1
EXHIBIT B-1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial data set forth below for the
Registrant (the "Company") for the year ended December 31, 1995 illustrate the
estimated effects of (i) the Company's purchase on September 30, 1995 of the 50%
of the capital stock of City Mortgage Corporation Limited ("CSC-UK") which was
not previously owned by the Company (the "UK Acquisition") as if such
acquisition had occurred on May 2, 1995, the date CSC-UK commenced operations,
and (ii) CSC-UK's acquisition of all of the outstanding stock of J&J Securities
Limited ("J&J") for L15.3 million ($23.3 million) and 548,000 shares of the
Company's Common Stock valued at $9.8 million (the "J&J Acquisition") (including
the sale of $47.5 million of loans acquired as a result of such acquisition and
the corresponding reduction of debt of $32.4 million from the proceeds of such
sale) as if such acquisition had occurred as of January 1, 1995. The unaudited
pro forma consolidated financial data have been prepared using the purchase
method of accounting, whereby the total costs of the UK Acquisition and the J&J
Acquisition will be allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the effective
date of the UK Acquisition and J&J Acquisition, respectively. The unaudited pro
forma consolidated financial data do not purport to represent what the results
of operations or financial position of the Company would have actually been if
the UK Acquisition and the J&J Acquisition had in fact occurred on such dates or
to project the results of operations or financial position of the Company for
any future date or period. The historical financial data set forth below for the
Company for the year ended December 31, 1995 have been derived from the audited
consolidated financial statements of the Company. The historical financial data
set forth below for J&J for the 12 months ended December 31, 1995 have been
derived from the unaudited financial statements of J&J and have been prepared on
the same basis as J&J's audited financial statements and include all
adjustments, consisting of normal recurring accruals, that the Company considers
necessary for a fair presentation of the results of operations for such period.
HISTORICAL
--------------------------
ACQUISITION
COMPANY ----------- PRO FORMA
AS REPORTED J&J(1) ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES
Gain on sale of loans.................. $38,198 $ -- $ -- $38,198
Mortgage origination income............ 2,963 -- -- 2,963
Interest income........................ 6,706 13,344 (11,155)(2) 8,895
Servicing income....................... 777 -- -- 777
Earnings from partnership.............. 482 -- -- 482
Other.................................. 385 279 -- 664
------- ------- -------- -------
Total revenues.................. 49,511 13,623 (11,155) 51,979
------- ------- -------- -------
EXPENSES
Salaries and employee benefits......... 12,165 1,801 -- 13,966
Interest expense....................... 4,610 3,790 (2,754)(3) 5,646
Selling expenses....................... 2,895 -- -- 2,895
Other operating expenses............... 6,581 4,678 -- 11,259
Amortization of goodwill............... 494 -- 1,340(4) 1,834
------- ------- -------- -------
Total expenses.................. 26,745 10,269 (1,414) 35,600
------- ------- -------- -------
Earnings before minority interest,
income taxes and extraordinary
item................................. 22,766 3,354 (9,741) 16,379
Minority interest...................... 2,379 -- (2,379)(5) --
------- ------- -------- -------
Earnings before income taxes and
extraordinary item................... 20,387 3,354 (7,362) 16,379
Provision for income taxes............. 8,515 454 (3,055)(6) 5,914
------- ------- -------- -------
Earnings before extraordinary item..... 11,872 2,900 (4,307) 10,465
Extraordinary item..................... (296) -- -- (296)
------- ------- -------- -------
NET EARNINGS............................. $11,576 $ 2,900 $ (4,307) $10,169
======= ======= ======== =======
Earnings per share before extraordinary
item................................. $ 0.50 N/A N/A $ 0.40
Extraordinary item..................... (0.01) N/A N/A (0.01)
------- ------- -------- -------
Primary earnings per share............... $ 0.49 N/A N/A $ 0.39
======= ======= ======== =======
Weighted average shares outstanding...... 23,838 N/A 2,048(7) 25,886
======= ======= ======== =======
Supplemental earnings per share(8)....... $ 0.39
=======
Supplemental weighted average shares
outstanding(9)......................... 27,297
=======
2
Notes to Unaudited Pro Forma Financial Statements for the year ended December
31, 1995
(1) Reflects J&J historical operating results for the 12 months ended December
31, 1995 excluding a $19.4 million extraordinary gain related to the early
extinguishment of debt in November 1995. In April 1996, the Company
acquired all of the outstanding stock of J&J in exchange for L15.3 million
($23.3 million based on the Noon Buying Rate on the date of such
acquisition) in cash and 548,000 shares of the Company's Common Stock
valued at $9.8 million based on the closing price of the Common Stock on
the date of such acquisition less a discount for restriction on the resale
of such stock. The J&J Acquisition was accounted for as a purchase
transaction. The Company acquired assets with a fair value of $52.6 million
consisting primarily of mortgage loans held for sale of $51.9 million and
assumed liabilities with a fair value of $46.5 million. Additional fair
market value of $21.8 million, representing the value of the mortgage
servicing receivables, was assigned to the net assets acquired. The J&J
Acquisition resulted in the recognition of $5.2 million of goodwill which
is being amortized using the straight-line method over a life of ten years.
