Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2.
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . .15 Item 3.
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . .15 Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . .15
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . .16 Item 6.
Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA . . . . . .16 Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company reported losses from continuing operations in fiscal 1994 of $108.5 million compared to pretax income of $33.4 million in fiscal 1993 and income for the combined year ended June 30, 1992 of $10.0 million. The Company also reported losses from discontinued operations of $74.2 million, $17.3 million and $49.5 million for fiscal 1994 and 1993 and combined year ended June 30, 1992, respectively.
Of the $108.5 million loss from continuing operations in Fiscal 1994, $95.5 million or 88 percent was attributable to non-recurring charges taken during the year (i) to reduce the carrying value of the Company's investment in purchased mortgage servicing rights by $80 million and (ii) to cover the $15.5 million cost of two workforce reductions and related restructurings, which in aggregate involve the terminations of approximately 400 employees or 20 percent of the Company's workforce. The first of the reductions in force was accomplished in January 1994 and the second is scheduled for completion in November 1994. The remaining 12 percent or $12.9 million of the loss from continuing operations, is attributable primarily to the fact that the Company's mortgage banking division was plagued throughout the year by unprecedented rates of portfolio runoff and as a result earned less (before non-recurring charges) in fiscal 1994 than in the prior year. Of the $74.2 million loss from discontinued operations in fiscal 1994, $51 million or 69 percent derived from special charges (i) a $33.5 million provision related to the pending sale of the Company's information system, and (ii) a $17.5 million related to the Company's discontinued short term lending operations. The $23.2 million remainder derived from operating losses incurred in 1994 in the Company's information systems business which is scheduled to be sold on or about October 31, 1994.
The results of continuing operations of each of the Company's operating divisions for the year ended June 30, 1994 and 1993, six months ended June 30, 1992, six months ended December 31, 1991 and combined year ended June 30, 1992 are set forth in the following table (in thousands):
Loan administration operating income for fiscal 1994, before an $80.0 million provision to reduce the carrying value of the Company's investment in PMSRs, was $13.2 million, down from $23.2 million in fiscal 1993, principally because portfolio amortization at $68.3 million in fiscal 1994 before the $80.0 million provision for PMSR impairment was $6.4 million higher than in fiscal 1993. The Company's portfolio runoff rate on an annualized basis was 33.0 percent during fiscal 1994 compared to 31.3 percent during fiscal 1993. The runoff rate on an annualized basis for the month of June 1994 had been reduced to 18.6 percent. The Company's booked investment in its $34.0 billion primary mortgage servicing portfolio was $382.0 million at June 30, 1994. The decrease in master servicing revenues was principally a result of the decline in the master servicing portfolio to $8.4 billion during fiscal 1994, down from $12.5 billion at June 30, 1993, which was caused by unusually high rates of runoff (particularly of Capstead Mortgage Corporation ("Capstead") related mortgages) and the cessation of additions of new Capstead related loans to the Company's master servicing portfolio.
The Company periodically monitors its servicing portfolio to determine if adjustments should be made to its amortization schedules or carrying values of its PMSRs due to changes in interest rates, current prepayment rates, expected future prepayment rates and certain other factors. The amortization and impairment analyses are performed for individual mortgage tranches with similar economic characteristics on an undiscounted basis. If an individual mortgage tranche's estimated undiscounted net cash flow is less than the carrying value of the tranche, that tranche is written down to the projected amount of the undiscounted cash flow. In addition, the Company amortizes the capitalized PMSRs in proportion to, and over the period of, the estimated net servicing income. This policy causes a larger portion of the PMSRs to be amortized in earlier periods. The expected life of the estimated net servicing income is based on the expected prepayment rates of the underlying mortgages within the tranches. See "Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors Lomas Financial Corporation
We have audited the accompanying consolidated balance sheet of Lomas Financial Corporation and subsidiaries as of June 30, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended June 30, 1994, six months ended June 30, 1992 and six months ended December 31, 1991. Our audits also included the financial statement schedules listed in the index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lomas Financial Corporation and subsidiaries at June 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the two years in the period ended June 30, 1994, six months ended June 30, 1992 and six months ended December 31, 1991, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas September 22, 1994
CONSOLIDATED BALANCE SHEET
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands)
June 30 ------------------------ 1994 1993 ----------- ---------- ASSETS
Cash and cash equivalents $ 7,206 $ 34,368
First mortgage loans held for sale 257,534 368,266 Investments 117,452 245,860 Receivables 84,155 85,119 Foreclosed real estate 8,934 18,550 ---------- ---------- 468,075 717,795 Less allowance for losses (12,262) (10,831) ---------- ---------- 455,813 706,964
Purchased future mortgage servicing income rights--net 382,009 436,487 Fixed assets--net 89,154 69,897 Prepaid expenses and other assets 30,133 32,213 Net assets of discontinued operations 113,258 174,582 ---------- ---------- $1,077,573 $1,454,511 ========== ==========
Escrow, agency and fiduciary funds--see contra $ 603,163 $1,082,591 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities: Accounts payable and accrued expenses $ 71,862 $ 82,914 Notes payable 341,047 416,180 Repurchase agreements -- 99,140 Term notes payable 383,311 392,280 Senior convertible notes payable 139,918 139,918 ---------- ---------- 936,138 1,130,432 ---------- ---------- Stockholders' equity: Common stock--20,100 and 20,097 shares issued and outstanding 20,100 20,097 Other paid-in capital 309,429 309,410 Retained earnings (deficit) (188,094) (5,428) ---------- ---------- 141,435 324,079 ---------- ---------- $1,077,573 $1,454,511 ========== ========== Liability for escrow, agency and fiduciary funds--see contra $ 603,163 $1,082,591 ========== ========== See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES June 30, 1994
Accounting Policies
Principles of Consolidation and Basis of Presentation--The consolidated financial statements include the accounts of Lomas Financial Corporation ("LFC") and its subsidiaries (collectively, the "Company"). Significant intercompany balances and transactions have been eliminated.
In fiscal 1990, LFC and its real estate development subsidiaries filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. In December 1991, the bankruptcy court confirmed the Company's plan of reorganization and subsequently the Company emerged from Chapter 11 proceedings. The Company adopted fresh start reporting in accordance with the American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in Reorganization Under The Bankruptcy Code" as of December 31, 1991. As a result of the adoption of fresh start reporting, the Company's assets and liabilities were restated to reflect their fair values and the accumulated retained earnings deficit was reclassified to other paid-in capital. Accordingly, since January 1, 1992 the Company's financial statements have been prepared as if it were a new reporting entity (referred to herein as the "Reorganized Company") and a vertical black line has been placed to separate pre-reorganization consolidated financial statements from post-reorganization consolidated financial statements since they are not prepared on a comparable basis. The exchange in securities in connection with the reorganization resulted in a gain that was reported as an extraordinary item.
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand and investments with original maturities of three months or less. Cash balances having restrictions as to withdrawals and usage are recorded in the balance sheet as investments.
First Mortgage Loans Held for Sale--First mortgage loans held for sale are carried at the lower of cost or market determined on a net aggregate basis. Adjustments to market are made by charges or credits to income.
Foreclosed Real Estate--Foreclosed real estate is carried at the lower of cost or fair value minus estimated selling costs.
Allowance for Losses--Possible losses are provided for based on management's evaluation of each situation, including the determination of collectibility and net realizable value of the asset or underlying collateral.
Fixed Assets--Depreciation is computed on the straight-line method over the estimated useful lives of the related assets.
Purchased Future Mortgage Servicing Income Rights--Purchased future mortgage servicing income rights ("PMSRs") represent the portion of the purchase price of mortgage servicing portfolios acquired from others allocated to future net servicing income to be derived from servicing such mortgages.
The Company periodically monitors its servicing portfolio to determine if adjustments should be made to its amortization schedules or carrying values of its PMSRs due to changes in interest rates, current prepayment rates, expected future prepayment rates and certain other factors. The amortization and impairment analyses are performed for individual mortgage tranches with similar economic characteristics on an undiscounted basis. If an individual mortgage tranche's estimated undiscounted net cash flow is less than the carrying value of the tranche, that tranche is written down to the projected amount of the undiscounted cash flow. In addition, the Company amortizes the capitalized PMSRs in proportion to, and over the period of, the estimated net servicing income. This policy causes a larger portion of the PMSRs to be amortized in earlier periods. The expected life of the estimated net servicing income is based on the expected prepayment rates of the underlying mortgages within the tranches.
Pursuant to fresh start reporting, the PMSRs at December 31, 1991 (the "Fresh Start PMSRs"), reflected their fair value at that date and were considered as a single individual mortgage tranche for impairment and amortization analyses. Effective April 1, 1993 the Company changed its methodology of measuring the impairment and amortization of its Fresh Start PMSRs and disaggregated the Fresh Start PMSRs into individual mortgage tranches with similar economic characteristics. Discounted cash flows were estimated for each tranche, and the former December 31, 1991 aggregated value, net of accumulated amortization, was allocated among the disaggregated tranches in proportion to their relative discounted projected net cash flows as of March 31, 1993. Also effective April 1, 1993, the Company refined its estimates of prepayment speeds for loans serviced from using adjusted static published generic prepayment tables to using a simulation methodology that considers the specific characteristics of the Company's servicing portfolio and changes in future median interest rates. Management believes that this refined estimate more accurately estimates the future prepayments of the Company's servicing portfolio.
