credit-impaired borrowers; need for additional sources of financing; concentration of business in California; reliance on operational systems and controls and key employees; competitive pressure in the banking and mortgage lending industry; changes in the interest rate environment; rapid growth of the Company's businesses; pricing of loans in the whole loan and securitization markets; risks in connection with the securitization of mortgage loans; risks relating to Year 2000; general economic conditions; and other risks identified from time to time in the Company's filings with the Securities and Exchange Commission (the "SEC"). See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Results." The accompanying unaudited consolidated financial statements include the accounts of United PanAm Financial Corp., Pan American Financial, Inc. and Pan American Bank, FSB. Substantially all of the Company's revenues are derived from the operations of the Bank and they represent substantially all of the Company's consolidated assets and liabilities as of September 30, 1999 and December 31, 1998. For the three and nine months ended September 30, 1999 and 1998, other than net income, the Company had no items of comprehensive income as defined by SFAS No. 130 - "Reporting Comprehensive Income." Significant inter- company accounts and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company's financial condition and results of operations for the interim periods presented in this Form 10-Q have been included. Operating results for the interim periods are not necessarily indicative of financial 5 results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. Earnings Per Share Basic EPS and diluted EPS are calculated as follows for the three and nine months ended September 30, 1999 and 1998:
Three Months Nine Months (Dollars in thousands, except per share amounts) Ended September 30, Ended September 30, ------------------------------- -------------------------------- 1999 1998 1999 1998 -------------- ------------- -------------- -------------- Earnings (loss) per share - basic Net income (loss) $ (1,824) $ 4,670 $ (528) $ 10,336 ============== ============= ============== ============== Average common shares outstanding 16,706 17,275 16,965 14,565 ============== ============= ============== ============== Earnings (loss) per share - basic $ (0.11) $ 0.27 $ (0.03) $ 0.71 ============== ============= ============== ============== Earnings (loss) per share - diluted Net income (loss) $ (1,824) $ 4,670 $ (528) $ 10,336 ============== ============= ============== ============== Average common shares outstanding 16,706 17,275 16,965 14,565 Add: Stock options 374 746 391 794 -------------- ------------- -------------- -------------- Average common shares outstanding - diluted 17,080 18,021 17,356 15,359 ============== ============= ============== ============== Earnings (loss) per share - diluted $ (0.11) $ 0.26 $ (0.03) $ 0.67 ============== ============= ============== ==============
4. Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statements of financial condition and measure those instruments at fair value. SFAS 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB No. 133" ("SFAS 137") is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133, as amended by SFAS 137, is not expected to have a material impact on the results of operations or financial condition of the Company. In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage - Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" ("SFAS 134"). Prior to issuance of SFAS 134, when a mortgage banking company securitized mortgage loans held for sale but did not sell the security in the secondary market, the security was classified as trading. SFAS 134 requires that the security be classified as either trading, available for sale or held to maturity according to the Company's intent unless the Company has already committed to sell the security before or during the securitization process. SFAS 134 is not expected to have a material impact on the results of operations or financial condition of the Company. 5. Initial Public Offering On April 23, 1998, the Company's Registration Statement on Form S-1 for the initial public offering of 5,500,000 shares of its common stock at a price of $11.00 per share was declared effective by the SEC. The Company received approximately $56.0 million from the sale of its common stock after underwriting discount and expenses associated with the offering. On May 22, 1998, the underwriters' over-allotment 6 option for 825,000 shares of common stock was exercised resulting in $8.0 million of additional proceeds being received by the Company, after underwriting discount. 6. Operating Segments In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), which establishes standards for the way that public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. Effective January 1, 1998, the Company adopted SFAS 131 and is reporting on its operating segments discussed below. The Company has four reportable segments: (1) mortgage finance, (2) auto finance, (3) insurance premium finance, and (4) banking. The mortgage finance segment originates and sells or securitizes subprime mortgage loans collateralized primarily by first mortgages on single family residences. The auto finance segment acquires, holds for investment and services subprime retail automobile installment sales contracts generated by franchised and independent dealers of used automobiles. The insurance premium finance segment, through a joint venture, underwrites and finances automobile and commercial insurance premiums in California. The banking segment operates a five-branch federal savings bank and is the principal funding source for the Company's mortgage, auto and insurance premium finance segments. The accounting policies of the segments are the same as those of the Company's except for (1) funds provided by the banking segment to the other operating segments which are accounted for at a predetermined transfer price (including certain overhead costs) and (2) an allocation between the mortgage finance and banking segment representing a cost reimbursement for services provided by the banking segment to the mortgage finance segment. The Company's reportable segments are strategic business units that offer different products and services. They are managed and reported upon separately within the Company.
At or For Three Months Ended September 30, 1999 ---------------------------------------------------------------------------------------- (Dollars in thousands) Insurance Mortgage Auto Premium Finance Finance Finance Banking Total --------------- --------------- --------------- --------------- --------------- Net interest income $ 1,386 $ 3,934 $ 616 $ 2,658 $ 8,594 Provision for loan losses 1,727 -- 99 -- 1,826 Non-interest income 3,484 54 107 396 4,041 Non-interest expense 8,960 2,621 257 2,098 13,936 --------------- --------------- --------------- --------------- --------------- Segment profit (loss), pre-tax $ (5,817) $ 1,367 $ 367 $ 956 $ (3,127) =============== =============== =============== =============== =============== Total assets $328,495 $92,098 $35,821 $ 93,678 $550,092 Loans $326,507 $90,439 $34,156 $ 22,289 $473,391 Allowance for loan losses $ 5,471 $ 7,126 $ 420 $ 445 $ 13,462 At or For Three Months Ended September 30, 1998 ---------------------------------------------------------------------------------------- Insurance Mortgage Auto Premium Finance Finance Finance Banking Total --------------- --------------- --------------- --------------- --------------- Net interest income $ 1,335 $ 2,295 $ 776 $ 2,590 $ 6,996 Provision for loan losses 600 -- 61 -- 661 Non-interest income 17,071 29 109 551 17,760 Non-interest expense 12,287 1,641 94 2,070 16,092 --------------- --------------- --------------- --------------- --------------- Segment profit, pre-tax $ 5,519 $ 683 $ 730 $ 1,071 $ 8,003 =============== =============== =============== =============== =============== Total assets $188,972 $54,235 $51,333 $142,736 $437,276 Loans $186,861 $53,094 $51,069 $ 63,243 $354,267 Allowance for loan losses $ 3,159 $ 3,508 $ 418 $ 1,773 $ 8,858
7
At or For Nine Months Ended September 30, 1999 ---------------------------------------------------------------------------------------- Insurance Mortgage Auto Premium Finance Finance Finance Banking Total --------------- --------------- --------------- --------------- --------------- Net interest income $ 3,757 $10,474 $1,863 $7,875 $23,969 Provision for loan losses 5,528 -- 368 -- 5,897 Non-interest income 21,189 139 347 1,374 23,049 Non-interest expense 28,173 7,220 704 5,948 42,045 --------------- --------------- --------------- --------------- --------------- Segment profit (loss), pre-tax $(8,755) $ 3,393 $1,137 $3,301 $ (924) =============== =============== =============== =============== =============== At or For Nine Months Ended September 30, 1998 ----------------------------------------------------------------------------------------- Insurance Mortgage Auto Premium Finance Finance Finance Banking Total --------------- --------------- --------------- --------------- --------------- Net interest income $ 3,905 $ 5,788 $2,324 $7,140 $19,157 Provision for loan losses 1,650 -- 134 -- 1,784 Non-interest income 44,262 72 287 1,670 46,291 Non-interest expense 34,889 4,508 306 6,053 45,756 --------------- --------------- --------------- --------------- --------------- Segment profit, pre-tax $11,628 $ 1,352 $2,171 $2,757 $17,908 =============== =============== =============== =============== ===============
For the reportable segment information presented, there are no reconciling items between the Company's consolidated results and segment net interest income, segment assets and segment profit. Substantially all expenses are recorded directly to each industry segment. Segment non-interest income and non-interest expense differ from the consolidated results due to an inter- segment cost reimbursement in 1999 and 1998 as follows:
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------- ---------------------------------- 1999 1998 1999 1998 --------------- --------------- --------------- --------------- Non-interest income for reportable segments $ 4,041 $17,760 $23,049 $46,291 Inter-segment cost reimbursement (320) (450) (1,090) (1,350) --------------- --------------- --------------- --------------- Consolidated non-interest income $ 3,721 $17,310 $21,959 $44,941 =============== =============== =============== =============== Non-interest expense for reportable segments $13,936 $16,092 $42,045 $45,756 Inter-segment cost reimbursement (320) (450) (1,090) (1,350) --------------- --------------- --------------- --------------- Consolidated non-interest expense $13,616 $15,642 $40,955 $44,406 =============== =============== =============== ===============
7. Residual Interests in Securitizations The Company classifies its residual interest in securitizations as trading securities and records them at fair market value with any unrealized gains or losses recorded in the results of operations. At September 30, 1999, residual interests in securitizations were $11.9 million. There were no residual interests in securitizations at December 31, 1998. Valuations of the residual interests in securitizations at each reporting period are based on discounted cash flow analyses. Cash flows are estimated as the amount of the excess of the weighted average coupon on the loans sold over the sum of the interest pass-through on the senior certificates, a servicing fee, an estimate of annual future credit losses and prepayment assumptions and other expenses associated with the securitization, discounted at an interest rate which the Company believes is commensurate with the risks involved. The Company uses prepayment and default assumptions that market participants would use for similar instruments subject to prepayment, credit and interest rate risks. 8 8. Subsequent Events On October 12, 1999, the Company completed a securitization backed by approximately $233.0 million in residential mortgage loans. A pre-tax net gain on sale of approximately $7.2 million was recorded. The floating rate asset backed securities issued comprised a two class structure consisting of conforming and non-conforming mortgage loans, rated "AAA" by Standard & Poor's and "Aaa" by Moody's. As part of the October 1999 securitization, the Company also recorded residual interests in securitizations of approximately $10.1 million consisting of beneficial interests in the form of an interest-only strip representing the subordinated right to receive cash flows from the pool of securitized loans after payment of required amounts to the holders of the securities and certain costs associated with the securitization. