EXHIBIT 99.1
WMF HOLDINGS LTD. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF COMMONWEALTH OVERSEAS TRADING COMPANY LIMITED)
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION
DECEMBER 31, 1995 AND 1994
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
WMF Holdings Ltd.:
We have audited the accompanying consolidated balance sheets of WMF Holdings
Ltd. (a wholly owned subsidiary of Commonwealth Overseas Trading Company
Limited) and subsidiaries (collectively "the Company") as of December 31, 1995
and 1994, and the related consolidated statements of operations, changes in
stockholder's equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1994 financial
statements of Beverly Hills Securities Company, Ltd., a 40 percent owned
investee company. The Company's investment in Beverly Hills Securities Company,
Ltd. of $691,000 at December 31, 1994 and its equity in losses of Beverly Hills
Securities Company, Ltd. was $720,000 for the period from July 31, 1994 to
December 31, 1994. The financial statements of Beverly Hills Securities Company
Ltd. were audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts included for Beverly Hills
Securities Company, Ltd. 1994, is based solely on the report of the other
auditors. As discussed in note 1, there were no 1995 audited financial
statements for Beverly Hills Securities Company, Ltd. The Company charged off
its investment in Beverly Hills Securities Company, Ltd. in 1995.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of WMF Holdings Ltd. and subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
2
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information included
in Schedules 1 through 3 is presented for purposes of additional analysis of the
consolidated financial statements rather than to present the financial position
and statement of operations of the individual companies. The consolidating
information has been subjected to the auditing procedures applied in the audits
of the consolidated financial statements and, in our opinion, is fairly stated
in all material respects in relation to the consolidated financial statements
taken as a whole.
/s/ KPMG Peat Marwick LLP
-------------------------
March 27, 1996
3
WMF HOLDINGS LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
===============================================================================
ASSETS 1995 1994
- -------------------------------------------------------------------------------
Cash and cash equivalents (note 4) $ 6,060,153 7,404,017
Mortgage-backed securities, at amortized cost,
pledged, approximate market value of $3,989,000
and 1995 and $3,692,000 in 1994 (notes 5 and 8) 3,892,805 3,915,783
Mortgage loans held for sale, pledged (note 8) 32,461,676 5,110,237
Principal, interest and other servicing advances
(note 10) 2,795,796 1,220,205
Investment in affiliates (note 2) - 740,941
Investment property (notes 2 and 7) - 2,118,077
Furniture, equipment and leasehold improvements, net
(note 6) 893,463 622,795
Excess servicing fees, net (note 9) 66,334 82,583
Acquired servicing rights, net of accumulated
amortization of $5,078,367 in 1995 and $3,812,931
in 1994, partially pledged (notes 8 and 9) 8,399,329 8,016,956
Due from affiliates (note 13) 1,108,573 474,964
Other assets 1,056,589 1,529,448
Goodwill, net 441,515 453,263
- -------------------------------------------------------------------------------
$57,176,233 31,689,269
===============================================================================
Liabilities and Stockholder's Equity
- -------------------------------------------------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 2,728,540 1,761,127
Notes payable and warehouse lines of credit
(notes 2 and 8) 36,864,868 8,870,762
Servicing acquisition line of credit (note 8) 6,439,114 6,400,000
Deferred loan application fees 3,034,216 887,099
Allowance for loan servicing portfolio losses
(note 10) 3,141,578 2,621,264
Other liabilities (note 4) 949,575 4,907,682
- -------------------------------------------------------------------------------
Total liabilities 53,157,891 25,447,934
- -------------------------------------------------------------------------------
Stockholder's equity:
Common stock, $.01 par value, 10,000 shares
authorized, 5,339 and 7,870 issued and
outstanding on December 31, 1995 and 1994,
respectively 54 79
Additional paid-in capital 2,681,800 5,681,775
Retained earnings 1,336,488 559,481
- -------------------------------------------------------------------------------
Total stockholder's equity 4,018,342 6,241,335
- -------------------------------------------------------------------------------
Commitments and contingencies (notes 3, 10, and 13)
$57,176,233 31,689,269
===============================================================================
See accompanying notes to consolidated financial statements.