Sales of Servicing Rights--The Company recognizes gain or loss on the sales of servicing rights when all risks and rewards have irrevocably passed to the purchasers and there are no significant unresolved contingencies.
Mortgage Servicing--Fees received for servicing mortgage loans owned by investors are generally based on a stipulated percentage of the outstanding monthly principal balance of such loans and are payable only out of interest collected from mortgagors. Servicing fees, late charges and miscellaneous other fees collected from mortgagors and others are recognized as income when collected. Servicing costs are charged to expense as incurred.
Reverse Repurchase Agreements--The Company enters into reverse repurchase agreements with financially responsible parties. Mortgage assets purchased under agreements to resell are carried at the amounts of the original purchase price which is calculated at a percentage of the market price. The reverse repurchase agreements generally mature within 60 days and are covered 100 percent by binding purchase commitments issued by responsible financial institutions. The counterparty is obligated to repurchase the underlying mortgage assets at the Company's costs plus interest differential. The Company finances the reverse repurchase agreements through a third party based on a percentage of the repurchase commitments.
Reverse Interest Rate Swap Agreements--The Company enters into interest rate swap agreements as a means of managing its exposure to changes in interest rates. Interest rate swaps that reduce the exposure of the Company, as a whole, to changes in interest rates are designated as hedges of the Company's fixed rate debt and treated as a hedge of the debt. Swap agreements that do not reduce the Company's exposure to changes in interest rates are not considered to be hedges. The interest differential to be paid or received on swap agreements that are treated as hedges is accrued over the life of the agreements as an adjustment to the interest expense of the related debt. Gains or losses on early termination of interest rate swap agreements designated as hedges are recognized over the remaining term of the swap agreement. Interest rate swaps that are not considered hedges are marked to market quarterly with the unrealized gain or loss, together with the accrued interest differential, treated as a gain or loss on such swaps.
Federal Income Taxes--Income taxes have been provided in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") since January 1, 1992. Under SFAS 109, the deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax basis of assets and liabilities and enacted tax rates that will be in effect for the years in which the differences are expected to reverse. Prior to January 1, 1992, the Company accounted for income taxes under Accounting Principles Board Opinion No. 11.
Escrow, Agency and Fiduciary Funds--The Company maintains certain cash balances on behalf of its servicing customers and investors as part of its servicing operations. These funds are held in trust in segregated generally noninterest bearing bank accounts and are excluded from the corporate assets and liabilities of the Company.
Earnings (Loss) Per Share--Primary earnings (loss) per share data for the years ended June 30, 1994 and 1993 and six months ended June 30, 1992 is computed using the weighted average number of shares of common and common stock equivalents outstanding during the period. Common stock equivalents include units and shares granted under the Lomas Financial Corporation 1991 Long Term Incentive Plan for Nonemployee Directors (the "Directors Plan"), the 1991 Stock Incentive Program (the "1991 Program") and the 1993 Intermediate and Long Term Incentive Plan (the "1993 Program"). Common stock equivalents also include the assumed exercise of dilutive stock options. For the years ended June 30, 1994 and 1993 and six months ended June 30, 1992, assumed exercise of stock options is antidilutive and is, therefore, excluded from the computation. Fully diluted per share data is computed on the same basis as primary, but it also assumes (if dilutive) the conversion of senior convertible notes with related adjustments for interest and federal income tax expense. For the years ended June 30, 1994 and 1993 and six months ended June 30, 1992, the fully diluted per share data is antidilutive.
Information for the six months ended December 31, 1991 was prior to reorganization when the Company had a different capital structure than that of the Reorganized Company. Per share data pertaining to the predecessor company is, therefore, not meaningful and is not presented.
Reclassifications--Certain reclassifications have been made to prior years' financial statements to conform to the 1994 presentation.
Potential Sale of the Company
In March 1994 the Company announced that it has retained an investment banker to assist in evaluating strategic alternatives to maximize stockholder values. Options being considered include the possibility of merging with or being acquired by another institution. However, in May 1994 the Company announced its intent to sell its wholly-owned information systems subsidiary, Lomas Information Systems ("LIS"). In September 1994, the Company entered into a letter of intent with a subsidiary of an insurance company to sell substantially all the assets of LIS. The Company recorded a provision of $33.5 million at June 30, 1994 related to the planned disposition of the Company's information systems business. This provision is to reduce the net assets of the segment to their estimated fair value and to cover the projected operating losses of LIS during the first four months of fiscal 1995, as well as expenses in connection with the sale. The transaction is expected to close on or about October 31, 1994. The Company is continuing its review with the investment banker of various strategic options concerning its mortgage banking unit.
Reduction in Force and Restructuring
During the second quarter of fiscal 1994, the Company announced a plan to restructure its operations with a view to decreasing expenses and enhancing productivity. Under the plan, the Company's workforce was reduced by approximately 10 percent or approximately 200 employees. In connection with the plan, the Company's continuing operations recorded a charge of $5.7 million of which $5.1 million was recorded by the mortgage banking division.
Higher interest rates since February 1994 have resulted in the cessation of the mortgage refinancing boom and decline in mortgage servicing portfolio runoff rates. As a result, the Company's mortgage production activity and revenues also have precipitously declined. To offset the significant declines in production-related revenues, to reduce its servicing-related costs and to move the Company toward a single-company operation, the Company approved another restructuring plan in June 1994. Under the plan, the Company intends to reduce its workforce by another 10 percent or approximately 200 employees through terminations or a voluntary early retirement program. The planned reduction in force will be completed by December 1, 1994. In connection with the plan, the Company's continuing operations provided a reserve of $10.0 million effective June 30, 1994 (of which $4.0 million was recorded by Lomas Mortgage). Of the $10.0 million, $2.9 million represents the benefits to be paid on terminations and approximately $1.3 million is the estimated pension plan curtailment loss related to voluntarily early retiring employees. Employees to be terminated include employees in mortgage production and servicing-related areas and in corporate general and administrative areas. The remaining $5.8 million reserves were provided to cover planned termination of certain lease agreements and writedown of certain fixed assets.
First Mortgage Loans Held For Sale
At June 30, 1994 the Company's first mortgage loans held for sale totaled $257.5 million in principal amount, of which $252.4 million, or 98%, was committed for sale to third parties. Approximately two-thirds of the Company's commitments to sell mortgage loans held for sale are related to exclusive ongoing commitments from a major public pension fund and various state and local housing authorities to purchase, at the Company's cost, loans or FNMA-guaranteed, mortgage-backed securities collateralized by loans originated under programs sponsored by those investors. At June 30, 1994 and 1993, first mortgage loans held for sale included approximately $138.6 million and $176.0 million, respectively, of FNMA mortgage-backed securities. At June 30, 1994 approximately 79% of the Company's pipeline (i.e., commitments to purchase loans or extend credit) was not subject to significant market risk as it has been committed for sale to the major public pension fund or various state and local housing authorities at the Company's cost. The remaining 21% of the Company's pipeline was hedged by commitments by third parties to purchase such loans based on the Company's best estimate of its market risk on its pipeline.
At June 30, 1994 first mortgage loans held for sale also included $6.0 million of loans held under reverse repurchase agreements.
Investments
Investments consisted of the following (in thousands):
June 30 ------------------ 1994 1993 -------- --------
Commercial paper and bank certificates of deposit $ 72,104 $168,109 Restricted investments 32,281 53,173 Mortgage servicing partnership 5,377 3,367 Other investments 4,973 7,046 Fixed maturity securities 71 9,540 Marketable equity securities 2,646 4,625 -------- -------- $117,452 $245,860 ======== ========
Commercial paper and bank certificates of deposit are funded with proceeds from, and are pledged as collateral for, investment lines of credit. The commercial paper and bank certificates of deposit have fixed rates of interest and generally mature within 31 days, at which time the investment lines of credit are paid down. Revenue from the net interest spread on these transactions totaled approximately $14.2 million, $11.5 million, $7.1 million and $10.1 million for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991, respectively. Investment income for the years ended June 30, 1994 and 1993 also included $2.3 million and $9.3 million, respectively, of gains, fees and interest income received on reverse interest rate swaps which were not accounted for as hedges.
Restricted investments at June 30, 1994 includes $10 million held in escrow deposits securing the Company's indemnification obligations in connection with the sale on April 30, 1990 of the Company's commercial leasing subsidiary, ELLCO Leasing Corporation. Restricted investments at June 30, 1994 and 1993 also included $10.4 million and $8.2 million, respectively, of marketable securities purchased to fund certain benefit plans and treasury notes and certificates of deposit of $7.3 million and $11.7 million at June 30, 1994 and 1993, respectively, pledged to secure contingent repurchase obligations. Also at June 30, 1994 and 1993, cash and certificates of deposit of $2.9 million and $13.3 million, respectively, were either held on behalf of others or pledged to secure various letters of credit.