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. --------------------- Certain statements in this Quarterly Report on Form 10-Q including statements regarding the Company's strategies, plans, objectives, expectations and intentions, may include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: limited operating history; loans made to credit-impaired borrowers; need for additional sources of financing; concentration of business in California; reliance on operational systems and controls and key employees; competitive pressure in the banking and mortgage lending industry; changes in the interest rate environment; rapid growth of the Company's businesses; pricing of loans in the whole loan and securitization markets; risks in connection with the securitization of mortgage loans; risks relating to Year 2000; general economic conditions; and other risks identified from time to time in the Company's filings with the SEC. For discussion of the factors that might cause such a difference, see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Results" and other risks identified from time to time in the Company's filings with the SEC. General The Company The Company is a diversified specialty finance company engaged primarily in originating and acquiring for investment or sale residential mortgage loans, personal automobile insurance premium finance contracts and retail automobile installment sales contracts. The Company markets to customers who generally cannot obtain financing from traditional lenders. These customers usually pay higher loan origination fees and interest rates than those charged by traditional lenders to gain access to consumer financing. The Company has funded its operations to date principally through retail deposits, Federal Home Loan Bank ("FHLB") advances, mortgage warehouse lines of credit, loan securitizations, and whole loan sales. The Company commenced operations in 1994 by purchasing from the RTC certain assets and assuming certain liabilities of the Bank's predecessor, Pan American Federal Savings Bank. The Company has used the Bank as a base for expansion into its current specialty finance businesses. In 1995, the Company commenced its insurance premium finance business through a joint venture with BPN Corporation ("BPN"). In 1996, the Company commenced its current mortgage and automobile finance businesses. The 9 Company was incorporated in California on April 9, 1998 for the purpose of reincorporating its business in that state, through the merger of the Predecessor into the Company. Finance companies, such as the Company, generate income from a combination of (1) "spread" or "net interest" income (i.e., the difference between the yield on loans, net of loan losses, and the cost of funding) and (2) "non-interest" income (i.e., the fees received for various services and gain on the sale of loans). Income is used to cover operating expenses incurred (i.e., compensation and benefits, occupancy and other expenses) in generating that income. Each of the Company's businesses, as described below, generates income from a combination of spread and non-interest income. Mortgage Finance The Company originates and sells or securitizes subprime mortgage loans collateralized primarily by first mortgages on single family residences. The Company's mortgage finance customers are considered "subprime" because of factors such as impaired credit history or high debt-to-income ratios compared to customers of traditional mortgage lenders. The Company has funded its mortgage finance business to date primarily through the Bank's deposits, FHLB advances, mortgage warehouse lines of credit, the sale of its mortgage loan originations to mortgage companies and investors through whole loan packages offered for bid several times per month and, to a lesser extent, from loan securitizations. The Company completed its first securitization of mortgage loans in December 1997 and in March 1998 sold the residual interests in this securitization for cash at a price in excess of its carrying value. The Company completed its second securitization of mortgage loans in March 1999 in the amount of $225 million. A third securitization of mortgage loans in the amount of $233 million was completed by the Company in October 1999. To date, the Company's mortgage lending income is generated from gains on securitizations of loans, cash gains on sales of loans and a spread component resulting from loans held prior to sale. Income generated from this mortgage finance business covers operating costs, including compensation, occupancy, loan origination, and administrative expenses. Insurance Premium Finance In May 1995, the Bank entered into a joint venture with BPN under the name "ClassicPlan" (such business, "IPF"). Under this joint venture, which commenced operations in September 1995, the Bank underwrites and finances personal and, to a lesser extent, commercial insurance premiums in California and BPN markets the financing program and services the loans for the Bank. The Bank primarily lends to individuals for the purchase of single premium automobile insurance policies and the Bank's collateral is the unearned insurance premium held by the insurance company. The unearned portion of the insurance premium is refundable to IPF in the event the underlying insurance policy is canceled. The Company does not sell or have the risk of underwriting the underlying insurance policy. As a result of BPN performing substantially all marketing and servicing activities, the Company's role is primarily that of an underwriter and funder of loans. Therefore, IPF's income is generated primarily on a spread basis, supplemented by non-interest income generated from late payment and returned check fees. The Bank uses this income to cover the costs of underwriting and loan administration, including compensation, occupancy and data processing expenses. In January 1998, the Company and BPN purchased from Providian National Bank and others the right to solicit new and renewal personal and commercial insurance premium finance business from brokers who previously had provided contracts to Commonwealth Premium Finance. The purchase price for the agreement was provided 60% by the Company and 40% by BPN. The relationship between the Company and BPN continues to be governed by the joint venture agreement already in effect. The Company also acquired the Commonwealth name and certain equipment and software. The agreement also provides that 10 Providian National Bank and the servicers of its insurance premium finance business may not solicit or engage in the insurance premium finance business in California for a period of three years. During November 1998, the Company and BPN, purchased from Norwest Financial Coast, Inc. ("Coast") for $3.0 million the right to solicit new and renewal personal and commercial insurance premium finance business from brokers who previously provided contracts to Coast. The purchase price for the agreement was provided 60% by the Company and 40% by BPN. The Company also acquired the "Coast" name, and certain furniture, equipment and software. As a result of the Commonwealth and Coast acquisitions, IPF increased its commercial insurance premium financing to approximately 18% of loans outstanding at September 30, 1999. Automobile Finance In 1996, the Bank commenced its automobile finance business through its subsidiary, United Auto Credit Corporation (such business, "UACC"). UACC acquires, holds for investment and services subprime retail automobile installment sales contracts ("auto contracts") generated by franchised and independent dealers of used automobiles. UACC's customers are considered "subprime" because they typically have limited credit histories or credit histories that preclude them from obtaining loans through traditional sources. As UACC provides all marketing, origination, underwriting and servicing activities for its loans, income is generated from a combination of spread and non-interest income and is used to cover all operating costs, including compensation, occupancy and systems expense. The Bank The Company has funded its operations to date primarily through the Bank's deposits, FHLB advances, mortgage warehouse lines of credit and loan sales and securitizations. As of September 30, 1999, the Bank was a five-branch federal savings bank with $297.9 million in deposits. The loans generated by the Company's mortgage, insurance premium and automobile finance businesses currently are funded and held by the Bank. In addition, the Bank holds a portfolio of primarily traditional residential mortgage loans acquired from the RTC in 1994 and 1995 at a discount from the unpaid principal balance of such loans, which loans aggregated $22.7 million in principal amount (before unearned discounts and premiums) at September 30, 1999. The Bank generates spread income not only from loans originated or purchased by each of the Company's principal businesses, but also from (1) loans purchased from the RTC, (2) its short term investments portfolio, and (3) consumer loans originated by its retail deposit branches. This income is supplemented by non-interest income from its branch banking activities (e.g., deposit service charges, safe deposit box fees), and is used to cover operating costs and other expenses. Year 2000 Compliance State of Readiness. The Company is working to resolve the potential impact of the Year 2000 on the ability of the Company's computerized information systems to accurately process information that may be date-sensitive. Any of the Company's programs that recognize a date using "00" as the Year 1900 rather than the Year 2000 could result in errors or system failures. The Company utilizes a number of computer programs across its entire operations. The Company established a Year 2000 project management team in 1997 to ensure that its operating systems will be fully capable of processing its transactions. The Company also adopted a Year 2000 operating plan in accordance with the guidelines prescribed by the Office of Thrift Supervision and the 11 Federal Financial Institutions Examination Council ("FFIEC"). The assessment and awareness phases of the plan have been completed and the Company completed the testing of substantially all of its mission critical systems by June 30, 1999. Management and the Board of Directors of the Company believe that its progress to date is in accordance with FFIEC guidelines and that adequate resources are being devoted to achieve the remainder of its Year 2000 project plan. The Company relies upon third-party software vendors and service providers for a substantial amount of its electronic data processing. Thus, one of the Company's Year 2000 focuses is to monitor the progress of its primary software vendors and service providers towards compliance with Year 2000 issues and prepare to test actual data of the Company on simulated processing of future sensitive dates. As of September 30, 1999, all critical systems provided by third-party service providers have been substantially tested. The Company's present evaluation of test results of mission critical systems provided by its third-party software vendors and service providers is acceptable. The Company has initiated formal communications with its customers and vendors to determine the extent to which the Company may be affected by the failure of these parties to correct their own Year 2000 issues. The Company's borrowers and customers are generally consumers which mitigates much of the Year 2000 risk. As of this time, the Company has not identified any significant issues with its major customers or vendors. Costs to Address the Year 2000 Issue. The Company has budgeted expenditures of approximately $600,000 in 1998 and 1999 to ensure that its systems are ready for processing information in the Year 2000. The majority of these expenditures relate to the cost of fully dedicated Year 2000 project management team resources, some of whom are third party contractors. The Company estimates that it has incurred approximately $500,000 of its Year 2000 budget expenditures through September 30, 1999 and will incur an additional $75,000 by the end of 1999. In addition, the Company has incurred, and will continue to incur, certain costs relating to the temporary reallocation of its internal resources to address Year 2000 issues. The Company does not track the cost and time that its own internal employee spend on addressing Year 2000 issues. Risks Presented by the Year 2000 Issue. Should the Company and/or its third-party software vendors and service providers upon whom the Company relies fail to timely identify, address and correct material Year 2000 issues, such failure could have a material adverse impact on the Company's ability to operate. The range of adverse impacts may include the requirement to pay significant overtime to manually process certain transactions and added costs to process certain financing activity through a centralized administrative function. In addition, if corrections made by such third-party software vendors and service providers to address Year 2000 issues are incompatible with the Company's systems, the Year 2000 issue could have a material adverse impact on the Company's operations. Despite the Company's activities in regards to the Year 2000 issue, there can be no assurance that partial or total systems interruptions or the costs necessary to update hardware and software will not have a material adverse effect on the Company's business, financial condition, results of operations and business prospects. Contingency Plans. The Year 2000 project management team currently has developed contingency plans in the event of an unanticipated business interruption as a result of a Year 2000 systems failure. These plans define manual processes and resources required to provide minimum service level support for the Company's critical activities and customer support. Initial drafts of the plans were completed in 1998, and final plans were 12 adopted in June 1999. Validation and testing of these contingency plans were completed in September 1999. There can be no assurance, however, that such contingency plans will totally mitigate risks associated with the occurrence of worst case scenarios. Average Balance Sheets The following tables set forth information relating to the Company for the three and nine months ended September 30, 1999 and 1998. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. The yields and costs include fees which are considered adjustments to yields.