(2) Represents the reduction of interest income resulting from the sale of
mortgage loans held for sale of $47.5 million for J&J on January 1, 1995
as follows:
HISTORICAL ACCRETED
INTEREST DISCOUNT ADJUSTMENT
---------- -------- ----------
(IN THOUSANDS)
J&J.......................................... $ 13,344 $2,189 $(11,155)
"Accreted Discount" represents the increase in value for the period of the
mortgage servicing receivables which were recorded as a result of such
acquisitions at a discounted present value.
(3) Represents the reduction of interest expense resulting from the application
of the cash proceeds from the sale of mortgage loans held for sale of $47.5
million for J&J to pay down existing debt on January 1, 1995 as follows:
J&J
-------
(IN THOUSANDS)
Debt paid down........................................ $32,400
Weighted average interest rate........................ 8.5%
-------
Interest reduction.................................... $ 2,754
=======
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(4) Reflects increased goodwill amortization related to the J&J Acquisition as
if such acquisition had occurred on January 1, 1995 and the UK Acquisition
as if such acquisition had occurred on May 2, 1995. The increased goodwill
amortization for each acquisition is as follows:
(IN THOUSANDS)
CSC-UK......................................... $ 820
J&J............................................ 520
------
Total................................ $1,340
======
(5) Reflects the elimination of the 50% equity earnings from CSC-UK for the
period prior to the UK Acquisition (May 2, 1995 to September 29, 1995).
(6) Reflects the tax impact recorded at a 41.5% effective tax rate.
(7) Reflects the 3.6 million shares of Common Stock issued in the UK
Acquisition as if such shares were issued and outstanding for the entire
period from May 2, 1995 through December 31, 1995, and the 548,000 shares
of Common Stock issued in connection with the J&J Acquisition as if such
shares were issued and outstanding for the entire year ended December 31,
1995.
(8) Gives effect to the application of a portion of the net proceeds of the
December 1995 public offering to repay outstanding debt at the time of such
offering as if such application occurred on January 1, 1995, resulting in a
net increase of $464,000 in net earnings due to a reduction in interest
expense.
(9) Gives effect to the inclusion of 1,411,200 shares of Common Stock at $8.37
per share net to the Company to repay the outstanding debt as discussed in
Note 8 above.
4
The unaudited pro forma consolidated financial data set forth below for the
three months ended March 31, 1996 illustrate the estimated effects of the J&J
Acquisition (including the sale of $47.5 million of loans acquired as a result
of such acquisition and the corresponding reduction of debt of $32.4 million
from the proceeds of such sale) as if such acquisition had occurred as of
January 1, 1995. The results of operations of J&J are included in the Company's
historical results from April 23, 1996, the date of the acquisition. The
unaudited pro forma consolidated financial data have been prepared using the
purchase method of accounting, whereby the total costs of the J&J Acquisition
will be allocated to the tangible and intangible assets acquired and liabilities
assumed based upon their respective fair values at the effective date of the J&J
Acquisition. The unaudited pro forma consolidated financial data do not purport
to represent what the results of operations or financial position of the Company
would have actually been if the J&J Acquisition had in fact occurred on such
date or to project the results of operations or financial position of the
Company for any future date or period. The historical financial data set forth
below for the Company for the three months ended March 31, 1996 and for J&J for
the period beginning January 1, 1996 through the date of the acquisition by the
Company have been derived from the unaudited consolidated financial statements
of the Company and J&J and have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting of
normal recurring accruals, that the Company considers necessary for a fair
presentation of the results of operations for such period.