Receivables
Receivables consisted of the following (in thousands):
June 30 ---------------- 1994 1993 ------- -------
Escrow deficiencies $40,016 $35,111 Advances on mortgage-backed securities 7,935 14,118 Receivables for servicing related advances and settlements 6,259 7,898 Mortgage notes receivable 9,284 7,361 Foreclosure claims 5,395 5,733 Accrued interest 2,685 4,109 Amounts due from officers 643 1,034 Other accounts receivable 7,788 6,466 Servicing sales receivable 4,150 3,289 ------- ------- $84,155 $85,119 ======= ======= Escrow deficiencies and advances on mortgage-backed securities represent the advances the Company makes in connection with its loan servicing activities. The Company makes certain payments for property taxes and insurance premiums in advance of collecting them from specific mortgagors. Also, in connection with servicing mortgage-backed securities guaranteed by GNMA or FNMA, the Company advances certain principal and interest payments to security holders prior to collection from mortgagors.
At June 30, 1994, 1993 and 1992 the Company serviced 565,531, 605,655 and 600,205 loans, respectively. The aggregate unpaid principal balance of the Company's servicing portfolio was $34.0 billion, $32.7 billion and $29.3 billion at June 30, 1994, 1993 and 1992, respectively.
Fixed Assets
Fixed assets, at cost, consisted of the following (in thousands):
June 30 ------------------ 1994 1993 -------- --------
Land $ 10,754 $ 10,388 Buildings 59,311 42,679 Furniture, equipment and leasehold improvements 31,208 23,488 Capitalized computer software 2,703 1,664 -------- -------- 103,976 78,219 Accumulated depreciation (14,822) (8,322) -------- -------- $ 89,154 $ 69,897 ======== ========
In fiscal 1993 the Company acquired an office building and adjacent land and improved the building for its intended use during fiscal 1993 and 1994 at a total capitalized cost of $25.9 million including imputed capitalized interest expense of approximately $1.0 million.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consisted of the following (in thousands):
June 30 ---------------- 1994 1993 ------- -------
Prepaid pension expense $16,797 $17,978 Other prepaid expenses 1,857 2,590 Unamortized debt issuance cost 8,656 10,325 Other assets 2,823 1,320 ------- ------- $30,133 $32,213 ======= =======
At June 30, 1994 and 1993, the Company's discontinued operations had prepaid pension expense of $1,784,000 and $1,749,000, respectively, which were included in net assets of discontinued operations.
Warehouse lines of credit are used to support warehouse fundings and are principally fee-based arrangements that are calculated as a percentage of the total commitments and/or a percentage of the outstanding balance. Substantially all first mortgage loans held for sale are pledged as collateral. The Company also has entered into investment lines of credit arrangements with several financial institutions. Borrowings under these lines of credit are invested in and are secured by commercial paper and bank certificates of deposit. Escrow, agency and fiduciary funds maintained in trust accounts normally serve as compensating balances under the warehouse and investment lines of credit arrangements, and the Company incurs a reduced interest rate on borrowings as a result of these compensating balances. At June 30, 1994 amounts available under the investment lines of credit were $630.0 million, of which $72.1 million were in use.
Mortgage-backed securities held for sale to investors are financed from time to time through repurchase agreements with securities dealers in the business of providing such financing. These repurchase agreements, which generally mature in 60 days or less, conform to the standard form of agreement utilized by the Public Securities Association. The terms and conditions of these repurchase agreements, including interest rate, are negotiated on a transaction-by-transaction basis. At June 30, 1994, amounts available under the warehouse lines of credit and repurchase agreements were $780 million, of which $245.6 million were in use.
During the year ended June 30, 1994, the Company, through Lomas Mortgage, entered into a Senior Secured Working Capital Credit Agreement (the "3/94 Credit Agreement") with a bank (the "Lender"). Under the 3/94 Credit Agreement, the Lender agreed to provide up to $25 million of secured working capital financing through March 20, 1995 at prime rate. Assets securing this working capital line include servicing receivables, foreclosure claims, notes receivables and other receivables with a total carrying value of $49.3 million at June 30, 1994.
On October 1, 1992 the Company, through Lomas Mortgage, issued $340 million principal amount of unsecured notes. The notes were issued in two tranches: $150 million of 9.75% notes due 1997 and $190 million of 10.25% notes due 2002. The blended interest cost on these notes is 10.03%. The net proceeds of this offering were used to retire $330 million of increasing rate term notes due 1999 which Lomas Mortgage issued pursuant to LFC's plan of reorganization.
The senior convertible notes due 2003 bear interest at 9% and are convertible into approximately 8,000,000 shares of LFC's common stock at a conversion price of $17.50 per share. The notes may be redeemed in whole or in part at the option of the Company on or after October 31, 1993 at prices ranging from 107.2% decreasing to 100% on or after October 31, 2001. Beginning in 1997 the Company is required to provide sinking fund payments of $10 million principal each year until 2002. Dividends are restricted to 50% of LFC's accumulated consolidated net income, as defined in the indenture, since January 1, 1992. As of June 30, 1994, the Company's failure to meet certain ratio requirements contained in the covenants, while not an event of default, limits the Company's ability to issue additional term debt.
Under the terms of the warehouse agreement, servicing payment agreement and working capital line of credit that contains the most restrictive covenants, Lomas Mortgage is restricted from making dividend payments to LFC if, after giving effect thereto, the aggregate amount of such payments should exceed the sum of (i) $25 million (less any intercompany advances); plus (ii) 50 percent of Lomas Mortgage's accumulated consolidated income before tax since October 1, 1992; or reduced by 100 percent of consolidated loss before income taxes; plus (iii) (a) before November 30, 1993, the fair value of the aggregate net proceeds received by Lomas Mortgage from the issuance or sale after October 1, 1992 of its capital stock (b) after November 30, 1993, the aggregate net cash proceeds received from the issuance or sale of capital stock and warrants, options and rights to purchase its capital stock. The minimum net worth requirement, as defined, under these covenants at June 30, 1994 was $200 million and Lomas Mortgage's net worth as defined at that date before the amendment described below was $196.8 million which restricted Lomas Mortgage from declaring dividends or making additional advances to LFC. Pursuant to the amended debt agreements which were executed in September 1994, but effective June 30, 1994, the minimum net worth requirement was reduced to $175 million and, therefore, Lomas Mortgage could transfer as intercompany advances to LFC approximately $12.0 million. The total warehouse lines of credit available was reduced to $120 million per its amendment.
At June 30, 1994 Notes Payable and Repurchase Agreements are due within one year and maturities of the term notes payable and the senior convertible notes payable were as follows in the following fiscal years (in thousands):
1995 $ 4,541 1996 38,770 1997 -- 1998 150,000 1999 -- Thereafter 329,918 -------- $523,229 ========
Federal Income Taxes
The Company files a consolidated federal income tax return. All companies included in the consolidated federal income tax return are jointly and severally liable for any tax assessments based on such consolidated return.
Fresh start reporting requires the Company to report federal income tax expense when in a taxable position before utilization of pre- reorganization net operating loss carryforwards and recognition of the benefit of pre-reorganization deductible temporary differences. Benefits realized in the consolidated tax return from utilization of pre- reorganization net operating loss carryforwards and recognition of pre- reorganization deductible temporary differences existing at confirmation of LFC's plan of reorganization but for which a net deferred tax asset was not recorded are reported as direct additions to paid-in capital under fresh start reporting.
The federal income tax equivalent provision (benefit) is reflected in the statement of consolidated operations as follows (in thousands):
The Company had a consolidated tax net operating loss carryforward at June 30, 1994 totaling approximately $500 million. Of this total $317 million arose prior to the reorganization and will be subject to the limitations of Internal Revenue Code Section 382. These carryovers expire in the years 2003 through 2009.
The Company and its subsidiaries have a total deferred tax liability of $53 million as of June 30, 1994. Deferred tax assets totaled $253 million as of June 30, 1994 subject to a valuation allowance of approximately $200 million. Of this valuation allowance, approximately $88.6 million relates to pre-reorganization tax attributes. Future utilization of these tax attributes on a consolidated basis will result in adjustments to paid-in capital. The net change in the valuation allowance of $70 million for the fiscal year ended June 30, 1994 was primarily attributable to the current year net operating loss and adjustments to the net deferral tax asset for enacted changes in the tax rates.
Deferred tax assets (deductible temporary differences) prior to the allocation of the valuation allowance consisted of the following (in thousands): June 30 ------------------ 1994 1993 -------- --------
Post-reorganization net operating loss carryover $ 64,355 $ 36,654 Pre-reorganization net operating loss carryover 110,950 107,780 Loss reserves 39,926 24,835 Deferred income on terminated swap agreements 3,253 4,430 Purchased servicing writedown 28,446 -- Employee benefits 3,594 2,995 Partnership income 114 583 Uniform capitalization expense 2,331 1,348 Miscellaneous assets 39 -- Total deferred tax assets $253,008 $178,625
Deferred tax liabilities (taxable temporary differences) consisted of the following (in thousands):
June 30 ------------------ 1994 1993 -------- --------
Software development costs $ 20,918 $ 20,501 Pension overfunding 4,913 4,734 Accelerated depreciation 17,995 17,433 Partnership loss 686 945 Excess mortgage servicing fees 3,660 3,675 Lease payments 794 954 Miscellaneous liabilities 4,025 389 -------- -------- $ 52,991 $ 48,631 ======== ======== Stockholders' Equity
At June 30, 1994 LFC had 100,000,000 shares of $1 par value common stock (the "Common Stock") authorized and 20,100,000 shares issued and outstanding. The Common Stock has no preemptive or other subscription rights and there are no conversion rights, redemption or sinking fund provisions with respect to such shares.