4
WMF HOLDINGS LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995 and 1994
===============================================================================
1995 1994
- -------------------------------------------------------------------------------
Revenue
Servicing fees $ 7,859,856 6,182,197
Gain on sale of mortgage loans, net 5,398,335 3,708,017
Gain on sale of servicing 89,998 -
Interest income 3,290,774 2,088,728
Origination fee income 845,873 824,223
Placement fee income 3,999,268 2,244,119
Other income 515,240 2,013,203
- -------------------------------------------------------------------------------
21,999,344 17,060,487
- -------------------------------------------------------------------------------
Expenses:
Salaries and employee benefits 9,208,024 7,324,035
General and administrative 4,181,202 3,427,829
Occupancy 972,306 885,931
Amortization of acquired servicing (note 9) 2,096,540 1,528,531
Interest 2,143,773 2,249,913
Provision for possible loan servicing losses
(note 10) 856,462 654,186
Equity in loss of Beverly Hills Securities
(note 1) 691,549 720,000
Depreciation and amortization 272,610 397,382
- -------------------------------------------------------------------------------
20,422,466 17,187,807
- -------------------------------------------------------------------------------
Income (loss) before income tax expense 1,576,878 (127,320)
Income tax expense (note 12) 799,871 34,520
- -------------------------------------------------------------------------------
Net income (loss) $ 777,007 (161,840)
===============================================================================
See accompanying notes to consolidated financial statements.
5
WMF HOLDINGS LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1995 and 1994
===============================================================================
Common Additional Retained
stock paid-in capital earnings Total
- -------------------------------------------------------------------------------
Balance at December 31, 1993 $ 79 5,681,775 721,321 6,403,175
Net Loss - - (161,840) (161,840)
===============================================================================
Balance at December 31, 1994 79 5,681,775 559,481 6,241,335
Stock repurchase (25) (2,999,975) - (3,000,000)
Net Income - - 777,007 777,007
===============================================================================
Balance at December 31, 1995 $ 54 2,681,800 1,336,488 4,018,342
===============================================================================
See accompanying notes to consolidated financial statements.
6
WMF HOLDINGS LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995 and 1994
===============================================================================
1995 1994
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 777,007 (161,840)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization of furniture,
equipment and leasehold improvements 256,974 397,382
Amortization of acquired and excess
servicing rights 2,096,540 1,528,531
Provision for possible loan servicing losses 856,462 654,186
DUS loss settlement (338,352) -
Provision contributed by WPMC for possible
loan servicing losses - (13,774)
Amortization of bond issuance costs - 333,646
Write-down of investment property - 54,233
Write-down of investment in affiliate 691,549 83,500
Equity in loss of Beverly Hills Securities - 720,000
Additions to excess servicing fees - (93,702)
Gain on sale of mortgage servicing rights (89,998) -
Change in assets and liabilities:
Increase in principal, interest and other
servicing advances (1,575,591) (240,668)
Decrease (increase) in other assets 469,774 (133,765)
(Increase) decrease in receivables from
affiliates (633,609) 22,867
Increase (decrease) in accounts payable and
accrued expenses 967,413 (793,337)
Increase (decrease) in deferred loan
application fees 2,147,116 (1,184,415)
Increase (decrease) in warehouse lines of
credit, net 26,862,106 (38,644,467)
Increase (decrease) in other liabilities (4,091,591) 3,888,771
Mortgage loans originated (804,891,535) (526,651,388)
Mortgage loans sold 777,540,096 566,278,732
- -------------------------------------------------------------------------------
Net cash provided by operating activities 1,044,361 6,044,492
===============================================================================
Cash flows from investing activities:
Purchase of servicing rights (2,470,149) (2,411,982)
Sale of mortgage servicing rights 97,481 -
Investment property dispositions (additions) 2,146,581 (173,954)
Sheffield mortgage pay-off (1,800,000) -
Purchase of furniture, equipment and
leasehold improvements (389,605) (252,872)
Sales (purchase) of mortgage-backed securities 22,978 (1,981,789)
Sale of short-term investments - 1,997,604
Decrease (increase) of investment in affiliates 50,000 (239,645)
- -------------------------------------------------------------------------------
Net cash used for investing activities (2,342,714) (3,062,638)
===============================================================================
Cash flows from financing operations:
Additions to servicing acquisition line
of credit 944,510 6,400,000
Repayment of servicing acquisition line of
credit (905,396) -
Repayment of servicing compensation rights
payable - (4,136,301)
Payment on note payable (68,000) -
Payments on capital lease (16,625) -
- -------------------------------------------------------------------------------
Net cash used for financing operations (45,511) 2,263,699
===============================================================================
Net (decrease) increase in cash and cash
equivalents (1,343,864) 5,245,553
Cash and cash equivalents at beginning of year 7,404,017 2,158,464
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,060,153 7,404,017
===============================================================================
7
===============================================================================
Supplemental disclosures 1995 1994
- -------------------------------------------------------------------------------
Cash paid during the year for interest $ 1,579,655 1,933,000
Cash paid during the year for income taxes 9,275 622,819
===============================================================================
During 1995, the Company received capitalized servicing from Huntoon with a book
value of $137,545. The Company reduced the investment in Huntoon by this amount
and recognized no gain or loss on the transfer.