Three Months Ended September 30, ----------------------------------------------------------------------------- 1999 1998 -------------------------------------- ------------------------------------- Average Average (Dollars in thousands) Average Yield/ Average Yield/ Balance(1) Interest Cost Balance(1) Interest Cost ----------- ---------- ---------- ---------- ---------- -------- Assets Interest earning assets Investment securities $ 22,326 $ 269 4.82% $ 32,474 $ 353 4.35% Mortgage loans, net(2) 293,156 6,645 9.07% 299,338 6,839 9.14% IPF loans, net(3) 36,042 1,301 14.43% 53,725 1,756 13.07% Automobile installment contracts, net(4) 87,131 5,166 23.72% 50,118 3,022 24.12% ----------- ---------- ---------- ---------- Total interest earning assets 438,655 13,381 12.20% 435,655 11,970 10.99% ---------- ---------- Non-interest earning assets 37,652 37,630 ----------- ---------- Total assets $476,307 $473,285 =========== ========== Liabilities and Equity Interest bearing liabilities Customer deposits $301,645 $ 3,642 4.79% $306,254 $ 4,063 5.26% Notes payable 2,667 36 5.44% 10,930 145 5.26% FHLB advances 25 1 5.79% 7,871 114 5.75% Warehouse lines of credit 76,612 1,108 5.74% 38,039 652 6.71% ----------- ---------- ---------- ----------- Total interest bearing liabilities 380,949 4,787 4.99% 363,094 4,974 5.43% ---------- ---------- Non-interest bearing liabilities 13,908 26,665 ----------- ---------- Total liabilities 394,857 389,759 Equity 81,450 83,526 ----------- ---------- Total liabilities and equity $476,307 $473,285 =========== ========== Net interest income before provision for loan losses $ 8,594 $ 6,996 ========== =========== Net interest rate spread(5) 7.22% 5.56% Net interest margin(6) 7.84% 6.42% Ratio of interest earning assets to interest bearing liabilities 115.2% 120.0%
__________________ (1) Average balances are measured on a month-end basis. (2) Net of deferred loan origination fees, unamortized discounts, premiums and allowance for estimated loan losses; includes loans held for sale and non- performing loans. (3) Net of allowance for estimated losses; includes non-performing loans. (4) Net of unearned finance charges and allowance for estimated losses; includes non-performing loans. (5) Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities. (6) Net interest margin represents net interest income divided by average interest earning assets. 13
Nine Months Ended September 30, ---------------------------------------------------------------------------- 1999 1998 ------------------------------------- ------------------------------------ Average Average (Dollars in thousands) Average Yield/ Average Yield/ Balance(1) Interest Cost Balance(1) Interest Cost ------------ ------------ --------- ------------ ------------ -------- Assets Interest earning assets Investment securities $ 35,391 $ 1,224 4.61% $ 20,893 $ 819 5.23% Mortgage loans, net(2) 270,510 18,454 9.10% 275,573 20,197 9.77% IPF loans, net(3) 39,864 4,091 13.69% 49,725 4,992 13.39% Automobile installment contracts, net(4) 77,733 13,760 23.60% 40,450 7,597 25.04% ---------- ------------ ---------- ----------- Total interest earning assets 423,498 37,529 11.82% 386,641 33,605 11.59% ------------ ----------- Non-interest earning assets 37,443 36,390 ---------- ---------- Total assets $460,941 $423,031 ========== ========== Liabilities and Equity Interest bearing liabilities Customer deposits $314,161 $11,423 4.86% $283,814 $11,186 5.27% Notes payable 6,558 247 5.02% 11,730 485 5.53% FHLB advances 8 1 5.85% 15,441 659 5.71% Warehouse lines of credit 43,743 1,889 5.77% 43,498 2,118 6.51% ---------- ------------ ---------- ----------- Total interest bearing liabilities $364,470 13,560 4.97% 354,483 14,448 5.45% ------------ ----------- Non-interest bearing liabilities 15,014 20,691 ---------- ---------- Total liabilities 379,484 375,154 Equity 81,457 47,877 ---------- ---------- Total liabilities and equity $460,941 $423,031 ========== ========== Net interest income before provision for loan losses $23,969 $19,157 ============ =========== Net interest rate spread(5) 6.84% 6.14% Net interest margin(6) 7.55% 6.61% Ratio of interest earning assets to interest bearing liabilities 116.2% 109.0%
___________________ (1) Average balances are measured on a month-end basis. (2) Net of deferred loan origination fees, unamortized discounts, premiums and allowance for estimated loan losses; includes loans held for sale and non- performing loans. (3) Net of allowance for estimated losses; includes non-performing loans. (4) Net of unearned finance charges and allowance for estimated losses; includes non-performing loans. (5) Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities. (6) Net interest margin represents net interest income divided by average interest earning assets. Comparison of Operating Results for the Three Months Ended September 30, 1999 and September 30, 1998 General Net income decreased from $4.7 million for the three months ended September 30, 1998 to a net loss of $1.8 million for the three months ended September 30, 1999. The Company's mortgage finance business reported an operating loss of $5.8 million for the third quarter of 1999, compared with an operating profit of $5.5 million in the same period of 1998. Despite lower operating expenses, the mortgage finance business was negatively impacted by lower loan origination volume, lower loan sale volume and market pricing. Sales of mortgage loans of $130.6 million for the three months ended September 30, 1999 were significantly lower than the $347.9 million for the comparable period in 1998. Loan sale volumes declined during the quarter as a result of the Company's deferral of its $233.0 million loan securitization to the fourth quarter of 1999. 14 Operating income for the Company's insurance premium finance business declined to $367,000 in the third quarter of 1999, compared with $730,000 for the same period in 1998. Additional competition in this business from insurance companies' direct bill and sale programs as well as lower average balances per loan continue to be the primary reasons for the decline in operating income. Lower average balances per loan generally resulted from lower insurance premiums available to the public. The Company's automobile finance division reported operating income of $1.4 million for the third quarter of 1999, compared with $683,000 for the third quarter of 1998. The growth in automobile finance receivables from the Company's existing retail branches as well as new branches opened in 1998 and 1999 contributed significantly to the growth in automobile finance operating income. The Company's banking operations reported operating income of $956,000 for the third quarter of 1999, compared with $1.1 million for the same quarter in the prior year. The decline in operating income resulted primarily from a reduction in the cost reimbursement received from the mortgage banking segment to cover services provided by the banking segment. Mortgage loan originations decreased from $358.6 million for the three months ended September 30, 1998 to $249.4 million for the three months ended September 30 1999 and insurance premium finance originations decreased from $35.4 million for the three months ended September 30, 1998 to $24.5 million for the three months ended September 30, 1999, while auto contracts purchased increased from $23.0 million for the three months ended September 30, 1998 to $33.7 million for the three months ended September 30, 1999. Interest Income Interest income was $13.4 million for the three months ended September 30, 1999, compared to $12.0 million for the three months ended September 30, 1998. Average interest earning assets increased $3.0 million for the quarter ended September 30, 1999 compared with the same period in 1998, due to an increase the average balance of automobile installment contracts, reflecting overall growth in this business unit. The average yield on interest earning assets increased 121 basis points. The improvement in the average yield on interest earning assets was principally due to an increased concentration of higher yielding loans in the three months ended September 30, 1999 compared to the three months ended September 30, 1998. Interest Expense Interest expense decreased from $5.0 million for the three months ended September 30, 1998 to $4.8 million for the three months ended September 30, 1999 due to a 0.44% decrease in the weighted average interest rate on interest bearing liabilities. The largest component of average interest bearing liabilities was deposits of the Bank, which decreased from an average balance of $306.3 million during the quarter ended September 30, 1998 to $301.6 million during the quarter ended September 30, 1999. Offsetting the decrease in deposits was a $38.6 million increase in average warehouse lines of credit, which contributed significantly to the overall growth in average interest bearing liabilities. The average cost of deposits decreased from 5.26% for the three months ended September 30, 1998 to 4.79% for the comparable period in 1999, generally as a result of declining interest rates, a decrease in the Bank's higher-cost wholesale deposits and an increase in the Bank's lower-cost retail deposits. The decrease in the average cost of interest bearing liabilities was primarily due to the decline in the average cost of deposits and a decrease in the average cost of warehouse lines of credit. 15 Provision for Loan Losses Provision for loan losses was $1.8 million for the three months ended September 30, 1999 compared with $661,000 for the same period in 1998. The provision for losses in the third quarter of 1999 represents the Company's estimate of loan losses based on current loan production levels, prior loss experience, aging of loans in the portfolio and other factors. Since the third quarter of 1998, the Company has increased its loan loss allowances, but at a lessening rate, through provisions for losses of $4.1 million for the quarter ended December 31, 1998, $2.6 million for the quarter ended March 31, 1999, $1.4 million for the quarter ended June 30, 1999 and $1.8 for the quarter ended September 30, 1999. Non-performing mortgage loans were $20.4 million at September 30, 1999 compared to $19.5 million at September 30, 1998. The total allowance for loan losses was $13.5 million at September 30, 1999 compared with $8.9 million at September 30, 1998, representing 8.46% of loans held for investment at September 30, 1999 and 4.73% at September 30, 1998. Annualized net charge-offs to average loans were 2.57% for the three months ended September 30, 1999 compared with 0.84% for the three months ended September 30, 1998. In addition to its provision for losses, the Company's allowance for loan losses is also increased by its allocation of acquisition discounts related to the purchase of automobile installment contracts. The Company allocates substantially all of its acquisition discounts attributable to credit risk to the allowance for loan losses. A provision for loan losses is charged to operations based on the Company's regular evaluation of its loans held for investment and the adequacy of its allowance for loan losses. The Company reports its loans held for sale at the lower of cost or market value; accordingly, loan loss provisions are not established for this portfolio. While management believes it has adequately provided for losses and does not expect any material loss on its loans in excess of allowances already recorded, no assurance can be given that economic or real estate market conditions or other circumstances will not result in increased losses in the loan portfolio. Non-interest Income Non-interest income decreased $13.6 million, from $17.3 million for the three months ended September 30, 1998 to $3.7 million for the three months ended September 30, 1999. The decline was primarily due to a 77% decrease in the volume of loans sold during the quarter ended September 30, 1999 compared with the same quarter in 1998 and a decrease in the Company's weighted average loan sales price from 105.2% during the third quarter of 1998 to 103.4% in the third quarter of 1999. During the three months ended September 30, 1999, the Company sold $130.6 million in mortgage loans on a whole loan basis compared with whole loan sales of $347.9 million during the comparable period in 1998. The percentage of loans sold or securitized to loans originated was 52.4% for the quarter ended September 30, 1999 compared to 97% for the same period in 1998. The decline in the volume of loans sold was primarily