In connection with the plan of reorganization, LFC issued warrants to its pre-reorganization equity holders to purchase an aggregate of 7,000,000 shares of Common Stock at a price equal to $29.75 per share. The warrants expire October 31, 2001.
At June 30, 1994 there were 17,300,000 shares reserved for future issuance for the conversion of senior convertible notes, the warrants and stock plans (see "Stock Plans" below).
Stock Plans
The Company has three stock incentive plans, namely the Directors Plan, the 1991 Program and the 1993 Program.
Directors Plan--Directors of the Company who are not employees participate in the Directors Plan. On November 2, 1993 each participating director was granted 500 units under the Directors Plan and an additional 500 units will be granted to each participating director at the 1994 Annual Stockholders Meeting and at each annual stockholders meeting thereafter. Each unit represents the right of the holder thereof to be paid one share of Common Stock at the earlier of (i) the date such holder terminates service as a director of the Company and (ii) the tenth anniversary of the date of the award. The number of shares of Common Stock that may be granted under the Directors Plan is 100,000, and at June 30, 1994 there were 35,000 units outstanding.
1991 Program--The 1991 Program provides for the grant of non-qualified and incentive stock options as well as the grant of performance-restricted stock and other stock-based awards to key personnel and executives based on the Company's preset performance goals approved in the confirmation of the Company's plan of reorganization. The 1991 Program authorized the grant of a maximum of 500,000 shares of Common Stock, of which 100,000 were subject to awards upon LFC's emergence from reorganization, and of which no more than 75,000 shares may be awarded as performance-restricted stock subject to intermediate term awards. The 1991 Program expired January 31, 1994.
1993 Program--The 1993 Program provides for the grant of any or all of the following types of awards: (1) stock options, including incentive stock options and non-qualified stock options; (2) stock appreciation rights, either in tandem with stock options or freestanding; (3) restricted stock awards; (4) performance shares; (5) performance units; (6) dividend equivalents; and (7) other stock-based awards to key personnel and executives based on each such individual's present and potential contribution to the success of the Company. The 1993 Program authorizes the issuance of Common Stock (or with respect to which awards may be granted) up to a maximum of 1,800,000 shares; provided, no more than 300,000 shares may be granted in any one fiscal year.
During fiscal 1994 options for 287,936 shares had been granted and 1,512,064 options remained available for grant under the 1993 Program and options for 13,314 shares had been granted (net of 76,250 options canceled) under the 1991 Program prior to its expiration on January 31, 1994.
Information on stock options is summarized below (in thousands, except price per share):
Number of Price Aggregate Shares Per Share Option Price --------- --------- ------------
Outstanding at July 1, 1992 193 $8.25 $1,592 Granted 141 $8.25 1,163 Canceled (8) $8.25 (66) ---- ------
Outstanding at June 30, 1993 326 $8.25 2,689 Granted 301 $8.25 2,485 Canceled (76) $8.25 (629) ---- ------ Outstanding at June 30, 1994 551 $8.25 $4,545 ==== ======
The options expire at various dates beginning February 13, 2002 and ending January 25, 2004. At June 30, 1994 and 1993 options for 276,000 and 132,000 shares, respectively, were exercisable.
Mortgage Servicing Portfolio Risks
The Company's combined primary servicing and subservicing portfolios include mortgage loans secured by properties located in all 50 states and the District of Columbia with the heaviest loan concentrations (in terms of principal amount) in the states of California, Texas, Florida, New Jersey, Massachusetts and Arizona. The Company's servicing portfolio is comprised of the following:
June 30, 1993 June 30, 1992 ----------------------- ----------------------- Principal Principal Number Balance Number Balance of Outstanding of Outstanding Loans (in millions) Loans (in millions) ------- ------------- ------- -------------
FHA--insured mortgage loans 166,885 $ 4,861 202,255 $ 5,991 VA--guaranteed mortgage loans 106,572 2,970 128,839 3,615 Conventional mortgage loans 201,004 19,295 199,612 18,155 ------- ------- ------- ------- 474,461 27,126 530,706 27,761 Subservicing 91,070 6,864 74,949 4,916 ------- ------- ------- ------- 565,531 $33,990 605,655 $32,677 ======= ======= ======= =======
Upon foreclosure, an FHA/VA property is typically conveyed to HUD or VA. However, when it is in the VA's financial interest, it has the authority to deny conveyance of the foreclosed property to the VA ("VA no-bids"). The VA instead reimburses the Company based on a percentage of the loan's outstanding principal balance. For GNMA loans or VA no-bids, the foreclosed property is conveyed to the Company, and the Company assumes the market risk of disposing of the property.
In some cases, the Company is required to make guaranteed principal and interest payments on certain mortgage-backed securities regardless of actual collection from the underlying mortgage loans. In certain instances, the Company will buy foreclosed loans out of a pool and either attempt to have them reinstated or foreclose upon the secured properties. A portion of these advances on GNMA loans are not recoverable. As of June 30, 1994 and 1993, a reserve for GNMA loans on unrecoverable advances and VA no-bids of approximately $3.1 million and $4.0 million, respectively, had been established.
GNMA losses, including advances and VA no-bids, for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991 were $8.0 million, $9.3 million, $6.5 million and $5.2 million, respectively.
At June 30, 1994 the Company is servicing approximately $13.9 million in recourse loans that relate to servicing purchased from third parties. The Company is obligated to purchase individual mortgages from investors if such mortgages are foreclosed.
Financial Instruments With Off-Balance Sheet Risks
Reverse Interest Rate Swaps--The Company, through Lomas Mortgage, has entered into reverse interest rate swap agreements since July 1992. Under the terms of these swap agreements, the Company receives an annual fixed rate of interest and pays a floating rate of interest based on the 30-day average A1/P1 commercial paper rate. At June 30, 1994 interest rate swaps in the aggregate notional amount of $800 million were outstanding, all of which were designated as hedges. These swaps will mature in October 1998. The Company receives an average fixed interest rate of 4.765 percent on these swaps. The floating interest rate, which the Company pays, at June 30, 1994 was 4.5 percent. The Company has not entered into any additional interest rate swap agreements since October 1993. During the year ended June 30, 1994 and 1993, the swaps resulted in net interest savings of $13.9 million and $17.7 million, including gains of $2.3 million and $7.2 million, respectively, recognized on termination of swaps which were accounted for as speculative.
Since its inception in July 1992 and through June 30, 1994, the swap program has generated net cash of $43.1 million, including $11.5 million of deferred income which currently is being amortized as an offset to future net interest expense at the rate of $3.3 million per year.
The terms of the swaps provide that the counterparty, under certain circumstances, can demand collateral from Lomas Mortgage to protect against mark-to-market exposure attributable to the agreements. During fiscal 1994, as a result of increases in interest rates, Lomas Mortgage, at the request of the counterparty, pledged servicing rights related to approximately $4.8 billion of mortgage loans as collateral which had a carrying value of $98.7 million at June 30, 1994. According to an amended pledge agreement, the counterparty can demand additional collateral from Lomas Mortgage up to $2.0 billion unpaid principal balance of mortgage loans if unrealized swap termination liabilities in the future exceed $80 million.
The swap agreements contain certain default and termination provisions whereby the counterparty can terminate the agreements prior to their maturity, including a provision which permits the counterparty to terminate if, in its reasonable business judgment, there has been a material adverse change since April 1, 1994 in the business, assets, operations or financial condition of Lomas Mortgage.
The Company estimates that if the swap agreements had been terminated as of June 30, 1994, Lomas Mortgage would have incurred a liability, net of $11.5 million related deferred gains, of approximately $54.0 million.
Loans Sold With Recourse--The Company has sold, with recourse, single- family mortgages with unpaid principal balances aggregating $48.5 million at June 30, 1994. The Company is obligated to repurchase individual mortgages if such mortgages reach specified stages of delinquency. At June 30, 1994 restricted cash balances of $1.4 million and treasury notes totaling $4.7 million had been pledged to secure the Company's contingent repurchase obligations.
Commitments to Purchase and to Sell Loans--At June 30, 1994 the Company's commitments to purchase and originate loans totaled $564.8 million of which approximately 79%, or $444.1 million, had been committed for sale to financially responsible third parties at the Company's cost. The remaining 21%, or $120.7 million, of the Company's commitments to purchase and originate loans and $257 million of loans held for sale were hedged by forward contracts to sell mortgage-backed securities of approximately $258.1 million, which represented the Company's best estimate of its market risk on such loans.
If secondary market interest rates decline after the Company commits to an interest rate for a loan, the loan may not close and the Company may incur a loss from the cost of covering its obligations under any related forward commitments. If secondary market interest rates increase after the Company commits to an interest rate for a loan and the Company has not obtained a forward commitment, the Company may incur a loss when the loan is subsequently sold.