During 1995, the Company exchanged 2,531 shares of common stock for a $3,000,000
note payable.
In 1994 the Company's subsidiary, Huntoon, purchased all of the stock WMF
Capital L.P. In conjunction with the acquisition, Huntoon contributed mortgaged
servicing rights with a fair value of approximately $895,000.
In 1994 the Company acquired approximately 40 percent partnership interest in
Beverly Hills Securities Ltd. The Company contributed all the assets and
liabilities of WMF Residential and majority of the Company's single family
servicing with a book value of approximately $1,717,000.
See accompanying notes to consolidated financial statements.
8
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
===============================================================================
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
WMF Holdings Ltd. (Holdings) was incorporated on October 20, 1992, under
the laws of the State of Delaware and was capitalized on December 3, 1992.
Holdings is a wholly owned subsidiary of Commonwealth Overseas Trading Company
Limited.
WMF Holdings Ltd. and its wholly owned subsidiaries, Washington Mortgage
Financial Group, Ltd., WMF/Huntoon, Paige Associates Limited (Huntoon),
Sheffield Acquisition Corporation (SAC), and Vienna Mortgage Corporation (VMC)
are incorporated under the laws of the states of Delaware, Tennessee, and
Virginia, respectively, and are collectively referred to herein as the Company.
The Company sold the primary asset held by Sheffield Acquisition
Corporation (SAC), during 1995. The Company entered into an agreement to sell
the Sheffield property in December 1994. The property was sold in February 1995
for $2,464,000. After adjusting the sales proceeds for selling expenses and the
John Alden interest in the property, the Company realized a loss of $54,233.
This loss was accrued at December 31, 1994. SAC continues to exist as a legal
entity pending the expiration of representations and warranties associated with
the sale of the Sheffield Property.
The Company's principal business activities are mortgage loan origination,
secondary marketing, and servicing. Huntoon was acquired in October 1991 and
specializes in the origination and servicing of insured multifamily and
construction loans. SAC was incorporated in October 1992 and its principal
business activity was owning and managing a multifamily property located in
Memphis, Tennessee.
In July 1994, the Company exchanged its stock in a wholly owned subsidiary,
WMF Residential Mortgage Corporation (Residential) for an ownership interest in
Beverly Hills Securities Company, Ltd. (Beverly). Residential and Beverly
specialize in the origination, purchase, sale, and servicing of single family
residential loans. No gain or loss was recognized on the exchange. The Company
owns approximately 40 percent limited partnership interest in Beverly at
December 31, 1994 and is accounting for its investment under the equity method.
The Company recognized $720,000 in equity losses relating to Beverly during
1994. At December 31, 1995, the carrying value of the Company's investment in
Beverly was reduced to $0 as a result of operating losses and concerns about the
recoverability of the investment. The Company's exposure is limited to its
investment amount in Beverly.
In 1994, Huntoon acquired the remaining interest in WMF Capital, L.P., thus
making WMF Capital, L.P. a wholly owned subsidiary. WMF Capital L.P. was
dissolved as a separate entity during December 1994 and the assets and
liabilities and the results of operations for the six-month period ending
December 31, 1994 are included in the financial statements.