HISTORICAL
----------------------
COMPANY ACQUISITION
AS ----------- PRO FORMA
REPORTED J&J(1) ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
(In thousands, except per share data)
REVENUES
Gain on sale of loans........... $ 24,093 $ -- $ -- $ 24,093
Mortgage origination income..... 836 -- -- 836
Interest ....................... 3,017 2,556 (2,016) (2) 3,557
Servicing income................ 561 -- -- 561
Earnings from partnership....... 150 -- -- 150
Other........................... 122 108 -- 230
-------- -------- -------- --------
Total revenues.......... 28,779 2,664 (2,016) 29,427
-------- -------- -------- --------
EXPENSES
Salaries and employee
benefits..................... 5,382 516 -- 5,898
Interest expense................ 1,698 698 (679) (3) 1,717
Selling expenses................ 1,363 -- -- 1,363
Other operating expenses........ 4,044 759 -- 4,803
Amortization of goodwill........ 494 -- 128 (4) 622
-------- -------- -------- --------
Total expenses.......... 12,981 1,973 (551) 14,403
-------- -------- -------- --------
Earnings before income taxes.... 15,798 691 (1,465) 15,024
Provision for income taxes...... 6,524 171 (608) (5) 6,087
-------- -------- -------- --------
NET EARNINGS...................... $ 9,274 $ 520 $ (857) $ 8,937
======== ======== ======== ========
PRIMARY EARNINGS PER SHARE........ $ 0.31 N/A N/A $ 0.29
======== ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING .................... 29,806 N/A 548 (6) 30,354
======== ======== ======== ========
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Notes to Unaudited Pro Forma Financial Statements for the three months ended
March 31, 1996
(1) Reflects J&J historical operating results for the period ended April 23,
1996. In April 1996, the Company acquired all of the outstanding stock of
J&J in exchange for L15.3 million ($23.3 million based on the Noon Buying
Rate on the date of such acquisition) in cash and 548,000 shares of the
Company's Common Stock valued at $9.8 million based on the closing price of
the Common Stock on the date of such acquisition less a discount for
restrictions on the resale of such stock. The J&J Acquisition was accounted
for as a purchase transaction. The Company acquired assets with a fair value
of $52.6 million, consisting primarily of mortgage loans held for sale of
$51.9 million, and assumed liabilities with a fair value of $46.5 million.
Additional fair market value of $21.8 million, representing the value of the
mortgage servicing receivables, was assigned to the net assets acquired. The
J&J Acquisition resulted in the recognition of $5.2 million of goodwill
which is being amortized using the straight-line method over a life of ten
years.
(2) Represents the reduction of interest income resulting from the sale of
mortgage loans held for sale of $47.5 million for J&J on January 1, 1995
as follows:
HISTORICAL ACCRETED
INTEREST DISCOUNT ADJUSTMENTS
---------- -------- ----------
(IN THOUSANDS)
J&J................................ $ 2,556 $ 540 $ (2,016)
"Accreted Discount" represents the increase in value for the period of the
mortgage servicing receivables which were recorded as a result of such
acquisitions at a discounted present value.
(3) Represents the reduction of interest expense resulting from the application
of the cash proceeds from the sale of mortgage loans held for sale of $47.5
million for J&J to pay down existing debt on January 1, 1995 as follows:
J&J
-------
(IN THOUSANDS)
Debt paid down.............................................. $32,400
Weighted average interest................................... 8.5%
Number of days.............................................. 90
-------
Interest reduction.......................................... $ 679
=======
(4) Reflects increased goodwill amortization related to the J&J Acquisition as
if such acquisition had occurred on January 1, 1995 as follows:
(IN THOUSANDS)
J&J............................................ $ 128
(5) Reflects the tax impact of the pro forma adjustments recorded at a 41.5%
effective tax rate.
(6) Reflects the pro forma impact of the 548,000 shares of Common Stock issued
in connection with the J&J Acquisition as if such shares were issued and
outstanding for the entire period ended March 31, 1996.