Paid-in-Full Interest--In connection with servicing certain mortgage- backed securities under most of the Company's servicing agreements, the Company is required to pay to investors a full month's interest on each loan although the loan may be paid off other than on a month-end basis. Therefore, the Company is obligated to pay the investor interest at the agreed rate from the date of loan payoff through the end of the calendar month without reimbursement. At June 30, 1994 the unpaid principal balance of the Company's mortgage servicing portfolio that is subject to paid-in-full interest totaled $16.1 billion.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") 107 requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for those that it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and the relevant market information. Where available quoted market prices are used, and in other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. The derived fair value estimates cannot be substantiated by comparison to independent markets and could not be realized in an immediate sale of the instruments.
Under SFAS 107 fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. The aggregate fair value amounts presented do not represent the underlying market value of the Company.
Described below are the methods and assumptions used by the Company in estimating fair values.
Cash and Cash Equivalents--The carrying amounts reported in the consolidated balance sheet approximate the fair values as maturities are less than three months.
First Mortgage Loans Held For Sale--Fair value is estimated using the quoted market prices for securities backed by similar types of loans and current commitments to purchase such loans.
Investments--Commercial paper and bank certificates of deposit generally mature within 31 days; therefore, the carrying amounts reported in the consolidated balance sheet are the approximate fair value. Restricted cash balances approximate the fair value. Fair value on mortgage loans held for investment is estimated using the quoted market prices for securities backed by similar loans adjusted for differences in financial characteristics. Fair value on fixed-maturity debt securities are based on quoted market prices.
Discontinued Operations--The carrying amounts for cash represent the fair value. Notes receivable's fair value is estimated by discounting cash flows at interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Debt securities' fair value is estimated using the quoted market price.
Notes Payable and Repurchase Agreements--The carrying amounts approximate fair values due to the short term maturity of these instruments.
Term Notes and Senior Convertible Notes Payable--Fair value is based on the quoted market prices.
Reverse Interest Rate Swaps--Fair values are obtained from dealer quotes. These values represent the estimated amount the Company would receive or pay to terminate the agreements at the reporting date.
Commitments to Purchase and to Sell Loans--The fair value of commitments to purchase loans is based upon the difference between the current value of similar loans and the price at which the Company has committed to purchase the loans. The fair value of commitments to sell loans contracts is the estimated amount that the Company would receive or pay to terminate the commitments at the reporting date based on market prices for similar financial instruments.
The estimated fair values of the Company's on-balance sheet and off- balance sheet financial instruments were as follows (in thousands of dollars):
June 30, 1994 June 30, 1993 -------------------- -------------------- Carrying Carrying Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- Financial Assets: Cash and cash equivalents $ 7,206 $ 7,206 $ 34,368 $ 34,368 First mortgage loans held for sale 257,534 258,067 367,383 368,272 Investments 109,418 107,614 238,957 242,763 Net assets of discontinued operations: Cash 41,371 41,371 31,800 31,800 Notes receivable 39,048 38,400 91,772 88,553 Debt securities 61,987 52,689 121,992 108,268
Financial Liabilities: Notes payable and repurchase agreements 341,047 341,047 515,320 515,320 Term notes and senior convertible notes payable 523,229 483,921 532,198 540,977
Off-balance sheet items: Reverse interest rate swaps (liability) -- (65,505) -- -- Commitments to purchase loans (liability) -- (46) -- 422 Commitments to sell loans -- 6 -- 473
Contingent Liabilities
On September 17, 1990 plaintiffs purporting to represent a class of single-family mortgagors having escrow deposits computed by Lomas Mortgage within the past ten years filed a class-action complaint in the Circuit Court of Cook County, Illinois. The complaint alleges that Lomas Mortgage is in breach of mortgage contracts and is assessing excessive and unlawful escrow deposits and in addition the complaint asks for punitive damages. On October 4, 1990 this lawsuit was removed to the United States District Court for the Northern District of Illinois. Similar actions for damages, fees and other relief were filed in California and Minnesota state courts and class- action counterclaims have been filed in two pending Illinois foreclosure actions. The state court actions were removed to federal court and transferred to the Northern District of Illinois where they are currently pending before the same judge as the original action. The state court counterclaims are stayed.
On August 26, 1994, the United States District Court for the Northern District of Illinois preliminarily approved a settlement that, if finally approved, will result in the dismissal, with prejudice, of all claims that were or could have been brought by the class. Pursuant to the terms of the settlement, Lomas Mortgage has agreed to follow certain escrow servicing procedures that result in lower escrow balances for certain of its mortgagors and has already refunded the surplus escrow balance to its mortgagors that resulted from the implementation of this procedure. Lomas Mortgage has also agreed to implement certain special servicing procedures for its mortgagors whose mortgages are written on older conventional mortgage forms. In addition to these escrow servicing procedures, Lomas Mortgage has agreed to provide, once the settlement is finally approved and the case dismissed, a one-time rebate to its eligible present and former mortgagors. The total rebate is currently estimated to be less than six-hundred thousand dollars ($600,000). Finally, Lomas Mortgage has agreed to reimburse class counsel for their reasonable attorneys' fees and costs. Lomas Mortgage recorded a provision at June 30, 1994 for the estimated rebate and attorneys' fees.
A hearing to determine whether the Court should finally approve the settlement is currently scheduled for November 21, 1994.
The Company is also involved in a number of other lawsuits considered to be in the normal course of business. In management's opinion, the resolution of these other disputes will not have a material adverse effect on the financial position of the Company.
Leases
The Company's continuing operations incurred rental expense and had future minimum rental commitments at June 30, 1994 for noncancelable leases as follows (in thousands):
Office Space Equipment Total ------ --------- ------ Expense for the year ended June 30: Six months ended December 31, 1991 $2,661 $ 415 $3,076 Six months ended June 30, 1992 $1,499 $ 434 $1,933 1993 $3,316 $ 811 $4,127 1994 $2,977 $1,054 $4,031
Commitments for the years ending June 30: 1995 $1,052 $1,107 $2,159 1996 971 1,023 1,994 1997 733 338 1,071 1998 632 42 674 1999 501 9 510 ------ ------ ------ Total minimum lease payments $3,889 $2,519 $6,408 ====== ====== ======
Pension Plans
Defined Benefit Plan--The Company's pension plan is sponsored by Lomas Mortgage. The plan is a noncontributory plan which covers substantially all employees of the Company. Benefits are based on the employee's years of service and compensation. Pension plan assets consist principally of listed stocks and bonds and United States government securities. The Company makes contributions to the plan which equal or exceed the minimum amounts required by the Employee Retirement Income Security Act of 1974.
Credits to expense related to the defined benefit plan included the following components (in thousands):
Year Ended June 30 ------------------------- 1994 1993 1992 ------- ------- -------
Actual return on plan assets $ 4,009 $ 3,927 $ 4,066 Net amortization and deferrals 132 195 428 Service costs--benefits earned (1,768) (1,557) (1,417) Interest on projected benefit obligations (2,259) (2,206) (2,335) Curtailment (1,260) -- -- ------- ------- ------- Net credit (expense) recognized $(1,146) $ 359 $ 742 ======= ======= =======
During the quarter ended June 30, 1994, the Company approved a plan of restructuring including a reduction in its workforce. As a result a group of employees covered by the defined benefit plan are to be terminated or accept early retirement benefits. An expense of $1,260,000 from the curtailment had been included in the 1994 expense.
The funded status of the Company's defined benefit plan after giving effect to accruals and contributions was as follows (in thousands):
June 30 ------------------ 1994 1993 -------- --------
Plan assets at market value $ 45,385 $ 48,290 Actuarial present value of projected benefit obligations (29,872) (29,192) -------- -------- Excess plan assets 15,513 19,098 Unrecognized excess plan assets being amortized over 15 years (6,077) (6,917) Unrecognized actuarial loss 11,574 7,787 Unrecognized prior service cost (1,169) (241) Loss on curtailment (1,260) -- -------- -------- Prepaid pension expense recorded in the financial statements $ 18,581 $ 19,727 ======== ======== Actuarial present value of accumulated benefit obligations $ 25,452 $ 24,649 Actuarial present value of vested benefit obligations $ 23,316 $ 22,705
Assumptions used in the accounting were:
June 30 ------------------ 1994 1993 1992 ---- ---- ----
Discount/settlement rates 7.5% 8.0% 8.5% Rates of increase in compensation levels 8.1% 8.1% 5.5% Expected long term rate of return on assets 9.0% 9.0% 9.0%
Defined Contribution Plan--The Company has also established a 401(k) savings plan effective April 1, 1993. Substantially all employees of the Company are eligible to participate in the plan. Eligible employees are entitled to contribute up to 12% of salary, and the Company matches up to 35% of an employee's contributions up to 6% of salary. The total amount of contributions made by the Company during fiscal 1994 and 1993 was $445,000 and $108,000, respectively.
Management Security Plan
The Company adopted a Management Security Plan ("MSP") to aid the Company in its continuous effort to attract, motivate and retain outstanding employees. Key employees of the Company who elected to participate in MSP will be paid in the event of retirement or death that portion of the employee's salary which such employee chooses as the basis for computation of his retirement or death benefits. The Company ceased new enrollments in 1985. Funds contributed to the plan are held in a trust. The assets of the trust were included in Investments and totaled $7.3 million at June 30, 1994. The trust's assets are invested at the discretion of the outside trustee. At June 30, 1994 the assets consisted primarily of listed common stocks and fixed-income investments. Marketable securities held by the trust are carried at the lower of aggregate cost or market value. Income and expenses of the trust are included in the Company's consolidated income and expenses. The trust is irrevocable and subject only to the claims of creditors in the event of the insolvency of the Company.