9
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
===============================================================================
(1) CONTINUED
The following is a summary of the significant accounting policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on demand and overnight repurchase
agreements.
MORTGAGE-BACKED SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, at January 1, 1994. Under SFAS No. 115, the Company classifies its
mortgage-backed securities as held-to-maturity. Held-to-maturity securities are
those securities which the Company has the ability and the intent to hold until
maturity. Held-to-maturity securities are recorded at amortized cost. Premiums
and discounts are amortized using a method which approximates the interest
method over the term of the security.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements calculated on the aggregate basis.
INVESTMENT IN AFFILIATES
At December 31, 1994, investments in affiliates represents the Company's
approximately 40 percent interest in Beverly Hills Securities Company, Ltd., a
single family mortgage servicer, and a 10 percent interest in AGM Financial
Services, Inc., a long-term healthcare loan originator located in Minneapolis,
Minnesota. The Company's 1994 financial statements reflect investment in
Beverly Hills Securities Company, Ltd. on the equity basis of accounting and
investment in AGM Financial Services, Inc. on the cost basis of accounting.
During 1994, Washington Pacific Mortgage Corporation (WPMC) was dissolved and
the Company wrote off its remaining investment in WPMC.
At December 31, 1995, the carrying value of the Company's investment in
Beverly Hills Securities Company, Ltd. was reduced to $0 as a result of
operating losses and concerns about the recoverability of the investment. In
October 1995, the Company sold its interest in AGM Financial Services, Inc. No
gain or loss was recognized by the Company on this sale.
10
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
===============================================================================
(1) CONTINUED
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost, net of
accumulated amortization and depreciation. Depreciation of furniture and
equipment is recognized using the straight-line method over the estimated useful
life of the asset, approximately five years. Leasehold improvements are
amortized over the estimated useful life of the asset or the lease term,
whichever is less. Cost of maintenance and repairs are charged to expense as
incurred.
EXCESS SERVICING FEES
Excess servicing fees are recorded when securitized mortgage loans are sold
with servicing retained and the actual servicing fee rate is in excess of the
normal servicing fee rate. The present value of the excess servicing fees is
amortized over the period of estimated net servicing income. If the discounted
projected net cash flows are less than the carrying amount for the excess
servicing fee assets, the excess servicing fee assets are written down to the
amount of the discounted projected net cash flows. The assumptions utilized in
estimating the net cash flows are based on market conditions and actual
experience.
ACQUIRED SERVICING RIGHTS
The cost of acquired servicing rights is capitalized and amortized in
proportion to and over the estimated 7 to 10 year period of anticipated
estimated net servicing income. It is the Company's policy to evaluate acquired
mortgage servicing rights at least annually. If the discounted projected net
cash flows are less than the carrying amount for the servicing rights assets,
the servicing rights assets are written down to the amount of the discounted
projected net cash flows. The assumptions utilized in estimating the net cash
flows are based on market conditions and actual experience.
ALLOWANCE FOR LOAN SERVICING PORTFOLIO LOSSES
The Company bears a portion of the credit loss risk associated with the
loans it services as a result of its participation in the Federal National
Mortgage Association (FNMA) Delegated Underwriting and Servicing (DUS)
multifamily loan program. The allowance for loan servicing portfolio losses
represents management's estimate of the losses which may be incurred on recourse
loans underwritten to date. Management believes the current reserve is adequate
to provide for such future losses. Management regularly reviews the adequacy of
this allowance, considering such items as economic conditions, debt service
coverage and collateral value, and makes adjustments to the allowance as
considered necessary.
11
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
===============================================================================
(1) CONTINUED
GAINS ON SALE OF MORTGAGE LOANS
Gains on sale of mortgage loans are recognized based upon the difference
between the selling price and the carrying value of the related mortgage loans
sold. Such gains and losses are increased or decreased by the amount of excess
servicing fees recognized. Deferred origination fees and expenses, net of
commitment fees paid in connection with the sale of the loans, are recognized at
the time of sale in the gain or loss determination.
SERVICING FEES
Servicing fee income represents fees for servicing real estate mortgage
loans owned by institutional investors, including subservicing fees, net of
guarantee fees, pool insurance fees and trustee fees. The fees are generally
calculated on the outstanding principal balances of the loans serviced and are
recorded as income when collected. Late charge income is recognized as income
when collected and is included in servicing fee income.