due to the Company's deferral of its $233.0 million loan securitization to the fourth quarter of 1999. Other components of non-interest income include fees and charges for Bank services and miscellaneous other income. The total of all of these items increased $13,000, from $239,000 for the three months ended September 30, 1998 to $252,000 for the three months ended September 30, 1999. Non-interest Expense Non-interest expense decreased $2.0 million, from $15.6 million for the three months ended September 30, 1998 to $13.6 million for the three months ended September 30, 1999. Compared to the third quarter of 1998, non-interest expense for the mortgage finance segment decreased $3.3 million, while 16 non-interest expense for the automobile finance division increased $980,000, insurance premium finance increased $163,000 and the banking segment increased $28,000. The decrease in non-interest expense for the mortgage finance division was primarily attributed to a decrease in compensation expense as a result of lower loan origination volume in the third quarter of 1999 compared with the same quarter in 1998. The increase in the automobile finance division was driven primarily by higher compensation and occupancy expenses associated with the planned growth of this business segment. The increase in the insurance premium finance division was due to amortization expense related to the Coast acquisition in December 1998. Income Taxes Income taxes decreased $4.6 million, from $3.3 million for the three months ended September 30, 1998 to a tax benefit of $1.3 million for the three months ended September 30, 1999. This decrease occurred as a result of an $11.1 million decrease in income before income taxes between the two periods. The effective tax rate was 41.7% for the three months ended September 30, 1999 unchanged from the three months ended September 30, 1998. Comparison of Operating Results for the Nine Months Ended September 30, 1999 and September 30, 1998 General Net income decreased from $10.3 million for the nine months ended September 30, 1998 to a net loss of $528,000 for the nine months ended September 30, 1999. The Company's mortgage finance business reported an operating loss of $8.8 million for the first nine months of 1999, compared with an operating profit of $11.6 million in the same period of 1998. Despite lower operating expenses, the mortgage finance business was negatively impacted by lower loan origination volumes, lower loan sale volume and market pricing. Sales and securitizations of mortgage loans of $579.8 million for the nine months ended September 30, 1999 were significantly lower than the $886.4 for the comparable period in 1998. Loan sale volumes declined during the quarter as a result of the Company's deferral of its $233.0 million loan securitization to the fourth quarter of 1999. Operating income for the Company's insurance premium finance business declined to $1.1 million in the first nine months of 1999, compared with $2.2 million for the same period in 1998. Additional competition in this business from insurance companies' direct bill and sale programs as well as lower average balances per loan were the primary reasons for the decline in operating income. Lower average balances per loan generally resulted from lower insurance premiums available to the public. The Company's automobile finance division reported operating income of $3.4 million for the nine months ended September 30, 1999, compared with $1.4 million for the corresponding period of 1998. The growth in automobile finance receivables from the Company's existing retail branches as well as new branches opened in 1998 and 1999 contributed significantly to the growth in automobile finance operating income. Also showing improved results was the Company's banking operations, which reported operating income of $3.3 million for the nine months ended September 30, 1999, compared with $2.8 million for the same period in the prior year. The banking operations benefited from a decline in the average rate paid on deposits and other borrowings, spread income from the Company's other businesses, as well as using the cash proceeds from the Company's initial public offering to provide additional financing for its business units. Mortgage loan originations decreased from $957.4 million for the nine months ended September 30, 1998 to $711.7 million for the nine months ended September 30, 1999 and insurance premium finance 17 originations decreased from $123.2 million for the nine months ended September 30, 1998 to $85.4 million for the nine months ended September 30, 1999, while auto contracts purchased increased from $60.7 million for the nine months ended September 30, 1998 to $92.2 million for the nine months ended September 30, 1999. Sales and securitizations of mortgage loans were $579.8 million for the nine months ended September 30, 1999 and $886.4 million for the comparable period in 1998. Interest Income Interest income increased from $33.6 million for the nine months ended September 30, 1998 to $37.5 million for the nine months ended September 30, 1999 due primarily to a $36.9 million increase in average interest earning assets and a 23 basis point increase in the weighted average interest rate on interest earning assets. The largest components of growth in average interest earning assets were automobile installment contracts, which increased $37.3 million and investment securities, which increased $14.5 million. The increase in auto contracts principally resulted from the purchasing of additional dealer contracts in existing and new markets consistent with the planned growth of this business unit. The increase in investment securities was a result of an increase in the Company's liquidity, reflecting primarily the proceeds received from the initial public offering. The increase in the average yield on interest earning assets reflects the increase in higher yielding loans in the Company's held for investment portfolio, primarily due to an increase in automobile installment contracts. Interest Expense Interest expense decreased from $14.4 million for the nine months ended September 30, 1998 to $13.6 million for the nine months ended September 30, 1999 due to a 0.48% decrease in the weighted average interest rate on interest bearing liabilities partially offset by a $10.0 million increase in average interest bearing liabilities. The largest component of growth in average interest bearing liabilities was deposits of the Bank, which increased from an average balance of $283.8 million during the nine months ended September 30, 1998 to $314.2 million during the nine months ended September 30, 1999. Offsetting the increase in deposits, was a $15.4 million decrease in average FHLB advances and a $5.2 million decrease in average notes payable. During the nine months ended September 30, 1999, lower-cost deposits were primarily used to finance the Company's lending activities. The average cost of deposits decreased from 5.27% for the nine months ended September 30, 1998 to 4.86% for the comparable period in 1999, generally as a result of declining interest rates, a decrease in the Bank's higher-cost wholesale deposits and an increase in the Bank's lower-cost retail deposits. The decrease in the average cost of interest bearing liabilities was primarily due to the decline in the average cost of deposits as well as the increase in deposits as a percentage of total interest bearing liabilities for the nine months ended September 30, 1999 compared to the nine months ended September 30, 1998. At September 30, 1999, deposits accounted for 86.2% of interest bearing liabilities compared to 80.1% at September 30, 1998. Provision for Loan Losses Provision for loan losses was $5.9 million for the nine months ended September 30, 1999 compared with $1.8 million for the same period in 1998. The provision for losses in 1999 represents the Company's estimate of loan losses based on current loan production levels, prior loss experience, aging of loans in the portfolio and other factors. Since the third quarter of 1998, the Company has increased its loan loss allowances, but at a lessening rate, through provisions for losses of $4.1 million for the quarter ended December 31, 1998, $2.6 million for the quarter ended March 31, 1999, $1.4 million for the quarter ended June 30, 1999 and $1.8 million for the quarter ended September 30, 1999. Non-performing mortgage loans 18 were $20.4 million at September 30, 1999 compared to $19.5 million at September 30, 1998. The total allowance for loan losses was $13.5 million at September 30, 1999 compared with $8.9 million at September 30, 1998, representing 8.46% of loans held for investment at September 30, 1999 and 4.73% at September 30, 1998. Annualized net charge-offs to average loans were 2.64% for the nine months ended September 30, 1999 compared with 2.03% for the nine months ended September 30, 1998. In addition to its provision for losses, the Company's allowance for loan losses is also increased by its allocation of acquisition discounts related to the purchase of automobile installment contracts. The Company allocates substantially all of its acquisition discounts attributable to credit risk to the allowance for loan losses. A provision for loan losses is charged to operations based on the Company's regular evaluation of its loans held for investment and the adequacy of its allowance for loan losses. The Company reports its loans held for sale at the lower of cost or market value; accordingly, loan loss provisions are not established for this portfolio. While management believes it has adequately provided for losses and does not expect any material loss on its loans in excess of allowances already recorded, no assurance can be given that economic or real estate market conditions or other circumstances will not result in increased losses in the loan portfolio. Non-interest Income Non-interest income decreased $22.9 million, from $44.9 million for the nine months ended September 30, 1998 to $22.0 million for the nine months ended September 30, 1999. The decline was primarily due to a 34.6% decrease in the volume of loans sold during the nine months ended September 30, 1999 compared with the same period in 1998 and a decrease in the Company's weighted average loan sale price from 105.0% during the nine months ended September 30, 1998 to 103.8% during the nine months ended September 30, 1999. During the nine months ended September 30, 1999, the Company securitized $225.0 million and sold $354.8 million in mortgage loans on a whole loan basis compared with whole loan sales of $886.4 million during the comparable period in 1998. The percentage of loans sold or securitized to loans originated was 81.5% for the nine months ended September 30, 1999, compared to 92.6% for the same period in 1998. The decline in the volume of loans sold was primarily due to the Company's deferral of its $233.0 million loan securitization to the fourth quarter of 1999. As part of its March 1999 securitization, the Company recorded a net gain on sale of $10.1 million and recorded residual interests in securitizations of $12.2 million consisting of beneficial interests in the form of an interest-only strip representing the subordinated right to receive cash flows from the pool of securitized loans after payment of required amounts to the holders of the securities and certain costs associated with the securitization. The assumptions used by the Company for valuing the residual interests in securitizations arising from its March 1999 securitization included prepayment assumptions of 5% for the first year increasing to 30%-42% thereafter, an annual credit loss assumption of 0.95% and a discount rate of 15%. These assumptions remain unchanged at September 30, 1999. The Company used the "cash-out" method for valuing the residual interests in securitizations. In connection with its securitization transaction, an overcollateralization amount is required to be maintained, which serves as credit enhancement to the senior certificate holders. The overcollateralization is required to be maintained at a specific target level of the principal balance of the certificates and can be increased as specified in the related securitization documents. Cash flows received in excess of the obligations to the senior certificate holders and certain costs of the securitization are deposited into a trust account until the overcollateralization target is reached. Once this target is reached, which is expected to be 19 15 to 18 months after the date of the