Discontinued Operations
Discontinued operations include the Company's short term lending operations and information systems operations. For the six months ended December 31, 1991, discontinued operations also included the Company's real estate development operations as held and operated by Vista Properties, Inc. ("Vista"), which was spun off in connection with LFC's reorganization.
In May 1994 the Company announced its intent to sell LIS. In September 1994, the Company entered into a letter of intent with a subsidiary of an insurance company to sell substantially all the assets of LIS, therefore, LIS has been accounted for as discontinued operation. The 1993 and 1992 financial statements have been restated to reflect LIS as discontinued operations.
The Company's discontinued short term lending operations include ST Lending, Inc. ("STL"), Lomas Management, Inc. ("LMI"), which manages the assets of STL, and certain other real estate operations. The Company is discontinuing its short term lending operations by orderly liquidation of its portfolio of construction, acquisition and development loans, and foreclosed real estate. Substantially no new commercial loans and only a limited number of residential single-family construction loans have been originated since June 1989. The Company projects future operating losses from its short-term lending operations of approximately $2.1 million through June 30, 1995, which has been provided for as of June 30, 1994.
Operating results from discontinued operations for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991 were as follows (in thousands):
Operating losses of the short term lending operations included $10.1 million, $9 million, $13.6 million and $5.3 million to provide for foreclosure losses and additional allowances for uncollectible receivables for the years ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991, respectively.
Provision for future losses for fiscal 1994 also included a $6.5 million of reserve provided for losses to be realized on STL sales of property in early fiscal 1995 and for restructuring. The sales in early fiscal 1995 would generate net cash of approximately $27.7 million. STL currently has cash on hand of $16.4 million. After prepaying the balance of the secured notes of $19.0 million, STL would have $24.0 million of cash available to advance to the Company.
In May 1993 the Financial Accounting Standards Board issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). SFAS 114 requires impairment of a loan be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient at the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. The Company is currently evaluating the impact from the adoption of this standard. The Company is required to adopt this standard on July 1, 1995.
Net assets of discontinued operations of short term lending were as follows (in thousands):
June 30 ------------------- 1994 1993 -------- --------- Assets: Mortgage notes receivable and foreclosed real estate, net of allowance for losses of $17,904 and $31,821, respectively $111,432 $ 202,911 Cash and restricted cash investments 39,292 31,799 Other assets 2,491 3,079 -------- --------- 153,215 237,789 Less: Secured notes payable (61,987) (121,992) Accrued interest payable and other (3,257) (4,224) Other reserves (2,092) (1,180) -------- --------- $ 85,879 $ 110,393 ======== =========
STL was organized in January 1992 in connection with LFC's plan of reorganization to service, manage and orderly dispose of certain mortgage loans, participations in mortgage loans and foreclosed real estate. In connection with the reorganization, STL issued $240 million of non-recourse notes secured by its assets (the "Collateral") which will mature in 1996. The interest rate on STL's secured non-recourse notes is subject to adjustment for changes in the 90-day LIBOR rate. Principal, interest, rents and income received on the Collateral are used to fund STL's operating expenses and provide for debt service payments. Substantially all of the net assets of STL ($79.9 million at June 30, 1994) are restricted pursuant to provisions of the secured non-recourse notes.
The yield on STL's earning loans (totaling $34.5 million at June 30, 1994) was approximately 8.84%, on its earning real estate (totaling $29.0 million at June 30, 1994) was approximately 9.0%, and on its cash (invested primarily in high-grade commercial paper) was approximately 4.06%. The interest rate on STL's debt outstanding at that date was 6.25%.
Prepayments on the STL notes are required prior to 1996 to the extent STL's cash flow permits. During the year ended June 30, 1994, STL made principal payments aggregating $60.0 million on its secured notes, thereby reducing the balance thereof to $62.0 million. Subsequent to June 30, 1994, STL made additional principal payments of $43.0 million. The outstanding balance of the notes after application of these principal payments was $19.0 million. The secured notes are without recourse to the Company or any subsidiary thereof other than STL.
During the year ended June 30, 1994, LFC reinstated its liquidity support agreement with STL. Under the terms of the agreement, STL, through a trustee, will make quarterly cash deposits (governed by the STL note indenture agreement) into the liquidity support trust account. Amounts deposited into the account are available to LFC for interest shortfalls on LFC's $140 million senior convertible notes. The interest shortfalls are calculated on a predetermined formula. As of June 30, 1994 STL has advanced $6.2 million to LFC for such interest shortfall. The agreement limits the aggregate advances which can be made to $20.0 million.
Loan commitments are made to accommodate the financial needs of the Company's borrowers and are subject to the Company's normal credit policies. Guarantees and other commitments include standby letters of credit, financial guarantees and performance guarantees made by the Company to third parties on behalf of borrowers in connection with the Company's short term lending operations. Even though this segment of business is discontinued, the guarantees remain in effect. These arrangements have credit risk essentially the same as that involved in extending loans.
Outstanding commitments and guarantees at June 30, 1994 were as follows (in thousands):
Loan commitments on existing short term construction, acquisition and development loans $1,326 Guarantees and other commitments $766
The Company's LIS discontinued operations provide information management services and products to the mortgage banking industry. Its products include software packages for mortgage loan servicing, loan production, secondary marketing and master servicing, which it markets on both a service bureau and licensing basis. At June 30, 1994 LIS' service bureau processed, for Lomas Mortgage and its external customers, a total of approximately 1.3 million mortgages. The Company recorded a provision of $33.5 million at June 30, 1994 related to the planned disposition of this segment of the Company's business. This provision is to reduce the net assets of the segment expected to be sold to their estimated fair value and to cover the projected operating losses of LIS during the first four months of fiscal 1995, as well as expenses in connection with the sale. The transaction is expected to close on or about October 31, 1994. Net assets of discontinued LIS were as follows (in thousands):
June 30 ---------------- *1994 1993 ------- -------
Capitalized computer software $31,433 $61,361 Other assets 9,548 7,210 ------- ------- 40,981 68,571 Less: Accounts payable and other (3,502) (4,382) Future operating losses and selling costs (10,100) -- ------- ------- $27,379 $64,189 ======= ======= _______________ * The amounts for June 30, 1994 are adjusted to reflect the net assets after recording the loss provision on the sale as discussed above.
Transactions With Affiliates
On September 30, 1993 the contractual relationship between the Company and Capstead Mortgage Corporation ("Capstead"), a real estate investment trust managed by a wholly-owned subsidiary of Lomas Mortgage, was terminated and Capstead became entirely self-managed on September 30, 1993. However, Lomas Mortgage will continue to service Capstead's mortgage servicing portfolio existing at the termination of the management agreement which at June 30, 1994 totaled $6.1 billion. In connection with the early termination provision included in the amended management agreement, the Company received a final payment of $4.8 million, which represented the discounted value of payments previously scheduled to be made by Capstead to the Company during the balance of fiscal 1994 and 1995. The Company's contractual relationship with Capstead resulted in the following (in thousands):
Operating costs related to the Capstead management fee income were approximately $2.1 million, $5.8 million, $2.6 million and $2.1 million for the year ended June 30, 1994 and 1993, six months ended June 30, 1992 and six months ended December 31, 1991, respectively.
During fiscal 1993 and 1994 the contractual relationship between Capstead and the Company was amended and shortened to provide for Capstead's move to a self-administered status on September 30, 1993. Pursuant to the amendments, the Company received management fees based on an amount equal to the Company's costs plus a fixed profit aggregating $9.4 million. The Company also agreed that for a period of one year after the termination of the agreement not to compete, organize or provide management services to any real estate investment trust. The Company received $5.3 million in connection with the non-compete agreement and a six-year option to acquire 750,000 shares of Capstead common stock at $32.625 per share which the Company recorded at $3.0 million and was included in income from other affiliates. The Company also received $4.8 million fees for early termination of the management agreement. During fiscal 1994 and 1993, the Company recognized total income of $6.0 million and $17.2 million, respectively (excluding reimbursed expenses), from the amended management agreement and the non-compete agreement.
The Company, through a wholly-owned subsidiary (which is accounted for as a discontinued operation), is a manager of Liberte Investors ("Liberte"), a real estate investment trust. During the year ended June 30, 1993, the Company amended its management agreement with Liberte. Under the amended agreement, Liberte pays the Company management fees equal to 1% of Liberte's invested assets net of reserves. The management agreement may be terminated by either party for cause at any time upon 60-days written notice or without cause upon 90-days written notice. For the years ended June 30, 1994 and 1993, the Company received management fees of $1.9 million and $2.9 million, respectively, under the amended management agreement. For the six months ended June 30, 1992 and six months ended December 31, 1991, the Company received management fees of $880,000 and $1.0 million under the old management agreement.