PLACEMENT FEE INCOME
Placement fee income represents monies earned relating to utilization of
escrow funds. Income is recognized during the period in which it is earned.
BOND ISSUANCE COSTS
Bond issuance costs were amortized using a method which approximates the
interest method over the terms of the bonds. The unamortized amounts were
written off at the time of refinancing during 1994.
INCOME TAXES
The Company files a consolidated tax return with its subsidiaries. In
February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES.
SFAS No. 109 requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Effective January 1, 1993, the Company
adopted SFAS No. 109, which resulted in no cumulative adjustment for a change in
the method of accounting.
12
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
===============================================================================
(1) CONTINUED
GOODWILL
The Company amortizes goodwill on a straight line basis over a 28-year
period.
BALANCE SHEET PRESENTATION
The Company prepares its consolidated balance sheet using an unclassified
balance sheet presentation as is customary in the mortgage banking industry. A
classified presentation would have aggregated current assets, current
liabilities, and net working capital as of December 31, 1995 and 1994, as
follows:
1995 1994
- -------------------------------------------------------------------------------
Current assets $41,740,490 15,743,498
Current liabilities 38,907,624 12,560,442
- -------------------------------------------------------------------------------
Net working capital $ 2,832,866 3,183,056
===============================================================================
RECLASSIFICATION
Certain reclassification of the prior year's information have been made to
conform with current year classifications.
(2) ACQUISITIONS AND DISPOSITIONS
On October 1, 1991, the Company acquired 100 percent of the outstanding
stock of Huntoon, Paige Associates Limited (renamed WMF/Huntoon, Paige
Associates Limited (Huntoon) for $1,175,276 in cash and a note payable for
$170,000 to the seller. The $170,000 acquisition note matures in 1996 and has
an interest rate of 2 percent. Principal payments are made in equal
installments of $34,000 a year. The principal balance of the note at
December 31, 1995 and 1994 is $34,000 and $102,000, respectively. The
acquisition was accounted for as a purchase and accordingly, the acquired assets
and liabilities have been recorded at their estimated fair values at the date of
acquisition. The allocation of the purchase price resulted in approximately
$1,051,000 of acquired servicing rights related to Huntoon's loan servicing
portfolio. The Company made purchase price adjustments of $19,419 based on the
revised fair values of assets acquired.
13
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
===============================================================================
(2) CONTINUED
On June 30, 1994, Huntoon acquired a 99 percent ownership interest in WMF
Capital L.P. for a purchase price of $1,072,000. Huntoon had previously
transferred the rights to the servicing fees and other income (servicing
compensation) to WMF Capital L.P. associated with approximately $842 million of
GNMA and FHA nonrecourse multifamily mortgage servicing. For financial
statement purposes, $684 million of the transactions had been accounted for as a
financing since Huntoon retained legal title to the servicing rights. The
payable due to WMF Capital L.P. was eliminated upon the purchase by Huntoon of
WMF Capital L.P. WMF Capital L.P.'s bond agreement underlying the servicing
rights was refinanced by the Company with a servicing acquisition line of credit
in December of 1994.
Huntoon acquired the remaining 1 percent interest on December 29, 1994 and
dissolved WMF Capital L.P. The acquisition was accounted for as a purchase and
accordingly, the purchase price was allocated based upon the estimated fair
values of the acquired assets and liabilities on the date of acquisition. The
allocation of the purchase price resulted in approximately $953,000 of
additional servicing rights assets.
Sheffield Acquisition Corporation (SAC) was incorporated on October 6,
1992, to acquire and manage a single multifamily property known as the Sheffield
Court Apartments. This apartment complex was the underlying collateral for a
loan originated and serviced by the Company and sold to the John Alden Life
Insurance Corporation, with the Company maintaining a 20 percent recourse
liability on the loan. The loan defaulted and John Alden Life acquired and then
sold the property to SAC. SAC acquired the property for a purchase price of
$2,000,000, with financing of $1,800,000 provided by the John Alden Insurance
Corporation. Under the terms of the $1,800,000 note, SAC made interest-only
payments beginning on December 1, 1992, at an interest rate of 8 percent. The
Company guaranteed $400,000 of the note. In February 1995, the Company sold the
Sheffield Court Apartments and paid off the note with John Alden Life Insurance
Corporation.