securitization, distribution of excess cash from the trust account are remitted to the Company. Other components of non-interest income include fees and charges for Bank services and miscellaneous other income. The total of all of these items increased $105,000, from $679,000 for the nine months ended September 30, 1998 to $784,000 for the nine months ended September 30, 1999. Non-interest Expense Non-interest expense decreased $3.4 million, from $44.4 million for the nine months ended September 30, 1998 to $41.0 million for the nine months ended September 30, 1999. Compared to the first nine months of 1998, non-interest expense for the mortgage finance division decreased $6.7 million and the banking division decreased $105,000, while non-interest expense for automobile finance increased $2.7 million and insurance premium finance increased $398,000. The decrease in non-interest expense for the mortgage finance division was primarily attributed to a decrease in compensation expense as a result of lower loan origination volume in the first nine months of 1999 compared with the same period during 1998. The decrease in the banking segment was primarily due to lower overhead costs related to supporting the Company's other business segments. The increase in the automobile finance division was driven primarily by higher compensation and occupancy expenses associated with the planned growth of this business segment. The increase in the insurance premium finance division was due to amortization expense related to the Coast acquisition in December 1998. Income Taxes Income taxes decreased $8.0 million, from $7.6 million for the nine months ended September 30, 1998 to a tax benefit of $396,000 for the nine months ended September 30, 1999. This decrease occurred as a result of an $18.8 million decrease in income before income taxes between the two periods. The effective tax rate was 42.9% for the nine months ended September 30, 1999 and 42.3% for the nine months ended September 30, 1998. The increase in the Company's effective tax rate is largely due to current year expenses recorded for financial statement purposes, which are not taxable. Comparison of Financial Condition at September 30, 1999 and December 31, 1998 Total assets increased $124.4 million, from $425.6 million at December 31, 1998 to $550.0 million at September 30, 1999. Loans increased $125.3 million, from $348.1 million at December 31, 1998 to $473.4 million as of September 30, 1999. The increase in loans was comprised of a $31.0 million increase (net of unearned finance charges) in auto contracts and a $118.3 million increase in subprime mortgage loans, offset by a $9.6 million decrease in loans purchased from the RTC, and a $10.1 million decrease in insurance premium finance loans. Cash and cash equivalents decreased $15.0 million, from $52.2 million at December 31, 1998 to $37.2 million at September 30, 1999, primarily as a result of using mortgage loan securitization and whole loan sales proceeds to fund loan portfolio growth and paydown wholesale deposits. Residual interests in securitizations were $12.0 million at September 30, 1999, which were entirely attributable to the Company's $225.0 million securitization in March 1999. There were no residual interests in securitizations at December 31, 1998. Deposits decreased $23.8 million, from $321.7 million at December 31, 1998 to $297.9 million at September 30, 1999. Wholesale deposits decreased $46.9 million from $73.4 million at December 31, 1998 to $26.5 million at September 30, 1999 as a result of run-off of higher-rate certificates of deposit. Retail 20 deposits increased $23.1 million from $248.3 million at December 31, 1998 to $271.4 million at September 30, 1999, reflecting continued deposit growth through the Bank's five-branch network. Other interest bearing liabilities include warehouse lines of credit, which increased to $159.3 million at September 30, 1999. There were no warehouse lines of credit outstanding at December 31, 1998. At December 31, 1998 and September 30, 1999, there were no FHLB advances. Shareholders' equity decreased from $82.9 million at December 31, 1998 to $79.5 million at September 30, 1999, primarily as a result of the Company's first quarter buyback of 700,000 shares of its common stock for $2.4 million, the Company's third quarter buyback of 435,000 shares of its common stock for $1.0 million and the net loss of $528,000 during the nine months ended September 30, 1999. Management of Interest Rate Risk The principal objective of the Company's interest rate risk management program is to evaluate the interest rate risk inherent in the Company's business activities, determine the level of appropriate risk given the Company's operating environment, capital and liquidity requirements and performance objectives and manage the risk consistent with guidelines approved by the Board of Directors. Through such management, the Company seeks to reduce the exposure of its operations to changes in interest rates. The Board of Directors reviews on a quarterly basis the asset/liability position of the Company, including simulation of the effect on capital of various interest rate scenarios. The Company's profits depend, in part, on the difference, or "spread," between the effective rate of interest received on the loans it originates and the interest rates paid on deposits and other financing facilities which can be adversely affected by movements in interest rates. In addition, between the time the Company originates loans and investors' sales commitments are received, the Company may be exposed to interest rate risk to the extent that interest rates move upward or downward during the time the loans are held for sale. The Company mitigates these risks somewhat by purchasing or originating adjustable rate mortgages that reprice frequently in an increasing or declining interest rate environment. Also, the Company sells substantially all of its loans held for sale on a regular basis, thereby reducing significantly the amount of time these loans are held by the Company. The Bank's interest rate sensitivity is monitored by the Board of Directors and management through the use of a model which estimates the change in the Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off- balance sheet instruments, and "NPV Ratio" is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The Company reviews a market value model (the "OTS NPV model") prepared quarterly by the Office of Thrift Supervision (the "OTS"), based on the Bank's quarterly Thrift Financial Reports filed with the OTS. The OTS NPV model measures the Bank's interest rate risk by approximating the Bank's NPV under various scenarios which range from a 300 basis point increase to a 300 basis point decrease in market interest rates. The OTS has incorporated an interest rate risk component into its regulatory capital rule for thrifts. Under the rule, an institution whose sensitivity measure, as defined by the OTS, in the event of a 200 basis point increase or decrease in interest rates exceeds 20% would be required to deduct an interest rate risk component in calculating its total capital for purposes of the risk-based capital requirement. At June 30, 1999, the most recent date for which the relevant OTS NPV model is available, the Bank's sensitivity measure resulting from (1) a 200 basis point decrease in interest rates was 138 basis points and would result in a $7.3 million increase in the NPV of the Bank and (2) a 200 basis point increase in interest rates was 138 basis points and would result in a $7.0 million decrease in the NPV of the Bank. At June 30, 1999, the Bank's sensitivity measure was below the threshold at which the Bank could be required to hold additional risk- based capital under OTS regulations. 21 Although the NPV measurement provides an indication of the Bank's interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on the Bank's net interest income and will differ from actual results. Management monitors the results of this modeling, which are presented to the board of directors on a quarterly basis. The following table shows the NPV and projected change in the NPV of the Bank at June 30, 1999 assuming an instantaneous and sustained change in market interest rates of 100, 200 and 300 basis points ("bp"). This table is based on data prepared by the OTS. The Company makes no representation as to the accuracy of this data. Interest Rate Sensitivity of Net Portfolio Value
NPV as % of Portfolio Net Portfolio Value Value of Assets ----------------------------------------------------------- ------------------------------------------- Change in Rates $ Amount $ Change % Change NPV Ratio % Change --------------- ---------------- ---------------- ---------------- ------------------ ------------------- (Dollars in thousands) +300 bp $47,929 $(12,527) -21% 11.52% -254bp +200 bp 53,489 (6,967) -12% 12.68% -138bp +100 bp 57,657 (2,799) -5% 13.52% -54bp 0 bp 60,456 -- -- 14.06% -- -100 bp 63,186 2,730 +5% 14.58% +52bp -200 bp 67,740 7,284 +12% 15.44% +138bp -300 bp 73,199 12,743 +21% 16.46% +239bp
Liquidity and Capital Resources General The Company's primary sources of funds have been deposits at the Bank, FHLB advances, financing under secured warehouse lines of credit, principal and interest payments on loans, cash proceeds from the sale or securitization of loans and, to a lesser extent, interest payments on short-term investments and proceeds from the maturation of securities. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. However, the Company has continued to maintain the required minimum levels of liquid assets as defined by OTS regulations. This requirement, which may be varied at the direction of the OTS depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The required ratio is currently 4%, and the Company has always met or exceeded this requirement. Management, through its Asset and Liability Committee, which meets monthly or more frequently if necessary, monitors rates and terms of competing sources of funds to use the most cost- effective source of funds wherever possible. On April 23, 1998, the Company's Registration Statement on Form S-1 for the initial public offering of 5,500,000 shares of its common stock at a price of $11.00 per share was declared effective by the SEC. The Company received approximately $56.0 million from the sale of its common stock after underwriting discount and expenses associated with the offering. On May 22, 1998, the underwriters' over-allotment option for 825,000 shares of common stock was exercised resulting in $8.0 million of additional proceeds being received by the Company, after underwriting discount. The net proceeds from the initial public offering were used for general corporate purposes, including financing the growth of the Company's mortgage and automobile operations, and to repay $2.0 million in indebtedness to certain shareholders. Sales and securitizations of loans have been one of the primary sources of funds for the Company. Cash flows from sales and securitizations of loans were $587.4 million during the nine months ended September 30, 1999 compared to $919.0 million during the nine months ended September 30, 1998. 22 Another source of funds consists of deposits obtained through the Bank's five retail branches in California. The Bank offers checking accounts, various money market accounts, regular passbook accounts, fixed interest rate certificates with varying maturities and retirement accounts. Deposit account terms vary by interest rate, minimum balance requirements and the duration of the account. Interest rates paid, maturity terms, service fees and withdrawal penalties are established by the Bank periodically based on liquidity and financing requirements, rates paid by competitors, growth goals and federal regulations. At September 30, 1999, such retail deposits were $271.4 million or 91.1% of total deposits. The Bank uses wholesale and broker-originated deposits to supplement its retail deposits and, at September 30, 1999, wholesale deposits were $26.5 million or 8.9% of total deposits. The Bank had no broker-originated deposits at September 30, 1999. The Bank solicits wholesale deposits by posting its interest rates on a national on-line service, which advertises the Bank's wholesale products to investors. Generally, most of the wholesale deposit account holders are institutional investors, commercial businesses or public sector entities. The following table sets forth the balances and rates paid on each category of deposits for the dates indicated.