The Company, through Lomas Mortgage, is a partner and manager of Lomas Mortgage Partnership (the "Partnership"). The Company owns one-third of the Partnership and at June 30, 1994 the Company's investment in the Partnership approximated $5.4 million. The Partnership is engaged primarily in acquiring mortgage servicing rights and servicing single-family mortgages. The Company subservices all mortgages in the Partnership's mortgage servicing portfolio for its usual subservicing fees. During the year ended June 30, 1994 and 1993, the Company sold to the Partnership approximately $1.2 billion and $361.8 million in unpaid principal balance of mortgage servicing income rights with a carrying value of $13.7 million and $4.7 million for $12.1 million and $4.7 million, respectively. The PMSRs sold in fiscal 1994 had been acquired in 1994 and were expected to yield the Company an annual return of approximately 13.6 percent. The Company received subservicing fees of approximately $3.9 million and $1.4 million from the Partnership during fiscal 1994 and 1993, respectively.
Subsequent Events
In September 1994 the Company entered into a letter of intent with an insurance company to sell substantially all the assets of LIS. For more information, see the "Discontinued Operations" footnote.
Also for information on the sale of certain assets of STL that is expected to occur in early fiscal 1995, see the "Discontinued Operations" footnote.
Quarterly Results (Unaudited)
The following is a summary of the unaudited quarterly results of operations for the two years ended June 30, 1994 (in thousands of dollars, except per share amounts).
Year Ended June 30, 1994 First Second Third Fourth Quarter Quarter Quarter Quarter
Revenues from continuing operations 80,064 65,761 63,833 61,400 Loss from continuing operations (39,698) (42,503) (4,746) (21,555) Loss from discontinued operations (9,869) (5,635) (12,923) (45,737) Net loss (49,567) (48,138) (17,669) (67,292) Earnings (loss) per common share: Loss from continuing operations (1.97) (2.11) (.24) (1.07) Net loss (2.46) (2.39) (.88) (3.34)
During the first quarter and second quarter of fiscal 1994, the Company established provisions of $50.0 million and $30.0 million, respectively, related to impairment in the carrying value of PMSRs.
For information concerning the Company's reduction in force and restructuring in the second quarter and fourth quarter, see "Reduction in Force and Restructuring" footnote.
In the fourth quarter of fiscal 1994, the Company recorded a provision of $33.5 million relating to the pending sale of substantially all the assets of LIS.
Year Ended June 30, 1993 First Second Third Fourth Quarter Quarter Quarter Quarter
Revenues from continuing operations 73,616 70,463 73,352 75,923 Income from continuing operations 8,149 6,791 7,580 7,037 Loss from discontinued operations (3,740) (3,481) (4,077) (5,965) Net income 4,409 3,310 3,503 1,072 Earnings per common share: Income from continuing operations .41 .34 .38 .35 Net income .22 .16 .17 .05
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Registrant's condensed financial statements for periods prior to reorganization are not presented as the Registrant had different capital structure and information for these periods is not meaningful.
LOMAS FINANCIAL CORPORATION CONDENSED BALANCE SHEET (in thousands)
June 30, 1994 and 1993
ASSETS
June 30 1994 1993
Cash $ (1,237) $ 1,925
Receivables (including $7,062 and $1,476, respectively, due from subsidiaries eliminated in consolidation) 7,689 2,097 Investments (including $170,234 and $262,578, respectively, investments in subsidiaries eliminated in consolidation) 188,702 300,857 Less: Allowance for losses (2,383) (633) 194,008 302,321
Fixed assets, prepaid expenses and other assets 4,748 5,061 Net assets of discontinued operations 113,258 174,582
$ 310,777 $483,889
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities: Accounts payable and accrued expenses (including $15,295 and $4,070, respectively, due to subsidiaries eliminated in consolidation) $ 29,424 $ 19,892 Senior convertible notes payable 139,918 139,918 169,342 159,810 Stockholders' Equity: Common stock 20,100 20,097 Other paid-in capital (including $1,300 eliminated in consolidation) 309,429 309,410 Retained earnings (deficit) (188,094) (5,428) 141,435 324,079
$ 310,777 $483,889
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
LOMAS FINANCIAL CORPORATION CONDENSED STATEMENT OF OPERATIONS (in thousands)
Years Ended June 30, 1994 and 1993 and Six Months Ended June 30, 1992
Year Ended Six Months June 30 Ended 1994 1993 June 30, 1992 Revenues: Investment (excluding dividends from subsidiaries) $ 3,234 $ 6,244 $ 4,980 Other 4,098 6,644 331 7,332 12,888 5,311
Expenses: Interest 13,260 12,898 6,428 General and administrative 13,957 7,232 3,867 27,217 20,130 10,295 Loss before federal income tax equivalent provision and equity income (loss) of subsidiaries (19,885) (7,242) (4,984) Federal income tax equivalent benefit -- 7,265 3,439 Equity in net income (loss) of subsidiaries (88,617) 29,534 13,103 Income (loss) from continuing operations (108,502) 29,557 11,558 Loss from discontinued operations (74,164) (17,263) (29,280)
Net income (loss) $(182,666) $ 12,294 $(17,722)
Dividends paid by subsidiaries $ 744 $ 21,083 $ 3,985
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
LOMAS FINANCIAL CORPORATION CONDENSED STATEMENT OF CASH FLOWS (in thousands)
Years Ended June 30, 1994 and 1993 and Six Months Ended June 30, 1992
Year Ended Six Months June 30 Ended 1994 1993 June 30, 1992 Operating activities: Income (loss) from continuing operations $(108,502) $ 29,557 $ 11,558 Noncash items included in the determination of income (loss) from continuing operations: Depreciation and amortization 232 226 108 Provision for losses and restructuring 4,630 -- -- Equity (income) loss of subsidiaries 88,617 (29,534) (13,103) Federal income tax equivalent benefit -- (7,265) (3,439) Cash used by operations before working capital changes (15,023) (7,016) (4,876) Net change in receivables, payables and other assets (3,912) (7,219) (29,348) (18,935) (14,235) (34,224)
Investing activities: Purchases of investments (3,525) (997) -- Sales of investments 26,467 4,681 29,583 Other 31 (151) (145) 22,973 3,533 29,438 Financing activities: Change in receivables/payables from/(to) subsidiaries 5,639 34,197 13,497 Funding of discontinued LIS operations (19,854) (23,998) (13,903) Change in receivables/payables from/(to) discontinued short term lending and other real estate operations 7,015 (6,455) 1,669 (7,200) 3,744 1,263
Net decrease in cash and cash equivalents (3,162) (6,958) (3,523) Cash and cash equivalents at beginning of period 1,925 8,883 12,406
Cash and cash equivalents (deficit) at end of period $ (1,237) $ 1,925 $ 8,883
SCHEDULE IX -- SHORT TERM BORROWINGS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
COL. B COL. C COL. D COL. E COL. F Maximum Average Weighted Amount Amount Average Balance at Weighted Outstanding Outstanding Interest Rate End of Average During the During the During the Period Interest Rate Period Period(1) Period(2)
Year Ended June 30, 1994: Notes payable to banks and others $245,570,000 3.64% $428,567,000 $302,531,000 2.46% Investment lines of credit 72,105,000 1.00% 174,805,000 128,073,000 1.34% Repurchase agreements -- -- 328,304,000 169,310,000 4.33% Senior secured working capital credit agreements 22,000,000 7.25% 25,000,000 5,417,000 7.36% Other 1,372,000 2.00% 8,775,000 2,514,000 2.20%
Year Ended June 30, 1993: Notes payable to banks and others $248,071,000 1.59% $254,014,000 $213,283,000 1.79% Investment lines of credit 168,109,000 1.22% 328,294,000 217,704,000 1.11% Repurchase agreements 99,140,000 3.38% 333,441,000 233,411,000 3.46%
Six Months Ended June 30, 1992: Notes payable to banks and others $178,104,000 1.60% $224,284,000 $197,374,000 3.06% Investment lines of credit 289,024,000 1.16% 289,024,000 219,343,000 1.18% Repurchase agreements 184,960,000 4.01% 184,960,000 141,611,000 4.14%
Six Months Ended December 31, 1991: Notes payable to banks and others $180,170,000 3.11% $180,170,000 $148,795,000 3.19% Investment lines of credit -- -- 237,480,000 197,731,000 1.13% Repurchase agreements 36,273,000 5.25% 134,593,000 95,530,000 5.54%
(1) The average amount outstanding during the period was computed using the sum of the actual amount outstanding on each day divide by the actual days of the year. (2) The weighted average interest rate during the period was computed by dividing the actual interest expense for the year by the average short term debt outstanding. /TABLE
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required for Directors is included in the registrant's 1994 Proxy Statement dated October 3, 1994 issued in connection with its Annual Meeting to be held November 1, 1994 on pages 6 through 8 under the caption "Election of Directors," and is incorporated herein by reference, pursuant to General Instruction G(3).
Executive Officers of the Registrant
JESS HAY--Chief Executive Officer of the Company since 1965; Chairman of the Board of Directors of LFC since 1969; Chairman of the Board of Directors of Lomas Mortgage since 1990. Age 63.