WMF Residential Mortgage Company was formed in November 1992. The primary
purpose of the Company is to engage in residential mortgage origination's,
purchases, sales and servicing. In July 1994, the Company exchanged its stock
in WMF Residential Mortgage Company for a 40 percent limited partnership
interest in Beverly.
14
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
===============================================================================
(3) DISCONTINUED OPERATIONS
In October 1990, the FDIC terminated a servicing agreement under the terms
of which Vienna Mortgage Corporation (VMC) had been servicing mortgage loans for
National Bank of Washington (NBW). VMC disputed the authority of the FDIC to
terminate the loan servicing agreement without the payment of a $770,105
termination fee, which was stipulated in the acquisition agreement with NBW.
VMC, using set-off provisions, held back the $770,105 on the date of transfer of
the terminated servicing rights to NBW. In July 1991, the FDIC filed suit and
in late December 1991 was able to obtain a judgment against VMC for the $770,105
plus interest estimated to be $76,000. During 1995, the Company settled the
judgment for the FDIC by paying $550,000 on behalf of VMC. The Company has no
further liability in this matter.
(4) RESTRICTED CASH
Included in cash and cash equivalents at December 31, 1994 is approximately
$4,500,000 in restricted cash. The restricted cash represents payoffs on
multifamily loans which are due to the investors. The Company has recorded a
corresponding offset for the amount in other liabilities.
Also included in cash and cash equivalents at December 31, 1995 and 1994 is
approximately $863,000 and $300,000 in restricted cash. This cash represents
principal and interest remittances on the mortgage backed securities. The
restricted cash is collateral on the FNMA DUS letter of credit.
(5) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist of GNMA securities totaling $3,892,805
and $3,915,783 at December 31, 1995 and 1994, respectively. The market value of
the securities is approximately $3,989,000 at December 31, 1995 and $3,692,000
at December 31, 1994. The securities held at December 31, 1995 mature in
periods from 2028 to 2029 and are collateral for the letter of credit of
$3,800,000 established on behalf of FNMA for the DUS program.
15
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
===============================================================================
(6) FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following as
of December 31, 1995 and 1994:
1995 1994
- -------------------------------------------------------------------------------
Furniture and equipment $1,559,212 1,240,223
Capital lease 150,109 -
Leasehold improvements 122,177 68,414
- -------------------------------------------------------------------------------
1,831,498 1,308,637
Less accumulated depreciation and amortization 938,035 685,842
- -------------------------------------------------------------------------------
$ 893,463 622,795
===============================================================================
(7) INVESTMENT PROPERTY
Investment property consists of land, building and improvements relating to
the Sheffield Court Apartments. The balance consists of the following:
1995 1994
- -------------------------------------------------------------------------------
Building and land $ - 2,028,359
Improvements - 379,228
- -------------------------------------------------------------------------------
- 2,407,587
- 54,233
Less accumulated depreciation and amortization $ - 235,277
- -------------------------------------------------------------------------------
$ - 2,118,077
===============================================================================
16
WMF HOLDINGS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
===============================================================================
(8) LINES OF CREDIT
The Company has a warehouse line of credit for $80 million, which can be
drawn by either Huntoon or WMF for purposes of originating loans. During 1995
this warehouse line of credit was temporarily increased to $210 million to allow
for additional loan production. The warehouse line of credit is secured by
mortgage loans held for sale and is repaid upon sale of the mortgage loans. At
December 31, 1995, the Company had drawn $31,830,868. At December 31, 1994, the
Company had drawn $1,411,641. The interest rate on the warehouse line of credit
during 1995 and 1994 was 1 1/2 to 2 percent to the extent compensating balances
were maintained or was equal to the London Interbank Offered Rate (LIBOR) plus
1 1/2 to 2 percent for amounts borrowed in excess of compensating balances.
During 1994, the Company established a separate line of credit used
exclusively for servicing acquisitions. At December 31, 1995, Huntoon had drawn
a total of $6,439,114