September 30, December 31, -------------------------------------------------------------- 1999 1998 1997 ------------------------- -------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Balance Rate Balance Rate Balance Rate ---------- ----------- ------------ --------------- ------------ ------------ (Dollars in thousands) Passbook accounts $ 57,200 4.30% $ 37,348 4.05% $ 26,095 3.76% Checking accounts 13,165 2.12% 12,171 1.37% 9,959 1.33% Certificates of deposit Under $100,000 165,091 5.17% 194,396 5.40% 144,926 5.56% $100,000 and over 62,432 5.35% 77,753 5.32% 52,214 5.89% ---------- ------------ ------------ Total $297,888 4.91% $321,668 5.07% $233,194 5.25% ========== ============ ============
The following table sets forth the time remaining until maturity for all CDs at September 30, 1999, December 31, 1998 and 1997.
September 30, December 31, December 31, 1999 1998 1997 --------------- -------------- ------------- Under $100,000: (Dollars in thousands) Maturity within one year $154,954 $169,283 $133,692 Maturity within two years 10,137 25,059 11,011 Maturity within three years -- 54 223 --------------- ------------- ------------- Total $165,091 $194,396 $144,926 =============== ============= ============= September 30, December 31, December 31, 1999 1998 1997 --------------- -------------- ------------- $100,000 and over: (Dollars in thousands) Maturity within one year $58,890 $72,164 $48,166 Maturity within two years 3,542 4,489 3,973 Maturity within three years -- 100 75 --------------- ------------- ------------- Total $62,432 $77,753 $52,214 =============== ============= =============
Although the Bank has a significant amount of deposits maturing in less than one year, the Company believes that the Bank's current pricing strategy will enable it to retain a significant portion of these accounts at maturity and that it will continue to have access to sufficient amounts of CDs which, together with other funding sources, will provide the necessary level of liquidity to finance its lending businesses. However, as a result of these shorter-term deposits, the rates on these accounts may be more sensitive to movements in market interest rates which may result in a higher-cost of funds. 23 At September 30, 1999, the Bank exceeded all of its regulatory capital requirements with (1) tangible capital of $48.1 million, or 8.79% of total adjusted assets, (2) core capital of $48.1 million, or 8.79% of total adjusted assets, and (3) risk-based capital of $41.1 million, or 10.52% of risk-weighted assets. The FDIC Improvement Act of 1991 ("FDICIA") required each federal banking agency to implement prompt corrective actions for institutions that it regulates. In response to these requirements, the OTS adopted final rules, effective December 19, 1992, based upon FDICIA's five capital tiers: (1) well capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly undercapitalized, and (5) critically undercapitalized. The rules provide that a savings association is "well capitalized" if its leverage ratio is 5% or greater, its Tier 1 risk-based capital ratio is 6% or greater, its total risk-based capital ratio is 10% or greater, and the institution is not subject to a capital directive. As used herein, leverage ratio means the ratio of core capital to adjusted total assets, Tier 1 risk-based capital ratio means the ratio of core capital to risk-weighted assets, and total risk-based capital ratio means the ratio of total capital to risk-weighted assets, in each case as calculated in accordance with current OTS capital regulations. Under these regulations, the Bank is deemed to be "well capitalized" as of September 30, 1999. The Company has other sources of liquidity, including FHLB advances, warehouse lines of credit and its liquidity and short-term investments portfolio. Through the Bank, the Company can obtain advances from the FHLB, collateralized by a portion of its portfolio of mortgage loans purchased from the RTC and the Bank's FHLB stock. The FHLB functions as a central reserve bank providing credit for thrifts and certain other member financial institutions. Advances are made pursuant to several programs, each of which has its own interest rate and range of maturities. Limitations on the amount of advances are based generally on a fixed percentage of net worth or on the FHLB's assessment of an institution's credit-worthiness. As of September 30, 1999, the Bank's available borrowing capacity under this credit facility was $2.3 million. The Bank has $300 million in master repurchase agreements under which it may sell and repurchase at a set price mortgage loans pending the sale or securitization of such loans. These agreements may be terminated at any time at the option of either party. At September 30, 1999, there was $159.3 million outstanding under these warehouse lines of credit. 24 The following table sets forth certain information regarding the Company's short-term borrowed funds (consisting of FHLB advances, notes payable and its warehouse lines of credit) at or for the periods ended on the dates indicated.
September 30, December 31, --------------------------- 1999 1998 1997 --------------- -------------- ---------- (Dollars in thousands) FHLB advances Maximum month-end balance $ 2,300 $34,500 $40,900 Balance at end of period -- -- 28,000 Average balance for period 8 13,057 18,526 Weighted average interest rate on Balance at end of period --% --% 7.07% Average balance for period 5.85% 5.10% 5.95% Notes payable Maximum month-end balance $ 10,930 $ -- $ -- Balance at end of period -- -- -- Average balance for period 6,558 -- -- Weighted average interest rate on Balance at end of period --% --% --% Average balance for period 5.02% --% --% Warehouse lines of credit Maximum month-end balance $159,342 $95,000 $64,359 Balance at end of period 159,342 -- 6,237 Average balance for period 43,743 43,759 8,914 Weighted average interest rate on Balance at end of period 6.05% --% 6.70% Average balance for period 5.77% 6.01% 6.10%
The Company had no material contractual obligations or commitments for capital expenditures at September 30, 1999. However, the Company may continue to expand its operations, which may entail lease commitments and expenditures for leasehold improvements and furniture, fixtures and equipment. At September 30, 1999, the Company had outstanding commitments to originate loans of $24.8 million, compared to $23.3 million at December 31, 1998. The Company anticipates that it will have sufficient funds available to meet its current origination commitments. RTC Notes Payable In connection with its acquisition of certain assets from the RTC, the Bank obtained loans (the "RTC Notes Payable") from the RTC in the aggregate amount of $10.9 million under the RTC's Minority Interim Capital Assistance Program provided for in Section 21A(u) of the Federal Home Loan Bank Act, as amended (the "FHLBA"). The FHLBA gives the RTC authority to provide interim capital assistance to minority-owned institutions, defined in the FHLBA as more than fifty percent (50%) owned or controlled by one or more minorities. The Bank, PAFI and the RTC entered into an Interim Capital Assistance Agreement on April 29, 1994 with respect to a loan of $6,930,000 and a second Interim Capital Assistance Agreement on September 9, 1994 with respect to a loan of $4,000,000 (together, the "RTC Agreements"). The RTC Agreements provide for repayment of the entire principal amount, plus any accrued, previously unpaid interest thereon, in a single lump sum installment on April 28, 1999 and September 8, 1999, respectively. The RTC Notes Payable may be prepaid at the option of the Bank and must be prepaid in the event that PAFI obtains all or any material portion of its permanent financing prior to maturity of the RTC Notes Payable. The RTC is entitled to declare the entire principal amount of the RTC Notes Payable, plus all interest accrued and unpaid thereon, immediately due and payable upon the occurrence of certain events of default. The rate at which interest accrues on the RTC Notes Payable is based on the RTC's "Cost of Funds," defined in the RTC Agreements at the end of the calendar quarter Monday auction yield price for 25 13 week United States Treasury Bills plus 12.5 basis points, and adjusts annually, in the case of the $6.9 million loan due April 1999, and quarterly, in the case of the $4.0 million loan due September 1999. Interest accrues on any amount of principal or interest not paid when due at the rate of the RTC's Cost of Funds plus 300 basis points, beginning on the date such unpaid amount became due. In connection with the RTC Agreements, PAFI and the RTC have entered into Stock Pledge Agreements pursuant to which PAFI has pledged to the RTC all of the issued and outstanding shares of the capital stock of the Bank as security for the repayment of the RTC Notes Payable. The $6.9 million loan under the first Interim Capital Assistance Agreement dated April 29, 1994 was repaid on April 28, 1999. The remaining $4.0 million loan was repaid on September 8, 1999. Lending Activities To date, the Company has sold the majority of its loan originations to mortgage companies and other investors through whole loan packages on a primarily non-recourse, servicing released basis. As a result, upon sale, risks and rewards of ownership transfer to the buyer. In December 1997, the Company completed its first securitization of mortgage loans and in March 1998 sold its residual interests in this securitization to a third-party. In March 1999, the Company completed its second mortgage loan securitization for $225 million. A third securitization in the amount of $233 million was completed by the Company in October 1999. Summary of Loan Portfolio. At September 30, 1999, the Company's loan portfolio constituted $473.4 million, or 86.1% of the Company's total assets, of which $159.2 million, or 33.6%, were held for investment and $314.2 million, or 66.4%, were held for sale. Loans held for investment are reported at cost, net of unamortized discounts or premiums and allowance for losses. Loans held for sale are reported at the lower of cost or market value. The following table sets forth the composition of the Company's loan portfolio at the dates indicated.
September 30, December 31, December 31, 1999 1998 1997 ------------- ------------ ------------ Mortgage Loans Mortgage loans (purchased primarily from RTC) Held for sale $ -- $ 18,289 $ -- Held for investment 22,733 14,039 81,995 ------------- ------------ ------------ Total mortgage loans 22,753 32,328 81,995 ------------- ------------ ------------ Subprime mortgage loans Held for sale 314,184 196,117 120,002 Held for investment 17,794 17,570 5,375 ------------- ------------ ------------ Total subprime mortgage loans 331,978 213,687 125,377 ------------- ------------ ------------ Total mortgage loans 354,711 246,015 207,372 ------------- ------------ ------------ Consumer Loans Automobile installment contracts 118,866 83,921 40,877 Insurance premium financing 34,576 44,709 39,990 Other consumer loans 1,002 1,245 267 ------------- ------------ ------------ Total consumer loans 154,444 129,875 81,134 ------------- ------------ ------------ Total loans 509,155 375,890 288,506 Unearned discounts and premiums (1,001) (212) (2,901) Unearned finance charges (21,301) (17,371) (10,581) Allowance for loan losses (13,462) (10,183) (6,487) ------------- ------------ ------------ Total loans, net $473,391 $348,124 $268,537 ============= ============ ============
26 Loan Maturities. The following table sets forth the dollar amount of loans maturing in the Company's loan portfolio at September 30, 1999 based on scheduled contractual amortization. Loan balances are reflected before unearned discounts and premiums, unearned finance charges and allowance for loan losses.