JAMES L. CROWSON--Executive Vice President of the Company since 1994; Director of the Company since 1993; prior thereto, Senior Vice President-- General Counsel of the Company since 1987; Vice Chancellor and General Counsel of The University of Texas System from 1980 to 1987; previously, Executive Vice President and Professor of Political Economy at The University of Texas at Dallas; also a director of Lomas Mortgage. Age 56.
ROBERT E. BYERLEY, JR.--Senior Vice President--Finance and Treasurer of the Company since 1990; President of Lomas Administrative Services since 1993; Executive Vice President of Lomas Mortgage since 1994; prior thereto, Vice President--Finance and Treasurer of the Company from 1988 to 1990; Vice President--Control from 1986 to 1988 and Assistant Vice President--Control of Lomas Mortgage from 1984 to 1986. Age 34.
M. ROBERT ROOFNER--Senior Vice President--Tax of the Company since 1990; prior thereto, Vice President--Tax from 1984 to 1990 and Manager of the Tax Department of the Company from 1983 to 1984. Age 48.
RAMONA TAYLOR--Senior Vice President and Corporate Secretary of the Company since 1990; prior thereto, Corporate Secretary of the Company from 1975 to 1990. Age 64.
GARY WHITE--Senior Vice President and Controller and Principal Accounting Officer of the Company since 1981; Executive Vice President and Controller and Principal Accounting Officer of Lomas Mortgage since 1994; prior thereto, Vice President--Control from 1979 to 1981 and Treasurer of the Company from 1974 to 1979; also a director of Lomas Mortgage. Age 59.
GARY H. KELL--President of Lomas Mortgage since 1994; prior thereto, Executive Vice President--Portfolio Production of Lomas Mortgage from 1985 to 1994; Senior Vice President of Lomas Mortgage from 1979 to 1985. Employed by Lomas Mortgage since 1969. Age 53.
THOMAS J. CLOONEY--Executive Vice President--Operations of LIS since 1992; previously, Senior Vice President--Accounting of the Company from 1991 to 1992 and, prior thereto, Senior Vice President--Audit from July 1990 to November 1990, Vice President--Audit from 1988 to June 1990 and Assistant Vice President--Audit from 1987 to 1988 of the Company. Age 46.
BERT P. HEADDEN--Executive Vice President of Lomas Mortgage since 1994; prior thereto, Senior Vice President of Lomas Mortgage from 1992 to 1994. Age 51.
FLOYD L. MCGLOTHLIN--Executive Vice President--Sales, Marketing and Customer Service of LIS since 1992; prior thereto, Senior Vice President from 1985 to 1992 and Vice President from 1982 to 1985 of LIS. Age 45.
LYNDA-ROSS VEGA--Executive Vice President--Systems of LIS since 1992; prior thereto, Senior Vice President from 1988 to 1992, Vice President from 1986 to 1988 and Second Vice President from 1984 to 1986 of LIS. Age 44.
CAREY B. WICKLAND--President and Chief Operating Officer of LMI since 1987, prior thereto, Executive Vice President of LMI from 1982 to 1987. Age 53.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is included in the registrant's 1994 Proxy Statement dated October 3, 1994 issued in connection with its Annual Meeting of Stockholders to be held November 1, 1994 on pages 11 through 20 under the caption "Executive Compensation," and is incorporated herein by reference, pursuant to General Instruction G(3).
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the registrant's 1994 Proxy Statement dated October 3, 1994 issued in connection with its Annual Meeting of Stockholders to be held November 1, 1994 on pages 2 through 6 under the caption "Security Ownership of Certain Beneficial Owners and Management," and is incorporated herein by reference, pursuant to General Instruction G(3). Notwithstanding the foregoing incorporation by reference to the registrant's 1994 Proxy Statement, neither (i) the registrant's "Compensation Committee Report on Executive Compensation" pursuant to Item 402(k) of Regulation S-K nor (ii) the registrant's "Share Investment Performance" graph pursuant to Item 402(l) of Regulation S-K are incorporated from the registrant's 1994 Proxy Statement into this Form 10-K, nor shall such items be deemed "filed" with the Securities and Exchange Commission.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the registrant's 1994 Proxy Statement dated October 4, 1994 issued in connection with its Annual Meeting of Stockholders to be held November 1, 1994 on pages 21 through 22 under the caption "Transactions with Management and Others," and is incorporated herein by reference, pursuant to General Instruction G(3). See also "Item 8. Financial Statements and Supplementary Data--Transactions with Affiliates."
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) The following consolidated financial statements are included in Item 8.
Pages
Consolidated Balance Sheet--June 30, 1994 and 1993 31 Statement of Consolidated Operations--Years Ended June 30, 1994 and 1993, Six Months Ended June 30, 1992 and Six Months Ended December 31, 1991 32 Statement of Consolidated Stockholders' Equity-- Years Ended June 30, 1994 and 1993, Six Months Ended June 30, 1992 and Six Months Ended December 31, 1991 33 Statement of Consolidated Cash Flows-- Year Ended June 30, 1994 and 1993, Six Months Ended June 30, 1992 and Six Months Ended December 31, 1991 34 Notes to Consolidated Financial Statements-- June 30, 1994 36
(2) The following financial statement schedules are included in Item 8.
Schedule II--Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other than the Related Parties 65 Schedule III--Condensed Financial Information of Registrant 69 Schedule IX--Short Term Borrowings 72
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
Financial statements (and summarized financial information) of unconsolidated subsidiaries and 50-Percent-or-Less-Owned Persons accounted for by the equity method are not presented because they do not, individually or in aggregate, constitute a significant subsidiary.
(3)(a)Exhibits:
Exhibit Number
(10.1) Amendment No. 1 to Amended and Restated Pledge Agreement, dated May 25, 1994, between Lomas Mortgage USA, Inc. and Lehman Brothers Special Financing Inc. (10.2) Amendment No. 1 to the Interest Rate and Currency Exchange Agreement, dated May 25, 1994, between Lomas Mortgage USA, Inc. and Lehman Brothers Special Financing Inc. (10.3) Eleventh Amendment to Servicing Payments Loan and Security Agreement dated June 30, 1994 among Lomas Mortgage USA, Inc., the bank signatories thereto and Bank One, Texas, N.A., as agent. (10.4) Sixth Amendment to Restated Loan and Security Agreement dated _____ among Lomas Mortgage USA, Inc., the bank signatories thereto and Bank One, Texas, N.A., as administrative agent, and Texas Commerce Bank National Association, as syndication agent. (10.5) Seventh Amendment to Restated Loan and Security Agreement dated June 30, 1994 among Lomas Mortgage USA, Inc., the bank signatories thereto and Bank One, Texas, N.A., as administrative agent, and Texas Commerce Bank National Association, as syndication agent. (10.6) 6/94 Senior Secured Working Capital Credit Agreement dated June 30, 1994 between Lomas Mortgage USA, Inc. and Texas Commerce Bank National Association. (10.7) 6/94 (third) Amendment to 6/93 Servicing Purchase Loan Agreement dated June 30, 1994 between Lomas Mortgage USA, Inc. and Texas Commerce Bank National Association. (11) Computation of earnings per share. (21) List of subsidiaries of the registrant. (23) Consent of independent auditors.
(b) Reports on Form 8-K:
Form 8-K dated August 2, 1994 reporting the intended retirement of Jess Hay, the Company's chairman and chief executive officer, on December 31, 1994. There were no financial statements filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LOMAS FINANCIAL CORPORATION Registrant
Date: September 19, 1994 By /S/GARY WHITE -------------------------- Gary White Senior Vice President--Control Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: September 19, 1994 By JESS HAY -------------------------- Jess Hay Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 and in response to General Instruction D to Form 10-K, this report has been signed below on behalf of the registrant by the following directors on the dates indicated.
Date: September 21, 1994 By Gene H. Bishop -------------------------- (Gene H. Bishop)
Date: September 21, 1994 By Robert G. Boucher -------------------------- (Robert G. Boucher)
Date: September 21, 1994 By Dolph Briscoe -------------------------- (Dolph Briscoe)
Date: September 19, 1994 By James L. Crowson -------------------------- (James L. Crowson)
Date: September 19, 1994 By Rod Dammeyer -------------------------- (Rod Dammeyer)
Date: September 19, 1994 By Mark M. Feldman -------------------------- (Mark M. Feldman)
Date: September 19, 1994 By Jess Hay -------------------------- (Jess Hay)
Date: September 19, 1994 By Robert LeBuhn -------------------------- (Robert LeBuhn)
Date: September 19, 1994 By Robert V. Lindsay -------------------------- (Robert V. Lindsay)
Date: September 20, 1994 By Reid Nagle -------------------------- (Reid Nagle)
Date: September 19, 1994 By Diana Natalicio -------------------------- (Diana Natalicio)
Date: September 20, 1994 By Hugh G. Robinson -------------------------- (Hugh G. Robinson)
Date: September 21, 1994 By Douglas L. Rock -------------------------- (Douglas L. Rock)
Date: September 19, 1994 By Harvey M. Schuster -------------------------- (Harvey M. Schuster)
Date: September 19, 1994 By Paul T. Walker -------------------------- (Paul T. Walker)
Date: September 20, 1994 By W. Ray Wallace -------------------------- (W. Ray Wallace)
Date: September 26, 1994 By Paul S. Wolansky -------------------------- (Paul S. Wolansky)