September 30, 1999 ----------------------------------------------------------------------------------------------------------- More Than 1 More Than 3 More Than 5 More Than 10 One Year or Year to Years to Years to Years to 20 More Than 20 Total Less 3 Years 5 Years 10 Years Years Years Loans --------------- ------------- --------------- ------------- --------------- ------------- ----------- (Dollars in thousands) Mortgage loans held for investment $ 25 $ 744 $ 757 $3,049 $12,814 $ 23,138 $ 40,527 Mortgage loans held for sale -- -- 141 -- 12,504 301,539 314,184 Consumer loans 37,774 53,830 61,046 1,794 -- -- 154,444 --------------- ------------- --------------- ------------- --------------- ------------- ----------- Total $37,799 $54,574 $61,944 $4,843 $25,318 $324,677 $509,155 =============== ============= =============== ============= =============== ============= ===========
Classified Assets and Allowance for Loan Losses The Company maintains an asset review and classification process for purposes of assessing loan portfolio quality and the adequacy of its loan loss allowances. The Company's Asset Review Committee reviews for classification all problem and potential problem assets and reports the results of its review to the Board of Directors quarterly. The Company has incorporated the OTS internal asset classifications as a part of its credit monitoring systems and in order of increasing weakness, these designations are "substandard," "doubtful" and "loss." Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, condition and values, questionable and there is a high possibility of loss. Loss assets are considered uncollectible and of such little value that continuance as an asset is not warranted. Assets, which do have weaknesses but do not currently have sufficient risk to warrant classification in one of the categories described above are designated as "special mention." At September 30, 1999, the Company had $2.7 million in assets classified as special mention, $22.5 million of assets classified as substandard, $68,000 in assets classified as doubtful and no assets classified as loss. The following table sets forth the remaining balances of all loans (before specific reserves for losses) that were more than 30 days delinquent at September 30, 1999, December 31, 1998 and 1997.
Loan September 30, % of Total December 31, % of Total December 31, % of Total - ---- Delinquencies 1999 Loans 1998 Loans 1997 Loans - ------------- -------------- ---------------- ------------------ ---------------- ----------------- --------------- (Dollars in thousands) 30 to 59 days $ 5,365 1.1% $ 9,743 2.8% $ 356 0.1% 60 to 89 days 4,047 0.9% 8,161 2.3% 994 0.4% 90+ days 14,925 3.2% 11,424 3.3% 7,101 2.6% -------------- ---------------- ------------------ ---------------- ----------------- --------------- Total $24,337 5.2% $29,328 8.4% $8,451 3.1% ============== ================ ================== ================ ================= ===============
Nonaccrual and Past Due Loans. The Company's general policy is to discontinue accrual of interest on a mortgage loan when it is two payments or more delinquent. Accordingly, loans are placed on non-accrual status generally when they are 60-89 days delinquent. A non-mortgage loan is placed on nonaccrual status when it is delinquent for 120 days or more. When a loan is reclassified from accrual to nonaccrual status, all previously accrued interest is reversed. Interest income on nonaccrual loans is subsequently recognized only to the extent that cash payments are received or the borrower's ability to make periodic 27 interest and principal payments is in accordance with the loan terms, at which time the loan is returned to accrual status. Accounts which are deemed fully or partially uncollectible by management are generally fully reserved or charged off for the amount that exceeds the estimated fair value (net of selling costs) of the underlying collateral. The Company does not generally modify, extend or rewrite loans and at September 30, 1999 had no troubled debt restructured loans. The following table sets forth the aggregate amount of nonaccrual loans (net of unearned discounts and premiums and unearned finance charges) at September 30, 1999, December 31, 1998 and 1997.
September 30, December 31, --------------------- 1999 1998 1997 ------------- --------- --------- (Dollars in thousands) Non-accrual loans Single-family residential $20,182 $19,242 $5,766 Multi-family residential and commercial 100 214 605 Consumer and other loans 1,107 1,168 1,426 ------------- --------- --------- Total $21,389 $20,624 $7,797 ============= ========= ========= Non-accrual loans as a percentage of Total loans held for investment 13.44% 15.42% 5.25% Total assets 3.89% 4.85% 2.51% Allowance for loan losses as a percentage of Total loans held for investment 8.46% 7.62% 4.37% Non-accrual loans 62.94% 49.37% 83.20%
Real Estate Owned. Real estate acquired through foreclosure or by deed in lieu of foreclosure ("REO") is recorded at the lower of cost or fair value at the time of foreclosure. Subsequently, an allowance for estimated losses is established when the recorded value exceeds fair value less estimated selling costs. Holding and maintenance costs related to real estate owned are recorded as expenses in the period incurred. Real estate owned was $3.3 million at September 30, 1999, $1.9 million at December 31, 1998 and $562,000 at December 31, 1997, and consisted entirely of one to four family residential properties. Allowance for Loan Losses. The following is a summary of the changes in the consolidated allowance for loan losses of the Company for the periods indicated.
At or For the Nine At or For the Months Ended Year Ended September 30, December 31, ---------------------- 1999 1998 1997 ------------------- ---------- --------- (Dollars in thousands) Allowance for Loan Losses Balance at beginning of period $10,183 $ 6,487 $ 5,356 Provision for loan losses 5,897 5,853 507 Automobile finance discounts allocated to loss allowance 5,425 4,582 1,953 Charge-offs Mortgage loans (3,051) (4,536) (373) Consumer loans (5,626) (3,793) (2,101) ------------------- ---------- --------- (8,677) (8,329) (2,474) Recoveries Mortgage loans 295 452 77 Consumer loans 339 1,138 1,068 ------------------- ---------- --------- 634 1,590 1,145 ------------------- ---------- --------- Net charge-offs (8,043) (6,739) (1,329) ------------------- ---------- --------- Balance at end of period $13,462 $10,183 $ 6,487 =================== ========== ========= Annualized net charge-offs to average loans 2.64% 1.73% 0.60% Ending allowance to period end loans, net 8.46% 7.62% 4.37%
The Company's policy is to maintain an allowance for loan losses to absorb future losses, which may be realized on its loan portfolio. These allowances include specific reserves for identifiable impairments of individual loans and general valuation allowances for estimates of probable losses not 28 specifically identified. In addition, the Company's allowance for loan losses is also increased by its allocation of acquisition discounts related to the purchase of automobile installment contracts. The determination of the adequacy of the allowance for loan losses is based on a variety of factors, including an assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of non-performing loans, the concentration of credit, current and prospective economic conditions and other factors. The Company's management uses its best judgment in providing for possible loan losses and establishing allowances for loan losses. However, the allowance is an estimate which is inherently uncertain and depends on the outcome of future events. In addition, regulatory agencies, as an integral part of their examinations process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to increase the allowance based upon their judgment of the information available to them at the time of their examination. The Bank's most recent examination by its regulatory agencies was completed in October 1998 and no adjustments to the Bank's allowance for loan losses was required. Cash Equivalents and Securities Portfolio The Company's cash equivalents and securities portfolios are used primarily for liquidity purposes and secondarily for investment income. Cash equivalents and securities, which generally have maturities of less than 90 days, satisfy regulatory requirements for liquidity. The following is a summary of the Company's cash equivalents and securities portfolios as of the dates indicated.
September 30, December 31, ----------------------- 1999 1998 1997 ------------- --------- ----------- (Dollars in thousands) Balance at end of period Overnight deposits $30,500 $47,000 $4,000 U.S. agency securities -- -- 1,002 ------------- --------- ----------- Total $30,500 $47,000 $5,002 ============= ========= =========== Weighted average yield at end of period Overnight deposits 5.13% 3.00% 3.50% U.S. agency securities --% --% 6.54% Weighted average maturity at end of period Overnight deposits 1 day 1 day 1 day U.S. agency securities -- -- 24 months
Factors That May Affect Future Results Limited Operating History The Company purchased certain assets and assumed certain liabilities of Pan American Federal Savings Bank from the RTC in 1994. In 1995, the Company commenced its insurance premium finance business through a joint venture with BPN, and in 1996 the Company commenced its subprime mortgage and automobile finance businesses. Accordingly, the Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." Credit-Impaired Borrowers Loans made to borrowers who cannot obtain financing from traditional lenders generally entail a higher risk of delinquency and default and higher losses than loans made to borrowers with better credit. Substantially all of the Company's mortgage and auto loans are made to individuals with impaired or limited credit histories, limited documentation of income or higher debt-to- income ratios than are permitted by 29 traditional lenders. If the Company experiences higher losses than anticipated, the Company's financial condition, results of operations and business prospects would be materially and adversely affected. Need for Additional Financing The Company's ability to maintain or expand its current level of lending activity will depend on the availability and terms of its sources of financing. The Company has funded its operations to date principally through deposits, FHLB advances, mortgage warehouse lines of credit, loan securitizations, and whole loan sales. The Bank competes for deposits primarily on the basis of interest rates and, accordingly, the Bank could experience difficulty in attracting deposits if it does not continue to offer rates that are competitive with other financial institutions. Federal regulations restrict the Bank's ability to lend to affiliated companies and limit the amount of non-mortgage consumer loans that may be held by the Bank. Accordingly, the growth of the Company's mortgage, insurance premium and automobile finance businesses will depend to a significant extent on the availability of additional sources of financing. There can be no assurance that the Company will be able to develop additional financing sources on acceptable terms or at all. To the extent the Bank is unable to maintain its deposits and the Company is unable to develop additional sources of financing, the Company will have to restrict its lending activities which would materially and adversely affect the Company's financial condition, results of operations and business prospects. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Concentration of Business in California The Company's lending activities are concentrated primarily in California and are likely to remain so for the foreseeable future. The performance of the Company's loans may be affected by changes in California's economic and business conditions, including its residential real estate market. The occurrence of adverse economic conditions or natural disasters in California could have a material adverse effect on the Company's financial condition, results of operations and business prospects. Reliance on Systems and Controls The Company depends heavily upon its systems and controls, some of which have been designed specifically for a particular business, to support the evaluation, acquisition, monitoring, collections and administration of that business. There can be no assurance that these systems and controls, including those specially designed and built for the Company, are adequate or will continue to be adequate to support the Company's growth. A failure of the Company's automated systems, including a failure of data integrity or accuracy, could have a material adverse effect upon the Company's financial condition, results of operations and business prospects. Reliance on Key Employees and Others The Company is dependent upon the continued services of its key employees as well as the key employees of BPN. The loss of the services of any key employee, or the failure of the Company to attract and retain other qualified personnel, could have a material adverse effect on the Company's financial condition, results of operations and business prospects. Competition Each of the Company's businesses is highly competitive. Competition in the Company's markets can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and terms of the loan, loan origination fees and interest rates. Many of the Company's competitors are substantially larger and have considerably greater financial, technical and marketing resources than the Company. The Company's competitors in subprime mortgage finance include 30 other consumer finance companies, mortgage banking companies, commercial banks, credit unions, savings associations and insurance companies. The Company competes in the insurance premium finance business with other specialty finance companies, independent insurance agents who offer premium finance services, captive premium finance affiliates of insurance companies and direct bill plans established by insurance companies. The Company competes in the subprime automobile finance industry with commercial banks, the captive finance affiliates of automobile manufacturers, savings associations and companies specializing in subprime automobile finance, many of which have established relationships with automobile dealerships and may offer dealerships or their customers other forms of financing, including dealer floor plan financing and lending, which are not offered by the Company. In attracting deposits, the Bank competes primarily with other savings institutions, commercial banks, brokerage firms, mutual funds, credit unions and other types of investment companies. Fluctuations in interest rates and general and localized economic conditions also may affect the competition the Company faces. Competitors with lower costs of capital have a competitive advantage over the Company. During periods of declining interest rates, competitors may solicit the Company's customers to refinance their loans. In addition, during periods of economic slowdown or recession, the Company's borrowers may face financial difficulties and be more receptive to offers of the Company's competitors to refinance their loans. As the Company expands into new geographic markets, it will face additional competition from lenders already established in these markets. There can be no assurance that the Company will be able to compete successfully with these lenders. Changes in Interest Rates The Company's results of operations depend to a large extent upon its net interest income, which is the difference between interest income on interest- earning assets, such as loans and investments, and interest expense on interest- bearing liabilities, such as deposits and other borrowings. When interest- bearing liabilities mature or reprice more quickly than interest-bearing assets in a given period, a significant increase in market rates of interest could have a material adverse effect on the Company's net income. Further, a significant increase in market rates of interest could adversely affect demand for the Company's financial products and services. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions, which are beyond the Company's control. The Company's liabilities generally have shorter terms and are more interest rate sensitive than its assets. Accordingly, changes in interest rates could have a material adverse effect on the profitability of the Company's lending activities. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Management of Interest Rate Risk." Management of Growth The Company has experienced rapid growth in each of its businesses and intends to pursue growth for the foreseeable future, particularly in its mortgage and automobile finance businesses. In addition, the Company intends to broaden its product offerings to include additional types of consumer or, in the case of insurance premium finance, commercial loans. Further, the Company may enter other specialty finance businesses. This growth strategy will require additional capital, systems development and human resources. The failure of the Company to implement its planned growth strategy could have a material adverse effect on the Company's financial condition, results of operations and business prospects . Dependence on Loan Sale and Securitization Markets The Company generates substantial revenues from whole loan sales and securitizations. There can be no assurance that whole loan purchasers will continue to purchase the Company's loans, or that they will continue to purchase loans at present prices, and failure to do so could have a material adverse effect on the 31 Company's financial condition, results of operations and business prospects. Further, adverse conditions in the asset-backed securitization market could adversely affect the Company's ability to sell or securitize loans at present prices. Securitizations The Company completed its first securitization of mortgage loans in December 1997, a second in March 1999 and a third in October 1999. The Company may continue to securitize mortgage loans on a periodic basis in the future. The Company may, in the future, consider the securitization of other financial assets. In March 1998, the Company sold its residual interests from its first securitization for cash in the amount of $8.3 million which exceeded the carrying value of approximately $8.2 million at the date of sale. The Company continues to report the residual interests from its second securitization in its balance sheet. The Company believes that the gain on sale from such securitizations could represent a significant portion of the Company's future revenues and net income. The Company's ability to complete securitizations will depend on a number of factors, including conditions in the securities markets generally, conditions in the asset-backed securities market specifically, the performance of the Company's portfolio of securitized loans and the Company's ability to obtain credit enhancement for its securitized loans. If securitizations represented a significant portion of the Company's revenues and net income and the Company were unable to securitize profitably a sufficient number of loans in a particular quarter, then the Company's revenues for the quarter could decline, which could result in lower earnings or a loss reported for the quarter. In addition, delays in closing a securitization could require the Company to seek additional alternative funding under current and future credit facilities in order to finance additional loan originations and purchases and could increase the Company's interest rate risk by increasing the period during which newly originated loans are held prior to sale and could increase the Company's interest expense. The Company may rely on credit enhancements to guarantee or otherwise support senior certificates issued in securitizations. If the Company is unable to obtain credit enhancement in connection with the senior certificates, the Company might be unable to securitize its loans, which could have a material adverse effect on the Company's results of operations, financial condition and business prospects. Although alternative structures to securitizations may be available, there can be no assurance that the Company will be able to use these structures or that these structures will be economically viable for the Company. The Company's ability to obtain credit enhancement for its securitizations also may be adversely affected by poor performance of the Company's securitizations or the securitizations of others. The inability of the Company to complete securitizations for any reason could have a material adverse effect on the Company's results of operations, financial condition and business prospects. Change in General Economic Conditions Each of the Company's businesses is affected directly by changes in general economic conditions, including changes in employment rates, prevailing interest rates and real wages. During periods of economic slowdown or recession, the Company may experience a decrease in demand for its financial products and services, an increase in its servicing costs, a decline in collateral values and an increase in delinquencies and defaults. A decline in collateral values and an increase in delinquencies and defaults increase the possibility and severity of losses. Although the Company believes that its underwriting criteria and collection methods enable it to manage the higher risks inherent in loans made to such borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. Any sustained period of increased delinquencies, defaults or losses could materially and adversely affect the Company's financial condition, results of operations and business prospects. Impact of Inflation and Changing Prices The financial statements and notes thereto presented herein have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), which require the measurement of financial position 32 and operating results in terms of historical dollar amounts without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Year 2000 Compliance Most of the Company's operations are dependent on the efficient functioning of the Company's computer systems and software. Computer system failures or disruption could have a material adverse effect on the Company's business, financial condition and results of operations. Many computer programs were designed and developed utilizing only two digits in date fields, thereby creating the inability to recognize the year 2000 or years thereafter. Beginning in the year 2000, these date codes will need to accept four digit entries to distinguish 21st century dates from 20th century dates. This year 2000 issue creates risks for the Company from unforeseen or unanticipated problems in its internal computer systems as well as from computer systems of the Federal Reserve Bank, correspondent banks, customers and suppliers. Failures of these systems or untimely corrections could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's computer systems and programs are designed and supported by companies specifically in the business of providing such products and services. The Company's Year 2000 plan includes evaluating existing hardware, software, vaults, alarm systems, both internally and externally, establishing a contingency plan and upgrading hardware and software as necessary. The initial phase of the project was to assess and identify all internal business processes requiring modification and to develop comprehensive renovation plans as needed. This phase was largely completed in 1998. The second phase was to execute those renovation plans and begin testing systems by simulating Year 2000 data conditions. This phase was also largely completed in 1998. Testing and implementation was completed during the first half of 1999. Failure to be Year 2000 compliant or incurrence of significant costs to render the Company Year 2000 compliant could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has evaluated its major customers and suppliers to determine if they are Year 2000 compliant and has deemed their Year 2000 test results of mission critical system to be acceptable. Failure of any material customer or supplier to be year 2000 compliant could have a material adverse effect on the Company. Other Risks From time to time, the Company details other risks with respect to its business and financial results in its filings with the SEC. Item 3. Quantitative and Qualitative Disclosures About Market Risk. ---------------------------------------------------------- See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Management of Interest Rate Risk; and Factors That May Affect Future Results - Dependence on Loan Sale and Securitization Markets" 33 PART II. OTHER INFORMATION Item 1. Legal Proceedings. ----------------- Not applicable Item 2. Changes in Securities and Use of Proceeds. ----------------------------------------- Not applicable Item 3. Defaults Upon Senior Securities. ------------------------------- Not applicable Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- None Item 5. Other Information. ----------------- Not applicable Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) List of Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K None 34 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. United PanAm Financial Corp. Date: November 12, 1999 By: /s/ Lawrence J. Grill ----------------------------------- Lawrence J. Grill President and Chief Executive Officer (Principal Executive Officer) November 12, 1999 By: /s/ Carol M. Bucci ----------------------------------- Carol M. Bucci Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
9 9-MOS 12-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 SEP-30-1999 DEC-31-1998 6,667,000 5,211,000 30,500,000 47,000,000 0 0 11,968,000 0 0 0 0 0 0 0 473,391,000 348,124,000 13,462,000 10,183,000 549,985,000 425,559,000 297,888,000 321,668,000 159,342,000 10,930,000 13,265,000 10,048,000 0 0 0 0 0 0 65,483,000 68,378,000 14,007,000 14,535,000 549,985,000 425,559,000 36,305,000 43,999,000 1,224,000 1,346,000 0 0 37,529,000 45,345,000 11,423,000 15,329,000 13,560,000 19,246,000 23,969,000 26,099,000 5,897,000 5,853,000 0 0 0 1,208,000 (924,000) 11,754,000 (924,000) 11,754,000 0 0 0 0 (528,000) 6,763,000 (0.03) 0.44 (0.03) 0.42 7.50 6.57 17,068,000 18,632,000 29,000 0 3,888,000 2,356,000 0 0 10,183,000 6,487,000 8,677,000 8,329,000 634,000 1,590,000 13,462,000 10,183,000 13,462,000 10,183,000 0 0 0 0
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